Higher competition in road projects could lead to working capital stress: ICRA

According to the ICRA report, bidders are quoting a discount of as high as 30-35 percent to the NHAI's base price for some engineering, procurement and construction projects

As an aftermath of the Ministry of Road Transport and Highways relaxing eligibility criteria for bidding in highway projects, competition in road projects has shot up in the past few months and this could lead to a build-up of stress on the working capital cycle, rating agency ICRA said in a report.

"Discounted bids to NHAI's base price are coinciding with the period of high commodity prices (steel, cement etc). Consequently, the impact on the profitability of the contracting companies could be substantial," Burla added.

The aggressive bidding for the projects may also lead to projects getting delayed or stuck or under dispute as lower profitability in the projects would constrain the contractor's ability to absorb time and cost overruns in the project.

"The time and cost overruns could be due to various reasons, including steep increase in commodity prices, change in scope, delays in land acquisition and approvals; and force majeure events among others," the ICRA report said.

Earlier in 2021, MoRTH revised the model concession agreements for both engineering, procurement and construction projects and hybrid annuity mode projects, thereby opening up the road sector to more construction companies.