The timely monetisation of mature road assets will be a critical determining factor in plugging the shortfall in budgetary allocations and fetch requisite funding to support ambitious execution targets set for the Bharatmala programme; failing which the shortfall will have to be met through additional borrowings, thereby further increasing the debt with the NHAI. In this context, the success of the toll-operate-transfer (TOT) will be very significant.
The overall funding requirement for the new highway development programme is estimated at Rs 6.92 trillion, which is proposed to be funded through budgetary allocations of Rs 3.43 trillion over FY2019-FY2022, market borrowings of Rs 2.09 trillion, Rs 340 billion through proceeds of monetisation through the toll-operate-transfer (TOT) route and the remaining Rs 1.06 trillion through private sector participation.
Rajeshwar Burla, AVP & Associate Head, Corporate Ratings, ICRA said, “A majority of the Bharatmala programme is expected to be undertaken through the National Highways Authority of India (NHAI). While the NHAI borrowing programme is on track, the budgetary allocation in the last two budgets was lower than required (Rs 720 billion for FY2020 around 21 per cent lower than what is required), thereby necessitating dependence on other funding avenues.”
It may be recalled that the Cabinet had approved the Bharatmala Pariyojana Phase-I along with other programmes in October 2017 involving around 83,000 km (including Bharatmala Pariyojana Phase-I of 24,800 km) of national highway development by FY2022.
As per ICRA note, the first bundle under the TOT, which was awarded to Macquarie had a total of nine projects involving 681 km. As against the NHAI’s expectation – initial estimated concession value (IECV) of Rs 62.58 billion, the winning bid of Macquarie stood at Rs 96.82 billion. Considering that the H1 was higher than the NHAI’s estimate by 55 per cent; the first TOT bid was a resounding success for the NHAI.
The bids for the second bundle of TOT were invited by the NHAI in August 2018. Following the tepid response, the bid deadline for the second bundle was deferred multiple times and finally concluded in December 2018. The second bundle witnessed three bidders. As against IECV of Rs 53.62 billion, the H1 bid stood at Rs 46.12 billion (from Cube Highways) – 14 per cent lower than IECV. The H2 bid (Adani Group) stood at Rs 36.75 billion – 31 per cent discount to IECV.
Unlike the first bundle, there are no stretches along high-density golden quadrilateral corridors for the second bundle and many of these stretches are located in states with relatively lower economic activity and consequently, the toll collection potential has been lower for the second bundle when compared to the first bundle. Therefore, it failed to elicit a favourable response in line with the first bundle.
“The fact that the first TOT bundle was awarded for a much higher price than the NHAI’s estimate by 55 per cent has raised the expectations for the second bundle. This is evident from the IECV (base price) to the annual toll collection (FY2018) ratio, which was 12.2 times for first bundle and 17.9 times for the second bundle. The IECV multiple for the second bundle is possibly aligned with the multiple for the winning bid for the first bundle of 18.9,” Burla added.
To make the second bundle more attractive, the NHAI may add a couple of attractive stretches with more traffic density or replace some of the stretches with weak traffic density with that of higher traffic density. The NHAI also has the option to reduce the IECV but that would set a wrong precedent. Therefore, the downward revision of IECV is unlikely. Under phase-I of TOT, seventy-five operational national highway projects totalling 4,376 km have been preliminarily identified for monetisation. Overall, the government expects to mop up about Rs 340 billion from phase-I of TOT.