Indian Highways – What Slowed It Down?

The financial year 2012-13 was anything but disappointment on road development in India. There was a tall target to build and at least award projects to the tune of more than 24 km per day through public private partnership and direct EPC contracts which comes to around 9500 km of nation highways in the year. Ministry and NHAI were able to award a meager 1300 km, only a fraction of that on public private partnership. The situation doesn’t look better so far for the seven months till October in 2013-14.

There exist issues that restrain the growth of public private partnerships in general and as listed in my post What ails Public Private Partnerships in Highways in India? As on date, when it comes to award of new projects on PPP, highly leveraged balance sheet, cautious banks when it comes to infra lending and traffic and its growth lower than expectation are some of the major concerns.

Highly leveraged balance sheets of project developers are reality. The approach of NHAI where it tested every project on PPP mode before opting for EPC made things worse for sector by slowing down project award. Lack of projects and cautious lending terms of banks are putting further stress on their financials. Lack of good projects makes them wary of taking any further risk. This is one of the prime reasons for poor interest & participation of in developers in PPP projects in highways. NHAI definitely had constraints on its ability to take all risk and fund the construction where cost escalation was a major feature and delays are inevitable given the state of affairs with land acquisition, clearances and approvals required for projects.

Lending to infrastructure by commercial banks is already stretched to limits. There are fundamental issues of assets-liability mismatch, sector exposure and concentration that banks were already bothered about. On top of it, delays and poor project revenues contributed to bad loans and rising NPAs originating from infrastructure. It is another issue that aggrieved the already maligned state of highways development.

The gloomy macroeconomic factors with sliding growth rate, declining trade volumes, etc. contributed to slow traffic growth on which fell short of rational growth estimates in boom years contributing to poor revenue and stressed debt obligation on project financials.

Recent decision of the Ministry to undertake highways projects on EPC is another attempt to add required thrust for the sector to gain momentum again. But, there is no use in putting EPC projects on block until structural and regulatory issues are sorted out. The success of projects still require timely & complete land acquisition, forest & environmental clearances, proper and timely coordination among different levels of government for utilities shifting and construction work to proceed in addition to timely payments to the contractors. if the Ministry wishes to achieve anything closer to projection of investment and private participation thereof, it needs to better address policy and governance issues.

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2 thoughts on “Indian Highways – What Slowed It Down?

  1. Pingback: An inclusive board at NHAI? | Absolute Infra Blog

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