Road development projects pick-up pace: Crisil

Road development projects have shown a significant pick-up after the new government assumed office due to faster clearances by agencies and implementing by contractors, a report by ratings agency Crisil Research said.

In the report released Tuesday, the agency said that work on a majority of the 16 road development projects given out last fiscal have begun and gaining momentum.

The report compared the current rate of project execution to previous fiscals in which only a marginal amount of work on road development started.

"Such momentum is unparalleled and stands in sharp relief to the imbroglio seen in the last couple of year," the report was quoted comparing the rate of project execution.

Due to land acquisition constraints, funding bottlenecks and issuance of various clearances delayed road implementation projects in the recent past.

Industry estimates show that under the current dispensation of road development only three km of highways are added everyday from a target of 20 km.

However, the government expects to add 30 km a day after resolving all the delays in two years.

Finance Minister Arun Jaitley in his budget speech has proposed to provide Rs.37,881 crore to highway development. The government is targeting to develop 8,500 km of highways in 2014-15.

Around 189 projects are stuck in his ministry due to delays.

Industry estimates the cost of these projects which are worth Rs.60,000 crore to have escalated further.

The government is holding a monthly meet with all the stakeholders including bankers, developers, state government's representatives and department official to find solutions to problems faced by projects worth Rs.40,000 crore.

The reported predicted the trend to gain momentum as contractors start receiving higher and sustainable returns on their investments.

The ratings agency said that trend will be stronger for contractors in build-operate-transfer (BOT) and engineering, procurement and construction (EPC) segments.

Recently, the government said that develop of highways will be implemented under the EPC mode for the coming two years rather then PPP (public private partnership).

The shift to EPC mode is due to the fact that PPP modes are economically not viable at this moment, said government official.

The shift in policy is significant given the new government's focus on developing infrastructure.

The EPC entails the contractor build the project by designing, installing and procuring necessary labour and land to construct the infrastructure, either directly or by subcontracting.

However unlike PPP, the financing is done by the government and not by banks or private equity funds through issuing of sovereign bonds or taking financial guarantees for the project.