MUMBAI: As much as 55% of the 374 road projects awarded by the national highways body, with an aggregate construction cost value of 1 trillion, are delayed beyond six months as of December 2024. According to a Care Ratings report, the time overrun has increased from 33 % in June 2023 to 55% in December 2024.
All these projects are under the hybrid annuity models or HAM, which is the most preferred model in road building constituting as much as 55% of all national highways development. The report is based on the 374 national highway contracts underway now, the agency said, adding these projects were awarded between 2015 and 2024 and these projects span an aggregate length of 16,000 km and have a total bid project cost (BPC) exceeding Rs 4.03 trillion.
As of September 2024, 42% of the sample BPC, aggregating over Rs 1.65 trillion, have been commissioned, while around 45%, aggregating over Rs 1.80 trillion, are in the construction phase, and the balance of 13% are awaiting appointed date to commence construction.
Among the under-construction projects, 55%, with an aggregate BPC of Rs 1 trillion are delayed beyond six months. While grant of extension of time mitigates the project specific risk to an extent, impacts overall construction pace and profitability of roads developers.
According to the agency the main factors contributing to the heightened competitive intensity, non-availability of hindrance-free right of way and excessive rainfalls.
As of December 2024, projects with the BPC exceeding Rs 40,000 crore have been awaiting their appointed dates for over a year since being awarded, up from Rs 14,500 crore as of June 2023, raising concerns about potential project terminations. The primary reason for the prolonged delays in receiving the appointed dates is the intensified focus on greenfield expressways and highways, which has compounded land acquisition challenges, says the agency. The rising competitive intensity in highway projects is evident from the diminishing premium of bid project costs over the NHAI costs, with projects being bid at a discount over the past two years ending FY24.
According to the agency, ensuring the availability of 80-90% unencumbered right of way at the time of appointed date issuance, besides taking proactive measures in case of delays attributable to developers, is critical for improving the pace of construction. Emphasising the quality of construction is also crucial in view of heightened competition. Therefore, doubling the defect liability period from five to ten years for EPC projects is a step in the right direction.
The agency forecasts a nearly 7-10% decline in the pace of NH construction in FY25 compared to FY24. The construction rate is expected to slow from 12,350 km in FY24 to 11,100-11,500 km in FY25, closer to nearly 31 km/day.
In line with its estimates for FY24, the pace of construction for national highway projects saw a notable increase of 20% reaching 34 km/day. Yet, this was below 37 km/day accomplished in FY21. The highways sector has seen a combination of a rise in project complexities, participation from sponsors with moderate capabilities and significant delays in receipt of appointed dates after projects are awarded, contributing to a slackened construction pace.