Thursday, July 25, 2024

Bharatmala Pariyojana Road Projects Face Soaring Costs, Exceeding ₹10.64 Trillion

The Bharatmala Pariyojana (BMP) initiative is experiencing a substantial increase in the costs of road projects, soaring to ₹10.64 trillion, more than double the initial estimate. This surge, averaging ₹31.6 crore per km, is primarily attributed to rising input prices and land acquisition expenses, according to a report from rating agency Icra Ltd. The revised expense plan for Bharatmala Phase-I is currently awaiting approval from the Union cabinet, leading to a significant slowdown in the awarding of new projects.

In the first seven months of FY24, project awards have plummeted by 48% year-over-year (YoY), totaling 2,595 km compared to the 5,007 km granted in the corresponding period of the previous year. Icra’s estimates indicate that awarding activity is expected to decline by more than 30% YoY in FY24.

As a response to the substantial cost escalation in the BMP and the consequent increase in funding requirements, the Ministry of Roads and Transport and Highways (MoRTH) has shifted its focus to BOT (Toll) projects, where the burden is comparatively lower.

The average number of bidders for engineering, procurement, and construction (EPC) and hybrid annuity model (HAM) projects is significantly higher at 15 and eight, respectively, compared to less than five for BOT projects, which require more initial equity and carry greater market risk.

Despite a robust order book for road developers and a 10% growth in road construction in the first seven months of the current fiscal year, the slow pace of awarding contracts in FY24 could potentially dampen the momentum in road execution for FY25 and FY26, warns Ashish Modani, Vice President & Co-Group Head, Corporate Ratings, Icra.

However, MoRTH has already allocated 64% of the budgeted outlay, amounting to ₹1.66 trillion, in the first seven months of FY24, reflecting a 14% increase YoY. This suggests a potential improvement in overall execution by 16-21% in FY24.

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