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Macquarie bags first project under toll-operate-transfer with Rs 9681.5 crore bid     March 1, 2018

Back in 2016, the Cabinet had authorised National Highways Authority of India (NHAI) to monetise operational national highway projects using the toll-operate-transfer (TOT) model. The idea was to monetise public funded roads in an attempt to bridge the infrastructure investment gap, which the latest Economic Survey pegs at $526 billion in the next two decades. If the auction of the first bundle of nine projects - reportedly totalling 648 km - is anything to go by, the government is certainly off to a flying start. Singapore's Macquarie Asia Investment Fund has bagged the maiden bundle with a bid that is 1.5 times higher than NHAI estimates.

"Against NHAI's expectations of Rs 6,258 crore, the winning bid is Rs 9681.5 crore. We are happy that market has valued our assets one and a half times higher than our expectations. This bodes well for asset recycling to be used as a key resource generator for financing infrastructure in India," said Member Finance NHAI, Rohit Kumar Singh. No wonder Road Transport and Highways Minister Nitin Gadkari felt emboldened to claim that the monetisation of 105 road projects can easily fetch Rs 1.25 lakh crore and that there is no dearth of funds for building highways.

Apart from Macquarie, three other companies had thrown their hats in the ring for the first TOT bundle - Brookfield (with a bid of Rs 7,511 crore), Indian firm IRB Infrastructure (Rs 6,930 crore), and a joint venture between Roadis Infrastructure Holding and National Investment and Infrastructure Fund (Rs 6,611 crore). The tranche covers 9 stretches in total - 5 highways running across Andhra Pradesh and 4 highways in Gujarat - and was released last October after the government assessed asset condition through drone videos and network survey vehicles. Singh added that the funds generated from monetisation of highways will be used for new infrastructure programmes like Bharatmala, the government's ambitious Rs 7 lakh crore road building initiative.

To remind you, the TOT model has the concessionaire paying a one-time concession fee upfront (lump sum), which then enables the concessionaire to operate and toll the project stretch for the pre-determined 30 year concession period. This model is applicable to EPC and BOT (Annuity) highway projects, which have completed at least 2 years since date of completion. The model, as per officials, addresses the risks associated with such a long concession contract. Multiple provisions have been built into the model concession agreement, designed to take care of eventualities like roadway expansion, high toll traffic variation, etc. to ensure that concessionaires are not exposed to undue risks. In 2014, the Indiana Toll Road Company in the United States had ended up filing for bankruptcy due to actual traffic falling below estimates.

But things are looking much more optimistic in India. According to a Crisil report on roads released last September, the first 75 projects offered under this model can fetch the NHAI Rs 380 billion to Rs 420 billion, providing a return on equity between 14% and 16% to the TOT concessionaire. This explains the investor interest in the auction process.

Work, in fact, has reportedly started to monetize the subsequent three bundles and the NHAI might invite bids for the second tranche by next month itself.

With PTI inputs

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