Toll policy change may rationalize annual hikes

December 4, 2007

Under the proposed policy, only 40% of the WPI will be taken into account while revising the rates

New Delhi: Even as tolled roads are becoming a norm in the country with the government handing over more highway projects to the private sector, a new tolling policy is seeking to limit the annual increase in toll rates.

As of now, toll rates are revised every year and concessionaires are compensated in full as per the increase in the wholesale price index (WPI). But under the new policy, which is yet to be placed before the cabinet for approval, only 40% of WPI will be taken into account while revising the toll rate. This is apart from a fixed component of a 3% increase every year.

As many as 54 highway construction packages of around 320 projects awarded under the National Highway Development Programme were “build operate and toll” projects. According to Planning Commission member Anwar-ul-Hoda, the idea behind changing the structure of toll revision was to ensure that the concessionaires are paid only their due share while fixing annual hikes on toll.

“The input costs of the concessionaire mostly occur many years before they begin to collect toll. So why should the toll revision be based on the wholesale price index of the current year?” asks ul-Hoda.

An official with the National Highways Authority of India (NHAI) also said that many components of WPI did not directly affect the highway construction industry.

The CEO of the roads division of the GMR Group, Rajan Krishnan, said his company was neutral to the proposal as WPI was difficult to predict. “Even the best economists cannot clearly track the movement of WPI. This is just a matter of mathematical modelling,” said Krishnan.

According to Krishnan, however, concessionaires stood to gain from the new policy so long as WPI was less than 5%. But when WPI moves beyond 5%, the toll rate to be charged under the new proposal would be lower than what is currently collected, he added.

Nirmaljit Singh, member, technical, NHAI, said the proposal was with the ministry of road transport and highways, from where it would be sent to the cabinet for clearance.

“I just think you are increasingly reaching a situation where the risk-reward equation is being changed against the government,” said an analyst with a consulting firm, who did not wish to be identified. “The government is taking more and more of the risk. You don’t need to guarantee a 3% increase every year when concessionaires had already accepted the earlier policy (where fee revisions were tied only to WPI),” the analyst said.

According to accepted wisdom, the government passes on fewer risks—such as those associated with traffic—to the concessionaire when evolving a public-private partnership policy and as the market evolves, passes on more of the risks. However, this administration is doing the opposite, the analyst said.

The analyst cited the example of the recent move away from “negative grants”, a term for upfront money paid to the government for the privilege of winning a concession, over and above the cost of the project. Mint had earlier reported plans to do away with negative grants in favour of a revenue-share model, where NHAI would derive a percentage of revenues from toll roads. “By going for revenue sharing, the government is taking more risks,” the analyst said.


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