Toll, operate and transfer: Highways deal a good start

By Anjan Dasgupta, HSA Advocates

A consortium led by Macquarie, an Australia-based capital fund manager, has bagged the tolling, operation and maintenance rights for a bundle of nine stretches of national highway, all completed and in operation, on a public-private partnership (PPP) basis. This is the first time the government of India through the National Highways Authority of India (NHAI) has auctioned projects which are completed and in operation under the toll, operate and transfer (TOT) model to monetize assets.

Anjan DasguptaPartnerHSA Advocates
Anjan Dasgupta
HSA Advocates

The projects are to be handed over for a concession period of 30 years for tolling, operation and maintenance, after which the projects are to be transferred back to the NHAI. The government completed construction of these projects using its own sources of funds. The consortium was selected through international competitive bidding on the basis of quoting the highest aggregate concession fee for all the nine projects in the bundle. The concession fee for a project was the summation of the net present value of net free cash flow expected to be generated by the project during the entire concession period as estimated by the consortium applying the consortium’s own discount rate. The aggregate concession fee as quoted by the consortium of Macquarie and Ashoka Buildcon for upfront payment to the NHAI was ₹96.81 billion (US$1.45 billion). This was 54% higher than the initial estimated aggregate concession fee of ₹62.58 billion for all the nine projects calculated by the NHAI. To calculate the initial estimated concession fee for a project the NHAI applied a discount rate of 3% over the bank rate for debt, as then specified by the Reserve Bank of India, and a normative rate of 14% for return on equity.

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Anjan Dasgupta is a senior partner at HSA Advocates. HSA, a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata, worked with the NHAI on the auction of projects described above.

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