NHAI may fall short of its target road construction for FY15: Study

The National Highway Authority of India (NHAI) is likely to fall short of its target of road construction for the current fiscal, and what's more the execution rate declined by 17 per cent to 3.41 km per day during the first eight months of FY15 from 4.14 km per day during the same period in the preceding year.

According to a recent analysis by credit rating firm ICRA, the NHAI has awarded 1,572 km of contracts during eight months of FY 15 (April-Nov ember 2014), while it had set itself a target of 5,500 km for FY 15, 35 per cent of which was earmarked for Build-Operate-Transfer (BOT) segment and rest for Engineering Procurement and Construction (EPC) mode.

ICRA further highlights that in order to meet its target, NHAI will have to award around 3,900 km by end of March 2015, which is an uphill task. Out of around 3,500 km set aside for the EPC awards during current fiscal, around 1050 km were awarded till November 2014.

"Around half of targeted EPC awards have received all approvals related to environment and right of way (RoW) and therefore can be awarded quickly as opposed to balance 50 per cent, wherein NHAI is still in the process of securing the RoW and other approvals," the report says.

ICRA expects a pick up in the award activity given that the Central government has doubled the limit up to which Ministry of Road Transport and Highways (MoRTH) can appraise and approve projects on its own to Rs 1000 crore. Overall execution rate declined by 17 per cent to 3.41 km per day during 8M FY15 from 4.14 km per day during the same period in the preceding year.

Major slippage in execution was during Q1FY 15 when the execution pace slowed to at 3.98 km per day as against 6.04 km perday in Q1FY14 owing to the general elections. The execution during July-November 2014 stood at 3.08 km per day as against 3.00 km per day.

Although the new government has taken several initiatives like delegating the powers for grant of forest clearances to the regional offices leading to possible saving of six to eight months, online filing for clearances to construct rail over bridges and under bridges -both were earlier major bottlenecks, and increasing limits on sand mining, the actual execution is yet to gather momentum.

ICRA believes that starting first quarter of FY16, these measures could start yielding positive results, giving a fillip to the pace of execution. While in FY 14, the fall in traffic volume was more than compensated by high growth in toll rates owing to high inflation rate, there has been a trend reversal during current year, with low inflation rate and pick up in traffic volumes. Traffic volumes which witnessed de-growth during FY 14, have picked up during current financial year. During H1FY 15 traffic volume grew by 4 per cent in PCU terms as opposed to over 2per cent de-growth during H1 FY 14.

ICRA’s analysis reveals that over 80per cent of the projects witnessed delays in execution. In more than 60per cent of cases the delay was 6 months or higher and 40per cent of the projects were delayed by over 1 year. For fixed price EPC contracts, for every one year delay in execution, ICRA estimates the project cost to increase by 450-500 bps for projects funded in 70:30 debt-equity and by 550-600 bps in case of projects funded in 90:10 debt-equity as a result of increase in interest during construction (IDC) alone.