The average construction rate for national highways is expected to touch record high this fiscal but is likely to fall thereafter.
Since 2014, the Ministry of Road Transport & Highways (MoRTH) has been stressing on bidding out more road projects and accelerating construction pace.
These efforts have yielded success and the construction pace has increased, but it hasn’t met the target of 41 km per day set by Union road transport and highways minister Nitin Gadkari. Earlier this year, the ministry raised the target to 45 km.
“We expect the highway construction rate to peak at 30-32 km/day for FY19. Despite slowdown in construction rate to 23 km/day rate for the first seven months of the year due to monsoon and seasonal disruption, we expect the execution to pick-up over the next four months, which would push the overall road construction rate to an all-time high in FY19. The overall pace of construction is expected to decline in FY20 on account of funding shortage for new projects,” a report by CARE Ratings on the road sector said.
But why would construction pace fall after touching a record?
“Factors like delay in obtaining pre-requisite land for awarding new projects under Engineering, Procurement and Construction (EPC) and Hybrid Annuity Model (HAM) and achieving financial closure due to risk aversion of public sector banks would continue to negatively impact the overall development in the sector,” CARE said.
A Gurgaon-based analyst said, “There continues to be funding shortage for new projects. We do not foresee any immediate improvement of market conditions. Hence, the construction pace too is expected to dip over a period of a year. Funding will be constrained by the limited number of banks which are in a position to lend outside the preventive corrective action framework,”.
Another rating firm Crisil Research has lowered its execution forecast of its NHAI projects for fiscal 2019 to 3,600-3,800 km from earlier anticipated 4,300 km.
“We estimate around 800 km of execution is at risk this fiscal because many Hybrid Annuity Model (HAM) projects are still awaiting appointed dates seven months after they were awarded,” notes their research.
The appointed date is the de facto starting date of a project, when the NHAI hands over its contract letter to a developer or concessionaire. Crisil Research came to this conclusion after having analysed 40 HAM projects totaling to 1,913 km (over 55% of total HAM awarding that year), awarded by NHAI in fiscal 2018.
PAVING THE WAY
- 16,418 km – the highway construction target for fiscal 2019
- 67% – it is higher than that achieved in FY18
- 20,000 km – road ministry plans to award this fiscal
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Highway")
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}