The National Highways Authority of India (NHAI) has floated tenders inviting bids to monetise its road assets worth Rs 50,000 crore. The government-run authority said it expects to lease out around 6,000 km of national highways to private players through the auction route starting next month.
Around 50 national highways would be leased out in the next month, according to data from NHAI website, mostly for toll collection and maintenance in lieu of the upfront payment to the road authority.
“I would like to make it very clear that this is not a distress sale of assets but an initiative to enhance private sector participation in the operations and management of the highway sector,” Raghav Chandra, Chairman, National Highways Authority of India said in an emailed response.
Growing Appetite
NHAI's latest move has the potential to kickstart stalled projects in the highways sector, according to experts.
“Since most of these highways are already being made, it is just about maintenance, which private players feel comfortable working around with,” said Gaurav Karnik, partner and leader of real estate and infrastructure, at advisory, auditing and business consultancy firm EY.
What could sustain the momentum is the ministry of road transport and highways' ambitious target of adding 50,000 km of national highways over the next five years. The government will set the pace of highway construction at 42 km per day, Union minister for road transport & highways and shipping, Nitin Gadkari said.
The pace of highway development to reach new high by year 2017! #HighwayToGrowth pic.twitter.com/AUj0DrwpwW
Floating online tenders will make the auction process more transparent, said EY's Karnik. “The highways sector is growing and we are bullish on it. There is good growth potential over the next couple of years, especially given the government's push,” he added.
Cruising Ahead
A recent study by India Ratings and Research estimates that investors are keen on picking up stake in completed highway projects worth Rs 24,500 crore. With infrastructure investment trusts gaining traction, highways will evolve further as an asset class, the agency says in a report titled ‘Opportunities Manifest Despite Overt Limitations'.
Global institutional investors such as UAE Infrastructure Investment Fund, Japan Bank for International Cooperation (JBIC), Nomura and others have indeed shown interest in picking up stake in these long-term projects, Chandra of NHAI confirmed.
While institutional investors including sovereign wealth funds are generally averse to taking risks in ongoing projects, they are open to investing in stable yield projects, the state-run authority said.
The availability of foreign capital frees up domestic capital, both equity and debt, for the NHAI to invest in more greenfield projects.
Welcoming the NHAI's decision, Isaac George, director and chief financial officer, GVK Power & Infrastructure said. “It is a good thing to bring private players in the sector. Road maintenance will improve and so will the administration of toll collection.”
That is precisely the NHAI's rationale behind these auctions.
“This would ensure efficient operations and management of monetised assets on a long-term basis while generating financial resources upfront for investing in new projects,” Chandra said.
More private companies should exploit these opportunities, Issac added.
When asked whether GVK has bid for any of these or other projects, he said, “As of now, we have not taken any call as we are still dealing with problems on our end.”
Though private players are gung-ho, the NHAI cautioned that projects will only be monetised if it gets attractive bids. “The base price for the project will be determined by the authority,” clarified Chandra.
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