Around 75 operational NH projects completed under public funding have been preliminarily identified for potential monetisation using the TOT Model.
04 Aug 2016 | 9159 Views | By Autocar Pro News Desk
The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi has authorised the National Highways Authority of India (NHAI) to monetise public funded National Highway (NH) projects which are operational and are generating toll revenues for at least two years after the Commercial Operations Date (COD) through ...
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The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi has authorised the National Highways Authority of India (NHAI) to monetise public funded National Highway (NH) projects which are operational and are generating toll revenues for at least two years after the Commercial Operations Date (COD) through the Toll Operate Transfer (TOT) Model.
The monetisation will be subject to approval of the competent authority in the Ministry of Road Transport and Highways (MoRTH) / NHAI on a case-to-case basis.
Around 75 operational NH projects completed under public funding have been preliminarily identified for potential monetisation using the TOT Model.
Explaining the TOT Model, the government’s official statement said: “The TOT Model would provide an efficient Operation and Maintenance (O&M) framework requiring reduced involvement of NHAI in projects post construction completion. Further, the corpus generated from proceeds of such project monetisation could be utilised by the government to meet its fund requirements regarding future development and O&M of highways in the country. This could address development/strengthening of highways in unviable geographies. The model would facilitate efficient toll realization through private sector. It would also create new business opportunities for a new vertical of developers who specialise in O&M of highways, apart from boosting a investors (Institutional Investors including Pension & Insurance Funds, Sovereign Funds, etc.) averse to taking construction risks but adequately equipped for making long-term investments in road infrastructure.”
Background of NH projects
For the traditional public funded NH projects i.e. projects constructed under erstwhile Item Rate Contracts or the current Engineering, Procurement, Construction (EPC) lump -sum contracts, after completion of construction and completion of defects liability period of up to four years, the contractors exit the completed projects and the entire responsibility of regular and periodic maintenance and day-to-day operations including toll collection comes on to NHAI.
NHAI generally outsources such services through various vendors and contractors. With continuous growth of the sector, the number of public funded operational highway projects is likely to increase over time. Such completed and operational public funded projects in some cases have been bid out under the Operate, Maintain and Transfer (OMT) contracts wherein the selected concessionaire is required to take care of the project O&M for a period of around 6-9 years depending on when the major periodic maintenance is due. The OMT model has only been partially successful. Limitations of the model include relatively short tenure of O&M obligations for the concessionaire and participation mostly being restricted to contractors and developers only.
How will monetisation help?
Monetisation of public funded NH roads is expected to create a framework for attracting long-term institutional investment on the strength of future toll receivables. Market feedback indicates that certain institutional investors from outside the country have a long-term investment appetite and are keen to participate in operational highway projects with stable toll revenue outlook. These investors generally hesitate from taking construction risk but are willing to look at de-risked brownfield road assets.
Accordingly, under this model, the right of collection of user fee (toll) in respect of selected operational NH stretches constructed through public funding is proposed to be assigned for a specific time period, to developers/investors against upfront payment of a lump-sum amount to the Government. Further, during the tenure of the contract, the O&M responsibility would remain with the assigned developer/investor.