Highway builders flag risks in revised BOT model, seek changes

The National Highways Builders Federation (NHBF) has raised concerns over the revised Model Concession Agreement (MCA) for Build-Operate-Transfer (BOT) toll projects, saying unresolved issues around risk allocation and project viability could continue to deter private-sector participation in highway development.

In a letter to the Ministry of Road Transport and Highways (MoRTH), NHBF welcomed several reforms in the revised MCA but said the recent trend of no bids for several recently invited BOT (Toll) packages showed that the industry continues to perceive the risk profile as unacceptably high.

The federation has sought changes on 16 issues, including arbitration, premium escalation, traffic risk, termination compensation, right of way and change-of-scope valuation.

One key demand is removal of the ₹10 crore threshold for arbitration. NHBF said restricting arbitration for disputes involving amounts of ₹10 crore or more creates concerns for investors and lenders and sought an institutional or ad-hoc arbitration mechanism.

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It has also proposed reducing annual premium escalation from 1% to 0.25%, arguing that the existing provision creates a substantial back-ended financial burden over the concession period.

On traffic risk, NHBF wants the existing 10% no-support band reduced to 5%. It has also objected to treating a 20% traffic decline over two consecutive years as a concessionaire default leading to termination, arguing that systemic traffic declines can result from macroeconomic conditions, competing roads or policy changes beyond the developer's control.

The federation has sought reimbursement of actual and demonstrable losses in cases of Authority Default or deemed termination. It has also asked that the 90% construction-zone requirement mean land that is physically available, encumbrance-free and workable for construction.

Other demands include compensation for authority-caused delays, changes to the Change of Scope valuation framework, linking grant or equity support to physical construction milestones, and recognition of global supply-chain disruptions.

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NHBF has suggested that BOT (Annuity) be considered the preferred PPP model for projects requiring immediate private-sector participation until consensus is reached on the revised BOT (Toll) framework.

Under the annuity model, private developers undertake construction and initial operations against predetermined payments, reducing traffic and revenue risks. NHBF said mature assets could subsequently be monetised through the Toll-Operate-Transfer route.