Highways min plans to avoid annuity route to ease debt

With the government getting heavy premium on build operate transfer projects in the last couple of months.

With the government getting heavy premium on build operate transfer (BOT) projects in the last couple of months,the highways ministry is reconsidering its mandate to award at least 35 per cent of the total national highway projects on annuity,as per the B K Chaturvedi report. According to ministry officials annuity payments for a single project can spread over 15-18 years creating a debt burden on the exchequer for the future years.

We have decided to first bid projects on the build-operate-transfer (BoT) toll mode first. If they are found to be completely unviable they will be awarded under engineering procurement construction (EPC) mode, a senior road transport and highways ministry official said. The annuity mode will be used only for exceptional projects,he added.

The move has come,after the Planning Commission raised issues over the liability that annuity projects can have on the government in the future especially with the NHAI having a limited borrowing capacity mostly through infrastructure bonds. The current financing plan of the NHAI says that the government may spend as much as Rs 2,07,579 crore on annuity out go over the next twenty years. Already the NHAI has a liability of over Rs 6,000 crore on on going annuity projects,according to Planning Commission estimates. NHAIs borrowings are estimated at Rs 13,000 crore per anum.

The problem will be acute in 2014-2018 when the NHAI will have to pay as much as 90-97 per cent of the total cess and its additional budgetary support to annuities alone. This will strain its finances as there may be a need to fund other projects where there are no bidders and are being taken up in difficult areas, say officials.

PILING LIABILITIES

* Annuity payments for a single project can spread over 15-18 years and can burden the exchequer in future years

* NHAI has limited borrowing capacity via infra bonds

* The government may spend as much as R 2.07 lakh crore in annuities over the next 20 years

* Projects worth R 15,000 crore awarded under this mode