The government is toying with the idea of relaxing investment norms in the road sector to attract foreign and domestic funds in projects that are nearly complete.

At present, investors are allowed to take over only fully completed projects, that have been in operation for two years.

While there appears to be foreign investor interest in such , industry experts feel there can be hiccups on issues related to valuation. Moreover, the industry has also sought a consistent policy regime with regard to toll charges, which form the revenue stream for investors in highway projects.

SB Nayar, Chairman and Managing Director, India Infrastructure Finance Company Ltd (IIFCL), said several foreign funds, including private equity, have expressed interest in near-completion road projects, adding that recycling of capital is critical for India's infrastructure development given that the country’s fund requirements are huge. A National Highways Authority of India (NHAI) official said that in such transactions, the key issue is always valuation.

“How much of the project is done. How much is left? Who will do the assessment? The lender who has maximum exposure in such projects has the right to take such calls…,” the official said.

However, bankers said lenders will have no issues with allowing foreign investors to take exposure in near- completion projects as long as the repayment terms on overseas funds do not lead to precedence over domestic lenders’ interests.

It may be noted that there already exists a lender’s substitution clause for such investments in completed projects that allows them to replace one equity investor with another, subject to the new investor meeting the qualifying norms. But that clause has not taken off.

“The road to hell is paved with good intentions…,” said another official in the know.

Developers uncertain

Meanwhile, road developers expressed doubts over the extent of investor interest. “The government needs to be clear on its intent on imposing tolls.

There are multiple messages, such as exempting more vehicles from toll imposition, which creates confusion among investors. A consistent, sustained long-term toll policy to attract domestic and internal investors to invest in public-private partnership (PPP) mode of building or managing is required,” said M Murali, Secretary General, National Highways Builders Federation.

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