Road development has been one of the top priorities for the central government. The National Highways Authority of India (NHAI), with an A+++ credit rating, is the implementation agency for 90-95 per cent of road projects in the country. It is also a pioneer in asset monetisation. As of now, asset monetisation is being done via three routes – toll-operate-transfer (TOT), infrastructure investment trusts (InvITs) and toll securitisation. The funds generated through the TOT model are being reinvested into road construction by NHAI. Budgetary allocation, toll collection and public-private partnerships are the three traditional funding sources for the authority. The available unconventional funding options include asset monetisation, public resources and special purpose vehicle (SPV)-based financing options.
Monetisation achievements and targets
So far, around 10 TOT stretches have been monetised. This route was a success during 2023-24 with the realisation of Rs 159.68 billion. Bids have also been invited for TOT Bundles 15 and 16. Most state governments are taking the same route for asset monetisation. Further, NHAI has completed three rounds of InvIT fundraising with Rs 160 billion garnered during 2023-24. Additionally, securitisation has been utilised for the Delhi-Mumbai Expressway. Around Rs 90 billion is expected to be raised soon for the Delhi-Mumbai Expressway, with the balance Rs 50 billion planned to be raised in 2024-25.
In 2023, around 46 stretches were identified for monetisation through InvITs and TOT. Of these, some have been monetised. NHAI plans to add a few more stretches to the remaining bundles. The overall asset monetisation target for 2024-25 is around Rs 450 billion. Of this, around Rs 250 billion will be raised by tapping the TOT route and Rs 200 billion via the InvIT route.
Stakeholder-friendly measures
Toll rates are calculated based on a specific index, which is publicly shared on the NHAI website. Additionally, the authority provides the key assumptions used to determine the initial estimated concessional value (IECV). This transparency allows prospects to make informed decisions and calculate their own estimates. The debt-equity ratio is released publicly, and the authority also plans to disclose the initial capital cost (capex) required for bidding.
When a particular stretch is considered for monetisation, it goes through a thorough technical evaluation for a period of two to three months. This evaluation includes analysing the condition of the road, ensuring its safety and assessing other relevant factors. The evaluation is carried out by an internal assessment committee as well as an appraisal and technical scrutiny committee.
Initially, NHAI did not receive many bids, however, this has changed. To ensure a 100 per cent success rate during 2023-24, the authority maintained constant communication with potential stakeholders. It focused on understanding their challenges and finding ways to improve the stakeholder experience. Initially, there was a lot of emphasis on the IECV, which was typically disclosed by the authority during an initial meeting with the potential investor. Sometime back, NHAI notified the government of its inability to divulge the IECV. However, it still discloses the macro assumptions such as the wholesale price index, which is used to determine the IECV.
In 2023-24, NHAI released the list of roads slated for monetisation during the year, allowing potential bidders to conduct their own evaluations. The authority is currently in the process of determining the road stretches for potential monetisation in 2024–25.
Favourable policy environment: MCA amendments for TOT
Recently, amendments were announced in the model concession agreement (MCA) for TOT projects. Prior to the new amendments, there existed a considerable target revenue risk. This has now been reduced to 5 per cent. Additionally, the revenue risk in the proposal documents has been neutralised for TOT Bundles 15 and 16. Another issue that arises pertains to the expansion of road capacity. To this end, NHAI is identifying specific road segments that require no expansion so that there is no capacity augmentation during the concession period.
Challenges
A crucial obstacle under TOT monetisation is the selection of assets. To address this, measures must be taken to guarantee that the assets are in good condition and free from litigation. In the same vein, traffic studies must be performed to identify the development of competing roads. The revenue generated from the stretch and its associated maintenance obligations represents other areas requiring constant focus. Usually, road sections with an annual toll revenue per km of approximately Rs 10 million are identified. This is because a toll income of less than Rs 10 million is insufficient and can be used for maintenance only. Traffic projections also pose a problem as they are conducted by different consultants, including those from the concessionaire’s side, leading to discrepancies.
Short-term goals
As per NHAI, the percentage share of the implementation models: hybrid annuity model; engineering, procurement and construction; and build-operate-transfer (BOT) toll projects is expected to be a modest mix in 2024-25. The share of BOT toll projects, however, may be on the lower side. Given the implementation of the new MCA amendments, these projects will be a key focus area in 2024-25, and NHAI aims to allocate three stretches in each quarter. The smaller bundle size may be in the range of Rs 15 billion- Rs 20 billion, medium ones around Rs 40 billion and larger ones in the Rs 60 billion -Rs 70 billion bracket. The primary objective is to generate investor interest, both domestic as well as international. By the time bids are submitted for TOT Bundles 15 and 16, NHAI will bid out three more bundles by June end 2024.
Under the securitisation route applied for the Delhi-Mumbai Expressway, a concession agreement and an implementation agreement have been signed between the Delhi-Mumbai Expressway SPV and NHAI. In the implementation agreement, the Delhi-Mumbai Expressway has given rights to NHAI for road construction and revenue collection. However, according to NHAI, all toll revenues will be remitted to the Consolidated Fund of India and the amount will be used for debt servicing for the project SPV.
NHAI recently introduced performance-based maintenance contracts with a tenor of five years. Another focus area for the authority is its 100 per cent SPV, National Highways Logistics Management Limited, which deals in investments, wayside amenities and multimodal logistical parks.
Going forward, given the success of TOT during 2023-24, NHAI is expecting that the industry will engage even more and meet the monetisation targets.
Based on a presentation by B.M. Rao, Chief General Manager (TOT/InvIT Appraisal (T)/Finance), National Highways Authority of India (NHAI), at a recent India Infrastructure conference
