Bharatmala project cost doubles to Rs 10.64 trillion, impacting awarding activity

ICRA estimates that the project cost under the Bharatmala Pariyojana (BMP) has more than doubled to Rs 10.64 trillion, averaging Rs 31.6 crore per km due to rising input and land acquisition costs. Pending cabinet approval for the revised cost of Bharatmala Phase-I, project awarding activity has declined by 48% YoY to 2,595 km during 7mFY2024. ICRA expects awarding activity to contract over 30% YoY in FY2024.

Ashish Modani, VP & Co-Group Head, Corporate Ratings, ICRA, said, “Almost 95% of the road awards by the Ministry of Roads and Transport and Highways (MoRTH) in the last five years were awarded through the hybrid annuity mode (HAM) and the engineering, procurement and construction) EPC route, wherein the entire funding burden lay on the Ministry. The burden on MORTH in case of BOT (Toll) projects is much lower, given the substantial cost escalation in the BMP and consequent increase in funding requirement. The MORTH has thus shifted its focus on to BOT (Toll) projects.”

While the average number of bidders for the EPC and the HAM projects stood at 15 and 8 respectively, in case of BOT (Toll), it remained below 5. The toll road projects entail significant upfront equity commitment when compared to HAM in addition to market risk exposure. Given the limited number of technically-qualified bidders and low bidding appetite for BOT (Toll) projects, the Ministry’s push to shift to these projects may remain challenging.

“Most road developers have a comfortable order book and the road execution momentum is expected to remain strong in the current fiscal. This is also evident from the execution in the current fiscal, wherein road construction has grown by 10% during 7mFY2024; ICRA expects overall execution to improve by 16-21% in FY2024. The MoRTH has already spent 64% of the budgeted outlay in 7mFY2024 at Rs. 1.66 lakh crore, higher by 14% on a YoY basis. However, given the slow pace of order-awards during YTD FY2024, the road execution momentum will be impacted during FY2025 and FY2026,” Modani added.