Whalesbook
Road Project Delays Mount
India's highway construction, particularly its Hybrid Annuity Model (HAM) projects, faces significant execution hurdles. A Crisil Ratings analysis of 72 under-construction HAM projects, covering about 2,600 km, found nearly 60% are delayed by an average of 11 months. These delays are slowing national highway development.
The main cause of these delays is the lack of right-of-way (RoW), which is essential for construction. This problem affects nearly 75% of delayed projects. Other factors include slow environmental and forest clearances, obtaining local permits, on-ground protests, and adverse weather like heavy rain.
Credit Quality Holds Firm
Despite these widespread delays, developers' credit profiles remain stable. Around 90% of the delayed project mileage has secured extension approvals from authorities. This is largely because the delay reasons are not the developer's fault, a critical factor protecting their credit. Crisil found that 54% of under-construction HAM road length has received approved extensions from bodies like the Ministry of Road Transport and Highways (MoRTH) and the National Highways Authority of India (NHAI), with another 5% pending. Only 41% of projects are on schedule.
Managing Cost Overruns
The extended construction timelines have resulted in average cost inflation of 5-10% for these projects, raising the risk of cost overruns for developers. However, contractual safeguards are significantly easing this financial pressure. Inflation-linked indexation clauses in concession agreements allow developers to recover some of these increased costs. Measures like de-scoping or de-linking project sections where RoW is unavailable also protect developer cash flows. These mechanisms allow projects to obtain provisional completion certificates despite delays.
Operational HAM projects are also affected by execution delays. Crisil noted that about 58% of HAM road length expected to become operational by March 2026 saw average delays of 9.5 months. Like under-construction projects, most of these also received extension approvals, preventing major rating impacts.