How NHAI aims to fund Highway Construction in India?

Published: September 6, 2019

While India has decided to become a USD 5 trillion dollar economy, it also needs a dedicated network of roads and highway infrastructure to enable the quick transport of goods and people in the country. The construction of highways in the country is the prime responsibility of the National Highway Authority of India (NHAI). While NHAI has done a commendable job of improving the scenario of road construction in India, it should be understood that road construction is an expensive business. 

Costs associated with Highways in India

The following costs are associated with all highways in India. These are-

  • Land acquisition for highways and supporting infrastructure
  • Raw Materials like bricks, iron girders, coal tar etc.
  • Labour
  • Machinery and equipment costs
  • Administrative
  • Maintenance

Needless to say, the NHAI has to have a lot of money to fund its continuous operation. In an earlier letter also, the PMO had expressed concerns that the NHAI has been overburdened by projects and has been constitutionally mandated to pay higher costs for land acquisition and monetization. 

Funds for the NHAI

  • The NHAI is currently exploring various avenues for the raising of funds for the highway construction in the country.
  • The Union Minister of Road Transport and Highways has informed that the National Highways Authority of India (NHAI) will raise over INR 85,000 crores by 2025. He has stated that the source of the funds would be the toll-operate-transfer (ToT) model for some highways and the infrastructure investment trusts (InvITs) for significantly larger projects.
  • In the ToT model, the NHAI offers long-term concessions to bidders who are responsible for all collection of tolls from that highway stretch in particular.
  • The InvITs are special investment plans for long-term investors. They are similar to a mutual fund and allow individuals and institutional investors to invest in the construction of a project to earn the profit from the project as a return.
  • The investment scheme is generally more attractive for all investors as they don’t have to be physically invested in the construction of a project.
  • The NHAI is looking to raise long-term finance from various banks and other financial institutions by the securitizing of the user-fee receipts. It is also exploring the possibility of a floating special purpose vehicle (SPV) for funding of greenfield projects.

Future plans for the NHAI

While the tempo of road construction is significant due to the ongoing BharatMala project, it will subside following the end of the project. Hence, the NHAI will have to shift its focus from Road Construction to maintenance. This, it is recommended that NHAI be turned into a road asset management company. To minimize the Government’s capital exposure to the projects, the NHAI should bid out new all projects under the build-operate-transfer model to private manufacturing firms in the country.

Category: 

Month: 

Topics: 

Comments