Bidders pay for highway rights

Firms ready to fund construction of lucrative stretches, eye high toll collection.

Instead of seeking government funding for the ambitious national highways programme, private bidders are themselves funding construction of some stretches that promise high toll collections.

In the process, these companies are sparking a new trend in the highway construction programme "" one that may see more and more bidders paying for rights to construct highways and recovering their investment from toll collections.

There are many highway projects in Bihar and Assam for which the government had to dole out massive viability gap funding as an incentive for road construction companies to take up the job.

However, that is fast changing. Take the six-laning of the Surat-Bharuch stretch which was recently awarded by the National Highways Authority of India (NHAI).

According to sources, out of a total project cost of about Rs 1,000 crore, the two contractors "" L&T and IVRCL "" were ready to pay a "negative grant" of Rs 900-950 crore to the highway authority. (Negative grant is an incentive paid by concessionaire to the highway body to win the bid.)

In the last one year, the NHAI has received negative grants from concessionaires on seven other projects.

This means that the NHAI only has to raise Rs 50-100 crore for the six-laning project. Negative grants are usually paid by the companies to the NHAI in installments spread over a few years. The two packages for this stretch have concession periods of 25 years each, NHAI sources said.

"The Surat-Bharuch is a high-density traffic stretch as there is a lot of industrial activity on that belt. The concessionaires know that their investment will yield good returns," said an NHAI official.

When contacted, an L&T official refused to give details beyond stating: "We do not bid on any project unless there is an internal rate of return of 15 to 18 per cent."

S P Singh, a senior fellow at the Indian Foundation of Transport Research and Training, said the Ahmedabad- Baroda Expressway was a runaway success.

"Industries in those stretches don't mind being tolled so long as they are assured of faster connectivity," he said.