NHAI proposes combining toll, annuity payment

...in order to attract pvt sector for bidding in four-laning projects.

The National Highways Authority of India (NHAI) has proposed a hybrid model which will combine both toll as well as annuity payment options under the build-operate-and-transfer (BOT) scheme in order to attract private companies to bid for its four-laning projects.

Most of these projects have found no takers as construction companies think they are commercially unviable. Out of the 60 projects which were up for grabs last year, only 10 could attract bids.

Under the proposed model, a concessionaire will get the viability gap funding (VGF) — the gap between the cost of the road and the expected return — up to 40 per cent of the project cost from NHAI. That is the maximum a company is allowed under the BOT toll scheme. In case the developer needs more than 40 per cent VGF, it has to make its own investment.

The authority would pay the extra VGF in instalments like it happens in the annuity model. Moreover, to recover the rest investment made in the project, the concessionaire would be allowed to collect toll.

Companies have been complaining that the 40 per cent cap of VGF should be increased as otherwise, the project is not viable.

In 2008-09, for instance, the third phase of the National Highways Development Project (NHDP) saw only around 600 km awarded against a target of 6,047 km.

However, opinion is divided on whether the proposed scheme will work. “It may attract more bidders, even for roads being built in difficult areas like the Naxal-affected ones. I do not think it will be cleared. The policymakers would rather opt for EPC,” said Parvesh Minocha, managing director (transportation division), Feedback Ventures.

The contractors are upbeat as they hope the scheme will help revive the stalled NHAI projects.

“With the said scheme, the project becomes viable and risk is much less than on taking in on BOT (toll). We will bid for projects that come with this offer,” said M Murali, director general, National Highways Builders Federation.

The new model has also received support from the Planning Commission. “The Planning Commission has all along been suggesting that the annuity operator should also be responsible for the toll collection. This would have the advantage of reducing annuity payments significantly as well as transferring the commercial risk from NHAI to the concessionaire,” said Planning Commission Principal Advisor (infrastructure) Gajendra Haldea.

The government had earlier also raised the VGF for certain projects under NHDP-V, which aims at six-laning of 6,500-km-long highways, owing to poor response to the first few projects put up for bids in December last year.

Union Road Transport Minister Kamal Nath wants roads to be built at a rate of 20 km per day and has asked NHAI to come up with a target it thinks feasible.

The authority is still working on that target. He had also asked the authority to take up financially unviable projects that do not attract bids on BOT (toll), on BOT (annuity) and EPC.

In EPC, the government invests and private players construct roads. The minister also wanted the completion of detailed project report and feasibility report to be expedited and suggested use of new technology to increase the road completion rate.