The finance ministry has expressed concerns over the inability of the National Highways Authority of India (NHAI) to fully utilise the money raised through tax-free bonds in the last fiscal.
With project awards stuck, the highways agency has been forced to park about Rs 8,500 crore of such funds in fixed deposits.
The finance ministry has raised the issue. It is almost like arbitrage where the NHAI issued the bonds with a coupon rate of 8.2 to 8.3 per cent, but is earning higher interest in fixed deposit, a person close to the development said. The NHAI is understood to be earning about 9 per cent interest on the money it has parked with banks.
Significantly, the finance ministry is also looking at discontinuing with such tax-free infrastructure bonds from 2013-14. The issue of revenue loss through such bonds has been raised during internal discussions of Budget 2013-14.
Adding to the problem, investor appetite for these instruments has also significantly declined due to low coupon rates offered in the bond issue by Rural Electrification Corporation and Power Finance Corporation.
NHAI officials, while confirming the issue of fund in banks, said that the money could not be used due to slowdown in project award.
Some of the money, we raised last year, could not be used as many EPC projects could not be bid out due to various regulatory hurdles. We have had talks with the finance ministry on this issue, said JN Singh, member (finance), NHAI.
The finance ministry had allowed NHAI to raise Rs 10,000 crore through tax-free bonds in 2011-12. The authority also has permission to raise another Rs 10,000 crore for the current fiscal, which are likely to be issued next month.
Another official said that a large portion of the money in banks would have been used for land acquisition.
Of the money in our accounts, we were to use around Rs 7,500 crore to meet our land acquisition cost for the projects that were to be awarded during the current fiscal but that did not happen because of slowdown in award of road projects, said another senior NHAI official.
Since 2011-12, the highways development agency has raised close to Rs 22,000 crore through tax-free bonds, 54 EC bonds and their share of oil cess. Of this, it raised Rs 5,000 crore through 54 EC bonds in the last two fiscals and another Rs 10,000 crore through tax free bonds. It also received Rs 7,000 crore as its share in the oil cess.
Of the total road project award target of 9,500 km for the current fiscal, the government had set a target of awarding over 7,000 km for NHAI. On the contrary, the highways authority has been able to award only 1,000 km of road projects in the current fiscal. NHAIs plan to award 2,000 km of road projects on engineering, procurement and construction (EPC) mode is awaiting approvals.