Sunday , 5 July 2020

Traffic and Revenue – Highways Sector

The Impact of COVID-19 on road sector is upsetting and revenues are choked as the tolling across plaza was suspended in order to stop the spread of the virus. However now the lockdowns are getting relaxed, tolling is allowed and traffic is slowly coming up on road again though passenger car traffic is almost negligible. Dr. Zafar Khan, Head – Operations, Peak Infrastructure Management Services Pvt. Ltd. assesses the road sector scenario

The Impact of COVID-19 on road sector is upsetting and revenues are choked as the tolling across plaza was suspended in order to stop the spread of the virus. However now the lockdowns are getting relaxed, tolling is allowed and traffic is slowly coming up on road again though passenger car traffic is almost negligible. This is due to the fact that larger movement of population is still restricted and only commercial goods operations has been allowed to a certain extent.

The impact of COVID-19 actually started from March 26, 2020 when the all tolling operations were suspended on all road projects across India. While we are witnessing that lockdowns are keep getting extending but movement of vehicle on roads are being allowed in restricted manner. The relaxation on interstate and Inter – state movement of vehicle should help some more economical movement and bring back more traffic on road.

After the resumption of tolling operation from April 20, as announced by NHAI, the traffic on roads has still been in the range of 40 to 60% compared to normal traffic due to various lockdown measures and containment zones restrictions across India. Some of the projects might have seen good traffic increase in initial days of lockdown ease but that was purely caused by migrant worker’s exodus from major cities and now the revenues are back to 50 to 60 % of normal figures.

Year 2020 is getting proved to be worst year for the highway operators as there has already been a slowdown in economy and then there was revision in axle-load norms hitting the industry. The traffic on roads sharply went down causing huge losses to the tolling revenue. The year on year traffic on roads from Q3 2018 has dropped from positive 9% to expected negative 1% in Q3 2020. So almost 10% de-growth in a 2-years’ time frame.

While the Government is trying to monetize more and more toll road projects under TOT (Toll–Operate- Transfer) model and trying to attract more investment in the sector, the current situation can take away all the shine which was created in last TOT bids, if the sector is not supported well and in time by the government.

Recently the Government has announced a COVID-19 Relief Package targeting some long term non-cash relief to the sector and this should help the sector to sustain for some time.

The Government relief measures as per Policy Guidelines circular no. 8.3.33/2020 dated 26th May 2020 can be summarised as:

1. The force majeure periods have been classified under two separate events:
(i) Period from March 26, 2020 to April 19, 2020 when NHAI had suspended the toll collections
a. Concession extension granted – 26 days without any O&M Cost

(ii) Period thereafter when the concessionaires resumed tolling but were able to collect less than 90% of average daily fee on account of the effect of force majeure.
a. the extension to concession period will be assessed based on the losses in toll revenue and would be proportionately adjusted against this extension, provided that minimum extension would be 3 months limited to a maximum of 6 months.
b. The eligibility period will be minimum 3 months and maximum 6 months c. Applicability of this circular is as of now for MCA concessions and have not been extended to older concessions.

Cash Shortfall Loan: NHAI has agreed to provide a cash shortfall loan @ bank base rate plus 2% (currently 6.45%) to the extent of 1% of O&M cost plus debt servicing and principle payment cost reduced by the revenue collections. This will help the companies immediate cash short fall issues and should solve the problems of debt servicing and carrying the regular O&M.

There is still a demand from the industry to consider December WPI for toll rate revision (Due in July) as March WPI is fully impacted by COVID-19 and this will cause losses to the industry which is already taking the hit of lower traffic and further support the O&M cost during the announced suspension period as a minimum.

Disclaimer: The views expressed are based on author’s personnel industry experience and do not represent views of any operating companies in particular

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