The government has drawn up a plan to raise up to Rs 60,000 crore, over the next six months, by offering as many as 104 existing tollable projects in the state sector on lease to private players including global funds with patient capital. This is one of the innovative routes it is exploring to mobilise additional resources to fund the construction of highways. The construction target for the current year has been set at 15,000-km more than two and a half times achieved last year.
Under the proposed toll-operate-transfer (TOT) model, bidders will make an upfront payment to the government and recoup their investments –and returns–by collecting toll over a 20-year lease period. After the lease tenure expires, these projects would return to the government’s fold.
Official sources told FE that around 20 global funds with long-term capital including Nomura, Macquarie and Abu Dhabi Investment Authority have evinced interest in these projects. “We have made around 20 presentations to patient capital players such as Nomura, Goldman Sachs, Macquarie, Abu Dhabi Investment Bank, Canadian Pension Fund and American Pension Fund. All of them have shown interest. However, since they are unlikely to invest in a single project, we propose to bunch 5-6 projects, together valued at around $ 150 million,” an official said.
Investors will also have the opportunity to borrow funds for the upfront payment by securitising the toll, he added.
“This will be a win-win situation. On the one hand, it will help investors to ensure optimal return opportunity on risk capital and on the other hand, the government would garner the funds required to accelerate highway construction,” the official said.
The 104 projects identified for the plan fetch a combined toll revenue of Rs 4,000-5,000 crore annually and according to official sources, the entire money generated from the TOT plan would be ploughed back for development and re-development of highways.
These highways have been built either by the government or the National Highways Authority of India(NHAI) under the conventional engineering, procurement and construction (EPC) model and are being tolled by them. The NHAI alone has around 200 such toll projects at present.
The ministry of road transport and highways has already sent the proposal to lease highway projects via the TOT route to the Prime Minister’s Office (PMO) for approval and the proposal is likely to be considered by the Cabinet soon. Once the Cabinet gives its nod, global tenders would be floated to lease out the projects, the sources said.
Highway construction this fiscal is proposed to be funded by borrowings by the NHAI Rs 50,000-55,000 crore), budgetary outlay (Rs 54,000 crore allocated for roads and highways ) and collections from road cesses and toll revenues. Road transport and highways minister Nitin Gadkari has repeatedly said the government faces no problem in mobilising funds for highway projects; nevertheless he is looking at new ways to raise finances given the ambitious target to increase road construction to 30-km a day. The construction target for 2016-17 is, in fact, an even higher 41-km a day. Moreover, the continuing sluggishness in the public private partnership (PPP) sector requires the government to step up investments.
As reported by FE earlier, the government is setting up a dedicated funding agency in the state sector for highways and ports, sectors it believes would witness investments of Rs 10 lakh crore and Rs 15 lakh crore respectively in the “medium term.”