Pace of road construction to slow down in FY20 due to funds shortage: CARE
Tardy acquisition of land by NHAI may also be a contributing factor
Road construction pace may peak in the second half of the current fiscal due to elections push.
However, going forward, it is likely to slow down to the levels of FY18, or worse, as more than 340 projects, half of which are under the Bharatmala scheme, are stuck at pre-awarding stage without having received the appointed date, CARE has said in a report.
The limited availability of funding for new projects, as well as NHAI’s slow progress on land acquisition for awarding new projects under EPC and hybrid annuity model (HAM) models will lead to the slow the pace of road construction, it added.
“The overall pace of construction is expected to decline in FY20 on account of funding shortage for new projects. Funding will be constrained by the limited number of banks which are outside the Preventive Corrective Action (PCA) framework, and can lend.
Further, tight liquidity situation in the NBFC space will constrain future lending. The budgetary support may not be able to compensate for this shortfall,” the report noted.
According to CARE’s analysis, there was a slowdown in the construction pace to 23 km per day (as against 27 km per day for FY18) for the first seven months of the current financial year, due to monsoons and seasonal disruption.
However, in the following four months of FY19, the pace could peak at 30-32 km per day.
While the report did not specify the reason for sudden increase in construction pace, More than 340 projects are still in awarding stage
industry sources believe elections are the likely cause.
The government is attempting to monetise existing road projects to meet the excess capital requirements, which will fund new projects.
In addition, the first bundle of highways under the toll-operate-transfer (TOT) model has fetched ₹9,861 crore (1.5 times more than the estimate).
But CARE analysts believe the “scope to raise funds
through this medium may be short term and has limited prospect”.
The CARE report also noted that while the government has set high targets for highways construction and new projects award, NHAI’s progress in land acquisitions has stalled “due to sharp rise in average cost of land acquisition by around 300 per cent, over the last four years on an average”.