Govt looking for more revenue from highways, NITI suggests measures

To generate more revenue from the National Highways, the NITI Aayog has given a slew of suggestions to the ministry of road transport and highways as well as the National Highways Authority of India (NHAI). These include levying development charges and sharing revenue after developing amenities alongside the highways.

These ideas are part of the value capture financing (VCF) model that has been suggested by the government think tank.

It is essentially recovering part or full value that public infrastructure generates for private landowners or the states. 

In case of NHAI, it is the states and private land owners that benefit (in the form of appreciation of land prices) from the National Highways but the agency makes all the investment. 

In order to capture the value of financing done by the NHAI, the idea has been proposed.

NITI Aayog has been working with the NHAI to ensure an improvement in financial sustainability and project viability, said an official. 

He added that in this regard, NITI Aayog has suggested a number of models, some of which have been implemented by the NHAI.

These include asset monetisation techniques, including the toll-operate-transfer (ToT) model and raising revenue through Infrastructure Investment Trusts (InVITS), both of which are being actively pursued by NHAI.

It has also been recommended that the VCF be mainstreamed in NHAI projects. Through VCF, non-toll revenues can be maximised through a number of tools. These include vacant land tax, special assessment tax, transfer of development rights (TDR) and land pooling, among others.

It has also been recommended that other means of raising additional revenue such as Infrastructure Development Funds, and NHAI’s land acquisition bonds may be explored. 

The creation of project-specific special purpose vehicle or SPV has also been recommended.

A draft policy framework on VCF and transit oriented development (TOD) has also been sent to a number of ministries, including the ministry of road transport and highways by the infrastructure connectivity vertical of the NITI Aayog.

The document contains a number of tools aimed at maximising revenues through the VCF and if put into practice, it can significantly improve NHAI’s financial health.

TOD is particularly important, where planned infrastructure development occurs in the region around the projects. These are often a mix of commercial, residential, and institutional aspects.

Also, part of the VCF is the land bonds, which NHAI plans to issue to make payments for acquiring land from the states or other stakeholders. The authority is mulling an innovative funding mechanism amid escalating land acquisition and compensation cost.

Through this mechanism, NHAI will not have to make an upfront payment towards land acquisition.

The ministry of road transport and highways has been grappling with higher land acquisition cost for the last few years. 

Approximately, Rs 12 crore per km of cost is incurred in the expansion of a highway from two-lane to four-lane one. The number would be five to six times higher in a greenfield project like an expressway.

Total cost of the marquee Eastern Peripheral Expressway is Rs 11,000 crore, of which Rs 5,673.05 crore was land cost.

Money matters

• Value Capture Financing is a type of public financing that recovers some or all the value that public infrastructure generates for private landowners

• It is essentially recovering part or full value that public infrastructure generates for private landowners or states

• In case of NHAI, it is the states and private land owners that get benefited (in the form of appreciation in land prices) from the highways but the agency makes all the investment