Reworking of the build-operate-transfer (BOT) model is likely to drive up investments worth Rs 40-50 lakh crore in the road sector in the current financial year, India Ratings and Research said in a report.
The revival of the BOT model, with features that provide significant risk mitigation compared to the earlier model, is likely to increase the share of these projects from FY25.
Ind-Ra estimates capex requirements under this model to range between Rs 0.4 trillion-0.5 trillion in FY25, and the agency believes it would rise steadily to Rs 1 trillion by 2030, the rating agency said in a statement.
The ratings agency said that the revamping of the BOT model is a tactical move to attract private capex, which is estimated to surpass Rs 1 trillion by 2030, as per the government.
During the past seven years, the government has rolled out about 400 hybrid annuity model (HAM) road projects in India, worth over Rs 4 trillion, thereby balancing risk appropriately between private and public partners and boosted the public-private partnership activity in the sector, the statement said.
Also, the government’s enhanced focus on monetisation via the National Monetisation Pipeline (NMP) has attracted foreign investors, including various sovereign wealth funds and pension funds. The government’s continued focus on infrastructure development, stable regulations, setting up an infrastructure financing bank i.e. National Bank for Financing Infrastructure and Development (NaBFID), promoting the adoption of surety bonds, and the introduction of FASTags have worked positively for the sector.
While the revamping of the BOT model is a welcome change, the impact of evolving infrastructure landscape such as competing roads and alternate modes of transportation (dedicated freight corridor and inland waterways) in bolstering BOT model remains to be seen.
Ind-Ra asserts that developers need to be mindful of aggressive bidding, taking projects beyond the appetite of their balance sheet, and overestimating toll revenue for greenfield projects to protect them from volatilities in the longer run.