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The execution rate in the Indian road construction industry increased by 38% to 5.49 km/day between April and June 2015 as against 3.98 km/day during the same period the previous year. Although this is still lower than the execution rate of 6.04 km/day during the first quarter (Q1) of FY14, several positive initiatives taken by the government during 2014, such as quick resolution of non-moving projects, delegation of powers of grant of forest clearances to regional offices, online filing for clearances to construct rail over and under bridges and higher limits on sand mining have actually started yielding results.
As per ICRA research, from the developers' point of view, the hybrid annuity model (HAM) has several positives when compared with BOT (annuity) and is more aligned towards EPC projects. These features of HAM are expected to elicit a favourable response especially from large EPC players and some BOT players as well.
The total number of non-moving projects declined to 50 covering 4,636 km as on March 31, 2015 from 74 covering around 8,700 km as on March 31, 2014. However, construction activity has not commenced in all projects.
Of the 74 non-moving projects (as of March 31, 2014), execution work has resumed for 8 accounting for a total of 1,776 km while 16 projects for a total of 2,288 km have been cancelled. The cancelled projects are likely to be awarded again in the next 12-18 months. Given the sharp governmental focus on quick resolution of non-moving projects, ICRA believes the overall execution rate for FY 2016 would increase by 15-20% over FY 2015.
ICRA's analysis of lag between letter of award (LoA) and execution start date for awards during FY 2010-FY 2015 period points to a steep rise in the median lag between LoA and start date to 21 months for the projects awarded in FY 2012 from 10 months in FY 2010. The year FY 2012 was also one that saw the highest awards at 6,491 km.
ICRA's senior vice president (corporate sector) Rohit Inamdar said "Delay in approvals and difficulty in securing right of way (RoW) were the major reasons for the increase in time lag. Subsequently, with pre-bidding stage work improving, the lag reduced to 7 months in FY 2014. The delay in project execution has hit developers' returns because of cost escalation and revenue loss. This along with aggressive bidding during FY 2010-FY 2012 affected the viability of several projects awarded at that time."
