Clarion call to bring back build-operate-transfer model for infra projects

With private participation picking up in the infrastructure sector, CRISIL Infrastructure Advisory is of the opinion that the Centre should bring the focus back on build-operate-transfer (BOT) projects and shun over dependence on the hybrid-annuity model.
 
“More needs to be done in the roads sector as there is over reliance on hybrid-annuity (HAM) projects. The time is now ripe to start getting the BOT up and running. In the last few years, BOT had diminished significantly and it has to start coming in from the private capital perspective. Otherwise, it won’t be a sustainable thing,” Jagannarayan Padmanabhan, practice leader and director, transport, CRISIL Infrastructure Advisory, told Business Standard.
 
In the absence of BOT, the government will have to do heavy lifting in terms of spending and private sector participation to that extent will get diminished.
 
“So, it is very critical that we get the private sector to also take the market risk so that it is not completely taken by the government,” he said.
 
The overall infrastructure sector with respect to transport and roads has performed significantly well. But in ports, there is a capacity overhang. Increasing the share of BOT does not automatically translate into bringing hybrid-annuity down but they can go alongside, he said. According to him, engineering, procurement and construction (EPC) is a necessary part and its 45 per cent contribution to the total mix is fine.
 
Earlier, the private sector burnt its fingers in BOT from the project completion perspective as companies were unable to get projects completed and earn revenue via tolling.
 
“The distinction is that the people who are currently doing the HAM are not erstwhile BOT ones. They are rather erstwhile EPC people who have moved in to the hybrid part of it. The returns which are there on a HAM project are always capped because it is a schedule which is given to you so the returns get capped,” Padmanabhan said.
 
In BOT projects, if the traffic increases, the revenue rises and it is a calculated risk that the private sector would want to take. And, as mid-sized companies are keen on execution, the transition has to take place.
 
A plethora of stalled projects in the infrastructure space reduced investor interest and risk appetite in the sector, leading to a sharp fall in private investment in the last decade, said a CRISIL report.
 
Between FY'08 and FY'17, private investment in infrastructure was estimated to be Rs 20 trillion, or nearly a third of all infrastructure spending during the period. This had transformational impact in several sectors.
 
“Resumption and broad-basing of private investments have become critical to sustaining the share of infrastructure investments at 6 per cent of the GDP over a medium-to-long term,” said Ashu Suyash, Managing Director and CEO, CRISIL Limited.
 
The report added that critical sectors such as railways and urban infrastructure have not been able to make fast progress to attract private monies despite their size and potential while viability of power distribution remains critical to the sector’s value chain.
 
It said infrastructure investment has had a positive impact on economic growth, productivity and competitiveness. But accelerating India’s infrastructure investment to 6 per cent of the GDP over a medium-to-long-term is essential, it points out.
 
A revival and sustainable acceleration of public-private participation (PPP) in infrastructure is need of the hour, the report said and added that this will require redrawing the PPP framework in double-quick time and paving the path for private investments.

 

Highway report card 2017-18

• NHAI awarded 150 road projects, totaling 7,400 km length worth Rs 1220 billion
• In last five years, the average length of road projects awarded by NHAI was 2,860 km
• 4,335 km awarded in the last financial year
• Out of the total projects awarded, 3,791 km was awarded on EPC mode at a cost of Rs 430 billion
• 3,396 km was awarded on hybrid-annuity mode at a cost of Rs 765 billion
• 209 km on Toll mode at a cost of Rs 25 bn