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Road projects on BOT mode struggle to take off as govt yet to frame guidelines

The guidelines are being re-drawn with an aim to make BOT projects more investor-friendly as the government looks to revive private investment in the sector. 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 Bureau|
Updated: Dec 13, 2019, 01.51 PM IST
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NEW DELHI: The government’s plan to bid out road projects under the build-operate-transfer (BOT) framework is likely to get delayed until next financial year as the roads ministry is yet to firm up the guidelines for allocating the projects.

The guidelines are being re-drawn with an aim to make BOT projects more investor-friendly as the government looks to revive private investment in the sector.

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.

“It is possible that we may not issue any bids on BOT this year,” a government official told ET, adding that final approvals to the revised guidelines were yet to come in. “We don’t see a point in inviting bids unless the guidelines are finalised since we have made changes according to recommendations from investors. We will not get optimal bids otherwise.”

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Road transport and highways minister Nitin Gadkari had said at the beginning of the financial year that his ministry will look at reviving the BOT mode of project development that has remained subdued for over four years now.

The National Highways Authority of India (NHAI), which initiated the process of making changes to the BOT guidelines, had set a target of awarding 600-700 km of road construction projects on the BOT mode in the current financial year.

BOT projects typically require at least Rs 1,000 crore of investment, and banks demand at least 30% equity from the concessionaire.

Effectively, the market is not ready for BOT projects. The smaller players do not have the equity that is required, while foreign players with deep pockets do not want to bear construction risks, the official said.

“Given the present market conditions, we are not very hopeful of reviving BOT,” a second official told ET, asking not to be identified. “The present market condition in terms of availability of both debt and equity is very tight, while appraisal norms of banks have also become stricter.”

An official query sent to the ministry of road transport and highways did not elicit any response till press time Thursday.

NHAI has already extended the bid submission deadline for annual pre-qualification bids for BOT projects multiple times as investors sought more time.

In September this year, NHAI said it had identified around 950 km of road stretches worth over Rs 30,000 crore to be offered on BOT basis and had invited pre-qualification bids to gauge investors’ sentiments.

While BOT projects are the suited means to attract private investors, a lack of bids may not necessarily be a sign of worry as it may indicate a shift in preference of long-term investors for different kind of projects, market watchers said.

“The appetite of long-term investors is more towards brownfield operating assets rather than greenfield projects,” said Vinayak Chatterjee, chairman at Feedback Infra.

With Development, construction and operation being the three stages of a project, there is a proven global appetite for the third stage, given the condition of the financial market world over, Chatterjee said.

The market needle is shifting towards toll-operate-transfer (TOT) mode, Chatterjee pointed out. Under the model, investors make a one-time lump sum payment in return for long-term toll collection rights.

India’s maiden round of TOT auctions fetched the government over Rs 9,000 crore, and while the second bundle of auctions fell flat, a third bundle, which was closed last month, has garnered a good response from the market.

“Our TOT-3 bundle has received good response from the market amid this economic situation so we are positive about response from investors,” said one of the officials quoted above.

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