Road developers now keen to bid for viable BOT projects

By: and |
Published: August 24, 2019 8:02:02 AM

Another road developer said that while NHAI should continue to offer projects on hybrid annuity model (HAM) and EPC, BOT should make a come back in stretches where there is potential for high traffic growth in busy commercial and passenger corridors.

In this backdrop, the PMO has advised reorganising of NHAI and its portfolio of roads, relook at commercial orientation of projects, and aggressive monetisation of NHAI assets.

In a change from their previous stance, road developers are now keen to bid for road projects if tendered out on build-operate-transfer (BOT) basis, provided National Highway Authority of India (NHAI) puts them out basis viability and where expectation of traffic is high.
Discounting all earlier challenges associated with BOT projects in terms of government not keeping its part of the obligation in public-private partnership, issues around high premium on projects bid out on BOT and bankers not willing to support BOT projects, developers said that bankers are ready to back these projects provided the termination clause in toll-operate-transfer (TOT) is made applicable to BOT projects.

A senior industry official told FE: “BOT is not being looked upon positively by banks because of the termination payment clause. In case of termination in a TOT project, NHAI’s TPC (total project cost) will not be something which will decide the quantum of termination but it will be the NPV (net present value) of the unexpired concession. So, if TOT termination clause is made applicable to BOT projects, bankers will be willing to back the projects”. What this means is that termination payment will be basis the future cash flow potential of the project, instead of the project cost that was fixed at the time of bidding.

According to developers, the haphazard planning in the name of expansion has led to projects which now make no economic sense and have become commercially unviable.

Highlighting challenges that are impacting the roads sector, developers said land acquisition continues to be difficult. “A lot of projects were taken up where miniscule land acquisition to the tune of 15%, 20%, and in some cases 50% has been done but to complete those acquisition will require more funding and it will be a wasteful expenditure,” said a senior official from a roads construction company.

Another road developer said that while NHAI should continue to offer projects on hybrid annuity model (HAM) and EPC, BOT should make a come back in stretches where there is potential for high traffic growth in busy commercial and passenger corridors. “Viability of any project will depend on the stretch. High traffic projects should be given out on BOT, lesser traffic stretches should be bid out on HAM, while the traffic with least traffic potential should be built on EPC,” said another industry source.

The developers’ comments are in line with the concerns raised by the Prime Minister’s Office to the secretary, ministry of road transport and highways, in a letter dated August 17. “NHAI totally log jammed with unplanned and excessive expansion of roads declared as ‘National Highways’. Average stretch of these roads exceeds over 1.9 lakh km. NHAI mandated to pay several times the land cost; its construction costs also shooting up,” it said.
FE had earlier reported that the cumulative debt of NHAI has mounted to `1.78 lakh crore in FY19 from around `40,000 crore in FY14.

The borrowing is expected to go up to `3.31 lakh crore by FY23, as its needs resources to fund construction of around 25,000-km highway projects in six years under the Bharatmala programme, started from 2017-18.

PMO has further stated that roads infrastructure has become financially unviable; private investors and construction companies withdrawing from green field road projects. “Model of hybrid annuity and EPC mode, with all investments made by government, is unsustainable,” the letter stated.

In this backdrop, the PMO has advised reorganising of NHAI and its portfolio of roads, relook at commercial orientation of projects, and aggressive monetisation of NHAI assets. PMO has asked the ministry to examine the suggestions and respond with their feasibility or adoption by Friday.

Meanwhile, a senior official of the ministry of road transport and highways said that these are only suggestions. “Suggestions do not mean orders to be implemented. Among suggestions proposed, NHAI already does asset management. NHAI will continue to do road constructions,” he said.

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