New build-operate-transfer model addresses national highway traffic risk

The much-awaited new norms for national highway projects on build-operate-transfer (BOT) model will have sweeteners to entice the private sector back to the mode that almost vanished from the scene for years due to some challenges.

The Union government seems to have addressed those challenges in the final norms that may have some monetary relaxations for the contractors in the absence of estimated traffic, two officials told Business Standard.

The traffic estimation will be done by the ministry of road transport and highways and the National Highways Authority of India (NHAI). “If the traffic falls below the estimates, the concessionaires would be duly compensated,” a senior NHAI official said. 

The traffic projections would be for certain time periods starting from five, 10, 15 years, and onwards.

For instance, if the official estimate for a particular highway for five years is 20,000 (PCUs) passenger car units and the actual traffic on the road stretch after the five-year period is 80 per cent of the estimated traffic, the highway developer would be compensated for the remaining 20 per cent traffic.

“The compensation would be in terms of extension of the tolling period and can even be further extension of the contract,” the official quoted above said.

The new guidelines have been finalised after several rounds of discussion between NITI Aayog, the road ministry, and the NHAI.

“They would be soon unveiled, and we are hopeful that the new norms would be successful in bringing greater private participation in the sector,” a senior ministry official said.  The final guidelines will see the inclusion of the ‘harmonious exit’ clause, suggested in the draft norms.

Earlier this year, the NHAI came out with the new BOT guidelines or the draft Model Concession Agreement (MCA), essentially to bring back private players’ interest towards this mode of road construction.

The new norms are being brought in to encourage private participation in the BOT as big companies started shying away from these contracts because of various hurdles like clearances, contractual issues.

Large highway developers had exited the sector over delayed return on investment (ROI), rigid concessionaire agreements, and legal disputes with the government.

The harmonious exit clause was added to the proposed MCA to provide relief to the stuck 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.