Centre sets ambitious highway targets, but few firms can deliver

Maintaining cash flow a problem; experts feel global players needed for execution, maintenance

As the Union government sets out to fix targets for the highways sector, there are few large players that can deliver as required.

Even if companies engaged in executing infrastructure projects have the financial heft to see them through, they are far behind their international peers.

An official in the know said: “There are few players that can undertake build-operate-transfer (BOT) projects and 25-28 mid-sized firms to build hybrid-annuity projects. Together they may not able to achieve the targets set by the Central government. Therefore, we need global players for not just operation and maintenance but also execution.”

The industry says maintaining a steady cash flow to do the job is tough.

“If the fund flow is taken care of, execution is not a challenge. There are 30-40 medium and small companies that have a turnover of Rs 200-300 crore a year and can execute hybrid-annuity contracts,” Jayant Mhaiskar, managing director, MEP Infra Developers, told Business Standard.

Experts, too, are of the same view.

“While the hybrid-annuity model continues to attract developers, given that it is devoid of market risk and has lower capital requirements (40 per cent funding from the authority), BOT-toll continues to face headwinds,” said Shubham Jain, group head and senior vice-president, ICRA Corporate Ratings.

Over the past three years, 70 contractors and developers have bagged projects from the National Highways Authority of India and the Ministry of Road Transport and Highways, which includes all sizes of contractors.

The sector, however, has been falling short of achieving the daily road construction target for the past few years, which may be attributed to unrealistic targets.

“The government has always set ambitious targets. As against the target of FY22, Bharatmala Pariyojana phase-I is likely to get completed by FY26,” Jain said.

Average daily road construction in 2019-20 was 28 km, slightly lower than the 29.82 km in 2018-19.

The target for highway building in 2019-20 was 12,000 km, translating into 40 km per day. In 2018-19, road construction was 10,800 km, translating into 32 km a day.

Key players and their projects