Road developers are set to see challenging business environment continuing this fiscal as the National Highways Authority of India (NHAI), which missed project award targets in the last year by a huge margin, may not meet them due to elections ahead.
“On one side the government may try to implement things quickly, but by the time it happens the model code of conduct will come into play,” said a senior Hindustan Construction Co official.
There are just six months left as post December this year the entire government machinery will come to standstill, he said.
Analysts too said while the build operate and transfer (BOT) projects will be constrained due to economic slowdown and fund crunch, the engineering procurement and construction (EPC) projects would slow due to elections.
Parvez Qazi, equity research analyst, Edelweiss Capital, said, “A tough economic environment will constrain BOT awards. Achieving the fiscal 2014 target hinges largely on award of 3,500-4,000 km EPC projects. The timing of central and state elections will also cast its shadow on the project award,” Qazi said in a recent report.
The Ministry of Road Transport and Highways had set an ambitious target of awarding 8,800 km of road length in fiscal 2013, which was raised by the Prime Minister Office to 9,500 km.
NHAI, however, was able to award only 1,112 km projects.
For this fiscal, the road ministry has again set an ambitious target of awarding 9,000 km projects, about 50% through the EPC route.
“The target seems to be unachievable, given the continued impediments faced by the road sector. Delay in obtaining land, forest and environmental clearances, coupled with a slowdown, continue to hit projects,” CARE Ratings analyst Supriya Shetty said in a report on Tuesday.
CARE sees projects with the length of about 3,000 km being awarded this fiscal with some momentum on EPC mode.
On the BOT front, Qazi expects the project award to remain subdued (1,500-2,000 km), mainly due to the precarious financial condition of most developers and the need for regulatory clarity.
“EPC project award of 3,500-4,000 km is a definite possibility, provided elections do not play spoilsport,” Qazi said in the report.
Mukund Sapre, ED, IL&FS Transportation that specialises in BOT projects, said there was nothing really happening in the BOT space.
“A few bids have come but they have viability issues. A few more projects are likely to be announced, but we’ll have to wait and watch,” Sapre told dna.
While NHAI may have seen some success on the EPC with 4-5 projects seeing good response, industry sources said that companies that bid for these projects have quoted 30% below the average industry rates.
The HCC official said, “We don’t know if that’s sustainable in the long term. That’s one reason serious players aren’t participating in these bids. Going forward, large EPC jobs will have to be treated very cautiously. On the public-private partnership front, I don’t see much improvement as well, and with the elections just around the corner, things are only looking grim.”
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