ISLAMABAD: The National Highway Authority (NHA) on Sunday said its gross profit was declining continuously over the past three years as the pace of its expenditure growth was outpacing annual incomes.

In a statement, the NHA said its gross profit in FY2022 amounted to Rs45.77bn but plunged by more than half (52pc) a year later in FY2023 to Rs21.84bn. The gross profit further went down by about 34pc to just Rs14.28bn by end of FY2024.

The entity responsible for the construction, maintenance and operations of major highways and motorways across the country claimed that it was primarily financing its managerial and operational cost from its own resources without exerting extra burden on the federal government.

The NHA bemoaned that it had “shown consistent growth in revenue generation from diverse streams such as toll operations, right-of-way (ROW) charges, rental income, police fines, and build-operate-transfer projects”, but its “accounting financial adjustments” were eating up most of those streams.

Authority blames federal govt or external factors beyond its control for net deficits

The corporation said its overall income stood at Rs97bn by end of FY2024, up by almost 24pc from Rs78.4bn in FY2023 when it had improved only by 6pc when compared to FRs74bn in FY2022. The pace of growth in expenditures was higher than that of income, the NHA said, putting total expenditure at Rs83bn in FY2024 that was 46pc higher than Rs56.5bn in FY2023. The expenditure had jumped by 100pc from only Rs28bn in FY2022.

The corporation blamed the federal government or other external factors beyond its control for net deficits.

“The federal government provides development funds to NHA annually in the form of a Cash Development Loan (CDL) through the Public Sector Development Programme (PSDP) at a specified mark-up rate, as per government policy. The net deficit reflects the impact of non-cash expenditures, such as finance costs on PSDP and foreign-relented loans, exchange losses on foreign loans, and depreciation,” the NHA pointed out in a statement.

However, on the basis of this, the NHA did not appear to bother about a large net deficit and declining asset value despite greater highways and motorways coming on its balance sheet. It reported net deficits at Rs318bn in FY2024, down from Rs413bn in FY2023 when these had surged by 146pc from Rs168bn in FY2022.

‘Accounting adjustments’

The NHA claimed that it was “not experiencing real financial losses, as the deficits are primarily due to accounting adjustments rather than actual cash outflows. These adjustments, which are non-cash in nature, create a discrepancy between reported financial performance and actual cash flow”. Therefore, the NHA claimed that its deficits reflect accounting impacts rather than genuine financial losses and its operations are not resulting in a drain on cash resources.

The Ministry of Finance, however, is not convinced with this story and suspected its negative risk factor to the sovereign. The ministry said the NHA faced significant financial challenges, underscored by an escalating debt burden and complex accounting issues.

“Currently, the NHA holds outstanding loans totalling around Rs3.1tr, with an annual debt accretion rate of Rs300bn. This debt portfolio generates Rs98bn in mark-up, which is expected to rise to more than Rs150bn per annum, creating a substantial credit risk for the government of Pakistan, which guarantees these loans,” it said.

On top of that, the presence of sovereign guarantees for public-private partnership (PPP) contracts adds further financial strain, amplifying the government’s credit risk exposure. NHA’s dependence on government support for debt servicing, combined with its limited revenue generation capabilities, strains the government’s fiscal stability, particularly if loan defaults or liquidity crises arise.

The ministry categorised the NHA’s financial troubles into three major risk areas: credit risk, market risk, and operational risk. Its credit risk was escalating debt and interest obligations. “The NHA’s debt of Rs3.1tr, coupled with a rising annual interest obligation, is projected to surpass Rs150bn, placing the government at a substantial credit risk,” it said.

Published in Dawn, March 24th, 2025