Bharatmala road projects costs surge with input prices

Icra reported that the cost of road projects under the Bharatmala Pariyojana (BMP) initiative has risen to Rs 10.64 trillion, exceeding the original estimate by more than double. The costs now average Rs 310.6 million per km, primarily attributed to an increase in input prices and land acquisition costs. The approval of the Union cabinet is awaited for the revised expense plan for Bharatmala Phase-I. However, there has been a significant slowdown in the awarding of new projects, resulting in a 48% year-over-year (YoY) decrease in the volume of project awards. In the first seven months of FY24, only 2,595 km were granted compared to the 5,007 km awarded in the same period last year. Icra estimates that awarding activity is expected to decline more than 30% YoY in FY24. Ashish Modani, Vice President & Co-group Head, Corporate Ratings at Icra, stated, The burden on the Ministry of Roads and Transport and Highways (MoRTH) in case of BOT (Toll) projects is much lower, given the substantial cost escalation in the BMP and consequent increase in funding requirement. The MoRTH has thus shifted its focus onto BOT (Toll) projects. For engineering, procurement, and construction (EPC) and hybrid annuity model (HAM) projects, the average number of bidders was substantially higher at 15 and eight, respectively, compared to less than five for BOT projects. BOT projects demand greater initial equity and carry more market risk.