Govt’s focus on developing roads provides positive results for road sector: ICRA

14 Sep 2017 Evaluate

Credit ratings agency, ICRA in its latest report has said that effective policy measures by Indian government over the last 36 months, like awarding projects after securing 80 percent right of way and the government’s focus on developing roads have revived the Indian road sector and execution pace. It added that the steps also include delegating the power to grant forest clearances to regional offices and online filing for clearances. However, it maintained a stable outlook for the sector, mainly because developers find it difficult to achieve financial closure with lenders exercising more caution while taking on additional exposure and secondly because of the leveraged balance sheets of developers.

As per the report, the roads sector was marred by execution delays, project cancellations, stalled projects, loss of lender confidence, leveraged balance sheets of developers and sluggish traffic growth. It also said most of these measures were fully implemented by the end of FY2015 and therefore FY2016 saw a sharp pick up in execution pace by about 37 percent, followed by 35 percent growth in FY2017. It further said that other policy measures such as back-ending premium payment, compensating concessionaires for delays not attributable to them, relaxing exit norms and one-time fund infusion by the NHAI are expected to address liquidity-related concerns faced by the developers.

ICRA also said that asset sales in the road sector have picked up over the last 30 months with the relaxation in exit policy. It said sponsors in around 20 road assets involving a total cost of Rs 123.27 billion have monetised their assets as opposed to around Rs 70 billion in the preceding 50 months. Till FY2014, projects were awarded either on BOT (Toll) or BOT (Annuity); or on the basis of engineering, procurement and construction (EPC) in that order, depending on the traffic density along the project stretch. Currently, it said that Hybrid annuity mode (HAM) is the most preferred mode of awarding projects and about 53% of the awards in 2016-17 by NHAI were through the HAM route, compared to 8% in 2015-16 and added that this is likely to increase further in 2017-18.

The ratings agency further said that the government’s decision to monetise 75 road project through toll-operate-transfer (TOT) route is expected to fetch around Rs 35,600 crore. In August 2016, the Cabinet Committee on Economic Affairs authorised the NHAI to monetise the public-funded National Highway projects that are operational and generating toll revenues for at least two years after the commercial operation date through the TOT model.

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