For projects, which are publicly funded and currently being tolled by NHAI through toll contractors will mean a direct revenue loss for NHAI due to toll suspension.
The outbreak of Covid-19 will impact all segments of infrastructure — roads, airports, and metros. The disruption caused by the pandemic may well roll over into FY21, which will impact toll collections, airport revenues and ticketing collections of metros. The National Highways Authority of India (NHAI) is estimated to suffer a loss of Rs 953 crore on account of 21-day toll suspension, while there will be a relief to toll road operators as they will be compensated for the loss, due to lockdown following Covid-19 outbreak.
According to ratings agency Icra, force majeure clauses under concession agreement provide for compensation to the toll operators for revenue loss and allocation of costs under various such events. While revenue loss gets compensated through extension of the concession period, operations and maintenance costs (O&M) along with interest costs are compensated in full for the entire affected period.
The O&M and interest costs put together account for 50-55% of the overall revenues. At present, there are 570 operating toll plazas on the national highways across India. These include both publicly funded ones, which are under the direct control of NHAI and projects which are under build operate and transfer (BOT) model.
The total toll collections from these operating toll plazas stood at Rs 24,396 crore in FY19, according to Icra. For projects, which are publicly funded and currently being tolled by NHAI through toll contractors will mean a direct revenue loss for NHAI due to toll suspension. Such revenue loss is estimated to be Rs 429 crore, while compensation to BOT concessionaire under force majeure is estimated at Rs 524 crore, totalling up to Rs 953 crore for the 2 day period, the ratings agency estimated.
As for the financial year 2020-2021, it is estimated that toll collections will decline by 6.5%-8%. This is after taking into account NHAI’s compensation of the O&M and interest costs by June 2020 for the entire lockdown period.
The ratings firm has estimated that the GDP growth will be at 2% for FY2021. As a result, as far as toll road projects are concerned, the assumption is that entire April, 2020 will be under toll suspension with gradual ramp up over a three month period between May and July, 2020. Subsequently, the traffic growth rates aligned to ICRA’s quarterly growth estimates of GDP, will see a decline.
“The detrimental impact of Covid-2019 on the overall economy would in turn affect the movement of freight on the road stretches and the air traffic,” Rajeshwar Burla, vice president (corporate ratings), Icra said.
On the air traffic movement, even prior to Covid, the growth in air craft movement as well as passenger traffic had slowed down considerably during nine months of FY20. Overall, adjusted for the closure of airport operations (excluding cargo), the passenger traffic witnessed de-growth in the range of 3-5% for FY20.
Burla said that majority of the revenue loss for airport operators is short-term in nature as the operators have enough on-balance sheet liquidity which helps them tide over short term cashflow mismatches. As for the loss of 70% of non-aero revenues in the post Covid-19 scenario will have to be borne by the operator, which would impact their return on capital employed. “From the debt serviceability point of view, no issues are being envisaged.”
As for the metros, ticketing revenues are directly linked to the ridership and are likely to remain under pressure even post lockdown, as social distancing norms are likely to continue, which discourages usage of mass transit systems.
Also, transit-oriented development and lease rentals make up for a sizeable revenue contribution for metros. With a majority of the tenants started asking for the lease rental waiver or deferment could impact the overall cash flow position of metro projects.