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Rediff.com  » Business » Govt mulls Rs 1-lakh-cr road financing corp

Govt mulls Rs 1-lakh-cr road financing corp

June 25, 2014 13:13 IST

The government plans to set up a finance corporation with a corpus of Rs 1 lakh crore (Rs 1 trillion), in partnership with Japanese investors, to fund projects in the road sector.

The Japanese partners are likely to have a 26 per cent stake in the corporation, with assured returns of nine per cent, according to a highly-placed road ministry source.

Road Transport Minister Nitin Gadkari had already held two meetings to discuss setting up of the corporation and a final decision was expected shortly, said an official asking not to be named.

He added the toll revenue of around Rs 5,000 crore, which the road transport ministry gets, would be securitised to raise money.

The move comes after the ministry’s unsuccessful attempts to bid out projects to the private sector.

Now, it wants to focus on financing  projects through government funds. “Executing projects through the private sector is not feasible under the current economic conditions,” the official said.

In 2012-13, of the 7,464-km build-operate-transfer (BOT) target, only 1,115.75 km were actually awarded.

Similarly, in 2013-14, of the targeted 5,000 km through the public-private partnership (PPP) mode, only 287 km were awarded through three projects, as the bids did not find takers among private-sector players. Another 2,500 km of projects were awarded under the EPC mode.

For the 2014-15 financial year, the target was to award 3,000-3,500 km of road projects through the BOT route and another 5,000 km through the engineering, procurement and construction (EPC) route, another ministry official said.

Unlike the BOT model, the government funds the entire project under EPC and a developer undertakes the necessary construction work.

BOT requires a private-sector developer to raise and invest money for construction of roads at its own risk, while the National Highways Authority of India acquires land for projects.

At present, completion of road projects worth Rs 83,000 crore are pending.

Since 2009, only three projects have been completed, adding only 315 km to the country’s existing highway network.

This is despite a record 147 projects (a combined value of Rs 1.47 lakh crore) being awarded under the public-private-partnership (PPP) mode.

After an initial euphoria, private investors have been shying away from bidding for projects, given a difficult economic environment.

A slowdown, coupled with land acquisition and environmental clearance issues and funding problems, has spoilt the government’s private partnership plans. A weak economy has also meant slow growth in traffic, especially commercial traffic, according to a ministry official.

This has made developers’ initial revenue assumptions go haywire. The Centre even had to come out with a policy to reschedule premiums for road developers.

For a quick road t orecvoery

* A finance corporation, with a corpus of Rs 1 lakh cr, on the cards for funding road projects
* Japanese investors to have a 26 per cent stake, with 9 per cent assured returns
* Toll income of Rs 5,000 croe (Rs 50 billion) to be securitised
* Move comes after bids for many projects did not find takers among private players, and the projects awarded earlier through the private mode got stuck

Mansi Taneja in New Delhi
Source: