The National Highway Authority of India (NHAI) will probably not succeed in completing its target of road construction for the current fiscal. The implementation rate has declined by 17 per cent to 3.41 km per day during the first eight months of FY15 from 4.14 km per day during the same period in the previous year.
As claimed by credit rating firm ICRA, the NHAI has awarded 1,572 km of contracts during eight months of FY ’15 (Fiscal Year ’15) (April-Nov ember 2014), while it had set itself a target of 5,500 km for FY 15, 35 per cent of which was appropriated for Build-Operate-Transfer (BOT) segment and rest for Engineering Procurement and Construction (EPC) mode.
ICRA further points out that in order to meet its target, NHAI will have to award around 3,900 km by end of March 2015, which is an arduous task. Out of around 3,500 km set aside for the EPC awards during current fiscal, around 1050 km were awarded till November 2014.
“Around half of targeted EPC awards have received all approvals related to environment and right of way (RoW) and therefore can be awarded quickly as opposed to balance 50 per cent, wherein NHAI is still in the process of securing the RoW and other approvals,” the report claims.
The Central government has expanded the limit for award activity because of which ICRA expects that the Ministry of Road Transport and Highways (MoRTH) can appraise and approve projects on its own to Rs 1000 crore. Overall execution rate declined by 17 per cent to 3.41 km per day during 8M FY15 from 4.14 km per day during the same period in the previous year. A big blunder in execution was during Q1FY 15 when the implementation pace slowed to at 3.98 km per day as against 6.04 km per day in Q1FY14 due to the general elections. The implementation during July-November 2014 stood at 3.08 km per day as against 3.00 km per day.
Contrary to this, the newly elected government is applying several tactics such as delegating the powers for grant of forest clearances to the regional offices which will possibly save six to eight months. Two major obstructions have been cleared by starting online filing for clearances to construct rail over bridges and under bridges. Though, the actual implementation is yet to gather momentum.
ICRA believes that starting first quarter of FY16, these measures could start yielding positive results, giving a fillip to the pace of execution. While in FY 14, the fall in traffic volume was more than compensated by high growth in toll rates owing to high inflation rate, there has been a trend reversal during current year, with low inflation rate and pick up in traffic volumes. Traffic volumes which witnessed de-growth during FY 14, have picked up during current financial year. During H1FY 15 traffic volume grew by 4 per cent in PCU terms as opposed to over 2 per cent de-growth during H1 FY 14.
ICRA’s analysis reveals that over 80 percent of the projects witnessed delays in execution. In more than 60 percent of cases the delay was 6 months or higher and 40 percent of the projects were delayed by over 1 year. For fixed price EPC contracts, for every one year delay in execution, the project cost is estimated to increase by 450-500 bps for projects funded in 70:30 debt-equity and by 550-600 bps in case of projects funded in 90:10 debt-equity as a result of increase in interest during construction (IDC) alone.
The post NHAI may fail in completing FY15 target of road construction appeared first on EPC World.