Kerala’s infra funding arm to give ₹6,000 cr grant to NHAI

P Manoj MUMBAI | Updated on July 26, 2019

Acquiring one hectare of land costs ₹20 crore, making it the costliest state in the country.

The Kerala Infrastructure Investment Fund Board (KIIFB), the infrastructure funding arm of the Kerala government, will give ₹6,000 crore as grant to the National Highways Authority of India (NHAI) to part-finance the four/six-laning of some 565 km of national highways in the state.

India’s national highway development agency estimates a funding of ₹48,000 crore to convert 565 km of two-lane highways into four/six-lanes, close to half of which would be used to acquire land. Given the high land prices in Kerala, NHAI reckons that it won’t be able to fund the four/six-laning on its own and had approached the Kerala government asking it to fund one-fourth of the land acquisition cost.

NHAI said it needs about ₹ 22,000 crore to acquire 1,176 hectares of additional land to build four/six lane highways. Acquiring one hectare of land including structures built on it currently costs as much as ₹20 crore, making Kerala the costliest state for land acquisition for highway development in the country, an NHAI official said. “Some projects had to be shelved due to sky-rocketing land prices,” he said.

The state government directed KIIFB to extend the money as grant to NHAI, a Kerala government official said.

Market borrowing

The infrastructure funding arm of the state government says that Kerala require ₹ 50,000 crore (including the ₹ 6,000 crore to be given to NHAI) for financing various infrastructure projects.

The state government said it cannot support KIIFB directly but advised the agency to borrow ₹ 50,000 crore from the market over the next five years against future cash flows.

The state government, in turn, will give a portion of the motor vehicles tax collections over the next 30 years to help KIIFB repay the loans.

Read more: Kerala board celebrates London Masala Bond listing

KIIFB is giving the money to NHAI as grant assuming an increase in land value due to highway development would benefit the state’s tax collections while a higher motor vehicles tax proceeds due to increase in road traffic would indirectly help the agency as a portion of this is shared by the government.

Masala bonds

In March, KIIFB raised ₹2,150 crore through masala bonds at a fixed interest rate of 9.723 percent per annum, becoming the first sub-sovereign entity to issue such offshore bonds. The five-year notes were listed on the London Stock Exchange in May.

Read also: KIIFB's masala bond issue sparks interest among other states

Published on July 26, 2019

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