Kathmandu, September 18

The Cabinet today formed a high-level committee to review talks and negotiations held so far with the Indian consortium that has shown interest to build Kathmandu-Tarai Fast Track, a 76-km highway that will link the Capital with Nijgad in the Tarai.

The committee led by National Planning Commission Vice Chairman Govind Raj Pokharel comprises secretaries of the Ministry of Finance, the Ministry of Law, Justice, Constituent Assembly and Parliamentary Affairs, and the Ministry of Physical Infrastructure and Transport (MoPIT), and Investment Board Nepal CEO Radhesh Pant.

The Cabinet had formed the committee based on a formal request made by MoPIT.

“The committee will review all the talks and negotiations held so far with the Indian consortium. It will also go through the bid documents submitted by the consortium,” Minister for Physical Infrastructure and Transport Bimalendra Nidhi told The Himalayan Times. “After conducting these studies, the committee will make recommendations, based on which a decision on whether to hand over the fast track project to the Indian consortium will be taken.”

The consortium, comprising Infrastructure Leasing and Financial Services (IL&FS) Transportation Networks, IL&FS Engineering and Construction, and Suryavir Infrastructure Construction, has agreed to build the fast track project at a cost of $1,297 million. This includes cost of $1,117 million (including VAT) for construction purpose and $180 million for non-construction purpose.

MoPIT officials are currently holding negotiations with the bidder to bring down the project cost.

If the Indian consortium bags the project, it will have to build the track within five years of signing of the concession agreement. It will then operate the expressway, which will be built under build, own, operate and transfer (BOOT) model, for a period of 25 years.

But if the consortium fails to build the project within five years, it will have to pay a fine of Rs 10 million per day right after the expiry of the five-year deadline. The fine will be imposed for up to 270 days.

If the consortium fails to complete the project even after the additional 270 days, the contract will be terminated.

The project developer will also be fined if it manipulates traffic calculation of the Fast Track road.

But along with these stringent conditions, the government has also agreed to provide an annual minimum revenue guarantee (MRG) of $150 million to the project developer.

This means that if the traffic is low and annual earnings stand at only $50 million, the government will have to cough up the remaining $100 million to pay the developer every year.

The government has, however, said such a provision will not inflict loss on the state because earnings from value added and income taxes, and toll sharing mechanism, among others, will easily offset financial burden created by MRG.

To support the developer build the crucial highway, the government has also started exploring the possibility of getting fresh soft credit line of up to $750 million from India. This issue was discussed during the Nepal-India joint secretary level meeting held in Kathmandu on August 3. India has taken the proposal ‘favourably’.

If India makes the credit available, the government intends to lend it to the project developer at three per cent interest.

Although the proposal of arranging the credit for the project developer has drawn criticism, the government believes this option will help recover road construction cost in less than five years of commencement of commercial operation of the project.