Government to introduce revenue support, buyback clause in new highway contract to push private investment

NEW DELHI: Govt is set to introduce major changes in the Model Concession Agreement (MCA) to de-risk private investments and safeguard lenders’ exposure in highway sector.The revised provisions, to be notified within a fortnight, include revenue support and extension of tolling periods in cases where actual traffic falls below projections, buyback of projects where traffic exceeds designed capacity, over 80% repayment to banks in the event of contract termination, and clearly defined timelines for handing over entire land required for construction.These changes come as govt pushes to attract more private investment across infrastructure sectors. Officials said, in parallel, efforts are underway to reduce delays in highway projects. The number of delayed projects has come down from 152 in April 2024 to 98 this month, owing to faster statutory clearances and, in some cases, de-scoping of works due to land unavailability. Similarly, the number of awarded projects awaiting commencement of on-ground work has fallen from 87 in April last year to 53 now.“Now the changes in the MCA for projects implemented under the BOT (Toll) model will bring greater certainty for investors,” said an official.Since traffic projections are the most critical parameter in toll-based highway projects, the ministry has proposed major changes to address demand-related risks. Target traffic levels will be specified for each year from the scheduled completion date until the seventh year of operation. If actual traffic falls more than 10% below projections during this period, govt will provide revenue support. Beyond the seventh year, where traffic falls more than 10% short, the concession period will be extended by 1% for every 1% shortfall, up to a maximum extension of 10%.If the traffic deficit exceeds 20%, lenders or the concessionaire may seek termination of the contract. Conversely, if actual traffic is higher than projected, the toll collection period will be reduced.To safeguard lender interests, a substitution clause is being introduced. The highway authority may replace the concessionaire in case of default and will ensure that lenders receive payment of debt due.A buyback provision has also been added. If traffic exceeds the highway’s design capacity—such as 50,000–60,000 vehicles per day on a four-lane stretch—for any two years within a three-year block, govt can buy back the project. The payout will be linked to actual revenue and the remaining concession period.