Road monetisation to make a small beginning this year

Auction can be seen as a move to allow entry of sovereign funds from Abu Dhabi, Qatar, and Canada

The first tranche of toll-operate-transfer (TOT) projects awarded this year may also be its last because the process has been delayed by a month. 

The National Highways Authority of India’s (NHAI’s) board has found the bank guarantee component of the projects to be “very high” and sought its revision. 

The board was yet to approve the monetisation projects and once approved next month, the first project could be awarded only by December, officials said.

The Ministry of Road Transport is of the view that the NHAI should establish the success rate of the monetisation drive before finalising another batch, according to an official.

The auction can be seen as a move to allow the entry of sovereign funds from Abu Dhabi, Qatar, and Canada into such projects.

During consultations with the government, pension funds and sovereign wealth funds had also suggested that the financial packages to be offered by the government should be large-sized. For instance, of the 11 projects likely to be auctioned in the first round of auctions in August, a particular pension fund may be interested only if it wins at least three or four such contracts. The value of these projects should not be less than $200 million.

Geographical contiguity, besides traffic volumes, was the top criterion for short-listing the first batch of projects and officials have stated that the same criteria would be adopted while selecting subsequent projects.

For example, instead of offering patchy stretches of contracts spread across several states, the NHAI would tender roads that are continuous. According to an NHAI official, the tranche of projects would be in Andhra Pradesh and Gujarat.

Another aspect that has been considered for selecting highway contracts to be monetised is the anticipated traffic volumes. The higher the traffic volumes, the greater would be the interest of the international pension fund.

Last year, the Cabinet Committee on Economic Affairs had authorised the NHAI to monetise 111 publicly-funded National Highway (NH) projects that were operational and were generating toll for at least two years after the Commercial Operations Date (COD) through the TOT model.

Around 75 operational NH projects completed under public funding have been preliminarily identified for potential monetisation using the TOT model.

This model would provide an operations and maintenance (O&M) framework, requiring the NHAI’s reduced involvement in projects after completing construction.

The corpus generated from the proceeds of such project monetisation could be utilised by the government to meet its fund requirements regarding the development and O&M of highways in the country. This could help the development and strengthening of highways in unviable geographies.

The government aims to cater for the category of investors which is averse to taking construction risks but is adequately equipped for making long-term investments in road infrastructure, e.g. institutional investors including pension and insurance funds, and sovereign funds.

 The road ahead

• In 2016, the Cabinet Committee on Economic Affairs authorised the National Highways Authority of India to monetise 111 publicly-funded projects
• Around 75 operational projects were identified for potential monetisation using the toll-operate-transfer model
• Proceeds from these projects to be utilised for development, and operations & maintenance of highways
• Move could help develop and strengthen highways in unviable geographies