Road award targets slow down order flows

CARE Research report says NHAI will be able to award only 1/3 of its current target

If construction companies were pinning their hopes on a steady flow of highway projects in the current financial year, they might have to wait longer. A report by CARE Research says that the National Highways Authority of India (NHAI) will be able to award only one-third of its current target.

The Union Ministry of Road Transport and Highways had set a target of awarding around 9,000 kilometers of road projects in 2013-14. CARE Research expects that road projects with the length of about 3,000 kms.

“The target seems to be unattainable, given the continued impediments faced by the road sector. Delay in obtaining land, forest and environmental clearances, coupled with a slowdown in macro economic conditions continue to hit projects in the sector,” the report said.

Analysts say that the state-of-affairs of slow order inflows of last financial year, will continue to the first half of the current financial year as well. Many of them had expected NHAI to award as much as 3,000-4,000 kilometers worth projects in the first half of the year, which have been delayed.

“The first half will see dull ordering but there is hope that second hope will be good. It all depends on how government will process infrastructure projects,” said Viral Shah, senior research analyst-infrastructure, Angel Broking. The broking firm has also taken a conservative estimate of L&T's order inflow growth. While the infrastructure major guided a 10 per cent growth, the firm expects it to be at around 8-9 per cent, indicating tough environment ahead.

NHAI's delayed targets would affect construction companies as 50 per cent awards were supposed to be on the engineering, procurement and construction (EPC) model. In 2011-12 awards and road project wins on build, operate and transfer (BOT) mode could not raise debt, as banks became cautious. Many such projects had aggressive bids by project developers.

Some projects which sought bids last year, saw lack of interest from developers as well. “Almost 10 road projects worth Rs.14,800 crore received no bids or witnessed bidding cancellation in 2012-13,” said CARE Research.

However, slow execution of highway projects, might see a pick-up this year. “The execution of already awarded road projects will improve in FY14. The upcoming elections are expected to expedite the execution of road projects in this fiscal. Also, the recent judgment by the Supreme Court, on delinking the environment clearance from the forest clearance, will provide some fillip to the project execution,”  the report said. According to estimates, road length of about 2,700 kms would be constructed in 2013-14.

While NHAI's programme might be slower in the current financial year, state government project awards have picked up pace. The report believes that the annual investment will grow at 16 per cent in the twelfth Five Year Plan.