Course of Action: Advancements in the implementation models for road construction

The Indian road sector deploys the same implementation models for construction that are used worldwide. However, the scale of exercise and efforts made in each mo­del is what has helped the sector’s progress through difficult times.

Over the years, the government has taken several initiatives to ensure smooth road construction, revive investments and remove bottlenecks surrounding different implementation models. For instance, amendments were introduced to the hybrid annuity model (HAM), the toll-operate-transfer (TOT) model was introduced for monetising publicly funded brownfield highways, and issues surrounding the engineering, procurement and construction (EPC) mo­del were also dealt with after Covid-19, with re­lief measures such as monthly billing and release of retention money. Moreover, the relaxation of the bidding criteria has also increased the competitive intensity in the sector.

Hybrid-annuity model

HAM has been witnessing a steady uptake since its debut in 2016. HAM was launched at a time when project awards largely relied on the EPC mode and the private sector’s interest had almost dried up in build-operate-tra­nsfer (BOT) projects. Additionally, HAM awards have surpassed all other types of awards in recent years.

Under HAM, the government made the first move by including compensation provisions such as deed termination and termination fees for even the pre-construction phases of development, despite the fact that termination payments have historically been made only after the project reaches its commercial operation date. The overall equity requirements under HAM are also substantially lower, in the range of 10-15 per cent, depending on the developer’s strength.

HAM’s share drastically rose from 8 per cent in 2015-16 to 53 per cent in 2016-17, owing to the euphoric sentiment regarding the new model. It then fell back to 46 per cent in 2017-18, having to deal with issues related to financial closures and falling interest rates, bringing some prudency in bidding on the part of developers. In 2020-21, HAM comprised nearly 54 per cent of the projects because of improved bidding discipline and amendments brought about in the model. In the past two years, HAM has maintained its share of 55 per cent in project awards.

Going forward, the award percentage of HAM projects is expected to remain over 50 per cent. It will continue to be the primary model used to award contracts under the public-private partnership (PPP) route. Additionally, with the first round of HAM projects likely to achieve completion in the near term, these projects are best suited for acquisition by investors.

Engineering, procurement and construction

The EPC market has been through some crests and troughs in the past two decades. Having been the default mode of project execution in the sector in the past, the segment hit a roadblock with the advent of the PPP mode of project execution during 2006-12. However, post 2012, with limited success of PPP projects owing to the­ir aggressive bidding, the EPC m­ode saw a come­back. The government had al­so made some significant modifications to the EPC model, making it attractive to contractors once again. Following this, in 2013-14, around 85 per cent of the projects were awarded on EPC basis.

The trend, however, reversed once again in 2016-17, with the introduction of HAM. Though fewer projects were awarded in the EPC mode, the share of EPC continued to be in the range of 40-60 per cent of the total project awards. Amidst the pandemic, its share increased to about 66 per cent. In the past two years, EPC projects have accounted for 44 per cent of all the projects awarded.


Asset monetisation via the TOT route has generated interest among contractors and developers specialising solely in operations and maintenance (O&M) of road projects. Over the years, many foreign institutional investors and fixed income groups, including sovereign wealth fun­ds and pension funds, have also played an ac­tive role in popularising this model.

In March 2018, the 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 (worth Rs 96.81 billion) was 1.5 times higher than the National High­ways Authority of India’s (NHAI) estimate of Rs 62.58 billion.

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 worth 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 a 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 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, 11 bids submitted for ass­ets on offer under Bundles 6 and 8 fell short of expectations and were annulled. Bundle 7 was awarded to the Indian Highway Con­cession Trust at a winning bid worth 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, valued at Rs 17.11 billion, was below the reserve price. Following this, in January 2023, Bundle 9 was awarded to National In­vestment and Infrastructure Fund Limited. The highest bid, worth Rs 31.44 billion, was only a notch below that of IECV. This bundle involves a 72 km highway stretch on NH-19 in Uttar Pra­desh. Other bidding 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).

As of May 2023, IRB Infrastructure Develo­pers (IRB) has secured the country’s second largest road monetisation asset, the 158 km Hyderabad Outer Ring Road in Telan­gana. IRB will pay an upfront fee of Rs 73.8 billion for the same. Other project bidders included Eagle In­fra­structure India, Dinesh Chandra R. Agar­wal Infracon and Gawar Construction.

Recently, a consortium of international investors, including CDPQ, KKR, Cube High­ways and IRB, has expressed interest in acquiring TOT 12, a 361 km long highway. Mean­while, TOT 11, the 82 km long Allahabad by­pa­ss, has received only one bid (for an an undisclosed amount), from Cube Highways.

Going forward

In the short term, HAM and EPC projects may see quicker execution during the year, considering the government’s focus on project completion ahead of the general elections in 2024. Ad­ditionally, in the past four years, as of Feb­ruary 2023, the Ministry of Road Transport and Highways has raised a total of around Rs 680 billion through various modes of asset monetisation. The monetisation target for 2023-24 is Rs 350 billion, a 6.5 per cent increase from the Rs 328.55 billion in 2022-23. Of this, the ministry intends to raise about Rs 100 billion via the TOT route.

Harman Mangat