ISLAMABAD: The Ministry of Communications is seeking an end to the practice of extending unsolicited expensive loans to the National Highway Authority (NHA) by the federal government through its ‘imposed projects’.

The state-run NHA has a cash development loan (CDL) portfolio of over Rs2 trillion from the federal government, hampering smooth operations and development of its priority projects that can generate revenues for cash flows.

In a summary for the upcoming meeting of the federal cabinet’s Economic Coordination Committee (ECC), the ministry of communications has asked the government that its existing CDL portfolio should be taken off NHA’s accounts to enable it to raise funds from the market for commercially viable road and highway projects. Also, the NHA should be burdened with fresh loans only for projects proposed by it, a senior government official told Dawn.

He said the summary advocated that in case the federal government wanted construction of a project of its choice for socio-economic or regional consideration through its public sector development programme, the government should provide funds to the NHA as a “grant” or extend cash through “deposit work” fund to be placed at the disposal of the NHA or communication ministry.

An inter-ministerial committee led by minister for planning and development Asad Umar is reported to have supported the move and have finalised criteria for selection of projects for the NHA to be considered for CDL, grant or deposit work.

As of June 30, 2019, the NHA has received over Rs1.8trillion cash development loans and foreign loans whether direct or relent including the interest accumulated thereon. The NHA reportedly wanted the loans to be “written-off” or converted into government grant.

CDLs are typically contracted by the federal government at 2-5pc interest, mostly from international lending agencies and relent to various corporations and public sector entities at 14-15pc mark-up.

The summary demanded that all PSDP allocations, including relent or direct loans, both rupee and foreign exchange component for non-commercially viable projects and for strategic or defense roads to the NHA be provided as government grant in future. Also, the provincial governments should be taken onboard for financing of projects for inter-provincial linkages.

The summary also suggested that CDLs be advanced to the NHA only for projects proposed by it or commercially feasible projects on which the finance division and the NHA mutually agreed regarding the terms and conditions of the loan and its repayment or these viable projects may be undertaken by the NHA in public-private partnership or on a the basis of build, operate and transfer mode financing.

The official said the ministry of communications had earlier taken up the matter with the ECC which constituted a committee comprising minister for planning, secretaries of finance, communications and economic affairs division and deputy chairman of the planning division to examine the proposals and submit their recommendations to the ECC.

The NHA had been complaining that given the size of its CDL portfolio, the ministry of finance sometimes resorted to deduction at source of repayment of principal and interest of CDL before releasing funds for development projects. This affected the payment schedule with its contractors, as a result project’s development suffered in the shape of cost over runs and delays.

The ministry reported that the NHA was no more interested in CDLs due to overloading of its portfolio with roads and motorways launched under political decisions. Unless, the mechanism around CDLs was changed, their size would keep growing beyond NHAs’ financial viability.

Hence, the practice of CDLs provision to the NHA should be stopped, the ministry demanded, adding the NHA was not being provided complete funds for the projects that were part of the PSDP.

The finance ministry, however, argued that the stock of CDLs could not be written off under existing circumstances. Also, the CDLs acquired for development projects could not be put on the budget due to the IMF programme under which the government had to keep a check on fiscal deficit.

The ministry insisted that the government was also raising funds from the market in the form of Pakistan Investment Bonds and other instruments to meet various responsibilities and financed partly through return on the CDLs.

The NHA claimed that road and motorway projects were mostly launched under political decisions and CDLs against such projects were imposed on the NHA though most of them might not be economically viable. For instance, the Karachi-Quetta coastal highway and other roads around Gwadar would remain unviable from NHA’s point of view even for years due to limited traffic. The NHA’s development portfolio had gone beyond Rs2.5trillion and perhaps the NHA could not finance these liabilities even if it sold all its assets.

Published in Dawn, March 9th, 2020