This article explores the potential benefits of reintroducing the BOT (toll) model and addresses
key issues and regulatory mechanisms required for successful implementation.

India’s infrastructure development has witnessed significant progress in recent years. The government’s commitment to modernise and expand critical sectors such as roads, railways, ports, and construction has attracted both domestic and foreign investments. The introduction of 100percent foreign direct investment (FDI) under the automatic route for key infrastructure sectors has boosted investor confidence. In addition, standardised and tradeable asset classes, along with improved legal, financial, and technical frameworks, have made infrastructure projects more attractive to private investors. However, there is a need to re-examine the bidding and funding patterns to fulfil the goals set by the Hon’ble Prime Minister. This article explores the potential benefits of reintroducing the BOT (toll) model and addresses key issues and regulatory mechanisms required for successful implementation.

Enabling Framework:

A Strong Foundation for Private Investment Under the dynamic leadership of the Prime Minister, the Government of India (GOI) has implemented necessary reforms in land acquisition, electronic tolling, and the creation of bankable model concession agreements. These reforms have equipped the private sector to take up Build-Operate-Transfer (BOT) projects of any size, leading to increased private sector participation. The recent awarding of BOT projects, such as the Ganga Motorway project, and the participation of multiple bidders in projects like Samakhiyali-Santalpur highlight the growing interest of the private sector in BOT projects. Addressing Misconceptions: The Cost Factor of BOT Projects Criticism against BOT projects for being expensive is often ill-founded. The financing structures and fine-grained issues such as termination rights and dispute resolution mechanisms have made these projects more attractive to private investors. By incorporating financial viability checks and implementing transparent tender processes, concerns regarding cost-effectiveness can be effectively addressed.

Bridging the Funding Gap:

Reviving the BOT (Toll) Model to bridge the funding gap for road development programmes , it is crucial for the government to repose trust in the private sector and reintroduce the BOT (toll) model. This move can potentially attract an investment of approximately Rs 15 lakh crore from the private sector over the next seven years. Allocating around 30percent of the annual project outlay on a BOT (toll) basis would provide clarity for international funds and encourage resource allocation for road projects in India. Immediate action is required to kickstart the awarding of BOT (toll) projects, ensuring productive tenders and viable projects for private investors.

Streamlining the Regulatory Mechanism:

Ensuring Smooth Implementation To facilitate the successful implementation of infrastructure projects, certain key regulatory mechanisms need to be strengthened and streamlined.

Regulatory Mechanism:

Delays in clearances, approvals, or the release of grants can significantly hinder project progress. Establishing a specific PPP law can ensure a smooth implementation process and provide appropriate compensation to private entities in case of hindrances caused by government instrumentalities or local disturbances.

Key Legal and Regulatory Issues:

Addressing challenges related to land acquisition delays, forest clearances, utility shifting, and railway bridge approvals is crucial. Consistency in the implementation of the Model Request for Proposal (RFP) and Concession Agreement (CA) documents across all states is essential to streamlining the process.

Approval Mechanism and Delay Compensation:

To avoid project delays and mitigate financial losses, proactive engagement between the authority and private entities is vital. Timely compensation as per contract terms should be provided instead of resorting to arbitration and litigation.

Compensation for Unforeseen Events:

Closure of mining or construction material extraction, restricted entry into cities, or similar events imposed by the central or state government can significantly impact project revenue and render projects unviable. Since these factors are beyond the control of concessionaires, it is important to devise a suitable compensation mechanism to mitigate the financial losses incurred due to such events.

Compensation for Escalation:

Inflationary pressures in the country have led to a steep increase in the cost of input materials such as cement, steel, bitumen, and fuels (petrol, diesel, and oil). To mitigate the risks associated with cost escalation, it is recommended to incorporate a compensation mechanism by fixing the base rates of major raw materials at the bidding stage. This approach would not only ensure timely completion of projects but also contribute to the government’s ambitious goal of achieving a 5-trillion-dollar economy.

(Extracts taken in this article are
provided by IRB Infrastructure and
the National Highway Builders
Federation, NHBF.)