In what could be seen as a revival of public private partnership (PPP) in highway sector, private developers have offered a premium for two projects tendered recently by the National Highways Authority of India on build, operate and transfer (BOT-toll) basis - a mode of private funding for national highways lying defunct for close to a decade now.
The projects in question are six-laning of Panagarh-Palsit (67.75km) at a capital cost of Rs 2,021 crore and six-laning of Palsit-Dankuni spanning 63.8km, requiring a capital cost of Rs 2,193 crore. Both the projects are in West Bengal and are part of the Bharatmala Pariyojana.
The request for qualification process of the two projects began in December last year and the financial bids were opened early this month.
"We have received a very good response from the private developers for the two BOT-toll projects tendered this year. Both the projects have fetched premium for the NHAI. In case of Panagarh to Palsit, an upfront premium of 11.5 per cent of the capital cost of the project has been offered, while in the case of Palsit-Dankuni an upfront premium of 10.8 per cent has been offered to the NHAI," an official in the Ministry of Road Transport And Highways (MoRTH) told Business Today.
The source added that both the projects will be awarded soon.
With this, the total premium offered to the NHAI from the private sector for the two projects comes at around Rs 469.25 crore. It is believed that highway construction companies like IRB Infrastructure, GR Infraprojects and PNC Infratech have submitted financial bids for the projects.
In the BOT-toll projects, the traffic risks are borne by the private sector bidder implementing the project. The government awards the project with a concession period during which the concessionaire earns toll revenues to recover its investment in the project. The bidders make a bid with lowest viability gap funding. However, in case of projects offering lucrative returns, bidders may offer premium to the government to bag the project.
BOT-Toll -- one of the key highway construction models -- took a backseat with the government awarding most of the projects either on EPC basis or on a hybrid annuity model, in which the government undertakes the entire funding as well as the traffic risk. The private sector simply works as a contractor and not as a developer.
The government has introduced changes in the model concession agreement for the highway projects to incentivise the private sector to come forward for the BOT-toll projects. As per the revised provisions, the revenue potential of a BOT-toll project will be revised every five years during the concession period against ten years earlier. Post the reassessment of the revenue potential, the concession period of the project will be reworked to ensure adequate cash flow to the concessionaire.
Also, projects will be awarded only after 90 per cent of the land needed for the project has been acquired.
Sources have indicated that more BOT-toll projects will be bidded out in the next financial year.