Annuity Route Planned For Moradabad Bypass Project

The National Highways Authority (NHAI) has decided to offer the Moradbad bypass project on an annuity basis.

This is the first road project to be offered on annuity basis. So far this mechanism has been tried out only in the United Kingdom.

So far, the road projects have been offered on build-operate-transfer (BOT) and build-own-operate-transfer (BOOT) basis, whereby the bidders collect tolls to raise the cost incurred. The project operators will have to assume the investment and the operating risks.

These include the Durg bypass project, the Coimbatore bypass project and the second Narmada project.

All these projects have attained financial closure.

Barring the Durg bypass project, the other two have a concession period of 12 years. The Durg bypas project has a concession period of 30 years.

The operators of these projects have chosen not to opt for traffic gurantees during the concessstion period.

The Moradabad bypass on NH-24 was entrusted to the NHAI by the ministry of surface transport to be offered to the private sector. The board of NHAI will meet soon to fix a concession period for the period of annuity. Current indications are that the the concession period is unlikely to exceed 10 years.

NHAI chairman Deepak Dasgupta said, We will offer the project to bidders who quote the lowest annuity rates or the shortest period.

However, the ministry had indicated last month that they were in a position to offer a minimum rate of 16 per cent for projects being constructed and funded through this method.

This project will be a test case and depending on the success more projects will to be offered on a similar basis, Dasgupta said. Based on the response of the bidders, other projects in the sector will be offered on an annuity basis.

The annuity payments would be met by the ministry through NHAI.

The cost of the Moradabad project is estimated at Rs 100 crore. After factoring in the subsidy of 40 per cent, the equity investors need to bring in only about Rs 60 crore.

This annuity format is exactly build-own-lease-and-transfer basis (BOLT) and is intended for investors who are unwilling to assume the operating risks involved in such projects. Using an annuity format assures intending investors of a fixed return during the concession period.

And despite the low investment risks associated in this method of project funding, investors would also be allowed to take advantage of five year tax holiday and the 40 per cent capital subsidy offered by the MoST. Moreover the annuity method also elimnates the need for providing traffic gurantees to the project promoters.

However, as far as NHAI is concerned this method has significant advantages. The toll revenues it intends levying would directly accrue to it.

In a BoT/ BOOT format NHAI can share revenues only for providing traffic guranttees. Where there are no traffic gurantees all the revenues would directly accrue to the project operators. In the BOLT format, the toll revenues would accrue directly to NHAI which is to raised through a management contract method.