Toll exemption for small vehicles and state transport buses offered by a few state governments is emerging as one of the major risks for road developers, particularly working on the state-led build operate transfer (BOT) model, according to a report.
In terms of vehicular movement, the state highways are typically dominated by passenger vehicles which account for more than 50 percent of the total traffic, which translates to about 25-30 percent of traffic in passenger car unit terms and revenues, rating agency Icra said in its report.
"The actual traffic on a majority of the state toll road stretches is already lower at around 60-65 percent of that of initial estimates. Toll exemption for select vehicle categories will be an additional burden on the cash flow and would affect the debt-servicing capability further," said Shubham Jain, vice-president and group head, corporate ratings, Icra.
Timely and adequate reimbursements from the respective state governments will remain critical for the concessionaires from the debt-servicing point of view, he added.
The toll exemption policy, which was rolled out by Maharashtra in June 2015, Gujarat in August 2016 and Rajasthan in April this year, pose a risk to the state-led BOT model, Icra said.
The agency estimated around 27 percent of the BOT projects in Maharashtra, with an outstanding debt of Rs 1,110 crore, to be vulnerable, while nearly 43 percent of such projects in Rajasthan with an outstanding debt of Rs 3,109 crore to be vulnerable.
As far as compensation is concerned, Icra said in Maharashtra, the quantum of compensation has been disputed by many concessionaires and the payments are made with a lag of three to six months and several payments for projects under dispute are still pending.
Gujarat, on the other hand, has started compensating for the revenue loss on an adhoc basis pending finalisation of the formula, however, the payments are made within 30-45 days, it added.
Since the compensation formula is yet to be finalised by Rajasthan, Icra believes the liquidity stress till the receipt of compensation from it could jeopardise the concessionaire's ability to service debt in a timely manner in the absence of sponsor support or maintenance of debt service reserve account.
"Deviations like these from the contractually binding concession agreements, are likely to result in disputes as the quantum of compensation in such cases is always not agreeable to all parties," it said.
At a time when the participation from the private sector is muted and lenders tread cautiously into new infrastructure projects, the rating agency said this move could further dent the confidence of both private participants and lenders.
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