Reviving the interest of private-sector developers to take up highway projects and prodding financial institutions to augment lending to the sector would be the two key challenges before the ministry of road transport and highways (MoRTH) in 2020. In 2019, not a single project could be awarded through the hybrid annuity model (HAM) and project awards through the build-operate-transfer (BOT) were last made more than two years ago. As a result, there is a huge reliance on fully government-funded engineering, procurement and construction (EPC) route for project awards, and this being a burden on the exchequer, is not sustainable.
Yet, through the EPC route, MoRTH and its implementing agencies — National Highways Authority of India, National Highways and Infrastructure Development Corporation (NHIDCL) — have awarded more lane kilometres in the first seven months of current fiscal, but sectoral watchers say as fund-crunch looms large, the 34,800 km highway building target by 2024-25 would remain a far cry, if the reliance rests only on the EPC mode.
MoRTH and NHIDCL mainly award projects through the EPC route; but HAM remained the most preferred model for NHAI. Under HAM, developers get 40% of the project cost upfront from the NHAI and remaining 60% over a period of 15 years. It allows private investors to have very little skin in the game — sub-10% practically. In the BOT-Toll model, the developer collects tolls to recoup investments and therefore, bears real business risk.
HAM came into being in 2015-16. Eight projects, measuring 343 km, were awarded in the first year, followed by 2,059 km in 2016-17. Project awards through HAM reached its peak in 2017-18 at 3,236 km.
With awards under the HAM falling to 834 km in 2018-19, the writing on the wall was crystal clear; but instead of attempting to plug the loopholes, the road ministry was busy concentrating, ahead of the general election, on improving its tally on construction. The inevitable has happened. It is a different matter that the NHAI still hopes to make around 1,500 km project awards through HAM till March, 2020.
Problems with the HAM are aplenty: increased risk aversion among a pool of investors that has anyway been limited, lenders’ wariness, reduced appetite of the private players, issues related to last-mile land acquisition and cash flow problems of operational projects are just to name a few.
“The last six months in the run-up to election was more big-ticket project awards through the EPC routes like the Delhi-Mumbai project. Three months’ hiatus of the general election and 4-5 months after that saw a complete pause in operations of NHAI, but now it is expected that project awards through HAM, EPC will gain momentum,” said Vinayak Chatterjee, Chairman, Feedback Infra.
The possibility of a higher budgetary allocation for the highway sector could be safely ruled out. Only in October, the finance ministry has ruled out, citing paucity of funds, MoRTH’s demand for an additional Rs 43,000 crore fund for awards and development of highway projects for the current fiscal.
Of the requisitioned Rs 43,000 crore, MoRTH wanted to allocate Rs 24,000 crore to its wing National Highways Authority of India (NHAI), which was given a paltry sum of Rs 36,691 crore in the Budget; and wanted to spend another Rs 17,000 crore to fund highway projects it develop through state public works departments on all-cash engineering procurement and construction (EPC) route. The remaining is for other heads.
In the Budget for 2019-20, MoRTH was allocated Rs 83,015.97 crore, up from Rs 78,625.50 crore in the 2018-19 fiscal and Rs 61,014.76 crore in the 2017-18 fiscal. Of the total budgetary support for the current fiscal, MoRTH has already spent Rs 51,797.65 crore or 62% as on September-end, as per controller general of accounts.
Burdened with an ever-increasing highway development target — 40 km for the current fiscal from 12 km in 2014-15 — MoRTH has requested the Niramala Sitharaman-led finance ministry to raise the budgetary allocation for the current fiscal to Rs 1,26,000 crore. The additional fund, it argued, was required to enhance the highway development pace.
Sitting on a Rs 1.8 lakh crore debt, as on March-end, NHAI’s debt-servicing obligation is also on the rise. In the current fiscal, it has Rs 5,573 crore debt-servicing obligation, Rs 6,600 crore in FY21 and Rs 4,700 crore in FY23. On top of that, it has to pay around Rs 15,000 crore interest annually for its outstanding debt.
At present, around 35% of NHAI’s annual expenditure goes into construction of national highways, 30% into acquisition of land, 16% in extending grant for projects under HAM, 15% in debt servicing and the remaining 4% into payment of annuity.
The government has approved multiple fund-raising routes for the NHAI that includes exercising options like launch of an infrastructure investment trust (InvIT) and securitisation of toll receipts. NHAI has successfully raised over Rs 11,000 crore through the toll-operate-transfer (ToT) mode under which government-funded projects are given on long-term lease to patient capitals. A fourth lot is also out for bidding.
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Source: Financial Express