ICRA has estimated that the cost of the Centre's flagship highway development project, Bharatmala Pariyojana (BMP) programme, has more than doubled to ₹10.64 lakh crore at an average cost of ₹31.6 crore per km, compared with the original estimates of ₹5.35 lakh crore (₹15.52 crore per km). The agency points out that in the absence of Cabinet approval of revised project cost, highway contract awards is suffering.

The increase is owing to the steep rise in input cost and the increase in land acquisition cost, according to the agency.

Bharatmala was approved by the Cabinet Committee on Economic Affairs in 2017 to develop 24,800 kms of national highways and also complete the residual 10,000 kms from the National Highways Development Programme of former PM Atal Behari Vajpayee led NDA.

"Pending the cabinet approval for the revised cost of Bharatmala Phase-l, project awarding activity in the recent quarters took a beating, declining by 48% YoY to 2,595 km during seven months in FY2024 compared to 5,007 km during first seven months in FY2023. ICRA expects the awarding activity to contract over 30% YoY in FY2024," ICRA said in a release.

"Given the slow pace of order-awards during YTD FY2024, the road execution momentum will be impacted during FY2025 and FY2026,” said Ashish Modani, VP & Co-Group Head, Corporate Ratings, ICRA.

"Almost 95% of the road awards by the ministry of roads and transport and Highways (MoRTH) in the last five years were awarded through the hybrid annuity mode (HAM) and the engineering, procurement and construction (EPC) route, wherein the entire funding burden lay on the ministry," Modani added.

According to Modani, the burden on MORTH in the case of BOT (Toll) projects is much lower, given the substantial cost escalation in the BMP and consequent increase in funding requirement. The MORTH has thus shifted its focus to BOT (Toll) projects.

While the average number of bidders for the EPC and the HAM projects stood at 15 and 8 respectively, in the case of BOT (Toll), it remained below 5. The toll road projects entail significant upfront equity commitment when compared to HAM in addition to market risk exposure. Given the limited number of technically qualified bidders and low bidding appetite for BOT (Toll) projects, the Ministry’s push to shift to these projects may remain challenging, ICRA pointed out.

The current order book of road developers, however is comfortable as per the agency. "Most road developers have a comfortable order book and the road execution momentum is expected to remain strong in the current fiscal. This is also evident from the execution in the current fiscal, wherein road construction has grown by 10% during seven months in FY2024. ICRA expects overall execution to improve by 16-21% in FY2024. The MoRTH has already spent 64% of the budgeted outlay in seven months of FY2024 at Rs 1.66 lakh crore, higher by 14% on a YoY basis," ICRA said.

ICRA on Highways

New highway contracts hit as Bharatmala cost doubles: ICRA