Is NHAI a Massive Financial Mess? PMO Action Suggests It Is
Even as the prime minister's office (PMO) has reportedly suggested to the National Highways Authority of India (NHAI) that it should discontinue constructing roads and monetise assets, Brijeshwar Singh, former chairman of the Authority told a news channel that NHAI is piling a huge debt of Rs1.78 lakh crore by 2019, up from Rs40,000 crore in 2014. 
 
LiveMint, quoting from a letter sent by Nripendra Misra, principal secretary to the prime minister, to Sanjeev Ranjan, secretary, ministry of road transport and highways, says, "NHAI was 'totally logjammed by an unplanned and excessive expansion of roads and it is mandated to pay much higher costs for land acquisition and construction'."
 
“Road infrastructure has become financially unviable; private investors and construction companies are withdrawing from green-field projects," the letter says.
 
To solve this, the newspaper report says, the PMO has suggested that NHAI aggressively monetise its existing assets – either through the toll-operate-transfer model, where long-term concessions for collecting toll revenues are auctioned to the highest bidder, or through an infrastructure investment trust (InvIT). 
 
"The PMO has also suggested that the NHAI can consider becoming a road asset management company and can create a blueprint for the national highway grid to see which roads need to built by 2030. To make projects commercially viable, the PMO has suggested that NHAI should take a critical look at reasons for financial unsustainability and the government can prove viability gap funding if required," the report says.
 
Meanwhile speaking with CNBC TV18, Mr Singh, the former chairman of NHAI had said that contingent liabilities of the Authority are worrisome and could be double of the balance sheet liabilities. "NHAI has been over generous at estimating traffic growth," he told the channel.
 
 
 
Industry sources tell us that the situation is rather grim and the issue had been flagged by the PMO last year. However, in the run up to the election, it was allowed to be buried. The source says, Mr Mishra, Principal Secretary has held over six meetings to discuss NHAI’s debt since September last year. According to this source, the contingent liabilities figure quoted by the former NHAI chairman is also considered conservative and could be higher than Rs3 lakh crore that he suggests.  
 
All this paints a sorry picture of how infrastructure is being built in the country, even as Union minister Nitin Gadkari continues to announce ambitious new projects and programmes. It is also important to realise that the NHAI issue has a bearing on the resolution of the Infrastructure Leasing & Financial Services (IL&FS) debacle, because it also owes the beleaguered infrastructure company a substantial sum of money. 
 
Renowned investor Prof Sanjay Bakshi has also highlighted rising debt of NHAI in a series of tweets. "NHAI's unsustainable debt, which I had written about in January was estimated to be about Rs1,48,276 crore as of 30 September 2018. Just six months later, by end of March 2019, it had soared to Rs1,78,000 crore," he says.
 
 

 

  • Like this story? Get our top stories by email.

    User

    COMMENTS

    RAMESH JAGANNATH MODI

    2 months ago

    What happens to those who are holding tax-free bonds issued by NHAI?

    TIHARwale

    2 months ago

    NHAI is also going bust as project costs are often padded up and our Nagpur man thrived even while hisparty was in opposition Maharashtra state level irrigation projects

    B. Yerram Raju

    2 months ago

    One more coffin added to the NPAs!

    Rajat Bose

    3 months ago

    Philip Coggan, the erstwhile investment editor of FT, remarked in his book Paper Promises (2012):

    "...In August 2011, America lost its coveted AAA rating that had signified its status as the world’s safest borrower. In short, the confidence needed to borrow and lend is diminishing. The result is a mess.

    [H]is book is about this mess and how it will affect the global economy and the relationship between generations. But it is also about how our attitudes to money and debt have changed through history, and may be about to change again.

    The massive debts accumulated over the last forty years can’t be paid in full, and they won’t be paid."

    Coggan, Philip. Paper Promises (pp. 1-2). Penguin Books Ltd. Kindle Edition.

    I think Coggan's prediction will be borne out here as well in the NHAI and many other debt-ridden mess we are now slowly coming to terms with. Or, are we? Really?!

    [Coggan's book is quite insightful in this regard]

    REPLY

    shadi katyal

    In Reply to Rajat Bose 3 months ago

    Why do we keep comparing apple s and oranges. India with present y mess could never reach to level of USA for centuries. Did you notice that despite in debt for Trillions, people wish to move to USA and lot of property is being bought by other nations citizens.
    While for India investors are staying out and even Bangladesh ,once a basket case is doing better.
    The very fact is that loss of past 5 years with nothing but spread of hated has driven investors away. There is no Law and Order and even the Govt silence and releasing criminals of lynching has given a black eye to our justice system.The book is good b ut doubt if applicable to India

    manojkamrarti

    3 months ago

    youtube.com/watch?v=M2pgoKKtRZk
    22 to 26 minutes careful listen
    In loksabha on 23 july, Nitin Gadkari admitted that all roads DPR are fake (but no action of recovery), all 70 years old engineers wearing caps are fake without their actual visit at sites.
    NO HIGHWAY WITHOUT sharp curves anywhere in india

    Subhash Chand Garg

    3 months ago

    Politically motivated news

    REPLY

    shadi katyal

    In Reply to Subhash Chand Garg 3 months ago

    Why is all True news for you bhakats is a politically motivated and surprised you didn't write it is anti national and some proPakistani.

    shadi katyal

    3 months ago

    Why there is no mention of Gadkari who is minister of such projects? Can Govt give any accounts of where the funds have been spent ?
    What about promise of villages being connected with main hiways which was also Congress promise too.
    Tolls are collected everyday nationwide on national highways and it seems, NHAI has failed to see the cost of such Toll booths etc.
    Why would there be any one willing to invest in Highway when even businessman like Gadkari has failed to run it .
    It is evident that Govt has failed to even provide such infrastructure and what about other promises.
    What a shame that so many promises and non to be fulfilled.

    Adv Ashok N Shingare

    3 months ago

    Let the big industries shoulder the sponsorship collectively in building the nation. Without infrastructure the progress shall be standstill

    MT

    3 months ago

    So tax free bonds issued by nhai stand at risk ?

    K V RAO

    3 months ago

    NHAI has become a stone in Central government's neck. Nitin Gadkari was given a long rope and he has done (not misuse) wrong in his portfolio. Now after PMO's intervention, things may get streamlined.

    Devashis Bhattacharyya

    3 months ago

    Are we watching the beginning of a political assasination of Nitin Gadkari?

    Challenges for Indian Automakers To Persist Due to Weak Sales, Upcoming BS VI Norms: Report
    Subdued demand conditions that led to weak performance by Indian automakers in the first quarter of the financial year ending 31 March 2020 (FY19-20) will likely persist, adding to the challenges from the implementation of stricter emission norms under Bharat stage emission standards-6 (BS VI) from April 2020, says a research report.
     
    In the note, Fitch Ratings says, "Domestic sales trends have weakened since first half (1H) of FY19 as the constrained liquidity at non-bank lenders reduced credit availability to buyers and the cost of ownership rose due to new regulations mandating enhanced vehicle insurance cover and additional safety features. Automakers appear to be cautious about production and inventory management amid weak demand conditions, and they have announced production and work force cuts."
     
    According to Society of Indian Automobile Manufacturers (SIAM), most auto original equipment manufacturers (OEMs) reported lower volumes and profitability in Q1FY19-20 as domestic sales volumes of passenger vehicles and medium and heavy commercial vehicles fell by 18.4% and 16.6%, respectively.
     
    In addition, the sales volume of commercial vehicles was also affected by easing in axle load standards in July 2018, which resulted in additional freight capacity in the system. The decline in sales in Q1FY19-20 was much sharper as it coincided with India's general elections in April and May 2019. Monthly volumes weakened further in July 2019 with year-on-year (y-o-y) decline of more than 25% each in the passenger and commercial vehicle segments. 
     
    Sales volumes in the two-wheeler segment have been more resilient than passenger and commercial vehicles due to their lower prices and non-discretionary demand, particularly in rural areas where they serve basic commuting needs and enable income. Nonetheless, volumes fell by 11.7% y-o-y in Q1FY19-20 and 16.8% in July 2019. 
     
    Fitch says, "We expect overall domestic auto sales volume to decline in FY19-20, although volumes may stabilise in the coming quarters due to government's focus on improving liquidity at lenders and recent measures to revive auto demand. The improved likelihood of adequate rainfall and recent cut in interest rates should also help demand in 2HFY20. However, the lower volumes will weigh on automakers' profitability in FY19-20 and could offset the benefits from lower commodity prices."
     
    The implementation of BS-VI emission standards will require automakers to make changes to vehicle platforms ahead of March 2020—the regulatory deadline after which sale of older models will not be allowed. "This will require significant investments to upgrade existing vehicle models and assembly lines, which will put pressure on free cash generation. Automakers will also need to realign their portfolios, particularly for the diesel variants of smaller cars, which will cost more to move to BS-VI compared with 'cleaner' petrol variants. This could lead to changes in the competitive dynamics in the mass segment," the ratings agency added.
     
    Fitch says it estimates the additional components and design changes will raise production costs by 10%-15%. "This could squeeze automakers' profitability in FY21 if automakers are not able to fully pass on costs to buyers. Increased vehicle prices after March 2020 could spur some buyers to bring forward their purchases, but we do not expect this to be material." 
     
    According to the ratings agency, weaker auto sales volumes are likely to have a bigger impact on auto suppliers, especially the smaller and less diversified players that have lower bargaining power in negotiating prices and passing on input price volatility. 
     
    Motherson Sumi Systems Ltd (MSSL) enjoys strong market position in its wiring harness business in India and its diversification outside India through its subsidiary Samvardhana Motherson Automotive Systems Group BV will help to alleviate the impact of weak demand in India. Nonetheless, Fitch says SMRP BV remains exposed to slowing auto volumes globally, with profitability, excluding recently set up plants, narrowing during 1QFY19-20. 
     
    Tata Motors Ltd's sales volume fell by more than 20% and profitability weakened for the Indian business in 1QFY19-20. This was driven by a 16% fall in commercial vehicle volumes that was in line with the industry trend and a sharper 30% drop in passenger vehicle sales volume. Consolidated volumes and margins were affected by challenges at wholly-owned Jaguar Land Rover (JLR) Automotive plc. 
     
    Fitch says its recent one-notch downgrade of Tata Motors factors in weakness in India and the JLR business, and the negative outlook underscores limited rating headroom due to a large investment plan and risks in JLR.
  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Adv Ashok N Shingare

    3 months ago

    Due to globalization lot of automotive industries entered into Indian market. Some of them were running into losses from the beginning. From outside they were not opening their cards. I feel the market has been saturated and flooded with no of different models in every version. Had they been coordinated with each other with the introduction of various versions and models, the production would not been over flooded the market

    Moneylife Impact: Minister Giriraj Singh Gets Tough with NDDB; Asks about Rs200 Crore Given to NDS
    On 19 August 2019, at a five-hour review,  Giriraj Singh, Union minister of animal husbandry, dairy and fisheries is understood to have closely questioned top executives of the NDDB (National Dairy Development Board) and its subsidiaries over funds lent to subsidiaries over which the parent organisation has no control.
     
    The minister, say our sources, posed tough questions during this detailed review of NDDB and its subsidiaries and specifically asked about NDDB’s Rs200 crore fund transfer to NDDB Dairy Services (NDS). 
     
    "When government has no control neither NDDB has any control (over NDS), how can you transfer such huge amount to subsidiary companies? How can we defend this in the Parliament?" the minister reportedly asked the top executives of NDDB, say people familiar with the discussions.
     
     
    On 22 May 2019, Moneylife wrote about the propensity of NDDB to set up numerous subsidiaries and quickly cause them to vanish through a closure or amalgamation or often without an explanation.
     
    We also highlighted how NDDB paid Rs200 crore to its subsidiary NDS, a private company, to employ its retired executives at same package.
     
    As we have pointed out, NDDB Dairy Services or NDS was set up as a private limited company in 2009 with NDDB subscribing to only Rs1 crore as share capital. 
     
    Moneylife has reached out to several officials in the government for details about the meeting, but have not received a formal confirmation. 
     
    Thereafter, NDDB’s nominee members moved a resolution to convert NDDB Dairy Services Pvt Ltd into a not-for-profit company under Section 25 of the Companies Act 1956 (now Section 8 of the Companies Act 2013). NDS was set up to function as the delivery unit of NDDB for field operations relating to promoting producer companies and productivity enhancement services.
     
    "...based on detailed discussions it was decided that since some of NDDB's current roles would be undertaken by NDS, it follows that a part of funds available with NDDB, which finances its expenditure would need to be transferred to NDS. It was proposed and approved that around 15% of the funds available with NDDB be transferred as equity to NDS. This worked out to be around Rs200 crore. The authorised capital of NDS was raised to Rs200 crore and NDDB subscribed to the entire authorised capital of Rs200 crore," NDDB had said in its response to our queries.
     
    NDDB Dairy Services was re-incorporated as a not-for-profit company in the very year that it was first incorporated as a private limited and wholly-owned subsidiary of NDDB. Immediately thereafter, the Board transferred Rs199 crore to NDDB Dairy Services, in the form of contribution of capital for purchase of equity of an equal amount.
     
    The permission given by the Central government to NDDB was only for forming NDDB Dairy Services as a private limited company and the contribution of Rs1 crore as NDDB’s equity in NDDB Dairy Services when it was a private limited company could be considered in line with Section 43(2)(a). The contribution of another Rs199 crore to NDDB Dairy Services as share capital from NDDB needed specific approval from the Central government as per Section 43(2)(b) of the NDDB Act. 
     
    NDDB, however, had said, "NDS is a wholly owned subsidiary of NDDB and therefore under 43(2)(a), no prior approval is required from Central Government. Your article also states that NDS is a private company. The NDDB Act makes no distinction between them as far as the transfer of assets or funds is concerned."
     
    During the meeting held on 19 August 2019, Mr Singh, the minister asked Dilip Rath, chairman of NDDB to provide all details about Rs199 crore given to NDS. 
     
    Mr Rath, from the Indian Administrative Service (IAS) cadre, was the joint secretary in the department of animal husbandry, dairying and fisheries, in Government of India between 2008 to 2010. After taking an early retirement, on 1 December 2011, he joined NDDB as its managing director (MD) and is now working as its chairman.
     
    Moneylife had essentially said that NDDB has incorrectly and in a legally questionable manner used Section 43(1) of the NDDB Act to set up more than a dozen subsidiary companies, mostly step 2 and step 3 subsidiaries, transfer hundreds of crores of capital, assets and assistance from NDDB to such subsidiaries and then quietly amalgamate all the step 2 and step 3 subsidiaries with NDDB’s step 1 subsidiary companies, without any disclosures in the relevant annual reports of NDDB, hoping that nobody will ever notice.   
     
    We also said that this has been going on for a decade and has not been highlighted by NDDB’s statutory auditors. We also pointed out that NDDB fights hard to remain out of the purview of the Right to Information (RTI) Act as well scrutiny by the Central Vigilance Commission or CAG (Comptroller & Auditor General). 
     
    The famous statutory body, once led by the legendary Dr Verghese Kurien, better known as India’s milkman or father of the white revolution, clearly deserves greater public scrutiny. 
     
    With Mr Singh, the minister reportedly asking tough questions, we hope there will be a proper scrutiny of all the affairs of NDDB and its subsidiaries.
     
    You may also want to read…
     
     
     
     
     
     
  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Adv Ashok N Shingare

    3 months ago

    Sorry..... No comments

    Godavari Joshi

    3 months ago

    It is a good sign that the issue has caught attention of the Minister. However, when will any enquiry be initiated into this ? Secondly, what immediate steps are on anvil to stop the misuse of authority and the perks by the concerned people in NDDB ? The Ministry could have shed some light on this as to what are their preliminary views/findings/ and way forward, else, the issue can be easily dragged by the NDDB Management to let it die a natural death.

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone