The National Highways Authority of India is unlikely to meet the target it set for awarding road projects during FY15, according to a recently released report by investment information and credit rating services provider ICRA.
For FY15, the country’s apex highway development agency had set a target for awarding projects measuring 5,500 km in length. Of this, 35 per cent was earmarked for implementation in BOT mode and the rest in the EPC mode. However, during the first eight months of FY15 (April-November 2014), NHAI could manage to award projects measuring 1,572 km in length, meaning that 3,900 km have to be awarded by the end of March 2015 in order to meet the set target.
Out of the 3,500 km set aside for implementation in the EPC mode, NHAI was able to award only around 1,050 km till November 2014. The report said that around half of the targeted EPC awards had received all approvals related to environment and Right of Way, adding that these projects could be awarded quickly as opposed to the balance 50 per cent in case of which NHAI was still in the process of securing approvals.
The report said that awarding of projects after approvals reduced subsequent time overruns. In the past, delays in acquiring RoW and securing environmental clearances had delayed execution of projects. Such delays result in elongated working capital cycle and resource idling, in turn leading to reduced profitability.
The report pointed out that award activity was expected to pick up since the Centre had doubled the limit up to which the Ministry of Road Transport and Highways could appraise and approve projects on its own to Rs.10 billion.
Revealing that overall execution rate declined by 17 per cent to 3.41 km per day during the first eight months of FY15 from 4.14 km per day during the same period in the preceding year, the report said major slippage in execution took place during the first quarter of FY15 when execution pace slowed down to 3.98 km per day as against 6.04 km per day in the first quarter of FY14 because of general elections. The execution during July-November 2014 stood at 3.08 km per day as against 3.00 km per day.
The report opined that actual execution was yet to gather momentum even though the new government at the Centre had taken several initiatives like delegating powers for grant of forest clearances to regional offices, making the process of filing for clearances to construct rail over-bridges and under bridges online and increasing limits on sand mining. Starting the first quarter of FY16, it said, these measures could start yielding positive results and give fillip to the pace of execution.
The report noted that over 80 per cent of the projects witnessed delays in execution. Whereas in more than 60 per cent of cases the delay was six months or higher, 40 per cent of the projects faced delays of over one year. It estimated that for every one year delay in case of fixed price EPC contracts the project cost increased by 450-500 bps for projects funded in 70:30 debt/equity and by 550-600 bps in case of projects funded in 90:10 D/E due to interest during construction alone.