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Reforms, proposed projects lead companies on road to gains

Reforms, proposed projects lead companies on road to gains
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First Published: Sun, Mar 28 2010. 09 53 PM IST

Graphic: Ahmed Raza Khan/Mint
Graphic: Ahmed Raza Khan/Mint
Updated: Sun, Mar 28 2010. 09 53 PM IST
The Indian roads sector has witnessed increased traction in terms of bidding activities with the National Highways Authority of India (NHAI) project awards of 2,988km till year-to-date (YTD) March. The accelerated pace is driven by several policy and structural reforms being implemented, with the intention to build 20km of national highways every day.
Graphic: Ahmed Raza Khan/Mint
Revised work plan by NHAI now proposes to award 18,581km of projects till end-FY11; this compares with project awards of 15,713km in FY02-09 and 2,988km YTD. Separate government actions towards mega projects (nine projects of about $1 billion each), expressway authority of India, conversion of around 10,000km state highways to national highways, among others, indicates increasing scope beyond known projects for both infrastructure developers and construction companies. Key challenges include addressing land acquisition issues, execution capabilities, financial resources (equity funding, long tenure debt), interest from international players, etc.
Of the initial identified project awards of 23,472km in FY10 and FY11, 2,988km (34 projects) were awarded in FY10 YTD indicating delays in achieving targets. The revised work plan aims to award 18,581km of road projects by end FY11, indicating a hectic bidding season ahead. Besides, as per details available, requests for proposals have been invited for at least 3,000km of road projects and project awards should happen shortly.
Reforms such as acceptance of the B.K Chaturvedi committee report have addressed several contentious issues. Also, norms to restrict firms with more than three projects without financial closure from new bids will also entail improved pace in terms of projects entering the construction phase.
Of the National Highway Development Programme (NHDP) length of 53,100km, projects completed/under implementation stands at 19,812km; and balance 33,130km is yet to be awarded. The government has announced intentions to award 9-10 mega projects of around 400km length each at an investment of Rs4,000 crore per project, which could attract international firms. To complement the NHDP programme, the government has plans to develop expressway authority of India to implement expressway projects of around 18,637km for completion in phases till 2022. An empowered group of ministers have approved conversion of 10,000km of state highways into national highways.
Of the 2,988km of project awards in YTD FY10, IRB Infrastructure Developers Ltd has the highest share of 12.8%, followed by IL&FS Transportation Networks (India) Ltd at 10.1% and Reliance Infrastructure Ltd at 9.1%. IRB particularly has won all projects on tolls; with an average grant at around 36% of the project cost (maximum permissible is 40%).
Given large-scale projects coming up for bidding, we believe that the opportunity pie for companies has increased.
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First Published: Sun, Mar 28 2010. 09 53 PM IST