New norms likely for BoT road projects to lure private investors
NHAI has already recommended changes in the BOT framework which are now being reviewed by the highways ministry.
Apart from making changes in the concession agreement and exit clauses, among others, the ministry of road transport and highways will firm up the guidelines to ensure risks are largely eliminated to revive the mode of project construction, a government official aware of the matter told ET.
Market watchers said this approach fits into the category of ‘plug n play’ model where the government creates an SPV to secure environment, land clearances and removes utilities. It then bids out the SPV with all these in place, getting a much higher price for the bid.
The National Highways Authority of India (NHAI) has already recommended changes in the BOT framework which are now being reviewed by the highways ministry, another official said.
In BOT projects, private sector developers build a road using their own funds, operate it and then transfer it to the government after a specified period.
ET reported on June 14 that NHAI was considering changes in the concession agreement to make BOT projects more investor-friendly. Some of the major challenges facing BOT projects are timely land acquisition and forecasting traffic density correctly. Developers have in the past bid irrationally, after which they did not get financial closure and the projects got stuck in the operational stage.
“With these guidelines we want a certain level of preparedness before a project is awarded. We will ensure land clearances are in place before awarding a project to the concessionaire,” the first official said, asking not to be identified, said.
NHAI has set a target of awarding 6,000 kms of road construction projects in the current financial year, and around 10% of these projects are expected to be awarded under the BOT mode.
The official said that banks and overseas pension funds will be looking to fund BOT projects if construction guidelines are tightened. “We see that a lot of entities flush with funds are looking to invest in construction projects, while activity on acquisition of stressed assets has also increased. We want to eliminate risks in the BOT mode,” the official added.
“We are taking a relook into our present BOT model. We are holding consultations to identify the shortcomings of this model and see how we can improve it . The BOT projects have suffered in the past due to delays in land acquisition, utility shifting, cutting of trees, lack of funds, etc.,” minister for road transport and highways, Nitin Gadkari, told ETin arecent interview.
The industry has been advocating this mode of public-private partnership, which was tried shortly with ultra-mega power plants, said Vinayak Chatterjee, chairman, Feedback Infra. “This model broadly goes under the umbrella of plug n play, and if this can be demonstrated in the roads sector, it will be a great boost to investor sentiment and private investment. Most importantly, it will get a government amuch better value for the bid because the risks are removed,” Chatterjee said.