Cabinet Approves Amendment of Toll Operate and Transfer Model of National Highways Authority of India

The Cabinet Committee on Economic Affairs (CCEA), on 20 November 2019 gave its approval to the proposed amendment to the to the Toll Operate Transfer (TOT) model of the National Highways Authority of India (NHAI). After the successful roll out of the TOT model in 2016, CCEA’s recent decision appears to be with a view to increase more participation of institutional investors in national highways sector for raising funds for NHAI.

Background

In 2016, the CCEA had first allowed NHAI to monetise the public funded national highways projects for raising funds from private or institutional investors by providing the right of collection and appropriation of tolls to concessionaire selected through an open, transparent competitive bidding (2016 TOT Model). The eligible projects under the 2016 TOT Model were brownfield highway projects, which were operational and generating toll revenues for 2 years after the Commercial Operation Date (COD). The 2016 TOT Model was rolled out to reduce the involvement of NHAI post construction of the highways and for providing with an overall framework for efficient Operation and Maintenance (O&M) of the national highways. Under the 2016 TOT Model, the selected bidder was given the right to collect toll and operate and maintain the highway for a pre-determined concession period of 30 years against an upfront lump sum amount to NHAI.

Key Highlights

Comments

The CCEA’s decision to reduce the operationalisation period for highways to be eligible for monetisation is a welcome move and is in the right direction to attract more private investors to bid for highway projects by providing wider sets of assets. Introduction of shorter concession period will make highway assets more attractive, as investors will be able to make a better risk reward projection. Further, for institutional investors it will allow good opportunity to assess the sectoral challenges, risk and return projection. CCEA’s move is likely to provide the much needed funding to NHAI to finance its existing debt and this move will provide impetus to the government in achieving the target under the ambitious Bharatmala programme.

-       Dibyanshu (Partner) and Sathyajith Nair (Associate)

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