Toll collection on national highways affected by market slowdown
Economic slowdown leading to decreasing gross domestic product (GDP) coupled with policy hurdles, have also resulted in decrease in toll collections on India’s roads in the third quarter of 2013.
The situation is likely to continue for some more time, as the sluggish environment is not going to end soon, opines Virendra D. Mhaiskar, chairman and managing director of IRB Infrastructure.
Road construction activities remain slow
Meanwhile, the National Highway Authority of India (NHAI) has been witnessing very poor response by private developers in the last few quarters. This indicates that the road construction is also seeing tough time. However, currently the NHAI is ready to award road projects based on Engineering, Procurement and Construction (EPC) model, which trigger a hope of the situation getting better.
GDP fall brings down toll revenues
Toll collection and GDP growth rate are somehow correlated as a slowdown in GDP also reduces toll collection while a good growing GDP boosts up toll revenues, believes the chairman.
As of now, 0.8 is the correlation to GDP growth. So, at 5 percent GDP growth, toll traffic growth is likely to be in the range of four to six percent, based on which the location of the project and other factors. But the correlation usually works.
Large projects withstand while small ones fall
Large projects like Mumbai-Pune Expressway are likely not to be affected by the slowdown, as there is not much fall in the number of vehicles moving on the roads. The toll collected generally contributes to a major part of the revenues of the toll collecting companies. But in case of small projects (usually within a state) located in interior areas, the toll collection seems to have dropped.
Challenges faced by toll collectors
Revenues of toll-collecting firms are obviously under pressure when traffic moving on toll roads decreases. While bidding for a project, if one has estimated to witness about 8-10 percent growth in traffic, then those are likely to be at major risk because then the firm would be 30-40 percent below its estimated numbers. But if one has worked on reasonable 5-6 percent traffic growth assumptions, there are chances that some hedging is available because of a higher inflation number. In some cases, tariff policies are linked to inflation, in which, lower traffic growth is compensated by higher tariff.
No growth signs sooner
Virendra D. Mhaiskar believes that the slowdown is going to be witnessed for the next one or two years, after which growth will revive. However, recovery is based upon efforts of government, revival in investment cycle, actual movement of goods happening, start of actual mining and so on.
It is expected that road developers would continue to face tough times for some more time. The NHAI has to award more new projects adding visibility on the construction sector. Though 12-14 percent revenue growth may not be possible in the next one-two years, around 10 percent growth seems to be feasible.
