Poll code may dampen road laying tenders in FY24

The Union Ministry of Road Transport and Highways (MoRTH) is projected to close the financial year 2024 tending for only 7,000-7,500 kms, falling short of projections made by Investment Information and Credit Rating Agency (ICRA), earlier this year, by 40-43%, the agency said on Monday. 

The agency had earlier projected that the ministry would commission about 9,000-9,500 kms of roads during the ongoing fiscal year. It attributed this drastic revision of estimates to the inevitable brakes that will be put when the model of code of conduct kicks in in the fourth quarter of FY24 as the country heads into General Elections.  March, typically, accounts for 40-45% of the tender awards, ICRA noted in its media statement.

The silver lining to this clouded projection, however, is the rise in road execution during the year, which the agency estimates at 16-21% year-on-year, going up to 12,000-12,500 kms, amid sizeable backlog, owing to healthy awards in the last few years, increased capital outlay by the Union Government and focus on completion of projects ahead of the General Elections.

That roads and highways continue to comprise a major chunk of India’s infrastructure tendering activity is a given. However, the bid pipeline for highway projects awarded by the MoRTH has been subdued in recent quarters. Going by the trend so far, road awards stood at 2,595 km in October 2023, 48% lower than the 5,007 km awarded in the same period last year.

“Pending the cabinet approval for the revised cost of Bharatmala Phase-l, project awarding activity in the recent quarters has taken a beating. While Engineering, Procurement and Construction (EPC) is likely to remain the preferred route of road awards for MORTH, it is gradually shifting its focus to Build, Operate and Transfer (BOT) projects, given the lower funding support required from the ministry in BOT-Toll mode,”  Vinay Kumar G, Sector Head, Corporate Ratings, ICRA explained. 

The BOT-Toll awards accounted for less than 5% of the orders in the last five years, and its share is expected to remain at a similar level in FY2024. Although the National Highway Authority of India has identified around 900 km of highway stretches to be awarded under BOT (Toll) in FY2024, a major part of these stretches is likely to spill over to FY25, the report suggested. 

Road execution, on the other hand, improved by 10.2% to 4,474 km in October 2023 from 4,060 km in the same period last year. This, according to Kumar, came on the back of the higher budgetary allocation and the government’s heightened focus on execution. 

“The ministry has spent 64% of the total outlay of Rs. 2.59 lakh crore till 7M FY2024. A healthy pipeline of under-construction projects of 43,856 km as of October 2023 along with the focus on project completion ahead of the general elections, is expected to increase road execution to 12,000-12,500 km in FY2024,” he said.