CRISIL says financial viability of highway projects hit by slower traffic growth

CRISIL says financial viability of highway projects hit by slower traffic growth
Leading rating agency, CRISIL on Wednesday warned that the financial viability of highway projects has been severely hit by a significant slowdown in traffic growth and cost overruns, clouding the outlook for Asia's third biggest economy.

Traffic growth slowed to nearly 3 to 4 per cent in passenger car unit terms in FY 2012 and to 2 to 3 per cent last year, down from 7 to 8 per cent between FY 2007 and FY 2011, the rating agency said.

In 6 national highway stretches that was analyzed by CRISIL, base traffic has been lower by a significant 20 to 40 per cent compared with NHAI estimates.

"Significant deviation from NHAI estimates indicates the potential adverse impact on project returns", CRISIL said.

Delays in land acquisition and clearance issues have also increased the cost of projects, adversely affecting financial viability of road projects and lowering their profitability.

" Things turn grimmer because the 6 projects are significantly delayed and are seeing an average cost overrun of about 23 per cent", CRISIL added.

"Project returns today are in the 8-14 per cent range - less than half the 22-26 per cent arrived at based on NHAI's traffic and cost estimates", the ratings company added

Read more about: crisil
Story first published: Thursday, March 20, 2014, 12:50 [IST]
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