Cabinet may clear new model for road projects

Concessionaire period to be linked to traffic volume on highway under the model

The Cabinet will soon take up the road transport and highway ministry’s proposal of allowing bidding for projects on a new model, the Least Present Value of Revenue or LPVR. According to the model, the concessionaire period will be curtailed if a spike in traffic volume allows the operator concerned to recover their investment before the expiry of the period.

LPVR auctions are conducted globally for giving expressway franchises, and are won by companies bidding the least present value of toll revenue. The project returns to the government after the contract expires. 

The new mechanism allows contracts to be extended if traffic grows slower than expected. “The proposal would go to the Cabinet very soon,” an official of the ministry told Business Standard. 

In the past, investors had raised issues regarding leakage in toll collection. That concern has been addressed, as only those projects with full electronic toll collection would be eligible under this model, the official added.

The projects shortlisted for the LPVR mode are the Delhi-Amritsar-Katra, the Vadodara-Mumbai, the Chennai-Bengaluru, and the Kanpur-Lucknow highways. Also included are highways connecting Ahmedabad with Dholera, the proposed smart industrial city in Gujarat.

Besides, the LPVR model for executing highway projects, the central government is banking on a hybrid-annuity model (HAM), where the government pumps in 40 per cent of the equity and the remaining is arranged by the concessionaire.

The HAM has, in the recent past, been the preferred mode, as the government aims to garner private investment in the infrastructure sector. Some 43 projects were awarded last year on the HAM.

The government-funded mode of engineering procurement construction (EPC) has been able to revive the road sector by bringing in medium-sized infrastructure players. While the government adopts the PPP and the EPC modes for funding new projects, the existing road projects are also being monetised for raising resources. 

The National Highways Authority of India is likely to soon roll out the first tranche of toll-operate-transfer project this year. The proposed auction will see the entry of sovereign funds from Abu Dhabi, Qatar, and Canada into such projects.

Around 75 operational NH projects completed under public funding have been preliminarily identified for potential monetisation using the toll-operate-transfer model. The corpus generated from the proceeds of such project monetisation could be utilised by the government to meet its fund requirements for development, operation and maintenance of highways.