Investment models and NH construction

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Context

• In the fiscal year 2024, the pace of constructing national highways stood at an impressive 34 kilometers per day. However, projections indicate a decline in this pace to 31 kilometers per day for the fiscal year 2025.
• CareEdge Ratings Prediction: Credit rating agency CareEdge Ratings anticipates a notable decline in the execution pace, estimating a decrease of 7-10% year-on-year. This translates to a reduction in construction from approximately 12,350 kilometers in FY24 to about 11,500 kilometers in FY25.

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Challenges in the Roads Sector:

Influx of Mid-level Developers:

• Moderate Credit Profiles: The entrance of developers with moderate credit profiles has introduced a new dynamic into the bidding process, impacting the overall pace of construction.
• Expanded Bidder Pool: While the increased number of bidders has https://www.iasgyan.in/ias-gazette-magazineresulted in lower bids, it has also increased the complexity of project execution and introduced new risks.

Funding Hurdles and Delays:

• Execution Risks: The heightened execution risks stem from difficulties in securing adequate funding for projects. These hurdles can lead to delays in project initiation and completion, impacting the overall pace of construction.

Hybrid Annuity Model (HAM) Challenges:

• HAM Projects' Progress: Projects under the hybrid annuity model (HAM), which combines elements of engineering, procurement, construction (EPC), and build, operate, transfer (BOT) models, have not progressed as expected. Challenges within this model have contributed to the slowdown in construction pace.

Land Acquisition Hurdles:

• Delays in Initiation: Land acquisition hurdles present significant challenges in the timely initiation of construction projects. These delays can significantly impact the overall pace of construction across the country.

Delays in Appointed Date:

• Contract Handover Delay: Delays in handing over the contract letter to successful bidders, which marks the appointed date for project commencement, have been observed. This delay further exacerbates the slowdown in construction pace.

Insights from CareEdge Ratings:

• Identified Challenges: CareEdge Ratings highlights key challenges facing the roads sector, including land acquisition hurdles and delays in the 'appointed date'.
• Acknowledgment of Impact: CareEdge Ratings acknowledges the impact of mid-level developers and the expanded bidder pool on the execution pace of highway construction projects.
• Need for Addressing Challenges: These insights underscore the pressing need for addressing funding hurdles, streamlining project execution processes, and enhancing overall efficiency in the roads sector to mitigate the projected slowdown in construction pace.

These challenges underscore the importance of regulatory clarity, collaborative efforts among stakeholders, and innovative solutions to navigate the complexities of project financing in the infrastructure sector.

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SOURCE: THE HINDU BUSINESSLINE