The office of Indian Prime Minister Narendra Modi has written to the National Highways Authority (NHAI) asking them to stop all road construction and hand over control of completed projects to the private sector.
The letter, written by Nripendra Misra, principal secretary to the prime minister, said the NHAI was “totally blocked by an unforeseen and excessive expansion of roads”. This led to new projects becoming “financially unsustainable” and meant that construction companies withdrew from the tenders.
The letter clarified that the hybrid annuity model, whereby the government and the developer share the cost of construction, had become unsustainable.
In correspondence, the NHAI was advised to “aggressively monetize” its existing assets, suggesting that the tolls could be auctioned off to the private sector or by forming infrastructure investment trusts.
The government fears that a collapse in road construction could slow the country’s growth – already to its lowest level in five years.
It is estimated that road projects represent around 3% of gross added value to the national economy. With construction being part of Modi’s election campaign when he pledged to provide $ 1.44 trillion in infrastructure investment, lower growth is not part of the country’s plan.
Modi’s office wants the NHAI to manage the auctioned projects on a build, operate and handover basis. Lack of private sector interest in purchasing these roads, however, meant the government had no choice but to allow the developer to bear the full cost of constructing some projects.
In response, NHAI President NN Sinha recently said that NHAI was in a “very strong” position with a strong portfolio of projects.