The Centre is rewriting rules for private highway developers, giving them an easier exit from troubled build-operate-transfer (BOT) projects and lenders greater protection against losses. According to two officials from the ministry of road transport and highways (MoRTH), under the revised model concession agreement (MCA), a concessionaire or private developer can trigger termination compensation during construction once a project has achieved at least 20% physical progress. The framework also allows a financially stressed developer to be replaced, creating a defined exit route instead of leaving an unfinished project tied up in disputes.
The decision could improve the bankability of BOT projects by putting a floor under losses when a project goes wrong before it starts generating revenue. This matters significantly in a sector where NHAI is facing more than ₹1.2 trillion in arbitration claims. As reported by MoRTH data, NHAI had 147 arbitration cases pending at the end of FY25 involving contractor and concessionaire claims of about ₹1.2 trillion, apart from 59 court cases involving another ₹14,138 crore. Additionally, 629 of 1,191 under-construction national highway projects have missed their original completion schedule, with delayed projects having a cumulative cost of more than ₹4.1 trillion.
The government is also seeking to cut the time and complexity involved in resolving disputes. The revised BOT documents do away with the Dispute Resolution Board and provide for arbitration for claims below ₹10 crore, while larger disputes are to go through conciliation or mediation. According to MoRTH data, NHAI had 142 ongoing cases involving contractor claims of ₹1.24 trillion and counterclaims of ₹0.64 trillion. The revised MCA also seeks to remove uncertainty regarding the calculation of 'debt due' and modify provisions addressing changes in ownership, target traffic, force majeure, construction support, and compensation for changes in project scope.
For lenders, the change could be particularly significant as the revised framework provides that debt covered by the termination payment can be treated as secured, improving the visibility of recovery if a project fails during construction. However, industry executives caution that clearer exit mechanisms may not be sufficient to revive investor appetite. As noted by Kuljit Singh, partner and national infrastructure leader at EY India, projects which get terminated post initial construction are few and hence, this step on its own may not have significant impact on investor interest in BOT projects. The government is effectively trying to change the bargain at the heart of the BOT model, allowing earlier, more predictable exits while protecting lenders.
