Highway projects that failed to attract bids may be ‘restructured’

Highway projects that failed to attract bids may be ‘restructured’
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First Published: Mon, Feb 09 2009. 10 35 PM IST
Updated: Mon, Feb 09 2009. 10 35 PM IST
New Delhi: With its efforts to bid out highway stretches getting very little response from the private sector, the highways regulator is looking at “restructuring” projects which are not attracting any bids, an official said.
The National Highways Authority of India, or NHAI, is drafting a cabinet note that will allow it—if it gets necessary approvals—to offer highway stretches under the so-called annuity mode.
The annuity mode is a financing model where the private developer finances, builds and maintains the highway contract, in exchange for annual grants made by the government in lieu of tolls.
“A note is under preparation. We have to restructure the projects,” said official who didn’t want to be identified.
The highway authority received only two bids for just one of 12 projects, and for which bid deadlines expired in the past one week. Mint had reported on 24 January that the authority had received bids in 16 of 34 highway projects. However, six of those projects received only one bid each, which entails cabinet approval before awarding.
The government prefers financing projects through the toll model, where the private developer recoups the investments through charges levied on road users.
With banks questioning traffic assumptions on highways, the annuity model is considered more attractive to private developers, because it eliminates traffic risks.
However, it increases the financial burden on the government, which had evolved public-private partnerships as a way to boost scarce budgetary resources for infrastructure.
While NHAI does not necessarily need the cabinet’s approval to offer highway stretches in the so-called annuity mode, road transport secretary Brahm Dutt in a press briefing last month said the ministry intended to take cabinet clearances to avoid any confusion.
This move comes even as the country’s beleaguered highway development programme has almost ground to a halt because of delays due to litigation and confusion over bidding guidelines.
By the time the government sorted out the guidelines, the country was already in the throes of an economic downturn, leading to reduced interest in bids.
Meanwhile, NHAI is offering a 262km stretch of highway in Jammu and Kashmir as six separate packages under the BOT (build-operate-transfer) annuity model, where a private developer finances, builds and maintains a highway in exchange for a specified annual sum from the government, the same official said.
Analysts, however, said taking the annuity route might not necessarily be a good idea, especially because the government has already, in the past few months, corrected a number of issues plaguing the highway building programme, by increasing the maximum amount of grants that firms could apply for.
“I would think it is jumping the gun,” said Siddhartha Das, national PPP practice leader for consultancy firm Ernst and Young Pvt. Ltd, adding that the lack of bids is more a reflection of the amount of time NHAI is giving private companies to do their due diligence.
The annuity mode, he says, is too cautious an approach for the sector because most of the issues surrounding the projects have been fixed and what companies need is time.
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First Published: Mon, Feb 09 2009. 10 35 PM IST