The National Highways Authority of India (NHAI) is fully capable of raising debt and continuing to meet its road construction targets, Nitin Gadkari, Union Minister for Road Transport and Highways, told Mint on Tuesday. He was referring to a recent note from the Prime Minister's office suggesting that the NHAI re-evaluate its ability to put equity into road construction and turn into an asset management company instead.
"NHAI is a AAA rated organisation and we can raise enough debt to keep building roads," Gadkari said. "What the PMO has said in its note are only suggestions. It's not as big as the media is making it out to be. The NHAI has always been able to meet its fund-raising targets."
He said that the NHAI is in talks with State Bank of India to raise up to ₹50,000 crore, referring to the authority's plans to meet part of its ₹75,000 crore target for the fiscal year by securitising future toll revenue on its high-traffic roads. It is also in talks to raise the remaining ₹25,000 crore by issuing bonds to Life Insurance Corporation.
In a letter dated August 17, Nripendra Misra, Principal Secretary to the Prime Minister, wrote to Sanjeev Ranjan, Secretary, Ministry of Road Transport and Highways, collating suggestions to improve the operational performance of NHAI. The letter said the NHAI was “totally logjammed by an unplanned and excessive expansion of roads and it is mandated to pay much higher costs for land acquisition and construction. The note suggested aggressively monetising the NHAI's road assets base through the toll-operate-transfer auctions or through an infrastructure investment trust and to bid out new projects under the build-operate-transfer model where the government's capital commitment would be minimal.
A recent report by SBICaps Securities showed how toll collection has grown at a very modest pace of 6% per km (from Rs5.5 million/hectare in FY13 to Rs8 million/hectare now) for NHAI's operating roads. “Revenue collection barely covers the interest servicing cost of these projects, let alone project returns. Thus, there is rising concern on debt servicing. NHAI’s outstanding debt of ₹1.8 trillion could entail interest servicing of ₹120-140 billion, which compares with ₹100 billion of NHAI’s toll collections during the year," the report pointed out.
Despite this, Gadkari insisted that the essential models through which roads will be built in India will stay the same. "We have to look at the financial viability of every project but the NHAI has raised enough capital to keep construction going," Gadkari insisted.
Gadkari was speaking on the sidelines of a conference hosted by the IMC Chamber of Commerce and Industry.