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Delay in new project awarding slows road construction plans

The experts say that the slowdown in the economy is also impacting toll revenue growth due to less traffic. It is likely to come down from 8.9 per cent growth in the past to about 3-4 per cent

twitter-logo PB Jayakumar        Last Updated: October 14, 2019  | 21:45 IST
Delay in new project awarding slows road construction plans

Despite various incentives offered by the government in the recent past to stimulate the economy, overall economic slowdown, funding issues, land acquisition and delay in new project awarding have caused a slowdown in new road construction projects in the country. Further, the ambitious Bharatmala project to construct 32,600 kilometres of national highways by end of 2022 is likely to see a 55 per cent cost overrun and is likely to be completed only by 2024-25, say experts.

The India Ratings & Research, a Fitch Group rating company, on Monday, said it is revising its sector outlook on toll roads from 'stable' initially in 2019/20 into 'stable-negative' from mid-year 2019/20. It said project awarding process in 2019/20 is likely to fall short of the National Highway Authority of India (NHAI) expectations and to 2,222 kilometres in 2019. At the same time, 7,397 kilometres were awarded in 2018. Compared to the delay in projects awarding this year, the period between 2014/15 and 2018/19 saw a jump of 22 per cent to 21,500 kilometres, whereas the same was only 17,500 kilometres between 2009/10 and 2013/14. Another 4,000 kilometres are expected to be awarded in 2020, as per the plan.

In a conference call with the media, experts with the India Ratings & Research said though road construction has increased by 2.5 times over the past five years in comparison to the previous years, it is expected to plateau going forward due to the dismal project awarding in the current financial year. Currently, the road construction activity is at a record peak of about 30 kilometres per day. It says the order book positions and revenue ratios will be impacted due to dismal awards in 2019, from 3.7X in 2018 to progressively come down to 2.6X by Q1FY20.

In the case of Bharatmala, projects awarded until July 2019 since 2017/18 was only 8,207 kilometres out of the 32,660 kilometres. Projects likely to be awarded under the Bharatmala -Phase I are 3,500 kilometres in 2019/20, 5,000 kilometres each in the next two years and the remaining in the following next two years. The agency said cost overrun, significant especially in the upcoming economic corridors, will cost the project up to Rs 8.3 lakh crore.

The experts said the slowdown in the economy is also impacting toll revenue growth due to less traffic. It is likely to come down from 8.9 per cent growth in the past to about 3-4 per cent. The NHAI toll roads are estimated to contribute about Rs 10,000 crore a year in toll revenues and 75 per cent of these revenues are from commercial vehicles.

In the case of land acquisition delay, the NHAI has provided for new timelines. Seventy-five per cent of the projects awarded are progressing as per the schedule, they said. Though steady projects demonstrate the robustness of the model, bank credit will be critical for future awards. Developers and lenders are cautious to accept appointed date only after getting encumbrance free land, which is positive to the health of the sector, said the agency.

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