The National Highways Authority of India (NHAI) is working on gradually increasing the share of the Build-Operate-Transfer (toll) model in highway construction to 10% of the total awards, by making more changes in concession agreements and offering only viable projects with land already tied up for bidding, a senior government official said.
“Only projects which are viable on their own or with viability gap funding will be offered for bidding. The NHAI will also be committing 90% of construction zone (land for executing) for such projects,” the official, who did not wish to be identified, said.
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Changes are being examined in model concession agreement and request for proposal documents to redraft some provisions for removing areas of dispute, which led to investors being wary of this mode of highway construction.
Already, flexibility has been given to concession holders, allowing them to change ownership after a year instead of two years as was the rule earlier, and innovations like dispute resolution board and sharing of traffic risk have been provided to make BOT (toll) more attractive.
Removal of the requirement of capacity augmentation by the concessionaire also reduces the chances of disputes in the contracts.
Response of the industry to these changes has been positive, the official said.
The reason for pushing BOT is that a company, winning the concession, builds and operates the highway, thus saving resources of the government, the official said.
During 2007 and 2014, only BOT was used for building highways. With the disputes and delays that the system ran into, the pace of highway construction slowed down considerably.
In 2018-19 and 2019-20, no road concessions were awarded on the BOT model.
In the last few years, almost the entire cost of highway construction has been borne by the government through hybrid annuity model (HAM) and engineering, procurement and construction (EPC) model. This has resulted in a big jump in budgetary support to NHAI.
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This year, the Budget provided for Rs 1.62 trillion to NHAI as against Rs 1.41 trillion last year.
In 2021-22, NHAI had got Rs 57,081 crore from the Budget and rest from debt. The 2022-23 Budget barred NHAI from raising money through bonds.
The HAM model of highway development was announced in 2016 where NHAI pays 40% of the cost of highway construction upfront to the concessionaire and rest in installments. Under EPC the NHAI bears the full cost of making the highway.
“Last financial year, NHAI awarded two highway stretches for development under BOT,” the official said.
In all the models of highway construction, land acquisition is done by NHAI.
The mix the NHAI is aiming at is building 60% of highways through HAM, 30% through EPC, and 10% through BOT (toll). However, an ICRA report estimates that in this financial year too EPC will remain the mainstay of awarding contracts, accounting for 70-75% of total projects offered while BOT will be less than 5%.
The ministry of road transport and highways is aiming to award 12,000 km of road projects in 2023-24.
Apart from the BOT (toll) model where the earnings of the concessionaire is from toll collection, in the BOT (Annuity) model the government collects the toll but pays the annuity to the developer which helps it recover the costs.