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The government has updated its highway contract rules to make toll-based projects more secure for private investors and lenders. The new framework introduces revenue support when traffic stays below projections, extensions in toll-collection periods to offset demand shortfalls, and reductions in tolling periods when traffic exceeds expected levels. It also allows project buyback if a road becomes over-utilised and ensures debt repayment through concessionaire substitution in case of default. These changes aim to reduce demand-related risks and revive private participation in national highway development.
The government has introduced revised contract norms for highway projects to encourage higher private participation and provide stronger comfort to lenders. These changes were announced during the past week and are expected to be formally notified within this month. The updates follow a period when private sector interest had reduced due to uncertainties around demand forecasting, debt security and overall financial viability of toll-based projects. Advertisement
Under the updated framework for BOT (Toll) projects, target traffic levels will be defined for each year from the completion of construction until the seventh year of operations. If the actual traffic during this period falls more than 10% below projections, the government will provide revenue support to the concessionaire. For traffic shortfalls beyond the seventh year, the toll-collection period will be extended. The extension will be calculated as 1% of additional tolling time for every 1% shortfall in traffic, up to a maximum of 10%.
If traffic declines by more than 20%, lenders or the concessionaire will have the right to terminate the contract. In such cases, the government will guarantee repayment of outstanding debt, and the project authority will appoint a substitute concessionaire to maintain continuity. These steps are intended to reduce the financial risk borne by banks, which were earlier wary of lending to toll-based road projects.
On the other hand, if actual traffic exceeds projections by more than 10%, the tolling period will be reduced proportionately. This ensures that the benefits of higher-than-expected demand are balanced between the concessionaire and users. A buyback clause has also been included, allowing the government to take back the project if the traffic volume regularly surpasses the designed capacity of the road.
The norms also specify that termination payments will be allowed only if the project has crossed at least 20% physical progress. Below this threshold, compensation will not be provided. This is meant to ensure disciplined project execution in the early stages.
These revisions follow feedback from private developers and financial institutions who have sought more predictable mechanisms to manage traffic-related risks. The government expects that by reducing demand volatility and offering transparent risk-sharing, more private entities will be encouraged to participate in upcoming highway projects.
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