Centre planning to further sweeten contract terms for TOT investors

The Union government is planning to further sweeten contract terms for toll-operate-transfer (TOT) investors because it wants to devise a mechanism that would allow developers to have the first right, along with that of the lenders, to funds in the case of default. Besides, it wants to offer a TOT project in two packages of toll operatorship and anchor investment. The move is expected to attract international investors.
 

The road developer will be tasked with the operation, maintenance and management of the contract.
 

“A global pension fund or any other investment can park its funds in a TOT project and managerial and administrative work can be done by a domestic company,” a senior road ministry official told Business Standard.
 

In the case of default, the developer, along with the Union government and lenders, will have an equal compensation right.

Earlier, the lenders had the first lien, followed by the government and government agencies. The Ministry of Road Transport and Highways is of the view that this move would encourage domestic highway developers to forge ties with international investors.
 

The government had to earlier cancel the second package of TOT because of a tepid response while the third package ran into funding troubles for Singapore-based operator Cube Highways. The company had to make an upfront payment of Rs 5,011 crore for nine highway stretches, which it had won under auctions held last November. The due date for making the payment was mid-April but it invoked the force majeure clause to get an extension. Earlier this month, the firm announced financial closure after it signed an agreement with State Bank of India for a Rs 3,500-crore loan facility to part fund the upfront fee.

Under the TOT model, the concessionaire pays a one-time fee upfront to the government for gaining toll rights for 30 years.

The funds the government receives from highway monetisation are used for new infrastructure programmes such as the Bharatmala. In 2016, the Cabinet Committee on Economic Affairs had authorised the National Highways Authority of India (NHAI) to monetise publicly funded national highway projects. Currently, 75 operational national highway projects completed through public funding have been identified for monetisation using the TOT model.
 

The first TOT bundle was bagged by a joint venture between Macquarie and Ashoka Buildcon for Rs 9,680 crore. The company’s bid was 1.5 times the base price of Rs 6,260 crore.
 

“Earlier there was no mandate to have a similar structure, but from now on there will be and we will also ensure that everyone’s interest is safeguarded. The project operator will have a pari passu right like that of a lender,” the official quoted above added.

Besides this proposal, the Union government recently cleared changes in the model concessionaire agreement for TOT projects, which include not disclosing the initial estimated concession value before the bidding process for TOT bids.
 

The request for proposal of future TOT projects has also been revised and authorises the NHAI to monetise publicly funded national highway contracts that are operational and are collecting toll for at least one year after the commercial operation date.

The NHAI is authorised to vary the concession period between 15 and 30 years, depending on project features.
 

It is allowed to raise long-term finance from banks by securitising user fee receipts from toll plazas.