The government is considering providing additional financial support to highway developers for Build-Operate-Transfer (BOT) projects to attract more bidders and de-risk investments in the road sector. This move comes as developers have been urging the National Highways Authority of India (NHAI) to further amend the Model Concession Agreements (MCAs) governing BOT projects.
The primary motivation behind this consideration is to address the traffic diversion risk that developers face. Often, users opt for cheaper or free alternative routes, leading to lower-than-projected revenue from the new toll highways. To mitigate this, the government is exploring allowing developers of new greenfield toll highways to also operate existing, parallel routes.
Road developers have proposed several amendments to the MCAs, including restructuring the termination payment mechanism to ease the financial burden on concessionaires and make BOT projects more viable. The National Highways Builders Federation (NHBF) has urged the government to re-evaluate the payment mechanism to reflect shared demand-side risk, rather than classifying such cases as concessionaire default.
Other recommendations include adopting a permanent Global Navigation Satellite System (GNSS)-based direct toll plaza transaction mechanism to ensure uniformity and reliability of data for determining revenue support. Additionally, the NHBF suggested that prolongation cost compensation be based on a percentage of the total project cost, ensuring equitable reimbursement of financing and holding costs.
The NHAI plans to award 12 highway projects, spanning over 1,000 km, under the BOT model, with a total capital cost estimated at approximately ₹62,125 crore. Experts believe that further changes are necessary to make BOT projects more attractive and bring in more investors. Kuljit Singh, a partner and national infrastructure leader at EY India, pointed out that each BOT toll project is exposed to the risk of traffic diversion. He suggested adjusting concession periods by up to 10 percent, defining pass-through provisions for annual charges, and revising safety-related penalties that may be beyond developers' control.
While the NHAI's plan to allow highway developers to toll existing parallel routes may seem attractive from a fiscal standpoint, it could be perceived as unfair to road users. The move aims to encourage private participation in highway development by reducing risks and ensuring financial viability for BOT projects.
