NHAI to lean on private firms mostly for highways construction in FY21

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The National Highways Authority of India (NHAI) will rely on the private sector for constructing more than half of the projects during the current fiscal year. This would substantially be different from last year, when 60 per cent was done on engineering, procurement, and construction (EPC) or government-funded mode in 2019-20.

According to the latest estimates by the authority, project execution would be more in the private sector domain since the government is facing liquidity issues and build–operate–transfer (BOT) and hybrid-annuity could boost private sector investment.

The has set a target of building 4,500-kilometre highways in 2020-21, of which 40 per cent would be executed on hybrid-annuity and around 5-10 per cent on the BOT model. The remaining road projects will be executed by the authority through EPC, where contractors are paid directly by the government and they do not incur any traffic risk. “EPC exposes us to more liquidity issues in the future but the saving grace is the tolling revenue that comes directly to us,” an official said.

To drive the investor sentiment back in the BOT segment, the in February came out with a new set of guidelines a draft Model Concessionaire Agreement (MCA).

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In order to provide relief and get stuck projects moving, the authoority has introduced the ‘harmonious exit’ clause in the new concession pacts for the BOT projects.

According to the draft MCA, the NHAI and the concessionaire would agree that in case of any financial default, the lender can invite, negotiate and procure offers, either by private negotiations or public auction or tenders for the take over and transfer of the project highway.

If the authority has any objection to the transfer of concession in favour of the nominated company in accordance with this agreement, it shall, within 15 days from the date of proposal made by the lenders’ representative, give a reasoned order after hearing the Lenders’ Representative, the draft said. If no objection is raised by the NHAI, it will deemed to have been accepted.

The other major modifications proposed in the MCA are related to capping of liabilities of either party throughout the subsistence of the agreement, tightening of conditions precedent prior to declaration of appointed date, and amendment in dispute resolution mechanism.

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They also include changes incorporated from the recent updates in model agreements in other modes of implementation such as hybrid-annuity and EPC. “We are hopeful that the new BOT guidelines will be in place this year and we will be able to award 5-10 per cent of the total projects on BOT,” the official quoted above said without divulging the timeline for finalisation of these guidelines.

While the government is of the view that the new BOT guideline is a way of inviting the private sector into the sector, analysts warn with multiple issues impacting the sector, including and exodus of labour, it is difficult to predict.

Share of EPC in the highway project execution for 2019-20 was 60 per cent and HAM was 40 per cent. Under the hybrid-annuity projects, the government funds 40 per cent of the total project cost and the remaining is arranged by the company.

There was no award on BOT as the government was formulating the new framework. From FY17 to FY19, BOT contributed 15-20 per cent share to the overall mix. In FY20, the NHAI constructed 3,979 km of highways, which it claimed was the highest construction achieved in a fiscal year. The pace has seen steady growth with 3,380 km built in 2018-19.

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