The Industrial Development Finance Corporation (IDFC) will finance the first annuity-based road project in the country. The board on Thursday approved funding the 64-kilometre two-lane road project in West Bengal, where the contract has been awarded to a Malaysian firm to build and maintain the same 17 to 20 years.
Payment for building and maintaining the road will be made by the National Highways Authority through the Rs 1 cess on petrol, said IDFC officials. "The onus is on the private entity to ensure performance of the roads as deferred payments made by the government will be based on the performance of the road project -- availability per lane on a per kilometre basis," they added.
When the government undertakes building of roads, it awards the same to a contractor, who has little incentive to do a good job as he is not responsible for maintaining the project, as the payment is made initially.
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The government owns all infrastructure in the country -- airports, roads, ports, etc. Few pockets are in private hands. The nature of the problem today stands in the need to transfer the ownership from the government to the private sector and to make them accountable. IDFC's role in introducing annuity-based financing is part of the private finance initiative.
The centre has decided that the best way to build roads is to bid them out to the private sector and pay for the same over a period of 17 to 20 years under annuity financing. The government has thus far approved eight other such road projects to be bidded out to the private sector. It is out-sourcing services from the private sector, as part of the public private partnership.