In 2008, with the help of a French company, Egis, known for running state-of-the-art toll-collection projects, the Netherlands government implemented a scheme called Spits Mijden, meaning rush hour-avoidance.
Under the scheme, toll companies and the government rewarded commuters who did not use busy roads during peak hours. This led to a 8%-10% fall in traffic during the rush hour. An average 40% of commuters in the city of Rotterdam participated in the drive.
While initiatives like Spits Mijden optimise the use of existing infrastructure, in many countries, including India, the solution for rush-hour traffic lies in building more roads.
Toll roads are one of their kind, which the government can invest in and monetise. However, they are also often a pain for commuters, who have to wait in interminable queues, which in turn cause traffic snarls, defeating the very purpose of having such roads.
On the other hand, Indian contractors have traditionally approached toll collection as a burden. According to industry estimates, toll projects lose between 5% and a whopping 30% of revenue to leakages and other inefficiencies. This renders many projects unviable.
Among the earliest attempts to make amends kicked off when Egis started operations in India in 2010. Its mandate: Manage the vital Delhi-Gurugram expressway.
“We expected we could do something great here, using our first project, the Delhi-Gurugram expressway, as a showcase of our ability,” says Sandeep Gulati, CEO of Egis India. “But there were multiple factors which hindered our plans, including the policies of the government and the National Highways Authority of India (NHAI), and stressed concessionaires and assets.”
The term for the Delhi-Gurugram expressway contract was only 3 years. Egis has since picked up other projects in the country, but clearly, its enthusiasm for India has received a reality check.
Welcome to India
Companies like Egis operate on a fee-for-service model. They provide toll-collection, incident-management, and road-maintenance services, and usually charge a fee from the developer.
However, they avoid the operation-maintenance-transfer (OMT) tenders floated by the NHAI. The reason: The authority expects winning bidders to take on the traffic risk and pay it an assured sum in exchange for toll-collection rights.
Two other companies, Feedback Infrastructure and Markolines, both Indian, also follow the fee-for-service approach and prefer to not take on the burden of traffic risks. The focus of these companies is to improve efficiencies in toll collection.
As of now, the market for these companies is lean. According to Parvesh Minocha, director at Feedback Infrastructure, India has only 100 toll roads outsourcing toll collection to fee-based service providers.
The NHAI has been selecting OMT contractors by awarding toll rights for a year or five years to the highest bidder for upfront toll-revenue payment to the government.
“Professional and process-oriented firms have certain overhead costs which single-person driven companies do not have. But the NHAI’s OMT process was dominated by the lowest-bidder [principle].
“As concepts, any organisation being the lowest bidder and also structured do not go hand in hand,” says Aman Kishore, managing director of tolling-technology solution provider Vaaan Infrastructure.
The short (annual) tenure of NHAI’s contracts and the low entry barrier pose risks to the projects themselves, because they open the gates for small, fly-by-night operators. Changing lanes
For a long time, the NHAI’s OMT tenders did not count as lucrative business for fee-based service operators because of these reasons.
Things started changing in 2015. That was the year Canada's Brookfield Asset Management entered the scene with the acquisition of nine assets from Gammon Infrastructure.
Parallelly, India's infrastructure sector began changing. Now, construction companies want to stick to building assets, while the developer role is being taken over by large institutional funds, such as overseas pension funds, sovereign funds, domestic private-equity firms, and infrastructure-investment trusts.
“These funds are installing cameras at toll plazas to monitor the number of exempt vehicles [among other measures]. The business is becoming a lot more professional compared with the time when it was run by fly-by-night toll operators,” says Shubam Jain, vice president of ratings firm Icra.
As these firms bring in global practices, compliance and safety norms will be followed more strictly. Professional fee-based service providers could end up being the biggest beneficiaries of the change.
While M&A activity around stressed road assets over the past three years has pushed global private-equity investment into Indian infrastructure, the next wave of growth will come with the toll-operate-transfer (TOT) auctions that are seeing huge interest from international infrastructure and pension funds.
Doing away with short-term OMT contracts, the NHAI has decided to give toll-collection rights for 30 years to a concessionaire against upfront payment. It has also decided to create bundles of 500 km-600 km of roads, making TOT an exclusive play for investment funds.
“Earlier the government used to give a one-year toll-collection contract. Whoever is in it just for a year will never invest too much in building technology, as the capex won’t be justified,” says Kishore of Vaaan Infrastructure.
The first TOT auction in March saw Australia’s Macquarie group emerge as the winner, with a commitment to pay up INR9,681 crore to the NHAI for toll-collection rights for 648km of national highways.
Bids for the second round of TOT auctions are likely to open in November, according to an NHAI tender.
“A lot of roads are changing hands from the original road developers to funds. [As a result] the market is growing exponentially for companies like us. Three years from today, we are looking at 400 roads coming to the professional outsourced O&M business,” says Minocha of Feedback.
Minocha draws a parallel with the evolution of the real-estate sector. Around 30 years ago, owners used to provide maintenance services. With the emergence of large branded builders, those services were outsourced to professional agencies. Similarly, toll-collection and maintenance services are witnessing the advent of professional players.
While an experiment like the one in the Netherlands may be a ways off, highways in India are slowly bringing stodgy processes up to speed and experimenting with concepts like distance-based toll collection.
If these early efforts work out, India may no longer be the road less taken by infrastructure companies.
(Graphics by Ankita Mehrotra)
Under the scheme, toll companies and the government rewarded commuters who did not use busy roads during peak hours. This led to a 8%-10% fall in traffic during the rush hour. An average 40% of commuters in the city of Rotterdam participated in the drive.
While initiatives like Spits Mijden optimise the use of existing infrastructure, in many countries, including India, the solution for rush-hour traffic lies in building more roads.
Toll roads are one of their kind, which the government can invest in and monetise. However, they are also often a pain for commuters, who have to wait in interminable queues, which in turn cause traffic snarls, defeating the very purpose of having such roads.
On the other hand, Indian contractors have traditionally approached toll collection as a burden. According to industry estimates, toll projects lose between 5% and a whopping 30% of revenue to leakages and other inefficiencies. This renders many projects unviable.
Among the earliest attempts to make amends kicked off when Egis started operations in India in 2010. Its mandate: Manage the vital Delhi-Gurugram expressway.
“We expected we could do something great here, using our first project, the Delhi-Gurugram expressway, as a showcase of our ability,” says Sandeep Gulati, CEO of Egis India. “But there were multiple factors which hindered our plans, including the policies of the government and the National Highways Authority of India (NHAI), and stressed concessionaires and assets.”
The term for the Delhi-Gurugram expressway contract was only 3 years. Egis has since picked up other projects in the country, but clearly, its enthusiasm for India has received a reality check.
Welcome to India
Companies like Egis operate on a fee-for-service model. They provide toll-collection, incident-management, and road-maintenance services, and usually charge a fee from the developer.
However, they avoid the operation-maintenance-transfer (OMT) tenders floated by the NHAI. The reason: The authority expects winning bidders to take on the traffic risk and pay it an assured sum in exchange for toll-collection rights.
Two other companies, Feedback Infrastructure and Markolines, both Indian, also follow the fee-for-service approach and prefer to not take on the burden of traffic risks. The focus of these companies is to improve efficiencies in toll collection.
As of now, the market for these companies is lean. According to Parvesh Minocha, director at Feedback Infrastructure, India has only 100 toll roads outsourcing toll collection to fee-based service providers.
The NHAI has been selecting OMT contractors by awarding toll rights for a year or five years to the highest bidder for upfront toll-revenue payment to the government.
“Professional and process-oriented firms have certain overhead costs which single-person driven companies do not have. But the NHAI’s OMT process was dominated by the lowest-bidder [principle].
“As concepts, any organisation being the lowest bidder and also structured do not go hand in hand,” says Aman Kishore, managing director of tolling-technology solution provider Vaaan Infrastructure.
The short (annual) tenure of NHAI’s contracts and the low entry barrier pose risks to the projects themselves, because they open the gates for small, fly-by-night operators. Changing lanes
For a long time, the NHAI’s OMT tenders did not count as lucrative business for fee-based service operators because of these reasons.
Things started changing in 2015. That was the year Canada's Brookfield Asset Management entered the scene with the acquisition of nine assets from Gammon Infrastructure.
Parallelly, India's infrastructure sector began changing. Now, construction companies want to stick to building assets, while the developer role is being taken over by large institutional funds, such as overseas pension funds, sovereign funds, domestic private-equity firms, and infrastructure-investment trusts.
“These funds are installing cameras at toll plazas to monitor the number of exempt vehicles [among other measures]. The business is becoming a lot more professional compared with the time when it was run by fly-by-night toll operators,” says Shubam Jain, vice president of ratings firm Icra.
As these firms bring in global practices, compliance and safety norms will be followed more strictly. Professional fee-based service providers could end up being the biggest beneficiaries of the change.
While M&A activity around stressed road assets over the past three years has pushed global private-equity investment into Indian infrastructure, the next wave of growth will come with the toll-operate-transfer (TOT) auctions that are seeing huge interest from international infrastructure and pension funds.
Doing away with short-term OMT contracts, the NHAI has decided to give toll-collection rights for 30 years to a concessionaire against upfront payment. It has also decided to create bundles of 500 km-600 km of roads, making TOT an exclusive play for investment funds.
“Earlier the government used to give a one-year toll-collection contract. Whoever is in it just for a year will never invest too much in building technology, as the capex won’t be justified,” says Kishore of Vaaan Infrastructure.
The first TOT auction in March saw Australia’s Macquarie group emerge as the winner, with a commitment to pay up INR9,681 crore to the NHAI for toll-collection rights for 648km of national highways.
Bids for the second round of TOT auctions are likely to open in November, according to an NHAI tender.
“A lot of roads are changing hands from the original road developers to funds. [As a result] the market is growing exponentially for companies like us. Three years from today, we are looking at 400 roads coming to the professional outsourced O&M business,” says Minocha of Feedback.
Minocha draws a parallel with the evolution of the real-estate sector. Around 30 years ago, owners used to provide maintenance services. With the emergence of large branded builders, those services were outsourced to professional agencies. Similarly, toll-collection and maintenance services are witnessing the advent of professional players.
While an experiment like the one in the Netherlands may be a ways off, highways in India are slowly bringing stodgy processes up to speed and experimenting with concepts like distance-based toll collection.
If these early efforts work out, India may no longer be the road less taken by infrastructure companies.
(Graphics by Ankita Mehrotra)
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