NHAI set to change road monetisation offer due to low traffic fears

Facing the prospect of low traffic volumes on some of its upcoming highways owing to parallel projects, the National Highways Authority of India (NHAI) has tweaked the second bundle of contracts to be offered under the toll-operate-transfer (TOT) model.   

The stretches that were found saturated in terms of traffic volumes will now be replaced with those earmarked for the third tranche of bidding. 

Two to three highway contracts, earlier selected for the third round, will be offered under the second round of TOT bidding. One such project lies between Bengaluru and Hyderabad on the north-south road corridor. It already has traffic of 35,000 PCUs (passenger car units a day). According to two officials with direct knowledge of the matter, this was done because the bundle of contracts selected earlier runs parallel to the existing national or state highways (shadow projects), reducing their attractiveness for prospective international investors.

“They feel it would be best not to invest in such projects due to the risk in terms of toll revenue involved,” a senior NHAI official told Business Standard.

Shadow stretches are roads that run parallel to the highways planned for monetisation. These have a bearing on the volume of traffic, resulting in lower toll collection. The Union government is hopeful of raising Rs 69-70 billion from the second tranche of road monetisation, comprising six to seven highway stretches cutting across Odisha, West Bengal, Telangana and Tamil Nadu. 

According to a road sector expert, changing the offered projects between tranches does not make a difference to the investors if the Ministry of Road Transport and Highways and the NHAI maintain the size of the total contract on offer between $800 million-$1 billion (Rs 55.2-69 billion). 

In February, Australia-based Macquarie group, in partnership with Ashoka Buildcon, bagged a Rs 96.8 billion TOT contract for nine national highways with a total length of about 700 km.

Funds generated from monetisation of highways will be used for new infrastructure programmes, and the government expects to raise around Rs 2 trillion through TOT in the next five years.

The Cabinet in 2016 had authorised the NHAI to monetise 75 public-funded national highway projects using the TOT model, which was developed to encourage private participation in the highways sector.

Under the TOT model, the concessionaire pays one-time concession fee upfront (lump sum), which then enables the concessionaire to operate and toll the project stretch for the predetermined 30-year concession period.
What’s the worry
  • Bharatmala, an umbrella programme for the highways sector that focuses on optimising efficiency of traffic movement, may put existing road projects at risk, according to an ICRA report
  • Bharatmala projects may lower traffic on existing projects and increase disputes
  • The risk of traffic diversion is assessed on the basis of traffic mix, long-distance traffic and key feeder routes
  • 28% projects face moderate to high risk of traffic diversion
  • Stretches under Bharatmala are either longer by more than 20% or traverses a new route completely