The Centre’s decision to exempt toll collection on its stretches till November 18 is expected to result in a significant liquidity stress for private players. The loss of revenue for the 10-day period is expected to be around R460 crore, said an ICRA note on Wednesday.
Toll plazas have been collecting high denomination notes like other public utilities, following the ban on high denomination notes. To avoid traffic snarls, the National Highway Authority of India (NHAI) had exempted toll on its stretches initially till November 11, 2016, which was later 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, the Icra note pointed out.
As per emerging reports, NHAI has announced partial compensation for the developers due to the loss of toll revenues. With average daily collection ranging between R40 lakh, the loss of toll revenues for around 115 toll projects of NHAI operated by private players is estimated to be in the range of R460 crore for the 10-day period.
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.”
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 R1 crore and 0.5% of realisable fee) and the Force Majeure clause.