Given the mammoth `19-lakh-crore fund requirement for building 60,000 km highway in five years ending 2023-24, the government needs to augment its own sources and leverage other mechanisms such as value-capture financing (VCF) and raise debt from multilateral funding institutions (MFIs), professional services firm KPMG said.
“Funding sources are limited. The (roads) ministry has to tap into internal extra-budgetary resources as much as possible, subject to keeping tab to the extent of future liabilities. The likely options to raise capital are bonds, masala bonds and debts from MFIs. Other funding mechanisms like VCF can also be explored,” said a CII-KPMG paper on “Roads and highways sector — current trends and future roadmap”.
It also said monetisation techniques like Infrastructure Investment Funds (InvITs) and securitisation of toll revenues can also be explored. Funding from toll-operate-transfer (TOT) needs to be tapped into with aggressive bidding out of project bundles in the future.
“However, current sources of funds are projected to meet only approximately `2.46 lakh crore of the average annual fund requirement with an average deficit of around `1.36 lakh crore per annum only for the road development part the rate of 12,000 km per annum,” it said.
Funding has become a major concern mainly because of increasing cost of highway sector projects, limited options within the prevailing ecosystem and fading interest of highway sector developers in PPPs. In its election manifesto, BJP had said after coming to power, it proposes to build 60,000 km highways in five years at an average construction rate of 40 km a year.
Assuming average per kilometer construction cost of `30 crore and factoring in inflation for road construction cost at 3%, the total fund requirement over five years is estimated at `19 lakh crore or an average of `3.8 lakh crore.
KPMG also said that new implementation modes like least present and value of revenue which explores the concept of variable concession period can be looked into to help reignite private sector interest.
