A report by a senior official in the Planning Commission has said the National Highways Authority of India (NHAI) is heading towards bankruptcy, as its debt is set to increase five times in the next three years.
Road Transport and Highways Minister Kamal Nath had last week termed the Planning Commission an “armchair advisor" at an event where the Commission’s Deputy Chairman, Montek Singh Ahluwalia, was present. Ahluwalia later played down the controversy by stating that “government was about creative tensions” among its various wings.
The report on NHAI says it will have an outgo of about Rs 50,000 crore over the next three years, whereas the cess used to finance it — Rs 2 on the sale of each litre of diesel and petrol — may not exceed Rs 25,000 crore during the period. So, it will have to take on a debt of Rs 25,000 crore in addition to the Rs 5,000 crore already on its books, making it Rs 30,000 crore, said the report.
But a senior NHAI official has questioned the report, stating its financial plan had been approved by a committee headed by Planning Commission member B K Chaturvedi.
However, the official admitted the debt estimate could go up to Rs 85,000 crore by 2012-13, with NHAI planning an investment of Rs 3,70,000 crore by then. NHAI’s defence is that the study does not take into account various projects that give NHAI a return. Apart from this, funding for the body is a Union government responsibility.
The critical report, titled ‘Sub-prime Highways?’, is an issue paper from Gajendra Haldea, principal advisor to the Commission’s deputy chairman. It has even criticised the report given by Chaturvedi. “The committee had endorsed a higher limit of 40 per cent of total project cost as viability gap funding (VGF), which was introduced earlier as a part of the stimulus package. This could enable a concessionaire to transfer most of its financial risks to the exchequer,” it said.
VGF is an amount paid to make a project financially viable.
An NHAI official said, “The panel is contradicting the recommendations made by one of its own members. This clearly shows the confusion they are into.”
The paper has estimated that in the next three years, NHAI will have to pay Rs 7,500 crore for ongoing construction contracts, Rs 9,500 crore on account of annuity payments, Rs 25,000 crore on VGF, Rs 7,500 crore on land acquisition and Rs 500 crore against arbitration claims.
NHAI has termed the report selective. “The report is on the basis of a few picked projects and does not take into consideration all the projects we have awarded. We have awarded many projects on premium, bringing a lot of extra money to the authority. The same has not been depicted in the report,” said a senior NHAI official, who did not want to be identified.
Awarding the project on premium means the developer will bid at a price more than the total project cost and the extra money goes to NHAI. This is normally done by a developer when it feels the return on the project will be very high and it will be able to recover all the cost without any subsidy or viability gap funding.
NHAI funding is largely met by the government. In 2009-10, it got Rs 7,472 crore as budgetary support and Rs 4,000 crore as internal and external budgetary resources, which includes borrowings and other funds generated. Budgetary support includes road cess and funds given for building roads in the Northeast and Jammu & Kashmir. NHAI services its debt on its own.
The paper has expressed concern that the VGF provided to projects has been more than what has been approved by the Cabinet Committee on Infrastructure (CCI) and the Public Private Partnership Appraisal Committee (PPPAC). The NHAI official countered by stating any approval by the CCI or PPPAC was only indicative and the actual VGF is decided by market forces, depending on the viability of a particular project.
Our Concern: Will the NHAI Bonds people have been investing in get affected due to this? Investors need clarification. *MFF