Canadian investors want the National Highways Authority of India (NHAI) to do away with the current practice of setting the base price for highway bundles offered under the toll-operate-transfer (TOT) model and leave it on the investors to bid on the basis of their assessment of the worth of the long-term lease.
Calling the current practice an “unwanted exercise”, investors, including Brookfield, said bidders would always put their best foot forward, irrespective of the Initial Estimated Concession Value (IECV) or the base price, while bidding under the TOT model.
“It is not really required. Getting rid of the ICEV will be very helpful for pushing the TOT programme ahead,” said one investor, taking part in a webinar with NHAI Chairman S S Sandhu and its member finance Asheesh Sharma organised by Indo-Canadian Business Chamber on the future of Indian Highways.
Under the TOT model, publicly funded operational highway projects are given on a long-term (between 15-30 years) lease basis to domestic and foreign ‘patient capital’ investors. Successful bidders are required to pay the lease amount upfront which they can recoup their investments and returns by collecting toll over the lease tenure.
A domestic investor also agreed with the contention of the Canadian investors, saying that since bundles are offered through a transparent bidding process, NHAI should let the price discovery to happen automatically and the highest bidder should be awarded with the bundle. In case, base price is higher, as it happened in the second bundle, the entire exercise would have to be annulled after a year-long process.
NHAI arrives at the IECV taking into consideration the flow of traffic, the expected growth in the traffic flow, inflation and other indicators. NHAI received more than 50% of the price it had set for the first bundle of TOT project; while investors quoted lower than the base price NHAI had set for the second bundle, due to which NHAI annulled the bidding process.
For the third and the fourth bundle, NHAI followed the same practice of the one used for arriving at the base price. Cube Highways’ winning offer for the third bundle was just marginally above the base price; the fourth bundle is yet to be bid out. However, Canadian investors, both prospective and existing, are keen on investing in the Indian highway sector and are looking for opportunities.