Project costs under Bharatmala Pariyojana (BMP) have more than doubled to ₹10.64-lakh crore at an average cost of ₹31.6 crore per km relative to the initially expected amount, owing to steep rise in input cost and the increase in land acquisition cost, ICRA said on Monday.

Pending the cabinet approval for the revised cost of Bharatmala Phase-l, project awarding activity in the recent quarters took a beating, declining by 48 per cent y-o-y to 2,595 km during the first seven months of FY24 compared with 5,007 km during the same time in FY23, the ratings agency said.

ICRA expects the awarding activity to contract over 30 per cent y-o-y in FY24, it added.

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ICRA VP and Co-Group Head (Corporate Ratings) Ashish Modani said that almost 95 per cent of the road awards by the Ministry of Roads and Transport and Highways (MoRTH) in the last five years were awarded through the hybrid annuity model (HAM) and the engineering, procurement and construction (EPC) route, wherein the entire funding burden lay on the Ministry.

“The burden on MoRTH in case of BOT (Toll) projects is much lower, given the substantial cost escalation in the BMP and consequent increase in funding requirement. The MORTH has thus shifted its focus on to BOT (Toll) projects,” he added.

While the average number of bidders for the EPC and the HAM projects stood at 15 and 8, respectively, in case of BOT (Toll), it remained below 5, ICRA pointed out.

The toll road projects entail significant upfront equity commitment when compared to HAM in addition to market risk exposure. Given the limited number of technically-qualified bidders and low bidding appetite for BOT (Toll) projects, the Ministry’s push to shift to these projects may remain challenging, it added.

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“Most road developers have a comfortable order book and the road execution momentum is expected to remain strong in the current fiscal. This is also evident from the execution in the current fiscal, wherein road construction has grown by 10 per cent during 7MFY24; ICRA expects overall execution to improve by 16-21 per cent in FY2024,” Modani said.

The MoRTH has already spent 64 per cent of the budgeted outlay in 7MFY24 at ₹1.66 lakh crore, higher by 14 per cent on a y-o-y basis. However, given the slow pace of order-awards during year to date ,YTD FY2024, the road execution momentum will be impacted during FY2025 and FY2026, he added.