Road minister seeks plan panel’s views on $2 bn World Bank loan

After confrontation, a note of conciliation. Within a week of hurling sobriquets such as “armchair advisors” at the Planning Commission at a public forum, Union road transport and highways minister Kamal Nath had sought the panel’s views on negotiations with the World Bank for a $2 billion loan.

Nath wrote to Montek Singh Ahluwalia, deputy chairman of the Commission, on July 12, seeking his “views in the matter.”

The road transport ministry is negotiating a $2 billion World Bank loan to fund the viability gap funding (VGF) and annuity requirements of the government. VGF is the government portion of funding, capped at 40% of the capital cost of the project, to make the project viable, while annuity payment is made to the developer as a return on investments.

According to sources close to the development, the ministry has approached the Planning Commission as the World Bank may try to bend rules for finalising the loan.

The letter pegs the VGF requirement of the National Highways Authority of India (NHAI) from the current financial year up to 2018-19 at Rs 41,000 crore.

“We propose to seek the loan to the extent of $2 billion to be availed of in tranches to partly meet the VGF in projects... World Bank has also expressed its willingness to provide assistance for annuity based NH projects with certain modifications in the existing format,” Nath wrote.

The transport ministry will stick to the rulebook, Nath said. “While negotiating with the Bank, we would not compromise with the policies in public private partnership and be within those parameters. In case the bank agrees to lend on such terms, I consider this would further accelerate growth in the national highways sector and reduce cost of borrowings required to meet the government liability towards VGF and annuity payments. I would request you for your views on the matter.”

Nath has been on collision course with the plan panel over the past few months on the road construction targets. While the transport ministry stuck to its 20-km-a-day plan, the Commission wanted more reasonable targets.

Additionally, in a discussion paper submitted to the ministry last month, the Commission said high VGF payouts, averaging 35-36% in 22 projects, will land NHAI in a debt trap. Calling the panel data skewed, ministry officials, say the average VGF comes at 18-20% in the 62 projects awarded last year.