The Kerala Infrastructure Investment Fund Board (KIIFB), the infrastructure funding arm of the Kerala government, has disbursed Rs 390 crore as the first instalment of a Rs 5,200-crore grant to the National Highways Authority of India (NHAI) to part finance the four/six-laning of some 565 km of national highways in the state.

This model could also be used by NHAI with other state governments to part-fund the massive highway development programme, to lighten its burden amidst a squeeze in bank funding for infrastructure projects, sources said.

India’s national highway development agency estimates a funding requirement of Rs 48,000 crore to convert 500 km of two-lane highways into four-lanes, close to half of which would be used to acquire land.

Given the “exorbitant” land prices in Kerala, NHAI said it won’t be able to fund the four-laning on its own and had approached the Kerala government, asking it to fund one-fourth of the land acquisition cost.

NHAI said it needs about Rs 22,000 crore to acquire 1,176 hectares of additional land to build four/six lane highways. Acquiring one hectare of land, including structures built on it, currently costs as much as Rs 20 crore, making Kerala the costliest state for land acquisition for highway development, an NHAI official said. “Some projects had to be shelved due to sky-rocketing land prices,” he said.

The state government has directed KIIFB to extend the money as grant to NHAI, a Kerala government official said.

The infrastructure funding arm of the state government says that Kerala requires Rs 50,000 crore (including the Rs 6,000 crore to be given to NHAI) for financing various infrastructure projects.

The state government said it cannot support KIIFB directly but advised the agency to borrow Rs 50,000 crore from the market over the next five years against future cash flows.

The state government, in turn, would give a portion of the motor vehicles tax collections over the next 30 years to help KIIFB repay the loans.

Grant to NHAI

KIIFB is giving the money to NHAI as a grant, assuming an increase in land value due to highway development would benefit the state’s tax collections, while higher motor vehicles tax proceeds due to an increase in road traffic would indirectly help the agency, as a portion of this is shared by the government.

In March, KIIFB raised ₹2,150 crore through masala bonds at a fixed interest rate of 9.723 per cent per annum, becoming the first sub-sovereign entity to issue such offshore bonds. The five-year notes were listed on the London Stock Exchange in May.

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