Awards Increase: NHDP makes significant progress over the past year

NHDP makes significant progress over the past year

In the past year, the National Highways Development Programme (NHDP) has witnessed a surge in activity. During 2015-16, the National Highways Authority of India (NHAI) achieved about 85 per cent of its project award target as against a realisation of 50 per cent in 2014-15. While engineering, procurement and construction (EPC)-based projects dominated the implementation mix, the public-private partnership (PPP) model marked a gradual comeback with the award of several projects under the hybrid annuity model (HAM). The year witnessed the award of several big-ticket projects such as the Eastern Peripheral Expressway and the Delhi-Meerut expressway (two packages). Based on the performance during the previous fiscal year, the Ministry of Road Transport and Highways (MoRTH) has scaled up project award and completion targets for 2016-17 substantially.

The numbers at a glance

Fiscal year 2015-16 witnessed a substantial surge in project award in contrast to 2014-15. NHAI awarded as many as 79 contracts spanning a length of about 4,340 km. The maximum number of these – 16 projects – were awarded in and around Uttar Pradesh followed by Maharashtra and Bihar. In terms of investment too, these states were ahead of the others.

In terms of completion, NHAI completed about 90 per cent of the construction target during 2015-16. The authority’s construction rate stood at almost 5 km per day. Meanwhile, according to the MoRTH, NHAI has completed 14 national highway projects during the year as compared to 10 projects completed in 2014-15.

Phase-wise, the maximum number of projects was awarded under Phases III and IV. Phase VI, which entails the development of greenfield expressways, also reported substantial activity with the award of six contracts involving the development of the Eastern Peripheral Expressway (six packages) and the Delhi-Meerut expressway (Packages I and II).

The implementation split favours the EPC mode. In terms of the number of projects, about 80 per cent were awarded on an EPC basis, 9 per cent on a BOT basis and the remaining 11 per cent on a HAM basis. About 20 per cent of the length awarded during 2015-16 was on a BOT basis, 8 per cent was awarded on a HAM basis while the rest was awarded on an EPC basis. Further, about 20 per cent of the projects awarded during 2015-16 are contracts that were awarded between 2012 and 2014, but failed to take off. These have now been reawarded, mostly on an EPC basis.

The newly launched HAM also managed to find takers. During 2015-16, nine HAM-based projects were awarded under the NHDP. Of these, Packages I and II of the Delhi-Meerut expressway project were awarded to Welspun Enterprises and to a joint venture of APCO Infratech Private Limited and Chetak Enterprise Limited respectively.

The bidding scenario has marked a slight improvement in the past year. New and regional players have secured a large number of orders and outbid the traditional and large players in the market. The dominance of the EPC mode is reflective of the government’s strategy of tapping the potential of asset-light small contractors. EPC bids received by NHAI have been somewhat more aggressive. This is a result of regional players trying to grab orders in the national highway segment. The average number of bids for an EPC project ranges from five to eight. However, the number of companies bidding for build-operate-transfer projects has slipped to three-five from about 20 in 2011-12. Moreover, the wide gap between the lowest and second lowest bid has also raised concerns about the reliability of the cost estimates.

Targets and outlook

For 2016-17, the ministry has fixed a 2.5 times increase in the target for the award and construction of national highways. It has set a target of 25,000 km of national highways to be awarded in 2016-17 as against the 10,000 km awarded in 2015-16. Of the total length of national highways targeted for award, 15,000 km, falls under NHAI’s target and 10,000 km under the target of the MoRTH and National Highways and Infrastructure Development Corporation Limited (NHIDCL). The construction target has been set at 15,000 km as against the 6,000 km constructed last year. The construction target for NHAI has been fixed at 8,000 km while the target for the ministry and NHIDCL is 7,000 km. During April-July 2016, NHAI awarded 15 projects spanning a length of 764 km. Over 65 per cent of these projects have been awarded under the HAM and the remaining on an EPC basis. In terms of completion, 619 km of length was constructed during April-July 2016.

The outlook certainly seems to be positive. However, sound implementation of the projects awarded in the previous two fiscal years will be the major game changer. Though the government has been successful in infusing momentum in award activity, there is a need to ensure that the errors of the past are not repeated. While NHAI has pinned high hopes on the HAM, so far, only one HAM-based project has achieved financial closure, of the nine awarded during 2015-16. Proper project preparation and due diligence is a much-needed step to ensure that only viable projects are put on the block.