Monetisation by NHAI: Fourth TOT round looks doable after exclusion of one section

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Published: January 7, 2020 1:32:27 PM

Following the removal of the PNG stretch, the reserve price for the remaining six stretches, measuring 341.58 km, under the fourth TOT bundle has now come down to Rs 2,166 crore from Rs 4,170.31 crore originally set for all seven stretches.

NHAI, Monetisation, Fourth TOT, TOT model, exclusion of one section, Roadways, Infrastucture news, National Highways Authority of India, National Highway, PNG, The last date for the submission of bids has been fixed at January 14.

The chances of success for the fourth round of toll-operate-transfer (TOT) auction by the National Highways Authority of India (NHAI) have increased with the exclusion of the 60-km Pimpalgaon-Nashik-Gonde (PNG) section from the bundle, analysts said. They added that the stretch’s chequered history of political agitations was weighing heavily on the bidders’ minds.

Following the removal of the PNG stretch, the reserve price for the remaining six stretches, measuring 341.58 km, under the fourth TOT bundle has now come down to Rs 2,166 crore from Rs 4,170.31 crore originally set for all seven stretches. PNG accounted for 35% of the total collection from all stretches put up for bidding under the fourth TOT bundle. The last date for the submission of bids has been fixed at January 14.

“PNG was the Achilles heel for the fourth TOT bundle given its chequered history of political agitations disrupting toll collections which consequently resulted in termination of concession agreement by earlier BOT concessionare,” said Rajeshwar Burla, vice-president, Icra Ratings.

Burla said by excluding the PNG stretch from the bundle, NHAI has twin objectives — reduced size of the bundle would attract more bidders and the uncertainty in terms of toll collection for the largest asset in the bundle will no longer exist, thereby, the bundle’s toll collection potential will improve and therefore, the valuation of the bundle would go up.

Under the TOT model, publicly-funded operational highway projects are given on long-term lease basis to domestic and foreign “patient capital” investors. Successful bidders are required to pay the lease amount upfront which and recoup investments and returns by collecting toll over the lease tenure, between 15 and 30 years.

NHAI has also reduced the tenure of the lease period to 20 years from 30 years set earlier. A lot of its present and future construction hinges on its successful asset monetisation programme.

The NHAI needs additional funds as it is increasingly awarding projects though the engineering, procurement and construction (EPC) route, where it is to bear all the expenses, as it failed to award projects through the traditional build-operate-transfer (BOT) and less-taxing hybrid annuity model (HAM) so far in the current fiscal.

NHAI is also in dire need of funds to finance its burgeoning debt which reached at Rs 1.8 lakh crore by the end of March this year. Analysts estimate NHAI’s borrowings to go up to Rs 3.31 lakh crore by FY23 if NHAI is to fund the construction of around 35,000 km highway projects, including the first phase of 24,800 km Bharatmala programme and the balance road works under the NHDP, in six years starting 2017-18.

The Cabinet Committee on Economic Affairs had in 2016 allowed NHAI to monetise 75 highway projects through TOT. On November 25, 2019, the Cabinet gave NHAI virtually an unfettered authority to make suitable changes wherever and wherever required in for asset monetisation through TOT.

For the first time in October 2017, NHAI had invited bids for monetisation of such public-funded highway projects through TOT. Since then, it has raised a little more than Rs 14,000 crore from two successful attempts. One attempt has to be annulled for want of bidders; while bidding for the fourth bundle is currently under process.

In the first tranche, nine highway projects were offered and Australia-based Macquarie bagged them quoting Rs 9,681.5 crore for the total length of 680.5 km against the floor price of Rs 6,258 crore.

NHAI’s second TOT attempt, however, failed. Against its set floor price of Rs 5,632 crore from eight highway projects with a total length of 586.55 km, the highest bidder (Cube Highways) quoted only Rs 4,612 crore, forcing the authority to abandon the plan.

In the third round, the Singapore-based Cube Highways won the bid, offering to pay Rs 5,011 crore upfront to take on a long-term lease nine stretches, 566.27 km, on offer against the floor price of Rs 4,995.48 crore.

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