[ecis2016.org] The exemption from paying toll, offered by several state governments to certain vehicles, could affect the revenues of road developers working on the ‘build operate transfer’ model and discourage private investment in road projects, warns a study by ICRA
Toll exemption for small vehicles and state transport buses, offered by a few state governments, is emerging as one of the major risks for road developers, particularly working on the state-led build operate transfer (BOT) model, according to a report. In terms of vehicular movement, the state highways are typically dominated by passenger vehicles, which account for more than 50 per cent of the total traffic, which translates to about 25-30 per cent of traffic in passenger car unit terms and revenues, rating agency ICRA said, in its report.
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“The actual traffic on a majority of the state toll road stretches, is already lower at around 60-65 per cent of that of initial estimates. Toll exemption for select vehicle categories, will be an additional burden on the cash flow and would affect the debt-servicing capability further,” said Shubham Jain, vice-president and group head, corporate ratings, ICRA. Timely and adequate reimbursements from the respective state governments, will remain critical for the concessionaires, from the debt-servicing point of view, he added.
The toll exemption policy, which was rolled out by Maharashtra in June 2015, Gujarat in August 2016 and Rajasthan in April 2018, pose a risk to the state-led BOT model, ICRA said. The agency estimated around 27 per cent of the BOT projects in Maharashtra, with an outstanding debt of Rs 1,110 crores, to be vulnerable, while nearly 43 per cent of such projects in Rajasthan with an outstanding debt of Rs 3,109 crores will be vulnerable.
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As far as compensation is concerned, ICRA said in Maharashtra, the quantum of compensation has been disputed by many concessionaires and the payments are made with a lag of three to six months and several payments for projects under dispute are still pending. Gujarat, on the other hand, has started compensating for the revenue loss on an ad-hoc basis, pending finalisation of the formula. However, the payments are made within 30-45 days, it added. Since the compensation formula is yet to be finalised by Rajasthan, ICRA believes the liquidity stress till the receipt of compensation from it, could jeopardise the concessionaire’s ability to service debt in a timely manner, in the absence of sponsor support or maintenance of a debt service reserve account.
“Deviations like these, from the contractually binding concession agreements, are likely to result in disputes as the quantum of compensation in such cases is always not agreeable to all parties,” it said. At a time when the participation from the private sector is muted and lenders tread cautiously into new infrastructure projects, the rating agency said this move could further dent the confidence of both, private participants and lenders.
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