Several stretches of national highway projects that are at least half built but are languishing for want of funds could soon be revived, with the National Highways Authority of India (NHAI) providing them “bridge funds” for completion. The Cabinet Committee of Economic Affairs (CCEA) on Wednesday decided to extend a one-time dispensation for funds infusion by NHAI into such under-construction build, operate and transfer or BOT (toll) highway projects announced earlier to stranded BOT (annuity) projects also.
While beneficiary projects would be selected based on robust third-party evaluation, a recent Crisil report has said that under-construction highway projects with a length of 3,520 km and sanctioned debt of Rs 33,050 crore are faced with “high implementation risks” due to substantial time and cost overruns. Government sources indicated that some 18 road projects (with a length of over 2,000 km) seemed eligible for the NHAI loan that will carry an interest of 9.75% (bank rate plus 2%). Of these, some three or four projects are in the BOT (annuity) category while the rest are toll projects, they said. Projects that had remained in limbo since November 1 last year are eligible to apply for the NHAI loan.
The funds infusion would be undertaken after a tripartite agreement is reached between NHAI, the concessionaire and the senior lenders given that NHAI will have the first charge on the receivables (toll/annuity) once these projects are completed.
The CCEA decision comes on the heels of the road ministry’s demand for an additional Rs 8,800 crore as budgetary support. Of the current budget estimate (BE) of Rs 45,518 crore for support to the road ministry, some Rs 42,000 crore is for construction and maintenance of highways, including around Rs 39,850 crore for national highways. An additional Rs 40,000 crore is being mobilised through tax-exempt bonds.
The new mechanism is the latest in a series of steps being taken by the Modi government to fast-track highway construction and reach its target to build 30 km of roads a day. Developers can easily unlock equity from completed projects thanks to a recent policy decision allowing them divest 100% equity two years after completion of construction. While the conventional EPC contracts are in focus now, the government has also launched an innovative hybrid annuity structure, under which NHAI will fund 40% of the project costs, reducing the developers’ risks even further.
With 11,500 km of highway projects awarded since the start of last fiscal, construction, which has picked up of late, is bound to accelerate in the coming months.
Announcing the extension of one-time funds infusion to BOT (annuity) projects, an official release said: “(the fund infusion) is subject to the condition that after completion of construction of such projects, loans are to be recovered along with interest at the rate of bank rate plus 2% by NHAI from the annuities payable, bi-annually, through execution of a tripartite agreement among the senior lender, concessionaire and the authority… All such cases and the amount of bridge fund required in each case shall be approved by the authority, on a case-to-case basis.”
Apart from delays in approvals and in getting the right of way, developers’ inability to bring fresh funds to complete projects have held up scores of highway projects. Most of these projects had witnessed aggressive bidding and liberal lending but subsequently had to confront the reality of less-than-anticipated toll flows. According to Crisil, almost 7,500 km of highway projects awarded on BOT basis — 5,100 km under-construction projects and 2,400 km operational ones — faced implementation problems.