Govt push puts road projects back in spotlight

Earlier, sector was struggling with regulatory hurdles

Hybrid-annuity model (HAM) projects and monetisation of roads — initiatives by the Union government in the last few years — have brought the spotlight back on road projects that had seen banks shy away due to regulatory and other issues in the past.

Experts believe these initiatives and a thrust on technology in the last few years have brought the focus back on the road sector, which was earlier struggling with issues of land acquisition, non-performing assets, failure of BOT (build-operate-transfer), and banks’ reluctance in giving loans.

“Earlier we had gone the whole hog in awarding road projects on BOT. But later when enough roads were built on E PC( engineering procurement-construction) mode, the companies got their confidence back ,” said former road secretary Vijay Chhibber.

With the introduction of HAM, the risk profile of bankers was reduced. In a HAM project, the government pumps in 40 per cent equity, the rest is made by the concessionaire.

The tolling risk was taken care of. Under HAM, the government bears the revenue risk in projects where traffic flow turns out lower than anticipated, leading to a reduced toll collection. Earlier, in BOT projects, traffic, operations, and maintenance risks had to be borne by the developer.

A new financing route - toll-operate-transfer (TOT) - was approved by the Cabinet Committee on Economic Affairs in August 2016, when it authorised the National Highways Authority of India (NHAI) to monetise national highway projects that were operational and generating toll revenues for at least two years after commercial operations date via the TOT model.

Experts believe the leakages in tolling were

addressed through TOT or the road monetisation projects.

Besides tolling a lot of EPC projects which were complete or required maintenance in the future and with TOT, the government received upfront payment for investing it further in future highway contracts.

In February, a joint venture between Macquarie and Ashoka Buildcon bagged the Union government’s first batch of TOT projects invited by the NHAI, quoting a price bid of ~96.81 billion. Another initiative of the government, which is being seen as step in the right direction by experts, is the introduction of FASTags for seamless commute on national highways. The move, aimed at ending congestion at toll plazas besides ensuring leakage proof toll revenue collection, was introduced in September 2017. FASTags are affixed on the windshields of vehicles and use radio-frequency identification technology to enable vehicles to pass through toll plazas, through designated lanes, without waiting in queues as the payment is made electronically.

“Technology has helped in tracking truck movement. Together these initiatives ensured the road sector remained alive,” said Vishwas Udgirkar, partner, Deloitte Touche Tohmatsu India LLP.