The surface transport ministry has offered an alternative financing mechanism, similar to build-own-lease-transfer (BOLT) to lure investors to unviable highway projects.
The mechanism involves making payments in the form of annuities to investors, virtually assuring a fixed rate of return to investors in road projects. The projects offered so far to private developers have been on build-own-operate-transfer (BOOT) or build-own-transfer (BOT) terms.
The new method is intended to secure investments from financial investors, and for those investors not prepared to assume the operational risks associated with such highway projects. This method of meeting project repayments in the form of annuities is expected to completely eliminate the operating risks associated with road projects, though the project investors would have to assume the construction and the maintenance risks.
However, the investing company or the special vehicle formed for such projects would be responsible for construction and meeting the capital costs of the projects. Such projects would be eligible for concessions, including a capital subsidy of 40 per cent and five-year tax holiday.
The ministry will be meeting the payments of project investors in the form of annuities for a pre-determined concession period. The maximum concession period on offer at present is 30 years. Says surface transport secretary Yogendra Narain, According to our calculations, we should be able to offer a minimum rate of return of 16 per cent.
The ministry will assume the operational risk of such projects through the National Highway Authority of India (NHAI). This implies that NHAI will assume the responsibility of collecting the tolls on such projects. However, the payments to the investors would not be coming only from the toll revenues collected by the NHAI. In the event of a short fall in toll revenues, the ministry would meet the dues of the investors from its own resources.
The new funding route has certain advantages for the NHAI and for financial investors. NHAIs liabilities are restricted to meeting the payments of investors only to the extent of 16 per cent and any revenues accruing over and above this would be retained by it.
