New BOT terms may revive pvt capex in highways: India Ratings and Research

Most Concerns Attended to, but Toll Estimation and Traffic Diversion from Competing Roads Pose Risk

The National Highways Authority of India’s recent attempt to revive the build-operate-transfer (BOT) mode of building highways will augur well for the road sector and revive private capital expenditure (capex) in the industry, according to India Ratings and Research.

The Ministry of Road Transport and Highways, in March, amended the BOT and toll operate transfer (TOT) model concession agreements (MCAs) to attract more private interest in the sector.

The highway authority, which has been trying to reduce its debt, has increased its own spending multifold to keep up the pace of infrastructure development without raising its borrowing levels, which stand close to Rs 3 trillion.

The Fitch group agency expects the new amendments to take care of most of the historical concerns that had led to private sector aversion from highway contracts, but toll estimation risk continues and traffic diversion due to competing roads remains a key factor to monitor.

“The NHAI amended the model concession agreement for BOT in FY24 and for bidding purposes, has identified 53 projects worth over Rs 2.2 trillion covering a length of 5,200 km. India Ratings and Research (Ind-Ra) opines that the NHAI, via the changes in the BOT concession agreement, shall help to increase the share of BOT projects to 20 per cent in FY25, however, lenders’ interest is to be closely monitored over the short term,” the rating agency said.

After several privatised highway projects went cold in the past, almost on the verge of creating a non-performing asset (NPA) crisis for lenders, all three stakeholders—government, industry, and financiers—have steered away from the BOT, with the terms of the MCA broadly considered not amenable for the sector.

Most of the projects in recent years have been fully financed from the Centre’s own coffers, either through milestone-based payments or annuities.

It added: “While hybrid annuity model (HAM) and BOT projects shall co-exist in the near term, BOT aims to reduce NHAI’s debt burden besides opening up a new avenue for the financially stronger players.”

“Furthermore, the revised MCA allows authorities to terminate slow-moving projects with harmonious substitution of the concessionaire and gaining access to the escrow account, leading to timely corrective action by the authority and pushing developers to complete projects in a timely manner,” India Ratings and Research said.

The revised concession agreement shall provide enhanced flexibility to boost private investor interest, addressing impediments in the erstwhile BOT concession.