The National Highways Authority of India (NHAI) has sought bids for a new bundle of highway projects on the Toll-Operate-Transfer (ToT) model as India’s highway development agency press ahead with an aggressive asset monetization plan to fund road projects.
The third bundle of ToT involves 566 km of highways spread across Uttar Pradesh, Tamil Nadu and Bihar for which NHAI has set a reserve price of ₹4,994 crore. Potential investors have time until September 30 to offer price quotations. The reserve pice for the third bundle is lower then the first round where the projects offered had a higher toll revenue.
NHAI is looking to raise ₹84,800 crore by offering 6,165 km of highways under ToT by 2024, each involving a ticket price of about $1 billion with a 30-year concession period.
“We are planning two bundles this year; every year we will roll out the bundles in a staggered manner to reach 6,165 km of highways under ToT. The total money which we are expecting from this exercise is ₹84,800 crore which is part of the overall financing plans for Bharatmala,” said Ashish Sharma, Member (Finance), NHAI, during a road show in Mumbai on Monday.
‘Attractive road bundles’
“These are fairly attractive road bundles; we were always concerned whether we should have only good projects in each bundle or we should have a proper mix. In terms of traffic growth rate, these are roads which have given a consistent revenue stream and we feel this could be a potential bet for new investors,” Sharma said.
“We can bring out more roads which have a very high passenger car unit or PCU traffic.
“But the problem is it will require capacity augmentation in the near future so we generally try and balance, otherwise we can start with highways having 20,000 PCU , but then there has to be proper mix, that’s why this bundle was finally selected,” he added.
Besides, 43 per cent of the highway bundle in the third round is under annuity, so the maintenance obligation is already on the annuity concessionaire. Four projects in the third bundle are on annuity while five are on EPC.
“Whether the reserve rice is ₹4,900 or ₹2,900, it does not have any bearing on my bid,” said the chief executive of a large highway developer. “My bid is based on the cash flow or estimated earnings; that has no relation to the reserve price. These highways have a two-year track record of tolling. So, unnecessarily keeping the reserve price high has no benefit. People will always look at what is the cash flow available and with the capital cost decide on the bid,” he said.
In the first ToT bundle, nine contiguous stretches of highways totalling 680 km generated a premium of $500 million for NHAI, translating into a premium of about $1 million per km. A consortium of Ashoka Buildcon and Australia’s Macquarie Group placed the winning bid of $1.5 billion against a reserve price of $1 billion (the net present value of future cash flows).
The second ToT package covering stretches in Rajasthan, Gujarat and West Bengal was below expectations and was scrapped.