NHAI may get Cabinet nod to tweak TOT model to boost highway projects funding

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Published: November 20, 2019 1:14:26 PM

Under the second option —securitisation of tolls — the NHAI wants to raise funds from stretches where the traffic is already high and needs capacity augmentation in next few years. Infrastructure assets such as roads are suited the best for securitisation as they ensure stable cash flows backed by long-tenure concession agreements and higher recovery rates.

TOT model, toll operate transfer, NHAI, National Highways Authority of India, National Highways, NHDP, highway projects, highway projects funding Months ago, MoRTH had floated a Cabinet note seeking the approval for setting up an InvIT, which gives more flexibility and fits the demand for all kinds of investors, even smaller ones.

Facing a fund crunch to execute its ambitious highway development programme, the National Highways Authority of India (NHAI) may soon get the go-ahead from the Cabinet to explore options like launch of an infrastructure investment trust (InvIT) and securitisation of toll receipts. The Cabinet may also give its approval soon to make NHAI’s asset monetisation programme through the toll-operate-transfer (ToT) route less cumbersome.

Apart from funding highways, NHAI is in dire need of funds to finance its burgeoning debt which reached 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.

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).

Months ago, MoRTH had floated a Cabinet note seeking the approval for setting up an InvIT, which gives more flexibility and fits the demand for all kinds of investors, even smaller ones. The proposal also needs Parliament’s approval.

InvITs are innovative, tax-efficient vehicles that allow developers to monetise revenue-generating real estate and infrastructure assets, while enabling investors to invest in these assets without actually owning them. Such a monetisation benefits developers by allowing them to release capital for funding new projects and provides liquidity to investors, as units of the trust are listed on the exchanges.

Under the second option —securitisation of tolls — the NHAI wants to raise funds from stretches where the traffic is already high and needs capacity augmentation in next few years. Infrastructure assets such as roads are suited the best for securitisation as they ensure stable cash flows backed by long-tenure concession agreements and higher recovery rates.

The third option — asset monetisation programme through the ToT route — is already in motion. Under this public-funded operational huighway stretches are currently given on a long-term lease for 30 years against upfront payment. On the investors’ request, the NHAI had proposed the MoRTH to have a flexible in fixing the lease tenure, anything between 15 years and 30 years.

The NHAI had raised Rs 9,681 crore in the first TOT tranche, but a similar attempt thereafter fell through. The third bundle with a total length of 587 km is currently underway through which the NHAI aims to generate at least Rs 4,995 crore. The request for proposal (RFP) for the fourth bundle of 486 km has also been issued through which it aims to garner Rs 4,056 crore.

The Cabinet Committee on Economic Affairs had in August, 2016 authorised the NHAI to monetise 75 public-funded highway stretches. The NHAI hopes with the development of new roads, the length for potential offering through ToT would increase to 15,000 km by 2024-25.

NHAI has received a total of Rs 36,691 crore budgetary support for the NHAI in 2019-20, around 1.7% less than Rs 37,320.63 crore accorded in 2018-19 (RE) and it has been tasked with awarding 6,000 km of highways and construct a record 4,500 km in the current fiscal. NHAI’s borrowing limit for the current fiscal has been enhanced to Rs 75,000 crore from Rs 60,000 crore in 2018-19. Last fiscal, it awarded 2,222 km of highway projects, less than 7,397 km awarded in 2017-18. It constructed 3,320 km in 2018-19, a little higher than the 3,071 km in 2017-18. Till September of the current fiscal, NHAI has awarded 843 km projects and constructed 1,400 km highways.

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