17 October 2019 15:14:19 IST

Tracking infrastructure project delays

The state of infrastructure is abysmal, with a third of all projects delayed by an average three years

With major infrastructure projects being stalled for various reasons including meagre availability of funds, the Centre has been mulling over ways to reform the infrastructure space. After the Budget, several committees have been set up to tap multiple funding avenues, including monetisation of existing assets and easing the rules governing NRIs and foreign institutional investments in this sector.

The Ministry of Statistics and Programme Implementation (MoSPI), through its Infrastructure and Project Monitoring Division (IPMD), tracks Centre-led infrastructure projects. This is essentially done through data from respective governmental departments available in the Online Computerised Monitoring System (OCMS), that monitors Central sector infrastructure projects of over ₹150 crore taken up by the respective Ministries and their Central Public Sector Enterprises (CPSEs) across 16 sectors.

The MoSPI then releases data on the implementation status through monthly and quarterly flash reports.

The report for June 2019 states that, of the ,608 projects monitored, 360 have shown cost overruns, totalling to ₹4.08 lakh crore as of July 1, 2019. This amounts to roughly 2 per cent of our GDP in FY19.

Railways, power, water and roads

The biggest cost overrun was from the Railways — 53.6 per cent. Of the 320 railway projects under construction, 197 saw an overrun of ₹2.19 lakh crore — pushing the anticipated cost of completion 120.44 per cent higher than budgeted.

Next in line were power projects, (accounting for 18.2 per cent of total cost over-run), followed by water resources and road transport projects (11 and 4 per cent respectively). These sectors saw cost escalations over original estimates of 47.6, 447.2 and 47.27 per cent respectively.

Such high escalations were predominantly attributed to spiralling land prices, high spend on environmental safeguards and rehabilitation measures, and monopolistic pricing by vendors of equipment and services.

Time overrun

A key reason for the cost escalation was time overruns. A total of 185 projects reported both time and cost overruns vis-à-vis implementation schedules. 51 per cent of the 360 projects saw cost overruns in June.

That aside, of the projects being monitored (1,608), 550 recorded delays. The date of completion has been revised for some of them. Going by the new deadline, the number of delayed projects is now 474.

While the average time overrun in these 550 delayed projects is 39.24 months, 116 (21.09 per cent) projects have delays of five years and above. Projects with one to two-year, and two to three-year delays form 21.64 and 24.18 per cent of delayed projects respectively.

of In June alone, 119 projects reported additional delays from the date of completion set for each the previous month. Of these, 51 are mega projects costing ₹1,000 crore and above.

Projects in the road transport and highways sector topped the time overruns. In 227 of the 831 ongoing projects, there were delays ranging from one month to over 11 years.

Railway projects also maintained their position in the leader board with delays ranging from one month to (as high as) 27 years, coming from 138 projects.

The significant delays could be attributed to a multitude of factors, including clearances for environment, forest and wildlife and eco-sensitive zones, grant of right of way, land acquisition, diversion of forest land, fund constraints, Maoist problems, court cases, contractual issues, shifting utilities and removal of encroachments.

More headroom for cost overruns?

Higher escalations were seen in projects in Meghalaya, Manipur, Jammu and Kashmir and Arunachal Pradesh, where the cost of various projects under construction more than doubled.

These costs could spike further, given that the cumulative expenditure on projects in these States was less than 65 per cent — in the case of Meghalaya, it is at 12 per cent — of the anticipated cost. The significant amount of pending work could be indicative of greater cost escalation on account of unfavourable changes in inflation and foreign exchange.

When sanctioned, the 320 railway projects cumulatively had an original cost of ₹4.63 lakh crore. Subsequently the costs were hiked to cumulatively reach ₹6.71 lakh crore — a 44.3 per cent cost overrun. What is worrisome is that only ₹1.82 lakh crore has been spent on these projects till June 2019 — that is 27.1 per cent of the anticipated cost of the projects. This could imply further spike in these costs in the upcoming months.

Similarly, projects in road transportation and highway sectors saw a 3 per cent hike in the total cost. Of the now anticipated cost of ₹5.07 lakh crore, only 46.1 per cent was incurred till June 2019, leaving headroom for a further jump in costs.

Extensive delays in CPSE projects ultimately affects the companies entrusted with the construction of these projects. At the end of the latest June quarter, companies like Dilip Buildcon, PNC Infratech and Ashoka Buildcon have order-books of ₹19,000 crore, ₹11,900 crore, and ₹9,000 crore, respectively. However, more than 75 per cent of these contracts have not commenced construction, mainly because of delays in land acquisition.

While road project delays push up costs for road developer companies, they also mean funds are locked for extended periods and, hence, the company’s order-book growth too gets impacted. Persistent delay in land acquisition and prolonged liquidity constraints also have a bearing on the top line of construction companies, with worrying outcomes for the working capital cycle.

Trend over the years

The number of delayed projects, as high as 48.11 per cent of total number of projects in March 2009, had fallen to 26.56 per cent in January 2019, on account of various government policies and control measures.

While the delay in projects has shrunk, cost escalation as a percentage of originally approved cost (total) of all projects inched up from 13.45 per cent to 17.45 per cent over the last decade.

But FY19 saw an improving trend — the number of projects that saw a time overrun were at 34.2 per cent in June 2019. And cost escalation as a percentage of originally approved cost was down to 20.23 per cent.

This can predominantly be attributed to fewer new projects (resulting in a drop in the base) — the number of projects monitored in December 2018 was 1,464. The same in May 2019 was 1,623 and in June 2019 the number was 1,608.

Inadequate data

While the data in the flash reports throw light on the appallingly slow progress in Centre-led infrastructure projects, it is not comprehensive. This is because of the under-reporting by Departments on the OCMS platform. For instance, of the 1,608 projects being tracked in June 2019, neither the year of commissioning nor the tentative gestation period had been reported for 644 projects. Dates of completion were subsequently added, but only for 165 projects.