Geographical contiguity to be the main criterion

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

Geographical contiguity will be the prime criterion, besides the volume of traffic, for project selection in the National Highways Authority of India’s (NHAI’s) roll-out of the first set of highway projects for monetisation.

According to an official, after several rounds of discussions with international pension funds — probable suitors for these monetisation projects — the NHAI and the Ministry of Road Transport and Highways have decided to bid out these contracts on the basis of continuity of stretches of roads.

For instance, instead of offering patchy stretches spread across several states, the NHAI will tender roads that run in continuity.

Another aspect is the anticipated traffic volumes. The higher the traffic volumes, the more the international pension fund would be interested in it.

These were the two main parameters to attract investors, an NHAI official told Business Standard.

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

During consultations with the government, pension funds and sovereign wealth funds had suggested that the financial packages to be offered by the government should be large-sized.

For instance, of the 11 projects that are likely to be auctioned in the first round 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.

Last year, the Cabinet Committee on Economic Affairs 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 toll-operatetransfer (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 operation and maintenance (O&M) framework, requiring the NHAI's reduced involvement in projects after construction completion.

The corpus generated from the proceeds of such project monetisation could be utilised by the government to meet its fund requirements for highways in the country. This could help the development and strengthening of highways in inhospitable terrain.

The Centre aims to cater for investors such as pension and insurance funds, and sovereign funds, which are averse to construction risks but can make long-term investments in road infrastructure.