Mumbai : A whopping 75 percent of major road projects across India awarded last fiscal are at various stages of execution, claims a recent study by CRISIL Research, a statement said Wednesday.
The study on the status of road projects shows an unprecedented pick-up in execution amid a pro-active government and faster approvals by the implementing agencies.
This would improve returns for the developers of the Build-Operate-Transfer projects and companies engaged in construction of these roads.
CRISIL said that of the 16 projects awarded in 2013-2014, work has already begun on 12 i.e. 75 percent compared to the 18 percent in the previous fiscal 2012-2013 and 10 percent in 2011-2012.
In some of the projects awarded last fiscal (2013-2014), the rate of progress is as high as 40-50 percent, a momentum termed as ‘unparalleled and in sharp relief to the imbroglio seen in the past.”
Presently, it takes an average of seven months, against the National Highways Authority of India’s target of six months, to achieve the ‘appointed date’ when the concession period starts after the award of a project compared with 10-12 months earlier, while tolling begins from the ‘commercial operations date’ or COD.
“This is a welcome respite and augurs well for the road sector. In the past five years, 90 percent of the national highway projects completed were delayed because of lack of environmental clearances, non-availability of land, funding constraints, etc, observed CRISIL Research Director Rahul Prithiani.
Citing examples, he added that the average time overrun had shot up from about 20 months in 2008-09 to about 50 months in 2013-14 and both BOT and EPC projects got stuck, with average delays of around 13 months and 45 months respectively.
Land and environment issues resulted in not only time overruns but also a steep 45 percent cost escalation – or an average Rs 2,000 million – per project, Prithiani explained.
In order to clear snarls and spur execution, the government has initiated many measures like fast-tracking environmental approval, delinking forest and environment clearances, increasing limits on sand mining and enabling online filing for clearances to build rail overbridges and underbridges.
These are notable changes as these were among the prime reasons why many projects were stalled earlier, while the NHAI also ensures now that at least 80 per cent of the land is in possession when projects are awarded.
CRISIL Research senior director Prasad Koparkar said that if the government swiftly implements the measures already announced, and continues with efforts to further streamline approvals, then the average delays would be reduced to less than 6 months over a period of time.
“For developers, that will be a big advantage because project returns can improve by at least 200-300 basis points. Further, there will be a healthy improvement in the profitability of EPC companies as their working capital cycles will contract and overhead costs reduce,” said Koparkar.