According to rating agency Icra Ltd, NHAI’s debt rose from about ₹25,000 crore in FY15 to an estimated ₹1.7 trillion in FY19
The increase in borrowings could act as a constraint
Mumbai: With barely a week to go for the Union Budget, experts are debating whether the budgetary allocation to the roads sector would increase at all.
On one hand, there is the ambitious plan to augment the country’s road network under Bharatmala Yojana, which forms a part of the election manifesto. But on the other, the increase in borrowings of the National Highways Authority of India (NHAI) can act as a constraint.
According to rating agency Icra Ltd, the NHAI’s debt rose from about ₹25,000 crore in FY15 to an estimated ₹1.7 trillion in FY19.
Higher borrowings by the NHAI is a function of several factors. Land acquisition costs have been rising. Besides, the new phase of engineering, procurement, construction (EPC) model and the hybrid annuity model (HAM) warrant higher financial participation by the government through the project’s construction phase. Under the HAM model, timely deployment of funds from the NHAI towards land acquisition and construction costs is important. These two costs account for about 30% and 35% of its total outlay, respectively.
Any reduction in budgetary allocation means the NHAI would need to tap alternate sources of funding. According to Icra, the NHAI has assets worth the amount of its outstanding debt, which can be monetised. But “asset monetization will be subject to market risk, profile of projects, growth expectations, and investor appetite," according to Icra.
Industry expert expressed concerns after the over-ambitious expectations from the NHAI for the second round of toll-operate-transfer (TOT) projects led to a poor response from road developers. TOT projects are existing roads that are given out for tolling and maintenance to private road construction firms. The revenue is then ploughed back by the NHAI to fund expenses that arise over and above government support.
Perhaps the learning from the failed second TOT bundle of projects has toned down expectations from the third bundle, which are likely to be awarded a couple of months from now. The initial estimated concession value of the third bundle is around ₹5,000 crore. Note that the first bundle of TOT projects was awarded to Sydney-based Macquarie group, whose bid was 15.4 times higher than the estimates at ₹9,681.5 crore.
Of course, asset monetization initially could just be a trickle for the funds required by the NHAI. But as it gains momentum it could aid cash flows. For now, the NHAI’s borrowing programme seemed on track, but according to sector analysts, the budgetary allocation in the last two years had been lower than required. “A lower budgetary allocation/ delay in TOT monetization can result in a momentary slowdown/ delay in tendering," according to a report by HDFC Securities Ltd.