Public-Private Partnership: NHAI may take BOT route for new projects

Enthused by investors’ rekindled interest in pure public-private-partnership (PPP) projects, the share of which in new awards have precipitously declined for nearly a decade and drawn a blank in last two financial years, the National Highways Authority of India (NHAI) is now planning to award around 450 km highway stretch through the build-operate-transfer (BOT) (toll) model in 2021-22.

Though it has not yet fixed the project target for the next fiscal, NHAI is likely to keep the target at 4,500 km, same as the current fiscal. Till February of the current financial year, NHAI has awarded around 3,600 km highway projects in which EPC has around 60% share while the remaining has gone through the hybrid annuity model (HAM).

Investors are looking back with renewed interest at the BOT (toll) project — thanks to a series of investor-friendly steps taken by the government in the revised model concession agreement (MCA) for such projects.

Under the revised model, revenue potential of a project would be reassessed in every five years during the concession period as against every 10 years in the past. Therefore, the concession period will be extended early in the tenure of the contract, adding to certainty of cash flows.

To protect investor interest in BOT-toll projects, growth of which will help curtail NHAI’s rising debt and find non-government, non-debt resources for highway development, the government will also guarantee developers that a BOT-toll project will be awarded only after NHAI takes possession of 90% of the requisite land, similar to HAM and EPC projects.

Such industry-friendly measures are now paying off. Private investors Adani Group and IRB Infrastructure have recently agreed to pay 11.5% and 10.8% premium, respectively, for two projects. The total cost is around Rs 4,300 crore for two stretches on offer under the revised BOT (toll) model in West Bengal. Financial bids for the two stretches were opened last week.

“We will be coming out with more BOT projects next fiscal in which we plan to award a minimum of 4,500 km length of highway project. We will aim to award 5-10% of that through the BOT model,” NHAI chairman Sukhbir Singh Sandhu told FE.

From a high of 96% of its all-project awards in 2011-12, NHAI’s project awards through the BOT (toll) route came to a naught in the last two fiscals. Coupled with higher project awards, this resulted in higher reliance on conventional fully state-funded EPC projects and higher accumulation of debt for NHAI, which stood at Rs 2.7 lakh crore as in November 2020.