NHAI plans to award 1,000-1,500 km of projects under BOT model in 2023-24

In the current financial year, NHAI had initially planned to award 600-1,000 km highway stretches through the BOT model and managed to award projects of around 650 km, an NHAI official said.

"We have seen renewed interest from larger players for BOT projects which will help us increase our offering in 2023-24," the official said.

The official added that the renewed interest in BOT projects has been seen due to amendments in the General Financial Rules (GFR) that allow construction contractors to get an upfront payment of 75 percent of the project cost.

“Earlier, a number of BOT projects would be delayed or cancelled due to aggressive bids by some private players but now with the new system for bidding out projects, those issues are likely to be resolved,” the official said.

Focus on debt reduction

The emphasis on BOT is aimed at reducing the NHAI’s burden on financing highway projects after the government capped the authority's market borrowing for the second straight year.

Roads constructed in India currently are built more on the hybrid annuity model (HAM) and engineering procurement and construction (EPC) routes in which government pays 40 percent and 100 percent of the project cost, respectively, to the concessionaire.

In the case of BOT projects, the government or NHAI does not pay for the construction cost, with the developer recouping investments by collecting toll on the stretch for the entire concession period, typically 20-30 years.

The government has set NHAI's internal and extra-budgetary resources (IEBR) as negligible in 2023-24, indicating the body will not look to borrow money to fund its capital expenditure.

In 2022-2023, the government had asked the highway developer to limit its borrowings. In the 2022-23 budget, the government projected that NHAI’s IEBR would fall to around Rs 1 lakh, from Rs 65,000 crore in 2021-22.

As per the government's revised estimates, NHAI will spend Rs 798 crore as IEBR in 2022-23. IEBR comprises funds by way of profits, loans and equity.

NHAI’s debt fell below Rs 3.4 lakh crore at the end of September 2022. The government is now looking to reduce this to Rs 1 lakh crore by 2024-25.

The government's move to set NHAI's IEBR to negligible in 2023-24 is also accompanied with raising the allocation to the ministry of roads transport and highways by 36 percent to around Rs 2.7 lakh crore for 2023-24.

Out of the total Rs 2.7 lakh crore, NHAI has been allocated around Rs 1.62 lakh crore as part of the ministry’s capital expenditure plan for 2023-24, a 21 percent increase over 2022-2023, when it was allocated Rs 1.34 lakh crore.

As per the revised estimates of the government, NHAI will spend around Rs 1.42 lakh crore in 2022-23.

Risk behind BOT projects?

According to a report by ICRA, about 120 BOT road projects defaulted between 2010-11 and 2021-22. Of these, 86 defaulted during the operational phase and 34 during the construction phase.

The ICRA report added that 57 percent of the defaults were on account of lower-than-estimated traffic while 24 percent were attributable to delays in annuity or grant payments and suspension or exemption of toll collections.

The report also said that 70 percent of the sample projects defaulted during the operational phase largely on account of traffic that was below expectations and authority-related issues. Only one-fourth of the projects could come out of default and nearly 16 percent of the projects were terminated.

Many of the large infrastructure companies that once dominated the BOT landscape have either shut down or shrunk in size. Some of them are still being probed by the Central Bureau of Investigation or Enforcement Directorate for possible financial irregularities.