Logistics

Inter-ministerial group clears overhaul of model concession pact for BOT toll roads

P Manoj Mumbai | Updated on July 12, 2020 Published on July 12, 2020

Experts say that the changes were unlikely to draw increased private sector interest

An inter-ministerial group (IMG) has approved large scale changes to the model concession agreement (MCA) used for building privately-funded highways on the Build-Operate and Transfer (BOT) toll model that includes a revenue protection clause to address traffic risks.

According to the revised model concession agreement, revenue assessment of the project will be done after every five years. “So, if there is any drastic change in toll collection, the concession period will be re-adjusted accordingly,” a government official briefed on the plan said.

Currently, the revenue assessment is done after ten years or once in the life cycle of the project.

Revised model concession agreement

The work order for building highway projects will be issued only when 90 per cent of the land is acquired and this will form a part of the condition precedent. This is a must and the private developer (concessionaire) has to submit a letter satisfying that 90 per cent of the land has been acquired before taking over the project.

 

“As a result, disputes arising out of land acquisition will be nullified,” the official said.

Conditions precedent in a commercial contract details events which must take place before a contract or a party’s obligation(s) under a contract comes into force.

The revised model concession agreement has provision for setting up a dispute resolution board which will act as a continuous dispute resolution mechanism to settle issues expeditiously.

The appointment of an independent engineer is being made a part of the condition precedent, the official said.

The revised model concession agreement was cleared a few days ago by the inter-ministerial group comprising ministries of finance, law, road transport and highways and NITI Aayog. An official announcement in this regard is expected shortly, he added.

Industry views

Road developers and consultants say that the changes to the model concession agreement were inadequate to revive private participation in BOT toll road projects.

“The risk appetite now to take up greenfield projects is limited due to the overall situation,” said an executive with a highway operating company.

The government has unveiled its ambitious National Infrastructure Pipeline, under which it will develop additional 67,000km of national highways in the next five years at an estimated cost of Rs19.6 trillion. The private players are likely to fund 22 per cent of the overall costs.

Road developers shied away from BOT toll projects due to stressed balance sheets, forcing NHAI to shift to the Hybrid Annuity Model or HAM (wherein NHAI has to fund 40 per cent of the cost upfront and remaining 60 per cent over a period of 15 years) and engineering, procurement and construction or EPC (wherein NHAI has to fund 100 per cent upfront) to build highways.

But, these two models increased the financial burden on NHAI, drawing criticism from several quarters.

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Published on July 12, 2020
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