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NHAI to offer risk cover to woo investors for toll roads' auction

Economic Times:  November 15, 2016

New Delhi: Foreign funds willing to invest in government owned operational national highways need not worry about loss of traffic and other unforeseen risks like engineering faults associated with projects, because National Highways Authority of India (NHAI) has agreed to provide a risk cover to such investors.

The government had recently authorised NHAI to monetise operational public-funded national highways that are collecting tolls by leasing out them to investors for 25 years against an upfront payment through auctions.

Roads ministry expects to raise close to Rs 70,000 crore by leasing out over 100 national highway projects to investors who’ll then be responsible for collection of toll and the operation and management of the stretch, through a toll operate transfer (TOT) model.

In a recent meeting with the government, potential investors had flagged the huge financial risk associated with the possibility of structural design faults, sub-standard quality of construction and loss of traffic, and said they would invest only if these risks were covered. “A pension fund or its operation management agency cannot run after NHAI or roads ministry officials to provide compensation for any big structural damage or loss in toll revenue. The government needs to cover all this risk in the model concession agreement,” a senior executive of an international pension fund told ET.

NHAI has started the work on mentioning all these risks and who will underwrite the liability in the master concession agreement (MCA) for TOT deals. “Suppose there’s a loss in toll collection or a big structural damage due to some engineering problem, NHAI would provide the cover for it. We are building enough safeguards in the system so that investor confidence remains intact,” NHAI chairman Raghav Chandra told ET.

NHAI is also proposing a third party engineering audit of the projects before they are bid out. Chandra said the bidding process for leasing out projects would be started soon. “Till now we were addressing the concerns flagged by the investors. We are including everything in the MCA so that there’s nothing that remains in dark for the future. Now, we’ll start the process of bidding,” he said. Several international pension funds including CDPQ, Brookfield, Ontario Teachers and Abu Dhabi Investment Authority have evinced interest in investing the government’s drive to monetise its road assets to fund new roads.

NHAI plans to bundle various projects for investors based on regional proximity, and the entire portfolio would be bid out.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.