Awarding of highway construction projects rocketed 70% to an all-time annual high in fiscal 2018, spanning ~7,400 km and valued at Rs 1.2 lakh crore, data from the National Highways Authority of India (NHAI) showed.
That compares with ~4,300 km projects worth Rs 59,000 crore awarded in fiscal 2017.
CRISIL Research expects both the award and execution of projects to be even faster in fiscals 2019 and 2020 if the NHAI manages to source funds on time, and over and above the budgetary allocation.
Of the total length awarded by the NHAI in fiscal 2018, ~51% was through the engineering, procurement and construction (EPC) mode, ~46% through the hybrid annuity model (HAM) and the balance through build-operate-transfer (BOT)-toll mode.
In fiscal 2017, the proportions were 34% EPC, 56% HAM and 10% BOT-toll. Competition remains high in the EPC mode, and low-to-moderate under HAM.
Says Prasad Koparkar, Senior Director, CRISIL Research: “Majority of the EPC projects were bid out at par or well below the NHAI’s request for proposal (RFP) cost – in some cases, even 20-25% lower. On the other hand, under HAM, most of the projects were won above NHAI’s RFP cost, some even 45-50% higher.”
Interestingly, the contract awarding momentum was muted in the first three quarters of fiscal 2018 at ~1,700 km, and which mainly comprised EPC projects. Most of the HAM projects were bid out in January-March.
That momentum seen in the fourth quarter is expected to continue in the first quarter of fiscal 2019 with many projects already being tendered and waiting to be awarded.
Fewer contractors won most of the HAM projects, which could stretch their management capacity and lead to the overall share of such projects being awarded declining in fiscal 2019.
Execution in fiscal 2018 up to January was 1,993 km, compared with 2,625 km for the whole of fiscal 2017.
Says Binaifer Jehani, Director, CRISIL Research, “We expect more bundles of existing toll roads to be put on the block under the toll-operate-transfer (TOT) model by the NHAI to generate capital this year, after the big success of the first 9 bundles auctioned in February-end, which generated Rs ~9,700 crore.”
Fiscal 2018 saw some new players entering the HAM space. Some of them could find it difficult to tie up funds as the banks are expected to be increasingly cautious on lending given the ongoing stressed asset issues in banking.
Rajasthan saw the highest share of highway contracts, at 17% of the total length awarded, followed by Maharashtra, Odisha and Uttar Pradesh with 10% each.