Cube Highways wins in poor response to second NHAI road monetisation drive

Winning bid of Rs 46.12 bn for eight road stretches offered under TOT is much lower than NHAI's benchmark of Rs 53.62 bn

Cube Highways has emerged the winner of the second bundle of the road monetisation scheme, which saw lukewarm response from bidders, as the contracts bagged by these companies were below the estimated price of Rs 53.62 billion, set by the National Highways Authority of India (NHAI).

It is learnt that Cube Highways quoted a price of Rs 46.12 billion. Adani Infrastructure (Rs 36.75 billion) and IRB Infrastructure (Rs 27.18 billion) were the other bidders for the eight road stretches offered under the second round of Toll-Operate-Transfer (TOT) projects.

The second bundle consists of eight stretches of national highways in the states of Rajasthan, Gujarat, Bihar and West Bengal. The total length of the project is 586.55 km and there are 12 toll plazas on these stretches.

The second bundle also involves an initial construction cost of Rs 9.29 billion and the total contract period is 30 years, which may increase or decrease by 5 or 10 years, based on traffic.

“The reason behind lower bid prices is that the stretches are not very attractive and toll collection is not very promising,” a source in the know said adding that NHAI may even reject the offer as it is way below the estimated initial estimated concession value of Rs 53.62 billion set by the authority.

The first TOT bundle received bids 1.5 times more than the base price set by NHAI, and the contract was bagged by Macquarie at Rs 96.81 billion.

TOT model in India has been developed to encourage private participation in the highways sector.

The TOT model has the concessionaire paying a one-time concession fee upfront (lump sum), which then enables the concessionaire to operate and toll the project stretch for the pre-determined 30 year concession period.

On August 3, 2016, the Union Cabinet authorised NHAI to monetise public-funded national highway projects that are operational and are generating toll revenues for at least two years after the commercial operations date through the Toll Operate Transfer (TOT) Model. Around 75 operational highways completed under public funding were intially identified for potential monetization.

The central government felt that monetisation of public-funded highways would create a framework for attracting long-term institutional investment on the strength of future toll receivables.

It was felt that international investors generally hesitated from taking construction risk but were willing to look at de-risked Brownfield road assets.

• Second bundle consists of 8 stretches of national highways in Rajasthan, Gujarat, Bihar and West Bengal
   
• Total length of the project is 586.55 km; there are 12 toll plazas on these road stretches
   
• First bundle of nine projects had five highways in Andhra Pradesh, four in Gujarat
   
• Four bids were received for first bundle — from Brookfield Asset Management, Macquarie-Ashoka Buildcon, IRB Infra, and Roadis-NIIF
   
• Total value of the first bundle of projects: Rs 96.8 billion
   
• Macquarie-Ashoka Buildcon bid was 1.5 times the base price of Rs 62.6 billion
   
• A total of 75 operational highway projects have been identified for monetisation using TOT model