Road projects awarding declines, competition to remain elevated: ICRA | News
ICRA, a credit rating agency, has revised its forecast for road project awards by the Ministry of Road Transport and Highways (MoRTH) in the financial year (FY) 2025 downwards to 8,500-9,000 kilometres (km). The agency is expecting the awarding to remain similar to the last financial year’s awarding of 8,581 km, against its earlier estimate of 10,000-10,500 km.
In FY 2024, the awards declined by 31 per cent to 8,551 km from 12,375 km in FY 2023 amid “delays in pending cabinet approval for the revised cost of Bharatmala Pariyojana (BMP) and restrictions on project awards imposed by the model code of conduct, ahead of the general elections,” ICRA said in a report.
In the first four months of FY 2025, the road awards stood at 563 km, 50 per cent lower than the 1,125 km awarded in a similar period of FY 2024.
Vinay Kumar G, sector head, corporate ratings, ICRA, is expecting project awarding to gain momentum from September 2024 onwards amid “improved clarity regarding order-awarding activity from the MoRTH in August 2024.” “However, the overall project award will remain substantially lower than that of FY 2021-FY 2023 levels. Consequently, the growth momentum witnessed by road developers in recent years will moderate in the next 12–18 months,” he quoted.
The agency has predicted that engineering, procurement, and construction (EPC) will remain the preferred route for road awards by the ministry. However, it is also slowly shifting its focus to build, operate, and transfer (BOT-toll) projects. The share of BOT awards is estimated to increase to around 5 per cent in FY 2025 compared to less than 1 per cent of the orders in the last five years.
Furthermore, according to ICRA, a slowdown in awarding activity is likely to dampen the growth momentum of road developers in FY 2026. It is expecting intense competition as developers are expected to bid aggressively to build the shrinking order book.
In FY 2024, the EPC and Hybrid Annuity Mode (HAM) project bidding process witnessed intense competition, leading to discounted bids.
In August 2024, the MoRTH directed the single bids received in open bidding to be accepted, provided they met certain conditions. Although the number of instances where a single bid is received has come down significantly due to the competition, this directive will decrease the cost of re-tendering, any likely delay in execution, and the risk of higher bids in cases of re-bidding.
First Published: Sep 17 2024 | 6:16 PM IST