Rising Debt Levels, Soaring Land Prices May Force NHAI To Go Slow On New Projects, Crisil Says
Workers labor at a road construction site in Kolkata, West Bengal, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Rising Debt Levels, Soaring Land Prices May Force NHAI To Go Slow On New Projects, Crisil Says


Soaring debt which has jumped eight-times in the past five years, and a steep rise in land prices may force the state-run National Highways Authority to focus on execution of ongoing projects instead of awarding new roads, a Crisil report has said.

The rating agency expects the awarding of all hybrid annuity model, EPC and build-operate-transfer road projects to moderate to 12,000-13,000 kilometre over fiscals 2020 to 2022 compared with 14,000 km over fiscals 2017 to 2019.

It may be noted that in September this year, the Prime Minister's Office wrote a letter to the NHAI outlining suggestions for reorganising its portfolio, check on the commercial viability of projects and monetise assets.

According to reports, NHAI's debt has risen eight times from fiscal 2014 to Rs 1.8 lakh crore in fiscal 2019, primarily because of spiralling costs of land acquisition in the roads sector.

Generally, land costs make up 30-35 percent of the total spends.

Crisil also expects the pace of execution to plateau, leading to the construction of 10,500-11,500 km between fiscals 2020 and 2022, compared with an executed 9,000 km between fiscals 2017 and 2019.

However, it expects HAM projects to account for almost half of the NHAIs executed road projects over fiscals 2020 to 2022.

"If HAM projects that are awaiting appointed dates for over 1.5 years get terminated, the execution outlook for fiscals 2020 to 2022 faces a downside risk of 5-10 percent.

Accordingly, the share of HAM projects would fall to 40-45 percent in the NHAI's execution pie for the period," Crisil said.

It further said the risk to HAM projects on account of delays in the appointed date are also rising.

According to Crisil, only 60-65 percent of the awarded HAM projects during fiscals 2016 to 2019 have received appointed dates so far.

In other words, over 2,540 km of the 6,670 km of awarded HAM projects are awaiting appointed dates.

"Moreover, a huge 60-65 percent of these 2,540 km faces the risk of termination since the appointed date or starting date for the project from the NHAI is pending for over 18 months now," the agency said.

IRB Infrastructure's two projects including Puducherry-Poondiyankuppam highway and Poondiyankuppam- Sattanathapuram have been terminated this month, while in July, Vizag port road project of Sadbhav Infrastructure was terminated.

"The delay in appointed date highlights the issues with land acquisition faced by the NHAI. Of all the tenders across EPC, HAM, and BOT projects floated by the NHAI in 2018, only 50 percent reached the 3G stage of land acquisition when compensation is paid, compared with 83 percent in 2016," it said.

Also read: NHAI Identifies Highway Projects To Be Built Under Public-Private Partnership Model

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