Extension of concession period for toll road operators unlikely to provide adequate relief: Icra

The National Highways Authority of India's (NHAI) decision to extend concession period for toll road operators to compensate for toll revenue loss during the lockdown is unlikely to provide adequate relief to the concessionaires, Icra said on Monday.

The Ministry of Road Transportation and Highways (MORTH) had suspended tolling on all national highways for a 25-day period between March 26, 2020 to April 19, 2020.

According to the rating agency, the extension of concession period by 3-6 months will not compensate for the loss incurred by concessionaires, who have a longer balance concession period (more than five years), during the period of lockdown.

The agency noted that entities which suffered a maximum of 18 per cent revenue loss and have a balance concession period of up to five years are the only ones which are better off with the extension in concession period as they are protected in net present value terms.

"However, the relief will not be helpful for those having higher losses (more than 18 per cent), despite having a balance concession period of up to 5 years. Also, those having a balance concession period of 15-20 years, this extension of 3-6 months will provide no relief," it said.

Post resumption of tolling, toll collections reached 30-35 per cent of pre-COVID-19 levels in last week of April 2020, which subsequently improved to 50-55 per cent in May 2020, it added.

"On an annual basis, for projects witnessing up to 25 per cent loss in revenue, the extension in concession period would be 90 days and for projects witnessing more than 50 per cent dip in toll collections the increase in concession period is capped at 180 days," Icra said.

Rajeshwar Burla, Vice President, Corporate Ratings, ICRA said, "In net present value terms, the relief measure does not adequately compensate for the losses incurred by the majority of the operational BOT (build, operate, transfer) toll road projects.

"Such departure from the concession agreement could have been avoided as it may have ramifications on attracting investments in TOT (toll, operate, transfer) and NHAI's InvIT," Burla said.

Apart from extension of the concession period, NHAI's relief package also includes providing loans to concessionaires who have not availed or have not been granted moratorium under RBI guidelines.

Many BOT concessionaires have already opted for loan moratorium on their project debt, thus, in such cases, the quantum of COVID-19 loan eligibility is not significant.

However, for the entities that have not opted for loan moratorium earlier, the COVID-19 loan is a positive from a liquidity point of view, the agency noted.

"Nevertheless, this approach may end up becoming contentious with concessionaires disputing the proposed relief measures.

"Also, these measures discriminate between concessionaires as entities that have not opted for loan moratorium earlier are better off – they would now have access to COVID-19 loan from NHAI at a much cheaper rate of bank rate plus 200 basis points with flexible repayment terms," Burla added.