The Road Transport Ministry has revised the bidding conditions for build-operate-transfer (toll) projects as part of efforts to attract more private investment into the sector. Officials said the Alternative Investment Fund (AIF) and the Foreign Investment Fund (FIF), which have strong financial resources, are expected to bring in better construction companies to execute projects while ensuring better return on investment for highway projects.
Typically, the financials of these entities include pension and infrastructure funds that provide long-term capital. It remains to be seen how much interest these funds have and how they structure the deal.
The revised bidding document notified by the Ministry of Highways said, “Bidders may be natural persons, private entities, government entities, AIFs, FIFs or any combination thereof with a formal intention to enter into a joint bidding agreement to form a consortium.” Highway builders and construction companies will also continue to bid for such projects.
The document also sets out separate criteria for evaluating bids from alternative funds and traditional highway developers. For road construction companies, qualifications will be assessed based on technical and financial capabilities. However, for alternative investment funds and foreign investment funds, only financial capabilities are considered. For these funds, the required financial capability threshold is set at twice the prescribed eligibility level.
“The concept of a concessionaire in a BOT project is ideally an entity that can arrange the finances, appoint a construction company to execute and effectively manage the highway. It is similar to film production – a producer arranges funds and assembles the right directors and actors to make a successful film. This change in norms will bring about a significant shift and attract quality investment into the industry. ” said an official.
To ensure that the replacement fund hires a capable construction company, they will be required to submit the qualifications of the proposed contractor for approval by the authority. Contractors must meet the qualification standards specified in the bidding documents.