Highways authority plans equity funding mechanism

New Delhi: The National Highways Authority of India (NHAI) is working on an equity-funding model for its upcoming expressway and economic corridor projects, auctioning them before they are built. The idea, a first for the state-run authority, comes after the success of the authority’s toll-operate-transfer (ToT) model.

The model will be tried for NHAI’s greenfield expressway projects under the Rs5.35 trillion-Bharatmala programme where 34,800km of national highways will be developed. Out of this, 9,000km will be economic corridors and 800km expressways, many of which are greenfield projects.

“The idea is being discussed and worked upon to be introduced in the next fiscal once the government gives go-ahead. Global investors have shown interest for such a financial model,” a government official aware of the matter said on condition of anonymity. He added the move will help clear the debt from NHAI books, raise NHAI’s market value and catalyse infrastructure development.

Due to lack of sufficient allocation in the Union budget, NHAI is devising new options for funding the road sector. The authority will require Rs1.5 trillion in the next fiscal for highway construction.

A road ministry official said on condition of anonymity, “Yes; such a proposal is being worked upon. Under the component ‘Expressways’ of Bharatmala Phase-I, roads with traffic exceeding 50,000 passenger car units (PCUs) have been identified for development as greenfield expressways. We will try this model on a few projects, depending on the market.” He added that investors like the Abu Dhabi Investment Authority (ADIA), National Investment and Infrastructure Fund (NIIF) are keen to invest in equity as returns are higher although it involves some risk.

Earlier this year, the Economic Survey had revealed that India will face a $526 billion infrastructure investment gap by 2040.

Around $4.5 trillion worth of investments is required by India till 2040 to develop infrastructure to improve economic growth and community well-being.

However, the current trend shows India can meet around $3.9 trillion infrastructure investment.

The move is also being devised because the finance ministry has raised red flags on road minister Nitin Gadkari’s idea of NHAI taxable bonds stating it will impact other government schemes like National Saving Scheme, etc. The concerns range from the impact of these bonds on other savings instruments to the quantum of the float.

In September 2017, Gadkari said in an interview that he was trying to tap the potential of funds from the common people by selling 10-year bonds at a coupon rate of 7.25-7.75%.

Jaijit Bhattacharya, a partner and head of economics, regulatory and policy advisory at KPMG in India, says it’s welcome that another mechanism of PPP is being explored. However, the previous pitfalls of PPP should also get addressed in this new mechanism, he said.

Crisil director Jagannarayan Padmanabhan says getting equity investors such as pension funds as investors is a move in the right direction.

It will bring in significant level of accountability to the project, better monitoring and adoption of best practices at the asset level will start to happen, said Padmanabhan.

He added that the move also gives better visibility to the providers of patient capital as they have a visibility of more good quality assets on the table.