Gujarat’s toll exemption policy for passenger vehicles to affect nine PPP road projects, pose a risk to state-led BOT model ICRA

Nine toll road projects, awarded through public private partnership (PPP) route in the state of Gujarat, will be affected with the implementation of the toll exemption policy for passenger vehicles and state transport buses.

The Government of Gujarat (GoG) has exempted the car/jeep/van category along with state transport buses from toll on state highways starting August 15, 2016. It plans to compensate the revenue loss incurred from such toll exemption, by way of monthly reimbursements for exempted vehicles.

Of the nine projects, three are promoted by L&T, two by IL&FS Transportation Networks Limited (ITNL), two by Welspun Enterprises and one each by Ranjit Buildcon Limited and M.S. Khurana Engineering Limited. On two of the projects promoted by ITNL, toll is also being levied on two-wheelers, whereas for the remaining seven projects, it is being levied on cars along with other commercial vehicles.

The Government has directed the concessionaires to set up exclusive lanes for cars, jeeps and vans and count the vehicles using automatic vehicle counters (AVC). Based on historical data, a formula would be derived to make necessary adjustments for exempted traffic, local users, traffic availing return journey and monthly passes. For state transport buses, zero-value coupons would be issued which are required to be produced by the concessionaires to claim the compensation. The count from AVCs, as derived from the formula in case of private vehicles, together with coupons for state transport buses would be used to arrive at the compensation. The monthly bill for reimbursements is to be submitted by the 5^th of every month and the GoG intends to reimburse the amount by the 20^th of every month.

Mr. Shubham Jain, Vice-President, ICRA, said: “The actual traffic on a majority of these stretches is at around 60-65% of that of initial estimates. Projects for which there is a revenue share payable to the Gujarat State Road Development Corporation Limited, have already sought deferment due to weak toll collections. Toll exemption for private vehicles and state transport buses will be an additional burden on the cash flow and would affect the debt-servicing capability further. Therefore, timely and adequate reimbursements from the State Government body remain critical from the debt-servicing point of view.”

Making the state roads toll free for passenger vehicles could result in increased usage of these stretches by these vehicles – either due to increased frequency of use or shift of traffic which was earlier re-routing through alternate routes to these stretches. The Government has clearly specified that in case of an unreasonable rise in exempted traffic, it will restrict itself to the compensation considering reasonable growth rate of traffic.

For eight of the nine projects, the total revenue for FY2016 is estimated to be Rs.5.01 billion[1]. Assuming a growth of 6% in toll collections every year, the total revenues during the concession period for these projects is estimated to be Rs.137.47 billion. Therefore, the total burden on the Government of Gujarat is estimated to be in the range of Rs.30.24-34.36 billion.

“Toll exemption is likely to result in disputes as the quantum of compensation in such cases is always not agreeable to all parties as seen in Maharashtra. At a time when the participation from the private sector is already low and lenders are cautious towards lending for new infrastructure projects, this move could further dent the confidence of both private participants and lenders,” Mr. Jain reiterated.  

Table 1: State road projects in Gujarat under BOT (Toll) mode

[1] Estimate based on publicly available information for eight projects (all except Bhuj-Nakhatrana mentioned in table 1)

Click below link to view the entire report:

ICRA Press Release – GoG Toll Exemption, August 22, 2016