Disclaimer: Education only, not legal advice. Model concession agreements (MCAs) have been revised many times. The signed agreement for the specific project, with its schedules and later supplementary agreements, always governs. Clause numbers differ between versions, so this guide uses clause names. Read the current documents on the MoRTH standard documents page.
In simple words (if you are in class 10)
Imagine your school lets a shopkeeper run the canteen for 20 years. They sign a long agreement:
- When the shopkeeper starts, and by when the canteen must be ready.
- What price they may charge, and how much it can rise each year.
- How clean the canteen must be kept, with fines if it is not.
- What happens if the school changes a rule, or a flood shuts the school.
- How much the school pays back if either side breaks the deal early.
A highway concession agreement is the same idea, written in about 300 pages. Investors read it line by line, because it decides how much money the road can make and how safe that money is.
The professional view
1. Concession period and key dates
- Appointed Date. The concession period starts here, once the conditions precedent are met (financial close, land handover above the threshold, clearances).
- Scheduled construction period and Commercial Operation Date (COD), or provisional COD for part-completion.
- Concession period. Fixed in the bid for BOT and TOT; for HAM it is the construction period plus the operations period (15 years in the standard HAM agreement).
- Value lens: remaining concession life drives value per rupee of today's revenue. Any extension right (for example for an additional tollway or competing road under the March 2024 BOT changes) is worth modelling as an option.
2. Conditions precedent
Obligations on both sides before the Appointed Date: the authority hands over the required share of land (the right of way) and clearances; the concessionaire achieves financial close and gives the performance security. Missing a date usually triggers damages and, after a cure period, termination rights. Diligence point: read the land-handover percentage and what happens to the stretches handed over later.
3. Fee (toll) or annuity rights
- BOT and TOT: the right to demand, collect and keep the user fee under the National Highways Fee Rules, 2008 and the project fee notification. Exempt categories and any concessions the government later grants (such as the annual pass) are dealt with through the change-in-law clause or a supplementary agreement.
- HAM: semi-annual annuities, interest on the reducing balance of the completion cost, and O&M payments, all subject to deductions for non-compliance.
- Diligence point: reconcile the fee notification, the tolling start date and the plaza locations with the agreement.
4. Construction obligations and the independent engineer
The Independent Engineer (IE) reviews designs, inspects works, certifies completion, issues the provisional or completion certificate and certifies O&M compliance. Both parties appoint the IE and share its cost. Its reports are the best evidence in disputes, so a buyer should read the IE reports, not just management summaries.
5. Change of scope
The authority may order additional works. Cost is determined under the agreement's procedure and paid by the authority, often in stages, with a threshold below which the concessionaire absorbs the cost. Unresolved change-of-scope claims are one of the most common sources of arbitration.
6. Operation and maintenance standards
A maintenance manual and schedule set performance standards: pavement roughness (IRI), rutting, potholes, road furniture, lighting and response times to defects. Damages are levied for non-compliance. Major maintenance (periodic overlays) is the concessionaire's cost under BOT and TOT, and it drives the MMRA in lending documents. See Toll revenue, traffic and major maintenance.
7. Safety, traffic and incident management
Obligations cover a safety consultant, safety audits, traffic management during works, ambulances, cranes and patrol vehicles. Accidents caused by poor maintenance can lead to damages and reputational loss.
8. Competing roads and additional tollways
The BOT MCA protects the concessionaire against an additional tollway, and limits competing roads for a period after the Appointed Date unless traffic reaches a set share of design capacity. Under the March 2024 amendments, a breach leads to compensation and an extension of the concession, and the bar on an additional tollway covers the whole concession period (JSA summary).
9. Change in law
Defined as a change in Indian law, or its interpretation by a competent court, after the bid date that increases or decreases the concessionaire's costs or returns. The usual remedy is compensation, or an extension or adjustment, beyond a threshold. Live example: MoRTH treated the FASTag annual pass as a change in law for projects bid before 17 June 2025, with weekly compensation through an NHAI portal (Fox Mandal summary of NHAI's October 2025 SOP).
10. Force majeure
Usually split into three types, each with a different remedy:
| Type | Examples | Typical consequence |
|---|---|---|
| Non-political | Floods, earthquakes, epidemics, strikes not aimed at the project | Extension of time; costs mainly borne by each party; insurance |
| Indirect political | Nationwide strikes, riots, civil commotion | Extension plus a share of costs by the authority |
| Political | Change in law not covered elsewhere, expropriation, unlawful action by government | Authority bears costs; higher termination payment |
In 2020 the ministry advised that the COVID-19 lockdown be treated as force majeure under concession agreements; the actual relief depended on each agreement's version.
11. Events of default and termination payments
Termination payments are what make highway debt bankable. The formula depends on who defaulted and on the agreement's version, but the logic is the same across MCAs:
| Termination cause | What the authority pays, broadly |
|---|---|
| Concessionaire default | A share of debt due only (equity is at risk) |
| Authority default or political force majeure | Debt due plus a multiple of adjusted equity (compensates equity) |
| Non-political force majeure | A share of debt due, net of insurance |
"Debt due" and "adjusted equity" are defined terms with indexation. Insurance proceeds are usually deducted. The authority can also buy back a BOT project at a formula price when traffic reaches design capacity, under the 2024 changes. Always take the percentages from the signed agreement. They differ between MCA versions, and lenders size debt on them.
12. Escrow account and the payment waterfall
All project revenue goes into an escrow account with a bank. Withdrawals follow a fixed order: taxes, construction and O&M costs, concession fee or premium to the authority (where payable), debt service, reserves (DSRA, MMRA), and only then distributions to equity. See Infrastructure debt: DSCR, DSRA, MMRA, waterfalls.
13. Substitution agreement
A three-party agreement between the authority, the concessionaire and the lenders. If the concessionaire defaults, lenders can step in and substitute a new concessionaire instead of letting the project terminate. Read it alongside the security documents. It matters when an InvIT acquires an SPV with existing lenders.
14. Change in ownership and lock-in
Most agreements restrict changes in the controlling shareholding during construction and for some time after COD, and need the authority's consent for transfers. Since an InvIT acquisition is a change in ownership, check the consent requirement and timeline early in any deal.
15. Hand-back requirements
At the end of the concession the road must be returned in a specified condition, with a final inspection and sometimes a retention or security. Under-provisioned hand-back costs in the final years are a classic valuation error.
Dispute resolution
Disputes go through amicable settlement, conciliation and arbitration, as the agreement and NHAI's current policy provide. The January 2026 circular changed this materially for new and pending disputes. See Highway disputes and arbitration.
A due-diligence checklist for a concession agreement
- Which MCA version, and every supplementary agreement since (annual pass, COVID extensions, change of scope).
- Remaining concession period, and any extension already granted or claimed.
- Fee notification versus the agreement; exempt categories; local passes.
- Open change-of-scope, change-in-law and force-majeure claims, with the IE's view.
- Damages levied for O&M non-compliance in the last three years.
- Termination payment formula, and the debt-due and adjusted-equity figures today.
- Lender consents and the substitution agreement for the proposed change in ownership.
- Hand-back condition and the major-maintenance plan to the end of the concession.
Sources
- MoRTH standard documents (current MCAs and amendments): https://morth.gov.in/standard-document
- JSA on the March 2024 BOT MCA changes: https://www.jsalaw.com/?p=50680
- Fox Mandal on the annual-pass compensation SOP: https://foxmandal.in/news/compensating-toll-operators-nhais-sop-and-supplementary-agreement-for-the-annual-pass-scheme/
- World Bank PPP library, sample road concession agreement: https://ppp.worldbank.org/index.php/library/road-concession-toll-road-agreement-example-1
Education only. This page is not investment, tax, legal or accounting advice, and it does not recommend buying, selling or holding any security. Laws and rules change: check the linked primary source and consult a qualified professional before acting.
Last reviewed 25 October 2026. Spotted an error? Tell us and we will correct it.