Highway Monetisation

The release of the first-ever ‘Asset Monetization Strategy for the Road Sector’ by the National Highways Authority of India (NHAI) has laid the framework for renting out highways to private companies to reduce dependence on government funds for building new highways and roads. The strategy document states that the successful implementation of this strategy will provide NHAI with a steady stream of revenue, reducing reliance on traditional funding sources such as government allocations and external debt. This financial independence will enable NHAI to undertake more ambitious infrastructure projects, accelerating the pace of highway development across the country. Private sector participation will bring in advanced technologies and management practices, enhancing the quality and longevity of road assets. The infusion of private capital and expertise will also lead to better-maintained highways, improved safety standards, and enhanced user experiences, the NHAI claims. While the strategy may bring in more private investment for better maintenance of highways, travel may become costlier with the investors charging higher toll fees to recover the money they would spend for ensuring better road conditions. In general, the highway users can expect to experience better road conditions, as roadworthiness plays a crucial role in attracting more vehicles on the road. More vehicles running on highways imply more toll collection and faster recovery of the investment. However, without adequate checks and balances, some private companies delaying maintenance works or spending less money for maintenance work than required cannot be ruled out. Therefore, putting in place a strong regulatory mechanism to safeguard the interests of highway users will be important. For those whose priority is to get a smooth and quality road condition and are willing to pay a little extra money, the asset monetisation of the road sector is a pragmatic approach. One argument in support of this position is that better road conditions will ensure faster and safer transportation of goods and passengers, which is vital to boost productivity and growth. For regular commuters, on the other hand, costlier travel and transportation will erode their earnings and savings, which will create economic hardship. Three criteria set in the strategy document for filtering out existing assets which would be crucial to make those attractive to investors are—age of the highway under which completed asset being operation for at least one year to enable assessment of its operational and financial history; nature of stretch to be monetised being such that there would be no requirement for enhancement works in the near future and valuation reflecting in case some maintenance or small construction is required on the stretch; and thirdly the criteria of revenue under which the completed asset should have significant toll revenue so as to sustain positive cashflows and provide sufficient returns to the concessionaire.Currently, the assets with more than Rs. 0.8 crore/km per year in toll revenue are being considered for monetization, it says. The market-driven strategy has put the spotlight on the mismatch between toll collection and highway maintenance. Highway users in Assam and other states in the Northeast region have been voicing strong resentment over poor maintenance of completed highways, long delays in construction of new highways or highway expansion, and the dilapidated condition of highways under construction which render travel uncomfortable and lead to an increase in road accidents. Given the vast network of highways in the country, the fund allocated for highway maintenance is quite less and is just about one per cent of the overall budget of the Ministry of Road Transport and Highways. Over the last five years, total toll fee collection at toll plazas in Assam was to the tune of about Rs 1,900 crore, but highways in the state lacking roadworthiness in many stretches present the grim picture of maintenance with the revenue raised. Official data shows that the national highways account for about 50% of road traffic in India. As construction of highways has a multiplier effect on the country’s GDP, expansion of existing highways and construction of new highways is critical for the progress of the nation and needs to be prioritised. The Madras High Court recently passed an order restraining the NHAI from collecting toll from the Madurai-Tuticorin highway due to poor maintenance. The Supreme Court has passed an interim order staying the Madras High Court order, but the highway maintenance issue leading to judicial intervention speaks volumes about ground realities and gaps in the system. Addressing the gaps in highway maintenance getting prominence in the asset monetisation scheme will require the NHAI to put in place a strong oversight mechanism. Such an oversight mechanism allowing real-time feedback from highway users will be crucial for timely intervention and corrective measures. Including representatives of highway users, including transporters, regular commuters, and travel and tour operators, will strengthen the oversight mechanism. The monetisation of highways will come with a higher cost, but users should not be overburdened.