The Indian government has now permitted venture capital, private equity, infrastructure, and pension funds to bid for highway projects under the Public-Private Partnership (PPP) model. This marks a significant paradigm shift since the sector was opened to private players in the early 2000s. Previously, only highway developers and construction companies were eligible to bid for such projects.
Modified Bidding Conditions for BOT Toll Projects
The road transport ministry has revised the bidding conditions for Build-Operate-Transfer (Toll) projects as part of its efforts to attract greater private investment into the sector. Officials stated that Alternative Investment Funds (AIFs) and Foreign Investment Funds (FIFs), with their deep pockets, are expected to bring in better construction firms for project execution while ensuring improved returns on investment in highway projects.
Typically, these entities come with finances from pension and infrastructure funds, providing long-term capital. It remains to be seen how much interest these funds will show and how they will structure the deals.
New Eligibility Criteria for Bidders
The modified bidding document notified by the highways ministry states, “Bidder may be a natural person, private entity, government-owned entity, AIF, FIF, or any combination of them with a formal intent to enter into a joint bidding agreement to form a consortium.” Highway builders and construction companies will continue to be eligible to bid for such projects as well.
The document also lays down separate criteria for evaluating bids submitted by alternative funds and traditional highway developers. For highway construction firms, eligibility will be assessed on the basis of both technical and financial capacity. However, for AIFs and FIFs, only financial capacity will be considered. In the case of these funds, the required financial capacity threshold has been set at twice the prescribed level for eligibility.
Shift in Concessionaire Concept
“The concept of a concessionaire in BOT projects is ideally that of an entity capable of arranging finances, appointing construction firms for execution, and managing highway stretches efficiently. It is similar to filmmaking — a producer arranges funding and brings together the right director and actors to create a successful film. This change in norms will bring a major shift and attract quality investment into the sector,” an official said.
To ensure that alternative funds engage competent construction firms, they will be required to submit the credentials of their proposed contractors for approval by the authority. The contractors must meet the qualification criteria specified in the bidding document.
