The first 75 operational highway projects, which will be monetised by the NHAI under the toll-operate-transfer (TOT) model, are likely to fetch around Rs 40,000 crore, much lower than the government estimates, says Crisil. According to the rating agency, investors would factor in the freight-heavy nature of national highway traffic, the associated volatility, and reduction in road freight growth expected after the implementation of the Dedicated Freight Corridor (DFC) before placing bids.
Further, implementation of the Goods and Services Tax (GST) regime, while not necessarily negative for road traffic, may alter the type of vehicles that would be used on certain routes, it said. “Variation and volatility in traffic can reduce returns. Investors would take a hard look at this, including the impact of DFC and GST, when placing bids. They would also be wary of latent defects in roads that are not detected during technical examination,” Crisil Research Senior Director Prasad Koparkar said in a statement.
He pointed out that there could arise issues pertaining to competing roads. “If an alternate route is built and is longer than the original stretch by 20 per cent, then it is not treated as a competing route,” Koparkar said. In TOT model, the National Highways Authority of India (NHAI) transfers ownership and the right to collect toll of operational highways to private entities for 30 years in return for a one-time upfront payment.
According to Crisil, the calculation assumes annual toll revenue growth of 7-8 per cent and return on equity of 14-16 per cent. “Theoretically, Rs 40,000 crore can fund the construction of 2,800 km of four-lane national highways, which would be equal to the execution expected in fiscal 2017,” it said. Crisil estimates that between fiscals 2018 and 2020, construction of highways would require investments of Rs 2.2 lakh crore, or more than twice the Rs 1 lakh crore set to be spent between fiscals 2015 and 2017, with higher execution of publicly funded projects.
“TOT could achieve the dual objective of releasing both the bandwidth of public agencies, otherwise used up for road maintenance activity, and funds for road construction. While traffic risk does exist in this model, offering bundles of diversified stretches – both by geography and traffic composition – could mitigate some of this risk,” its Director Ajay Srinivasan said.