Dual toll, single developer: Builders of new highways may get to toll older parallel roads too
In a bid to attract pvt investors, the govt plans to provide tolling rights for alternate roads alongside new greenfield highways. This approach aims to mitigate risks related to traffic fluctuations, ensuring revenue stability for highway concessionaires and enhancing the overall infra development.
Highway developers winning new projects may also be allowed to operate older parallel roads and charge tolls on them, in an effort to reduce toll leakage and attract more investors.
The Union road ministry has asked the National Highways Authority of India (NHAI) and other agencies to identify existing roads close to new highway projects that are yet to be awarded, two people aware of the matter said. The goal is to bundle both the old and new roads to the same bidder as a package for maintenance and tolling, the people said on the condition of anonymity.
Drivers tend to avoid new tolled highways when older roads—which are also operated and tolled by NHAI—are available, depressing toll collections and revenue projections on new highways. This risk acts a disincentive to highway bidding, and the ministry's move aims to plug this gap.
Package deal
The proposed package could either include the winning bidder of new highway projects also getting existing competing roads under the toll-operate-transfer (ToT) mode, or getting an operation and maintenance (O&M) contract for older roads with toll getting adjusted if traffic falls below projected levels on new stretches, one of the two people cited above said.
This will transfer the entire risk of highway construction to private developers, and allow agencies such as NHAI to focus more on upkeep and maintenance of highways and ensure safe mobility rather than constructing greenfield projects.
A query sent to the road ministry remained unanswered.
The second person said the new system has already been tried in the Guwahati ring road project, and it would now be nationally rolled out at all places where existing roads may compete with new stretches.
Bold step
“It is a bold step which will attract private contractors towards BOT (build operate and transfer) model, as traffic diversion risk is one of the biggest concerns in the existing public-private partnership model. If we bundle competing stretches together, revenue predictability becomes clear, and increases inclination of the private players towards investment," said Shailesh Agarwal, partner, risk consulting (infrastructure), EY India.
He added that the availability of such projects that could be offered under a bundle would depend on the existing concession agreements that are live in the old project.
“In cases where the toll collection rights are with the government, it will be easier to provide full tolling rights for both stretches, while in others, they may only be given operation and maintenance along with assured annuity. The pilot projects in Assam suggest that tolling rights could indeed be bundled; however, it will vary from project to project, depending on traffic potential, financing structure and government support," Agarwal said.
The new system of awarding highways is being considered as the road ministry has decided that most projects would go under the BOT mode (where the investor takes the entire risk on constructing new highways) and only in cases where such awards become difficult or unviable, other modes such as engineering, procurement and construction (EPC) and hybrid annuity model (HAM) would be used to award highway projects.
Back to BOT
Bringing investors back to BOT projects is still a challenge, and the new move could help in reducing risk and promote private investment in the road sector.
State-owned NHAI has identified 53 highway projects worth ₹2.1 trillion to be developed through the BOT model. Several of these are expected to be awarded in a phased manner beginning current year. In addition, another 100 road stretches are being finalized forward under BOT. Several of these are expected to be awarded under a bundle, including both new and alternate road projects.
“The government move is a smart risk mitigation step, as traffic fluctuations are influenced by various factors such as overall economic activity, fuel prices and seasonal variations. The policy will certainly reduce the risk of competition between two parallel roads, which is an important consideration in the BOT model," a highway sector expert said on condition of anonymity.
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