Operational BOT toll road projects to offer 22% return: Crisil

MUMBAI: Toll road projects that were awarded on build-operate-transfer ( BOT) basis, before 2009, could earn an average equity return of 22%, a report by Crisil said. Generally, developers target a return of 16-18 % while bidding.

The 23 BOT toll road projects considered by rating company form one-fourth the length of BOT toll road projects operational in the country.

Healthy growth in traffic boosted toll revenues for these projects. On an average, toll revenues for the 23 projects increased by 10-12% over 2008-09 to 2010-11. The report has assumed future traffic growth at 6 % through the remainder term of the projects. At this rate, equity returns for these projects are likely to exceed 20%

The toll revenue is boosted by high inflation. "Inflation, measured by the wholesale price index (WPI), averaged 7% between 2009-10 and 2011-12. Because changes in toll rates are linked to movements in the WPI, the average increase in toll rates was similar the period," said Ajay D’Souza, Director, Crisil Research.

But the report said that aggressive bidding is driving up project costs and newer projects will earn lower returns. In most of the bids for the newer projects, developers have been offering a premium.