Infrastructure: Narendra Modi government eyes Rs 50,000 cr from funds via toll-operate-transfer mode for NHAI

NHAI can securitise the toll receivables by collecting an upfront concession fee.

In a move that could fetch the government upwards of R50,000 crore, a host of pension funds, sovereign funds and private equity funds may invest in the 75 road projects to be bid out in the toll-operate-transfer (TOT ) mode. Players such as Macquarie, Abu Dhabi Investment Authority, Canada Pension Fund, Brookfield Asset Management, and IDFC Alternatives in India are understood to have shown keen interest in these projects. National Highways Authority of India (NHAI) officials are believed to have indicated to players the first lot of projects could be up for bidding as early as April.

The TOT model will allow the government to lease out 75 operational projects constructed by the NHAI or a concessionaire with a combined length of over 4,300 km to private players for a concession period ranging between 25 years and 30 years.

NHAI can securitise the toll receivables by collecting an upfront concession fee. Funds are eyeing these ventures as a good investment opportunity given the risks are minimal. MK Sinha, managing partner and chief executive officer, IDFC Alternatives, told FE that TOT ventures are probably the best way to attract foreign and private capital chasing yield investments without taking on any construction and development risk. “Taking construction and development risks in road construction has not worked well for the private sector and has also resulted in large claims from NHAI on account of various delays,” Sinha pointed out.

Both the ministry of road transport and highways and NHAI have had discussions with these potential concessionaires in the last year to year and a half to evolve a model to minimise hurdles in the future, sources said.
As part of the concession agreement, detailed engineering studies of these projects have been undertaken to spot any latent defects, a senior executive from a construction firm told FE. Prospective concessionaires have suggested the tariff be fixed and that the government allow a 5% hike in tariff irrespective of inflation. That would then leave just the traffic to be estimated, bringing some certainty in cash flows, they feel. At present, toll tariffs are linked to the WPI.

Repeated calls and messages sent to senior officials at NHAI did not elicit any response till the time of going to press.
After the expiry of the lease period, TOT projects that have been operational and generating toll revenues for at least the last couple of years would return to the government’s fold. Bidders will recoup their investments and returns by collecting toll over the lease tenure. During the period, maintenance will also be the responsibility of the concessionaire.

In a recent report, Icra noted that given the wide variation in toll collections, the attractiveness of certain stretches with long vintage and established traffic volumes — especially the ones along the Golden Quadrilateral — is much more compared with the ones with less operational track record and poor toll collections. K Ravichandran, senior vice-president & group head, corporate ratings, observed that it makes sense to bundle the projects so that weaker projects are not left out. “NHAI could also consider keeping floor and cap so that the bidding is not very aggressive in case of attractive stretches,” he said.

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