Mumbai-Pune Expressway contract to end August next year

According to IRB's website, the project cost involved in this concession agreement was Rs 13.01 bn

Toll-operate-transfer or TOT might be a new term for highways but one of the early examples of this concept, the Mumbai-Pune Expressway, will see its contract ending August next year.

In August 2004, the Maharashtra State Road Development Corporation (MSRDC) and Mhaiskar Infrastructure (MIPL) signed a 15-year concession agreement to develop, operate and maintain the Mumbai-Pune section of NH-4, along with the operation and maintenance of the Expressway project. This was also one of the early public-private partnerships (PPPs) in India’s road sector.

“It (the contract) was a PPP since it involved construction of one stretch. But, the constructed part of the asset was in many aspects similar to the current TOT model, as most of the concession agreement with IRB Infrastructure involved maintenance and toll collection,” said Bhavik Damodar, partner and chief operating officer at consultants KPMG India. MIPL is a Special Purpose Vehicle of IRB Infrastructure Developers.

The project was not devoid of legal challenge. At present, activists have filed a public interest suit at the high court here that the right of the contractor, Mhaiskar Infrastructure, to collect toll on the expressway be revoked. They contend the firm has recovered the cost of the expressway construction project. A petition on similar grounds against Noida Toll Bridge Company, seeking lifting of toll, got a favourable verdict in 2016, leading to the Delhi-Noida expressway becoming free for commuters.

Sector experts expected MSRDC to utilise toll proceeds from the Mumbai-Pune expressway beyond August 2019, to help fund other infrastructure projects in the state. However, the ongoing legal battle raises uncertainty on such possibilities. According to a PTI report, the Bombay High Court asked the Maharashtra government to decide by September 6 on whether toll collection on the expressway should continue.

According to IRB’s website, the project cost involved in this concession agreement was Rs 13.01 billion, most of which would have been utilised to construct the Mumbai-Pune section of NH-4. Operations on the Expressway started in the year 2000; operations, maintenance and tolling rights were transferred to IRB in 2004. Come August 2019, the ownership and tolling rights will return to MSRDC.

 

Construction of the Expressway saw  challenges, including project cost escalation and difficult hilly terrain for construction. Finding a private player ready to risk estimating traffic revenue was a second challenge. “Many companies were involved in the construction but not many were willing to participate in the financial bid,” said a person closely involved in the operations of this project.  

 

He added IRB’s winning bid of Rs 9.18 billion of premium to be paid to MSRDC upfront was at the time received with septicism. “Today, one can confidently say it has been an extremely successful project financially and it did well for the winning bidder,” Damodar from KPMG added. According to IRB’s presentation, in financial year 2018, 47 per cent of the company’s total toll revenue was from this project.

According to the person earlier quoted, money did not flow in the first few years. “There were multiple issues in 2004-2006. Commuters preferred using the NH-4 stretch which was under construction and did not have a toll,” he recalled.

In addition, the expressway faced local protests and law and order issues. Robbery and accidents became common. “Toll revenues improved once the state government stepped in to take care of the law and order part. Meaningful improvement in toll revenue happened post 2010,” he added.