Govt wants share in toll road spoils

Govt wants share in toll road spoils
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First Published: Thu, May 17 2007. 12 01 AM IST
Updated: Thu, May 17 2007. 12 01 AM IST
The government is opting for a revenue-sharing arrangement in all the toll road projects slated to come up as phase V of the national highway development programme, that will cover 6,500km of the busiest roads in the country to be built by private entities.
With this, the government will be getting a stake in future revenues, particularly in projects that are expected to see high traffic, but it will also be raising its own project risk.
The entire length is expected to be awarded by 2009-10 and completed by December 2012, according to the National Highways Authority of India.
The proposed new clause calls for a certain percentage of revenue to be shared with the government when the road starts operating and tolls are collected. The winning bid would be selected on the basis of when a bidder is willing to start sharing part of the revenues, said an official at the Planning Commission on condition of anonymity.
Of the highway expansion, almost 5,700km is in the Golden Quadrilateral network that connect the four main metros—Delhi, Mumbai, Kolkata and Chennai—and also the ones that handle the most traffic in the country. The projects will be taken up on a build-operate-transfer model, when road developers are offered long-term concessions, with the assets being transferred back to the government at the end of the concession period.
The share of the revenue would increase in subsequent years of the concession, as the debt-servicing cost for the private operator reduces and the quantum of revenue increases through higher traffic, the official said.
“The revenue share model was successfully followed for airport privatization in Delhi and Mumbai. In telecom too, the government moved from licence fees to revenue share seven years ago. Therefore, revenue sharing for highway projects is a logical step forward,” said Vinayak Chatterjee, who heads Feedback Ventures, a project management company.
The arrangement could well stop the practice of ‘negative grants’—the term given to up-front payments that bidders would offer the government over the cost of viable projects.
“The idea is that when a bidder gives up-front payments, there is more risk because the projects may or may not end up viable despite their projections,” this official said. “Revenue sharing is more equitable.”
“It allows the government and the taxpayer to share the huge possible upsides in the highway sector through the greater-than-anticipated traffic that comes from a fast-growing economy. A negative grant, by contrast, is a one-time transaction at the beginning of the project, that cannot capture the upside during long duration concession periods,” Chatterjee added.
The government has so far received over Rs1,000 crore in negative grants from private developers.
In December 2006, a consortium led by Ideal Road Builders Ltd paid Rs504 crore as a negative grant for a 65km stretch of road between Bharuch and Surat in Gujarat; similarly, in January 2007, a special purpose vehicle floated by Larsen and Toubro Ltd paid Rs471 crore for an 83km stretch between Vadodara and Bharuch.
The revenue sharing arrangement is a departure from the early days of private participation in the country’s mammoth road-building programme, when the government had to provide grants to cover the viability gap for companies investing in building and operating a toll road. To make the project more viable for the private developer, the government would continue offering grants of up to 40% of project costs for stretches that see lower traffic.
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First Published: Thu, May 17 2007. 12 01 AM IST
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