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Government cuts toll rate by 30% on three-axle trucks
The road transport ministry has agreed (subject to
approvals) to cut toll rates for three-axle trucks by 30%
or Re1 to Rs2.40 per km to stop truckers from going on a
strike. The All India Motor Transport Congress (AIMTC) has
withdrawn the planned strike from December 5, 2010.
No impact on existing projects or projects in RFP stage
The proposed rate would not apply to the existing publicprivate
partnership (PPP) toll projects but will apply
immediately to all public-funded toll roads. It is also not
applicable to projects in the request for proposal (RFP)
or letter of award (LoA) stage. Thus, the existing toll
projects of the construction companies will not be
affected. Further, even the projects that are in RFP stage
and hence are likely to be announced in Q4FY2011 will
not get delayed.
Project awarding to slow down from Q1FY2012
onwards for a short term
However, this new toll rate will apply to those projects
that will be bid out in future. In order to compensate for
this reduction in the toll rate, the government will have
to either increase the concession period or raise the
viability gap funding (VGF) in order to make the project
viable. Thus, for doing this it will have to revisit the
economies of projects which will delay the bidding process
for a short while in the near term.
New toll policy to increase financial burden of NHAI
This new toll policy will be applicable to all the existing
pubic funded toll roads. Further, it was also decided that
toll rates on all road projects built under the PPP model
would be brought down by 60% after the concession period
is over and the project is handed over to the government.
The fee will only be charged for maintenance and
development at a rate which will be 40% of what is
applicable at the time of the end of the concession period.
It was further decided that vehicles plying on the intradistrict
route would have to pay 50% less. Thus, all this
will have a big impact on the government’s toll collections,
as a majority of trucks on the road are three-axle trucks.
The toll earned from public-funded plazas goes to the
National Highways Authority of India (NHAI) and helps the
NHAI to fund future projects. However, with this policy
the NHAI will have lesser toll income and higher outgo in
terms of higher VGF which will strain its financials. Even
if it does not increase the VGF but increases the concession
period, then also a lesser toll income will have a certain
impact and will slow down the project awarding activity
in the short term till the government finds some solution.
Long-term outlook intact
Despite short-term concerns with regard to project
awards, we remain positive on the road sector in the long
run. This sector provides tremendous opportunity in the
long term, and IL&FS Transportation Networks and IRB
Infrastructure Developers being the largest two players
in this sector will benefit from the same. We maintain
our Buy rating on both the stocks.
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