NHAI borrowings jump a little over 18 times to Rs 620 billion since 2014

With the government focusing on road building, a key benchmark of economic activity, the money borrowed by the National Highways Authority of India (NHAI) has jumped a little over 18 times to Rs 620 billion since 2014, the year the current government came to power. 

The NHAI’s borrowing was Rs 33.4 billion in 2014-15. This has raised concern on the size of the debt burden. The NHAI has moved away from a purely toll-based Build, Operate and Transfer mode for getting projects going to a Hybrid Annuity Model (HAM). Besides the latter, projects are also undertaken on the EPC (engineering procurement and construction) method, where projects are fully funded by the government. 

With HAM, the private sector made a comeback to road construction but the government's debt burden has increased. The central government provides equity of 40 per cent for these projects and disbursement is linked to the physical and financial progress.

The NHAI recently finalised a loan for Rs 250 billion with State Bank of India as part of its fund raising for the current financial year.

“We are ready with our Rs 100-billion bond issue for the domestic market and have already raised Rs 50 billion and Rs 40 billion, respectively, from National Small Savings Fund and Life Insurance Corporation,” an NHAI official said.

Any funding, he added, had to be timed well. "We should be able to get a good rate. That is our only concern at the time of arranging finances," he explained.

According to another official in the know, NHAI has also filed for medium-term notes worth Rs 250 billion in the international market.

Though it has made plans for financing of more highways, there are challenges. The reliance on bank financing, with the latter's concern in this regard, are one. Land acquisition is another.

Says a report from Macquaire Research, “While NHAI is on overdrive with respect to project awards, the number of banks ready to finance these remains limited. We believe banks may become a bit reluctant to finance such a large exposure to the road sector at one go. Thus, financial closure of a good chunk of projects may get delayed.”

The report expressed reservations over the road ministry and NHAI’s ability to achieve the aggressive project award target of 20,000 km for the current financial year (2018-19). In 2017-18, the ministry and NHAI together awarded 17,055 km.

“The awarding might fall short of the target, given the lagging speed of land acquisition, as well as financing constraints,” the report said.

The award of projects has risen 10 times over the past six years, while construction activity only doubled during the period. “We believe companies (in the sector) need to focus on execution and consolidate the revenue base, rather than just accumulating projects,” the report said.

HAM was the preferred mode of highway contract awards during 2017-18. “However, financial closure continues to be a challenge, leading to delays at the start of the execution cycle,” said Macquarie. 
 

In FY18, a total of 24 projects worth Rs 200 billion, for a total length of 1,280 km, were awarded under HAM.