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The construction of a dedicated rail freight corridor may lead to investors lowering their bids for road projects, even as more and more stretches of the Railways have started moving trucks on trains, says a research paper.
According to Crisil Research estimates, the first 75 operational highway projects tendered under the toll-operate-toll model may fetch around ₹40,000 crore against original estimates of about ₹70,000 crore, which was later revised downward.
The lowering of bids are likely because investors would factor in the freight-heavy nature of national highway traffic in India, the associated volatility, and the reduction in road freight growth expected after the implementation of the Dedicated Freight Corridor (DFC) by the Railways, Crisil said in a release.
The calculation assumes annual toll revenue growth of 7-8 per cent and return on equity of 14-16 per cent. Theoretically, ₹40,000 crore can fund the construction of 2,800 km of four-lane national highways.
Further, implementation of the Goods and Services Tax (GST) regime, while not necessarily negative for road traffic, may alter the type of vehicles that would be used on certain routes.
Prasad Koparkar, Senior Director, Crisil Research, said: “Variation and volatility in traffic can reduce returns, including the impact of DFC and GST, when placing bids. Investors would also be wary of latent defects in roads that are not detected during technical examination. Another grey area pertains to competing roads; if an alternate route is built and is longer than the original stretch by 20 per cent then it is not treated as a competing route.”
Ajay Srinivasan, Director, Crisil Research, said: “Bidding through special purpose vehicles set up by infrastructure investment trusts or transferring transfer of technology projects to infrastructure investment trusts after two years would also aid better management of risks.” Today, almost 6,500 km of highways are being maintained by the NHAI using public funds and this is expected to more than double over the next five years.
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