The World Bank has suggested that the road ministry and the National Highway Development Authority offer cash support of between 20 and 40 per cent of the estimated project cost to a developer during construction in an annuity project, instead of paying the entire amount as fixed annual fees.

The authority wants Bank assistance of $5 billion to fund highway projects to be taken up by 2015.

According to the Bank, the authority will need to borrow Rs 1,91,948 crore by 2030-31 to finance the national highways development programme. The Bank has already promised $500 million in loans for the purpose.

The Bank also suggests a new category of contracts based on output and performance. It is suggested that the government set the target in terms of output instead of how it is to be achieved. For instance, these contracts will have specifications on the optimum load bearing capacity of a road, service quality, etc. Developers will be paid according to their performance.

These suggestions came on Wednesday during a presentation on public-private partnership in national highways and the World Bank’s financing options. The Bank expressed interest in lending even for the viability gap funding in BOT-toll (build, operate and transfer) projects.

“The changes in the annuity structure will lower the cost to the government as Bank lending can replace costlier loans. The developers will bid for lower annuity amounts as they need to borrow only the balance amount of the project cost,” Ben L J Eijbergen, lead transport specialist and country sector coordinator of the Bank, said at the meeting.

A road ministry official said the suggestions were under consideration.

“Borrowing from the Bank makes sense for the highway authority as there is a significant difference in interest rates. World Bank money comes about five per cent cheaper than loans from elsewhere. They have committed $500 million but that is nothing for us,” a senior official of the highway authority told Financial Chronicle.

Infrastructure analysts see it as a win-win situation for both the government and developers. “Private companies will get a lot of money upfront, which means they will have to borrow that much less from outside. The cash flow will improve and project implementation will be smoother,” Vishwas Udgirkar, executive director of PricewaterhouseCoopers, said.

Some of the private players, however, believe that the changes would not make much of a difference to them.

“The interest cost during construction is around 15 per cent of the project cost. World Bank loans to the highway authority will reduce that cost by only about three per cent. We still have to borrow commercial loans at higher rates,” K Ramchand, managing director of ILFS Transportation Networks, said.

An official of another infrastructure company said developers would have been benefited more had the Bank given money directly to institutions like India Infrastructure Finance Company. “We (private companies) would have borrowed that money at lower rates. That would have been more helpful,” he said.

parulchhaparia@mydigitalfc.com