Developer Perspective: PPP experience in road development

PPP experience in road development

The investment environment in the road sector is not very optimistic at present. The interest of private players is mostly subdued. This depressed interest can be attributed to several challenges that developers continue to face. Until recently, lenders too have been apprehensive of financing road projects. With stressed balance sheets and a high number of non-performing assets, they are leaning more towards recourse loans. However, developers are still wary of recourse financing.

Crucial steps

Some positive measures such as the introduction of an exit policy and a one-time fund infusion by the National Highways Authority of India (NHAI) have been welcomed by developers. These measures have not only made it easier to release equity investments in projects, but have also revived some previously stalled projects.

Further, the recommendations made in the Kelkar Committee report have been well received by the private sector. The report highlights several issues which developers have faced over time. The committee has suggested that for the revival of public-private partnership (PPP) projects, the format of the model itself needs to move from being a mere transaction to a more “give-and-take relationship”. Further, the report suggests that the government machinery needs to resolve project-related issues more efficiently. At the same time, it needs to be able to differentiate between genuine errors in project implementation and mala fide intentions on the part of developers.

The committee has also recommended the formulation of a mechanism that allows the renegotiation of the model concession agreement (MCA), even after it has been signed. The developers endorse the view and further suggest that the agreement should move towards being more dynamic in nature.

A need has also been felt to rebalance the risks shared under PPP projects. At present, the MCA passes on the entire risk to the concessionaire. However, private players suggest that risks should be so allocated that the agency which is best equipped to handle the particular risk, bears greater exposure to it.

Moreover, the Ministry of Road Transport and Highways (MoRTH) has also taken some steps to rationalise the tolling mechanism. Digitisation of the entire vehicular database and the deployment of electronic toll collection systems through FASTags are steps in the right direction. These measures should make it easier to assess outstanding toll payments for each vehicle in the compiled database. Further, developers suggest that a postpaid service for toll tax could be introduced to enhance efficiency in toll collections.

Issues and challenges

Operational bottlenecks continue to impede project viability. Technological advancements have allowed vehicles to use multiple axles rather than the earlier two or three axles. While this has significantly increased the carrying capacity of vehicles, it has also led to a fall in the absolute number of vehicles required. Therefore, toll revenues have taken a hit. Further, developers have also seen an increase in the number of toll exemptions given to vehicles. Unanticipated changes in the nature of traffic have also impacted traffic estimates for older projects.

Besides this, land acquisition continues to be a pain point. Developers are of the view that there needs to be greater clarity in MCAs regarding these acquisitions. At the same time, given the large amount of investments being made in road projects, dispute resolution mechanisms need to be strengthened further. The quality of detailed project reports also needs to be improved. Moreover, a regulatory body overseeing independent engineers hired for construction works is also essential.

Developers also feel that a sense of revenue integrity is largely missing from projects. At present, if developers fail to collect adequate revenues, in spite of exercising due diligence, the MoRTH provides an extension of the concession period. However, the extension simply defers the revenue collection beyond the existing concession period. Till that time, developers continue to face losses. Therefore, some mechanism is required to enable immediate compensation for revenue losses.

Besides, financial closures continue to be difficult to achieve. Lenders are wary of financing infrastructure projects, especially in the road domain. While very few hybrid annuity model-based projects have managed to arrange financing, BOT projects are still languishing.


Going forward, unless these impending issues are resolved, private developers will continue to be wary of making further investments. Several key recommendations have been put forth by the Kelkar Committee and the developers themselves. The MoRTH needs to carefully evaluate these to elevate interest in the sector to former levels.

Based on remarks by Asim Tewari, CEO, Bharat Road Network Limited, Srei Infrastructure Finance Limited and T.S. Venkatesan, Chief Executive, Roads, Bridges and Railways, L&T Infrastructure Development Projects, at a recent India Infrastructure conference