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NHAI to focus on execution, not on awarding new road projects: CRISIL

NHAI's debt has risen eight times from fiscal 2014 to Rs 1.8 trillion fiscal 2019, primarily because of spiralling costs of land acquisition in the roads sector

Press Trust of India  |  Mumbai 

NHAI to focus on execution, not on awarding new road projects: CRISIL

State-run (NHAI) is expected to shift its focus to execution instead of awarding new road projects going forward due to the burden of soaring land acquisition costs and rising debt on its books, the report said.

The rating agency Crisil expects the awarding of all hybrid annuity model (HAM), EPC and build-operate-transfer (BOT) road projects to moderate to 12,000-13,000 km over fiscals 2020 to 2022 compared with 14,000 km over fiscals 2017 to 2019.

It may be noted that in September this year, the Prime Minister's Office (PMO) wrote a letter to the outlining suggestions for reorganising its portfolio, check on the commercial viability of projects and monetise assets.

According to reports, NHAI's debt has risen eight times from fiscal 2014 to Rs 1.8 trillion fiscal 2019, primarily because of spiralling costs of land acquisition in the roads sector.

Generally, land costs make up 30-35 per cent of the total spends.

Crisil also expects the pace of execution to plateau, leading to the construction of 10,500-11,500 km between fiscals 2020 and 2022, compared with an executed 9,000 km between fiscals 2017 and 2019.

However, it expects HAM projects to account for almost half of the NHAIs executed road projects over fiscals 2020 to 2022.

"If HAM projects that are awaiting appointed dates for over 1.5 years get terminated, the execution outlook for fiscals 2020 to 2022 faces a downside risk of 5-10 per cent. Accordingly, the share of HAM projects would fall to 40-45 per cent in the NHAI's execution pie for the period," Crisil said.

It further said the risk to HAM projects on account of delays in the appointed date are also rising.

According to Crisil, only 60-65 per cent of the awarded HAM projects during fiscals 2016 to 2019 have received appointed dates so far.

In other words, over 2,540 km of the 6,670 km of awarded HAM projects are awaiting appointed dates.

"Moreover, a huge 60-65 per cent of these 2,540 km faces the risk of termination since the appointed date or starting date for the project from the is pending for over 18 months now," the agency said.

IRB Infrastructure's two projects including Puducherry-Poondiyankuppam highway and Poondiyankuppam- Sattanathapuram have been terminated this month, while in July, Vizag port road project of Sadbhav Infrastructure was terminated.

"The delay in appointed date highlights the issues with land acquisition faced by the Of all the tenders across EPC, HAM, and BOT projects floated by the NHAI in 2018, only 50 per cent reached the 3G stage of land acquisition when compensation is paid, compared with 83 per cent in 2016," it said.

First Published: Mon, November 18 2019. 19:46 IST
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