A group of investors from the United States led by Credit Suisse vice-chairman David Mulford met senior officials in the Ministry of Road, Transport & Highways (MoRTH) Tuesday and expressed interest in investing in the highways sector in India ahead of Prime Minister Narendra Modi’s second visit to the United States later this week.
Investments opportunities to the tune of Rs 60,000-70,000 crore for maintaining completed highways and new projects, estimated at $45 billion under the National Highways Development Programme, were part of the discussions.
The investors, sources informed, were keen on operations and maintenance contracts for completed stretches of public-funded highways on the TOT (toll-operate-transfer) basis, which would help the government mobilise additional resources for new highways across the country.
The ministry has identified 104 toll roads from where it is currently earning toll revenue and the investment opportunities on the said stretches would help in generating resources worth Rs 60,000-70,000 crore.
A senior ministry official told The Indian Express: “There was a meeting with a group of investors from the US, Canada, England, Singapore and Hong Kong. Most of the investment firms were from US and they expressed interest in bidding for operations and maintenance of national highways in India on TOT basis. Investment opportunities amount to Rs 60,000-70,000 crore for over 100 identified stretches of toll roads.”
Under the TOT model, completed stretches of highways by the National Highways Authority of India (NHAI) or a concessionaire will be bid out to the private sector in bundles of $ 100-150 million for a concession period of 30 years. The NHAI can securitise the toll receivables by collecting upfront the concession fee. The private party (infrastructure developers, private equity, institutional investors like pension, wealth funds) will operate and collect toll on the stretch during the period. Responsibility for capacity augmentation (if the average traffic in any year exceeds the target traffic) on the bid out sections will rest with the NHAI.
Manish Agarwal, leader, capital projects and infrastructure, PwC India, said, “There are broadly two benefits of bidding out highway projects on toll, operate, transfer basis. To the extent that there are potential leakages in government toll collection system, entrusting operations to a private sector player will plug gaps and make it transparent. Besides, it will help the government to securitise future cash inflows and utilise it for creating new assets.”
As per collection toll data available with the NHAI, over 40 per cent of toll projects are currently generating more than 10 per cent of the project completion cost annually. Of the total of 104 projects, 44 projects are generating 42 per cent of the project completion cost annually through toll, 34 projects accounting for 33 per cent of the project completion cost annually and 24 projects generating 23 per cent of project completion cost.
“The TOT model has been designed to create an opportunity for the private sector to invest in low-risk assets and at the same time provide for efficient operations and maintenance of highways by the private sector, check pilferage of toll revenue and channelise capital inflows for creating new road infrastructure,” added the official.
A big push in the roads sector is key to the NDA government’s infrastructure focus, wherein it has drawn up an ambitious target to award highway projects worth Rs 3.5 lakh crore. As many as 1,231 projects measuring 37,000 km have been firmed up for award by the ministry over the next two years.