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Longer highway contracts on cards to attract pension funds, FDI

August 01, 2016 08:25 IST

Cabinet to take up proposal to extend operation & maintenance contracts from 9 to 29 years

The government is mulling extending operation and maintenance (O&M) contracts for highways from the current nine years to 29 years, aiming to attract pension funds and other investors.

The Union Cabinet would take up the proposal soon, which is likely to usher in a major reform in the sector, said a senior government officer in the know of the developments.

Sources said the Union Ministry of Road Transport and Highways and the National Highways Authority of India (NHAI) are working together to attract foreign investors into domestic infrastructure space.

One way to do so, they feel, is by increasing the tenure of contracts.

International pension funds or other foreign institutional investors would be able to pump money into these O&M projects for 29 years, an official told Business Standard.

“After recovering their costs over the stipulated period, they would hand over the projects to the government,” he added.

The proposal that the Cabinet is considering covers both new contracts and also those projects for which the contractor at present is the NHAI.

But, if the proposal is cleared, would it mean a higher toll?

According to Vishwas Udgirkar, senior director, Deloitte, be it any highway, it really does not matter whether the O&M contract is for nine years or 29 years.

“One thing that the government and NHAI could do is take one or two highway projects on a pilot basis. The advantage for the government with global pension funds is that they bring in a lot of funds in the beginning of the contract.”

The proposal has been in the making for at least a year and could soon see the light of the day. The development comes on the heels of international investors - Macquarie, Brookfield and Cube Highways - taking up equity in 10 national highway projects worth Rs 4,150 crore from which private promoters had exited.

The Abu Dhabi and Qatar sovereign funds are also expected to make an entry in the domestic roads and highways sector.

The government is mulling extending operation and maintenance (O&M) contracts for highways from the current nine years to 29 years, aiming to attract pension funds and other investors.

The Union Cabinet would take up the proposal soon, which is likely to usher in a major reform in the sector, said a senior government officer in the know of the developments.

Sources said the union ministry of road transport and highways and the National Highways Authority of India (NHAI) are working together to attract foreign investors into domestic infrastructure space.

One way to do so, they feel, is by increasing the tenure of contracts.

International pension funds or other foreign institutional investors would be able to pump money into these O&M projects for 29 years, an official told Business Standard.

“After recovering their costs over the stipulated period, they would hand over the projects to the government,” he added.

The proposal that the Cabinet is considering covers both new contracts and also those projects for which the contractor at present is the NHAI.

But, if the proposal is cleared, would it mean a higher toll?

According to Vishwas Udgirkar, senior director, Deloitte, be it any highway, it really does not matter whether the O&M contract is for nine years or 29 years.

“One thing that the government and NHAI could do is take one or two highway projects on a pilot basis. The advantage for the government with global pension funds is that they bring in a lot of funds in the beginning of the contract.”

Photograph: Reuters

Megha Manchanda in New Delhi
Source: source
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