NHAI to Hit Markets for Funding the Highway Development

As the need for better road infrastructure in India has bulged in recent times, the country’s highway sector has been pushing itself to modernise its roads and highways. To support the sector’s push, the Government of India has initiated several domestic and international highway projects that comply with global standards of engineering and quality, and has been trying to attract major investors to partially fund those projects and has succeeded so far.

In order to draw investors to fund the highway initiatives, the Central government had to first create an environment conducive to business and then look for investors to upon up India as a potential market. The government has been implementing various measures to drive the investors’ confidence in Indian markets and allowed its ministries to come up with plans to attract investments to the highway sector.

The Ministry of Road Transport & Highways (MoRTH), along with its highway wing, National Highways Authority of India (NHAI), introduced a couple of financial models for investors looking to put their money in the highways sector. The NHAI – an autonomous body constituted under the NHAI Act 1988 – was created for the development, management, and maintenance of the Indian National Highways.

National highways in India are considered the instrument of economic integration. They make up only 1.8% of the total roadways in India but facilitate more than 40% of inland trade occurring in the country. And the volume keeps rising every year. So, in order to tackle this bottleneck, the NHAI began helming various government-initiated projects such as the National Highways Development Project (NHDP) to widen the existing highway network.

This is where investors come into the picture. The government can allocate only a limited amount of resources and finance for projects like NHDP and therefore has been calling for investors to work under Public-Private Partnership (PPP). The PPP, however, is riddled with its own challenges.

In order to solve these challenges and complete the projects successfully, the NHAI has implemented two major financial models – HAM and TOT.

Hybrid Annuity Model (HAM)

This model was launched amid stalling development projects and a waning PPP model. Under this model, the NHAI would contribute 40% of the projects’ cost to the concessionaire (developer). Rest of the amount would be borne by the concessionaire, which would be in turn reimbursed by the NHAI through operations such as Toll collections over a fixed period of time.

Toll Operate Transfer (TOT)

This financial model was launched by the NHAI as part of its Asset Recycling Plan (ARP). Under this model, the NHAI would call partners and interested developers to operate stipulated stretches of the highways.

The accrued funds from partners or revenue from toll operations would be used by the NHAI as an investment on upcoming projects. The NHAI will implement the TOT financial model in the 2018-19 fiscal.

Apart from the models mentioned above, the NHAI also is planning to rope in equity investors and institutional investors to finance its projects. Many more such innovative financial models can be expected to be brought in by the NHAI in the near future.

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