India: Government’s road projects find the going tough

• The central government’s target for road construction appears to be too ambitious considering the delay in financial closure of half of the allotted projects and difficulty in acquiring land parcels.
• The government’s road projects awarding bodies, NHAI and Ministry of Road Transport and Highways, have awarded just 268 km of road projects in 1HFY19, which is 8.8% of the target of 3,028 km for the period.
• In FY15, the government had announced that it would award roads projects only after securing 80% of the land free from a large number of hassles. But nearly 60% of the projects are yet to complete the land-acquisition stage, according to an analysis by domestic brokerage Spark Capital.
• High costs, corruption, and litigations related to land and other hassles have obstructed timely acquisition of land.
• In the past, after build, operate, transfer (BOT) model lost its viability due to weak traffic and leveraged balance sheets, competition among players intensified to grab more asset-light engineering, procurement and construction (EPC) projects.
• This resulted in higher debt among EPC companies. It prompted the government to announce hybrid-annuity model (HAM) which generated high interest as the government bore 40% of project costs and players would have to secure equity commitment for the remaining portion of the cost.
• This again met with aggressive participation but, a large number of HAM projects are yet to secure financial closure due to selective sanctioning of loans by banks. It is estimated that close to 56% of total HAM projects have not yet secured financial closure.

External Link: https://economictimes.indiatimes.com/news/economy/infrastructure/governments-road-projects-find-the-going-tough-in-first-half/articleshow/66963320.cms