‘Absence of enough maintenance reserve puts lenders at risks’

Absence of adequate major maintenance reserve ( MMR) for road projects based on build, operate and transfer ( BOT) model has exposed lenders to default risks, Icra today said in its latest study on the Indian road sector.

According to Icra, concerted efforts to address execution bottlenecks have yielded positive results, as reflected in the 39 per cent increase in the pace of national highway execution at 5.39 km per day during April 2015-February 2016.

“Icra’s assessment of major maintenance costs across several national highway projects reveals that the median cost per lane km was Rs 1.8 million. If lenders do not enforce creation of MMR immediately on commissioning of projects and instead allow tail periods to shrink through loan top-ups at the time of the first major maintenance, they could be exposed to default risks,” it said in a statement.

 

Source: ET

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