From ET Realty
NEW DELHI: Abu Dhabi wants to take a $5-billion bet on India, specifically its national highways. The Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund of the emirate, has expressed interest in taking up 50 highway projects on a toll-operate-transfer (TOT) basis in what will be the first investment of its kind if it happens.
A rough calculation by roads ministry pegs the value of total investment at Rs 35,000 crore ($5 billion). Under the TOT model, roads already built by the National Highways Authority of India (NHAI) are awarded to the private sector in lieu of an upfront fee. The private party operates the national highway stretch and collects tolls on it for a long-term period.
“We’ve already had a few meetings with ADIA. They are keen on taking up these projects,” a senior roads ministry official said. “Discussions are still on (over) whether these projects will be awarded in a portfolio or should every project be awarded separately. The upfront fee (that the) private partner pays will be calculated on the future toll collection projections.” Abu Dhabi crown prince Sheikh Mohammed bin Zayed Al Nahyan is currently visiting India and the ADIA proposal is likely to come up for discussion during his meetings.
The government has lined up 104 highway stretches to be awarded through the TOT model. Under the policy, infrastructure developers, private equity firms and institutional investors like pension and wealth funds can take up completed highway stretches. “Once ADIA takes up these projects, we are sure to get more interest from the private sector,” the official said.
“The model has already been tested across the world and it’s 100% risk-free for investors as well as government.” Investor interest in the sector had weakened drastically after 2010 due to difficulties related to land acquisition and getting various approvals besides public opposition to toll collection. Projects worth less than Rs 10,000 crore were awarded in FY15. In the previous year, the value of projects awarded to public-private partnerships (PPPs) was less than Rs 1,000 crore, as stressed companies were unable to raise funds.
The government has ambitious plans to boost investment in the sector and Roads Minister Nitin Gadkari says he has accelerated highway construction since the Narendra Modi government took over in May 2014. Gadkari is targeting the award of 10,000 kilometres in the current fiscal, of which 8,000 km have been given out.
The TOT method also allows the government to better plug leakages in the toll collection system by handing over operations to the private sector. It will also help the government generate more funds to create new assets without putting an additional burden on the exchequer. “The model helps in securitising future cash flows,” said Manish Agarwal, leader, infrastructure, PwC India. “It offers high degree predictability of future revenues to investors. It also transfers the leakage risk to private sector.”
The government has been trying to come up with innovative financial models to revive private interest in road projects. Recently, the Cabinet had approved the hybrid annuity model of constructing highways. Next fiscal, government plans to award contracts worth Rs 60,000 crore under HAM