How 'national highway' status for roads is hurting govt's finances

Nomenclature leads to reduction in toll revenues for the existing highways

Road stretches that are upgraded to the category of national highways (NHs) are costing the government dearly.

This is due to the added land acquisition cost and funds needed for upgradation; also, the nomenclature leads to a reduction in toll revenue for existing NHs.

National Highways in-principle, as these stretches are termed, were not originally envisaged as such but receive the status later, either after the expansion or when state roads are converted to NHs.

Experts say after such a development, traffic on existing highways gets diverted, leading to loss in toll revenue. This issue was highlighted by former power secretary Subhash Chandra Garg after he demitted office last month. Garg was finance secretary before his three-month stint at the ministry of power.

“NHAI (the national highways authority) has got totally logjammed on account of unplanned and highly excessive expansion of roads declared as 'National Highways' and 'National Highways in principle'. The aggregate strength of these two types of NHs exceeds 190,000 kilometres,” he had said.

With NHAI being mandated to pay several times the cost of land and construction cost also shooting up, these projects face a financial viability issue, leading to withdrawal of private investors and construction companies from new road projects, is the criticism.

About 50,000-60,000 kilometers of NHAI approved and in principle national highways would need to be junked and a National Highways Grid blueprint prepared and sanctioned for all the roads that actually need to be taken up as National Highways until 2030.

Cost of land acquisition for the in-principle NHs is borne by the central government. For any upgradation, be it bridges or underpass, the expenditure is borne by either the ministry of road transport and highways or NHAI.
 

COSTLY AFFAIR

• NHAI has sought Rs 25,000 crore additional allocation from the Centre for FY21
• The fund will be used for ambitious highway projects
• NHAI has lined up a portfolio of projects worth Rs 18,000 crore to be bid out in the next few months
• Portfolio includes 5 hybrid-annuity packages on the Vadodara-Mumbai expressway, four EPC packages on the Delhi-Vadodara expressway, besides projects in UP and Bihar
• In Budget 2019-20, the funds to be raised by the NHAI were hiked by 21% in FY20 mainly to finance the ambitious Bharatmala scheme
   

Currently, nearly 75,000 km of roads of the total 190,000 km of the network are NHs in principle.

Garg says NHAI must recognise road stretches or connected stretches of a reasonable size as a project, and create a Special Purpose Vehicle for constructing and managing it.

This would allow NHAI to know upfront the financial sustainability or otherwise of each project. It would then take a conscious decision for every financially unsustainable project about how to meet the gap, if it has to be taken up.

If the government were to fund the viability gap, it should be done upfront. Once the project is structured as a financially viable one, it should be bid out on a BOT (build, operate, transfer) basis.

A recent study by ratings agency CRISIL says road developers in the engineering, procurement and construction (EPC) segment could see revenue growth halve in financial years 2020 and 2021 to 15 per cent, compared with 30 per cent in fiscal 2019.

The decline would be largely due to slower awarding of projects and delayed receipt of the ‘appointed date’ (kick-off date for a project) from NHAI.

NHAI awarded 7,400 km in fiscal 2018, which slowed the following year to about 2,200 km. In the current fiscal and the next, awarding is expected to be 4,000 km a year. The delay in declaring appointed dates for the projects awarded is primarily due to issues in land acquisition.