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Unlike the built-operate-transfer (BOT) or the hybrid annuity models (HAM), the bidding for toll-operate-transfer (TOT) projects will be more competitive than agressive even as they pose funding and refinancing risks, says India Ratings (Ind-Ra). "TOT projects would be more competitive than those on BOT or HAM models since most of the assets under the first bundle are parts of the Golden Quadrilateral and have a vintage of over 10 years," the agency said in a recent report. According to Ind-Ra, the bids would be more competitive with less variance, since six out of nine assets to be bid under the TOT model are part of the Golden Quadrilateral and the other three are in industrial clusters. More than 50 per cent of assets have an average vintage of 10 years, enabling bidders to bid based on actual toll collections, routine operations and major maintenance expenses, it said "The bulky-bid would crowd out the non-serious bidders and smaller sponsors who may not be able to sustain operations and maintenance over a longer term," it added. The agency further said TOT projects may find it difficult to tie up debt, as the debt tenor in India is typically 10-15 years. "Also, such projects pose a huge refinancing risk, as the initial concession period is 30 years.
Furthermore, the long concession period makes the initial estimated concession value (IECV) bulky, requiring large debt and consequently large interest payments. This would be a burden on the bidder during initial years until the project achieves significant ramp up in revenues," it said. Ind-Ra, however, believes a reduction in the concession period by five to seven years would bring down IECV, thus lowering the quantum of interest payments during initial years. Ind-Ra noted that investors and lenders will have to be a little cautious on this model for the first bundle of projects, so as to structure the debt in such a way that in initial years the return on equity is higher before debt payment.
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