ICRA: Bharatmala Pariyojana likely to get delayed by four years and witness cost escalation by 54%

The Bharatmala Pariyojana (BMP) Phase –I is likely to be delayed by four years and get completed by FY2026 instead of earlier envisaged FY2022. Till February 2020, a total of 246 road projects with an aggregate length of about 10,100 km were awarded under BMP Phase -I at a total cost of Rs. 2,38,413 crore. The average cost of award stood at Rs. 23.80 crore per km which is 54% higher than initial estimated cost of Rs.15.52 crore per km. The land acquisition cost for the NHAI increased[1] at a CAGR of 27% from FY 2007 to FY 2019 from Rs. 0.21 crore per hectare to around Rs. 4 crore per hectare. This along with prudent bidding by developers at a premium when compared to NHAI’s base price has resulted in significantly higher awarded cost for BMP Phase-I when compared to initial estimates. Further as per ICRA’s estimates, the prevailing uncertainty due to Covid-2019 and the consequent impact on valuations could delay asset monetisation plan of NHAI – toll-operate-transfer (ToT) auctions and launch of infrastructure investment trust (InvIT). Depending on how quickly the normalcy is restored, these plans could take off by end of FY2021. Therefore, CY2020 is likely to be another year of muted awards.

Elaborating further, Shubham Jain, Senior Vice President, Corporate Ratings, ICRA says, “As on March 2020, 16,219 km of BMP (around 47% of BMP) was pending to be awarded. We expect the awards to remain in the range of 3,000-3,200 km in FY2021 and increase thereafter once NHAI completes its proposed fund raising through infrastructure investment trust. With pick up in awards starting FY2022, the Bharatmala awarding activity is expected to get completed by FY2023 only.”

The Cabinet Committee on Economic Affairs (CCEA) approved the BMP Phase-I along with other programmes on October 24, 2017. A total of around 34,800 km are being considered in BMP Phase I which also includes 10,000 km of balance road works under NHDP. Estimated outlay for BMP Phase I is Rs. 5,35,000 crore spread over five years between 2017-2022 as per the initial plan.

As per the revised funding plan dated September 2019, the dependence on market borrowings for BMP increased substantially by 72% to Rs. 3,59,786 crore while the budgetary allocations and contribution from central road and infrastructure fund were reduced by 46% to Rs.1,83,626 crore. Consequently, the borrowings of NHAI are expected to increase significantly and peak by FY2023 or FY2024; at the same time, NHAI’s asset monetisation also remains critical to meet the funding requirements of BMP phase -I.

Jain added, “About 21% of BMP execution is completed as on March 31, 2020. Given the limited labour availability and productivity loss due to Covid-2019, ICRA expects the pace of execution for FY2021 to remain low at 3104 km and thereafter witness an increase by 10-15% in FY2022 (on base of FY2020) before peaking in FY2024. The pending works are expected to be completed by FY2026. Therefore, as against the target of FY2022, BMP phase -I is likely to get completed by FY2026 with a delay of four years.”