Invt Opportunity in Road Sector

8/6/2019 Invt Opportunity in Road Sector.

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Investment opportunity in roads sector(2010-11 to 2014-15):

Road planning and financing in India is the responsibility of the central and state

governments, with the centre responsible for construction operation and maintenance of

national highways, and state for state highways and major district roads (MDRs). Inn rural

roads, expansion is largely under PMGSY, which is a centrally sponsored scheme, whileimplementation is the responsibility of the respective state government and panchayats.

Increased focus of the government to accelerate road investments:

With the government increasing its focus on infrastructure development, CRISIL research

estimates investment of Rs 6.3 trillion in the roads sector between 2010-2011 and 2014-

2015.of this, the share of national highways would be 43 per cent followed by state roads and

rural roads at 30 per cent and 27 per cent.

Trends in road sector investment

Rsbillions

2007-08

2008-09

2009-10

2010-11p

2011-2012p

2012-2013p

2013-2014p

2014-2015p

(2010-11 to

2014-

2015)

Total

National

highways

187 183 288 344 492 645 648 577 2706 42.5

%

growth

51 -2 57 19 43 31 1 -11 - -

State

roads

251# 292# 290## 338 355 373 422 452 1940 30.4

%

growth

29 16 -1 17 5 5 13 7 - -

Rural

roads

106 152 225** 260 301 341 387 438 1727 27.1

%

growth

45 43 48 16 16 13 13 13 - -

Total 544 607 803 942 942 1358 1457 1467 6372 100

# revised estimates, ## budget estimates, ** CRISIL research estimates, p projected,

* State roads investment member for 2006-07, 2007-08 and 2008-09 includes only states

capital outlay.

Source: MORTH, NHAI, RBI, National rural roads development Agency, CRISIL Research.


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NHDP: Rapid implementation expected

Awarding under the NHDP by national highways authority of India (NHAI) accelerated in

the second half of 2009-10 due to the resolution of the policy issues that brought clarity

towards bidding and implementation of national highway projects. Against CRISIL

researchs estimates of 3400 km of projects to be awarded in 2009-10, close to 3213 km wereawarded by NHAI.

From April-May 2010, around 800 km have already been awarded, with a further 6700 km

expected to be awarded in 2010-11 Between 2010-2011 and 2014-15, CRISIL research

expects the construction of 25,714 km of roads at an estimated cost of Rs.2, 706 billion, on

the back of the governments continuing focus on implementing NHDP.

In 2008-09, ambiguity in the policy framework and the economic slowdown had led to a lull

in implementation and awarding of road projects under NHDP. Delays in awarding projects

continued in the first of 2009-10 due to frequent changes in the Model Concession

Agreement (MCA) and bidding policy, and the time taken in implementing these policies.

Expected phase-wise progress ofNHDP:

y Phase I and II: Majority of work completed.Phase I mainly comprises of golden quadrilateral (GQ), port connectivity and other

stretches. Phases II comprises north-south and east-west corridors (NSEW). Both

phases have mainly been executed on cash contracts. In phases I only 3 per cent of the

total remains to be completed. In phase II, out of the total length of 7,300 km, the

balance 500 km is expected to be awarded by 2012-13, over the next 5 years (2010-11

to 2014-15), and an investment of Rs. 194 billion is expected in both phases.

y Phase III: Maximum awarding over the next few years.Phase III involves four laning of two laned roads that mainly connect state capitals

and important places to the GQ and other key corridors. Work on around 9,098 km,

out of the total length of 12,109 km, is likely to be completed between 2010-11 and

2014-15 at an estimated cost of around Rs.1041 billion, with bulk of the remaining

portions expected to be completed by 2016-17. The government plans to implement

most of the projects under this phase through the BOT-Toll model, however, projects

which are not attractive for private players, the government will award these under

BOT. Annuity, with the least attractive stretches awarded under cash contracts.

In 2010-11, around 80 per cent of the projects are expected to be awarded on BOT

annuity since NHAI will look to award the more attractive stretches in the initial

years. Hence, going forward, the proportion of projects awarded on BOT-Toll will

reduce.

y Phase IV: Awarding gain transaction.Phase IV involves improvement of national highways to two lanes with paved

shoulders. The total length of this phase is 20,000 km. Around 9,400 km of the


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stretches have been identified by the NHAI, out of which CRISIL Research expects

5332 km to be completed between 2010-11 and 2014-15 at an estimated cost of

around Rs.194 billion. Several stretches in this phase would be awarded on BOT

Annuity and cash contracts, as the traffic volumes on these stretches will not be

attractive for the BOT-Toll model.

y Phase V: Awarding on fast track.This phase involves six laning of existing four lane national highways. The total

length of this phase is 6,500 km, out of which around 4,974 km is expected to be

constructed during 2010-11 and 2014-15 at an estimated cost of around Rs.638

billion, with most of the remaining stretches likely to be completed in 2016-17. The

government aims to implement all projects under this phase on BOT-Toll basis, as

traffic on these stretches is attractive for private layers. Moreover, the concessionaire

is allowed to collect toll on the existing four-laned highway from the date of financial

closure of the project, which results in cash inflows even before commencement of

construction. In 2010-11 they expect most of the projects in this phase to be awardedunder the BOT-Toll model.

y Phase VI: Progress expected to be lack lustre.This phase includes ring roads, flyovers and bypass on selected stretches of national

highways. Only two stretches have been identified till date. Going forward, CRISIL

Research does not expect much progress in this phase, with around 111 km to be

constructed between 2010-11 and 2014-15 at a cost around Rs.13 billion.

Mega projects:Nine mega projects identified.

Mega projects and the eastern peripheral expressway were announced by the government in

2009-10. Nine mega projects have been identified with the length of each project varying

from 390 km to 700 km. Out of the projects; feasibility study for the Kishangarh-Udaipur-

Ahmedabad stretch is in underway. CRISIL Research estimates an investment of Rs.423

billion and 2930 km of stretches to be completed over the next 5 years (2010-11 to 2014-15).

Expressways: New programme outlined.

The government has outlined a new expressway programme, which plans to build 18,637 km

of Greenfield national expressways by 2022. The programme will be implemented in three

phases with four-laned and six-laned expressways. Stretches in these phases have been

identified based on the traffic density on nearby stretches, economic activity in the

surrounding areas and financial viability. However, issues like MCA, bidding process, land

acquisition, setting up of an expressway authority and competing roads are still addressed.

This would delay implementation of the programme. However, some traction is expected

from 2012-13, with around 1,000 km expected to be completed over the next 5 years at an

estimated cost of Rs. 203 billion.


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Invt Opportunity in Road Sector