The high wholesale price index (WPI) inflation is expected to lead to an increase in toll rates and thereby better collections for toll road projects as the WPI for December 2021 is expected to be around 13 per cent, as against WPI of 2 per cent in the year-ago period, ratings agency ICRA said on Tuesday.
Typically toll rates and traffic volumes are the two variables which determines toll collections. The toll rate increase is linked to the WPI, while the traffic volume is linked to underlying economic activity, primarily manufacturing, construction, and mining, ICRA Ratings saidin a statement.
For the projects that were bid post 2008, toll rate is revised annually in April at 3 per cent fixed rate plus 40 per cent of the change in WPI for December. Hike in toll rates for the projects bid prior to 2008 is 100 per cent linked to the March WPI (toll rate revision happens in July or September each year), it added.
The WPI for December is expected to be around 13 per cent translating into a toll rate increase of around 8.2 per cent during FY23 for the projects which are linked to 3 per cent fixed rate plus 40 per cent of the change in WPI. For projects awarded prior to 2008, ICRA expects March WPI to be around 9.3 per cent, said ICRA Sector Head (Corporate Ratings) Vinay Kumar G.
“In both the cases, decadal high toll rate revision is expected to result in 14-15 per cent growth in toll collections for FY23 on the back of 5-6 per cent traffic growth. The healthy growth in toll collections far outweigh the increase in maintenance costs resulting in a good improvement in cumulative DSCR numbers for BOT toll road assets which otherwise got moderated to an extent due to Covid impact. This is factoring in the assumption that impact of future Covid waves (if any) to be low,” he noted.