Union Budget 2009-'10: Refinancing to put highway projects in the fast lane

The road ahead has just got smoother for highway developers. State-owned India Infrastructure Finance Company (IIFCL) will refinance 60% of commercial bank loans for public-private projects over the next 15-18 months. The move would ease the tight liquidity in the market for road developers and speed up highway development.

���IIFCL and banks are now in a position to support projects involving a total investment of Rs 1,00,000 crore in infrastructure. In consultation with banks, IIFCL would evolve a takeout financing schemes to facilitate incremental lending in the sector,��� said finance minister Pranab Mukherjee, adding he would ensure sufficient funds for the sector.

Under takeout financing, a few banks come together to take over loan portfolios, in turn. For example, if ICICI, SBI and PNB finance a long-term project for 15 years, by turn they will lend for five years.
But industry experts feel takeout financing would not help much, especially in the beginning. ���This move will not bring much funds to the sector in the beginning, as the concept is still at a nascent stage, but it is a signal in the right direction. It will give some comfort to commercial banks to lend to the road sector,��� said Soma Enterprise director Ankineedu Maganti.

The government also increased plan allocation to National Highways Development Authority (NHAI) for the national highway development programme by 23% to Rs 8,578 crore in the current financial year. Road transport and highways minister Kamal Nath has recently announced that 20 km of roads would be laid per day. He had proposed a road financing entity on the lines of Power Finance Corporation (PFC) and a Re 1 cess on petrol and diesel to fund highway projects. None of the proposals, however, figured in the Budget speech.

Road projects have failed to meet scheduled targets due to a shortage of funds, delay in land acquisition, law and order problems and default by developers. ���I have urged my colleagues in central and state governments to remove policy, regulatory and institutional bottlenecks for speedy implementation of infrastructure projects,��� Mr Mukherjee said.