Road developers are either giving the creation of a maintenance reserve for roads in India a total miss, or setting aside inadequate funds for it, according to an ICRA Ratings survey. In simpler terms, the survey suggests that a large number of build operate transfer (BOT) highways in India may not have a ready funds for their maintenance, when needed.<\/p>\n
\u201cIn staggering 60% of the sample considered for ICRA\u2019s study, Major Maintenance Reserve (MMR) was not created. Whereas in other 25%, though MMR was created, it appears inadequate to fund the associated costs,\u201d ICRA said in a note on Wednesday. The sample size comprised 35 road projects.<\/p>\n
The lack or inadequacy of these funds also highlights financial stress in developing these road projects.<\/p>\n
ICRA listed adverse factors such as large increases in cost of project implementation, aggressive bidding and lower-than-envisaged toll collections hampering MMR creation. \u201cDue to these reasons, in most cases the SPVs are left with very little surplus,\u201d the report added<\/p>\n
The note added, \u201cIn the absence or inadequacy of MM reserves, the road SPVs will have to either depend on the sponsors for fund infusion or will have to utilise its tail period to raise additional debt by further leveraging the project.\u201d Other implications include exponential increase in maintenance cost and penalties from National Highways Authority of India (NHAI) in case of delayed maintenance activity.<\/p>\n
The report added lenders may expose themselves to a default risk if they do not ensure that road developers maintain the required reserve. \u201cGiven the lumpy nature of the expense, if lenders do not enforce creation of MM reserve from commissioning date and trap surpluses; they could be exposed to default risk or be totally dependent on sponsors,\u201d the report said. Common loan agreements stipulate creation of an MMR, the agency added.<\/p>\n
Past cases of withdrawal from similar funds, includes IL&FS Transportation Networks (ITNL). The company\u2019s subsidiary North Karnataka Expressway withdrew a sum of Rs 45 crore from various accounts including Debt Service Reserve Account (DSRA), Major Maintenance Reserve Account (MMRA) and Contingency Reserve to provide a loan to its parent, which was ITNL.<\/p>\n","protected":false},"excerpt":{"rendered":"
Road developers are either giving the creation of a maintenance reserve for roads in India a total miss, or setting aside inadequate funds for it, according to an ICRA Ratings survey. In simpler terms, the survey suggests that a large number of build operate transfer (BOT) highways in India may not have a ready funds for their maintenance, when needed. \u201cIn staggering 60% of the sample considered for ICRA\u2019s study, Major Maintenance Reserve (MMR) was not created. Whereas in other 25%, though MMR was created, it appears inadequate to fund the associated costs,\u201d ICRA said in a note on Wednesday. […]<\/p>\n","protected":false},"author":39,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[230],"tags":[],"class_list":["post-279527","post","type-post","status-publish","format-standard","hentry","category-roads"],"acf":[],"_links":{"self":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/posts\/279527","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/users\/39"}],"replies":[{"embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/comments?post=279527"}],"version-history":[{"count":0,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/posts\/279527\/revisions"}],"wp:attachment":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/media?parent=279527"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/categories?post=279527"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/tags?post=279527"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}