Diesel price hike will push up road laying cost: Highway developers

Toll-road based infrastructure developers feel that the diesel price hike would raise road laying cost by two to three per cent.

On an average the per kilometre cost of highway roads works out to Rs 13-14 crore. This, they felt, would have a sizable impact on large road projects where margins were tight.

Indirect cost rise

A senior official of a Mumbai-based infrastructure company which is into developing roads, highways, metro rail and airports, said it would be two to three per cent. Conceding that it was not as significant compared to hikes in steel or cement, he said infra companies would have to contend with the indirect cost rise in material transportation, besides margin pressures going forward.

Though toll rates, liked to WPI (wholesale price index) will also move up, the impact of the current diesel price hike and its bearing on toll rates will not be felt till September 2012.

The government notification as per the WPI index movement, which takes cognisance up to April 1, would be applicable from September 1, said Mr Rajhoo Bbarot, Managing Director, Altlanta.

Atlanta has three toll-based project generating toll collection of about Rs 90 crore.

Mr Bbarot said toll-based projects do not come with an escalation clause for material. Diesel impact will be felt on two fronts – basic transportation of material and in the heating of hot mix where diesel is used. Petroleum products form 15 per cent of this and excluding bitumen, which is volatile, a two per cent hike in cost can be expected, he said.

Interestingly, bitumen price has fallen by Rs 1,500 a tonne to Rs 32,000 a tonne, which, Mr Bbarot said, had more to do with fall in demand as no road laying work is undertaken during monsoon.

TOLL TO GO UP

According to a Crisil report, the revenues of operational toll-road projects stand to benefit from high-inflation.

This high revenue growth, coupled with low operating costs for toll roads will, therefore, enhance the cash accruals and debt repayment capacity of toll roads by 20 per cent, the report said.

Crisil also said consumers should be prepared to pay higher toll charges.

Crisil analysed the impact of the current inflationary environment on revenues of 21 toll road projects in operation. The cumulative toll revenue for these projects was about Rs 1,000 crore for 2010-11. The revenues for these road projects would grow by 20 per cent in 2011-12, said Mr. Pawan Agrawal, Director – Crisil Ratings. This growth will be contributed almost equally by revisions in toll rates and an expected rise in traffic volumes based on estimates of nearly eight per cent growth in Indian economy, he added.

Road sector's concession agreements allow for the increase in toll rates to be linked to movements in inflation indices during the year, and the inflation rate has averaged at 9.5 per cent in the past 12 months. The monopolistic features of roads, given the paucity of quality alternative roads and their close linkage with economic activity will ensure that road traffic continues to grow at about 10 per cent in 2011-12, he said.

Mr Agrawal said such strong revenue growth will augment the debt service coverage capacity of toll road projects. Expenses for toll roads are primarily related to maintenance and upgrade, and generally range between 25-30 per cent of revenues.