National Highways Authority of India (NHAI) will not disclose floor price for highway stretches under toll-operate-transfer (TOT) model at the time of inviting bids in future. With this, the authority expects to encourage investors who will now have a greater say on price discovery. But, according to analysts, the investors anyway have been taking decisions independently.
The floor price or the initial estimated concession value (IECV) will now be disclosed by NHAI only after receipt of technical bids and after declaring the selected bidder. The highest bidder will take the bundle on a long-term lease.
The decision to let the bidders discover the price should smooth NHAI’s asset monetisation programme, crucial for its highway development and addressing debt repayment obligations that mounted to `2.28 lakh crore at the end of February 2020.
Sources said the decision to not to disclose the floor price of the bundles was taken in a meeting of an inter-ministerial committee comprising ministry of road transport and highways, department of economic affairs, financial affairs, legal affairs and NITI Aayog, just a few days before the authority invited bids for the fifth TOT bundle.
Under the fifth round of TOT bundle, NHAI is offering for a 20-year lease period two bundles with a total length of 159.5 km. The last date of submission of the bids for both the bundles is December 23.
“Valuations have always been a function of the investors’ views on the potential of the stretches which are part of the bundle. Therefore, non-disclosure of the IECV upfront is not going to have any impact on the bids,” said Rajeshwar Burla, vice president, corporate ratings, ICRA.
Under TOT, operational national highways are given on long-term lease (15-30 years) to private entities on long-term concession basis against upfront payment. During the concession period, the TOT operator collects user fee on the stretches under the prescribed rates by NHAI to recoup their investments; but the operator has to operate and maintain the stretches.
A single-stage, two-part system is adopted for the TOT bids. In the technical bid round, the eligibility and the qualification of the bidders are examined and those meet the criteria outlined in the RFP are asked to submit financial bids.
NHAI’s public-funded highway asset monetisation programme through the TOT model has so far seen rather poor response from the investors, primarily on account of the anomaly of the floor price set by the authority and the amount investors wanted to fork out to get these bundles on a long-term lease.
While the first one that fetched NHAI Rs 9,681 crore – 1.5 times higher than its IECV in 2018; none of the bidders matches up the floor price of Rs 5,632 for 586.55 km length in the second bundle forcing NHAI to abandon the plan. Cube Highways quoted just a little above the IECV to emerge as the highest bidder for the third bundle. The fourth bundle has also been annulled.
The Cabinet Committee on Economic Affairs had in 2016 allowed NHAI to monetise 75 highway projects through the TOT model. On November 25, 2019, the Cabinet gave NHAI virtually an unfettered authority to make suitable changes wherever and wherever required in its asset monetisation programme through the ToT model.