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March 19, 2019

Rekindling private investment in roads and highways

At 27 km a day, the pace of constructing highways in India could be one of the fastest globally. The government intends to increase this to 40 km a day by next year. A key reason for the quick pace is the adoption of PPP models, such as HAM, for project execution.


However, maintaining and increasing this aggressive pace would require better efficiencies and higher investments from the private sector.


PPP models gained traction during the National Highways Development Project era, with BOT (both Toll and Annuity models) projects contributing the most. This trend held over fiscals 2006-2013. From fiscal 2013, interest in PPP projects declined due to a number of factors, such as over-aggressive bidding by road developers, optimistic traffic projections, slowdown in economy and build-up of non-performing assets (NPAs) in the banking sector.


To reinvigorate private sector interest, the government came up with new models such as HAM in fiscal 2016, which decreased both the development and financing risks of developers. It was also decided to award HAM, engineering-procurement-construction (EPC) and BOT (Toll) projects in 60:30:10 ratio. This put PPP projects in the roads and highways sector back on track.


The government also introduced a new model to monetise operational road assets – toll-operate-transfer (TOT). Under this model, private developers were given tolling rights on operational road projects in return for an upfront fee to the government.