Developers give new model for road project a miss

The government's effort to revive private investment in the highways sector received a setback, with no bidder turning up to take up four-laning of the Solan- Kaithalighat section in Himachal Pradesh.

The government had introducing an attractive bidding model called the hybrid annuity model (HAM) with amendments in regulations to attract players. But this model failed to attract companies.

The 23-km project was to be built at Rs 522 crore. This was the first among five highway stretches for which bids were invited on the hybrid annuity model. Bidding for the other four would be opened later this month.

Raghav Chandra, Chairman, National Highway Authority of India (NHAI), said, "We will examine the possible solutions. As it's a new model, there may be some apprehensions among the concessionaires. Sometimes a minor tweak in rules might change the entire structure. So we are planning to have a meeting with prospective bidders and examine what can be done."

The government might again invite bids for the project.

HAM is a mix of engineering, procurement and construction and build-operate-transfer formats, with the government and the private companies sharing the project cost 40:60. Under the model, land acquisition and environment clearances would be handed over to the private contractor concerned before the start of the project. Also, toll on the infrastructure project would be collected by the government and a fixed annuity with a profit margin given to the private partner.

Experts said in a situation where developers lack capital, the move to lower upfront costs was significant. Given the certainty of cash flows in the annuity model, developers can obtain more leverage from banks. This model might ease the financial burden on the exchequer, too, as it would lower the upfront contribution for the project, as compared to an EPC route. The other major road projects to be awarded through HAM were the four-laning of the 61.20-km Meerut-Bulandshahr section of NH-18 (Rs 782 crore), development of the Delhi-Meerut Expressway under three section covering 49.35 km and costing Rs 3,210 crore.

Overall, the government was looking at awarding 1,300 km of national highway projects under the new model this financial year. Detailed project reports have been prepared for these. For 2015-16, NHAI had identified 19 road projects, entailing an investment of Rs 14,300 crore and spanning Delhi, Uttar Pradesh, Himachal Pradesh, Jharkhand and Maharashtra.

In India, road projects are awarded via one of the three models: build-operate-transfer (BOT)-annuity, BOT-toll, and engineering, procurement and construction (EPC). In BOT-annuity, the risk to the developer is reduced as it constructs the road and maintains it, and gets a fixed payment from the government. In BOT-toll, the developer not only has to construct and maintain the road, but also recover the money by collecting toll. Here an additional traffic risk has to be borne by the developer. In an EPC contract, only the construction risk is with the developer.