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Pace of Road Construction Improved 40%, Set to Double by FY18: Crisil

The various reforms initiated by the government of India in the favour of reviving Road and highways sector proved to be fruitful for the sector, as it helped to improved 40% pace of road construction to an average 6 km per day in fiscal 2016 from 4.3 km in fiscal 2015, says rating agency Crisil in its report.

“The material improvement in the pace of execution can be attributed to policy reforms by the Nhai and facilitations by the government,  which are also reducing delays. Given this, we expect the average construction per day for NHAI projects to nearly double to more than 11 km by fiscal 2018,” says Mr. Ajay Srinivasan, Director, Crisil Research.

As per Crisil’s analysis of 85 under-construction and 104 operational BOT (build, operate and transfer) and annuity projects awarded by the National Highways Authority of India (NHAI), which together span around 16,600 km, shows there has been a 13% reduction in high-risk projects over the past fiscal.

The key policy reforms initiated by the government which has helped the sector include, easing of the clearance process, ensuring 80% land acquisition before the award of project, Premium rescheduling for managing cash flow mismatches for BOT toll projects, 100% exit for developers from BOT projects, Introduction of the hybrid annuity model, Introduction InVITs and other, added the report.

The major issues often notice in various infrastructure projects is land acquisition, the report noticed; the government efforts have helped in land acquisition in several projects. According to Crisil’s analysis of 40 projects tendered out by NHAI during the course of calendar years 2015 and 2016 indicates that a large portion of land was already in place at the time of tendering.

As per the report, Within the 85 under-construction BOT projects, there has been a 10% reduction; however, as much as 4,600 km of projects are still in the high-risk category because delays in land acquisition and approvals have increased costs by 20% or Rs 11,000 crore, and the financial health of sponsors remains weak.

CRISIL’s analysis of the 104 operational projects also shows a significant 18% reduction in both length (to 2,700 km) and outstanding debt (to Rs 19,650 crore) of high-risk operational BOT projects compared with 2015, it said.

In the last two years, the Ministry of Road Transport and Highways, approximately awarded road projects worth Rs 2 lakh crore in the country and it planned to award works worth Rs 7 lakh crore in the next five years to develop National Highways in the country. In this fiscal, NHAI is set to award projects worth Rs 1 lakh crore and is also planning to bid 30,000 km of projects in next 2 to 3 years.

Ministry of Road Transport and Highways (MoRTH) sets a target to award 25,000 km of roads in the current financial year, 15,000 km through NHAI and 10,000 km through NHIDCL.

The increased pace of road construction in the country accelerated the sale of construction equipment and played a crucial role in reviving the overall construction equipment market after a gap of four years. Recently Mr. Raghav Chandra, Chairman of NHAI said while talking to media that there is an increase in consumption of construction equipment.

Therefore, it indicates, the policy reform for the revival of stalled and new projects does not only helping the road and highways sector or overall infrastructure sector, but also helping in revival of construction equipment industry.

Source: Information has been obtained from Crisil’s report & Government’s release

This post first appeared on Equipment One Stop, please read the originial post: here

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Pace of Road Construction Improved 40%, Set to Double by FY18: Crisil


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