INTERVIEW - Govt seeks foreign funds role in roads

Workers use road rollers during the rebuilding process of a road in Srinagar July 2, 2009.

NEW DELHI (Reuters) - India wants foreign investors to fund as much as half of the $20 billion a year it has earmarked for road building, Transport Minister Kamal Nath said on Tuesday.

Building roads has become a priority for the new Congress-led government as it aims to generate demand across the country, and Nath's appointment is seen by analysts as an attempt to push that agenda harder.

Road construction activity in the previous Congress administration got mired in bureaucratic hurdles and funding delays.

"We are looking at all funds. We are looking at sovereign wealth funds. We are looking at private equity. We are looking at pension funds," Nath said in an interview at his residence, a day after India's new budget plan included a 23 percent increase in funding for national highways.

Nath also said the government might consider raising taxes on petrol and diesel to pay for road building.

"We may examine increasing the petrol and the diesel cess we have," he said. "At a later stage we will examine it."

Nath said he planned to meet with investors from Europe, the United States and Asia, including Hong Kong and Singapore, in the next two or three months to discuss which financing platforms would be most effective.

"In the next year the investment is close to $10 billion from overseas," he said, adding that his ministry wanted foreign funds to account for half or slightly less than half of road investment in coming years.

Monday's budget included a provision for state-run India Infrastructure Finance Co Ltd to refinance bank loans for long-term infrastructure projects, and Nath said he expected that to free up about $3 billion in road funding over the next 12 to 18 months.

India's ambitious highway programme has hit a speed bump as wary investors shy away from funding, but critics say the problem lies deeper and that the process of offering and bidding for highway upgrades needs review.

Nath said the government was aware of the problems and was engaging with the state government to speed up road building across the country. He said it was also examining the issue of appropriate compensation for land acquisition.

For India's government, the 3 trillion rupee expansion of the road network is vital to sustain economic growth, but some projects were hastily marketed even before land was acquired.

"Roads need money, but -- more important than money -- roads need land. While additional outlay has been proposed, we have to match this with commensurate land acquisition to be able to use the money," Nath said.

The government will examine compensation for landowners "to see that people get a fair compensation which is based on market value, rather than transactional values of the past," Nath said.

India has a very large network with about 3.4 million km (2.1 million miles) of roads, out of which about 70,000 km are national highways.

Nath said the government would set an ambitious target.

"We are doing that immediately. We are setting up a target of building 20 km of roads per day ... every day you lose, you lose 20 km."