Government's plan to allow National Highways Authority of India (NHAI) to offer rationalised compensation to road concessionaires, though is a positive in terms of cash flows, it is unlikely to improve their debt burden due to no change in repayment schedules, says a report.
The extended concession period, through additional toll collection in the later years, can improve cash flows and positively impact the project life coverage ratio.
But the impact in terms of improving debt servicing ability of the road project concessionaires will be limited as the extension of the concession period may not simultaneously result in a change in the repayment schedule, an India Ratings report said today.
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According to NHAI data, over 80 projects worth Rs 83,000 crore, 24 per cent of them on annuity and rest on toll, are under implementation.
The letter of award for these projects dates back over four years and most of these projects are stranded and are encountering cost overruns due to non-availability of land, for want of clearances from Environment Ministry and various other departments.
In case of annuity projects, NHAI will pay a compensatory annuity based on the product of average daily annuity and the number of days delayed. Although there could be some erosion from the original expected net present value of annuity receipts, timely compensation will ensure adequate liquidity and coverage ratios for the project, it noted.
So far, cost overruns due to non-fulfillment of conditions set by NHAI are bridged by a combination of additional equity and debt.
In a recent policy measure, NHAI approved one-time funding
for projects that are stuck due to equity funding issues, despite being not obligated to bridge the deficit.
But the current proposal aims to bridge revenue losses due to the failure to make land available in time for project completion.
However, the proposal continues to load construction risk on to developers by limiting completion to a three-year period, whereas delays stem from land unavailability on time.
Eligibility criteria for extension of the concession period and awarding compensatory annuities shall be determined on a case to case basis in consultation with the project's independent engineer and further approval by NHAI.
The new policy initiatives like the exit policy for developers and one-time fund infusion by the government may give a fillip to the road sector, as this may push up average daily road construction, which had dropped to 4.1 kms in FY15 from an all-time high of 7.4 kms in FY13, it said.
Despite these measures, the viability of some of these projects could still be in question given the lower-than-projected traffic growth and contraction in toll rates directly linked to inflation, the report warned.
