Govt set to unveil new highway concession pact by September-end

The new model—approved post inter-ministerial consultations and awaiting legal vetting—envisages a plan where the investor could take up the entire risk of building a greenfield highway and collect toll during the concession period, one of the persons said.

It includes provision for compensation payment and extension of concession period for traffic variation and losses on account of competing parallel roads.

An easier exit and substitution clause in the model would provide a clearer definition of project termination with the provision of full settlement of non-recourse funding (meaning the lenders’ repayment depends on the project’s revenue) used by the concessionaire.

This issue had resulted in several BoT projects awarded earlier landing up in litigation, said the other person quoted earlier.

Some of the changes included in the new MCA for greenfield highway projects to be awarded under BoT mode had been highlighted by highway developers as reasons why they were not keen to participate in such projects, said the second person.

The new framework introduces greater flexibility for both the government and developers. Concessionaires will be able to exit midway by selling their stake to another developer, while the government or its agencies can buy back projects before the concession period ends, releasing capital for fresh investments.

In India, the road concession period typically lasts 20 to 30 years, though it can vary based on the project model and specific agreement. So, if the concession period as per contract is, say, 20 years for a BoT (toll) project and if toll collection falls below the estimated levels, the concession period can be extended by, say, around six months, one year, or two years depending on the government’s assessment of loss.

The government has also empowered itself, rather than banks alone, to substitute developers who delay projects or face liquidity stress. At the same time, the interests of lenders remain fully protected in any substitution or termination scenario.

“The new MCA has balanced the risk of the concessionaire and the government. It has also empowered the government to substitute a concessionaire delaying a project or facing liquidity issues to complete the construction,” said the first person quoted earlier.

“Earlier, banks had the power of substitution. We have made sure that the banks interests are completely secured in any case of substitution of concessionaires. We have also secured banks interest in cases where projects have been terminated earlier.”

Queries sent to ministry of road transport and highways on Wednesday remained unanswered till press time.

What experts say

Experts feel that the new model could be a game-changer to revive private sector interest in developing highway projects.

“A balanced approach to all PPP modes will drive sectoral growth… Developers are seeking balanced risk-sharing frameworks and timely dispute resolution to ensure sustainable project delivery,” Jagannarayan Padmanabhan, senior director & global head, consulting, Crisil Intelligence.

“…modification of the Concession Agreement, is a step in the right direction, as that will reduce the BoT Toll risk for developers, thereby enabling more BOT projects to be bid out and ultimately enabling the government to deploying its capital into more projects,” said Kuljit Singh, partner and national leader- infrastructure, EY India.

BoT toll was the most popular way of awarding highways till 2014. Between 2007 and 2014, only BoT was used to build highways.

The model accounted for 96% of all projects awarded in 2011-12. But this progressively reduced to nil as investor appetite for taking risks waned and several faced liquidity issues to complete projects won by placing over ambitious bids.

In 2018-19 and 2019-20, no projects were awarded under this model. In FY 24 and FY25, NHAI awarded just about a couple of projects on BoT mode.

According to ratings agency Icra, during the past 10 years (2016-2025), the road ministry cumulatively awarded around 1.1 lakh km with major share of awards under engineering, procurement and construction (EPC) mode at 90,000 km (around 81.5% of the awards).

Icra expects EPC to account for 60-65% of awards, followed by the hybrid annuity model at 25% and 10% through the BoT-toll mode in FY2026.

“Given the higher equity commitment and the inherent traffic and execution risks in BoT-Toll projects, the expectations of a material shift in overall project awards towards BoT-Toll in the near to medium term remain challenging,” said Vinay Kumar, vice president and sector head, Icra Ltd.

State-owned highway developer National Highways Authority of India (NHAI) has identified 53 highway projects worth ₹2.1 trillion to be developed through BoT model. Several of these are expected to be awarded in a phased manner this year.

The road transport and highways ministry has decided that maximum projects would go under the BoT mode, and only in cases where such awards become difficult or unviable, other modes would be used.