Why India want to build private money again and manage highways

Copyright © HT Digital Streams Limit all rights reserved. Mint Explaner: Why the Government wants private players to build and run highways again in the 2000s helped build roads before collapsing. Now it is revived with new rules and protection for investors. (Bloomberg) Summary After almost a decade in cool mounts, India revives the construction operation transfer model. What is different this time, and why now? Coin explained. The Build Operate Transfer (BOT) model is a classic public-private partnership (PPP) model India that was strongly used on highways before 2014. Under Bot, a private franchisee operated finance, building and a toll track for 15-30 years before transferring to the government. After a long break, the center indicated a return of bot (toll) projects to attract long -term private capital and diversify how highway work is allocated. Mint explains why this model is brought back, what it offers and what has changed this time. What exactly is a Bot Highway project? With a high -high -rise bot model, a private firm can arrange design, financing, construction and operation of a toll road. The franchisee restores his investment from toll collections on the franchise period; At the end of the period, the road is transferred to the Authority, the National Highway Authority of India (Nhai). The model shifts traffic risk and financing risk to the private partner, while ownership eventually holds public. The model works to reward investors with good returns, while unlocking government funds for more essential work, especially to improve road maintenance and maintenance and to ensure safe travel on highways. Why is the government reliving now? Three reasons stand out: Mobilizing private capital: Bot allows big ticket-green field projects to be financed without immediate government’s expenses. Balance contract models: EPC (engineering, acquisition and construction) and HAM (hybrid annuity model) have dominated since 2014, but viable toll potential projects are now being targeted for bot. Policy solutions: Changes to the Model Concession Agreement (MCA) are designed to address the sources of disputes in the past and to make contracts more bankable. The government and Nhai targets indicate an attempt to increase the part of Bot projects in the total highway awards within the next two to three years. “Ham and EPC projects lead to a significant government outflow. Bot projects must be revived as it leads to the entire CapeX being carried by the private operator and thus free the government’s resources for other projects,” says Kuljit Singh, partner and national leader – infrastructure, EY India. What advantages and disadvantages have for the government? The main advantage of bot (toll) projects is that it facilitates the government’s immediate budget burden by moving financing and traffic risks to private developers. If investor sentiment remains supportive, the competition for such projects can quickly follow highway delivery and increase construction quality. But Bot projects have challenges. Over-optimistic traffic forecasts often lead to poor returns, causing disputes if contracts do not have clear compensation mechanisms. They can also get political setback, with demands to suspend tolls for public relief. Robust monitoring and stronger concessionaires are therefore critical. In this regard, the recent pressure in MCA (franchise agreement) includes adjustments intended to lower the risk of litigation, while these projects are attractive to investors. What are there for developers and financiers? For developers, BOT projects can offer higher returns if toll prospects are strong, along with steady, annuity style cash flow as soon as traffic stabilizes. They also gain control of operations for the franchise period, which creates long -term value. For financiers, the long tenors of bot concessions are well in line with infrastructure debt structures. However, borrowers are now insisting on conservative traffic forecasts, sufficient sponsorship equity and stronger contract conditions to avoid the tensions that have plagued earlier projects. What went wrong after 2014 with Bot? The model collapsed due to a mixture of excessive bids, poor traffic projections, land acquisition delays and costs. Developers and lenders have left nursing losses, which led to litigation and stationary projects. To risk the model, the government moved to Ham and EPC, where the state took up more traffic and market risk. The decline was sharp: Bot accounted for 96% of the highway awards in 2011–12, but dropped to almost nothing by 2018-20, when no new projects were awarded under this route. Even after a small revival effort in 2020–21, only a few Bot projects were awarded in FY24 and FY25. What’s different in the new bot contracts? The Ministry of Road Transport and Mort Courthes (Morty) prepares a revised MCA to revive investor interest in Bot (Tol) projects. The concept is aimed at making contracts more flexible and bankable. Key changes include: Early exit option: Concession holders can sell projects to the government before the end of the term, and free capital for new investments. Risk tweaks: Compensation and concession extensions will be allowed if traffic lacks due to competitive highways or other unforeseen factors. Stronger protection of the lender: clearer rules for termination of the project, including the full settlement of non-receipt loans, to reduce the litigation risk. Replacement clause: The center, such as lenders, can replace a defaulging franchisee while protecting exposure to investors and money lenders. “With several highways developed parallel to the existing highway network, this step will help address the traffic and toll income risks. It is a timely and strategic step that will further strengthen the confidence of investors in PPP road projects in India,” said Harikishan K. Reddy, executive chairman, Cube Highways and Transport. Ltd. What is the pipeline? Nhai has set 53 projects worth £ 2.1 trillion to develop under the Bot (Tol) model, with awards expected to start in phases this year. Another 100 roads are evaluated for Bot Awards. In the future, Mort is planning to prioritize bot for all projects with a strong traffic potential. Other models-like EPC or HAM-Sal is used only if toll-based concessions are indisputable. By FY26, Nhai expects Bot’s share in the overall highway awards to rise to 10%, making a strategic effort to bring private capital back into the long-term highway building. Catch all the industry news, bank news and updates on live currency. Download the Mint News app to get daily market updates. More Topics #nhai #National Highway #ExPlainer Read Next Story