Road firms root for pension funds

Mumbai: The National Highway Builders Federation (NHBF), the industry body representing highway developers has requested the ministry of road, transport and highways to consider a proposal to allow long term sources of finances like insurance and pension funds to invest in highway projects.

Additionally, it also wants the National Highway Authority of India (NHAI) to estimate the project cost on the basis of the prevailing market price as the industry body feels that the cost estimates prepared by the highway authority is very conservative, and does not reflect the actual market price.

 These are some of the issues, which the highway developers association is planning to take up with the ministry when they meet later in this week.   

“Financial institutions provide financing to the highway sector only for a maximum tenure of 15 years. However, the concession period typically ranges between 15-20 years. So highway developers are forced to go for refinancing at a higher cost. Since the availability of funds with the banking system is limited, we would request the government to permit long term sources of finance like pension funds and insurance funds to invest in highway projects,” said M. Murali, director general, National Highway Builders Federation.  

However, Abhaya K Agarwal, partner, infrastructure at Ernst & Young (E&Y) said that the Reserve Bank of India’s  (RBI) decision to permit banks to issue long-term bonds to finance infrastructure projects is one such step in that direction.

“Even globally, insurance firms and pension funds do not participate directly in infrastructure projects. So it is important for us to create some alternative channels like special purpose vehicles (SPV) or dedicated funds for them to participate in infrastructure projects,” he added.

Another major issue that is making a highway project unviable for developers according to national highway builders federation is the supplementary agreement, which requires the builder to waive the right to claim compensation on account of any delay in project completion due to the fault of the national highway authority of India.

Once a project is completed, Mr Murali pointed out that the developer has to submit a request for toll notification with the authority for the collection of toll. “However, the developer is required to give an undertaking that it would not use its right to claim compensation for that delayed period even if the delay is on account of authority’s fault.

However, the lender would ask the developer to honour its debt repayment for the above period,” he said.