India has a gigantic capacity for public-private partnership
(PPP) investments. While PPP project implementation grew
aggressively from 2001 to 2010, project awards dropped sharply
between 1 April 2014 and 31 March 2015. This can be attributed to a
lack of optimal and equitable allocation of risks between the
stakeholders, cumbersome process and legislative uncertainty in
land acquisition, lack of regulatory certainty regarding
environmental/industrial consents and clearances, absence of a PPP
regulator, instances of long-drawn litigation and unstable revenue
In November 2015, a report by the Committee on Revisiting and
Revitalizing Public Private Partnership Model of Infrastructure
recommended monetizing operational projects with a formidable
record of revenue generation, which can then be doled out to
private parties for operation and maintenance (O&M).
Finance Minister Arun Jaitley, in his budget speech for 2016-17,
stressed the need for asset recycling, describing it as a process
whereby the government, without transferring its ownership in
operational assets such as roads, ports and airports, will allow
private parties to undertake long term O&M obligations on
payment of a lump-sum concession fee.
In light of the existing infrastructure deficit in India, along
with the challenges being faced in the development of greenfield
projects, before asset recycling can be implemented in full swing,
it is imperative to analyse its viability and to determine the key
considerations which must be factored in.
In November 2016, the National Highways Authority of India,
under the aegis of the Ministry of Road Transport and Highways,
initiated the implementation of asset recycling in India, with 75
operational road projects being bid out under the
toll-operate-transfer (TOT) model. Under this model, highway
projects which have been operational for at least two years, and
which have been generating a steady stream of revenue, are to be
leased out to large-cap investors for carrying out O&M
operations in consideration of the highest bid upfront concession
While the operate-manage-transfer (OMT) model has been used in
the past in India, the concession period under this model is only
six to nine years, which stands in stark contrast to the TOT model,
where a concession period of 25 to 30 years is contemplated.
Another marked difference between the OMT and TOT models is the
lack of upfront lump-sum concession fee payment by the private
Before asset recycling in the highway sector can be implemented
in full swing, the government will need to determine cogent
criteria to (i) identify viable projects and (ii) assess the true
value of such assets. It would be ideal for the government to start
out by early identification of assets most conducive of being
recycled so as to set a reliable precedent for the model.
Further, while formalizing and developing a regulatory/legal
framework including model documents, it would be imperative for the
success of TOT that the framework include: (i) rigorous criteria
for identification of eligible bidders having extensive experience
in O&M of highways; (ii) state-of-the-art tolling technologies
such as e-tolling/radio frequency identification, and a
project-specific mechanism for determination of concession period
based on minimum lump-sum concession fee; (iii) revenue projections
based on traffic growth; (iv) investor-friendly traffic-related
risk sharing mechanisms (considering the long concession period);
(v) bundling of multiple projects to attract large-cap players with
the ability to secure long-terms debts; and (vi) integrated
provisioning vis-ŕ-vis capacity augmentation of the project
on reaching the design capacity within the concession period.
One of the significant issues being deliberated on by
stakeholders is the proposed concession period of 25 to 30 years,
which is the maximum concession period for PPP projects in India as
against the global standard of up to 99 years.
Though the proposed model is yet to be practically introduced to
India, it has been successfully implemented elsewhere, with notable
projects including the Chicago Skyway, the Indiana Toll Road,
Puerto Rico Highway PR-22 and the Penang Bridge.
The broad incentive of asset recycling via the TOT model, for
private investors, is that while their participation involves
entering into a long-term concession, with a manifestly decreased
scope of risk adoption it is insulated from the supposedly unstable
regulatory environment in India. For the government, this will
allow leveraging cash inflow for development of greenfield highway
projects as well as ensuring well-managed, pilferage-free and
safety-compliant existing highways.
Originally published by India Business Law Journal.
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