NHAI not opposed to the PPP model for BOT projects

Since FY10, the NHAI has awarded more than 150 projects on Public-Private Partnership (PPP) under the Model Concession Agreement (MCA), with most of these projects being in various stages of implementation. However, there has been a reversal in trend since FY13, with a large number of PPP projects failing to evince any positive response from bidders. It has been seen that as many as seventeen BOT (toll) projects and three BOT (annuity) projects failed to receive any response from bidder’s in spite of being repeatedly put to bid.

NHAI proposes EPC for unresponsive projects under PPP model:

The prime reason for there being no response from bidders to the BOT (toll) road projects is due to the acute shortage of equity. Besides, prospective developers have also been over-leveraged and are facing an acute cash crunch. Moreover, there has been unwillingness on the part of private equity funds to fund the equity requirements of new or under-construction PPP projects. For all such projects facing poor response from bidders, the NHAI has proposed that they should be taken up under the Engineering, Procurement and Construction (EPC) mode. However, since NHAI is not averse to the PPP mode, it is still going ahead with inviting bids for BOT(toll) projects.

EPC model entails 2-stage process:

Incidentally, NHAI has adopted the EPC model, which entails that the design and construction will be assigned to a contractor for a fixed price, while the monitoring and supervision will be undertaken by a qualified firm selected transparently according to the new EPC guidelines. In this context, it is relevant to note that the success of the PPP model in India can be entirely attributed to the NHAI, which has carried out more than 240 highway projects through PPP.

Higher VGF more suitable:

In this context, it would be better for NHAI to request for higher Viability Gap Funding (VGF) than to do away with the privatisation process. According to the MCA guidelines, VGF is limited to 40% of the total project cost (TPC), which is about 50% of the civil cost. If the VGF is increased any further, it will affect the proportion of private contribution to the project. Hence, it is essential that there is a judicious mix of PPP and EPC projects based on viability.

NHAI’s insistence on over-bridges irrational:

It has been seen that NHAI engineers are insisting on over-bridges instead of under-passes. Moreover, constructing a 4 or 6 lane over-bridge road over an existing 2-lane road does not make sense. What is strange is that such a proposal is not based on technical considerations based on an Indian perspective of the ground realities, but on the experience of green-field motorways that exist in foreign countries. Besides, the financial stress on project developers would increase due the NHAI proposal to stop toll collection during the construction period for 4/6 lane projects.