Toll exemptions following the ban on high denomination notes spell a rough ride for toll road projects: ICRA
* loss of toll revenues for around 115 toll projects of NHAI operated by private players is estimated to be in the range of Rs.460 crore for the ten day period
Toll plazas have been collecting high denomination notes like other public utilities, following the ban on high denomination notes. To avoid traffic snarls, the NHAI had exempted tolling on its stretches initially till November 11, 2016, which has been extended to November 18. The loss of toll revenue for the 10-day period is expected to result in significant liquidity stress for most of the rated road projects, except the ones with a sizeable accumulated surplus and/or structural features like availability of Debt Service Reserve Account (DSRA). These projects constitute a very small percentage of the operational projects and hence the credit impact on the sector can be substantial.
Mr. Shubham Jain, Vice-President, ICRA,said: “Most road projects have been operating on a low buffer over DSCR, owing to various factors like low base traffic/ traffic growth, high premium payments and modest toll rate hikes on account of the prevailing low wholesale price inflation over the past few years. In this scenario, loss of at least one-third of the monthly toll revenues is likely to result in inadequate cash flows to service the debt commitments for November and December 2016. Moreover, even post commencement of the tolling, the traffic levels are expected to remain lower initially on account of the overall low economic activity.”
As per press reports, the NHAI has announced partial compensation for the developers due to the loss of toll revenues. With average daily collection ranging between Rs.40 lakh[1], the loss of toll revenues for around 115 toll projects of NHAI operated by private players is estimated to be in the range of Rs.460 crore for the ten day period. The Concession Agreement (CA) provides adequate safeguard against such losses and the developers are likely to apply for compensation under the Change in Law provision (compensation if aggregate financial impact exceeds the higher of Rs 1 crore and 0.5% of realisable fee) and the Force Majeure clause (extending the concession by the number of days the force majeure was prevalent). “ICRA expects that the NHAI may opt for cash compensation, instead of extension of concession, considering the developers’ financial stress. Nevertheless, there is significant uncertainty regarding the quantum, mode and timing of such compensations,” Mr. Jain reiterated.
In addition to National Highways, many states have also exempted tolling on the State Highway stretches. ICRA will continue to monitor the developments with regards to re-commencement of tolling & compensation payments and take appropriate rating actions once more clarity emerges on the same.
[1] ICRA estimate; the range of average daily toll collection varies widely depending on number of lanes and geography
