Today, a very interesting article comparing state highways and national highways came out. It contained some opinions about funding details for national highways versus state highways. Here there are some excerpts:

Infrastructure financiers don't seem to be as enthused by lending to state highway projects as they are by funding national highways.

According to R Rajagopalan, chief general manager, India Infrastructure Finance Company (IIFCL):

"During the concession period, if the traffic density is lower than expected, the National Highways Authority of India (NHAI) guarantees the repayment of the loan, which does not happen state highways,". Most of the 63 road projects IIFCL has so far funded are national highway projects.

The total length of roads in the country is 34 lakh km. Of this, national highways account for 70,548 km and state highways 130,000 km.

According to a senior official from one of the country's biggest highway developers:

"Financiers are concerned if the project is on an annuity basis or has viability gap funding because both come from the government,".

However, he said there were exceptions like Tamil Nadu, Maharashtra, Gujarat and, till a few months back, Andhra Pradesh.

K Venkatesh, executive vice-president, development projects business, Larsen & Toubro, concurred with him on the problems plaguing state highways.

"One has to find out how well-aligned state highways are and whether they arecompeting with national highways for traffic," he said.

Moreover, state highway bodies are more susceptible to changes in governments than the NHAI, he added.

Some feel the aversion of financial institutions to these projects means loans to them are pricier than the ones to national highway projects. While term loans rates for national highway projects are anywhere between 10% and 11.5%, lenders charge 50-100 basis points more for state highways.

The head of an infrastructure finance company, not wishing to be named, said in addition to political stability, the absence of a clear model concession agreement also adds to the woes of state highways.

K K Mohanty, director, projects, Srei Infrastructure Finance, said there were three important issues related to state-level road projects.

"Political will, willingness at the bureaucratic level and economies of scale.States need to undertake road development on a huge scale. Developers will beinterested only when there are economies of scale," he said.