The One Big Hurdle In India’s Rs 50,000 Crore Toll Road Opportunity

Lenders don’t finance projects for 30 years as mandated under NHAI’s new toll-operate-toll model.

File photo of laborers working on constructing the toll plaza at the Bandra-Worli sea link in Mumbai. (Photographer: Adeel Halim/Bloomberg News)

India’s plan to raise Rs 50,000 crore by leasing out highway toll collection to private sector drew interest. Yet, there is a hurdle: financing.

That’s what the toll operator at entry points to Mumbai and Delhi and the Bandra-Worli Sealink said. It’s a big opportunity but lenders don’t finance projects for 30 years as mandated under the National Highway Authority of India’s new toll-operate-toll model, said Jayant Mhaiskar, managing director at MEP Infrastructure Developers. “Indian banks currently support only 20-25 years of funding.”

The new plan, pushed by Highway and Road Transport Minister Nitin Gadkari, allows companies to bid for at least two-year-old operational highway stretches by making an upfront payment, and collect toll over the concession period. That compares with the operate-maintain-transfer model, which requires the selected road operator to manage the project for six to nine years. It wasn’t successful because of fixed annual increases in payments to the NHAI irrespective of traffic, a CRISIL report said. The shorter tenure led to poor maintenance, it added.

The NHAI plans to initially monetise 680-kilometre nine highway stretches worth Rs 6,258 crore in the first phase of bidding under TOT— the deadline to file the request for proposal is Jan. 9.

In all, there are 77 such stretches with a total worth of Rs 50,000 crore, according to Crisil estimates.

To be eligible, a company’s net worth should now be 7.5 percent of the project cost compared to 12.5 percent earlier, a senior NHAI official told BloombergQuint requesting anonymity since he’s not authorised to speak to media. In a consortium or a joint venture, there can now be two operations and maintenance partners instead of one, he said. This would help smoothen the work in different locations, he said.

For upcoming projects, the NHAI has requested the ministry to bring down the concession period from 30 years. It’s yet to take a decision, the official added.

Besides the concession tenure, the cost of borrowing will also be a challenge, Mhaiskar said. Especially when infrastructure has been among the largest contributors of bad loans for India’s banking sector along with steel and power. “Every single 50, 100 bps is going to make a significant difference in actual bidding,” he said.

MEP in talks with two large overseas funds for a potential joint venture to bid for the projects. “We are hopeful that we should be able to tie up with one of them and bid for projects.”

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