Record highway build pace result of govt’s industry-friendly steps: Analysts

By: |
April 02, 2021 5:30 AM

Others said 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.

At the end of March 2021, projects worth Rs 9,22,404 crore are ongoing on a length of 64,010 km.At the end of March 2021, projects worth Rs 9,22,404 crore are ongoing on a length of 64,010 km.

The record-breaking pace of highway construction in FY21– it touched an all-time high of 36.4 km/day in the year – is the result of a slew of industry-friendly measures that the government has taken during the pandemic year to ensure better cash flow to the contractors, analysts say.

Even though there was no construction in the first 20 days of April 2020 due to the Covid-induced lockdown, all executing agencies, including the National Highways Authority of India (NHAI), together constructed a record of 13,298 km highways in 2020-21, up from 10,237 km in 2019-20.

Jagannarayan Padmanabhan, director, Crisil Infrastructure Advisory, said, “Measures like reducing the performance guarantee and releasing the excess money helped contractors in their cash flows. The government also released all pending payments and in fact, nudged companies to achieve their milestone and get the payments in accelerated manner. These brought in confidence to the market participants, which led to an accelerated development.”

Over the years, the ministry has evolved a robust project monitoring system to track progress of construction and pro-actively engage in solving issues. Availability of land and lesser movement of public also helped in speeding up of construction, Padmanabhan said.

Icra’s Rajeshwar Burla said that relief measures like shift from milestone-based billing (typically ranging between 45-75 days) to monthly billing and release of retention money or performance security in proportion to the work already executed among others had immensely supported the road contractors by reducing the cash conversion cycle.

“Due to improved cash conversion cycle from MoRTH/ NHAI projects, many road contractors made special arrangements to facilitate return of labour notwithstanding the high cost of re-mobilising labour. As a result, the execution witnessed sharp increase, ably supported by the liquidity boosting measures,” Burla said.

Kushal Singh, partner, Deloitte India, said, “MoRTH and its agencies have brought out a comprehensive Covid relief package, including policy measures to resolve cash flow problems and contractual relief to contractors. The roads sector has also emerged as a preferred investment destination for investors looking for low risk, long-term returns.”

Others said 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. At the end of March 2021, projects worth Rs 9,22,404 crore are ongoing on a length of 64,010 km.

Over the last seven years, country’s national highway length has increased by 50% from 91,287 km, as of April 2014 to 1,37,625 km, as on March 20, 2021, the road ministry said. Average annual project award during FY15-21 has increased by 85% compared to FY10-14. During 2020-21, 10,467 km highway project has been awarded, up from 8,948 km a year earlier.

Providing the highest-ever Rs 1.18-lakh-crore capital outlay for the ministry of road transport and highways for 2021-22 in the Budget, finance minister Nirmala Sitharaman said more than 13,000 km length of roads, at a cost of Rs 3.3 lakh crore, has already been awarded under the Rs 5.35-lakh-crore Bharatmala Pariyojana project. Of this, 3,800 km of the roads have been constructed. By March 2022, another 8,500 km projects would be awarded and an additional 11,000 km of national highway corridor would be completed.

While the construction speed has been accelerated with mostly government funds – read EPC contracts – and the hybrid annuity model projects (where little risk is taken by the private developers), there have lately been signs of nascent recovery of the BOT-toll model, which is pure-play public-private partnership model.

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