The year 2022-23 witnessed a number of significant advancements in several segments of the roads sector. Throughout the year, the Ministry of Road Transport and Highways (MoRTH) emphasised and pushed for highway construction and connectivity, logistics development in accordance with the National Logistics Policy (NLP), improvement of road safety, leveraging of technology on roads, and switching to sustainable fuels and construction material. State governments also showed interest in enhancing road networks, which complemented central efforts in this direction.
Additionally, the Centre has been focusing on asset monetisation in order to improve road construction activities in the country. The hybrid annuity model (HAM) has seen changes in the model concession agreement (MCA), to encourage private participation.
On another positive note, the daily toll collection through FASTag touched an all-time high of Rs 1.55 billion per day in November 2022. The following month, India’s first-ever “Surety Bond Insurance” was launched by Bajaj Allianz for infrastructure projects. This will act as a security arrangement for infrastructure projects, and will insulate the contractor.
Progress in the road network
In February 2022, the road construction targets for the year were outlined in depth. It was decided that the highway network would be expanded by 25,000 km during the year. However, it was eventually confirmed that the target would be achieved over a span of two years, from 2022 till 2024. As such, 13,500 km of national highway (NH) length was targeted to be built in 2022-23, which was shortly revised to 12,000 km, then again to 18,000 km owing to a quick construction pace, and eventually to 12,000-12,200 km due to lacklustre performance.
Road construction targets were constantly revised during the year due to various reasons such as a protracted monsoon; above average rainfall in certain geographies; increase in the prices of raw material, especially steel; and issues relating to land acquisition and statutory clearances. Even with a constant construction downswing, there has been a consistent increase in the pace of construction of NHs and roads since 2013-14 (from 12 km per day in 2014-15 to around 29 km per day in 2020-21) due to the systematic push provided by the adoption of the corridor-based NH development approach.
As of November 2022, the total NH network stands at 144,634 km, state highways at 186,908 km, and other roads at 5,902,539 km, bringing the total road network to 6.37 million km. Additionally, 2,782 km of tollable highway length was added over the year, and toll worth Rs 159.58 billion was collected from it.
The ministry has constructed and awarded 4,766 km (39 per cent of the target) and 5,382 km of NHs as of November 2022. However, as of January 2023, the pace of construction has accelerated, renewing optimism that the fixed benchmark of 12,200 km will be met by March 2023.
Project execution momentum
During the year, projects worth Rs 2.87 trillion were inaugurated or declared under construction by the Centre. A few of the notable developments include the inauguration of the Banihal-Qazigund road tunnel (worth Rs 31 billion), the rail-cum-road bridge over the Ganga river approach project (Rs 6.96 billion) and the Bundelkhand six-lane expressway project (Rs 148.5 billion). Other developments include the inauguration and laying of foundation stones of projects worth Rs 267.78 billion in Uttar Pradesh, 51 NH projects worth Rs 215.59 billion in Andhra Pradesh, 11 NH projects worth Rs 57.22 billion in Madhya Pradesh, and 46 NH projects worth Rs 199.3 billion in Karnataka.
The NLP, which was formally launched in September 2022, aims to remove the frictions that lead to unacceptably high costs and delays. The first multi-modal logistics park (MMLP) in Chennai has already been awarded in public-private partnership bases, and bids for three more MMLPs are in progress.
As part of Phase I of the Bharatmala Pariyojana, 27 greenfield corridors are planned with an overall length of over 9,000 km. Of the 24,800 km approved under Bharatmala Phase I, a total length of 17,555 km has been awarded. Similarly, of the residual National Highways Development Project component of 10,000 km, to be completed under Bharatmala Phase I, a total length of 5,972 km has been awarded. In the longer term, Bharatmala is anticipating delays. The programme is now expected to be completed by 2026-27 at an escalated cost of Rs 10.63 trillion, which is almost double the original estimate of Rs 5.35 trillion.
Monetary moves
As per India Infrastructure Research, during 2022-23 (as of September), a total of nine asset sales worth over Rs 365 billion took place in the road sector. In terms of value, asset sale transactions peaked in 2022 due to high-value deals being struck, and the toll-operate-transfer (TOT)-VII contract being awarded to the Indian Highway Concessions Trust in the first half of the year. Buoyed by the government’s expressway construction drive, Maple Highways, an India road investment platform owned by global investment group CDPQ, acquired the Eastern Peripheral Expressway for around Rs 63 billion – a major development. Strong investor appetite for operational assets has driven the asset acquisition trend in the sector, with private equity players being the most active buyers of highway assets.
In end December 2022, Welspun Enterprises executed definitive agreements with Actis Highway for the sale of five completed HAM projects and one operational build-operate-transfer (BOT) asset. Following this, in January 2023, Ashoka Concessions Limited signed an agreement with the KKR Group entity Galaxy Investments II Private Limited to sell its stake in five BOT assets for Rs 13.37 billion.
The cumulative monetisation target for 2022-23 is Rs 200 billion through infrastructure investment trusts (InvIT) and TOT projects, and an additional Rs 150 billion through project-based financing. Of this, as of October 2022, the ministry has already raised Rs 67.5 billion. The routes taken include project-based financing (Rs 39 billion) and InvITs (Rs 28.5 billion).
InvIT interest
The monetisation of running assets has been successful in ensuring cash flows for new road projects. GR Infraprojects’ private InvIT, Bharat Highway InvIT has received Securities and Exchange Board of India approval for the transfer of six operational HAM assets (at an equity of Rs 10 billion) in 2022-23. In December 2022, the InvIT filed a draft prospectus with the capital markets regulator for raising Rs 20 billion through an initial public offering. In August 2022, IRB Infra approved the 100 per cent stake transfer of the Vadodara Kim Expressway to IRB InvIT for Rs 3.4 billion. HG Infrastructure Engineering Limited and PNC Infratech are also in talks with potential investors for asset monetisation.
The National Highways Authority of India (NHAI) InvIT bonds witnessed a healthy investor response and were oversubscribed almost 5 times for 10 per cent of the scheduled tenure in round two, with 25 per cent of the NCDs reserved for retail investors. Additionally, it was successfully listed on the Bombay Stock Exchange and the National Stock Exchange. Due to NHAI’s debt levels surpassing Rs 3.5 trillion in 2021-22, the authority has no internal and extrabudgetary resource targets for 2022-23. However, it has an option to raise Rs 60 billion through capital gains bonds.
Accelerating the InvIT play, in November 2022, the chairman of the Dadachanji Group of Companies invested Rs 1.56 billion in Shrem InvIT through a bulk purchase of 15 million units at Rs 104 per unit.
Other key developments
Given the importance of the road sector in the Indian economy, there has been undivided commitment towards the rectification of black spots, widening of roads, deployment of a global positioning system to alert drivers, maintenance and repair of roads, driving training and incorporation of multiple safety features in vehicles.
NHAI has made provisions for ambulances with paramedical personnel at toll plazas along the completed corridors of NHs. Road safety has been integrated into the planning, design and operation phases of road construction. Additionally, the sector is focusing its attention on alternative construction materials such as geosynthetics, waste and indigenous materials, and eco-friendly concrete; as well as smart technologies such as data lake software, drones and LiDAR to ensure sustainable and quality output.
In sum
Despite being marred by unstable rains and floods in parts of the country, along with multiple waves of the pandemic, the road sector has continued to witness significant progress. The sector has been drawing ample investor interest and seems primed for a smooth drive, going forward. Moreover, with HAM estimated to account for 45-50 per cent of project awards in 2022-23, acquisition activity and refinancing in the space may gain strong traction in the coming quarters.
Ishita Gupta and Harman Mangat