A truck stops at a toll booth at the Manesar toll plaza on National Highway 8 (NH 8) in Manesar, Haryana, India. (Photographer: Udit Kulshrestha/Bloomberg)

Pay-As-You-Use Toll Model To Reduce Revenue Potential For Roads

The possible switch to pay-as-you-use toll policy from the current open/flat rate tolling system, announced in the Union Budget 2018-19 could reduce revenue potential for roads and bring a paradigm shift in the way of operations, says India Rating and Research.

However, this policy is favourable for passenger car units as the traveller would pay only for the distance travelled. This move could also aid in arresting traffic leakages in some routes to a certain extent, provided the economics favour the usage of the stretch.

India Rating expects the pay-as-you-use toll policy to roll out in prospective bids/projects. If applied for the existing contracts, the toll road operators will have to be compensated adequately by the concession-granting authority for the revenue loss under the Change in Law provision under the Concession Agreement.

In the event of no commonly acceptable approach to both the concessionaire and concession grantor authority or reduced compensation, there could be some impact on the cash flows. However, in many of the toll stretches, traffic from towns/cities/industrial centres either ingress or egress into the tollable stretch at various points.

Therefore, operationalisation of this new policy could be cumbersome, unless adequate infrastructure is put in place. The agency awaits clarity on the implementation plan and would evaluate repercussions individually on the cash flows of the project, if implemented on the existing projects.

Also, the government’s plan to compensate the concessionaire due to the change in tolling policy would be a key monitorable. The government is planning to implement this policy on pilot basis using global positioning system-based tolling on the Delhi-Mumbai corridor. GPS-based tolling will be fully automatic and commuters account will be deducted for the distance travelled.

Toll collection gate at Noida India (Photographer: Sanjit Das/Bloomberg)
Toll collection gate at Noida India (Photographer: Sanjit Das/Bloomberg)

While the measure to implement radio-frequency identification linked FASTag is yet to provide salutary effect on the tolls, this policy change could be seen as an extension. Given the FASTag fixation is gaining momentum, not many changes would be required to comply with from a traveller’s perspective.

However, the implementation of the same would be a challenge for concessionaire. Firstly, the current roads will have to spend additional capital expenditure for installation of GPS-based toll collection system or for making the roads access controlled.

Anecdotal evidences suggest that pay-as-you-use is adopted in access controlled expressways such as Yamuna Expressway, Mumbai Pune Expressway and Hyderabad Outer Ring Road. Secondly, until now, the traffic studies have been forecasting vehicular movements passing through the road stretch; this move would impel the forecasters to prepare the traffic travelling till every exit point.

The commercial traffic dominates the majority of the road stretches and is generally through traffic. This traffic originates either from ports or industrial towns and plies through road to cities or other industrial towns. Therefore, the agency believes that passenger cars would benefit from the proposed policy.

Many of the developers/investors have enhanced their vehicle and toll monitoring system through latest technologies such as transponders. However, complete revamping of the existing system is unlikely. Nevertheless, many roads operated by traditional developers continue to lag behind in terms of embracing the new technology measures.

Similar policies are followed in the U.S., China and European countries. India Rating believes that pilot study on Delhi-Mumbai corridor before rollout, would help to find the pitfalls and address issues before scale up.

India Ratings and Research, a wholly owned subsidiary of Fitch Group, is a SEBI and RBI accredited credit rating agency operating in the Indian credit market.