With road sector mandated to raise Rs 1.6 trn through asset monetisation over FY22-25, several variables need to be taken care of for programme’s delivery
the success of the government’s ambitious highway asset monetisation programme, a critical component of the National Monetisation Pipeline (NMP), will hinge on several factors, including the attractiveness of assets, duration of the concession, institutional mechanism for dispute resolution and, above all, the leeway given to the private sector to operate such assets, experts have said.
The target of raising Rs 1.6 trn over FY22-25 through the road monetisation programme – which is ~27% of the Rs 6 trn sought to be raised through the NMP – is a stiff one given past experience, which has been a mixed bag for the National Highways Authority of India (NHAI).
Under its asset monetisation programme, NHAI gives public-funded operational projects on a long-term basis to patient capital and other set of investors. The bidders recoup the investment by collecting toll over the lease tenure, generally between 15 and 30 years.
Since October 2017, the NHAI has bid out three toll-operate-transfer (TOT) bundles – one, three and five – successfully, netting Rs 14,700 crore. Bundles two and four, however, received a tepid response and were cancelled. Bundles six, seven and eight, are currently under the bidding process. These bundles have been kept smaller in size to attract domestic capital. The NHAI is also looking to raise Rs 5,000 cr this year via a privately placed infrastructure investment trust (InvIT).
According to rating agency Crisil, the NHAI’s funding needs are expected to double to `10 trn over the next five years vis-à-vis the previous five years. “If these funding requirements are met, we estimate that the NHAI could construct around 25,000 km of national highways over fiscals 2022-2026P, compared with 17,228 km over fiscals 2017-2021.
Thus, successful monetisation of the roads pipeline of Rs 1.6 lakh crore is critical as it could potentially meet 15% of the NHAI’s fund requirements over fiscal 2022 to 2026P, compared with less than 5% over fiscal 2017-2021E,” it has said.
Crisil’s analysis of the NHAI’s asset pool of 300 national highway projects (across 25,000 km) indicates that 65% of the sample set (in km) has recorded medium-to-high toll collection growth of >15% since operation. Around 31% of the projects (in km) earned >Rs 70 lakh toll revenue per km in fiscal 2020 (pre-pandemic), with >15% growth in toll revenue over their history, in line with the three TOT bundles successfully monetised so far by the NHAI.
The agency has said a number of factors will determine the outcome of the agenda, including the attractiveness of projects from the standpoint of future revenue generation potential. The operational experience of players in running and maintaining highway assets and the pace of tendering of these assets by the government at the required valuation will also be important.
Striking a note of caution, ICRA’s Rajeshwar Burla says, “forecasting traffic over a period beyond 20 years is challenging due to the dynamic nature of the business, especially the potential upgrade of multiple networks. Further, there has been a thrust on alternate modes to reduce logistics costs and lower carbon emissions. These would also result in a modal shift”.
Pointing out that asset maintenance has been impacted due to the pandemic, he says, “the quality of the asset is of paramount importance, as poor regular upkeep would lead to significantly higher maintenance costs.”