Nehru ORR awarded to IRB Infra for Rs. 7,380 cr on TOT basis

HYDERABAD: The Government of Telangana has awarded Nehru Outer Ring Road (ORR), Hyderabad, on Toll, Operate and Transfer (TOT) basis for 30 years to IRB Infrastructure Developers Ltd. for Rs.7,380 crore (USD 0.9 billion).

IRB Infrastructure Developers Ltd. is India’s leading infrastructure developer in highways sector. This transaction marks one of the largest asset monetization deals in India's road sector, executed either by the central or state government. Considering the revenue multiplier of the transaction value, it is one of the best bids finalised for the road infrastructure projects in the country, according to Arvind Kumar, Metropolitan Commissioner of Hyderabad Metropolitan Development Authority and Special Chief Secretary of Municipal Administration and Urban Development, Telangana.

The Letter of Award (LOA) has been issued to IRB Infrastructure Developers Ltd. On Thursday.

Kumar said: “The tendering process adhered to the guidelines set forth by the National Highways Authority of India, ensuring fairness and transparency, our department takes pride in its commitment to uphold ethical standards in procurement procedures.”

The 30-year TOT agreement is expected to bring in significant revenue for the state and boost the overall infrastructure development in the region.

In view of the success of NHAI’s TOT highway projects, the Telangana Government decided to invite bids for the ORR on TOT basis. Accordingly, HMDA on November 9, 2022, invited international competitive bids for the operation of ORR for 30 years.

While 11 prospective bidders participated during the bidding stage and a total of 142 days was provided to interested parties to prepare their bids, which is among the highest to ensure complete transparency and maximum participation and two rounds of pre-bid meeting was conducted.

Four eligible parties participated in the tender.

Chief Minister K. Chandrashekar Rao expressed his happiness over the bid and said: “This transaction will give a further boost to investment opportunities in the region and open doors for many other infrastructure and state development projects. These projects will create job opportunities and attract investments, leading to the overall development of the region. The successful bid confirms the confidence of the investors in the robust growth of Hyderabad and future prospects and are affirming the pro-investor growth policies of the state government.”

Minister for Municipal Administration and Urban Development K. T. Rama Rao said: “The Telangana Government is committed to promoting private sector participation in the development of public infrastructure. The transaction showcases the potential for lucrative investment opportunities in the state, which is rapidly growing and evolving. With its favourable policies and supportive environment, Telangana is one of the most favourable states for investment and is highly business-friendly. The state holds immense potential for investors and entrepreneurs alike. It is a prime destination for those seeking to establish or expand their business ventures.”

What is TOT model?

Toll, Operate and Transfer (TOT) is a proven method for monetization of operation assets and large-scale infrastructure projects. Under this model, the successful bidder would be responsible for collecting tolls from road users and maintaining the road for the duration of the contract. Under TOT, the ownership of the asset remains with the state government. TOT (Asset monetisation) serves two critical objectives, firstly it unlocks value from public investment in Infrastructure and secondly it taps private sector efficiencies in operations and management of infrastructure. TOT helps the Government to utilise the private sector investment for new infrastructure creation. It is an internationally accepted model for asset monetization while the ownership of the ownership of the asset continues to be with the state government.

In 2016, Government of India approved for asset monetisation of select NHAI highway through Toll Operate Transfer (ToT) basis. Till date, the NHAI have successfully completed ToT transactions for 6 bundles totalling more than 1600 kms. The concession period varies from 15 to 30 years in these bids

The Nehru Outer Ring Road (ORR) is a modern marvel of engineering, spanning 158 kilometres and boasting eight lanes of access-controlled, circular closed-loop tolling highway that encircles Hyderabad, the capital of the Indian state of Telangana. The construction was started in year 2006 and completed in year 2018 in full form and is one of the most effective, well designed and strategically located ring road anywhere in the country. With 44 entry and exit points, 22 interchanges, and seamless connectivity to the Rajiv Gandhi International Airport (RGIA), the ORR provides unparalleled ease of travel for commuters and travellers alike.

The basis for calculating bid amount

The bid amount is calculated on NPV method (net present value) of future collections duly discounting for inflation and price index. In that sense, it's not a simple sum total of annual toll collections of future years.

The revenue multiplier of bid amount / present toll collections - a criteria commonly followed to evaluate the robustness of any TOT bid - is 13.64 for ORR. Only one among the 6 bundles of NHAI & one of MARDC are slightly higher at 13.7 and that way, TOT of ORR is one of the best and most competitive bids nationally.