Despite collecting toll taxes, NHA to take $294m loan from ADB

Published: June 3, 2018


US Dollar banknotes are seen in this photo illustration. PHOTO: REUTERS ILLUSTRATION: JAMAL KHURSHID

ISLAMABAD: In a questionable move, the Planning Commission has permitted the National Highway Authority (NHA) to take a $294-million foreign loan for rehabilitation of one of its main arteries despite collecting toll taxes from commuters.

The decision will open a new window for the highway authority to seek foreign loans for a purpose that it can achieve without the help of creditors.

The Central Development Working Party (CDWP) last month cleared the proposal to take loan from the Asian Development Bank (ADB). After concept clearance, in the next stage, PC-I of the project will be approved.

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The NHA has sought the loan for the rehabilitation of 14 sections of N-5 highway that link Karachi to Torkham via Lahore and Peshawar. Total length of the road is 1,778 kilometres and the NHA initially wants to rebuild the most deteriorated parts spanning over 498 km.

The N-5 traverses through the areas located along eastern bank of the Indus River and cater to two-thirds of freight traffic of the country.

The NHA spokesman said at present about 1,113 km of the N-5 is in dilapidated condition and requires rehabilitation.

The authority’s plan includes rehabilitation of sections of Mirpur Mathelo-Sadiqabad, Pana-Lodhran, Shah Nal-Multan, Khanewal-Chichawatni-Okara, Shahdara-Kamoke, Gujrat-Sara-i-Alamgir, Dina-Mandra, Jehangira-Peshawar, Moro-Kotri Kabir, Chichawatni-Qadirabad, Shahdara-Gujranwala, Sohawa-Mandra and Nowshera-Peshawar.

The NHA collects toll taxes on these roads and its decision to take foreign loan indicates that the authority has overstretched its finances over the past five years.

Over the five years, Pakistan’s external debt and liabilities have swelled to roughly $92 billion, an increase of 48%. These loans have gone into areas where returns are negligible and the government will have to take more loans to retire the previously borrowed money. Independent economists encourage foreign loans for only productive purposes.

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The NHA also had an option to rehabilitate the road network either through public-private partnership or on build-operate-transfer (BOT) model that would have saved the country from contracting another roughly $300-million loan.

The transport section of the Planning Commission suggested that the NHA should have rehabilitated the road on the BOT model. Work on the M2 (Lahore-Islamabad) motorway has been carried out on BOT basis by the Frontier Works Organisation.

The Planning Commission has also objected to the Rs68-million per km rehabilitation cost, which it said was “exorbitantly high”.

In addition to taking $294 million in loan to rehabilitate the 498km road sections, the NHA also plans to take a loan from the World Bank to reconstruct another 615km portion of the N-5 road.

But the NHA has its own reasons for taking the loan. “Toll money cannot be spent on rehabilitation as this is used only for maintenance purposes,” said the NHA spokesman.

He said the toll money was not sufficient to even finance the maintenance cost, which was almost double than the toll collection.

According to the spokesman, the N-5 is economically and commercially the most viable artery and the NHA cannot financially afford to give this network on BOT basis. “The economic return of N-5 is in the range of 36% to 116%,” he added.

He said unlike the M2 that had a clear revenue stream, the NHA was rehabilitating the N-5 in various sections and the BOT contracts could not be given in small packages.

The spokesman defended the decision to take the ADB loan, arguing that the loan would be on concessionary terms. A fact-finding mission of the ADB is expected to arrive soon to take the loan proposal to the next stage.

The NHA has also claimed 1% of the total cost or Rs283.9 million as security cost, which the Planning Commission has opposed. The government has approved security charges only for the China-Pakistan Economic Corridor (CPEC) projects.

Published in The Express Tribune, June 3rd, 2018.

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