According to sector watchers, the move came about since bidders were quoting very low O&M costs to bag projects, raising suspicions on whether they would be interested in looking after the projects for the longer term. Last week, the Road Transport Ministry directed highway builders to furnish an additional performance security in an attempt to rein in errant bidders that bid abnormally low. The decision taken on Monday is to be seen in a similar light.
Under the new HAM, O&M costs will be a fixed percentage of the winning bid amount and will be paid by the authority calling the bids.
For flexible perpetual pavement including structures for flexible perpetual pavement including
structures, no O&M cost will be payable to the concessionaire in the first year while 0.40% of the Bid Project Cost will be paid each for the second, third and fourth year. The authority will pay 0.60% of the Bid Project Cost each for the subsequent years till laying the renewal layer or end of concession period, whichever is earlier. Similar fixed percentages have been constituted for rigid pavement with 10 years Maintenance Period and for stand-alone Bridge or Tunnel works.
“In order to book profits upfront along with the increasing competition has resulted in some of the developers resorting to quoting abysmally low O&M bids,” said Rajeshwar Burla, group head, corporate ratings at
There have also been instances of negative O&M bids from few developers which were out rightly rejected by the National Highway Authority of India (NHAI) in the past.
According to Burla, O&M is a critical aspect in HAM projects as the future annuities depend on proper upkeep of the road. O&M failure is a serious risk for lenders and NHAI.
“The skin in the game for the developers also gets addressed for them to stay committed to these projects for longer tenure,” he said.
In another order, the Transport Ministry allowed a change of ownership in Build-Own-Operate (BOT) Toll projects one year after commercial operation date. Under earlier regulations, concessionaries were supposed to operate BOT Toll highway projects for at least two years before a change of ownership was permitted.