Road projects face bumpy ride due to lack of funding: ICRA

In order to encourage private sector participation in build-operate-transfer road projects, the government needs to provide additional budgetary support to take up such ventures on engineering, procurement and construction basis, rating agency ICRA has said.
The weak private sector participation in BOT (build- operate-transfer) road projects resulted in subdued project award activity for the second consecutive year during FY14.
As a result, National Highways Authority of India (NHAI) had to move towards awarding projects in EPC (engineering, procurement and construction) mode, thereby providing some boost to project awards during the later part of FY14, it said in a report.
"The sector, which witnessed aggressive participation from private players till FY12, has been facing difficulty in attracting private sector participants and achieving financial closure, implying reduced risk appetite of the developers and banking sector. Execution was also hampered by bottlenecks linked to land acquisition, clearances, and challenges related to project funding," the agency said.

The decline in projects awarded during FY13 and FY14, aggregating to 2,223 km, was steep compared to FY12 when it stood at 6,419 km, the report said.
"Government has taken several encouraging initiatives to revive this sector, but additional budgetary support may be required to take up majority of the projects under EPC route till the revival of private sector participation."

The initiatives include proposal for setting up regulator for roads, easing of exit norms, delinking forest clearance from environment clearance, among others.
"While these measures will resurrect the interest of private sector, the improvement is likely to be gradual and would yield results only in the medium to long term. In the immediate term, the funding and cash flow related problems are likely to persist unless the developers are able to raise funds through equity offerings or by selling stakes in some of their projects," the agency said.

According to ICRA, 12th Five-Year Plan (2012-17) had more than doubled investment target for infrastructure sector to Rs 55.75 lakh crore. Of this, roads and bridges account for 16 per cent of the proposed investments at Rs 9.2 lakh crore.
According to the report, there has been a significant slowdown in the sector in the last two years.