New pol­icy for easy exit from road projects

Business Standard - - FRONT PAGE - MEGHA MANCHANDA

Com­pa­nies build­ing high­ways might soon have the op­tion of ex­it­ing their projects once they have re­cov­ered their in­vest­ment if a new gov­ern­ment pol­icy is im­ple­mented. The pol­icy is likely to be called BOT (Vari­able).

The com­pa­nies will have to re­turn the projects to the Na­tional High­ways Au­thor­ity of In­dia once they have re­cov­ered costs through toll col­lec­tions. This pol­icy is aimed at mit­i­gat­ing risks in ex­e­cu­tion of high­way con­tracts through the con­ven­tional build-op­er­ate-trans­fer (BOT) model.

A se­nior road min­istry of­fi­cial said, “We are not get­ting enough in­ter­est for BOT projects. So, BOT (Vari­able) is one of the op­tions we are de­lib­er­at­ing. The pro­posal is at a nascent stage.”

The con­ces­sion or con­tract pe­riod for a road pro­ject is usu­ally 25 years. The new model will al­low both the gov­ern­ment and the con­trac­tor the flex­i­bil­ity to ex­e­cute and exit the con­tract be­fore this.

If the traf­fic is higher, a con­ces­sion­aire can re­cover costs through toll col­lec­tion be­fore the ex­piry of the con­tract. In the case of less traf­fic, the time for toll col­lec­tion can be ex­tended.

The suc­cess of the pro­posed model will de­pend on ac­cu­rate traf­fic pro­jec­tions, which can be done only through a strong in­for­ma­tion tech­nol­ogy (IT) sys­tem. “We are try­ing to en­sure use of ro­bust IT sys­tems for bet­ter traf­fic pro­jec­tions for the next 25 years,” the of­fi­cial quoted above said.

Whether firms will be al­lowed to exit five or 10 years be­fore time is be­ing dis­cussed, the of­fi­cial added.

“Even now, there are some in­built clauses that trig­ger early exit or ex­ten­sion of a con­tract. BOT (Vari­able) will be a suc­cess if traf­fic mon­i­tor­ing is strin­gent and timely. IT au­dits should hap­pen from time to time to en­sure this hap­pens,” said Vish­was Ud­girkar, partner, Deloitte In­dia.

Though pri­vate op­er­a­tors can mon­e­tise a pro­ject and sell it to a third party, ex­its where projects are handed over to the gov­ern­ment usu­ally come with a pay- out by the au­thor­i­ties or en­cash­ing bank guar­an­tees.

There are var­i­ous op­er­a­tional mod­els of road con­struc­tion: 1. BOT (toll), where a de­vel­oper builds the road and is al­lowed to re­cover his in­vest­ment by col­lect­ing toll over a con­ces­sion pe­riod of usu­ally 30 years. 2. Hy­brid an­nu­ity model (HAM), where the gov­ern­ment

pumps in 40 per cent eq­uity to min­imise the in­vest­ment risk for the con­ces­sion­aire. 3. En­gi­neer­ing-pro­cure­ment-con­struc­tion (EPC) model, which are gov­ern­ment-funded projects ex­e­cuted by pri­vate com­pa­nies on a turnkey ba­sis.

The HAM model was in­tro­duced af­ter it was felt that pri­vate com­pa­nies did not have the fi­nan­cial where­withal to ex­e­cute projects in BOT (toll) mode.

Of the projects awarded in 201718, 3,791 km was on the EPC model at ~430 bil­lion, 3,396 km was on HAM at ~765 bil­lion, and 209 km on BOT (toll) mode at ~25 bil­lion.

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