The Hindu Business Line : Negative grants are a positive story

Three types of PPP (Public Private Partnership) are discussed on http://morth.nic.in, the site of the Department of Road Transport and Highways. These are BOT (Build, Operate and Transfer) toll, BOT annuity, and SPV (Special Purpose Vehicle).

In the first, that is, the BOT toll model, the private sector (concessionaire) has to meet the upfront construction cost and also the expenditure on annual maintenance. "The Concessionaire recovers the entire upfront/construction cost along with the interest and a return on investment out of the future toll collection," informs the site.

Since toll is the revenue inflow, the project's viability depends on the traffic that can yield the toll. What happens if there is a gap between the investments required for a project and the gains arising out of it?

Grants - positive, negative

The Government steps in to increase the viability of the project by bridging the gap. And the assistance takes the form of capital grant. "Up to a maximum of 40 per cent of the project cost has been provided under NHDP (National Highways Development Project)," informs the Department.

While `grant' is what is paid by the Government to the concessionaire, the opposite is `negative grant'. For instance, D.S. Constructions paid a negative grant of Rs 67 crore to the Government/NHAI (National Highways Authority of India) for building the Delhi-Gurgaon expressway project.

Another example, from media reports dated about a year ago, is of a joint venture (of Soma Enterprises, Nagarjuna Construction Company and Maytas, a Satyam Computers group company) that clinched the bid from among seven entities to develop the nine-km highway from Hosur Road leading to Electronics City. The estimatedcost of the project was Rs 450 crore, on a BOT toll basis. And the joint venture offered to pay Rs 16 crore as negative grant to the NHAI.

A more recent example is of Rs 504 crore from Idaa Infrastructure, the largest-ever negative grant received so far for any highway project under the NHDP. The project involves six-laning of the Bharuch-Surat section, at a cost of Rs 492 crore, and the lead-time is 30 months.

That way, the Government gets not only a road laid by the private sector, but also money in the form of negative grant. How so? The answer lies in the concession period, which in this case is 15 years, including the construction period. Obviously, instead of the viability gap that one is generally used to in major infrastructure projects, these examples are riding on estimates of surplus occasioned by hopes of high traffic usage.

A positive story lies, therefore, behind every negative grant.

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