By?Ritika Chauhan
In 2016, the Cabinet Committee on Economic Affairs authorized the National Highway Authority of India to monetise 75 publicly funded national highways which were already in operation and had been generating toll for the past two years. The government?s goal behind this new-found interest in monetisation is influenced by its policy to give increased opportunities to the private sector. This monetisation is being carried out under a toll operate transfer, TOT model, replacing the existing operate, maintain, transfer, OMT model.
THE BIDDING
In the first round of its bidding, the government received offers from four companies: Brookfield Asset Management, Macquarie, IRB Infrastructure and Roadis-NIIF. Australia?s Macquarie bidder for the maiden bundle of projects offered for Rs 9,681.5 crore. The total cash flow from the first round is expected to cross Rs. 10,500 crores after an investment of about Rs. 855 crores. The Road Transport and Highway Ministry expect to generate an even higher amount by the end of its second round of bidding under this model.
It has been observed that various foreign institutional investors have shown interest besides the Macquarie. These include the Canadian Pension Plan Investment Board and other institutional investors from Europe and Asia. Investors from India that have shown interest in this opportunity include GVK Power and Infrastructure Ltd and MEP Infrastructure Private.
THE TOLL-OPERATE-TRANSFER MODEL
The TOT model or the Toll-Operate-Transfer model has been long promoted with an aim to facilitate asset recycling and encourage private participation in the highways sector. The way this model works is that a concessionaire pays a one-time fee upfront and in lump sum such that concessionaire is allowed to operate the project as well as the toll for pre-determined 30-year concession period, without having to build the highway. This particular model is essentially applicable to the highway projects. The TOT model differs from the existing OMT model or the Operate-Maintain-Transfer model. The OMT model requires certain road operators to manage a single project for a period of six to nine years. The existing model is often criticized for the short maintenance period and the annual increase in payments by road operators to the National Highway Authority of India.
It is hoped that the TOT model would enable efficient collection of toll through the private sector such that better maintenance of assets is facilitated. The model also takes into consideration and addresses the undue risks a concessionaire may be exposed to. In order to attract more quality bidders, attempts have been made to reduce risks associated with such long concession contracts.
Experts believe that in light of structured bidding, high-quality data, and experience possessed by NHAI, it is a well-planned opportunity such that it is well-planned in terms of size, prospects and risk management capabilities of attracting renowned global investors.
Featured Image:?Visual Hunt
Live News Daily is a trusted name in the digital news space, delivering accurate, timely, and in-depth reporting on a wide range of topics.