The Indian government is preparing to implement significant modifications to highway contract conditions this month, aiming to reduce risks for private investors and protect lenders' exposure in the infrastructure sector.
Addressing Critical Demand Risks
Recognizing that traffic projections represent the most crucial parameter in toll-based highway projects (BOT-Toll), the road transport ministry has proposed comprehensive changes to tackle demand-related uncertainties. The revised provisions, scheduled for notification this month, include multiple safeguards designed to create a more favorable environment for private participation.
The government will provide revenue support when actual traffic falls more than 10% below projections during the initial seven-year period following project completion. For each project, target traffic levels will be specifically defined for every year from the scheduled completion date until the seventh year of operation.
Flexible Tolling Periods and Termination Safeguards
Beyond the initial seven-year window, the framework introduces flexible toll collection periods. When traffic falls more than 10% below projected data, the concession period for toll collection will be extended by 1% for every 1% shortfall, with a maximum extension cap of 10%.
In scenarios where traffic shortfall exceeds 20%, lenders or concessionaires may seek contract termination. Conversely, if actual traffic surpasses projections by more than 10%, the toll collection period will be proportionally reduced.
The proposed changes include termination payment provisions to safeguard lenders and financial institutions when project progress exceeds 20%. However, no such payments would be available if progress remains below the 20% threshold.
Comprehensive Protection Mechanisms
The revised contract framework incorporates several additional protective measures. In cases of contract termination due to concessionaire default, the concerned highway authority will step in to replace the concessionaire and ensure lenders receive payment of outstanding debt.
A buyback provision will also be introduced for projects where traffic exceeds designed capacity, providing an exit mechanism for successful projects and ensuring optimal utilization of highway infrastructure. The package also allows for substitution of concessionaires, adding further flexibility to the contractual arrangements.
These comprehensive reforms represent the government's strategic effort to revitalize private investment in India's highway sector by systematically addressing the key concerns that have deterred participation in recent years.
