NHAI decision to descope pending RoW without reducing construction period positive for developers: ICRA

The decision by NHAI to descope pending right of way without reducing construction period is a positive for highway developers working on BOT-HAM projects and makes the process smoother for them, rating agency ICRA said on Wednesday.

The National Highways Authority of India (NHAI) had issued a standard operating procedure (SOP) pertaining to approach towards de-scoping the pending right of way (RoW) for BOT(build, operate, transfer) HAM projects.

Basis the SOP, immediately after the expiry of the period of appointed date (date on which project starts) plus 20 per cent of construction period, the pending RoW will be removed from scope of work and bid project cost (BPC) will be revised based on the independent engineer's assessment.

"This augurs well for HAM (hybrid annuity mode) developers and would make the process less obstructive," ICRA said adding in its earlier research release in February 2020 it had highlighted the land acquisition related challenges faced by HAM projects resulting in delay in announcement of appointed date as well as provisional completion certificate due to delay in de-scoping.

There were operational challenges in implementing automatic de-scoping due to which the announcement of provisional completion certificate is getting delayed for many under construction HAM projects, it said.

Elaborating Rajeshwar Burla, Vice President, Corporate Ratings, ICRA said, "For most of the under-construction HAM projects, the RoW available within the stipulated timelines is in the range of 88-92 per cent. From the authority's perspective it becomes onerous to de-scope and re-tender the remaining portion to a new contractor."

With the de-scoping issue getting resolved, the bigger risk that exists for HAM projects which remained unaddressed is the prevailing low bank rates adversely affecting their overall cash inflows, the statement said.

Burla added, "The RBI bank rates are expected to remain at low levels to revive growth and mitigate impact of Covid-19 on the economy. Low bank rate would reduce the overall inflows for a HAM project thereby adversely affecting its debt coverage metrics and returns to the investors."

Introduced in January 2016 to revive investments in road infrastructure projects, under HAM project the government releases 40 per cent of the total project cost and the balance 60 per cent has to come from the developers.