OREANDA-NEWS. July 27, 2015. Fitch Ratings says that the "Revised Draft of Toll Road Administration Regulation" which allows for longer concession periods for toll roads and maintenance charges after concession expiration, opens up new business opportunities for expressway operators. However, assessing the full extent of implications of these revised regulations for Chinese toll-road operators such as Guangzhou Communications (A-/Stable), Anhui Transportation (BBB+/Stable), Shenzhen International (BBB/Stable) and Yuexiu Transport Infrastructure (BBB-/Stable), is difficult without observation of the application of the new regulation including terms and economic aspects of new toll-road concessions awarded.

China's main regulatory body for the toll-road sector, the Ministry of Transport, released the Revised Draft on 21 July, aiming to replace the current "Toll Road Administration Regulation" which came into effect in November 2004 with more flexibility on the commercial terms in the expressway concession contracts.

One key focus of the Revised Draft is to introduce flexibility to allow longer concession periods for non-government-funded expressways. According to the current regulation, toll roads are not allowed a concession period of longer than 30 years. The "Revised Draft" allows the concession period for new concessions (not including existing concessions that are transferred) to exceed 30 years if the investment is large and the investment return period is long. With the extension of toll period, expressway projects previously below the operators project selection IRR criteria could now become commercial feasible. However, this could translate into longer investment recovery periods for such projects, requiring more longer-dated debt and benign debt amortisation plans. It is also uncertain as to the way in which longer concession periods may affect tariff standards for projects.

The Revised Draft also permits government to charge maintenance fees from the expressways even after their concession expiration, which is not allowed under the current toll regime. Established toll-road operators should benefit as they are likely to receive maintenance contracts for these assets. The financial impact would mainly be over the longer term, however, as the majority of expressway concessions in China are still well over five years from expiration.

Private investment in the Chinese toll road sector has been weak after some negative policy changes in 2012 and 2013 - such as the reduction of toll standard, and the adoption of the "Toll Free Scheme on Holidays" across the country. The regulator has been changing the policies since end-2013, most likely with a view to encouraging private-sector investment. Fitch has observed extensions of concessions or toll-standard increases for several expressways in Guangdong, Guangxi, Jilin, Yunnan and Shandong. However, the Revised Draft is of nationwide significance.