Economy

Delay in land acquisition, tight liquidity conditions ‘holding up’ road projects

Venkatesh Ganesh Mumbai | Updated on March 01, 2020 Published on March 01, 2020

Despite financial closures improving, land acquisition issues have delayed 60 per cent of road projects. The main reasons can be attributed to the delay in land acquisition and tight liquidity conditions.

“Till date, out of the 24 projects due for completion, 15 projects have witnessed delays in execution,” noted Rajeshwar Burla, Vice-President, Corporate Ratings, ICRA.

The NHAI is in charge of acquiring land for highway projects. Delay in land acquisition widens the gap between the time a project is awarded and when construction starts. ICRA, in its study, pointed out that out of the 117 Hybrid Annuity road projects (awarded from January 2016 to March 2019), 107 projects are witnessing execution delays. This translates to 90 per cent of the projects.

Poor credit profile

Among the delayed projects, 40 per cent are on account of reasons attributable to a delay in equity infusion due to tight liquidity or deteriorated credit profile of the project sponsor.

In 20 per cent of the cases, the delay could be attributed to NHAI (to obtain Right of Way) and 33 per cent for delay in obtaining clearances and equity infusion, Burla stated. Obtaining Right of Way is an essential requirement for an infrastructure project. The remaining 7 per cent was attributed to heavy rains and floods.

Another ratings agency Crisil had said that land acquisition costs have shot by almost three times in 2019, in addition to an increase in highway construction costs, which has also caused a roadblock in projects. As on December 2019, 4 per cent of the projects awarded in FY18 and 95 per cent of the projects awarded in FY19 are yet to receive the Appointed Date (AD), which refers to date from which the project comes into existence.

Profitability

Industry watchers, however, are optimistic about the sector’s profits. “Investors have a long-term view, and as India build up its economic momentum, infrastructure will be needed,” said R Venkataraman, MD, Alvarez and Marsal India.

While delays have played spoilsport, the time taken to achieve financial closure has reduced by more than 50 per cent.

“From 430 days in FY16, it has come down to 194 days in FY19,” said Burla. Financial closure is the stage when all the tie-ups with banks or financial institutions for funds are completed after the conditions precedent to initial debt for have been fulfilled.

Further, seven Hybrid Annuity Model projects have achieved a completion certificate and two more are awaiting the final approval.

In the current fiscal, the NHAI has set a target to award 6,000 kilomteres of highway projects. So far, 3,211 kilomteres of highways have been awarded for construction.

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Published on March 01, 2020
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