FinMin caps NHAI annuity outgo

Plans to build roads at the rate of 20 km a day appear to have hit another pothole, with the finance ministry capping the yearly annuity outgo at the total cess collected by National Highways Authority of India (NHAI).

For the current financial year, NHAI will receive Rs8,500 crore as its share of road cess and its annuity payments are in the same range. But the highway authority may find it difficult to award further projects on an annuity basis with the new cap.

According to its roadmap, NHAI has to award projects worth Rs40,000 crore on annuity basis in the current and next financial year. The cess amount is expected to swell by 5.1 per cent a year.

“The finance ministry has brought down the yearly annuity outgo to Rs8,500 crore from around Rs18,000 crore earlier. Any such limit at a time when we are to award a lot of projects to meet a huge target will lead to problems,” said a senior NHAI official, who did not want to be identified.

Unlike the build-operate-transfer (BOT) toll model, where the private operator takes on the risk of toll collection, the government mitigates the risk of toll income in the annuity model by guaranteeing six monthly payments over the concession period, which is normally 30 years. At present, NHAI awards projects covering 2,000 km under the annuity model every year.

Under NHAI’s work plan, 20 per cent of projects would be awarded on BOT annuity, 65 per cent on BOT toll and the rest on engineering-procurement-contract basis. With this, the annuity outgo of NHAI is expected to increase to around Rs13,000 crore.

The official said the annuity cap would put pressure on NHAI to award a majority of new projects on BOT toll basis.

“This cap might force us to pay more viability gap funding (VGF), so that they are awarded on toll,” said another official on condition of anonymity.

Under VGF, the government funds up to 40 per cent of the total cost to make a project financially viable for developers. Gajendra Haldea, advisor to the Planning Commission deputy chairman, had in a paper expressed apprehension that NHAI would become "bankrupt", as it is awarding a number of projects on VGF.

According to the paper, the highway authority is expected 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. NHAI will have to take on a debt of Rs 25,000 crore, in addition to the Rs 5,000 crore already on its books, to bridge this gap.