High-risk highway projects decline 13% helped by reforms: Crisil
Mumbai: The risks related to India’s roads sector seems to be coming down, going by an analysis from ratings and research company Crisil Ltd.
During 2015-16, the number of high-risk projects fell 13% from the year before, Crisil said after analysing 85 under-construction projects and 104 operational build, operate and transfer (BOT) road projects. Under-construction projects face completion risks while operational ones face risks on servicing debt.
These projects awarded by the National Highways Authority of India (NHAI) span about 16,600 km. The pace of road construction has also improved by 40% to 6 km per day in fiscal 2016 from an average 4.3 km per day in fiscal 2015, Crisil said in a report.
Crisil said its analysis of the 104 operational projects showed as much as an 18% reduction in both length (to 2,700 km) and outstanding debt (to Rs.19,650 crore) of high-risk operational BOT projects compared with 2015. “Within the 85 under-construction BOT projects, there has been a 10% reduction; however, as much as 4,600 km of projects are still in the high-risk category because delays in land acquisition and approvals have increased costs by 20% or Rs.11,000 crore, and the financial health of sponsors remains weak,” the report said.
Delayed clearances and poor traffic had held up several road projects for years and soured bank loans, but regulatory changes in the past year and greater government spending have helped revive the sector. Faster clearances and dispute resolution, last mile funding, ensuring 80% land acquisition before awarding project, easier rules for companies to sell their operational road assets, and introduction of the hybrid annuity model (HAM), where the government commits up to 40% of the total project cost, are among the reforms helping the sector turn the corner.
Most highway projects have since the second half of fiscal 2016 reported a rise in traffic and toll incomes, raising investor interest in the sector, Mint reported in June.
“The material improvement in the pace of execution can be attributed to policy reforms by the NHAI and facilitations by the government, which are also reducing delays. Given this, we expect the average construction per day for NHAI projects to nearly double to more than 11 km by fiscal 2018,” said Ajay Srinivasan, director, Crisil Research.
While stronger developers are likely to be able to raise funds for their under-construction projects through stake sales in their operational portfolio and from investment trusts (InvIT), weaker developers are still facing a funding gap of about Rs.6,300 crore, which is equivalent to around three-fourth of funds required for their existing portfolio, Crisil said.