Venture capital and pension funds can now participate in highway PPP projects

The government allowed venture capital, private equity, infrastructure and pension funds to bid on highway projects under the Public-Private Partnership (PPP) model; This marks a major shift in policy since the sector was opened to private participation in the early 2000s. TOI reported that only highway developers and construction firms have been allowed to participate in such tenders so far.

As part of efforts to attract larger private investments in the road sector, the road transport ministry has revised the tender norms for Build-Operate-Transfer (BOT) toll projects. Officials told TOI that Alternative Investment Funds (AIFs) and Foreign Investment Funds (FIFs), backed by significant financial resources, are expected to bring stronger project execution capabilities and also provide better returns on highway assets.

These organizations often have access to long-term capital through pension and infrastructure funds. However, the extent of investor interest and the nature of future deals are not yet known.

According to the TOI report, the revised tender document issued by the highways ministry said: “The bidder may be an individual, private entity, state-owned entity, AIF, FIF or any combination of these with formal intention to enter into a joint tender agreement to form a consortium.” Traditional highway developers and construction companies will continue to participate in the tender.

The updated framework also introduces separate evaluation criteria for alternative funds and traditional highway developers. While construction firms will continue to be evaluated on both technical expertise and financial strength, AIFs and FIFs will be evaluated on financial capacity only. The financial eligibility threshold for these funds was set at twice the prescribed level.

Explaining the rationale behind the move, an official said that the role of the concessionaire in BOT projects is primarily to arrange financing, appoint capable contractors and manage highway assets efficiently.
“The concept of concessionaire in BOT projects is an entity ideally capable of arranging finance, appointing construction companies for implementation and managing highway areas efficiently. This is similar to film production; a producer arranges finance and brings together the right director and actors to create a successful film. This change in norms will bring a major shift and attract quality investment in the sector,” the official said. To ensure project quality, alternative funds will be required to submit the credentials of their proposed contractors for approval. Selected contractors must meet the qualification requirements specified in the tender document.

(With TOI entries)