60% of national highway projects on annuity model facing delays: Crisil

Crisil said most delayed highway projects under the hybrid annuity model have received extension approvals as delays were beyond concessionaires' control

As the government tries to expedite stuck projects across infrastructure sectors, Crisil Ratings on Thursday said 60 per cent of national highway projects currently under construction under the Hybrid Annuity Model (HAM) are facing delays.

 

There are several models of highway construction in India. HAM is one under which the authority pays 40 per cent of the project cost upfront and the rest in fixed annuities. Crisil said the credit risk profiles for these projects remain stable.

 

“Around 60 per cent of under-construction HAM road projects are delayed by over 11 months on average. Non-availability of right of way is the primary reason 75 per cent of these projects are delayed. Other reasons include delays in environmental and forest clearances, design approvals, clearances from local authorities, as well as force majeure events such as heavy rains and protests,” said Manish Gupta, senior director and deputy chief ratings officer at the agency.

   

The government bids out highway projects primarily under three modes — engineering, procurement and construction (EPC), HAM, and Build Operate Transfer (Toll) (BOT).

 

The agency cited pre-construction delays while explaining why developers have received leeway from the authority on delayed timelines.

 

“A majority of these projects received a time extension from the concessioning authority given the delays were due to reasons beyond the control of the concessionaire. Though this will increase project cost, the inflation indexation available under the concession agreement will limit the impact on credit risk profiles of concessionaires,” the agency said.

 

About 90 per cent of the project length experiencing delays has received extension approval from the authority as the reasons for delays are not attributable to the concessionaire, mitigating the impact on credit risk profiles.

 

“The delays expose the concessionaire to cost-overrun risks. As per our estimates, the delays have increased project costs by 5-10 per cent on average. Nevertheless, the concession agreement allows inflation indexation, which helps in the recovery of some of the increased costs,” said Anand Kulkarni, senior director at Crisil.

 

Even completed HAM projects have seen delays. Around 58 per cent of the project length had delays averaging 9.5 months, and almost all the delayed projects received extension approval, limiting the impact on credit risk profiles of concessionaires, the agency said.