NHAI to issue land bonds for acquisition from states, other stakeholders

New mechanism will postpone upfront payment

The National Highways Authority of India (NHAI) is planning to issue land bonds to pay for acquiring land from states or other stakeholders — as part of a funding mechanism amid escalating land acquisition and compensation cost. Through this mechanism, the NHAI will not have to make upfront payments for land acquisition.

“Land bonds are expected to be interest-bearing instruments but the issues as to whether they would be listed and how the interest component would be finalised are being worked out,” an official said. The financing model is part of a larger plan to open a revenue stream for the NHAI, which includes levying development charges for appreciating values of land around national highways. It is called value-capture financing — which is a type of public financing that recovers some or all of the value that public infrastructure generates for private landowners.

Besides issuing bonds, the NHAI wants states to share the cost of land for constructing national highways because the resultant increase in the real estate price benefits landowners and states, in the form of higher stamp duty at the time of sale. Experts say the approach is being conceptualised mainly to reduce the financial burden on the NHAI.

“This way the NHAI will not have to immediately shell out money and land can be bought via bonds. The cost of land acquisition has increased due to higher compensation and also because land is available in urban areas and is costlier,” said Kushal Kumar Singh, partner, Deloitte India.

Under the value-capture financing mechanism, states can agree to pay 25 per cent of the acquisition cost and they will get a priority in project execution.

“One such case is of the government of Kerala, which has agreed to pay 25 per cent of the land cost for national highways in the state,” an NHAI official told Business Standard. The reason for this is the high cost of land, most of which is in urban areas, and the state needs better road connectivity because of floods in the last two consecutive years.

In addition to this, the upcoming projects under the Bharatmala scheme will be executed through this mechanism.

The Ministry of Road Transport and Highways has been grappling with higher land acquisition cost for the past few years. Approximately, a cost of Rs 12 crore per km is incurred in the expansion of a highway from two-lane to four-lane and the number would be five-six times higher in a greenfield project like an expressway.

The cost of the marquee Eastern Peripheral Expressway is Rs 11,000 crore, of which Rs 5,673.05 crore was the land cost.

“These are steps to address the larger issue of increasing land cost,” another official said.

While the allocation for the NHAI has risen in the past couple of years, the authority’s IEBR (Internal and Extra Budgetary Resources) has also gone up. 

IEBR is the money the department raises in the form of profit, debt, and equity. 

In FY18, the NHAI’s IEBR was Rs 50,532.41 crore. It went up to Rs 62,000 crore in FY19 and further to Rs 75,000 crore in FY20.