PMO Asks NHAI to Discontinue Construction of Roads

On August 17, the Prime Minister’s Office (PMO) wrote a letter to the National Highways Authority of India (NHAI) suggesting it to discontinue constructing roads amid concerns over its “unplanned and excessive expansion of roads.” This development has brought the financial stress of the NHAI to spotlight at a time when the government is figuring out reasons for the current economic slowdown.

Meanwhile, the Comptroller and Auditor General of India (CAG) flagged the NHAI’s accounting practices in its audit report for the year 2017-18. Reportedly, the CAG has also sought the cost audit of the NHAI’s projects and alerted the finance ministry over the NHAI’s borrowings.

The PMO’s letter stated that the NHAI was “totally log jammed by an unplanned and excessive expansion of roads and it is mandated to pay much higher costs for land acquisition and construction.” It suggested that NHAI should aggressively monetise its existing assets and recommended it to consider becoming a road asset management company.

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While the NHAI’s official response to the PMO is still awaited, Nitin Gadkari, Minister for Road Transport and Highways, told the Mint newspaper that the PMO’s letter has made only suggestions and claimed that the NHAI is capable of raising enough funds. “NHAI is a AAA rated organisation and we can raise enough debt to keep building roads,” Gadkari was quoted as saying.

But a look at the financial results of the NHAI which is mainly dependent on the government and multilateral institutions for funds will be helpful in understanding the reactions from the PMO and the CAG.

The NHAI borrowings were reported to be Rs 1,22,524.15 crore in 2017-18 compared to Rs 75,384.64 crore in 2016-17, according to its financial results. Also, its overall debt ballooned almost seven-fold over the past five years. On the other side, it has been incurring recurrent losses over the years. It reported a loss of Rs 379.21 crore in 2017-18 against a loss of Rs 280.90 crore loss in 2016-17.

The CAG has pointed out that the NHAI has not adhered to the numerous mandatory accounting rules. It pointed out that NHAI has wrongly classified “assets held on behalf of government of India” under Fixed Assets and stated that the Fixed Assets of NHAI are overstated by Rs 2.85 lakh crore.

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Furthermore, a recent report by SBI Caps Securities showed that the NHAI’s toll collection has grown at a very modest pace of 6% per km from Rs 5.5 million/hectare in 2012-13 to Rs 8 million/hectare in 2018-19. “Revenue collection barely covers the interest servicing cost of these projects, let alone project returns. Thus, there is a rising concern on debt servicing. NHAI’s outstanding debt of Rs 1.8 trillion could entail interest servicing of Rs 120-140 billion, which compares with Rs 100 billion of NHAI’s toll collections during the year,” the report points out.

According to a Business Standard report, the NHAI debt is expected to touch Rs 2.5 trillion by the end of the current financial year.