NHAI expects dip in bid premia on NHDP IV contracts

After successfully awarding one project after another at a premium in the first few months of the financial year, the National Highways Authority of India (NHAI) says it does not expect this to continue to the same extent during the next phase of award of contracts.

Companies bidding for road projects offer premium in the form of an annual payment to the government over a period of time if they are confident of collecting enough toll revenue to do so, based on traffic estimates.

In the coming months, NHAI plans to award all the 25 remaining projects under phase-IV of the National Highways Development Programme during the current financial year. “We do not expect the same amount of premium in the coming months because the next phase of awards are for two-lane roads (about 20,000 km) with paved shoulders. These projects will not attract the same kind of interest like the ones awarded earlier,” said a senior NHAI official, who did not want to be identified.

He said the projects that had attracted lot of premium were all for converting four-lane stretches to six-lane ones, where the developer can collect a toll right from the start of the widening work. NHAI recently awarded 10 projects at a premium of Rs 1,628 crore annually, that would increase at the rate of five per cent per annum for 25 years. This is over and above the Rs 300-crore premium NHAI is already earning.

NHAI has said it would award 59 projects covering 7,994 km, with a total cost of around Rs 60,000 crore in the current financial year.

Some in the construction industry say NHAI would continue to get a premium because roads are among the few areas providing an earning opportunity for now and companies would bid aggressively. “NHAI will continue to get premium even in two-lane projects, only the amount of premium might not be the same,” said a Mumbai-based company executive, who did not want to be identified.

He said NHAI needed to upgrade its mechanism for traffic projections, as these were not realistic and even a one per cent change had a lot of implications. Normally, bidding is on the assumption of a five per cent annual increase in traffic volume.