Monetising Assets: Update on TOT and upcoming opportunities

Update on TOT and upcoming opportunities

The National Highways Authority of India (NHAI) introduced the toll-operate-transfer (TOT) model to monetise its bro­wn­field highway assets in return for patient capital to meet its funding requirements. There have been a few amendments to the model in the past two years, taking into consideration the in­dustry demand and feedback. The authority has been able to lease out three TOT bundles, thereby raising around Rs 170 billion so far.

Update on TOT

TOT-IV initially comprised seven stretches spanning 401 km at an IECV of Rs 41.7 billion. NHAI later cut the package size to half as a result of which the total size of the bundle came down to 341.58 km. The IECV reduced to Rs 21.65 billion. NHAI withdrew TOT Bundle-IV after multiple postponements. The decision came after the authority did not receive any bids from investors or road asset owners.

Adani Enterprises Limited and DP Jain and Company Infrastructure Private Limited emer­g­ed as the highest bidders for highway stretches in Gujarat under TOT Bundle-V. NHAI received bids worth Rs 22.62 billion, against a reserve price of Rs 16.21 billion for TOT-V. On the reco­m­mendation of various investors, NHAI decided to disclose the IECV of the subsequent TOT bundles only after the receipt of technical bids and announcement of the selected bidder. The decision has been taken to allow investors to freely bid for projects amidst the ongoing un­certainties regarding road traffic on different stretches under the TOT bundle. The decision was well taken, as the fifth bundle received bids from at least half a dozen firms.

The authority has also received an upfront consideration of Rs 50.11 billion from Cube Hi­gh­ways and Infrastructure for TOT-III, which comprises nine highway stretches spanning 566 km.

Monetisation opportunities

The monetisation of highway assets holds the maximum potential for carrying out the Na­tio­nal Monetisation Pipeline (NMP) exercise over the next four financial years as the sector constitutes 27 per cent (Rs 1.6 trillion) of the total asset pipeline value. This would be achie­vable through the TOT model and infrastructure in­vest­ment trust (InvIT). The aggregate length of assets considered for monetisation over 2021-22 to 2024-25 is around 26,700 km. This is based on the length of the already/to-be operational four-lane highways that have the potential for revenue generation and, thereby, monetisation.

Highway assets considered for monetisation (26,700 km) constitute around 22 per cent of the total national highways (estimated to be about 121,155 km) excluding the network operated by the private sector under build-own-transfer (toll)-based concessions. Highways that will become operational over the NMP period have also been considered as part of the monetisable asset base, once these assets are completed, likely in one to two years of operations post the establishment of base traffic.

Based on past trends in the pace of aw­ard and construction, it is estimated that NHAI is adding at least 2,000-3,000 km of mo­ne­ti­s­able toll roads every year. The total indicative value of road assets considered for monetisation is estimated at Rs 1.6 trillion.

In sum

The Covid-19 pandemic created uncertainty in traffic trends due to interstate and intra-state travel restrictions. However, road traffic has seen a rebound in the second half of 2020-21, driven by increased movement of both passenger and commercial vehicles. In the ongoing fis­cal, toll collection through FASTag recorded an increase of 21 per cent in June vis-à-vis May. FASTag penetration has also crossed 96 per cent. All this points towards a recovery in traffic growth, thus brightening prospects for upcoming TOT bundles.