Finance body urges rethink of road financing as NHA debt hits Rs2.33trn

ISLAMABAD: The National Highway Authority (NHA) recorded a net loss of Rs294.86 billion in fiscal year 2025 as its outstanding loans climbed to Rs2.328 trillion, while its own Finance Division has called for a more sustainable business model, stronger revenue generation and tighter scrutiny of infrastructure projects to address the authority’s mounting financial risks.

Despite improvements in revenue collection and operating performance in the first half of FY2026, the authority remains a high fiscal risk entity because of its mounting debt, heavy financing costs, weak cost recovery and continued reliance on government support.

According to the “Finance’s Federal State-Owned Enterprises Annual Report 2025”, the NHA’s loss was marginally lower than the Rs295.58 billion recorded in FY2024. However, the slight improvement came despite a sharp increase in revenue, while its debt and financing costs continued to weigh on its financial position.

The authority’s revenue rose by nearly 85 per cent to Rs100.25 billion in FY2025, from Rs54.15 billion a year earlier. However, operating expenses reached Rs214.59 billion, leaving it with an operating loss of Rs114.34 billion before financing and other costs.

The NHA paid Rs193.49 billion in interest on its borrowings during FY2025, up from Rs155.36 billion in the previous year — an increase of more than Rs38 billion in a single year.

Its outstanding loans rose to Rs2.328 trillion by June 2025, compared with Rs2.183 trillion a year earlier. These included Rs1.450 trillion in Cash Development Loans from the federal government, used to finance road construction, and Rs878.20 billion in foreign loans.

The report also put the authority’s interest burden at Rs1.430 trillion, up from Rs1.243 trillion in FY2024. The interest burden and annual interest payments represent different reported measures and should not be treated as interchangeable.

The NHA’s accumulated losses increased to Rs2.074 trillion in FY2025 from Rs1.798 trillion a year earlier. Its assets were valued at Rs5.83 trillion, while liabilities stood at Rs3.88 trillion.

Despite its growing revenue and substantial asset base, the authority continued to rely on government-backed financing. During FY2025, it received Rs115.30 billion in loans and Rs17.11 billion in grants, while total government outflows recorded against the NHA amounted to Rs132.40 billion, according to the report.

One positive indicator was an improvement in the authority’s operating-cost recovery ratio, which rose to 0.47 in FY2025 from 0.26 in the preceding year. However, the improvement did not prevent the NHA from recording another substantial annual loss.

Operating loss narrows in first half of FY2026

The NHA’s operating performance improved in the first half of FY2026, with its operating loss falling by nearly 45 per cent to Rs38.67 billion in July–December 2025, from Rs69.98 billion in the corresponding period a year earlier.

According to the NHA Finance Division’s performance review for July–December 2025, the operating cost-to-revenue ratio improved to 0.63 from 0.34. However, it remained below the target of 1.0, at which operating revenue would cover operating costs under the measure used in the assessment.

Total operating revenue, excluding government grants, increased by 47 per cent year-on-year to Rs47.95 billion. Despite the growth, it fell 41 per cent short of the Rs81.05 billion target set in the authority’s business plan for the six-month period.

Toll revenue rose by 58 per cent to Rs40.75 billion, supported by higher traffic volumes and improved collection. However, it remained 27 per cent below the target of Rs55.90 billion.

Other income increased by 61 per cent to Rs22.11 billion, providing additional support to the authority’s finances.

Despite the improvement in operating performance, the NHA recorded a net loss of Rs153.27 billion during the six months. This was around 19 per cent higher than the loss of Rs124.69 billion envisaged in its business plan, highlighting the difference between improved operating performance and its overall financial position.

The authority received government grants of approximately Rs4.63 billion during the review period, reflecting its continued dependence on public financing.

The NHA Finance Division’s review classified the authority as a high fiscal risk entity, citing structural deficits, heavy debt-servicing obligations and inadequate cost recovery. Cash development loans, accrued interest and FRL were reported to total approximately Rs3.8 trillion on its balance sheet, placing further pressure on cash flows. The review summary does not provide a breakdown of these components or explain the abbreviation FRL.

The authority received an overall score of 59 out of 100 in the business-plan and performance evaluation. It scored 18 out of 25 for the quality of its business plan, 14 out of 25 for financial performance and 10 out of 15 for governance and board oversight.

Its weakest areas were capital structure and debt sustainability, which scored two out of 10, and risk management and stress testing, which received two out of five. Operational efficiency and sustainability scored five out of 10.

The assessment also noted that the NHA had submitted its business plan but not a progress report for the review period.

NHA Finance Division calls for a sustainable business model

The NHA Finance Division’s review warned that continued borrowing to finance road infrastructure could place an increasing burden on public finances, particularly as the cost of servicing existing debt rises.

It recommended a transparent business model that distinguishes commercially viable motorways from roads built primarily to meet public-service needs. Where projects are not expected to generate sufficient revenue, viability-gap funding should be explicitly provided for in the budget.

The review also called for toll rates to be determined through a credible financial model and cautioned against politically motivated decisions that could quietly add to the NHA’s liabilities.

It said every major infrastructure project should undergo rigorous scrutiny of construction costs, completion delays, financing arrangements and expected traffic volumes.

Public-private partnerships and Build-Operate-Transfer arrangements could help finance projects where traffic and revenue prospects justified them, the review said, adding that such arrangements must not simply transfer hidden risks back to the government.

The first-half performance review also recommended rationalising toll rates, expanding electronic toll collection and developing non-toll revenue streams through service areas and the monetisation of land.

It called for high-cost debt to be reprofiled, concessional refinancing to be explored and new borrowing to be aligned strictly with revenue-generating projects. The authority should aim to raise its operating cost-to-revenue ratio to at least 1.0 to improve financial self-sufficiency.

The review further recommended incorporating corridor-wise traffic analysis, geospatial comparisons with other South Asian countries and non-financial performance indicators — including reductions in road accidents and fatalities — into future business plans.

The review cautioned that although the national highway network represented an asset worth trillions of rupees, an organisation that continually borrowed to service existing debt risked turning that asset into a long-term liability for the state.

NHA says roads serve wider public needs

A senior NHA official, speaking on condition of anonymity, said Pakistan needed to move away from costly road construction practices that made every kilometre more expensive for taxpayers.

The authority’s biggest problem was financing, the official said, adding that while the state wanted to build more roads and bridges, paying for them was becoming increasingly expensive.

NHA Member Finance Muhammad Azam said the authority’s investments remained vital for national connectivity and economic growth despite its financial challenges.

“Sustainable financing reforms can strengthen its long-term financial position,” he said.

Responding to questions about the authority’s finances, Azam said its financial position should also be assessed in the context of its public-service responsibilities. Many highways and roads, he said, were built to connect remote areas, facilitate trade and improve access to essential services.

A few days earlier, NHA Chief Executive Officer Captain (retd) Asadullah Khan told a Senate standing committee that the authority had collected around Rs179 billion in toll taxes across the country.

He also acknowledged that the motorways no longer met the standards they had when Korean companies first built them many years ago.