NHAI's compensation for toll revenue loss insufficient: ICRA

Road regulator NHAI's decision to give relief on interest cost and operational expenses is a welcome step but the compensation is insufficient as it does not cover debt repayment obligation, ratings agency ICRA said.
Post demonetisation of currency notes of Rs 500 and Rs 1000, government suspended user fee collection on National Highways with effect from November 9 which went on till December 2 (midnight).
"NHAI's plan to provide immediate relief by covering 90 per cent of interest cost and O&M expenses (lower of actual and projected at the time of bidding) for the period during which tolling is suspended is a welcome move, however, the compensation does not cover the debt repayment obligation," ICRA said.

The proposed compensation mechanism based on Operations and Maintenance (O&M) and interest costs, could lead to disputes with developers given the huge revenue loss for them, it added.
"Given that the revenue loss is greater than Rs 1 crore in most of the BOT (Toll) projects and even in terms of the net realisable fee, it is around 6.6 per cent (24/365*100), some of the developers want Clause 41 to be invoked in this case," ICRA Vice President Shubham Jain said.
Under this, NHAI is obligated to place the concessionaire in the same financial position as it would have enjoyed had there been no such change in law. In which case, the clause also provides for cash compensation for revenue loss in order to protect the net present value of the cash flows to the developers, he added.

Classifying the temporary suspension of toll collection as a political event under force majeure, the NHAI plans to provide compensation to the extent of 90 per cent of interest cost for the 24-day period, only to the extent of the interest accrued on principal amount of debt provided by senior lenders for financing the total project cost (or the NHAI-approved refinancing package as the case may be), Jain said.

Interest on any top-up loan availed by the developers will not be considered, he added.
Unlike annuity road projects, where principal repayment falls due on semi-annual basis (in sync with semi-annuity payments from authority), majority of the toll road projects have monthly debt-repayment frequencies, he said.

"With only interest cost and O&M expenses getting compensated, the compensation will be inadequate from the debt servicing point of view, unless the project has debt service reserve account or other cash reserves to fall back on," Jain added.
National Highway Authority of India (NHA) has suffered an income loss of around Rs 1,238 crore due to suspension of toll collection on highways till December 2 post demonetisation.
Average toll collection per day is Rs 51.59 crore from fee plazas under NHAI, and taking into account the exemption till December 2, the income loss to NHAI due to suspension of toll collection on highways is around Rs 1,238 crore.