Awarding to break four-year streak this year, Bharatmala Phase 1 stretches on

A limited rise in budgetary support, coupled with higher capex for 70% of high-value expressways currently under construction, could defer NHAI awards under Bharatmala Phase 1 beyond fiscal 2024 - the year construction was originally scheduled to be completed. About 40% of detailed project report-ready projects under Bharatmala Phase 1 are yet to be awarded.

The NHAI awarded 55% of projects under the hybrid annuity model (HAM) and only 1-3% under build-operate-transfer (BOT) over the past 2 years (see chart below). The easing of bidder financial capacity criteria and changes in the HAM and BOT model concession agreement in fiscal 2021 has aided the spurt in HAM awards.

Amid a flurry of bids, premiums tumble

In fiscals 2021 and 2022, when the financial threshold to bid was reduced, NHAI awarding peaked. Package sizes reduced by 30% over 2016-20 levels, to fast-track construction by awarding to a larger pool of players. All this led to intensified competition, with nearly 15 bidders per project. Bid premiums nosedived to as low as ~4% from ~16% on average earlier. Instances where even large players bid aggressively increased and one-third of projects were awarded at discounts.

Government measures to lower competition intensity

Amid rising concerns on aggressive bidding in the HAM space, recent government measures have been announced.