News
Airport, seaport, railway cos can now bid for road building
Summary
The move comes as the National Highway Authority of India (NHAI) and other road building agencies have lagged their highway-building targets for two years in a row.
New Delhi: Airport, seaport, railway and metro rail builders can now join in the task of building highways under a new government order aimed at giving a thrust to limping road construction. In a key reform, the government has put core infrastructure development firms on its list of companies that are eligible to build capital-intensive highways.
So far, only specialist and experienced road builders have been allowed to participate in such bids. The government hopes opening up the sector will bring in more competition, lower costs and speed up construction.
Companies with experience in building airports—which include air strips—ports, railways and metro rail projects will be able to bid for constructing highways and expressways.
The move comes as the National Highway Authority of India (NHAI) and other road building agencies have lagged their highway-building targets for two years in a row. NHAI is also sitting on a debt of around ₹3 trillion. Analysts said as more road projects come up for bids, expanding the field also addresses the problem of contractors being unwilling to take up too many projects at one time.
According to the order issued by the ministry of road transport and highways, the sector is now open to other players regardless of the mode of construction and revenue generation. There are mainly three such modes: hybrid annuity model or HAM, engineering-procurement-construction or EPC and Build-Operate-Transfer. The changes bring consistency in all documents related to construction of highways and will enable railway contractors, among others, to participate in bids for road development, the order said.
“The changes would certainly increase competition in the road sector and result in declining premium in the bids. While the bid competitive intensity has remained high for EPC (engineering, procurement and construction) projects, notably this trend caught up with the HAM (hybrid annuity model) projects as well in FY2023 with about 40% of the HAM bids at a discount to the authority bid price," said Vinay Kumar G, Sector Head, Corporate Ratings, ICRA. The MoRTH order on relaxation in eligibility criteria for bidders has come with new rating norms. According to the changes, all bidders of BoT (Annuity/Toll) and HAM projects would need a credit rating of BBB and above.
Over 12,000 km of highways are expected to be built this year although the government wants to hit 16,000 km at a record 45 km of highways per day. While road awards are expected to decline in FY24 owing to general elections, there’s a huge pipeline of 55,000 km of highways, which means construction will need to maintain pace. To prevent inexperienced hands from joining in, the ministry has decided that bidders, sector experts or core sector developers should have completed projects similar to the ones they are bidding for.
