Highways cancelled from road monetisation to be on bidding table again

The highway stretches from the cancelled bundle of toll-operate-transfer (TOT) projects would be split and offered in the next two auctions. 

The second offering from the road monetisation projects was cancelled last month, as the bids received were lower than the estimated price of the contract. 

“Financing is not a problem as far as road monetisation projects is concerned,” said a senior road ministry official. But experts feel that not just the hybrid-annuity projects, even TOT contracts were facing lending issues and therefore, the bids submitted by the three companies - Cube Highways, Adani Infrastructure, and IRB Infrastructure Developers – were below the estimated price of Rs 5,362 crore.

The National Highways Authority of India (NHAI) is yet to set a timeline for fresh rounds of auction since the announcement of dates for general elections is likely to happen any time.

The Union government had offered eight stretches of highways under the TOT model in August 2018, bids for which were opened in December 2018, where Cube Highways emerged the winner by quoting a price of Rs 4,612 crore. Adani Infrastructure (Rs 3,675 crore) and IRB Infrastructure Developers (Rs 2,718 crore) were the other bidders.

“After the success of the first road monetisation contract, the expectations from the second were very high. But it was then that a majority of the banks had come under the Reserve Bank of India’s prompt corrective action (PCA) scheme. That changed the atmosphere in the sector,” said Vishwas Udgirkar, partner, Deloitte India.

In October 2018, 12 of the 34 banks were put under the PCA scheme as their non-performing assets soared above regulatory levels. The PCA framework restricts weaker banks from fresh lending and expansion.

The experts also feel that even though bundling of projects adds size and value to the contract, each road stretch to be offered should be evaluated individually.

The cancelled second bundle consisted of eight stretches of national highways in Rajasthan, Gujarat, Bihar, and West Bengal. The total length of the project is 586.55 km and there are 12 toll plazas on these stretches.

The second bundle also involved an initial construction cost of Rs 929 crore and the total contract period is 30 years, which may increase or decrease by five or 10 years, based on traffic.

The first TOT bundle received bids 1.5 times more than the base price set by the NHAI, and the contract was bagged by Macquarie at Rs 9,681 crore.

The TOT model in India has been developed to encourage private participation in the highway sector. It 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 predetermined 30-year concession period.

On August 3, 2016, the Union Cabinet authorised the NHAI to monetise public-funded national highway projects that are operational and are generating toll revenues for at least two years after the commercial operations date through the TOT model. Around 75 operational highways completed under public funding were initially identified for potential monetisation.