The government's announcement of Bharatmala Pariyojana (Bharatmala) on 24 October 2017, the second biggest highway development programme after the National Highways Development Programme (NHDP), is ambitious given the expected private participation through public private partnership of about INR1.06 trillion says India Ratings and Research (Ind-Ra). The agency believes private participation could be challenging due to the continued stretched balance sheets of many infrastructure developers. The agency believes the implementation of Bharatmala would depend on fast tracking of land acquisitions, clearances from the Ministry of Environment, Forest and Climate Change and other clearances. Timely redressal of dispute by establishing a regulator is also crucial before undertaking such a large scale project because of possible arbitration issues.
As per the National Highways Authority of India's (NHAI, 'IND AAA'/Stable) data, the government constructed national highways of 8,231kms in FY17 against the set target of 15,000kms at 22.55kms/day against the target of about 40kms/day owing to delays in land acquisition (FY17: a 19% yoy drop, FY16: 38% yoy growth) and other statutory framework. However, the pace of construction picked up to 25.21kms/day during 1QFY18. Ind-Ra opines that a slew of measures such as enhancement of approval limit of projects by the NHAI to INR20 billion from INR10 billion, increase in compensation rates to farmers under the new land acquisition policy and digitalisation of land acquisitions would expedite projects under Bharatmala. Since most of the projects are to be constructed in remote areas, Ind-Ra believes mobilisation of equipment and raw materials would be challenging.
The government announced to construct about 83,677kms of roads (45kms/day) including Bharatmala over the next five years. This would require vast improvement in pre-bidding completion procedures to bring the project until the bidding stage. The programme will incur a capex of INR6.92 trillion; of this Phase-1 of Bharatmala will incur capex of INR5.35 trillion. Some of the major issues of the projects awarded through public private partnership under NHDP phases were delay in land acquisitions and obtaining statutory approvals and clearances, aggressive bidding and difficulties in forecasting traffic volumes which led to a decline in private sector participation in the road sector. In view of these issues, Ind-Ra opines that majority of Bharatmala would be delegated through engineering, procurement and construction (EPC) mode.
Bharatmala, Phase-1 of 34,800kms will be implemented by the NHAI, Ministry of Road Transport and Highways (MoRTH), State Public Works Departments and National Highways & Infrastructure Development Corporation Limited to speed up execution. Phase 1 of Bharatmala also involves 10,000kms of pending works under the NHDP. Bharatmala is different from the existing NHDP, as it focusses on improving the average speed of road network by shortening the length of roads and removing bottlenecks in the existing network, which would help in reducing logistics costs.
As per Ind-Ra, bank lending to road sector registered a mere 4% yoy growth to INR0.21 trillion in FY17 since the rise in non-performing assets has made banks wary of lending to infrastructure developers. In FY16, of 79 projects, about 80% were awarded through EPC mode, while in FY17, of 77 projects, 45% were awarded through hybrid annuity model and about 32% through EPC mode. The bankers were wary of funding these hybrid annuity model projects and were extremely selective in funding because of asset liability mismatches and increase in stressed assets in their exposure to infrastructure. However, Ind-Ra believes that recent move of recapitalisation of banks could be enabler for banks to do incremental lending to the infrastructure segment.
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