Private investments in the highway sector would likely rise from around Rs 20,000 crore a year now to nearly Rs 1 trillion in the next six to seven years, Amit Kumar Ghosh, additional secretary, ministry of road transport and highways, said on Thursday. While there were signs of growing investor appetite, institutional funds were also flowing in, he said.
Speaking at the National Road Infra Conclave 2022 organised by FE, he said: “Private investment had risen from Rs 16,000 crore in 2016-17 to over Rs 22,000 crore in 2019-20. There is an increase in the investors’ confidence in the road sector. We estimate private investments to reach a level of Rs 50,000-60,000 crore by 2024-25 and rise further to more than Rs 1 trillion by 2028-2029 or 2029-2030.”
Ghosh said the government has a “very, very ambitious target” as far as monetisation of public assets is concerned. Both toll-operate-transfer and infrastructure investment trusts (InvIT) have become acceptable to the investors.
Despite government’s effort to make the traditional build-operate-transfer (BOT) route more attractive for the concessionaires, the share of awards of highway projects by the National Highways Authority of India (NHAI) through the traditional build-operate-transfer (BOT) route haven’t picked up much.
As a result, most highway projects by the NHAI is being awarded through the hybrid annuity model (HAM) route under which the authority bears 40% of the project cost upfront. The developer, therefore, needs to find money for 60% of construction cost at the initial stage and his equity share turns out to be less than 10% over the project life in most of the cases. So, the HAM model insulates private developers from commercial risks.
A government-appointed task force had opined ghat since there was a growing stress on the highly-leveraged balance sheet of the NHAI, HAM model should therefore be ‘downplayed’.
Launched in 2016, HAM caught the fancy of developers — as it requires them to have very little skin in the game, sub-10% practically — and has practically been the sole channel for private investments in the sector since then. The sustainability of the model has been questioned by lenders which have become increasingly averse to funding HAM projects.
The highways authority awarded 55% of its projects through HAM in 2016-17, which gradually fell to just 28% in 2019-20 (see chart)
The government-funded engineering procurement and construction (EPC) route too has a large share in project awards and construction.
Ghosh said highways bring opportunities for investments in different industries, besides promoting economic activities.
There has been a steady increase in budget allocation for the highway sector. In fact, the sector has the highest allocation among infrastructure sector and it has been increasing at a CAGR of 13% from 2015-16 to 2018-19.
The government’s decision not to burden the NHAI with additional borrowings in FY23, by providing a much higher budget support of Rs 1.34 trillion is aimed at reining in the entity’s burgeoning debt that stood at Rs 3.38 trillion at the end of November 2021. However, this doesn’t mean NHAI would not scale up its borrowings next year.
The idea is to give the entity that borrows on the strength of its balance sheet even as an implied sovereign support serves as an indirect aid, the leeway to mitigate its debt. At the same time, harnessing of non-debt capital through other sources like monetisation of operational highway stretches through the toll-operate-transfer mechanism and the InvIT routes would continue.
The NHAI was given a budgetary support of Rs 65,060 crore in FY22.