ISLAMABAD: The Communications Department seeks to end the practice of providing expensive unsolicited loans to the National Highway Authority (NHA) by the federal government through its “forced projects.”
The state-run NHA has a cash development loan (CDL) portfolio of more than Rs2 trillion from the federal government, which hinders the proper functioning and development of its priority projects that can generate income for cash flow.
In a summary for the next meeting of the Federal Cabinet’s Economic Co-ordination Committee (ECC), the Communications Ministry called on the government to have its existing CDL wallet removed from the NHA’s accounts to enable it to raise funds in the commercially viable routes. and road projects. In addition, the NHA should only be charged with new loans for projects it proposes, a senior government official told Dawn.
He said the summary advocated that if the federal government wanted to build a project of its choice for socio-economic or regional consideration as part of its public sector development agenda, the government should provide funds to the NHA in the form of a “subsidy” or grant funds through “works deposit” funds to be made available to ASN or the Ministry of Communication.
An inter-ministerial committee headed by Planning and Development Minister Asad Umar reportedly supported the movement and finalized the criteria for selecting projects for the NHA to be considered for CDL, grant or deposit work.
As of June 30, 2019, the NHA had received over Rs 1.8 trillion in cash development loans and foreign loans, both direct and assigned, including interest accrued thereon. The NHA would have liked the loans to be “written off” or converted into government grants.
CDLs are typically contracted by the federal government at an interest rate of 2-5%, primarily from international lending agencies and ceded to various corporations and public sector entities at a mark-up of 14-15%.
The summary demanded that all PSDP allocations, including unpaid or direct loans, both in rupees and in foreign currency for non-commercially viable projects and for strategic or defense routes to the NHA be provided in the future. in the form of a government subsidy. In addition, provincial governments should be involved in funding interprovincial linkage projects.
The summary also suggested that CDLs be advanced to the NHA only for projects proposed by the NHA or commercially feasible projects on which the Finance Division and the NHA have mutually agreed on the terms and conditions of the loan and its repayment. or these viable projects can be undertaken by ASN in a public-private partnership or on the basis of financing in construction, operation and transfer mode.
The official said the communications ministry previously raised the matter with the ECC which formed a committee comprising the planning minister, the secretaries of the finance, communications and economic affairs division and the vice president of the Planning Division to review the proposals and submit their recommendations to the CEC.
The NHA had complained that given the size of its CDL portfolio, the Ministry of Finance sometimes resorted to withholding tax on reimbursement of CDL principal and interest before releasing funds for development projects. This affected the payment schedule with its contractors, as a result the development of the project suffered in the form of cost overruns and delays.
The ministry said the NHA was no longer interested in CDLs due to its portfolio being overloaded with roads and highways launched under political decisions. Unless the mechanism surrounding CDLs is changed, their size would continue to grow beyond the financial viability of NHAs.
Therefore, the practice of providing CDLs to the NHA should be stopped, the ministry demanded, adding that the NHA does not receive full funds for projects that are part of the PSDP.
The Ministry of Finance argued, however, that the CDL stock could not be written off under the current circumstances. In addition, CDLs acquired for development projects could not be budgeted due to the IMF program under which the government was to control the budget deficit.
The ministry insisted that the government was also raising funds in the market in the form of Pakistani investment bonds and other instruments to meet various responsibilities and partly funded by the return on CDLs.
The NHA claimed that road and highway projects were mostly initiated as part of political decisions and that CDLs against such projects were imposed on the NHA although most of them may not be economically viable. For example, the Karachi-Quetta coastal road and other roads around Gwadar would remain unsustainable from the point of view of the NHA even for years due to limited traffic. The NHA development portfolio had exceeded 2.5 trillion rupees and perhaps the NHA could not fund these liabilities even if it sold all of its assets.
Posted in Dawn, March 9, 2020