MUMBAI: The highways ministry has revised the target for FY25 to 8,500-9,000 km from the original target of 10,000-10,500 km. This will lead to a further decline in awards next fiscal too.
Last fiscal year saw a decline in project awarding by a steep 31%; to 8,551 km from 12,375 km in FY23 due to the delay in Cabinet approvals for pending projects.
The delay was due to the revised cost structure for the Bharatmala scheme, coupled with the restrictions on project awards due to the model code imposed by the Election Commission ahead of the April-June general elections.
In the first four months of FY25, road awards stood at a low 563 km, 50 per cent lower than the 1,125 km awarded in the same period of the previous fiscal.
Recently, the roads ministry clarified that no new additional projects will be awarded under the Bharatmala scheme, and in addition, future awards will be based on corridor-based highway development, unlike the earlier scheme-based development.
According to an analysis by Icra Ratings Tuesday, the hybrid annuity model and EPC project awards will continue to dominate project awards this fiscal while the share of build, operate and transfer (tolled) is expected to improve in FY25. According to the agency, the slowdown is likely to dampen growth momentum of developers next fiscal.
Recently the ministry directed the National Highways Authority to focus on upgrading the existing national highways, along with developing new highways with a total outlay of Rs 1.44 trillion.
The ministry has also identified a state-wise list of projects planned to be awarded in this fiscal year, totalling 7,500 km.
Project awarding is expected to gain momentum from this month. However, the overall project award will remain substantially lower than that of FY21-23 levels.
As a result, growth momentum seen by road developers in recent years will moderate in the next 12-18 months, says the agency.
While the EPC model is likely to remain the preferred route for road awards for the ministry, it is gradually shifting its focus to tolled projects.
Given the higher equity commitment and the inherent traffic and execution risks in such projects, expectations of a material shift in overall project awards towards BOT remain challenging in the medium term.
The agency expects the share of such projects to increase to around 5% in FY25 from under 1% of the orders in the past five years.