NHAI-IIEF Policy Roundtable on Financing of Highways
22 and 23 May 2003, Taj Mahal Hotel, New Delhi, India

In recent years, there has been an increasing need for development and improvement of road and highways infrastructure in developing countries in response to rapid economic growth. The addition of modern highways and other transport infrastructure significantly improves travel time and road safety for commercial trucks, buses and passenger cars alike, thereby improving the productivity of the economy and enhancing the quality of life for citizens. However, improvement and development of roads requires heavy investment s . This is especially true for India - which is the seventh largest country in the world in terms of land area, and has a population of over 1 billion . For most developing countries, the cost of four and six-lane highways and expressways is well beyond the capacity of public funding to meet. To supplement budgetary allocations, highway tolls and other user charges are in use or under consideration for new construction. Many developing countries have also turned to private sector participation in this area.

In India, roads continue to play a key role in trade and commerce and in the country's overall economic development. Recognizing the importance of appropriate road infrastructure in our economy, the National Highways Development Project (NHDP) was announced by our Prime Minister in 1998. The NHDP is one of the largest public infrastructure development initiatives undertaken in India since independence and is being executed by the National Highways Authority of India (NHAI).

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Under this Project, national highways with four to six lanes are being developed to connect the four metropolitan cities of Delhi, Mumbai, Chennai and Kolkata (referred to as the Golden Quadrilateral). This will also include connection of ports and the development of two corridors - a north-south corridor connecting Srinagar with Kanyakumari, and an east-west corridor connecting Silchar with Porbandar respectively. The total length of the GQ and the corridors will be around 14,000 kilometers.

The first phase of the NHDP includes construction of the GQ and some related sections totaling around 6500 kilometers of roads at an estimated expenditure of Rs.30,000 crore. This expenditure has been met through a variety of funding arrangements including fuel cess, market borrowings, budgetary support, external assistance, BOT and SPVs. This phase has been progressing well within the prescribed costs and time schedules. The second phase of the NHDP will include construction of another 6500 kilometers of corridors at a similar cost of around Rs.30,000 crore. It is likely that the second phase of NHDP would also be financed on similar lines to Phase-I.

A fluid interest-rate scenario and potential fluctuations in global currency markets will however impose a variety of financial risks associated with the Project. The National Highways Authority of India (NHAI) is therefore keen to engage in an in-depth analysis of some of the core issues in long-term financing and the medium to long-term impact of the financial arrangements and borrowing programs that are envisaged under the Project.

A group of experts have been commissioned to produce a set of background papers which will be presented during the roundtable. Key institutions and agencies in the areas of transport policy and regulation, highways operation, building and financing, road organizations, as well as international lending institutions and economists have been invited to participate in this roundtable and to critique the background research papers. The output from this roundtable will be compiled in the form of a Report which will be submitted to the NHAI for its reference and input.

NHAI and IIEF are confident that this roundtable will provide a significant input for structuring the financial transactions and borrowings program for highways development by NHAI and will additionally function as a catalyst for new ideas in financing alternatives.