The year 2016-17 was quite a significant one for the road sector. The National Highways Development Programme (NHDP) witnessed a substantial pickup in project awards, a trend which the National Highways Authority of India (NHAI) plans to continue in 2017-18. Further, there has been a gradual increase in construction activity. The earlier reservations about the viability of the hybrid annuity model (HAM) have also started to reduce, mainly on account of renewed investor interest in the sector.
What the numbers say
During 2016-17, a total of 77 road projects spanning a length of 4,363.97 km were awarded under various phases of NHDP. The highest number of projects at 38 was awarded under Phase IV of the programme, followed by 14 projects under Phase V. In terms of the length awarded, the two/four-laning of the 170.92 km BRT Tiger Reserve boundary to Bengaluru on National Highway (NH)-209 and the four-laning of the 153 km Angul-Sambalpur stretch on NH-42 were the major projects.
However, in terms of the number of projects and total length awarded, the performance under NHDP was slightly better in 2015-16. A total of 78 projects spanning 4,367 km were awarded during the year.
Meanwhile, the total cost of the projects awarded in 2016-17 was estimated to be Rs 609.15 billion. The six-laning of the 72.39 km Handia-Varanasi stretch of NH-2 in Uttar Pradesh and the four-laning of the 153 km Angul-Sambalpur stretch on NH-42 in Odisha were the most cost-intensive projects, entailing an investment of Rs 25.11 billion each. In comparison, in 2015-16, projects worth Rs 668.14 billion were awarded, with the highest investment of Rs 22.88 billion being for the four-laning of the 194 km Amravati-Chikhli section of NH-6.
Further, in terms of project location, in 2016-17, the maximum number of projects awarded were in Gujarat (12), followed by Maharashtra (11) and Rajasthan (9). However, in terms of investment, Maharashtra topped the list with Rs 85.62 billion worth of projects being awarded, followed by Gujarat at Rs 75.69 billion and Rajasthan at Rs 68.88 billion. In 2015-16, Uttar Pradesh had the maximum project awards (16 projects) followed by Maharashtra and Bihar. These three states accounted for a cumulative investment of Rs 20.91 billion during the year.
The long-stuck Phase VI has also reported substantial activity in the past two years with the award of a total of eight projects spanning 166.64 km in 2015-16 and one project spanning 19.28 km in 2016-17. Of the eight projects awarded in 2015-16, six will be implemented on an engineering, procurement and construction (EPC) basis while the remaining two will be implemented on a HAM basis. The Delhi-Meerut Expressway project awarded in 2016-17 will also be implemented under HAM. The projects awarded under Phase VI of NHDP are estimated to entail an investment of Rs 77.28 billion.
Brick by brick: Construction rate picks up
Notably, during 2016-17, there was a gradual shift from focusing on project award to initiating measures for faster project turnaround. The year saw the completion of 31 projects spanning 1,911.22 km under NHDP in comparison to the completion of 1,798 km achieved during 2015-16. This improvement comes on account of a pickup in the daily construction rate from 4.9 km per day in 2015-16 to 6.5 km per day in the succeeding year.
The projects completed during 2016-17 entailed a total investment of Rs 144.5 billion. In terms of the length spanned, the 244.12 km Beawar-Pali-Pindwara stretch on NH-14 in Rajasthan followed by the two-laning of the 166.4 km stretch from Raebareli to Jaunpur on NH-231 in Uttar Pradesh were the major projects. Further, with regard to the cost incurred, the Rs 23.88 billion Beawar-Pali-Pindwara project was the most capital intensive, followed by the Rs 10.09 billion Ahmedabad-Gidhara four-laning project in Gujarat.
Moreover, from the perspective of project completion in various states, Rajasthan emerged as the frontrunner with the completion of 12 projects (accounting for 39 per cent of the total) in 2016-17, followed by Assam (four projects). Meanwhile, Gujarat, Haryana and Uttar Pradesh witnessed the completion of three projects each during the year 2016-17.
Success of HAM
HAM has met with a lot of success mainly due to the government’s proactive stance in obtaining all the clearances before project award. Besides land acquisition, the Ministry of Road Transport and Highways (MoRTH) secures environment and forest clearances as well as all other requisite clearances under this mode of project implementation. The project cost is funded through a 40 per cent grant from the government while the concessionaire has to bring in the remaining 60 per cent through a mix of debt and equity. Under the model, the government is responsible for toll collection. As a result, the concessionaire’s risk has come down significantly.
During 2015-16, the EPC model was the dominant mode of implementation with 81 per cent of the projects being awarded by NHAI under this mode. HAM was next with the award of nine projects, accounting for 12 per cent of the total project award. Finally, six projects (8 per cent of the total) were awarded on a build-operate-transfer (BOT) basis. The projects awarded under HAM during the year spanned a total length of 345.356 km and entailed an investment of Rs 83.34 billion. Of the nine projects awarded under this mode, three were in Uttar Pradesh (excluding projects with other states).
Notably, in 2016-17, HAM emerged as the dominant mode of project implementation with a significant 44 per cent of the projects (34 projects) being awarded under this mode. At the same time, the EPC and BOT modes saw a decline to 51 per cent (39 projects) and 5 per cent (4 projects) respectively. The projects awarded under HAM during the year spanned a total length of 2,295.19 km and entailed an investment of Rs 346.73 billion. Of the 34 projects awarded under this mode, Gujarat and Maharashtra secured eight projects each, followed by four projects in Karnataka. Key big-ticket projects awarded under HAM included six-laning of the Handia-Varanasi stretch in Uttar Pradesh, the Shimla bypass project, and four/six-laning of the Kharar-Ludhiana section of NH-95.
Meanwhile, financial closures, especially for HAM-based projects, have also picked up pace. Of the 16 road projects that achieved financial closure between May 2014 and July 2017, about 60 per cent are being implemented under HAM.
NHAI plans to award 105 projects in 2017-18, spanning a total length of 6,502.75 km. As per its targets, the maximum number of projects are to be awarded in Maharashtra (25 projects), followed by Uttar Pradesh (10 projects) and Odisha (8 projects). In terms of road length, 25 per cent of the targeted road length will be awarded in Maharashtra, followed by 9.64 per cent each in Odisha and Uttar Pradesh.
Of the eight projects for which the mode of implementation is known, three projects will be awarded under EPC while five will be implemented under HAM. The projects to be implemented under HAM include Package I and Package II of the Lucknow Ring Road in Uttar Pradesh spanning 32 km and 33 km respectively; and three projects in Andhra Pradesh – the four-laning of the 70 km Gundugolanu-Kovvuru section of NH-16, six-laning of the 64 km Anandapuram-Pendurthi-Anakapalli section along with four-lane connectivity to Visakhapatnam port road and six-laning of the 54.19 km Narasannapeta-Ranastalam section of NH-5.
As of May 2017, NHAI has awarded two projects in 2017-18. The first is the six-laning of the 3 km section on NH-3 in Maharashtra at an estimated cost of Rs 0.66 billion. The contractor for the project is B.P. Sangle Construction Private Limited. Meanwhile, the second project is Package IV of the six-laning of the 23.88 km proposed Udaipur bypass on NH-8 in Rajasthan at an estimated cost of Rs 8.91 billion. The project has been awarded to Sadbhav Infrastructure Projects Limited under Phase V of NHDP.
Hence, in a nutshell, the overall outlook for the programme remains optimistic. However, although the government has been successful in infusing the required momentum into award activity, there is a need to ensure that the errors of the past are not repeated. While the issues pertaining to HAM have largely been dealt with, private players need to now make the most of the opportunity presented by the government.