The Prime Minister's Office has pulled up the transport ministry and National Highways Authority of India for undertaking extensive and reckless expansion of roads under national Highways and has suggested NHAI to stop constructing roads and become an asset management company.
CNBC-TV18 has reviewed a copy of the letter and has confirmed the receipt of the letter from NHAI officials.
In a strongly worded statement from Nripendra Misra, Principal Secretary to Prime Minister, the PMO warned that NHAI is totally log jammed with unplanned and excessive expansion of roads declared as national highways in principle.
"Average stretch of these roads extend over 1.9 lakh km. NHAI mandated to pay several times the land cost, construction costs also shooting up. Road infrastructure has become financially unviable. Private sector and construction companies withdrawing from greenfield projects, model of hybrid annuity and EPC mode with all investment made by the government is unsustainable," the letter read.
As per data collated by CNBC-TV18, cumulative debt of NHAI has grown over 4 times in last 5 years to Rs 1.78 lakh crore in FY19 from around Rs 40,000 crore in FY14. Borrowing is expected to go up to Rs 3.31 lakh crore by FY23 and NHAI would need resources to fund schemes like Bharatmala, Sagarmala among others.
NHAI funds its schemes through budgetary allocation, central road and infrastructure fund transfer of toll collection and asset monetization.
As per the broad breakup of fund utilisation, 30-35% of NHAI’s annual expenditure goes into construction of national highways, 30-35% into acquisition of land, 15-20% in extending grant for projects under hybrid annuity model (HAM) project and 10-15% in debt servicing.
While the letter from Principal Secretary also suggested the transformation of NHAI into a road asset management company, officials at the NHAI said that there is no need for the body to become an AMC at this point as construction is going on in full swing for a lot of projects under Bharatmala project among other schemes.
The authority has also been suggested to stop constructing roads but officials at NHAI have said that the economy needs infrastructure creation at this point.
"If not NHAI then who will take up these projects?" said a senior government official.
NHAI has been undertaking projects and deciding the mode of construction on the basis of expectation of returns. If a project is expected to give higher returns then it's kept for private investors, else it's taken under EPC or Hybrid annuity models, officials said.
"If a project is completely financially unviable then it is pointed out to the ministry and then the ministry takes a call on those projects. We have submitted all these points in our response," officials at NHAI added.
In the letter from Misra, NHAI has been asked to reorganise its portfolio of roads by transforming into an asset management company and by sanctioning a national highway grid blueprint for all those highways to be converted into NH by 2030.
"NHAI takes up projects on the basis of viability, market conditions. There is a lot of activity in the infrastructure space to bring down cost of logistics, for improving connectivity and accelerating the industrial growth. After some time the requirement for construction will come down and thereafter after NHAI will largely be an AMC," officials at NHAI said regarding the response submitted to the letter.
NHAI has also been asked to relook at commercial orientation of projects by reorganising each road project and create special purpose vehicle (SPV) for it, to take a conscious decision for each financially unsustainable project and to do viability gap funding upfront for such projects.
"Once structured as a financially viable project, it can be bid out on BOT basis," the letter read.
The Prime Minister's Office has also asked the body to undertake aggressive monetisation of assets by restructuring all existing completed or on-going projects on this principle and also as financially viable SPVs.
"All these projects to be monetised by giving out of TOT model or as INVITs," the letter read."We have said that viability of the projects is an important criteria...not all projects can be run on a BOT model because the expectation of returns are high. Across the bouquet of projects, we take up projects on different modes depending on viability whether it's EPC or BOT or HAM," officials added on their response to the letter from the Prime Minister's Office.