Slowdown takes toll on India's highway projects

Jul 30 2013, 14:45 IST
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Slowdown takes toll on India’s highway projects	Slowdown takes toll on India’s highway projects
SummaryLack of equity has severely affected many projects under execution.

The number of new highway projects awarded, which peaked in 2011-12 at 6,491 km, has come down to 1,116 km in 2012-13. Indications are that the figure could fall to an even more abysmal level this fiscal. The reason: Economic slowdown that has constrained the finances of players in the sector and made toll revenue targets unattainable. A tight monetary policy, which made loans costlier, has also hit potential developers hard.

What needs to be seen is whether the scenario would now improve after the government's recent measures such as catalysing compatible financing and easier exit for developers.

The prominent view is that given that the economy is unlikely to look up over the next couple of quarters, at least short-term prospects for the sector are not very good.

Sector watchers point that private players' interest in public-private partnership (PPP) projects in the highways sector has waned. This, they said, is evident from the weak response to the projects being bid out, stated intent of some prominent developers to reduce their exposure to the build-operate-transfer (BOT) projects and lower number of pre-qualified bidders for CY13.

There is also an intent among large players to exit or renegotiate some projects awarded earlier. While the decline in investor interest may be attributed partly to the subdued environment, the weakening of the financial profile of many developers has also led to a lukewarm response to the bidding processes.

Given the sentiment towards the BOT projects in the sector is expected to continue to remain weak in the short to medium term, the NHAI's new initiative to award more projects on the engineering, procurement and construction (EPC) and operate, maintain and transfer (OMT) modes could bring some respite to the sector.

Experts said the decision to resume awarding projects again on the EPC mode — virtually stopped in 2008-09 — is a welcome step as this would unbundle the execution, funding and traffic risks and could stimulate participation from the private sector.

"Everybody in the infrastructure space is stressed. Road projects were taken up under BOT model, expecting a 8-10% growth in traffic every year based on the automotive sales numbers. But the reality turned out to be different," said DV Raju, vice-president, National Highway Builders Federation.

Industry chambers like Confederation of Indian Industry have consistently argued for the need to derisk the sector through well-directed policy measures.

“Given the need for capital, these measures

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