Logistics

Road projects need more than financing, say industry experts

Ksenia Kondratieva Mumbai | Updated on January 08, 2018 Published on October 26, 2017

Call to address issues such as execution delays and project cancellations



Notwithstanding the decision to pump in ₹6.92-lakh crore for the development of over 83,000 km of roads in the next five years, industry experts said achieving ambitious targets will require much more than just addressing the financing issue.

Misses target

In 2016-17 financial year, for example, around 8,000 km were build against the target of 15,000 km. The Ministry of Road Transport and Highways (MoRTH) had also set a target of 25,000 km of National Highways (NHAI) to be awarded, out of which NHAI was supposed to tender 15,000 km and MoRTH the remaining 10,000. This target was missed.

“Construction activity in first 11 months of FY17 rose 18 per cent year-on-year given the lower base; however, awarding activity has suffered given weak land acquisition during the year,” Motilal Oswal analysts noted in the report earlier this year. “However, our channel checks suggest that momentum should pick up significantly in FY18,” the report said projecting NHAI awarding activity during the current fiscal to reach 15km per day and the construction activity to increase from 6.5km per day to 10km per day.

Bottlenecks

The road sector has been facing execution delays, project cancellations, loss of lender confidence, leveraged balance sheets of developers and sluggish traffic growth for several years. Even though various policy measures undertaken by the government in past two years – including those dealing with land acquisition and various clearances have revived the sector and improved lenders’ confidence – the pace of execution still largely depends on government agencies, and there is a lot more to be done on this front, industry players believe.

“Bid-ready projects with the necessary land in place with the authority, rigorous efforts at the time of project preparation and speedy dispute resolution will be the key aspects for achieving the target as set in the Bharatmala programme,” Jagannarayan Padmanabhan, Director and Practice Lead – Transport and Logistics, CRISIL Infrastructure Advisory, told BusinessLine.

He added that while public money does help in kickstarting and sustaining road development, the vibrancy in the sector would come in when the private sector starts taking the market risk by bidding for the build-operate-transfer (BOT) projects, which is unlikely to happen in the near future as analysts and industry players expect most of the projects to continue to be awarded through Engineering, Procurement, Construction (EPC) or Hybrid Annuity Model (HAM) routes.

Shubham Jain, Vice-President and Sector Head, Corporate Ratings, ICRA Limited, noted that the execution of the National Highways Development Project suffered both on account of funding and approval-related issues.

“While the dependence on the private sector investments for Bharatmala Phase-I is low when compared to the twelfth five-year Plan, which could result in faster awards, securing right of way by complying with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act is going to be a challenge,” expert believes. “Therefore, the success of Bharatmala critically hinges on the pace of land acquisition along with other requisite approvals.”

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Published on October 26, 2017
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