Build-operate-transfer model returns: India to bid out half its highways, worth Rs75,000cr, next fiscal

The push, which hinges on a new, investor-friendly so-called master concession agreement or MCA, is expected to tap into private capital in highway construction. The private sector is optimistic of the BoT model given better revenue visibility thanks to factors such as high levels of use of FASTag, the toll deduction platform, and traffic predictability.

If the model finds takers to the extent targeted, it could free up government funding to cover, at least in part, some of its biggest schemes. A national employment guarantee scheme, for instance, has a budget of Rs86,000 crore this fiscal year. Or, urea subsidy costs some ₹1.19 trillion and ₹1.16 trillion has been earmarked for road works under the ministry of road transport and highways, or MoRTH.

The Indian government plans to bid out half of the national highway projects planned for fiscal 2027–a spending of Rs75,000 crore on 5,000 km–under a build-operate-transfer (BoT) toll model involving private road developers after a long break since 2014, said three government officials aware of the new plan.

The push, which hinges on a new, investor-friendly so-called master concession agreement or MCA, is expected to tap into private capital in highway construction. The private sector is optimistic of the BoT model given better revenue visibility thanks to factors such as high levels of use of FASTag, the toll deduction platform, and traffic predictability.

If the model finds takers to the extent targeted, it could free up government funding to cover, at least in part, some of its biggest schemes. A national employment guarantee scheme, for instance, has a budget of Rs86,000 crore this fiscal year. Or, urea subsidy costs some ₹1.19 trillion and ₹1.16 trillion has been earmarked for road works under the ministry of road transport and highways, or MoRTH.

The move to award more BoT projects comes at a time when their share in the country's highway contract awards has fallen from a high of 90% a decade ago to less than one-tenth today. Private investors have shied away from taking up the entire risk of highway construction and opted for projects awarded as Hybrid Annuity Model (HAM) and Engineering, Procurement, and Construction (EPC) model.

MoRTH plans to award contracts for construction of a total of 10,000 km of highways in FY27.

“With highway construction providing better rewards and reducing risk for investors through easier entry and exit clauses and the compensation mechanism for fall in estimated toll revenues under the new concession agreement being finalized for BoT (Toll) projects, these projects have once again attracted investor interest," said the first official cited above adding this interest will be tested in the BoT bids next fiscal. All three officials requested anonymity.

Mint earlier reported about the government's plan for a new model concession agreement (MCA) for toll-based BoT contracts by end-September last year but it is still in the works. Apart from BoT (toll), there is the BoT (annuity) model where the government pays the highway developer fixed payments or annuities, while taking on the traffic risk.

Late in December, the Union cabinet approved the country's largest BoT project, the ₹19,142 crore, 374 km, six lane, access controlled Nashik-Solapur-Akkalkot highway corridor in Maharashtra. Another 10 projects totaling Rs50,000 crore are to be awarded in FY27. According to a second official, these include:

• The eight lane Nashik-Phata- Khed National National High-Speed Corridor,
• Badvel-Nellore corridor in Andhra Pradesh,
• construction of a six-lane road from Jawaharlal Nehru Port Trust (JNPT) to Chowk,
• upgradation of the Khagaria-Purnia highway to four lanes in Bihar,
• construction of an outer ring road in Thiruvananthapuram,
• the Muzzafarput-Barauni section in Bihar,
• a four-lane access controlled Trichy bypass,
• the Northern Jaipur ring road, and
• the Tharad-Ahmedabad high speed corridor

These projects to be awarded next year are also part of the new infrastructure pipeline finalized by the finance ministry earlier this month for implementation over a three-year period ending March 31, 2028. MoRTH has the maximum value of projects under the pipeline worth ₹8.77 trillion.

A well-used model in the past

BoT tolls used to be the most popular way of awarding highway construction contrants until 2014. Between 2007 and 2014, in fact, only BoT models were used to build highways. The model accounted for 96% of all projects awarded in 2011-12.

But this progressively reduced as investor appetite for risk waned and several faced liquidity issues to complete projects won on ambitious bids. In 2018-19 and 2019-20 no projects were awarded on the BoT model. The last time before the Nashik-Solapur-Akkalkot project award in December, was when NHAI tried to assign BoT projects in 2020 but it took a year for it to be awarded in 2021. In FY24 and FY25, road developer NHAI could not award any projects on BoT mode.

The Centre is finalizing a new investor-friendly MCA for BoT (toll) projects wherein concessionaires would get freedom to sell back the project to the government prematurely to unlock capital for future investment in construction projects. The changes also include provision for compensation payment and extension of concession period for traffic variation and losses on account competing parallel roads.

The new MCA also includes easier exit and substitution clauses and provides a clearer definition of project termination with provision of full settlement of non-recourse funding (meaning the lenders' repayment depends on the project's revenue) used by the concessionaire. This issue had resulted in several BoT projects awarded earlier landing up in litigation. In addition, the Centre will now get powers to substitute a concessionaire to protect its own and that of the lenders’ exposure to projects.

The MCA is expected to be ready by the end of this fiscal years before bids are invited for BoT projects for FY27.

“Revival of BoT projects where the private investors take the risk of financing, building and operating highway projects under a 20-30-year concession period and then recoup investments by way of user charges or tolls… is essential not only for unlocking government funds for other important activities in the sector," said the third government official.

Queries emailed to a MoRTH spokesperson on Thursday remained unanswered till press time.

Highway developers positive on BoT revival

Companies such as L&T, IRB Infrastructure, Dilip Buildcon, PNC Infra, and Cube Highways, among others, have been active in India's highway development and at least one welcomeed the return of the BoT model on a larger scale.

The investment environment for highway projects remains positive, a spokersperson for IRB Infrastructure said. “The government has articulated clear plans to increase PPP awards, including BoT (toll) and TOT models. Projects that are toll-viable are expected to be awarded on a BOT basis, while over ₹3 trillion worth of assets are proposed to be monetized through the TOT route," the spokesperson said on email. PPP is short for public-private participation while TOT refers to toll, operate, transfer models.

With penetration of FASTag exceeding 95%, revenue visibility is better and companies are expected to show renewed interest in BoT (toll) projects, the IRB spokersperson added. The company, which participates in both BOT and TOT projects, emphasized that a predictable and regular pipeline of project will be critical in sustaining developer interest.

An expert strongly backed the push to review BoT projected stressing on how it will unlock government finances for other priorities. “HAM and EPC projects result in significant outflow from the government and, hence, BOT projects need to be revived as they result in the entire capex being borne by the private operator, thereby freeing up government resources for other projects," said Kuljit Singh, partner and national infrastructure leader, at consultancy EY India.

Queries sent to the spokespersons of L&T, Cube Highways, and PNC Infratech remained unanswered till press time.