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Land acquisition, regulatory clearances to delay construction of at least 800 km highways

Crisil Research has lowered its execution forecast of NHAI projects to 3,600- 3,800 km from the previously anticipated 4,300 km for the current fiscal

twitter-logoBusinessToday.In | November 22, 2018 | Updated 18:10 IST
Land acquisition, regulatory clearances to delay construction of at least 800 km highways

Things are not looking good for the National Highways Authority of India (NHAI) courtesy factors like project delays and the current credit squeeze. In fact, for the current fiscal, Crisil Research has lowered its execution forecast of NHAI projects to 3,600- 3,800 km from the previously anticipated 4,300 km.

A recently-released report by the rating agency estimates that construction of around 800 km of highways is at risk because many hybrid annuity model (HAM) projects are still awaiting appointed dates - or the starting date of a project when the developer/ concessionaire is handed the contract - seven months after they were awarded. And delays in land acquisition or regulatory clearances are to blame.

Several challenges come into play even after projects receive the appointed date. "Some projects in the advanced stages of execution are yet to receive the balance right of way, potentially affecting execution. For instance, one large road project, which received the appointed date on February 9, 2017, could execute only 27 per cent by July 2018 against a milestone of 49 per cent because of delays in the shifting of various utilities in the vicinity," said the report.

The analysis looked at 40 HAM projects, amounting to 1,913 km, awarded by NHAI in the last fiscal. Of that, around 390 km are pending financial closure. Worse, 46 per cent of the above projects have gone past the five-month window available for financial closure. Banks' cautious approach to lending appears to be the main reason for these delays, and the fact that 11 out of the 21 public sector banks are under the RBI's PCA framework does not help. "The number of banks interested in lending has halved compared with the times of BOT projects," said the report.

It further claimed that the situation in projects awarded under the engineering, procurement, construction (EPC) model is better than HAM. An analysis of a sample of EPC projects awarded last fiscal revealed that around 54 per cent have started execution.

"Based on the current status of appointed dates in HAM and EPC projects awarded by the NHAI recently, we believe execution could reach 9.9 to 10.4 km per day this fiscal. This would be lower than the 11.8 km per day estimated, but better than last fiscal's 8.4 km per day," the report added.

In case road developers are not provided all of the promised land for the project on time, they can choose to either await right of way from NHAI or de-scope the part of the project for which land has not been made available and adjust the project cost on a pro-rata basis. "In both cases, the NHAI will have to pay annuity to the developers, which would put pressure on its financial position," said Crisil, pointing out that the regulator has increasingly depended on market borrowings over the past couple of years.

(Edited by Sushmita Choudhury Agarwal)

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