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The share of privately funded highways through the Build-Operate-Transfer (Toll) model in total highway project awards this fiscal year could reach the government's target of 10%, according to a research report by rating agency ICRA. Road construction is projected to increase further to between 12,500-13,000 km.
No highway projects were awarded under the BOT toll model in 2023-24, despite National Highways Authority of India (NHAI) preparing a list of 15 projects worth INR 44,412 crores for bidding by March-end. To boost investor interest in BOT toll, the government revised the model concession agreement in March. This provides enhanced construction support and higher compensation if traffic projections are not met.
Under the BOT toll model, the concessionaire funds the entire cost of highway construction and receives rights to toll revenues in return. Other models like engineering, procurement and construction (EPC) and hybrid annuity model (HAM) require the government to bear the entire cost of construction. BOT toll awards have languished for many years despite government efforts to revive it.
In the previous financial year, the engineering, procurement, and construction (EPC) mode accounted for 70-75% of awards, followed by the hybrid annuity model (HAM) at 25-30%. Bidding under the EPC and HAM models in FY24 saw fierce competition, as evidenced by consistently discounted bids against the authority's base prices since FY21, noted the report. The maximum and median discounts for April-February FY24 stood at 46% and 21%, versus 51% and 25% in FY23.
The BOT projects not awarded in 2023-24 will likely be awarded this year. NHAI has also identified 53 highways worth INR 2.1 trillion which it wants to develop through BOT.
ICRA expects road construction to grow 5-8% to between 12,500-13,000 km this year, after a robust 20% expansion in 2023-24 when 12,349 km of highways were built. Execution will be supported by a healthy project pipeline, increased government funding and a focus on completing projects by the Ministry of Road Transport and Highways.
The ministry's project award pipeline remained healthy at over 45,000 km as of March, despite a significant decline in awards for fiscal year 2024 owing to delays in cabinet approval for revised cost estimates of the Bharatmala Pariyojana Phase 1 project. This delay resulted in a 31% year-on-year fall in projected awards to 8,551 km in FY24, from 12,375 km in FY23. A similar trend was observed in FY19 prior to the last general elections, with project awards declining over 67% annually.
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