Their way and the highway

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: The proposed hybrid model of highways development by National Highways Authority of India (NHAI) to encourage bidders to come forward for bidding for highway projects has found some merit with the private companies in the road construction sector. A section of analysts feels that it is important to see how the contours of the new policy are framed, though.

NHAI has mooted the idea of a hybrid model containing the features of both toll and annuity models and is likely to draw the final contours of the model soon. As per the proposal, if the viability gap funding (VGF) required for a project is more than 40%, the annuity payment will be made for the funding requirement in excess of 40%. Significantly, even while the incremental payment will be made by the government, the concessionaire will be allowed to collect the toll through the concession period.

Both toll and annuity are a part of the public-private partnership (PPP) mode of infrastructure development. In a BoT (toll) project, the private developer is entitled to a grant of up to 40% from the government as viability gap funding and earns return on its investments in the form of toll from the project over the concession period. In the annuity model, however, there is no provision of VGF and the developer gets returns in the form of half yearly payments from NHAI, while toll revenues find their way to the NHAI kitty.

While the initial response from the private developers in the fray for the mega highways projects is favourable, experts point out at certain issues that need to be addressed to make the model workable on the ground. “Replacing one model of road development with other for all the projects is not a good idea. At first, we need to know on what types of projects this model is going to work. The proposed hybrid model can be taken up only in case of projects in which incremental VGF demand is marginally high. The projects, which are viable on toll, are taken up on BoT (toll) model. Projects in places like Bihar and the North East where tolling is not possible are taken up on annuity,” says Vishwas Udgirkar, partner (infrastructure), PricewaterhouseCoopers. In areas like Bihar and the North East, which are prone to insurgencies, tolling may not be possible.