The pandemic has significantly impacted the asset monetisation plans of the National Highway Authority of India (NHAI), as potential investors are finding it difficult to predict road traffic going forward.

This could have a bearing on the Centre’s Bharatmala initiative, which is expected to get delayed by 12 months, according to ratings agency Crisil. The government had mooted monetising road assets through infrastructure investment trusts (InvIT) and toll operate transfer (ToT) routes.

NHAI, the government’s nodal agency for roads, planned to raise close to ₹85,000 crore by monetising 6,000 km of operational toll roads. “We see this getting delayed by 24 months amidst Covid and the subsequent impact on all the stakeholders,” said Jagannarayan Padmanabhan, Director & Practice Leader - Transport & Logistics, Crisil Infrastructure Advisory. Suspension of tolling and gradual recovery thereafter will make it hard for potential investors to estimate the traffic and thus arrive at a fair value for the asset, he added. NHAI has so far awarded three ToT road bundles and the fourth one is delayed.

The cascading effect of Covid is set to hit NHAI and road developers severely. For example, NHAI’s awarding of projects are held up, leading to further delay in the completion of Bharatmala Pariyojana Phase-I. In this first phase, 9,700 km road projects with a total capital cost of ₹2.40-lakh crore were awarded or were under construction till February 2020. In March, an additional 800 km projects were awarded, taking the total capital cost of awarded or under-construction projects to ₹2.65-lakh crore, according to Crisil.

Based on the cost of the awarded projects, NHAI requires about ₹6.5-lakh crore from FY21 to FY25 to successfully complete the remaining Bharatmala Phase-I projects.

Revenue losses

To compound matters, there are direct losses in toll revenues. Losses on account of claims filed by developers and toll operators, and slow movement in under-construction projects could lead to an increase in total project cost.

On the other hand, developers and contractors are expected to face losses as a result of shutdown of project sites, plant and machinery and withdrawal of labour, in addition to losses from inability to collect toll revenues, said Akshay Purkayastha Director – Transport & Logistics, Crisil Infrastructure Advisory.

The delay could also result in financial stress and lesser budgetary support to the infrastructure sector, as more resources would be diverted towards providing relief such as food and healthcare.

On May 6, Union Minister for Road Transport and Highways Nitin Gadkari said in an interaction with bus and car operators that public transport may soon be allowed to operate with some guidelines.

While the government has stuck to its plans, delays in projects will increase capital and interest costs. Capital costs could go up by ₹7,000-12,000 crore for a three-six month delay and interest burden could go up ₹3,000 crore for every month of delay, said Padmanabhan.

Long-term land bonds

To mitigate some of these issues, Crisil is of the view that NHAI should leverage long-term land bonds of 10-15 years to pay for land acquisition. Land acquisition has been a thorny issue for all kinds of construction projects — the cost and time taken have caused significant delays. The long-term bonds should be tradeable, ensuring cash to landholders, and land pooling as a mode of land acquisition should be tried out, said Padmanabhan.

In theory, land pooling tends to reduce the expenditure involved in asset development.

NHAI could also look at rolling out projects in the engineering procurement construction (EPC) mode and work with the developer community to restart all stalled projects quickly. “This will allow a large number of construction workers to be absorbed in highway projects located close to their homes,” said Purkayastha.

Source: Crisil

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