Political will, funds to put road sector on fast track

Owing to political will, structural changes and buoyant capital markets (boosting confidence level that fund raising is still an option), the investors and those who represent this section are gung-ho about the road sector.

In the recent past, not a single road project has failed to achieve financial closure. This reflects the increasing readiness and confidence of financiers to fund road projects, said Angel Broking.

Based on the information provided by stakeholders at the two-day Road Development in India conference held in Delhi recently, the broking house said it is expected that funds from both domestic as well as international domain will flow in to the sector to capitalise upcoming lucrative opportunities. It is believed that the proposed structural, financial and procedural changes would help achieve the aggressive target of constructing 20km/day as against 5-6km/day achieved during FY2005-09.The sector also offers tremendous infusion-dilution opportunity.

National Highways Authority of India?s (NHAI) past track record has not been very impressive having achieved a mere 5-6km/day over FY2005-09, which is much below the set target of 20km/day. Moreover, in the past, NHAI took three years on an average to award a contract and another three years for completion of a project. Against this backdrop, we believe that the target appears to be quite ambitious.

The procedural and financial/bidding-related matters are slowly and steadily being taken care of or are under serious consideration by the NHAI. Standardisation of documents, selection of consultants and land acquisition are also being seriously looked into by the government. Based in the interaction with various managements it has surfaced that these are optimistic about the implementation of road development plans post the recent changes in guard at the Centre and the ministry concerned.

Factors such as issues between the NHAI and developers on various aspects have been the most long drawn out. Another factor that has been a major roadblock to development has been the difference in the estimated project cost by the NHAI and the one estimated by a developer. Shifting of utilities and cumbersome clearances required was another issue hampering timely execution of the road projects even after the concession agreement having the requisite state support agreements.

One of the major stakesholders, the financiers, feel that apart from developers being bogged down by various problems, this leg of the entire chain faces the major issue of not many bankable projects in the pipeline. Concerns have been raised over the traffic projections provided by the consultants, the broking house said further.

According to stakeholders a lot needs to be done to reach anywhere near the set target of 20km/day. Some of the issues that need to be addressed include addressing legal issues on priority basis, active secondary bond market, long-term funds need of the hour, ECBs without restrictions, IIFCL to play a bigger role and securitisation of tolls.

The stakeholders also felt that there is no doubt about the profitability of the roads sector. The sector is inter-linked with the general economic growth of the country and in the long run, with the economy expected to be on a roll (India has averaged 8-9% growth over the last 4-5 years), more and more investors would feel emboldened to bet on the roads sector. Importantly, traffic projections on most of the roads have been in line with the economic cycle.

According to them, the government is also focusing on nurturing a profitable partnership with the private sector to bridge the investment and knowledge gaps in road infrastructure. Clearly, the way ahead appears well-defined and innovative partnerships are in the offing. Road Infrastructure, however, entails huge investments, and while returns are high, the projects have long gestation periods.

It may be recalled that NHAI launched the seven-phase integrated National Highways Development Program (NHDP) in 2001 to develop the country?s roads to the tune of 54,500 km till FY2016, at an average of 10km/day. Currently, national highways constitute a length of around 70,000km or a mere 2% of the country?s total road network. Till-date, of the planned 54,500 km of national highways to be developed, around 11,746 km roads have been completed, 5,782 km are under construction and road contracts to the extent of 36,972 km are expected to be awarded over the next three-four years at an average of 12,324 km per year, considering a construction period of 910 days, to achieve the target of 20km/day.