The road sector has seen increased activity in the past year both in terms of project award as well as work on the ground. The current construction rate is averaging about 18 km per day so the MoRTH’s ambitious target of constructing 15,000 km of national highways in this fiscal year is unlikely to be fulfilled. But there has definitely been acceleration in the pace of work. In 2016-17, 31 projects spanning 1,911 km were completed under the NHDP. Road building across the Northeast is also going well with NHIDCL backing over 220 projects.
Financially, the sector appears to be moving towards a new phase of stability. The MoRTH easily raised Rs 70 billion with its masala bond offering in London. NHAI has raised Rs 5.02 billion through the sale of domestic bonds and there are now plans to list NHAI with an IPO in 2018.
The innovative HAM or hybrid annuity model has given comfort to developers and financiers and helped to bring investment with 36 HAM projects already awarded. The proactive stance in obtaining all clearances before project award has helped; the MoRTH acquires land and secures all clearances under HAM and the government does the toll collection. Another innovative scheme, toll-operate-transfer (TOT) aims to monetise operational assets – around 75 assets have been targeted – and TOT also seems to be gaining acceptance, though it’s early days yet.
The sovereign wealth fund, the National Investment and Infrastructure Fund, has identified a number of road projects for funding. New sources of multilateral funding have also emerged. The AIIB approved its first equity investment of $150 million to the India Infrastructure Fund to support infrastructure projects in the country. The AIIB has also approved funds worth $329 million for the Gujarat Rural Roads Project. The New Development Bank has also granted a loan of Rs 23.95 billion for the Madhya Pradesh District Roads II Sector Project.
The removal of dividend distribution tax on InvITs has encouraged companies. Several developers have moved towards listing assets under InvITs. Moreover, there have been six successful IPOs in the sector since 2015. Developers with stressed balance sheets have continued deleveraging by selling off both operational assets and under-construction projects and there seem to be enough interested buyers to take these over.
Renewed ease of funding makes the plans to award 50,000 km of projects worth Rs 5 trillion in the next two years seem more credible. Mega projects like Bharatamala, Setu Bharatam, Char Dham Connectivity and the development of economic corridors are also likely to find interested investors. NHAI has improved its processes by acquiring land before awarding projects and also by digitising land acquisition. But there is still need for a more effective dispute resolution mechanism, proper project development and preparation, and more balanced risk allocation.