Opinion | Application of newer toll collection tech will give a boost to sector2 min read . Updated: 01 Jan 2020, 11:11 PM IST
FASTag benefits will only materialize if its implementation is smoothly handled
In line with the government’s digitization push, the National Highways Authority of India (NHAI) has made FASTags mandatory from 15 January for vehicles using national highways. This initiative will have a far-reaching impact on stakeholder value creation by improving profitability of projects and consequently debt servicing ability and valuations.
FASTags can be a game-changer for highway sector mergers and acquisitions (M&As) and financing transactions:
• Plugging revenue leakages: Toll collection efficiency in India improved over the last few years as the system leveraged newer technologies. Despite this, efficiencies are in the range of 98% even on the best-managed highways. With the implementation of FASTags, it will be near 100% in the short to medium term, and projects witnessing toll violations and leakages are expected to reduce more than 90%. The biggest beneficiaries will be urban stretches or projects in states with weak on-ground enforcement support.
• Reduction in operations and maintenance costs by 8-10%: Manpower requirements to collect toll and manage traffic at toll plazas will come down by close to 50%, once the system is fully stabilized. Savings will, however, materialize only after the initial teething issues, such as manual handling of blacklisted tags and consumer awareness on lane compliance, are solved.
Given that equipment costs for implementing FASTag tolling will be borne by NHAI under the provisions of the concession agreement, projects awarded on BOT basis will benefit significantly. FASTags may boost the sector in the following ways:
• Improved debt servicing ability: Given that around one-fifth of NHAI BOT projects are in stress or close to stress, improved topline and margins will be a boon. Given that the formula for altering the concession period for projects with lower than target traffic is not linked to revenue but to traffic counts, stressed projects will benefit from the concession agreement that provide a reprieve to under-performing assets.
• Better valuation and smoother closure for M&A deals: We are witnessing better value realization for sellers in M&A deals, particularly in projects where traffic leakages are high. Also, traffic due diligence used to be a key uncertainty with regard to a transaction’s success. However, with largely digital revenue collection and the availability of reliable traffic data, we expect M&A transaction closure timelines to reduce, and potential disconnects between the buyer’s and seller’s views on base traffic will be eliminated. Problems such as incorrect classification of projects and violations maybe eliminated in the short term.
Besides public-private partnership projects awarded by NHAI, FASTags will also improve value realization for the operations, management and tolling and toll, operate, transfer projects that NHAI would award in the future. Similarly, collections related to overloading penalty are also expected to become streamlined and accurate.
These benefits are in addition to the significant boost to businesses in the form of improved logistics such as improved truck turnarounds and higher fuel efficiency. Resistance from urban consumers to paying tolls, primarily because of long queues at toll plazas, is also addressed with FASTags.
However, the Centre needs to be cognizant that these benefits will only materialise if the implementation is smoothly handled. Some areas will need further work. These include FASTag-related working capital schemes for truck users, customised solutions for toll plazas with additional vehicle toll categories, and further refining the solution through GPS-based tolling.
Srishti Ahuja is partner–infrastructure, investment banking advisory, EY India.