NHAI has a 'SPV' plan to stave off debt by adopting project-based funding

Move to help the authority stave off debt; model to be implemented in 22 expressways, access-controlled highways

In another attempt at reducing debt by innovative funding, the National Highways Authority of India (NHAI) plans to adopt a project-based funding model for future projects. 

“We will convert each project into a special purpose vehicle (SPV) and the funds will be arranged by that company. We have a list of  22 expressways and access-controlled highways where we plan to implement this model,” NHAI Chairman Sukhbir Singh Sandhu said.

According to sources, this exercise is being undertaken by the authority to stave off debt on its own books. The NHAI’s debt had become a cause of concern last year as the Prime Minister’s Office (PMO) red-flagged the authority over its burgeoning debt situation.

According to the proposal, every project would have a SPV seed funded by the NHAI to the tune of 30 per cent equity. The remaining 70 per cent would be sourced through debt, which would be serviced by that SPV from the toll revenue.
 

“Banks will be on board for lending for such SPVs as they would be independent companies with chief executive officers (CEOs) and other officers,” Sandhu said, adding the officials could be from the government or brought in through lateral entries or even from the private sector.

The National Highways Act permits NHAI to create new companies.

The proposal is expected to first target the Delhi-Mumbai Expressway. The NHAI has also prepared a pipeline of 22 expressways and access-controlled highways, which have the potential to be converted into SPVs.  

The PMO had pulled up the Ministry of Road Transport and Highways and the NHAI for undertaking extensive and reckless expansion of roads under national highways and suggested the authority to stop constructing roads and become an asset management company. Since then, the NHAI has been brainstorming increasing its revenue stream. 

Government think-tank NITI Aayog has suggested a slew of options to be followed by the road ministry and the NHAI, which includes value capture financing i.e. levying development charges and share in developing amenities alongside the highways.

This is being done to improve the authority’s financial sustainability and project viability. 

The asset monetisation techniques include Toll-Operate-Transfer (TOT) model and raising of revenue through Infrastructure Investment Trusts (InvITS), both of which are being actively pursued by the NHAI. 

It has also been recommended that value capture finance (VCF) be mainstreamed in NHAI projects. Through VCF, non-toll revenues can be maximised through a number of tools, which include, but are not limited to vacant land tax, special assessment tax, Transfer of Development Rights (TDR), and land pooling etc.

VCF is essentially recovering part or full value that public infrastructure generates for private landowners or the states.