The road sector has been able to retain the momentum in activity despite the Covid-19 disruptions. The government achieved a record construction rate during the pandemic year. In spite of hiccups such as toll disruptions, the sector has remained a bright spot for investments. Both passenger and commercial traffic have been recovering, thus driving toll revenues. There is a lot of focus on expressway development to ensure seamless travel. Asset monetisation has become the underlying theme for raising long-term capital. In the coming four to five years, the highway sector will offer abundant opportunities owing to government initiatives such as the National Infrastructure Pipeline and the Gati Shakti Master Plan.
Progress in project award and construction
The Ministry of Road Transport and Highways (MoRTH) has constructed 13,327 km of national highways in 2020-21, which works out to about 37 km per day. About 11,000 km of road projects were awarded, an increase of 20 per cent from 2019-20. MoRTH has set a target of constructing 12,000 km of national highways in 2021-22. As of June 2021, 2,284 km has been constructed.
During 2020-21, NHAI awarded 141 projects spanning a length of 4,788 km, the highest in the past three years. Of the total projects awarded, two were on build-operate-transfer (toll) basis for a length of 132 km, 69 projects for a length of 2,609 km were on the hybrid annuity model (HAM) and the remaining 70 projects for a length of 2,047 km were on the engineering, procurement and construction model. Despite losing the best construction months to the Covid-19-related lockdown, NHAI managed to construct 4,192 km of national highways in 2020-21, which is the highest highway construction achieved in a financial year by NHAI. At 4,192 km, the pace of construction has increased by 5 per cent in 2020-21 as compared to 3,979 km constructed in 2019-20 and 24 per cent compared to the 3,380 km constructed in 2018-19.
Bharatmala Pariyojana Phase I envisions the construction of 34,800 km of national highways by 2024-25. As of July 2021, projects spanning 17,569 km, with a total cost of Rs 4.74 trillion, have been awarded and of 5,984 km has been constructed. Award of all works under Phase I is expected to be done by 2022-23 and their completion by 2024-25. Bharatmala Phase I also encompasses the development of five greenfield expressways and 17 access-controlled highways spanning a total length of 8,142 km. Of this, 1,025 km has been completed and the construction of 1,242 km is under way. Around 1,726 km has been awarded, while the remaining length is at different stages such as bidding/detailed project report preparation. All expressway projects are targeted for completion by 2024-25.
Among recently completed projects, the much aspirational and long-awaited Delhi-Meerut Expressway was opened to traffic in April 2021. The 82 km long expressway has cut down travel time between Delhi and Meerut to just 45 minutes from over two hours. Besides, the Border Roads Organisation has completed construction of the world’s highest motorable road in Ladakh. The 52 km road is at a height of 19,300 feet and passes through the Umlingla Pass in eastern Ladakh.
Asset monetisation
NHAI has taken the asset monetisation route to meet the huge funding requirements of the Bharatmala programme. It is doing so through the lease of highway stretches under toll-operate-transfer (TOT) bundles and the launch of an infrastructure investment trust (InvIT). The authority has been able to lease out three TOT bundles, thereby raising around Rs 170 billion so far. Plans are in the offing for another TOT bundle, TOT-VI. Meanwhile, NHAI has already filed papers with the Securities and Exchange Board of India for its InvIT, through which it aims to mop up Rs 50 billion. The National Monetisation Pipeline, which has an investment opportunity of Rs 1.6 trillion for the road sector, also makes a strong case for TOT and InvITs. Around 26,700 km of length has been considered for monetisation.
Private listed InvITs have been able to raise capital from investors. Currently, there are six operational InvITs in the sector. Canadian pension funds, CPP Investments and the Ontario Municipal Employees’ Retirement System, Singapore-based GIC and the Asian Infrastructure Investment Bank have cumulatively invested over $1 billion in various roads InvITs.
Developers have also been monetising assets to deleverage their balance sheets and vacate capital. Operational toll highway assets have been able to find takers due to cash flow predictability. A number of private equity players have made controlled investments to operate and manage these assets. As per data tracked by India Infrastructure Research, around 51 assets changed hands between 2014 and 2021 (till September) garnering investment of over Rs 510 billion. Some of the key recent transactions include Bharat Road Network Limited’s sale of two expressways to the India Highway Concession Trust and Cube Highways and Infrastructure for a total of around Rs 34 billion and Cube Highways’ purchase of Chenani Nashri Tunnelway Limited for a consideration of Rs 39 billion. Most of the transactions have seen complete ownership of assets being transferred to the buyer. Going forward, there is a visible pipeline of over 100 HAM-based projects expected to become operational in the next one to two years.
Road safety
A lot of emphasis has been laid on road safety and quality. The government targets to reduce road accident deaths by 50 per cent by 2024. To this end, the ministry recently notified the constitution of the National Road Safety Board, which will be responsible for promoting road safety, innovation and adoption of new technology and for regulating traffic and motor vehicles. Moreover, the FICCI Consortium on Road Safety with corporates, SAFAR, has been announced. The consortium will focus on a comprehensive approach to free India from all avoidable crashes, fatalities and serious injuries based on learnings from the safe system approach.
Almost 50 per cent of road accidents are due to road engineering problems and thus the government has taken initiatives to identify black spots in every state. The World Bank and the Asian Development Bank have already sanctioned a scheme through which the government is allocating Rs 140 billion for states, NHAI and other stakeholders to remove black spots. An Integrated Road Accident Database will be rolled out in all states by 2022-23 for the same. The ministry has also planned a new state support programme for strengthening road safety. The six-year programme worth Rs 72.7 billion is expected to incentivise state governments to drive road safety interventions at the grassroots level.
NHAI has also shifted focus to the quality of highways. Development of model highway stretches, performance rating of consultants/concessionaires/contractors, ranking of highways for quality check, etc., are steps in this direction.
In sum
The second wave of Covid-19 had an impact on the highway sector, with funds diverted towards healthcare expenditure and momentum slowing down in April and May 2021, as labour availability at the construction sites was only 65-75 per cent. However, the sector is moving towards recovery with construction of national highways picking up and toll traffic reviving. The national highway expansion plan under the Rs 1 trillion Gati Shakti project has brightened the sector’s prospects and opened up various opportunities for the stakeholders, namely, contractors, developers, consultants and investors.