Major Strides: NHDP reports quantum jump in award of road projects

NHDP reports quantum jump in award of road projects

The year 2017-18 has been a significant one for the road sector. While the period from 2014 to 2016 was utilised for the purpose of reform and course correction, 2017 witnessed consolidation and culmination of project activities, and the roll-out of a new roadmap for the highway sector. The year saw the launch of the Bharatmala Pariyojana, which is lauded as the country’s largest highway construction project after the National Highways Development Programme (NHDP). It envisages the development of around 35,000 km of roads and highways under Phase I at an estimated cost of Rs 5,350 billion. On the financing front, the government is actively considering new and diversified funding avenues. Long-term sources of financing are now being tapped. The launch of the toll-operate-transfer model to monetise the existing asset base is one such step.

The numbers game

During the year 2017-18 (till January 2018), the National Highways Authority of India (NHAI) had invited bids for a length of 10,460 km worth Rs 1,750 billion. The average length of road projects awarded by NHAI in the past five years was 2,860 km, with 4,335 km awarded in 2016-17. As of February 2018, NHAI has awarded a total of 80 projects spanning around 3,815 km during the year.

Meanwhile, the total cost of the projects awarded in 2017-18 was estimated to be Rs 613 billion. The four-laning of the 18.91 km Pandoh bypass-Takoli section of National Highway (NH)-21 was the most cost-intensive project and entailed an investment of Rs 24.85 billion. In comparison, in 2016-17, projects worth Rs 616 billion were awarded, with the highest investment of Rs 25.11 billion each for the six-laning of the Handia-Varanasi stretch of NH-2 in Uttar Pradesh and the four-laning of the 153 km Angul-Sambalpur stretch on NH-42 in Odisha.

Further, in terms of project location, in 2017-18, the maximum number of projects were awarded in Odisha (15), followed by Maharashtra (10) and Madhya Pradesh (nine). In terms of investment, Odisha topped the list with Rs 102.29 billion worth of projects being awarded, followed by Rajasthan at Rs 59.37 billion and Maharashtra at Rs 57.15 billion. In 2016-17, Gujarat had the maximum project awards (12 projects) followed by Maharashtra and Rajasthan. These three states accounted for a cumulative investment of Rs 230.19 billion during the year.

The year 2017-18 saw an increase in the projects awarded on an engineering, procurement and construction (EPC) basis with 72.5 per cent of the projects being awarded by NHAI under this mode. The hybrid annuity model (HAM) was next with the award of 20 projects, accounting for 25 per cent of the total project award. Finally, two projects were awarded on a design-build-finance-operate-transfer (DBFOT) (toll) basis. During 2016-17, the implementation mix stood at 51 per cent (EPC), 44 per cent (HAM) and 5 per cent (build-operate-transfer [BOT]) respectively. Further, 10 projects achieved financial closure during 2017-18 (as of February 2018). Of these, six projects are being implemented under HAM, three under DBFOT (toll) and one under BOT.

During the year, 1,915 km of highways have been completed under Phase IV of the NHDP, followed by 683.25 km under Phase VII and around 500 km under Phase III of the programme. Further, 439.72 km and 324.04 km was completed under Phase V and Phase VI respectively.

Pickup in construction rate

During 2017-18, NHAI ramped up the pace of construction. It is set to complete around 3,500 km during the year against the average of 2,170 km in the past five years. This improvement is on account of a pickup in the daily construction rate from 6.5 km per day in 2016-17 to 9.4 km per day in 2017-18. To maintain the pace of construction, NHAI has commenced works on 27 new projects covering 1,330 km and will soon commence work on another 50 projects covering 3,000 km.

As of January 2018, around 293 projects are under implementation. Of these, 152 projects spanning 4,263 km are being implemented on an EPC basis while 65 projects spanning 2,526 km are being implemented under the BOT mode. Further, 51 projects spanning 2,823 km are being undertaken on hybrid annuity basis.

Expressway development also gained momentum during the year. Several new expressways such as the Delhi-Jaipur Expressway, the Delhi-Amritsar-Katra Expressway, the Vadodara-Mumbai Expressway, the Hyderabad-Vijayawada-Amravati Expressway, the Nagpur-Hyderabad-Bengaluru Expressway, the Kanpur-Lucknow Expressway and the Ring Road/ Expressway at Amravati have been planned under the first phase of the Bharatmala Pariyojana.

The Ministry of Road Transport and Highways (MoRTH) has taken concrete steps for easing the operating and financing environment for stakeholders. There has also been a decline in cost overruns to the tune of Rs 1.5 billion. Also, with proactive policy interventions, around 88 per cent of these projects have now been put back on track, or appropriately re-engineered and restructured, and the total number of stalled projects have been reduced to three from the earlier 73.

The way forward

NHAI plans to award another 5,000 km in March 2018 subject to a good response to bidding as well as cooperation from state governments in land acquisition and project clearances. Further, in order to ensure that the targets are achieved, NHAI has set up a robust monitoring mechanism. However, land acquisition remains a problem area although NHAI has decided against inviting bids for projects till land has been acquired. Delays in obtaining statutory clearances, the non-availability of soil/aggregates, and utility shifting are other issues that continue to delay projects. Further, the poor quality of feasibility reports, ban on mining activities, slow and lengthy arbitration process, toll exemptions, falling wholesale price index and static traffic growth are some of the other concerns.

Despite these concerns, the overall outlook for the NHDP remains optimistic as the government has been successful in infusing the required momentum into award activity. Further, banks and financial institutions are now also showing keen interest in HAM with the financing of HAM projects taking place smoothly. However, there is a need for a more effective dispute resolution mechanism, proper project development and preparation, and a more balanced risk allocation to ensure timely infrastructure creation.