Tests Cloud Talks On Road Loans From Ibrd

The nuclear tests conducted yesterday are likely to jeopardise negotiations for World Bank loans for state highway development projects.

Talks are on with the World Bank for road-sector loans for projects in Gujarat, Haryana and Rajasthan. While Rajasthan has sought a $360 million loan, Gujarat and Haryana are negotiating for $550 million and $270 million, respectively.

Already more states, including West Bengal, Tamil Nadu and Orissa, have queued up for aid from the Bank next year for highway projects. These loans form part of the $1billion World Bank package for funding one national highway and two state highways each year over the next 10 years. The projects include both upgrading and maintenance work.

 

So far, only Andhra Pradesh has received about $400 million from the Bank for upgrading its highways. In addition, the National Highways Authority of India is also negotiating for a $250 million Asian Development Bank (ADB) loan for converting sections of the national highways into four lanes.

In reaction to the tests, Japan, Germany and the US _ the major contributors to the corpus of the Bank _ are expected to oppose any further sanctioning of loans. However, current indications are that existing projects _ like the Delhi-Noida bridge, which is expected to be funded up to 70 per cent by the International Finance Corporation, the World Banks private sector lending arm, and the ADB _ are unlikely to be effected. This is because the project is nearing financial closure with some Indian financial institutions having committed the rupee component of the loans. In addition, in this project, the Mitsui-Marubeni combine has already been appointed as the EPC, who in turn, have already committed to picking up about five per cent of the equity in the project.

Regarding port projects, the Overseas Economic Cooperation Fund has already committed about 7 billion yen ($60 million) for a dredging project for the Tuticorin Port Trust. This flow, too, is unlikely to be affected. The bidders for the project have already been shortlisted. However, economic sanctions against the country are likely to affect future loan commitments by the OECF.

For water projects, USAID was expected to provide cover for both Pune and the Ahmedabad muncipal corporations borrowing programmes in the US bond markets for $25 million each. These were expected to be on the same lines as funds raised by the Tirupur infrastructure project. Indications are that this cover will no longer be available and the municipalties may have to defer their external borrowing programmes. In addition, the technical assistance programme by USAID of $5 million is also expected to be blocked.