'Arbitration stalling private sector investments in roads'

Moneycontrol Bureau

Huge sums locked in arbitration or legal tangles have slowed down private sector investments in the country’s road sector in the past two years, according to a Yes Bank report released on Tuesday.

"This has led to an increase in the number of stalled projects. PSUs and public institutions corresponding to arbitration claims is seen over Rs 70,000 crore," states the Yes Bank report titled 'Redefining India's Infrastructure.'

The report comes as the government is working to revive the sector and has set an ambitious target of achieving 2 lakh km of national highways to connect the commercial hubs across the country. It is aiming for 25,000 km of roads in FY17. It also plans to invest USD 95 billion in the road sector in the next five years.

However, to achieve this target the government will not only have to raise its fund allocation, but also bridge the qualitative gap.          

To boost the investment in road sector, the government has laid down the National Investment and Infrastructure Fund (NIIF). This will not only help provide equity/quasi-equity support to NBFCs for certain projects, but also provide support to stalled projects, both brownfield and greenfield.

Initially, the government plans to invest Rs 20,000 crore via NIIF, which may be raised from time to time. “The government’s contribution in the corpus will be 49 percent in each entity set up as an Alternative Investment Fund (AIF) and will neither be increased beyond, nor allowed to fall below, 49 percent,” says the report.

The government also plans to attract foreign investors. In August, Finance Minister Arun Jaitley had sought an investment of Rs 20,000 crore for this fund during his meet with Singapore’s Deputy Prime Minister Tharman Shanmugaratnam.

The government has also adopted NITI Aayog’s reform measures in August that will help ease liquidity of construction firms, enable banks to recover dues and revive stalled projects.