NHAI Reverts To PPP-BOT Model For Its 8 States, 950 Km, Rs 30,000 Crore Road Infra Project

Marking a significant shift in its funding approach, the Ministry of Road Transport and Highways (MoRTH) has announced that the National Highways Authority of India (NHAI) has identified various stretches (road infra projects) on pan India basis that will be constructed through Public-Private Partnership (PPP) on Built Operate Transfer (Toll) Mode.

The identified stretches cover about 950 km with a cost of about Rs 30,000 Crore in the states of Andhra Pradesh, Haryana, Maharashtra, Karnataka, Tamil Nadu, West Bengal, Chhattisgarh and Madhya Pradesh.

NHAI has already invited the proposal for Annual Pre-Qualification for the construction of 4 and 6 lane of National Highways for these stretches. The Process of Annual Pre-Qualification will not only streamline and ease the bid process of the individual project on BOT (Toll) Mode but also give an idea about the market response.

Certain modifications have also been made in the existing RFAQ to make it more industry friendly.

In August, newspapers reported that Prime Minister 's office (PMO) had issued a directive to Roads Ministry to review the currently preferred funding approach of building national highways through Hybrid Annuity Model (HAM).

The PMO was also said to have instructed the road ministry to discontinue direct construction of roads, facilitate great private sector participation in road construction, and aggressively monetise its existing assets – either through the toll-operate-transfer model, where long-term concessions for collecting toll revenues are auctioned to the highest bidder, or through an infrastructure investment trust (InvIT).

The PMO is also said to have proposed that NHAI be transforms itself into a road-asset management company.

The PMO is also said to have expressed concern over the NHAI’s soaring debt of Rs 1.8 lakh crore which would entail annual interest servicing of about Rs 14,000 crore, higher than the Rs 10,000 crore NHAI collects as toll.

Many experts dismiss these concerns over debt level of NHAI as alarmist given that any ambitious nationwide road building program requires significant fiscal frontloading and given the absence of adequate budgetary support, the NHAI had to leverage up to continue rapid road building.

Union Minister of Road Transport & Highways Nitin Gadkari however dismissed reports of any such directive and said NHAI will continue to pursue multiple funding approaches but will ensure no let up in the frenetic pace of highway building his ministry had embarked.

Under the stewardship of Gadkari, NHAI has pursued a Hybrid Annuity Model (HAM) whereby the developers are paid out 40 per cent in five instalments during the construction period and the rest as annuity over the concession period.

The ministry innovated the HAM model as a response to tepid private sector participation in the PPP model. Under the HAM mode, the construction and traffic risks stood considerably reduced for the developer as government frontloads a significant share of the construction cost.

It remains to be seen if PPP based BOT Toll approach (or any other market-based PPPs) will help crowd-in private capital. The model was pursued between 2010 to 2014 by the UPA government but failed to deliver as the road construction came to a grinding halt.