Highway projects: What has troubled private investors and lenders? Read this to know

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Published: January 2, 2020 12:00:53 PM

In the current fiscal, it has Rs 5,573 crore debt-servicing obligation, Rs 6,600 crore in FY21 and Rs 4,700 crore in FY23.

Also, the NHAI board has been below its sanctioned strength for quite some time. Also, the NHAI board has been below its sanctioned strength for quite some time.

The legacy of troubled build-operate-transfer (BOT) projects that led to a protracted period of lenders’ apathy towards highway projects and the economic slowdown has aggravated the problem. While this should have made it incumbent upon the National Highways Authority of India (NHAI) to devise and implement strategies to rekindle the interest of private investors and lenders in the sector on which the Narendra Modi government apparently lays a lot of emphasis, the authority doesn’t seem to have lived up to the task.

In just the 17th months to October 2019, the NHAI has had four chairmen, including incumbent Sukhbir Singh Sandhu who took charge on October 28. According to sector analysts, frequent changes at the top have also slowed the pace of project awards by the NHAI, which is the sole agency responsible for projects involving private funds, including the watered down PPP model of hybrid annuity model (HAM) projects. So far in the current financial year, not a single project has been awarded through the HAM route, let alone the pure BOT toll projects which have been drying up for long.

Sandhu’s predecessor NN Sinha served just eight months from March to October 2019 and Sanjeev Ranjan, who preceded him, was barely there for six months at the helm of NHAI before being appointed as the secretary of the ministry of road transport and highways (MoRTH). Before Ranjan, YS Malik held the charge for about six months as NHAI chairman in addition to his role as secretary, MoRTH.

“It takes a minimum of 3-4 months for a new chairman to understand the nuances of the business and how the authority functions,” said an industry source not wishing to be quoted.

“Frequent changes in NHAI top brass, like in every other organisation, also impact the performance because decision-making takes a beating,” said the industry source.

Also, the NHAI board has been below its sanctioned strength for quite some time. While it can have six full-time members and six part-time members, in addition to the chairman, the current strength of the board, including the chairman, is only seven. Importantly, the post of member-PPP has been lying vacant for many months.

Project awards by NHAI in the 2018-19 fiscal dropped to its lowest in four years to 2,222 km from 7,400 km in 2017-18. In each of the previous two years, NHAI had awarded around 4,300 km highway projects. Till September of the current fiscal, NHAI awarded only 843 km of projects against the target of 6,000 km. In the absence of private investments, there is a big and increasing reliance on EPC projects, which in turn burdens the fisc and contributes to rising overall public debt.

In recent times, NHAI has been battling many odds — its debt is mounting, its land acquisition costs have gone up four-fold over four years and HAM awards have come down to zilch. A regular chairman, who generally comes with a three-year tenure, would have helped to arrest the decline.

Sitting on a Rs 1.8 lakh-crore debt, as on March-end, NHAI’s debt-servicing obligation is on the rise. In the current fiscal, it has Rs 5,573 crore debt-servicing obligation, Rs 6,600 crore in FY21 and Rs 4,700 crore in FY23. On top of that, it has to pay around Rs 15,000 crore interest annually for its outstanding debt.

At present, around 35% of NHAI’s annual expenditure goes into construction of national highways, 30% into acquisition of land, 16% in extending grant for projects under HAM, 15% in debt servicing and the remaining 4% into payment of annuity.

HAM came into being in 2015-16. Eight projects, measuring 343 km, were awarded in the first year, followed by 2,059 km in 2016-17. Project awards through HAM reached a peak in 2017-18 at 3,236 km. In 2018-19, it fell to 834 km. Under HAM, developers get 40% of the project cost upfront from the NHAI and remaining 60% over a period of 15 years.

The government has approved multiple fund-raising routes for the NHAI that includes exercising options like launch of an infrastructure investment trust (InvIT) and securitisation of toll receipts. NHAI has successfully raised over Rs 11,000 crore through the toll-operate-transfer (ToT) mode under which government-funded projects are given on long-term lease to patient capitals. A fourth lot is also out for bidding.

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