Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
September 15, 2015 Mumbai New concession agreement is a booster shot for highways MCA amendments offer comfort to both developers and lenders, says CRISIL Research India’s national highways sector received a big regulatory boost with the ministry of roads and highways clearing amendments to the model concession agreement (MCA) for awarding projects on a build-operatetransfer, or BOT, basis last week. CRISIL Research believes two changes – back ending of premium payments and deemed termination of projects – are particularly significant. Allowing greater equity contribution by the authority is also another positive step. Further, stringent penalties on non-compliance of maintenance contracts and collection of realtime traffic data would lend clarity and fix responsibility appropriately. These changes will improve the confidence of both developers and lenders in investing in the sector. Ajay Srinivasan, Director, CRISIL Research, said, “Lender confidence, which was severely damaged in the last few years, will revive with the change in the clause related to premium payment, and introduction of the clause on deemed termination. Further, doubling the cap on equity contribution by the NHAI will make more projects viable at a time when majority of the BOT projects being awarded are on a grant basis.” Under the amended MCA, premium payment starts only from the fourth year after the completion date compared with the first year previously. That’s a significant relief to both developers and lenders because most projects end up with debt-service coverage ratio of less than 0.8-1.0 time in the first 3-4 years after completion date. Additionally, the government has enhanced the scope of revenue-shortfall loans to include projects where judicial pronouncements impact cash flows. Deemed termination of projects that do not progress even after a year of award gives greater clarity on the termination process, but no penalties have been mooted on the awarding authority. Almost half the projects awarded between 2011 and 2013 had to be terminated because of delays in land acquisition and other clearances. To boot, the termination process was complex and painful, taking more than two years in half the instances. And projects that were executed despite delays saw huge cost overruns. All these things scared off banks, with the result that lending growth to the sector more than halved in the past two years compared with the five years preceding. The script is set to change for new projects that will be awarded under the amended MCA. The inclusion of new clauses on real time data for toll collection and electronic toll collection will also increase transparency and lender comfort. “The interest of users has also been protected because developers cannot increase toll rates prior to -or more than – what’s given in the official notification. Flouting will attract a steep penalty of up to 200% of toll fees. Also, if traffic is more than what the road is designed for, developers will have to spend on maintenance and augment capacity. It they don’t, another stiff penalty kicks in,” said Srinivasan. CRISIL Research believes the changes to the MCA, and to some policies earlier, have significantly improved the outlook on the national highways sector. We expect project awards by the NHAI to increase nearly 50% in fiscal 2016. The share of BOT projects, on the other hand, could rise from 25% in fiscal 2015 to over 50% by 2017. A significant improvement in overall execution rates will happen gradually, over a couple of years. But things are definitely – and finally -- looking bright for India’s highways sector. September 15, 2015 1 www.crisil.com Annexure Please find enclosed Annexure 1 detailing the key changes in MCA and Annexure 2 on key changes to various policies related to the roads sector Annexure 1 Key changes to the Model Concession Agreement Amendment Previous clause Current clause Impact Premium payments To begin from Year One of the completion date (COD) To begin from Year four of COD and increase by 3% till the 10th year, and 8% per year until the end of the concession period Will help developers and lenders reduce cash flow mismatches Equity contribution by authority Equity support should not be more than the equity of the developer nor can it exceed 20% of the project cost Equity support (including O&M) by authority shall not be more than two times the promoter’s equity, and cannot exceed 40% of the project cost Facilitates higher equity support by authority, especially since most BOT projects awarded in Q1 of current fiscal are on grant Revenue shortfall loan Revenue shortfall loan available for political events, default impacting cash flows Revenue shortfall loan available additionally for judicial pronouncements impacting cash flows Will improve the scope to avail of revenue shortfall loan Termination of projects No provision for deemed termination There will be deemed termination if the appointed date is not within one year of the agreement date Will reduce the number of projects stuck due to of lack of progress in work Maintenance obligations No provision for higher traffic beyond the capability designed. If maintenance obligations are not met, a penalty of 0.5% of the average daily toll, and 0.1% of the cost of repair for the balance concession period (whichever is higher), will be levied. Added obligations if traffic is higher than designed capacity. If the concessionaire fails to repair or rectify defects then the authority will levy penalty for each day of delay at 5% of the average daily toll and 1% of the cost of repair, whichever is higher, for the balance concession period. Will fix responsibilities for maintenance on developer Toll fee notifications If the toll collected or displayed is in excess of notified fees, the surplus needs to be deposited along with penalty equal to 25% of the excess amount If the toll collected or displayed is in excess of notified fees, the excess amount, along with penalty equal to 200% of such excess amount, will have to be deposited Will prevent misuse of toll collection rights Contd… September 15, 2015 2 www.crisil.com Amendment Previous clause Current clause Impact Will enhance transparency and lender comfort because of better traffic estimation Will enhance lender comfort Data on toll and traffic collection Not present Install appropriate mechanism to ensure real -time traffic data count and corresponding revenue collection Refinancing obligations Not present NHAI shall permit and enable concessionaire to secure refinancing in whole or in part Source: MoRTH, CRISIL Research Annexure 2 Key changes to various policies related to the Roads sector Date Policy change/ initiative Sep 15 Amendments to MCA Aug 15 Removal of clause related to investment of money earned on exits in other NHAI projects May 15 NHAI funding for projects that are stuck in advanced stages of completion May 15 100% exit for developer after two years of project completion both for pre-2009 and post2009 projects Feb 15 Govt budgetary support to NHs raised by 178% to Rs 856.1 bn in Union Budget 2015-16 Dec 14 5:25 scheme which allowed banks to refinance or sell their long-term project loans every 5 years Aug 14 Fast track clearances: i)States to clear projects with up to 40 acres of forest land, ii) Increased limit for sand mining, iii) Online filing and clearing of ROBs and RUBs Aug 14 Waiver of charges for mutual usage of land between the railways and roads ministries Jul 14 Bidding of tenders only after 80% land has been acquired Mar 14 Premium rescheduling for stressed projects Mar 13 De-linking of forest and environmental clearances Contd… September 15, 2015 3 www.crisil.com Media Contacts Analytical Contacts Tanuja Abhinandan Media Relations CRISIL Limited Phone: +91 22 3342 1818 Mobile: +91 98 192 48980 Email: [email protected] Prasad Koparkar Senior Director Industry and Customised Research CRISIL Research Phone: +91 22 3342 3137 Email: [email protected] Jyoti Parmar Media Relations CRISIL Limited Phone: +91 22 3342 1835 Email: [email protected] Ajay Srinivasan Director Industry Research CRISIL Research Phone: +91 22 3342 3530 Email: [email protected] About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is India's largest independent integrated research house. We provide insights, opinion and analysis on the Indian economy, industry, capital markets and companies. We also conduct training programs to financial sector professionals on a wide array of technical issues.We are India's most credible provider of economy and industry research. Our industry research covers 86 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 5,000 primary sources, including industry experts, industry associations and trade channels. We play a key role in India's fixed income markets. We are the largest provider of valuation of fixed income securities to the mutual fund, insurance and banking industries in the country. We are also the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today the country's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macroeconomy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. Our talent pool comprises economists, sector experts, company analysts and information management specialists. CRISIL PRIVACY NOTICE CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of McGraw Hill Financial you may find of interest. For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view McGraw Hill Financial’s Customer Privacy Policy at http://www.mhfi.com/privacy. Last updated: August 2014 Note: The views expressed in this Press Release are CRISIL Research's views and not those of CRISIL’s Ratings division. CRISIL Research operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is not available to CRISIL Research. This Press Release is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The Press release may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. CRISIL has the sole right of distribution of its Press Releases for consideration or otherwise through any media including websites, portals etc. Disclaimer: CRISIL has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors in transmission or for the results obtained from the use of such information / Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report Stay Connected | CRISIL Website | September 15, 2015 Twitter 4 | LinkedIn | YouTube | Facebook www.crisil.com