Having mopped up Rs 9,681 crore from the first TOT (toll, operate, transfer) package, the National Highways Authority of India (NHAI) is no longer keen to put smaller packages up for bidding.

Rohit Singh, member – finance, NHAI, said the NHAI isn’t keen on bidding out smaller lots for the moment. “The packages that will be floated now will be more or less as big as the first one,” Singh said. That might make it difficult for Indian road building companies to participate. The NHAI had been contemplating smaller TOT packages of about $250 million each.

Subhash Chandra Garg, secretary, Department of Economic Affairs (DEA), told FE, “A billion dollar was the ticket size which was planned earlier and which is the norm, so to say, to attract global, serious players. Still, a decision has been taken to try out smaller ones. There was a decision to do TOT packages of about $250 million and I assume the NHAI may also come out with a bid of that size to test whether this also draws serious interest.”

Road developers have been looking forward to participating in smaller-size packages, for which they would have the financial capacity to bid. Jayant Mhaiskar, VC & MD, MEP Infrastructure Developers (MEPIDPL), said the company is hoping for smaller packages in a range of between Rs 2,000 crore and Rs 3,000 crore.

“If the size is small, it definitely helps us to look at it more aggressively. In fact, we believe we should be able to bid on the strength of our own balance sheet. Having said that, the cost of capital will be very important. We are currently talking to two or three large players – one each in Spain, Korea and China – who can potentially bring in capital at a lower cost, so that it will enable us to bid aggressively,” said Mhaiskar.

Karunakaran Ramchand, MD, IL&FS Transportation Networks, also expressed interest in smaller packages.“There is a sense that the next packages will be of a smaller size so that Indian companies may also be able to bid. However, we recognise this game is mostly for long-term patient capital such as the insurance or pension funds,” he said.

The first TOT package comprising nine highways with a total length of almost 700 km drew a winning bid of Rs 9,681 crore from Macquarie Group against an expected Rs 6,258 crore. The second TOT lot of projects is expected to mop up `6,600 crore and will be put up for bidding next month.

The success of the first such auction has created a framework for such bids in the roads sector. CRISIL in a report last year said the TOT model may fetch the NHAI about Rs 40,000 crore (around $6 billion) for the 75 highways it plans to monetise under the same.

The agency said the model is targeting a new category of investors, who are averse towards construction risk but are interested in making a long-term investment in India’s infrastructure. These include sovereign wealth funds, pension and insurance funds. CRISIL said the success of this model for the NHAI is crucial, given the weak financial position of Indian road developers, resulting in most projects being executed using public funds, thereby putting stress on the NHAI’s funding position.

Consequently, the increased awarding of EPC contracts means that the NHAI has to maintain more projects using own funds. Around 6,500 km are already being maintained by the NHAI and this number is expected to more than double over the next five years, CRISIL said.