Skip to main content

Indian corporates, PSUs burning midnight oil to 'wriggle out' of prior commitments

By RK Misra* 
India grappling with the Covid-19 pandemic is beginning to feel the first tremors of the economic shake-up caused by the 21-day shutdown, as corporates, business, trade and industry, even public sector undertakings (PSUs) are burning midnight oil to wriggle out of prior commitments.
The restriction on human movement has had a spiraling effect on every aspect of human life whether it is business or manufacturing, commerce or construction, trade or transport.
Once the attention from the control of the virus shifts a swarm of issues is expected to occupy attention for quite some time to come. A major one -- amongst the lot of them -- will be the delays caused in meeting contractual obligations.
These will be spread over a huge canvass from construction contracts to manufacturing and supply agreements, from professional service providers to engineering contractors and their suppliers and even financiers who will be grappling with cost over runs due to time slippages as well as those who will be seeking re-negotiations of prices and terms of contract. This will bring force majeure into play.
Force majeure translates literally from French as superior force. In business, force majeure describes those uncontrollable events(such as war or natural disasters, even pandemics) that are not the fault of any party and that make it difficult to carry out normal business. A company may insert a force majeure clause into a contract to absolve itself from liability in the event it cannot fulfill the terms of a contract for reasons beyond its control.
Legal firms are under pressure for many Indian businesses are reviewing old contracts to see whether force majeure can be invoked to find a way out of old agreements as manufacturing sector is hit, recovery cycles are stretched and raw material shortage is hitting consumption.
Even Indian liquified natural gas (LNG) importers have issued force majeure notices to suppliers as domestic gas demand and port operations are hit by the countrywide lockdown, industry sources said. In short a welter of legal wrangles await corporate India and by implication all other facets of Indian life in the days to come.
According to an international financial news daily, signs of acute corporate stress is seeing big Indian companies invoking force majeure clauses to halt payment to suppliers and these include Indian Oil Corporation, Adani Ports and Royal Enfield, among others.
Renewable energy developers and their bodies facing supply chain disruptions have also urged the Centre to invoke the clause for time extensions on projects. The Ministry of New and Renewable Energy (MNRE) is reported to have agreed to time extensions subject to the condition that evidence is produced to prove supply chain disruption due to virus spread in China or any other country.
A case in point is corporate entities involved in infrastructure development, particularly road construction. Application of the force majeure clause may give them temporary respite but will only add to their woes in the long run. 
Global infrastructure funds which have invested heavily in India’s road assets will face heavy losses due to toll collection slump
The Union ministry of road transport in a notification issued on March 25, has urged the National Highway Authority of India (NHAI) to stop levying toll charges for the period of the lockdown. It has stated that this period would be classified as a Force Majeure of concession contracts.
According to the ratings agency ICRA, this will put toll collection into negative category for FY 2020 while collection in April and subsequently 2021 is likely to be affected adversely. “In March 2020 the decline in toll collection is estimated to be more than 40 per cent”, the statement said.
In effect, in a tolled road project the application of force majeure ensures 100 per cent of operation and maintenance (O&M) and interest costs are reimbursed for affected period. This would cover 50 to 55 per cent of the loss of revenue, according to R.Burla , vice-president corporate ratings, ICRA. But then toll revenues constitute less than one- fourth of the consolidated revenues of companies operating in this sector.
Trade sources say that it is expected to take a minimum of one quarter to restore traffic levels and if the demonetization experience is taken into account, two quarters to do so. Besides the 40 per cent fall in toll collections estimated by ICRA, the constraint on vehicular movement likely to persist beyond April, the toll collections for quarter 1 of FY 2021 will also be adversely affected.
This implies that global infrastructure funds which have invested heavily in India’s road assets are going to be facing heavy losses due to the toll collection slump. Most Indian toll roads are owned by private foreign investors. Global financial institutions such as Macquarie, GIC, Cube Highways and leading Canadian funds and pension groups -- Brookfield, CPPIB,CDPQ and OMERS -- have deployed more than $5 billion on Indian road assets in last few years , trade sources report.
This in turn is set to hit the country’s road monetization plan with investors turning wary and adopting a wait and watch approach. The NHAI has had to extend the fourth round of auction to monetize operational highways to April. It had invited bids for its fourth bundle of TOT (toll, operate, transfer) auction in October 2019.The initial plan was to raise at least Rs 4200 crores, but the floor price was eventually brought down to around Rs 2,200 crore. Coronavirus has led to further postponement.
---
*Senior Gujarat-based journalist. Blog: Wordsmiths & Newsplumbers

Comments

TRENDING

Arrest of Fr Stan Swamy: UN makes public letter seeking explanation from Govt of India

Counterview Desk In a letter to the Government of India (GoI), three senior United Nations (UN) officials – Elina Steinerte, vice-chair of the Working Group on Arbitrary Detention; Mary Lawlor, special rapporteur on the situation of human rights defenders; and Fernand de Varennes, special rapporteur on minority issues – have said that the arrest of veteran activist Father Stan Swamy in October 2020 marks “the escalation of harassment the human rights defender has been subjected to since 2018.”

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Farm laws 'precursor' to free trade deal envisaged by US corporates to allow GMO

By Rajiv Shah Did the Government of India come up with the three farm laws, first rushed by promulgating ordinances in June 2020, to not just open the country’s agricultural sector to the corporate sector but also as a precursor to comply with the requirements of the United States for a Free Trade Agreement (FTA), as envisaged by the outgoing US president Donald Trump?

Differing from Ambedkar, Kancha Ilaiah holds a 'different' theory of caste system

By Banavath Aravind* I was introduced to Kancha Ilaiah’s work when I was about 20 years old. He was then in the midst of a controversy for a chapter in his book "Post-Hindu India: A Discourse in Dalit-Bahujan, Socio-Spiritual and Scientific Revolution", which termed the Baniya community as social smugglers. During many of his debates, I had come to notice his undeterred fighting spirit in trying to bring up certain fundamental social issues that were hitherto undiscussed. I eventually came across some of his works and started reading them silently. I’m deliberately stressing upon the word ‘silently’ here, as this was the kind of silence particularly associated with sensitive social issues like caste, religion, etc. But, as I write this essay, I feel silences on sensitive issues should be broken. Ilaiah opened up an entirely new debate that had the vigour and strength to counter the systemic Brahmanism. His methods of research were also novel in terms of going back to the roo

Fr Stan's arrest figures in UK Parliament: Govt says, Indian authorities were 'alerted'

London protest for release of Stan Swamy  By Rajiv Shah Will Father Stan Swamy’s arrest, especially the fact that he is a Christian and a priest, turn out to be major international embarrassment for the Government of India? It may well happen, if a recent debate on a resolution titled “India: Persecution of Minority Groups” in the United Kingdom (UK) Parliament is any indication. While Jesuits have protested Fr Stan's arrest in UK and US, the resolution, adopted in the Parliament, said, “This House has considered the matter of persecution of Muslims, Christians and minority groups in India”.

New trend? Riots 'expanded' to new rural areas post-2002 Gujarat carnage: Report

A VHP poster declaring a Gujarat village part of Hindu Rashtra  By Rajiv Shah  Buniyaad, a Gujarat-based civil society organization, engaged in monitoring of communal violence in the state, in a new report, “Peaceful Gujarat: An Illusion or Truth?” has said that a “new trend” has come about in communal violence in the state, where the parts of Gujarat which didn't see communal riots in 2002 are experiencing “regular bouts” of communal violence.

Modi govt 'implementing' IMF-envisaged corporate takeover of Indian agriculture

By Bhabani Shankar Nayak* The surge of wealth of Indian billionaires and the Modi-led BJP government’s onslaught on poor, marginalised and farmers continue to grow simultaneously as masses face annihilating pandemic of coronavirus. There is 90 % rise of Indian billionaire’s wealth over last one decade. It is not accidental.

More than 5,200 Gujarat schools to be closed down, merged, says govt document

RTE Forum, Gujarat, releasing fact-sheet on education By Our Representative A Gujarat government document has revealed that it is planning to close down 5,223 schools in the name of school merger. The document, dated July 20, 201 was released by the Right to Education (RTE) Forum, Gujarat. It shows that the worst-affected districts because of this merger are those which are populated by marginalized communities – especially tribals, Dalits and minorities, said RTE Forum’s Gujarat convener Mujahid Nafees.

Consumption pattern, not economic shock behind 'poor' child health indicators

By Neeraj Kumar, Arup Mitra* The findings of the latest round of National Family Health Survey (NFHS-5) conducted in 2019-20 covering 22 States/UTs under Phase-I  present a somewhat disappointing picture of children’s health in India. Majority of the experts, based on prima facie evidence, just highlighted the deteriorating sign of child health in terms of increase in proportion of stunted and underweight children in most of the phase-I states/UTs over last two rounds of NFHS (2015-16 to 2019-20).

Haven't done a good deed, inner soul is cursing me as sinner: Aurangzeb's last 'will'

Counterview Desk The Tomb of Aurangzeb, the last of the strong Mughal emperors, located in Khuldabad, Aurangabad district, Maharashtra, has this epitaph inscribed on it: "Az tila o nuqreh gar saazand gumbad aghniyaa! Bar mazaar e maa ghareebaan gumbad e gardun bas ast" (the rich may well construct domes of gold and silver on their graves. For the poor folks like me, the sky is enough to shelter my grave).