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NHAI may revert to build-transfer-operate model: Icra

The rating agency, in its earlier observation, said that it has already highlighted the importance of speeding up the TOT awards and other fund-raising initiatives to meet the large funding requirements of the ambitious programme

Rating agency, Icra, National Highways Authority of India, NHAI, Build-operate-transfer, EPC, Hybrid annuity mode, Asset monetisation, Toll-operate-transfer, Infrastructure investment trusts, InvITs, Bharatmala Pariyojana, Road developers, Dedicated freight corridor, Inland waterways, Rajeshwar Burla, Traffic forecasting

Rating agency Icra said National Highways Authority of India may revert to build-operate-transfer mode of projects due to increasing financial burden. "The share of the build-operate-transfer (BOT) (Toll) projects in the overall awards has declined sharply (being made primarily through the EPC/hybrid annuity mode); thereby increasing the financial burden on the NHAI. To overcome this, the NHAI may revert to the BOT (Toll) mode of project awarding," Icra said in a statement.

There has been a lot of debate in recent times about the need for the NHAI to focus on asset monetisation and tap alternate funding avenues such as toll-operate-transfer (TOT) and infrastructure investment trusts (InvITs), given the huge funding requirement for the ongoing Bharatmala Pariyojana programme, it added.

The rating agency, in its earlier observation, said that it has already highlighted the importance of speeding up the TOT awards and other fund-raising initiatives to meet the large funding requirements of the ambitious programme. However, the progress on both these fronts has been slow till date.

"Risk averseness of road developers has increased over the last few years. Even today, many developers' balance sheets cannot support huge equity investments towards BOT projects.

"Further, the transportation sector is undergoing transformational change with alternate modes viz. dedicated freight corridor and inland waterways which would result in a modal shift from road to these modes over the medium to long term," Rajeshwar Burla, VP & associate head, Corporate Ratings, Icra said.

In addition, the road network itself is undergoing significant changes with some of the economic corridors under Bharatmala competing with few existing stretches, Burla said. Overall, these factors would make the traffic forecasting extremely challenging. Therefore, BOT model in its current form may not have many takers. Achieving financial closure also would be a challenge given these uncertainties, he said.

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