ISLAMABAD, June 18: The government has decided to pledge most of national highway and motorway assets to a consortium of banks to raise Rs6 billion in loans to meet its expanding maintenance backlog.

The loan would be repayable at a fluctuating interest rate of 2.5 per cent above the Karachi Interbank Offered Rate (Kibor) in seven years, including a two-year grace period. In case of default, the relevant asset — highway or motorway — would be automatically transferred to the banks.

Habib Bank Limited, privatised about two years ago, is leading the consortium of 10 banks. Officials of the National Highway Authority (NHA) were reluctant to disclose the names of other banks in the consortium.

Sources said that the NHA would get Rs6 billion through securitisation of assets, “most probably” by July, adding that the authority currently faced an annual financing gap of about Rs2-4 billion.

The assets, which are being pledged, include Islamabad-Peshawar Motorway (M-I), Faisalabad-Multan Motorway (M-4), Islamabad-Murree-Muzaffarabad Dual Carriageway (IMDC), Jaccobabad Bypass, D.G.Khan-Rajanpur Highway, Okara Bypass and several other toll-yielding projects.

Chairman NHA Maj-Gen Furrukh Javed says that the national economy suffered an annual loss of about Rs240 billion because of bad road conditions, adding that asset securitisation would help reduce the loss.

The government had last year allowed the NHA to raise Rs5 billion loans from the market for the road development fund because of legal and financial and legal bottlenecks, including NHA’s balance-sheet problems and laws that did not allow transfer of national highways and motorways to banks for default in payments. The financial requirement, in the meantime, increased to Rs6 billion.

Mr Furrukh Javed said that laws governing the NHA had been amended to reassure the banks about repayments and if the authority defaulted, they could take over its asset to recover their dues.

He said a formal agreement would probably be signed soon. He said the NHA collected a net amount of about Rs5 billion in tolls annually against its maintenance cost of about Rs7-9 billion and the backlog kept on growing. It pays about Rs800 million out of the total toll collection to contractors every year, which is higher than internationally acceptable level.

The loans are in addition to Rs25 billion approved by the government for 52 road projects to be financed during the next year under the Public Sector Development Programme. Moreover, another Rs4 billion are being diverted from other development schemes.