After nearly a three-month slump, highway road operators are starting to see toll revenues pick up in June. As economic activity resumes gradually, and curbs are lifted on inter-state transport, industry experts estimate that highway traffic and toll revenues have recovered to 70-75% of their pre-covid levels.
“We’re seeing nearly a 75% return of normal traffic numbers on our assets, depending on the geography," the promoter of a leading developer told Mint. “Toll revenues depend on the kind of traffic combinations, passenger or commercial traffic. The roads where we see more commercial traffic, revenues have picked up faster. Passenger numbers are still a fraction of what they used to be before the lockdown."
While consolidated traffic or toll revenue numbers aren’t publicly available for FY20, both government and private road operators combined had earned roughly ₹24,400 crore in toll revenues in FY19. Analysts estimate that this had risen to nearly ₹25,300 crore in FY20.
A report by credit ratings agency Crisil in early May estimated that the private sector would lose total toll revenue of ₹3450-3700 crore between March and June, based on the assumption of 90% toll revenue loss in April, 60-75% in May and 30-40% for June. The National Highways Authority of India (NHAI), the largest public owner of road assets, is expected to incur a loss of ₹2100-2200 crore over the same period.
“On the domestic front, there is an uptick on freight movement on highways," Jagannarayan Padmanabhan, Director and Practice Leader – Transport and Logistics, Crisil Infrastructure Advisory, told Mint. “Domestic freight movement accounted for the bulk of highway traffic, so that part is recovering well. The fact that overall manufacturing activity has improved and factories are operating at 80% capacities now has helped. Passenger traffic has fully washed out; even with restrictions on passenger movement being relaxed, we’re not seeing this pick up yet."
“The scope for clawback is in exim (export-import) cargo. Cargo volumes at ports have fallen 25-30% in May," Padmanabhan said. “About 75-80% of this cargo used to move further through roads and the rest through rail. This part of highway traffic is yet to pick up, particularly on the Mumbai-Delhi stretch and near major container ports in Gujarat, Maharashtra and Tamil Nadu. Passenger tolls don’t contribute much towards highway toll revenues; so the recovery in toll revenues for road developers will track the recovery in freight movement."
Despite June showing signs of recovery for developers, most continue to be unhappy with how the public nodal agency NHAI has decided to compensate long-term concessionaires on build-operate-transfer projects. The NHAI has said that for the revenue loss during and after the 25-day toll suspension period (from March 26-April 19) will be compensated in the form of extension by three to six months in the concession period. Developers say that the NHAI’s relief measures for when toll collections were suspended in November 2016 during the demonetisation period also compensated the concessionaires for the interest on bank loans and operations and maintenance (O&M) costs.
“There needs to be fundamental shift in how we evaluate losses of toll revenues," an investor in India’s highways network told Mint on condition of anonymity. “Road developers have not been given anything under this compensation scheme and everybody is extremely disappointed. The way I see it, the government has been penny wise, pound foolish and investors, especially those overseas, will be wary of investing in India in the future.
“Covid-19 has a two-pronged impact on the roads sector; one is the revenue losses during the 25 days of toll suspension in March and April. That’s the smaller part of the problem which could have been compensated by offering relief on O&M. The second is the prolonged impact on traffic growth because of weak economic activity, and there should be some non-cash compensation for this. An extension at the end of a 15-year concession period means nothing to me now, it will not be adequate in net present value terms."
Net present value contracts the current value of cash flows against a more uncertain future.
“Freight traffic can only return to pre-covid levels when full economic activity resumes," the first developer said. “There is no outlook for when that will happen and toll revenues will be suppressed for the medium-term at least. The recovery we have seen so far is faster than we anticipated. So in FY21, we don’t expect a growth in toll revenues but a faster recovery will help limit the downside."