ICRA says exemption of toll will lead to Rs 460 crore revenue loss

MUMBAI: Exemption of toll collection in on national highways because of the cash crunch due to the ongoing demonetisation of high value currency will result in revenue loss of Rs 460 crore for private road builders resulting in a significant liquidity stress for most rated road projects, credit rating agency ICRA said.

Developers are likely to apply for compensations under the concession agreements which allow them to claim losses if the aggregate financial impact exceeds Rs 1 crore and 0.5 per cent of realisable fee or force the extension of the concession.

“With average daily collection ranging between Rs.40 lakh, the loss of toll revenues for around 115 toll projects of NHAI ( National Highway Authority of India) operated by private players is estimated to be in the range of Rs.460 crore for the ten day period,” ICRA said.

A majority of the highways do not have a sizeable accumulated surplus or a debt service reserve account (DSRA), which will put these projects under stress, ICRA said.
“Most road projects have been operating on a low buffer, 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,” Shubham Jain vice president ICRA said.

“Moreover, even post commencement of the tolling, the traffic levels are expected to remain lower initially on account of the overall low economic activity,” Jain said.

ICRA expects NHAI to opt for cash compensation, instead of extension of concession, considering the developers’ financial stress, though there is, still uncertainty of the quantum, mode and timing of such compensation.

ICRA did not announce any rating moves due to this demonetisation but it said it will continue to monitor the developments.