With close to 40 per cent of highway projects based on Public-Private Partnership (PPP) mode having failed to take off, the Road Ministry has decided that it will take up road building contracts primarily on Build-Operate-Transfer (BOT)-Annuity mode, where the pre-construction status is taken care of by the Government.
In a meeting on Friday, the Ministry cleared three annuity mode road projects in Assam. The clearance came close on the heels of the Ministry scrapping three PPP projects. “The private developers failed to fulfill the pre-requisite of performance guarantee (premium) within six months of bagging the projects,” said a senior official of the Ministry of Roads, Transport and Highways (MoRTH).
Hurdles in land acquisition compounded with poor equity situation in the market have further aggravated the problem. “In BOT-Annuity mode, all requisite land acquisition, environmental clearances, shifting of utilities and due permissions are taken care of by the Government and the developer only has to build,” said the official.
“In such cases, the risk element is very low and hence the developer only has to construct and concentrate on project completion as there is an assurance of return from the Government at the end of the construction. We have increasingly realised that the BOT-Toll has not worked well for us, as the risk is more at the developer’s end,” he said.
In the BOT-Annuity model, the private concessionaire finances and undertakes the construction and maintenance of the highway and recovers its investment (plus a predetermined rate of return from the annuity payments by the Government (granting authority). The BOT annuity-based contracts are given through tendering where the lowest annuity requested is used as a bidding criterion. The granting authority retains the traffic risk, since it collects the toll revenues.
“We just cannot allow uncertainty on awarded projects, as this defeats the very purpose of construction, besides derailing all future projects in that stretch. Our focus is now on allotting projects, which have budgetary support like projects under National Highways Development Projects or those projects under National Highways Inter-connectivity Improvement (NHIIP), funded by the World Bank,” said the official.
The three projects, which were scrapped in the meeting last month, were Rampur-Kathogodam, Kota-Jhalawar and Meerut Bulandshahar. In these cases, the developer failed to pay the premium. Two more projects in Agra-Etawah in Uttar Pradesh and Khagaria-Bakhtiyarpur in Bihar are lingering with NHAI itself being the defaulting party. During the last two financial years, NHAI had bid out majority of projects on premium, which would have fetched the Government around Rs 1 lakh crore in the next 30 years. The Government also fears a rap from the auditors for wasting money on re-bidding processes.