In mid-2016, the Cabinet Committee on Economic Affairs authorised the toll-operate-transfer (TOT) model, meant for monetising publicly funded brownfield highways for a predetermined concession period ranging from 15 to 30 years. This asset recycling model serves the twin benefits of posing low construction risks for the concessionaire and helping the asset-controlling infrastructure authority meet its capital requirements for other priority developments. Additionally, it plugs the gaps in operational efficiency by bringing in international standards in the operations and maintenance (O&M) of existing assets. In order to maximise revenue, the model also offers bundles of road stretches on the basis of geographic proximity, investment size and potential for toll revenue.
Due to these distinct benefits, asset monetisation via the TOT route has generated interest among contractors and developers specialising solely in the O&M of road projects. Additionally, over the years, many foreign institutional investors and fixed income groups, including sovereign wealth funds and pension funds, have also played a role in popularising this model.
Experience so far
In March 2018, the Sydney-headquartered Macquarie Group won the first TOT bundle consisting of nine national highways spanning a total length of 682 km, with Ashoka Buildcon as their O&M partner. The winning bid (Rs 96.81 billion) was 1.5 times higher than the National Highways Authority of India’s (NHAI) estimate of Rs 62.58 billion. The bidding environment was highly competitive, as even the lowest bid of Rs 66.11 billion, submitted by the joint venture of Roadis and the National Infrastructure and Investment Fund (NIIF), was 6 per cent higher than NHAI’s estimate.
Bundle 2 was annulled due to a lacklustre response. At Rs 46.12 billion, the highest bid by Cube Highways was 14 per cent lower than the initial estimated concession value (IECV) of Rs 53.62 billion. Nonetheless, the road-focused platform won Bundle 3 with a bid of Rs 50.11 billion, which was marginally higher than the IECV of Rs 49.95 billion. However, the sale process for the bundle was delayed due to Covid-19 and was concluded in October 2020.
While the asset offered under Bundle 4 saw healthy toll collection growth of over 30 per cent since its sections started operations (with a weighted average age of just 4.6 years), it was hampered by challenges related to political agitation and restricted visibility of revenue development in particular lengths. The bundle was eventually cancelled, since it received no proposals. It was also during this time that the government decided to eliminate the practice of publicising the IECV for projects at the start of the procurement process.
Under the fifth round of TOT bidding, separate bids were requested for two sections of a stretch, 5A-1 and 5A-2. NHAI received bids worth Rs 22.52 billion, against a floor price of Rs 16.21 billion. Adani Enterprises won section 5A-1 at Rs 10.11 billion (reserve price Rs 8 billion), while DP Jain and Company won 5A-2 at Rs 12.51 billion (reserve price Rs 8.21 billion). The floor price was revealed after the technical bids were received and the winning bidder was announced.
Following this, the 11 bids submitted for assets on offer under Bundles 6 and 8 fell short of expectations. Hence, the bundles were annulled. Bundle 7 was awarded to the Indian Highway Concession Trust at a winning bid of Rs 62.27 billion. The stretch spans 135 km in the National Capital Region.
In September 2022, NHAI scrapped the auction for Bundle 10 as the highest bid by Sekura, Rs 17.11 billion, was below the reserve price. Following this, in January 2023, Bundle 9 was awarded to the NIIF. The highest bid, Rs 31.44 billion, was only a notch below the IECV. This bundle involves a 72 km highway stretch on NH-19 in Uttar Pradesh. Other participants included Adani Enterprises (Rs 26.1 billion), Cube Highways (Rs 25 billion), IRB Infrastructure Trust (Rs 24.21 billion) and PNC Infratech (Rs 13.45 billion).
Ishita Gupta and Harman Mangat