KATHMANDU: Indian firm — Infrastructure Leasing & Financial Services (IL&FS) — has expressed interest to build the much talked about Kathmandu-Terai Fast Track road under annuity-based model. The company has shown interest at a time when the government has been giving multiple thoughts on financing the 76-km expressway.
Basically, an annuity model is a form of carrying out infrastructure projects, in which a developer is awarded the contract to undertake the project and the cost of building the road is paid to the developer on a yearly basis after the projects starts commercial operations. In annuity projects, developers get paid for what it invested on installment basis including its interest rate and profit margin.
“IL&FS has said that it would build the Fast Track road in annuity model, which holds the government responsible to collect toll fee,” said chief of the Fast Track Road Project Ananta Acharya. Earlier, the government had planned to build the four-lane road by involving a foreign company in build-own-operate and transfer (BOOT) model, in which the developer itself has to take returns on investment through toll fee collection for up to 30 years.
Other companies like Reliance Infrastructure and Shapoorji Pallonji of India and China Infrastructure Investment Corporation of China have also been showing interest through their local representatives to undertake the project. However, they have not mentioned any exact modality, according to the Ministry of Physical Infrastructure and Transport (MoPIT).
On Tuesday, a team of IL&FS led by its assistant vice president Sreejith Narayanan made a presentation at the MoPIT about the firm’s interest to undertake the road project. Physical infrastructure minister Bimalendra Nidhi, physical infrastructure secretary Tulasi Prasad Sitaula, top officials of the Department of Roads (DoR) and officials of the Fast Track Project were present in the programme.
Deputy director general at the DoR Arjun Jung Thapa said that IL&FS suggested government to issue a global tender in order to make the bidding competitive for annuity model and assured of taking part in it. “It has proposed a tentative payment of 10 to 15 per cent of the total project cost annually,” he said. The Fast Track road is estimated to cost around Rs 100 billion.
Experts said that since the project requires high investment and potential investors did not want BOOT model, annuity contract could be one of the best financing mechanisms for the project. “What we have to keep in mind is that the contract is not signed at ‘inflated project cost’,” said Birendra Deuja, former secretary and coordinator of the high level committee which had prepared the bid documents of the Fast Track road last year.
According to him, the government would have to negotiate at real project costing and award tender for collecting toll to a third party for effective collection.
IL&FS is also one of the three Indian firms that were shortlisted by the government last year to submit the Request for Proposal (RFP) to build the Fast Track road under the BOOT model. However, all three short-listed firms — IL&FS, Reliance Infrastructure, and Larsen and Toubro Infrastructure Development Project — had abandoned the project by not submitting the RFP. MoPIT officials attending the presentation quoted IL&FS representative as saying that they had failed to submit the RFP as there was no guarantee of minimum traffic in the proposed highway to take return from toll fee and pay bank loan.
A recent study conducted by the Fast Track Project concluded that the road had estimated traffic volume of 3,000 units on a daily basis. Previous studies had stated that the proposed Fast Track would witness movement of 6,000 to 10,000 units of vehicles a day in the initial years of road operation.
http://www.thehimalayantimes.com/fullNews.php?headline=IL%26FS+eyes+Fast+Track+road+&NewsID=409904
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