ICRA Reports Toll Increases Taking a Toll on Road Awards in Bharatmala Pariyojana

ICRA estimates that the project cost for the Bharatmala Pariyojana (BMP) program has more than doubled to Rs 10.64 trillion, averaging Rs. 31.6 crore per km, compared to the initial expectations. This increase is attributed to rising input costs and land acquisition expenses. Pending cabinet approval for the revised cost of Bharatmala Phase-I has led to a decline in project awarding activity, dropping by 48% YoY to 2,595 km in 7mFY2024, down from 5,007 km in 7mFY2023. ICRA anticipates a further contraction of over 30% YoY in FY2024.

Mr. Ashish Modani, VP & Co-Group Head, Corporate Ratings, ICRA, provided insights, stating that the Ministry of Roads and Transport and Highways (MoRTH) has predominantly awarded road projects through the hybrid annuity mode (HAM) and engineering, procurement, and construction (EPC) route. However, due to the increased funding burden resulting from cost escalation in BMP, MoRTH is shifting its focus to BOT (Toll) projects.

The shift poses challenges as BOT (Toll) projects have fewer bidders (below 5), compared to 15 for EPC and 8 for HAM. Toll road projects involve significant upfront equity commitment and market risk exposure. With limited technically-qualified bidders and low appetite for BOT (Toll) projects, the Ministry’s push to transition may face challenges.

Despite road developers having a comfortable order book and strong road execution momentum in the current fiscal (10% growth in road construction during 7mFY2024), ICRA predicts an impact on execution momentum in FY2025 and FY2026 due to the slow pace of order awards during YTD FY2024. The MoRTH has spent 64% of the budgeted outlay in 7mFY2024 at Rs. 1.66 lakh crore, a 14% YoY increase. However, the future momentum is contingent on addressing the delays in order awards.