NHAI Initiatives To Speed Up Infrastructure Projects

With an aim to accelerate infrastructure projects and reduce financial risk of concessionaire ( the companies to whom projects have been granted by authority), the planning commission is working with National Highway Authority of India (NHAI), state government and private sector to develop new concession agreement. According to industry sources the new concession agreement / new model is at the final stage and is expected to launch in couple of days. 

As per the new model, two major risks of the highways sector i.e. financial risk and inflation risk will be solved up to some extent. Under the proposed model 50% of project cost will be paid to concessionaire during the construction period and the remaining amount will be paid as an annuity after completion of the project. This amount will include interest rate of 2% over applicable bank rate. 

From the new proposed model concessionaires will have to borrow fewer funds from financial institutions hence it is expected that the company’s profitability will increase and project completion will be fast and smooth as compared with previous model. In the current model too the companies will be allowed to collect toll. For existing projects, the government has already taken several steps like additional lending policy and premium reschedule to provide assistance highways sector (link). 

The new proposed model is a win-win situation for the government as well as the concessionaire. For concessionaire it will be easy to execute the project as it is getting 50% cost of project during production period and for government, it will put less annuity burden on them. 

The Government of India has introduced a number of policy initiatives aimed at bolstering the level of international as well as domestic private sector participation in the construction and maintenance of roads projects and this effort is part of that initiatives. Previously also it had launched many models like this. To name a few, they were Build-Operate-Transfer (BOT), Engineering Procurement Construction (EPC) and combination of these two and other models to complete the projects on time. Since each of these models has its limitation and is not able to produce desired result, the government is coming with new models for the upcoming projects.

In the last one month they have taken many steps to accelerate infrastructure industries especially highway sectors. From all these initiatives we expect the sector will be on revival path in the near future.