The Hindu Business Line : Plan panel prefers toll-based BOT model for highways

THE Planning Commission has suggested wider adoption of the toll-based build-operate-transfer (BOT) model instead of the annuity approach for development of highways through the public-private-partnership (PPP) route.

In a recent presentation on the roads sector, the Plan panel has also urged the Government to revisit the incentives granted to PPPs for developing highways in order to make it more attractive.

Besides, it has recommended the creation of an independent regulatory authority for the roads sector.

According to the Plan body, the response to PPPs has only been "limited" so far with 48 projects worth Rs 8,940 crore being developed through this route.

This includes 29 contracts costing Rs 4,447 crore being developed on the toll-based BOT format, 8 contracts for Rs 2,354 crore on the annuity-based BOT method and 11 contracts on the Special Purpose Vehicle (SPV) route costing Rs 2,139 crore.

One of the major constraints facing the successful adoption of the PPP method was the "wrong choice of models", it has argued.

Highlighting the importance of proper project planning for PPP projects demonstrating the advantages that can be achieved, the Commission has asked the Government to identify and remove deficiencies in fiscal incentives, share the downside risk and make the toll rates affordable.

The Plan body had all along opposed the annuity-based BOT format for developing highways and had questioned the feasibility of taking up this concept in a scenario where the entire traffic risks are borne by the National Highways Authority of India (NHAI).

Under the annuity method, the private operator will not collect tolls from the users of the highway facility but will be paid a fixed semi-annual sum called "annuity" by the NHAI during the concession period to compensate the operator for the capital costs, operation and maintenance expenses of the project and the returns thereon.

According to the bidding criteria, the bidder quoting the lowest annuity amount from the NHAI would be awarded the contract. This is the most risk-free variant of the BOT method of building highways with private sector participation since the traffic risks are fully borne by the NHAI.

According to Mr A.D. Narain, former Director General (Road Development) in the Ministry of Road Transport & Highways, the Government must look at "sharing risks" as an equal partner with private entrepreneurs to encourage larger flow of private funds into the roads sector.

"It is high time that the Government looked into this in a positive manner. There should be a transparent mechanism by which the Government and the private sector can share the risks," he said.