Putting a spanner in road transport and highways minister Kamal Nath?s plan to create Indian Road Finance Corporation (IRFC), the finance ministry and the Planning Commission have questioned the need to set up a separate funding body for highway projects. ?With so many financing authorities for the infrastructure sector, the efficacy of a dedicated funding body for highways is doubtful,? a senior finance ministry official said.
Since taking charge of the highways sector, which saw little development under former UPA minister TR Baalu, Nath has set high target of Rs 1 lakh crore public investment this fiscal to build 12,000-km roads. To achieve this, he has also mooted setting up of the new funding agency ? on the lines of Power Finance Corporation ? to raise finances for highways along with exploring other ways of funding such as pension funds, sovereign wealth funds and private-equity. The IRFC is expected to have an initial corpus of Rs 500 crore.
Incidentally, while Nath announced the creation of a dedicated fund for highways in a recent roadshow in Singapore, his ministry is yet to make a formal proposal to North Block for establishing the same. ?There?s no point in having a half-baked plan. We have sought suggestions from the industry and are working out the exact specifications of the finance corporation. A concrete plan will be ready after about three months,? Nath explained to FE.
On Friday, Nath said one of the options being considered was that a window for funding of the highways sector within the Infrastructure Development Finance Corporation (IDFC). Nath probably meant India Infrastructure Finance Company Ltd (IIFCL), as IDFC is a private sector infra financier.
?A final call on the issue will only be taken once the ministry of road transport and highways sends in a concrete proposal,? the finance ministry official said. Apart from IIFCL, a generic funding body for the entire infrastructure sector, there are a number of sector-specific infrastructure financing bodies such as Indian Railways Finance Corporation and Power Finance Corporation. While there is no dedicated fund for highways, the National Highways Authority of India (NHAI) is allowed to raise funds for construction by issuing tax-free bonds.
However, lack of funds is not the only reason for highway projects missing milestones. ?You probably don?t need a separate road financing corporation. What is more important is to ensure that the right projects are bid out and it should focus on speed of execution.
The government should consider a combination of toll, annuity and EPC for constructing highways,? Arvind Mahajan, executive director, KPMG, pointed out. Although the latter part of 2008-09 was plagued with a credit crisis which haunted the highways sector as well, NHAI?s plans of awarding 60-odd road projects were also delayed because of contentious clauses in the model concession agreement as well as a pending court case. As a result, the highway authority was able to award only three projects last fiscal.
Similarly, even when funds are available, there is scarcity of viable projects to be funded. IIFCL has raised Rs 10,000 crore for refinancing infra projects under the Centre?s fiscal stimulus packages, but has hardly had any takers till date. To allow more projects to access IIFCL?s funding window, the finance ministry is in the process of relaxing an earlier cut-off date that allowed refinancing for only those projects awarded after January 31, 2009.