Developers wary of govts plan to end perpetual toll collection

Written by Timsy Jaipuria | New Delhi | Updated: Aug 21 2014, 06:24am hrs
Developers of road projects are wary of the government's plan to end perpetual toll collection and stipulation that tolling can start only after a project is completed. They are awaiting more clarity on statements made by road transport and highways minister Nitin Gadkari in this connection.

"As far as I understand Gadkari's statement, he meant that perpetual tolling by the National Highways Authority of India should end after it takes over the tolling right from the private developer," said Virendra D Mhaiskar, chairman and MD, IRB Infrastructure.

Vishwas Udgirkar, senior director, Deloitte India, said: "The government should reckon that recovery of project revenue (as provided for in the concession agreement) is not the only purpose of tolling but also raising resources for maintenance of highways. While it is the duty of the concessionaire to maintain the stretch in the concession period, thereafter, NHAI does this.

The proposal may sound good for public-funded projects where NHAI can find money for maintenance from the budgetary allocations to it, but extending this norm to PPP projects may not be a good idea, Udgirkar said.

Given the lack of clarity on what exactly the government is planning, the industry also fears that it may be considering restricting toll collection by the developer once they recover revenue as envisaged in the concession agreement, regardless of whether the concession period ended or not.

No private player will bid for a project where his concession period might get altered depending on revenue flows, analysts said.

However, some argue that the proposal to be flexible on the concession period would work if the bidding criterion is shifted from viability gap funding (VGF) to the net present value (NPV) model. "The point made is practical provided MCAs are shifted from VGF to NPV mode of the toll collection model. In the latter model, the concession period is flexible and the concession will be terminated as soon as toll collection reaches the desired NPV level. Which means that for roads where traffic collections are higher, the concession period will be shorter and in those where toll collection is lower, the concession period will be longer," said Vinayak Chatterjee, chairman, Feedback Infra.

"Over 90% of projects are not complete till date. In most cases, either the entire land has not been handed over to the developer or there are local agitations or absence of green nod that hampers implementation of the project. So, the proposal that tolling can start only after a project is completed doesn't make sense," said M Murali, director general of National Highway Builders Federation.

At present, the collection of toll starts once a project is 75% complete. A developer requesting anonymity pointed out that land acquisition delays can often be attributed to the government and so it was unfair to penalise the developer for this.