NHAI extension in concession time for BOT toll projects is pointless: Icra

It does not compensate for loss in net present value terms for most Build-Operate-Transfer toll projects, says agency

The extension in concession period, by the National Highways Authority of India (NHAI) with the idea of compensating companies for loss in toll collection during the first phase of the nationwide lockdown fails to do the needful for some highway projects, ratings agency Icra said.

Extension in concession period by NHAI does not compensate for loss in net present value terms for majority of BOT (Build-Operate-Transfer) toll projects. For the entities who have not opted for moratorium on project loans earlier, Covid-19 loan from NHAI is a positive in terms of liquidity.

It can be noticed that projects with revenue loss upto 18% and balance concession period upto 5 years and projects with revenue loss upto 10% with balance concession period upto 10 years are likely to get benefitted with the extension in concession period by three months. For all the remaining projects, the extension in concession period by NHAI does not compensate for loss in net present value terms, Icra said in a statement.

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

Icra noted that event was expected to be treated under political force majeure (FM) clause of the concession agreement (CA), as was done during demonetisation when the tolling was suspended for 24 days in November 2016.

As per CA, all force majeure costs (including interest and O&M) are to be reimbursed by the concession authority in case of a political event and revenue loss is to be compensated by extension in concession period. As per rating agency, the total O&M expenses and interest costs for the BOT Toll concessionaires for the recent 25-day period of toll suspension is estimated at Rs 649 crore.

The recent relief package announced by NHAI for BOT Toll concessionaires has two parts: (1) the revenue loss during and after toll suspension period will be compensated in the form of extension by three to six months in concession period and (2) covid-19 loan is provided for concessionaires to the extent relief is not granted under moratorium under RBI guidelines.

“NHAI seems to have taken a different approach when compared to the toll suspension during demonetisation period, when it compensated the concessionaires for the interest and O&M costs. Possible reason for this deviation could be the availability of moratorium on debt servicing under RBI guidelines. Further, O&M costs for an operational toll project is also not expected to be significant,” Rajeshwar Burla, Vice President, Corporate Ratings, Icra said.

He said that this approach may end up becoming contentious with concessionaires disputing the proposed relief measures. Also, these measure discriminates 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 bps with flexible repayment terms.

On an annual basis, for projects witnessing upto 25% loss in revenue, the extension in concession period would be 90 days and for projects witnessing more than 50% dip in toll collections the increase in concession period is capped at 180 days.