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Finance ministry asked to review highway funding

Finance ministry asked to review highway funding
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First Published: Tue, Oct 13 2009. 09 04 PM IST

Long way to go: Highway construction work in progress in Warangal, Andhra Pradesh. The move to get the government to take on most of the funding burden has come about after the National Highways Autho
Long way to go: Highway construction work in progress in Warangal, Andhra Pradesh. The move to get the government to take on most of the funding burden has come about after the National Highways Autho
Updated: Tue, Oct 13 2009. 09 04 PM IST
New Delhi: The finance ministry has been asked by the cabinet committee on infrastructure to examine a plan by the National Highways Authority of India (NHAI) to fund a large part of the country’s ambitious road-building programme through the exchequer, amid concerns about added state spending.
The authority has estimated it will need as much as Rs71,500 crore until 2015-16 to meet highway minister Kamal Nath’s plan to lay 20km of tarmac every day.
Long way to go: Highway construction work in progress in Warangal, Andhra Pradesh. The move to get the government to take on most of the funding burden has come about after the National Highways Authority of India failed to garner enough interest among bidders for the road projects that it has put out to tender. Harikrishna Katragadda / Mint
The finance ministry review was confirmed by officials of the authority and the transport ministry, who didn’t want to be named as they aren’t authorized to speak with the media.
The move to get the government to take on most of the funding burden has come about after NHAI failed to garner enough interest among bidders for the road projects that it has put out to tender.
Prime Minister Manmohan Singh’s government had said previously that it wants private involvement in infrastructure, with projects being paid for through tolls and other non-state avenues, to augment scarce budgetary resources.
NHAI estimates that as much as 44% of a 34,000km road development plan may have to be funded either through an annuity or an engineering, procurement, construction (EPC) route. The plan also calls for projects of strategic importance, such as highways in Jammu and Kashmir and Arunachal Pradesh, to be financed through a “special extra-budgetary provision”, said a highway official who spoke on condition of anonymity.
In the annuity method, the developer finances, builds and maintains the highway, but does not toll it. Revenues come from an annual or semi-annual amount paid by the government. Under the EPC system, the government contracts the construction of the highway for a specified sum, with the developer holding no stake in the road.
Some officials have objected to the annuity plan by saying that it would force the government to live beyond its means.
“If you get a salary of (Rs)1 lakh, and you take a loan of (Rs)1 crore with an EMI (equated monthly instalment) of (Rs)1 lakh, how are you and your wife and children going to survive?” said one government official, who also did not want to be identified. The highways authority gets a major share of its money through a Re1 cess on fuel, which brings it almost Rs7,000 crore a year, apart from toll revenues from roads it has built, and annual budgetary provisions.
Analysts say neither the government nor the private sector has the capacity to deliver on the road plans.
“Before finance constraints, there will be execution constraints,” said an infrastructure analyst with a consulting firm who didn’t want to be named because of ongoing government contracts. People, even within the government, feel that NHAI might not be able to accomplish everything it has set out to do in the next few years, he said.
While financial planning had traditionally been left to NHAI, the recent questions arose because “nobody, till recently, said we’ll do it (develop highways) in such an aggressive fashion”, according to the analyst.
Much of the highway development programme under the National Democratic Alliance administration was built under the EPC or the annuity modes. These fell out of favour in Singh’s administration after highway developers bid aggressively for projects in 2006 and 2007.
The review comes as NHAI and the roads ministry are asking for more flexibility on financing projects. Previously, NHAI opted for the annuity route only if projects did not attract any bid interest under the toll-road model.
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First Published: Tue, Oct 13 2009. 09 04 PM IST
More Topics: Highways | Roads | Transport | NHAI | Kamal Nath |