Crisil Research said toll road projects awarded before 2009 could earn an average return on equity of 22 per cent.
Traffic growth boosts revenues
The study, covering 23 operational build-operate-transfer projects, indicates that less competition had kept bid amounts modest and higher than expected growth traffic had boosted toll revenues.
The 23 projects form one-fourth the length of BOT toll road projects operational in the country.
Typically developers look for 16-18 per cent returns while bidding.
Scene before 2009
Crisil said on an average, only five developers bid for each project prior to 2009.
This was due to uncertainties in policies on BOT toll road projects.
Developers were unsure whether the government would transfer land in time for construction.
Further, the absence of an exit option meant that developers could not sell their entire equity stake in the projects.
On an average, toll revenues for the 23 projects increased 10-12 per cent over 2008-09 to 2010-11.
Crisil said assuming future traffic growth at a modest six per cent through the remaining term of the projects the equity returns for these projects were likely to exceed 20 per cent. High inflation also boosted toll revenues.
“As changes in toll rates are linked to movements in the WPI, the average increase in toll rates was similar to the increase in the WPI during the period,” said Mr Ajay D'Souza, Director, Crisil Research.
AGGRESSIVE BIDDING
Increased competition led to aggressive bidding for newer BOT projects.
The attractiveness of projects increased with the government speeding land acquisition, providing an exit option in the licensing agreement and awarding lucrative stretches of the National Highway Development Programme.
The average number of bidders for one project has gone up to 25-30. In most of the newer projects, developers have been offering a premium.
A premium is a committed annual payment to the government over the term of the project.
In 2011-12, almost 65 per cent of the projects were awarded on premium basis, compared with 25 per cent in 2008-09.
According to Mr Prasad Koparkar, Senior Director, “The premium amounts even exceeded the project cost in some NHDP Phase III and V projects, for which bidding was particularly aggressive. Crisil expects the higher premium to bring down the average equity returns to about 14 per cent.”