BackRoad ministry revives focus on BOT
The Union road ministry plans to award road projects under the BOT model with easier terms to attract private investors and increase private sector participation in the sector. The government has revised rules to ease construction and traffic risks and will issue smaller awards requiring lower private investments. The ministry aims to award four to five BOT projects this fiscal year and more in the next to ensure that at least 10-15% of awarded projects in FY25 are fully-funded private sector projects. The HAM model, with reduced project sizes and limited financing by the private sector, is currently the most popular mode of awarding projects.
PremiumNEW DELHI : The Union road ministry plans to directly award road projects under the Build, Operate, Transfer (BOT) model with easier terms this fiscal year, aiming to attract private investors.
This is the first time the ministry will award projects under BOT, the preferred model till 2014. Most road tenders are issued by the National Highway Authority of India (NHAI) and National Highways and Infrastructure Development Corp.
“We have done a detailed analysis of BOT projects. There is a return of appetite in the market for developing highway projects under this mode because of the kind of work done in the last few years. This year also, we are pushing some BOT projects and our focus is that private sector participation in the sector increases as it brings lots of benefits including enhancing the quality of projects," Anurag Jain, secretary, ministry of road transport and highways (MoRTH) said in an interview.
The government has also revised rules to ease construction and traffic risks in these projects, and plans to issue smaller awards requiring lower private investments.
The ministry may award four to five BOT projects this fiscal year and more in the next to ensure that at least 10-15% of awarded projects in FY25 comprise fully-funded private sector projects, ministry officials said.
“We have also restructured BOT rules. There are two kinds of risks—one is construction risk and the other is revenue or traffic risk. Construction risk in projects is considerably low now because of the processes which have been put in place. Now, before awards, we have 80% land in HAM (hybrid annuity model) and BOT projects and 90% in EPC (engineering, procurement and construction). Moreover, we have introduced a new certificate where a project director visits project areas, talks with district administration and certifies that even in areas where acquisition is yet to be made, work is in progress and there are no issues that could delay projects and add to cost of investors by way of arbitration etc.," Jain said.
The government has also brought down traffic risk through changes in the bid document, Jain said.
Earlier, the entire risk and reward in BOT projects fell on the investors. The ministry is conducting an exercise to reduce the size of projects so they require less investment.
Large projects of ₹1,000-1,500 crore were tendered before 2014, with 90% of it on BOT.
However, aggressive bidding and a financial crisis stalled many of these projects. Banks laden with bad loans also turned wary of lending to these projects, where the private entity arranges all finances. Several traffic projections turned out to be incorrect as well.
The HAM model followed substantially reduced project sizes (of ₹100-200 crore) and limited financing by the private sector, while promising returns on capital invested as equity, eliminating both construction and traffic risk. This is the most try popular mode of awarding projects now.
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