Traffic under-performance key risk for Indian toll roads

Traffic under-performance is a key risk for many Indian operational toll roads, says ratings sgaency Fitch in a new report.

It said a majority of Fitch-rated toll road projects in India have seen actual first-year traffic underperform projections, and in some cases by up to 45 per cent.

Traffic performance is rarely in line with, or above, management expectations.

The accuracy of traffic estimates, as demonstrated by actual first-year revenue, is key to a project's ability to meet debt service obligations.

"However, many traffic studies are based on point-in-time traffic counts and standardised growth estimations, often failing to adequately measure local economic drivers, and their dynamic and interactive impact" says Shyamali Rajivan, associate director in Fitch's Global Infrastructure & Project Finance. "Traffic growth projections based on these studies also do not account for the impact of economic cycles on traffic growth rates."

The widespread overestimation of traffic could also in part result from sponsor optimism, motivated by lucrative construction contracts in competitive bidding. In some rare cases, overestimation could result from unanticipated exogenous events such as a change in regulation or the unexpected delay or cancellation of a planned special economic zone.