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Roads & Highways: A Promising Path Ahead

Roads & Highways: A Promising Path Ahead

Infrastructure has been the core growth mantra of GoI’s development agenda. And roads and highways sector has been emerging as one among its prime growth pillars. With NHAI gearing to award more projects to uplift the sector’s infra outlook, EPC World takes a closer look on the sector’s growth pace and evolving trends.

With the second largest network of roads in the world, India’s roads sector is one among the core infrastructure sector and a determinant of the nation’s economic progress. Ambitious projects like Bharatmala Pariyojana Scheme and focus on strengthening road network in tier-II and tier-III regions is soon expected to bring in the much needed face-lift for the nation. However, like any economic activity even the sector was hit hard with the hurdles raised by the pandemic Covid-19. But, with the economy gradually opening up the Government looks forth to transform the period ahead into a fruitful growth environment.

A notable change being witnessed in the sector is in regards to the project execution models. With PPP (Public Private Partnership) remaining a favorite among stakeholders, a proactive shift is being seen in the mode of execution – from BOT (Build Operate Transfer) modes to HAM (Hybrid Annuity Mode) and TOT (Toll Operate Transfer). As the interest in BOT projects waned since 2012 owing to the risk sharing issues among both the parties, HAM came up as a favorite among the investors. Further, with operational asset monetization gaining more prominence TOT has now emerged as one among the preferred options that can give in a better ROI (return on investment) for the investors.

The recent announcements by NHAI in regards to awarding road contracts worth ₹ 48,000 crore within the first six months of this year, despite the ongoing pandemic crisis, clearly reflects the Governments sentiments towards fast tracking and scaling up the momentum for roads and highways sector. “We have planned to award contracts worth Rs.2 trillion during the year. This will open up good opportunities for companies involved in the construction and construction equipment business,” said Dr. Sukhbir Singh Sandhu, Chairman, National Highway Authority of India in recent media event.

“Proactive steps have been taken to ensure the momentum in construction sector, wherein the ministry has come up with a revised BOT toll document and proposed a new HAM document by revisiting the existing document by affecting many changes which have been sent to concerned stakeholders ministries for their feedback and suggestions,” disclosed Amit Kumar Ghosh, IAS, Joint Secretary (Highways), Ministry of Road Transport and Highways, Government of Indiaduring a recent conference organized by the PHD Chamber of Commerce and Industry.

Views on the Prospects

“The Government’s impetus on construction of roads and highways has always played a pivotal role in growth of the sector. The reforms in the sector are a step in the right direction as it is expected to give a strong push to highway construction. The Government has also committed an investment of ₹ 111 lakh crore in the National Infrastructure Pipeline. This proposed plan must continue as the growth of the infrastructure sector will create demand with a multiplier effect and will also contribute to the spike in urban demand,” opined Deepak Shetty, Deputy CEO & Managing Director, JCB India Ltd.

Commenting on the models of project execution Sandeep Upadhyay, MD – Infrastructure Advisory, Centrum Capital expressed, “The bidding approach needs to be calibrated by the Authorities to ensure minimum disruption caused due to an overall subdued financing ecosystem and to absorb the impact of COVID 19. Current market is still not conducive for the conventional BOT format embedded with both traffic and construction risks. Hence, I see EPC and HAM models continuing to take the centre stage in terms of awarding new projects. TOT bids and new age products including InVITS would facilitate monetising assets and efficiently churning investments and this segment is witnessing renewed interest from platforms backed by long term investors including the likes of established Sovereign Wealth and Pension funds. While last 12 months have been disappointing however next 12-18 months looks promising from the point of project pipeline in the roads & highways sector.”

He further added that, “As the HAM model is evolving and the TOT model is getting further tested, it is imperative that the developers price in their bids taking into account both the Capex and Opex factors more prudently than ever before. I see a trend emerging wherein the bids are being priced in innovatively with close precision taking into account the overall life cycle of the project. These factors are also increasingly coming under diligence by stakeholders including lenders and investors who are financing such projects.”

Looking upon the future prospects for the economic activities and allied businesses being associated with the roads and highways sector, Dimitrov Krishnan, Managing Director of Volvo CE India echoed, “In the months to come, we foresee that the roads and highways sector will be a key driving force for the construction business in India. The roads and highways industry has historically delivered excellent results in India. It has been responsible for close to 70 per cent of all construction equipment demand in the country over the past three years. Despite the impact of COVID-19, we have found that the industry has bounced back very strongly especially with the restarting of works in the middle of this year. We also see the government’s push for the construction of national and state-level highways and roads as a very positive sign for the industry.”

Agreeing to the slew of opportunities existing from the roads and highways sector, PK Ganguly, Head- Marketing (Domestic Sales) Balkrishna Industries Ltd commented, “With the government’s monumental support for the sector and the NHAI’s weight action plan, we are only hopeful and confident that the infrastructure projects will be on in full swing, and are fully equipped with the latest technological advancements in our sphere to give the best logistical supply to aid in the construction business. While the pandemic did slow down activities temporarily, in an increasingly urbanized India, there is no dearth of opportunities to be found.”

He further expressed, “Since the construction sector accounts for most inflow of FDI after the services sector and employs more than 35 million people in the country, we are continuously expanding our domestic specialty in the Roads & Highways Segment. Furthermore, due to the exponential rise in demand for construction activities in the bustling Infrastructure sector, and tremendous funding from the government of 2 trillion rupees for projects in the sector, we anticipate an exponential growth for the industry and are building truly future ready and world class technology to equip India with every need of tomorrow.”

Despite the slew of prospects emerging with the increased allotment of projects the roads and highways sector is also clouded with various hurdles in terms of project execution. To name a few is the land acquisition issues, financing, operation and maintenance, revival of languishing projects, increased development costs, waning interest of private sector in PPP – states a recent report released by KPMG. In regards to the changing trends being witnessed in the sector, the KMPG study indicted a focus being shifted towards institutional integration of transport departments, increasing use of green principles in road development,, adoption of e-mobility as a service, implementation of integrated payment mechanisms for multi-modal transport and the increasing use of big data – releasing the way ahead to be digitally paved.

Sensing the market sentiments it could be estimated that interesting and exciting times await for the roads and highways sector in India, and with one-of-its-kind projects like Bharatmala being in execution the nation is expected to soon attain its much awaited face-lift and make an impressive mark in the global infrastructure zone.

Bharatmala Pariyojana Scheme

An ambitious project approved by the Government in the year 2017, the BharatmalaPariyojana Scheme is an umbrella initiative to strengthen the road networks within the country – thereby ensuring ease in passenger and freight movement throughout the country. Involving inter corridors and feeder routes, economic corridors, greenfield expressway, national corridor efficiency improvement, coast and port connectivity roads, border and international connectivity roads – the project is set to give an all-round face-lift to the country. Despite the ongoing hurdles and uncertainties raised by the pandemic the Government maintains a confident approach to complete the first phase by 2022.

As of August 2020, a total of 2,921 km of road network has been constructed so far. In addition, the Government has already awarded as many as 322 projects covering a total length of 12, 413 km under the BharatmalaPariyojana Scheme. The Union Ministry has already sanctioned its approval for developing about 34,800 km of road network under the phase one – involving residual stretches of NHDP (National Highways Development Project) to the tune of 10,000 km.

Commenting on the importance of Bharatmala Project, RK Pandey, Member-Projects, NHAI said during the conference organized by PHD Chamber of Commerce and Industry, “Bharatmala program is one of the ambitious programs put forth by the Government of India. We are even focusing on greenfield alignment. To avoid delays in the execution of road projects, its been decided to not award projects till 90 per cent of the land required for the project is acquired and for any reason, any part of the land for road projects is not available, then it will be separated from existing scope work of concession agreement and the whole process of acquisition has now been digitized by BhoomiRashi portal set up the government.”

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