BackRoad projects under Bharatmala Pariyojana see costs surge as input prices rise
According to Icra's estimates, awarding activity is expected to decline more than 30% YoY in FY24
PremiumNew Delhi: The cost of road projects under the Bharatmala Pariyojana (BMP) initiative has surged to ₹10.64 trillion, more than double the original estimate, with costs averaging ₹31.6 crore per km, primarily due to an increase in input prices and land acquisition cost, rating agency Icra Ltd. said in a report on Monday.
With the revised expense plan for Bharatmala Phase-I awaiting the approval of the Union cabinet, there has been marked slowdown in the awarding of new projects. As a result, the volume of project awards has plummeted by 48% year-over-year (YoY), totalling 2,595 km in the first seven months of FY24, compared to the 5,007 km granted in the year-ago period.
According to Icra's estimates, awarding activity is expected to decline more than 30% YoY in FY24.
“…The burden on Ministry of Roads and Transport and Highways (MoRTH) in case of BOT (Toll) projects is much lower, given the substantial cost escalation in the BMP and consequent increase in funding requirement. The MoRTH has thus shifted its focus on to BOT (Toll) projects," said Ashish Modani, vice president & co-group head, Corporate Ratings, Icra.
The average number of bidders for engineering, procurement, and construction (EPC) and hybrid annuity model (HAM) projects was substantially higher at 15 and eight, respectively, compared to less than five for BOT projects, which demand greater initial equity and carry more market risk.
However, the shift to BOT projects may pose a challenge given the limited pool of technically qualified bidders and their reduced appetite for such projects, Icra said.
Despite a robust order book for road developers and a 10% growth in road construction in the current fiscal's first seven months, the slow pace of awarding contracts in FY24 could dampen the momentum in road execution for FY25 and FY26, Modani said.
However, MoRTH has already allocated 64% of the budgeted outlay, amounting to ₹1.66 trillion, in seven months of FY24, a 14% increase YoY, indicating a potential improvement in overall execution by 16-21% in FY24.
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