There has been a lot of debate in recent times about the need for the National Highways Authority of India (NHAI) to focus on asset monetisation and tap alternate funding avenues, such as toll-operate-transfer (TOT) and infrastructure investment trusts (InvITs), given the huge funding requirement for Bharatmala.
In its earlier observation on this subject, ICRA had already highlighted the importance of speeding up TOT awards and other fund-raising initiatives to meet the large funding requirements of the ambitious programme. However, the progress on both fronts has been slow to date. Further, the share of the build-operate-transfer (BOT) (toll) projects in overall awards has declined sharply (being made primarily through the EPC/hybrid annuity mode, or HAM), thereby increasing the financial burden on NHAI. To overcome this, NHAI may revert to the BOT (toll) mode of project awarding. According to ICRA, the risk-sharing is not balanced enough, giving rise to the need to devise a new model.
As Rajeshwar Burla, Vice-President & Associate Head, Corporate Ratings, ICRA, explains, “Risk averseness of road developers has increased over the past few years. Even today, many developers’ balance sheets cannot support huge equity investments towards BOT projects. Further, the transportation sector is undergoing transformational change with alternate modes, such as the dedicated freight corridor and inland waterways, which would result in a modal shift from roads to these modes over the medium to long term. In addition, the road network itself is undergoing significant changes with some economic corridors under Bharatmala competing with a few existing stretches. Overall, these factors would make traffic forecasting extremely challenging. Therefore, the BOT (toll) model in its current form may not have many takers. Achieving financial closure would also be a challenge given these uncertainties.”
Land acquisition cost alone accounts for over 30 per cent of the total expenses of NHAI. Further, with around 90-92 per cent of awards over the past few years coming through EPC (wherein NHAI has to fund 100 per cent upfront) and BOT (HAM, wherein NHAI has to fund 40 per cent upfront and the remaining 60 per cent over a period of 15 years) modes, the financial burden on NHAI has continued to remain high. The total debt for NHAI has increased by more than 2.4 times to Rs 1.79 lakh crore as on March 31, 2019 from Rs 75,385 crore as on March 31, 2017.
In this context, NHAI is left with two options: to go slow on project awards or increase the mix of BOT (toll) awards. Given the ambitious targets of Bharatmala, NHAI will clearly be required to increase the mix of BOT (toll) awards.