Talks begin to make BOT rules more investor friendly

The government has initiated discussions on possible changes in the build-operate-transfer or BOT framework, looking to reduce reliance on the engineering, procurement and construction or EPC mode amid growing fiscal pressures, people familiar with the development said.

It has sought inputs from the stakeholders on the changes required to rekindle private participation in the sector.

The Centre commissions national highways through EPC, BOT and hybrid annuity model (HAM) agreements with road developers.


It has heavily relied on the EPC mode in the past few years to hasten highway construction as the private sector stayed away.

"The government is keen to revive the BOT... The idea is to understand the issues industry is facing," said a government official.

Industry, on its part, has sought a specific public-private partnership (PPP) law that would address the issues related to contracts and ensure smooth implementation.

The National Highways Builders Federation (NHBF), in a presentation to the finance ministry, has called for a specific PPP law, which would ensure smooth implementation of the projects without hindrances from any government instrumentalities or local disturbances.

The NHBF has flagged key legal and regulatory issues that are faced during structuring and implementation of a highway project, including delays due to land acquisitions, forest clearances, utility shifting, and railway bridges approvals and clearances.

According to the highway builders, most projects are delayed due to hindrances in handing over the entire land, resulting in pushing ahead of commercial operation date.

"This results in an increase in interest cost, cost of construction and revenue loss. The authorities need to proactively engage with the private entity for prompt compensation as per contract instead of pushing it to arbitration and litigation," the NHBF presentation, seen by ET, said. Another concern flagged by the highway builders is the need to allow pass through of basic raw material costs in BOT (toll) concession agreements.

Experts say key risks need to be addressed by the government to encourage private participation.

According to Jagannarayan Padmanabhan, senior director, Crisil Market Intelligence and Analytics, land availability, total project cost, and possible competing roads are the key risks that need to be addressed by the government to encourage private participation in road building.