The remarkably brisk pace of highway building this year has been despite the pandemic that brought the activities to a halt in April and very low levels of construction in subsequent couple of months.
Highway construction has already exceeded the current fiscal year’s target of 11,000 km (30 km/day), itself a record, and is poised to touch 40 km/day by the end of the year, minister for road transport and highways Nitin Gadkari said on Wednesday. The minister’s comments came at a time when investor interest in pure public-private partnership (PPP) projects is showing a nascent recovery. The remarkably brisk pace of highway building this year has been despite the pandemic that brought the activities to a halt in April and very low levels of construction in subsequent couple of months.
“In 2020-21, the ministry of road transport and highways has constructed 12,205 km of national highway between April and now. The rate of construction is 34 km/day. I am confident that by the end of March, we will reach 40 km/day,” Gadkari said at an event organsied by PHD Chamber of Commerce and Industry.
Given that the construction is almost solely dependent on government funds (EPC contracts), adding further pace to the activities will hing to a large extent on PPP (BOT-tolk) projects which involves private capital and risk-taking ability. The share of PPP projects in award of new projects has declined precipitously for nearly a decade and has drawn a blank in the last two financial years. Even the hybrid annuity model (HAM) awards were only 10% of the total projects awarded in the current fiscal, despite the model practically allowing insulation of the private investors from any project risks.
The National Highways Authority of India (NHAI) had recently invited bids under the under the revised, investor-friendly build-operate-transfer (toll) model for six-laning of the two stretches in West Bengal – Panagarh to Palsit (67.75) and Palsit to Dankuni (63.83 km) – on the NH-19. Private investors have offered to pay premium for both the projects, indicating a revival of investor interest in the sector.
In the entire last fiscal, a total of 10,237 km highway length was constructed and 10,855 km in 2018-19. The pace of highway construction was just 12 km/day in 2014-15.
The increasing pace of highway construction, analysts believe, is the result of a slew of relief measures the government initiated in recent times like shifting from milestone-based billing (typically ranging between 45-75 days) to monthly billing and release of retention money, performance security in proportion to the work already executed which have helped in reducing cash conversion cycle favouring the contractors. Road contractors just stepped on the gas.
The recent relaxation of financial capacity and widening the definition of core sector (technical capacity) by including segments like hospitals, hotels, oil & gas, warehouses among others would drive more EPC players towards infrastructure projects, especially road, which is already overcrowded, analysts feel. The competitive intensity is expected to increase manifold.
“If the liquidity boosting measures are continued; this along with relaxation in qualifications for bidders could result in steep rise in execution- more than 40 km/day going forward, said Icra’s Rajeshwar Burla.