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The central government has directed the National Highways Authority of India (NHAI) to keep borrowings to the minimum over the next three years in an attempt to prevent its debt from reaching unsustainable levels.

Since 2014-15, the highway developer’s debt has increased 14 times from 24,188 crore to 3.44 trillion at the end of January. The government aims to reduce it by 1 trillion by 2024-25.

“High debt with NHAI is a concern, but there are no issues on the solvency of the highway developer," Union transport secretary Giridhar Aramane said. “Debt has been taken only on bankable projects with regular revenue flows; so, debt servicing is comfortable. Still, the entity will put checks on additional borrowing in FY23 while meeting a large part of capex through higher budgetary support," Aramane said in an interview.

Limiting borrowings will not impact NHAI’s ability to take up projects envisaged in the FY23 budget since the allocation for the authority has been more than doubled from 65,060 crore in FY22 (revised estimates) to 1.34 trillion in FY23, he said.

NHAI borrowed close to 65,000 crore each in FY22 and FY21, and if the same level of borrowing continued in FY23, its total debt would have crossed 4 trillion. “While overall debt levels of NHAI may not fall significantly in FY23 despite no or lower borrowings, the authority would bring down its debt servicing cost by close to 6,000-7,000 crore by prepaying old debt and swapping a portion of high-cost debt with lower interest-bearing loans," Aramane said.

NHAI is estimated to pay around 30,000 crore in interest costs in FY23. The plan is to prepay and switch about 46,000 crore of debt next year, reducing the debt servicing burden. Also, the authority is expecting a jump in toll collections from build-operate-transfer (BOT) projects that will generate 33,000 crore revenue in FY22, rising to 37-38,000 crore in FY23. Revenue is expected to shoot up to 50,000 crore in three years after the Bharat Mala projects are completed. NHAI has now started monetizing assets with the toll-operate-transfer (TOT) model. It has also come out with its first InvIT this year. NHAI raised over 24,000 crore from these sources.

“At the current rate of traffic growth, tolling revenue flows of NHAI may touch 72,000 crore by 2032-33. So the solvency of NHAI is not in question. With various measures to monetize assets, the developer would have enough room to plough back earnings into projects without hampering the highway development programme," Aramane said.

“We are looking at alternative sources of asset monetization and financing to relieve traditional debt," he said.

According to analysts, one reason why NHAI’s debt had shot up is the lack of investor interest in BOT projects, prompting it to award projects under the engineering, procurement construction model and the now-popular hybrid annuity model. In both, there is a requirement upon NHAI to pay contractors on the costs they incur at regular intervals. With the government scaling up the highway development programme, NHAI will need more funds to award projects.

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