Unlike the BoT-toll model, where the entire construction risk is borne by the private developer, HAM and EPC models have less construction risk for contractors as governments foot the bill for building highways.
In EPC contracts, contractors are paid monthly or quarterly annuities. In HAM deals, the government supports initial construction by providing 40% of the project cost, while the private sector later has to contribute 60% of the funds.
Reluctant private sector
According to the first person quoted above, against the target to award about 30% of new highway projects under the BoT-toll route, the government, through the National Highways Authority of India (NHAI), may award just about 10% or less under this route in the next fiscal. The government will tap the EPC and the HAM routes or the remaining awards.
“Highway development has now become complex with the focus on access-controlled expressways and roads with a higher number of lanes. These would require even higher investment in projects. The private sector, which has shied away from taking up full construction on highways, may still remain away from taking projects under BoT-toll even next year,” said the second person quoted above.
Mint queries sent to the ministry of road transport and highways (MoRTH) remained unanswered till press time.
“Government wishlist may be to focus more on BoT-toll and relatively less on EPC and HAM modes, as compared to earlier years. However, BoT-toll projects require large equity cheques (especially for projects bid on a zero grant basis) and some stretches may also be impacted by current and future traffic viability issues. By comparison, there is assured revenue in annuity projects, and the equity cheque is largely offset by the EPC margin,” said Kuljit Singh, partner and infrastructure leader at EY India.
The government intends to build about 10,000 kilometres (km) of highways in 2025-26, while project awards are expected to improve marginally to around 9,500-10,000 km. A target has been set to award about 30% of these projects under the public-private partnership (PPP), with a focus on BoT-toll projects. However, this target is unlikely to be achieved even in 2025-26, for the third successive year when the government is trying to revive BoT-toll projects in the country.
“While the EPC is likely to remain the preferred route for road awards for the road ministry, it is gradually shifting its focus to BoT-toll projects. Given the higher equity commitment and the inherent traffic and execution risks in such projects, the expectations of a material shift towards BoT-toll in overall project awards remains challenging in the next 12-18 months,” said Vinay Kumar G., sector head, corporate ratings, Icra.
On the back foot
The NHAI, the state-owned highway developer, identified 53 highway projects worth ₹2.1 trillion to be developed through the BoT-toll model in January 2024 and had been pushing for its award. However, the lack of interest from private developers has pushed back such awards.
In 2023-24, the BoT-toll model saw a negligible level of awards and construction. In 2024-25, BoT-toll awards remained at just about 3% of total awards (around 9,000 km). According to Icra, BoT-toll awards may just be around 5% or 500 km in 2025-26.
“Icra expects the share of BoT-toll to remain in single digits in 2024-25 and 2025-26. Nevertheless, the share of BoT, including both BoT-toll and BoT-HAM, in overall road project awards by the MoRTH is expected to increase to around 25-30% in 2024-25 and 2025-26 compared to 13% in 2023-24,” Kumar said.
To revive BoT-toll projects, the government has been trying to modify concession terms, allowing for easier exit for investors, longer concession periods, and lesser liability provisions.
“To help the developers, several interesting changes have already been made to the concession agreement for BoT-toll projects, and the length of the concession period is also being sought to be increased (to around 20 to 30 years). Hence, it could be that in the first half of the year, more efforts are made on BoT-toll-based project tenders, and if the market response is good, then this trend may continue for the balance part of the year as well,” said Singh from EY India.
