National Highways: NHAI’s toll-operate- transfer model may bring new opportunities for players

The toll-operate and transfer (ToT) model, through which the government intends to lease out 75 operational national highways essentially to private players, including global funds with patient capital, is likely to open up a new set of business opportunity for existing players as well as new entrants into the operation and maintenance (O&M) space.

Sources said these 75 projects, developed by National Highways Authority of India (NHAI) using government funds, are likely to offer around R4,000 crore annual business for the O&M players. Currently, the O&M job on these projects are done either by NHAI itself or in some cases, the authority hires third parties to do the job on a yearly payment basis. Tender process for these projects is likely to start in 2-3 months.

O&M is an integral part of the TOT model through which the government would lease out projects in bunches, putting together 6-7 highways, but all the parties that have evinced interest so far do not have the necessary expertise in the O&M job. While most of the existing domestic developers do the O&M of highways built on the BOT model on their own, fund houses would be interested in outsourcing the job and giving the task away to one firm rather than looking for one each for each project they would get on lease for 30 years.

An analyst tracking the sector said that given a poor 8-10% rate of returns, existing big domestic developers such as L&T and the Tatas might not create a separate vertical, hoping to get O&M contracts. However, it would certainly open up opportunities for small and medium firms to enhance their business. New entrants with big pockets are also likely to come in.

NHAI generally offers O&M contracts for two years plus one year automatic extension. The job consists mainly of highway and toll operations and management. The concessionaire has to perform routine or periodic inspections and identify the maintenance requirements for the highway as well as the structures. It has to prohibit encroachments, ensure traffic management and safety during accident and force majure events.

Foreign firms such as Egis Group, specialised in O&M job, are already there sensing the growing need for O&M in the Indian road network, which is the third largest in the world after the US and China.

National Highways Authority of India