New TOT model in roads may fetch govt up to Rs40,000 crore: Crisil Research
The money raised under the toll-operate-transfer, or TOT model, will be used to invest in developing more national highways
Mumbai: Monetisation of the first 75 operational highways under the new toll-operate-transfer (TOT) model in India’s roads sector may fetch the government about Rs40,000 crore, Crisil Research said in a report on Wednesday.
India had in November approved the TOT model under which toll highways operated by the National Highways Authority of India (NHAI) for over two years will be leased out to entities, which will collect toll and operate the project for a specified duration, in a return for a fee.
The money raised will be used to invest in developing more highways.
NHAI has decided to lease up to 75 national highway projects which are fetching tolls for at least two years to various entities on the TOT model. The entities, including domestic roads companies and international funds, will participate in a bidding process for the operational assets.
“Variation and volatility in traffic can reduce returns. Investors would take a hard look at this, including the impact of DFC (the Dedicated Freight Corridor) and GST (Goods and Services Tax), when placing bids. They would also be wary of latent defects in roads that are not detected during technical examination,” said Prasad Koparkar, senior director, Crisil Research.
Investors would factor in the freight-heavy nature of national highway traffic in India, the associated volatility, and the reduction in road freight growth expected after the implementation of the Dedicated Freight Corridor (DFC) by the Indian Railways, the report said.
Crisil Research said its calculation assumes annual toll revenue growth of 7-8% and return on equity of 14-16%. “Theoretically, Rs 40,000 crore can fund the construction of 2,800 km of four-lane national highways, which would be equal to the execution expected in fiscal 2017,” it said.
Crisil Research estimates that between fiscals 2018 and 2020, construction of highways would require investments of Rs2.2 trillion, or more than twice the Rs1 trillion set to be spent between fiscals 2015 and 2017, with higher execution of publicly funded projects.