Road ministry's target to build 30 km/day road in FY16 would need Rs 1.6 lakh cr: Report

While the Road Ministry has announced an ambitious target to build 30 km of road length per day during FY16, analysts feel that not only is the target steep in relation to the peak national highway construction of 7.41 km per day (kmpd) achieved in FY13 and 3.61 kmpd achieved in 10MFY15, it will also need funds in excess of Rs 1.6 lakh crore over the next three years - FY16 to FY18 - to fund national highways alone.

According to a recent ICRA report on the sector says that against the backdrop of the announcement made by the Finance Minister during his Budget speech about revisiting the existing PPP models and the need to rebalance the risks in PPP model with the government bearing a larger part of the risks, broad guidelines for 'Hybrid Annuity' model were announced by NHAI.

The report also adds that, "During current financial year, the traffic volumes have picked up; in H1 FY 15, the traffic growth has been 4.1 per cent in PCU terms which further improved to 6.8 per cent during 9M FY 15 when compared to a de-growth of 1.1 per cent during 9M FY 14."

Hybrid Annuity Model (HAM) is a mix of EPC and BOT (Annuity) models, with government and private enterprise sharing the total project cost in the ratio of 40:60. As per ICRA's study, two of BOT projects, the developer's cost estimates have been higher than NHAI's cost estimates by 35 per cent on average; in such cases, the equity contribution in Hybrid annuity model is around 30 per cent lower on gross basis when compared to normal BOT (annuity) model.

The financial burden on NHAI is set to increase over the next 18-36 month period during which the private sector is to execute the recently awarded EPC projects by NHAI. However, ICRA suggests that it can limit its exposure to EPC projects by awarding large number of projects under HAM going forward. When compared with EPC projects, shift to Hybrid Annuity model would ease the cash flow pressure on NHAI as it would have to provide only 40 per cent upfront funding spread over the 30-36 months of construction period, and remaining 60 per cent over 15-20 years of the concession period, in the form of semiannual payments which can be recovered to an extent through tolling of these stretches by NHAI itself.

The report also adds that, "Several other initiatives like revamping of NHAI in order to speed up the decision making process and bring in greater transparency, foreclosure of stalled projects, fund infusion by government to revive languishing projects and introduction of build and auction model are currently under various stages of discussion; these initiatives if implemented would have a positive impact on the sector."

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel