The National Highways Authority of India (NHAI) has reintroduced the Build Operate Transfer (BOT) model for highway construction, inviting bids for eight key projects with a combined investment of Rs 31,000 crore. After years of dormancy due to private investor risk aversion, the BOT model aims to rejuvenate private participation in building and operating highways. The NHAI's decision, part of a broader strategy, reflects an effort to diversify funding sources, reduce government reliance on the budget, and enhance the quality of construction through long-term private sector involvement.
The Build Operate Transfer (BOT) model for highway construction, a mechanism where private entities invest in, build, and operate highways before transferring them to the government, is making a significant comeback in India. The National Highways Authority of India (NHAI) has recently called for bids for projects involving a combined investment of Rs 31,000 crore through the BOT model. This development comes after the BOT model had remained largely inactive for several years, primarily due to risk aversion among private investors.
The NHAI has initiated the bidding process for eight key highway stretches, encompassing a total length of 517.4 km. Among these projects is a noteworthy 6-lane greenfield access-controlled expressway connecting Agra and Gwalior. This 88.4 km expressway is designed to traverse through Uttar Pradesh, Rajasthan, and Madhya Pradesh, with an estimated project cost of Rs 3,841 crore. The remaining highway projects are situated in Maharashtra, Assam, and Telangana. The total project cost for these stretches is expected to be Rs 30,975 crore.
The government's decision to promote the BOT model is part of a broader strategy to rejuvenate private participation in highway construction. In the BOT model, private entities that secure the concession are responsible for both building and operating the highway infrastructure, which not only eases the financial burden on the government but also taps into the efficiency and innovation of the private sector. While there is an option for capital grants of up to 40% in certain cases, the primary objective is to encourage private investment in infrastructure development.
Historically, during the period between 2007 and 2014, the BOT model was extensively utilized for building highways in India. However, due to disputes and delays associated with this model, the pace of highway construction slowed down considerably. In the subsequent years, the government relied heavily on other models, such as Hybrid Annuity Model (HAM) and Engineering Procurement and Construction (EPC), resulting in a substantial increase in budgetary support to NHAI.
The revival of the BOT model is seen as a positive step to diversify funding sources and reduce the government's reliance on the budget for highway development. The decision is also motivated by a desire to enhance the quality of construction. Unlike in the EPC model, where the contractor's responsibilities conclude upon project completion, in the BOT model, the concessionaire is obliged to operate the asset for 20-30 years. This long-term involvement is expected to ensure a higher standard of construction.
While the government has faced challenges in recent years, with BOT concessions being put on hold and the majority of highway construction costs being borne by the government, the renewed focus on the BOT model signals a strategic shift. The government's efforts to make BOT attractive involve amendments to concession agreements and the careful selection of viable projects with pre-arranged land acquisition. Additionally, steps have been taken to ensure the BOT model aligns with contemporary needs and expectations.
In conclusion, the recent call for bids by NHAI under the BOT model underscores a deliberate move to reinvigorate private investment in highway development. This initiative aligns with the government's broader infrastructure goals, aiming for sustainable and efficient development while exploring alternative funding mechanisms beyond traditional budgetary allocations. As the bidding process progresses and projects are awarded, it will be interesting to observe the impact of this revived model on India's highway construction landscape.
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