AN UMBRELLA OF OPPORTUNITIES

An umbrella programme for the development of highway sector, the Bharatmala Pariyojana (BMP) aims to address the critical infrastructure gaps through development of economic corridors, inter-corridors and feeder routes, National Corridor Efficiency Improvement, border and international connectivity roads, coastal and port connectivity roads and greenfield expressways. It is being implemented under a new highway development programme that was approved by the Cabinet Committee on Economic Affairs (CCEA) on October 24, 2017. The development targets under the BMP involves development of 24,800 km national highways by FY2022 and residual 10,000 km of highways pending under erstwhile National Highway Development Program (NHDP), covered under Phase-I, at an estimated outlay of Rs 5.35 trillion translating cost of Rs15.52 crore per km. As per the initial plan, this was spread over five years between 2017 and 2022.

The objective and progress

The national highways are categorised into national corridors, economic corridors and inter-corridors. Thrust is also laid on feeder routes thereby ensuring first & last mile connectivity. The objective of the programme is optimal resource allocation for a holistic highway development/improvement initiative to re-define road development and have a macro approach while planning expansion of the national highways network.

The approved cost of Bharatmala was proposed to be funded by cess collected from petrol and diesel (as per Central Road & Infrastructure Fund Act, 2000, erstwhile CRF Act, 2000) and gross budgetary support to the extent of Rs 1.40 trillion (26% of total), toll collections of Rs 0.46 trillion (9%), expected monetisation of NHs through TOT (Toll-Operate-Transfer) of Rs 0.34 trillion (6%), Internal & Extra Budgetary Resources (IEBR) of Rs 2.09 trillion (39%) and private sector investment of Rs 1.06 trillion (20%) up to FY2022. In terms of progress, around 59% of BMP phase I (20,632 km) was awarded and 7,375 km of road length has already been constructed till December 2021. Further, 14,167 km is pending balance for award. In terms of cost, projects worth Rs 6.5 trillion are awarded and approved and Rs 4.12 trillion worth of projects are yet to be awarded. Majority of the project awarding under BMP is undertaken by NHAI.

The BMP witnessed the highest award of 7,396 km in FY2018, after which the awarding activity slowed down due to multiple reasons. Awarding activity was rather muted in FY2019, compared to the previous years, at 2,222 km due to general elections in 2019. Post this, the awarding activity by NHAI improved in the last three years to 3,211 km in FY2021, 4,818 km for FY2021 and an estimated 4,500 km for FY2022. The awarding activity has been slow in the past four years on account of challenges faced in land acquisition and funding issues while COVID-19 outbreak impacted the awarding activity in the last two years. Given this, ICRA expects the Bharatmala awarding activity to get completed by FY2025 assuming 5,000 km of yearly awards.

Although execution has improved over the years to 4,175 km in FY2021 from 2,628 km in FY2017, it is estimated to decline to 4,000 km for FY2022 owing to the prolonged monsoons which has affected the productive days for an extended period in FY2022. As of December 2021, 7,375 km of road length is completed under BMP and balance of 27,425 km is pending for completion. Given that awarding activity under BMP is expected to be completed by FY2025 and assuming yearly execution improving to 5,000 km, the BMP programme is expected to be completed in FY2028, a delay of six years from the initial envisaged completion date of FY2022.

Looking forward

The estimated project cost for completion of BMP almost doubled to Rs 10.63 trillion primarily due to increase in land acquisition costs and steep rise in input costs. The implementation of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, has increased NHAI's land acquisition cost at a CAGR of 25% from FY2007 to FY2020 from Rs 0.21 crore per hectare to Rs 3.82 crore per hectare (increase of 18 times). Land acquisition cost as a percentage of total project cost for the NHAI projects was at 9% in 2009. Based on the recent estimates, the same has escalated and is expected to be in the range of 37-55% of total project cost. Further, the average cost of award stood at Rs 31.6 crore per km which is 103% higher than initial estimated cost of Rs 15.52 crore per km.

The funding mix of BMP initially envisaged ~40% each contribution from IEBR and gross budgetary support including toll collections and TOT proceeds with the balance 20% from private sector investment. So far, the funding mix was skewed towards debt; further, the current borrowing level is closed to the overall debt level initially envisaged, incremental funding for BMP is expected to be funded by increase in gross budgetary support and proceeds from asset monetisation. In line with this and to address the elevated debt levels of NHAI, Central Government had increased the budgetary allocation to NHAI by 106% to Rs 1.34 trillion while reducing the borrowings to nil for FY2023. NHAI had raised a total of Rs 0.31 trillion through successful completion of four TOT bundles and NHAI InvIT in the past four years. Given the strong pipeline of operational road projects, timely asset monetisation becomes critical for funding the balance BMP cost in addition to continued budgetary support.

Vinay Kumar G

Assistant Vice President and Sector Head, Corporate Ratings, ICRA

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