The National Highways Authority of India (NHAI) has decided to cancel the second auction of toll roads after the bids came in far below its expectations, a person aware of the development said.
Cube Highways, the highest bidder in the second round of toll-operate-transfer (TOT) auctions, had placed a bid of ₹4,612 crore for the lot, below NHAI’s estimated value of ₹5,362 crore.
“Despite several attempts of negotiation with bidders, NHAI couldn’t get higher value for the roads. So, at its board meeting on Friday, they decided to cancel the second lot," the person cited above said on condition of anonymity. “I believe the NHAI plans to repackage this lot with others and bring it back at a later date."
The TOT model was part of the Union government efforts to monetize public infrastructure and build new assets under programmes such as Bharatmala. The success of the first round last February - where the winning bidder Macquarie bid ₹9,681 crore against the NHAI’s expectation of ₹6,258 crore for 700km of national highways - led the government to set a target of raising around ₹2 trillion through TOT in five years and copying the model to privatize state-run airports.
The second TOT round was announced in August, including 586km of national highways in Rajasthan, Gujarat, West Bengal, and Bihar at a base price of ₹5,362 crore. Under TOT auctions, the winning bidder gets to collect toll revenue from these highways over the next 30 years.
The original deadline for submitting bids was 5 November, and it was extended first to 5 December and then to 19 December.
Mint had reported then that bidders had complained about some stretches in the second batch of roads being poorly constructed and having far less traffic and toll revenues than projected by NHAI. When the bids were opened in late December, there were only three participants, and the highest bid was 14% below NHAI’s expectations.
Cube Highways is a road developer set up by global infrastructure fund I Squared Capital along with World Bank arm International Finance Corp.
A spokesperson for NHAI declined to comment. An email sent to Cube Highways remained unanswered.
Over the last two months, developers have been trying to convince the NHAI to accept the auction’s results and not to cancel the bids.
“But I don’t think the NHAI wants to take any chances in an election year," Vijay Agrawal, executive director, Equirus Capital, said. “I think the NHAI will go back to their consultant and ask them to revise the initial estimated concession value (the base price) and revisit options on how to go about the next auction. I think in this case, the adviser had given high valuation when the stretches in the lot didn’t have good traffic forecasts. They might choose instead to merge this lot with another later batch."
“NHAI cancelling this lot of TOT is a deterrent for future bidders," said Jayant Mhaiskar, vice-chairman and managing director, MEP Infrastructure Developers. “While NHAI has the right to cancel or rebid these roads, the TOT process is how price discovery happens and valuations are placed on a bidder’s risk appetite, cost of borrowing funds and traffic forecasts. This is a long process, it takes at least 3-6 months and there is considerable financial cost involved for developers in terms of getting bank guarantees, comfort letters from banks etc. I don’t think this move on NHAI’s part will go down well with large investors."