Government veers towards toll funding model for road projects

New Delhi : Buoyed by increasing competition among private sector players for highway projects, the road ministry plans to tender the maximum number of projects under build, operate and transfer (BOT) - toll funding model.

The move is aimed at abating the load on the fisc arising out of annuity liability with the intention is to tender maximum number of projects on BoT (toll) basis, because ultimately the annuity payment made to the private sector has to be borne by the government itself.

As per its plans for the current fiscal, the ministry aims to award 7,300 km under the BOT (toll) category and only 1,000 km as a mix of annuity and engineering procurement and construction (EPC).

Both BOT (toll) and annuity models are used for highway development in public-private partnership. Under the BOT (toll) model, the developer is entitled to receive a viability gap funding (VGF) of up to 40% of the project cost and earns revenues from the project in the form of toll through the concession period. The project is transferred to the government after the concession period.

Under the annuity model, there is no VGF provision and the toll rights are also retained by the government. The developer gets a return on his investments in the form of fixed semi-annual payments (annuity) by the government through the concession period.