Last week’s decision by the government to reschedule the premium payable by developers to the National Highways Authority of India (NHAI) is aimed at giving jammed road projects a new lease of life. The decision to reschedule the premium arose out of the fact that many developers quoted a hefty premium to win orders, as competition increased between fiscal years 2012 and 2013, which led to some projects turning financially unviable.

No doubt, the decision to reschedule will not change the profile of projects overnight. Analysts’ data indicates that more than 80% of the build-operate-transfer (BOT) projects awarded in fiscals 2012 and 2013 have not started construction yet. It is now widely known that land acquisition and environmental clearances, highly leveraged balance sheets, poor cash flows on existing projects and high interest rates are key reasons for a slowdown in the roads sector.

Around 23 projects caught in a quagmire will be examined on a case-to-case basis. However, a note by Citi Research says that one of the conditions to ensure smooth payments by developers after rescheduling is that the firms should furnish bank guarantees. “Given the tightening lending standards to road projects and leveraged balance sheet of developers, it may be difficult to furnish the bank guarantee,” it says.

As has been the case during the past several quarters, the September quarter too will see earnings of most infrastructure firms including roads being weighed down by high interest and depreciation costs. A report by IDBI Capital Market Services Ltd expects companies such as Hindustan Construction Co. Ltdand IVRCL Ltd to be in the red during the September quarter. And, others such as Simplex Infrastructures Ltd, Nagarjuna Construction Co. Ltd and IRB Infrastructures Developers Ltd are likely to see a decline in earnings compared to the year-ago period. Revenue expansion is likely in some cases where execution is on track.

But analysts’ data reveals that against a normal road completion time of 48 months, most projects awarded in fiscal 2009-10 are complete to the extent of only 50-60%.

Complicating the imbroglio is the fall in order inflows, which could get worse in the near term, given that elections typically see major decisions being postponed. This would stymie revenue expansion too. This fiscal year till date, NHAI has awarded only 479km of road projects costing Rs.2,700 crore, compared to the road ministry’s target of 5,000km of both EPC and BOT projects. EPC stands for engineering, procurement and construction.

Now, the orders that have already been given can mean healthy order book for some firms, giving decent revenue visibility for the next one or two years. Among the mid-sized firms, Sadbhav Engineering Ltd and Ashok Buildcon Ltd are better off than some of their peers.

The government’s desire to give a push to infrastructure projects may result in some relief from the problems of poor order inflows and low financial viability of existing projects. But the pace leaves a lot to be desired and it may be many more quarters before actual and substantial movement is visible. For now, nothing seems to have changed for the roads sector.