NHAI Plans Amendment of Model Concession Agreement for BOT Initiatives

The National Highways Authority of India (NHAI) is planning to amend its model concession agreement (MCA) for build-operate-transfer (BOT) projects in order to attract more private sector investments and revive the BOT toll model for highway development.

Background

The BOT toll model involves private developers building, operating and maintaining highways for a specified concession period, during which they collect tolls from road users to recover their costs and earn profits. However, this model has faced several challenges in the past, such as delays in land acquisition, environmental clearances, traffic risk, cost escalation and disputes with NHAI.

As a result, NHAI shifted to other models such as engineering, procurement and construction (EPC) and hybrid annuity model (HAM), where the government bears most of the risks and costs. However, these models have also put a strain on NHAI’s finances and increased its debt burden.

Proposed Changes

According to media reports, NHAI is considering the following changes in the MCA for BOT projects:

• Allowing developers to exit the project after one year of commercial operation date (COD), instead of two years as per the current MCA. This would enable them to monetize their assets and free up capital for new projects.
• Reducing the concession period from 30 years to 15-20 years, depending on the traffic potential and viability of the project. This would reduce the uncertainty and exposure of developers to long-term risks.
• Introducing a revenue-sharing mechanism between NHAI and developers, instead of a fixed concession fee. This would align the interests of both parties and provide an incentive for developers to increase toll collection efficiency and quality of service.
• Providing a termination payment clause in case of default by either party or force majeure events. This would protect the interests of lenders and investors and ensure smooth transfer of assets to NHAI.
• Streamlining the dispute resolution process and setting up an independent regulator for highway sector. This would improve the governance and transparency of BOT projects and reduce litigation.

Expected Outcomes

NHAI hopes that the proposed changes in the MCA would address the concerns of private developers and lenders and make BOT projects more attractive and viable. NHAI aims to bid out 53 projects worth over Rs 2.2 lakh crore and covering a length of 5200 km under BOT in the next fiscal year.

The amendment of MCA would also help NHAI achieve its target of building 12,000 km of highways in 2024-25 under the Bharatmala Pariyojana, which envisages developing 65,000 km of national highways at an estimated cost of Rs 5.35 lakh crore.