What needs to be seen is whether the scenario would now improve after the government's recent measures such as catalysing compatible financing and easier exit for developers.
The prominent view is that given that the economy is unlikely to look up over the next couple of quarters, at least short-term prospects for the sector are not very good.
Sector watchers point that private players' interest in public-private partnership (PPP) projects in the highways sector has waned. This, they said, is evident from the weak response to the projects being bid out, stated intent of some prominent developers to reduce their exposure to the build-operate-transfer (BOT) projects and lower number of pre-qualified bidders for CY13.
There is also an intent among large players to exit or renegotiate some projects awarded earlier. While the decline in investor interest may be attributed partly to the subdued environment, the weakening of the financial profile of many developers has also led to a lukewarm response to the bidding processes.
Given the sentiment towards the BOT projects in the sector is expected to continue to remain weak in the short to medium term, the NHAI's new initiative to award more projects on the engineering, procurement and construction (EPC) and operate, maintain and transfer (OMT) modes could bring some respite to the sector.
Experts said the decision to resume awarding projects again on the EPC mode virtually stopped in 2008-09 is a welcome step as this would unbundle the execution, funding and traffic risks and could stimulate participation from the private sector.
"Everybody in the infrastructure space is stressed. Road projects were taken up under BOT model, expecting a 8-10% growth in traffic every year based on the automotive sales numbers. But the reality turned out to be different," said DV Raju, vice-president, National Highway Builders Federation.
Industry chambers like Confederation of Indian Industry have consistently argued for the need to derisk the sector through well-directed policy measures.
Given the need for capital, these measures (taken by the government) might indeed help. These would allow early-stage investors to plough back the released equity into the sector and facilitate entry of long-term investors. However, investors would wait to see the detailed guidelines before committing themselves to projects. A liberal regime that permits transfer of equity through bilateral negotiations with the consent of NHAI and lenders will help boost private investments, said Athar Shahab, chairman, CII core group on roads & highways and CEO, Uniquest Infra Ventures.
A major problem with which the sector is going through right now is the dearth of equity financing. Even though the Cabinet approved allowing 100% exit by developers, till the time such exits start happening, it could be tough to see a revival of investor interest, analysts said.
Lack of equity has severely affected many projects under execution. Bringing in substitutes will help in timely completion of such projects and also revive market position of the developers, said Vinayak Chatterjee, chairman, Feedback Infrastructure Services.
"Till the time some unlocking of funds, which are currently tied in the project SPVs happen, it is difficult to enable long-term strategic investors to bid for newer projects and reinvigorate the growth momentum in the sector," said a senior road ministry official. Lower-than-committed tolling revenue has in many cases led to financial calculations of construction firms going awry, putting several road developers in trouble. In a chain reaction, this impacted institutions that funded these projects as road developers failed to service debt.
The road ministry admits the government erred in projecting a high growth rate in the sector. One of the key considerations for NHAI was the falling traffic growth and its impact on the lenders confidence in several projects . BOT projects bid out during 2011-12 received aggressive bids. As many as 25 projects received premium bids, including Kishangarh-Udaipur-Ahmedabad awarded to GMR.
From these projects the NHAI was to get premium amounting to Rs 98,115 crore over the concession period. Since, these projects are unable to start execution due to financing constraints, the entire future financing model of NHAI is now being questioned.
ICRA in a report said that after awarding 6,491 km of roads in FY12, the sector witnessed a slump in awarding of projects with only 1,156 km of projects being bid out in FY13, which is about 17% of the target of 7,000 km set for the financial year.
The decline in awarding activity has been on account of weak interest from private sector participants due to difficulty in raising funds, stressed financial position of many developers, delays in getting right of way and clearances, the report added.
However, according to ICRA, despite the sharp decline in project awards, the performance on the execution front improved in FY13.
"Backed by strong pipeline of projects under execution, the completion rate for NHAI projects increased to 7.9 km/day in FY13 from average of 6.2 km/day in FY12. However, progress on the projects awarded in FY12 remained muted mostly in the absence of requisite right of way, clearances and inability to achieve financial closure," the report said.
Sources in the know said the NHAI has now stepped-up its efforts on land acquisition. However, the acquisition process is often elongated due to capacity constraints faced by NHAI and opposition from land owners over compensation.
A banker who did not wish to be quoted told FE that "Many lenders have introduced stringent conditions like 100% right of way, clearance, and significant upfront contribution from promoters before the sanction/disbursement of the loan. Bank lending to the sector has also constrained due to large requirement of the sector which could hit the internal sectoral exposure limit of some banks, and the unsecured tag, which was associated with the road projects until few months back, is also responsible for the poor and overcautious lending to the sector to some extent.
Analysts, however, said while the interest for new BOT projects is weak, completed projects with established traffic are witnessing demand from private equity and other global as well as domestic funds. Some contractors and developers are also exploring the options of divesting their stakes in the completed projects to release their blocked capital and redeploy them for new projects.
Land acquisition is a major problem. According to Rohit Inamdar, senior vice-president, ICRA, "Around 18 projects that were awarded in FY12 could not achieve financial closure till March 2013 due to uncertainty on land acquisition.