How skewed formulae and open-ended escalation have now made the DND Flyway toll-free
The DND Flyway, or the Delhi-Noida Direct toll road, is something people in Delhi-NCR are all too familiar with. The roughly 9km long road connects South Delhi to the satellite industrial hub of Noida, cutting across the Yamuna river and drastically cutting down travel time.
The project boasted many firsts: the first 8-lane access-controlled expressway, the first large road infra project developed as a public-private partnership model, and, the first road project in India to have ETC or electronic toll collection lanes.
But now the well-known “Noida toll road,” will remain toll-free. Here’s why.
Why tolls are levied
Tolls are a kind of tax or fee that vehicle drivers have to pay while using certain interstate highways, expressways, tunnels, bridges and other national and state highways. It serves as a mechanism to generate revenue for the maintenance and upkeep of these roads. Initially, tolls cover the costs of new roads. But over time, this amount is supposed to decrease.
With infra projects like the DND Flyway, tolls are levied to recover the initial cost of construction, operations and maintenance (O&M), upkeep etc. And once recovered, the toll is no longer applicable. But the DND Flyway had been collecting toll for a decade and a half, despite recovering costs.
On December 20th 2024, the Supreme Court ruled that no more toll will be collected on the DND Flyway, since the company that operates it, Noida Toll Bridge Company Limited or NTBCL, had already recovered the project cost and maintenance cost, along with substantial profits. (FYI, NTBCL is backed by ILFS, which is a promoter of the company and has a 26.37% stake in it. NTBCL’s job was to construct, operate and maintain the DND Flyway till 2031.) But if the cost was recovered, why did NTBCL continue collecting the toll?
Well, to put it simply: because they could. Thanks to a compounding clause in the original agreement NTBCL had the authority to collect toll indefinitely. This agreement was disputed by the residents of Noida, which led to the eventual SC verdict.
The route to the Supreme Court ruling banning toll collection
This decision had been a while in the making. NTBCL had been collecting toll from the time the DND Flyway opened in 2001, all the way up until 2016. The SC has essentially upheld an order from the Allahabad High Court from 2016, that stripped NTBCL of the power to levy toll on vehicles using the Delhi-Noida toll road.
On October 26th 2016, the Allahabad High Court delivered their judgment, disallowing NTBCL from charging tolls. This was in response to a public interest litigation by the Federation of Noida Residents Welfare Associations, which reviewed a 24-year-old contract because the guaranteed compounding return on the bridge’s original cost allowed the company to charge tolls for much longer than expected.
(Mis)calculations by NTBCL
This was the major red flag for the petitioners: once an infra project of this nature project has recovered its cost, along with fair return on equity, toll is no longer supposed to be applicable.
According to the writ petition filed by the Federation of Residents Welfare Associations of Noida, the NTBCL concession agreement was perpetual in nature, giving them the authority to continue levying toll, and therefore contrary to public policy, as outlined below:
[Furthermore, under the stipulated formula, the Total Project Cost escalated annually as it comprised of: (a) the Project Cost; (b) major maintenance expenses; and (c) any shortfall in the recovery of returns for a specific financial year. This aggregation directly contributes to the continual increase of the Total Project Cost, rendering it impossible to achieve full returns even after 100 years. This situation necessitates a remedy by balancing the rights of the involved parties. Moreover, if an alternative were pursued and NOIDA were to terminate the Concession Agreement, it would be obligated to compensate NTBCL in excess of Rupees 5000 crores. Given that these clauses impacted the contract in its entirety, they must be severed from the rest of the agreement without undermining the overall contract. Consequently, Article 14 of the Concession Agreement, when read in conjunction with the formula, is ex-facie arbitrary and violative of Article 14 of the Constitution.]
The main concern here was the formula used to compute the total cost of the project and the language used in the lease agreement. The agreement stated that the company, NTBCL, could seek recovery of its project cost (in this case, the DND Flyway) till infinity! The 2016 Allahabad HC ruling had highlighted the flawed formula and language used to calculate project cost, which made it appear as if the cost of the toll road would take more than 100 years to recover.
As per the 2016 Allahabad HC ruling, “The compounding nature of the formula granted NTBCL the right to collect user fees indefinitely; the absence of a cap on O&M (operation & maintenance) expenses allowed for potential inflation of costs by including extraneous expenditures in the total project cost; and the fixed, unrealistic return rate of 20 per cent ensured that the total project cost would escalate yearly without possibility of adjustment by the parties involved.”
In 2017, the NTBCL challenged the Allahabad HC order in the Supreme Court — which refused to stay the order. And now, with the SC’s judgement, the DND Flyway is toll-free.
In addition, the Supreme Court raised some other pertinent questions and concerns:
- Why didn’t Noida follow a competitive bidding process at the start of the project, inviting tenders from multiple parties before eventually choosing to go with NTBCL?
- Why did Noida give NTBCL free reign to charge toll?
- Why did the “compounding formula” allow for an annual escalation?
The power of compounding
Compounding is exponential in nature. What starts as a little today, grows rapidly and steadily, into an amount you probably couldn’t even imagine at the outset. It can offer lifelong growth and returns, sometimes for generations to come.
The NTBCL agreement had no cap on the total project cost and O&M expenses and this would ultimately get compounded, add up, and users would bear the brunt, paying high toll fees for a much longer period than practically warranted.
The issue was, this “compounding” formula was drafted to give NTBCL the power to levy tolls in perpetuity even after the project cost was recovered. Beneficial for the company, for sure, but not for commuters and residents.
With the new Supreme Court ruling, the entire contract has become void and no further toll can be collected. It may have taken 20 years, but the power of compounding finally got people to wake up and notice the discrepancy.