India's highways get a new private-sector pitch

The Ministry of Road Transport and Highways has streamlined the model concession agreement for build-operate-transfer (BOT) projects to boost private-sector involvement in constructing national highways. Notable provisions include a buyback option, revenue support for concessionaires, and traffic-risk sharing between contractors and the government, enhancing the attractiveness of BOT projects to investors.

The revised Model Concession Agreement (MCA) was prepared based on recommendations from an inter-ministerial committee aimed at addressing challenges faced by stakeholders in BOT initiatives. Experts believe the updated MCA will offer revenue protection if traffic falls more than 10% below the target within the first seven years, providing early cash-flow security for concessionaires and bolstering project viability.

The government will have the authority to purchase back a project if traffic reaches its anticipated design capacity for two consecutive years within three years. Senior director and global head of consulting at Crisil Intelligence, Jagannarayan Padmanabhan, stated that these provisions significantly improve the risk-return balance for private developers, making the BOT (Toll) model more bankable and potentially attracting private and institutional capital back into the highway PPP market.

Traffic-risk sharing is achieved through concession-period extensions if traffic underperforms, while significant overperformance can shorten it. Kuljit Singh, a partner and national infrastructure leader at EY India, noted that multiple traffic target triggers provide enhanced investor protection against variations between actual and forecast traffic, further reducing risk and safeguarding against traffic diversion caused by new road developments in India.