Making “unprofitable road “profitable for private sector (or PPP models)

• Making “unprofitable road “profitable for private sector (or PPP models)
  
  Normally Indian experience with privatization of road /highway construction under various forms of BOT approach is that only roads that lie close to /or in active economic zones are successfully taken up by private sector. “Roads” which lie in obscure or economically depressed areas are seen as high risk.( there are other reasons- high positive correlation between state govt attitude and economic viability of the proposed “road corridor”).
  However we know from experience that what was absolutely barren areas decade or two ago are now flourishing areas of economic activity. This trend is likely to be intensified in coming decades.
  This suggests an alternative bidding approach to make roads in semi urban-rural areas not covered by ongoing and proposed government programmes. Private sector should allowed to bid for “non tollable” roads on two parameters- cost per unit of technically defined roads( fixed technology) and period of concession. Concession period is normally used on tolled sections. However where development rights on adjacent land is given, concession period acquires a new avenue of profitability. Longer the concession given ( bid for) higher the chances of making huge gains from appreciation of land values and for such unsaturated areas, the lottery element of gains is higher.
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  The bidding could work on two parameters which may be weighted or valued iteratively. That is, first short list on costs and then in second round of bidding private sector could demand “concession period” or vice versa( which may include toll-ability plus land value appreciation). There are a number of variations which may be considered. For one, there may be a clause to increase “concession period” for a fixed penalty per year of extension for “X” maximum number of years if winner fails to recover costs in agreed concession period. This will reduce risk for winner but at a cost. Bidding process should turn out to be efficient. Another alternative is final winner could be superseded if losing bidder offers an agreed 10%( or x%) cost and time advantage. However given the high value of future “roads” for the economy it is better not to unnecessarily fine tune and squeeze the bidders ending up with the “winners’ curse” like situation where winner ends with a losing proposition due to overobsession with competition
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  However under this scheme investors with deep pockets and small future discount rates and less risk averse outlook may win to gain repeatedly. But no scheme is without some negatives