Clearly, calculations of many road developers have gone awry. Our analysis shows 5 out of 6 projects have an average debt service coverage ratio (DSCR) of less than one in the first 5 years of operations. This means if there is no additional capital infusion, developers will find it difficult to service loans, the study said. Whats worse, the six projects are so delayed that costs could overshoot the original budgets by about 23%, severely straining the financial viability of the projects.
The findings come even as the NHAI has reworked the rules for highway developers based on the recommendations of the Rangarajan committee, taking into account Clause 28 of the concession agreement. The scheme allows the developer to defer 100% of premium in case there is an actual shortfall in revenues. NHAI believes many of the projects are viable.
RP Singh, chairman, NHAI, told FE in a recent interview that it was worthwhile rescheduling road projects and offering developers loans at 10.75% to take care of the shortfall in revenues instead of allowing the bids to lapse. What is the choice we have Do we want these projects to become NPAs These are projects that have financial closure and where work has started and while others may believe the bids are aggressive, our opinion is they are not, Singh had noted.
The NHAI chairman said that while the projects may seem unviable in the present scenario, given that bank loans are available for 12 years, the concessionaire, he added, cant run away with the road and the toll collections can be huge once the debt obligation is over. He felt that re-bidding the projects, at a time when there was no competition, would amount to short-changing ourselves since these projects can earn huge amounts.
In the case of six national highway stretches, base traffic has been lower by a significant 20-40%, falling far short of NHAI estimates. Across 15 national highway stretches, traffic growth slowed to about 3-4% in FY12 and 2-3% in FY13 compared with 7-8% between FY08 and FY11. The sharp drop is the result of fewer commercial vehicles on the roads; CV traffic, which accounts for three-fourths of total traffic, grew just 2-3% in FY12 and just 1% in FY13. Typically, a 100 bps drop in traffic growth over the concession period, reduces project returns by 75-100 bps; a 10% increase in costs lowers project returns by 100 bps. Crisil estimates FY15 traffic growth at just 3-5% on the back of a 1-2% growth in FY14.