7,500 km of BOT highway projects at risk; but recent government steps can stem slippage: Crisil

NEW DELHI: Around 7,500 km of highway projects -- 5,100 km under construction and 2,400 km operational – awarded mostly between fiscals 2010 and 2012 on a build, operate, transfer, or BOT, basis, are at high risk today, says a report by Crisil.

"Around 50% of the projects under construction are at high risk of not being completed because of significant cost over-runs and weak wherewithal of sponsors. We believe the remaining will benefit from proactive moves by the government to facilitate right of way and other clearances. We find the recent government move to ensure 80% right of way, or ROW, before a project is awarded very constructive," Crisil says in its report.

"As for operational highways, 26 out of the total 80 are in no position to service debt on their own because of lower-than-estimated traffic. These projects, which are mostly toll-based, span about 2,400 km, or 40% of total length of operational BOT highways, and have an outstanding debt of Rs 17,100 crore," the report adds.

According to Crisil, "Operational highway projects have been facing cash-flow mismatches in the past few years because of lower-than-estimated traffic volume, and interest rates that were on the ascend till 2014. Now, with interest rates on the decline, pressure will ease a touch but debt service coverage ratios will remain less than 1 over the next two years. As a result, timely support from sponsors to bridge cash-flow mismatches will be critical because debt in these projects is without recourse to the sponsor."

Crisil acknowledges that government has announced a raft of policy measures to help both highway projects and their developers. "Of these, the removal of restriction on exit clause alone can allow developers to sell stakes in some projects and raise about Rs 5,000 crore. These funds can be used to turn around stressed projects, meet existing commitments and also as growth capital. A change of promoter in projects sold could also open up access to better refinancing terms and further financial support," it says.

CRISIL believes that the steps taken towards ensuring right of way and other clearances prior to project award, and tapping the funding avenues available at the disposal of the developers will help straighten out the future of India’s highway sector.

Meanwhile, Union Minister Nitin Gadkari recently said that corrective steps by the Modi government have led to roll out of majority of the Rs 3.8 lakh crore stuck highways projects.

Fast-tracking of projects could be made possible because of expediting decision-making process as well as policy interventions, the Road Transport and Highways Minister said last month.

"There were 283 stalled projects worth Rs 3.8 lakh crore at the time I took over the reins of the ministry... For two- and-a-half years, the previous Environment and Forest Minister did not sign a single file...majority of the projects were stuck on account of forest clearances and regulatory hurdles," Gadkari said.

He said 'fast-decision making', online clearances, policy intervention and other measures led to the roll out of majority of the projects barring 41 which were terminated and 10-12 of which are in final stages of roll out.

(With inputs from PTI)