New BOT model may still not be preferred mode for highways: Experts

The Union government’s ambitious Bharatmala project would only see a miniscule contribution from the Build Operate Transfer (BOT) model projects as there are few takers for such projects.

To revive the BOT mode, the National Highways Authority of India (NHAI) recently came out with new set of guidelines — draft Model concessionaire agreement (MCA) — a move that may provide relief to the stuck projects.

“The MCA has tightened the norms for BOT but the bigger part of the equation is market risk. Healthy traffic forecast is the primary factor,” an official told Business Standard.

Experts feel the traffic and stretches will decide the future of BOT projects. The performance of the existing BOT projects in terms of traffic is average 22 per cent.

According to industry estimates, the contribution of BOT projects in the Bharatmala scheme would be 12 per cent. Hybrid-annuity and EPC (engineering, procurement and construction) projects would equally share the remaining share of projects.

To bring the focus back on BOT contracts, Highways Minister Nitin Gadkari had said the Centre would focus on those projects. However, the concessionaires or the construction firms were shying away from these models as they found these projects capital intensive and more risky.

The NHAI has introduced ‘harmonious exit’ clause in the new concession pacts for the BOT projects.

According to the draft MCA, the NHAI and the Concessionaire would agree that in case of any financial default, the lender or banks can invite, negotiate and procure offers, either by private negotiations or public auction or tenders for the take over and transfer of the project highway.

If the authority has any objection to the transfer of concession in favour of the nominated company in accordance with this agreement, it shall within 15 days from the date of proposal made by the lenders’ representative give a reasoned order after hearing the representative, the draft said. If no objection is raised by NHAI, it shall be deemed to have been accepted.

The NHAI’s latest available annual report, for FY18, shows the authority had 1,014 cases of arbitration — significantly higher from 125 in FY17 and 119 in FY16. The value of claims for FY18 was pegged at Rs 55,344 crore, as against Rs 42,074 crore in FY17 and Rs 30,071 crore in FY16. The data for FY19 was not available.

Besides harmonious exit, the other major modifications proposed in the MCA are related to capping of liabilities of either party throughout the subsistence of the agreement, tightening of conditions precedent prior to declaration of appointed date, and amendment in dispute resolution mechanism.

They also include changes incorporated from the recent updates in model agreements in other modes of implementation such as Hybrid Annuity Mode (HAM) and engineering, procurement, and construction (EPC).

This move will ensure to draw a fine line of functional balance of public- private partnership for development of highway infrastructure.