Outlook on infrastructure sector: UR Associates

UR Associates has come out with its report on infrastructure sector. According to the research firm, NHAI also has a provision for providing grant up to 40% of the project cost to make projects commercially viable. However, the quantum of grant is decided on a case to case basis and typically constitutes the bid parameter in BOT projects.

Financing of National Highway Projects:

Traditionally, financing for the development of National Highways in India was from the budgetary resources of the Government of India. In order to augment the available resources, loans have also been raised from multilateral agencies like World Bank, Asian Development Bank (ADB) and Japan Bank of International Cooperation (JBIC).

NHAI has earlier received loans directly from multilateral agencies for highway projects. These loans are expected to be repaid through the toll income from the project. The interest rate for the project is determined according to ADB's pool based variable lending rate system for US dollar loans. Around 80% of the external assistance is provided to NHAI as a grant by the Central government. The balance is made available as long-term loans to NHAI, with the Centre bearing the foreign exchange risk. Such loans are usually provided for 15-25 years with a moratorium of 5 years.

Presently, the development and maintenance of NHs is financed by the following means:

• Government’s Gross Budgetary Support and Additional Budgetary Support.
• Dedicated accruals under the Central Road Fund (share in the levy of cess on fuel).
• Lending by international institutions (World Bank, ADB, JBIC).
•  Private financing under PPP frameworks.
• Market borrowings (including funds raised through Capital Gain Tax Exemption Bonds under Section 54EC of Income Tax Act)
  

NHAI also has a provision for providing grant up to 40% of the project cost to make projects commercially viable. However, the quantum of grant is decided on a case to case basis and typically constitutes the bid parameter in BOT projects. The disbursement of such grant is subject to provisions of the project concession agreements.

PPP is gradually proving to be a successful mechanism for developing and maintaining the National Highways, as is evident from the increased private sector participation in projects till date. Foreign contractors started participating in NHDP contracts (and to a limited extent in state highway projects) from 2000-01. The foreign contractors taking part were from Malaysia, Korea, China, Russia, Turkey, Indonesia, Iran and some niche contractors from Europe for specialised jobs. It is presently estimated that contractors from about 15 countries are operating in India.

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