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$516-million World Bank loan for NHs -- MoF to on-lend the fund in the grant:loan ratio of 80:20

P. Manoj

THE Finance Ministry will on-lend to the National Highway Authority of India (NHAI) the $516-million World Bank loan, partly in grant and partly in loan. Eighty per cent of the fund will be given as grant, attracting no interest while the remaining 20 pe r cent will carry 14.5 per cent interest, the same rate at which the Union Government currently provides loans to the public sector and autonomous bodies.

The loan has been approved by the World Bank for part-funding the development of the 477-km stretch of the National Highway No. 2 between Bognipur in Uttar Pradesh and Barwa Adda in Bihar.

Officials say that this 80:20 grant-loan ratio is likely to be adopted as the guideline for subsequent tranches of the World Bank loan. When any foreign loan is provided as grant-in-aid to any organisation by the government, it means the Finance Ministry takes upon itself a major portion of the debt service burden. In this case, the NHAI will, therefore, have to repay the principal and interest to the Finance Ministry only on the 20 per cent of the $516-million World Bank loan.

Again, the $516-million loan will meet 80 per cent of the total project cost of $650 million for the first package of the Third National Highways World Bank project. The other 20 per cent, amounting to $134 million, will be contributed by NHAI as counter -part funding from its internal resources and market borrowings, including securitisation of fuel cess.

So technically, for every Rs 100 spent on the project, NHAI's burden of the repayment of the principal and interest will come to Rs 36 (that is, 20 per cent of the 80 per cent World Bank loan which comes to Rs 16 plus Rs 20 as counter-part funding). Thus , the Government will shoulder the burden for the repayment of the balance Rs 64. The arrangement, according to officials, would impart accountability and financial discipline to the execution of highway projects in the country.

The single currency World Bank loan of $516 million will have a variable spread and rate with a maturity period of 20 years and grace period of 5 years.

Meanwhile, the NHAI has started negotiations with the World Bank for the second tranche of the loan worth about $500 million for the Third National Highways World Bank project, expected to be finalised sometime in the first half of 2001.The second tranch e will be utilised for the development of the remaining stretch of the NH-2, covering about 500 km.

The NHAI has also flagged off negotiations with the Asian Development Bank (ADB) for a $250-million loan this fiscal for the development of the Tumkur-Hubli section of the National Highway in Karnataka aggregating about 258 km.