Linear infra firms eye road deals as railway, power projects dry up

An ongoing infrastructure project
Linear infrastructure companies are shifting to road construction as growth in power and railway sectors slows down. These firms, engaged in the construction of power projects and rail lines, are looking for opportunities, as the government focuses on building a robust highway network.

The National Highways Authority of India (NHAI), on its part, is looking to encourage such companies to participate in order to draw more bidders into highway construction. 

The ambitious plan of NHAI offers avenues in the form of build-operate-transfer (BOT), engineering, procurement, and construction (EPC), hybrid-annuity (HAM) and toll-operate-transfer (TOT) or monetisation of road assets. 

“We have projects for every kind of investor. Road projects are built on various modes — BOT, HAM, EPC and TOT — and provide an opportunity for small, medium and large investors,” an NHAI official said.

Currently, linear infrastructure firms participate in highway construction and their share in the overall road construction mix is 25 per cent. This is expected to go up to 30 per cent. Experts feel the reason behind this could be the financial situation of these firms.

“Maybe, the existing firms are in a situation where the banks would not lend them. It could also be that they are hedging their risks by investing in the road sector as it is performing better than power and railways,” said Vijay Chhibber, former road secretary. 

BOT projects are usually executed by large firms that have a higher risk appetite as the construction and operation risk is borne by that company. Hybrid-annuity model projects allow mid-sized companies to invest 
as 40 per cent of the equity is pumped in by the government.

EPC projects are fully funded by the government and the concessionaires are hired as execution agencies that hand over completed projects to the government. The TOT model in India has been developed to encourage private funding of highways that have already been developed. Under it, the concessionaire pays a one-time concession fee upfront (lumpsum). This then enables the concessionaire to operate and toll the project stretch for the pre-determined 30-year concession period.

On August 3, 2016, the Union Cabinet authorised the NHAI to monetise public-funded national highway projects that are operational and generating toll revenues for at least two years after commercial operations through the TOT model. 

About 75 operational highways completed under public funding were initially identified for potential monetisation.

The government has made allocation to the NHAI for major works under the Bharatmala Pariyojana, entrusted to the organisation for executing this. 

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel