India assures Fast Track project will not face resource crunch

Kathmandu, August 18

Indian Ambassador to Nepal Ranjit Rae has said that the government of India strongly supports Nepal’s Kathmandu-Tarai Fast Tack road and would not make the project suffer due to lack of resources.

His statement comes at a time when the government is planning to provide $750 million loan to the project developer from the line of credit (LoC) extended by India.

“We have already extended significant concessional LoC and some of them have not been allocated so far. And, I don’t think this project is going to suffer for want of concessional credit,” said Rae, while addressing an interaction on the Fast Track road here today. He said the construction of the road would help boost bilateral trade and Nepal’s trade with third countries.

The 76-km expressway project, is currently in negotiation phase with the bidder — a consortium of Infrastructure Leasing and Financial Services (IL&FS) Transportation Networks, IL&FS Engineering and Construction, and Suryavir Infrastructure Construction. The bidder has agreed to undertake the project at a total cost of $1,297 million, including construction cost of $980 million.

The project had landed in controversy after the government came up with the plan to provide $750 million loan at three per cent interest rate to the IL&FS consortium to build the project. Currently, a sub-committee under the Finance Committee of the Legislature-Parliament is also conducting a study over the plan of the government to seal the concession agreement with the IL&FS consortium.

In the programme, Prakash Jwala, chairman of the Finance Committee, said that since the government was providing loan of $750 million at subsidised rate of three per cent and also a grant of Rs 15 billion, the project looked risky. “Our study will look into possible ways of reducing the investment cost,” he said.

However, the newly appointed Secretary at the Ministry of Physical Infrastructure and Transport (MoPIT) Gajendra Kumar Thakur said that some people ‘seem to have launched a campaign against their preparation to select the bidder and implement the project’.

“We would never go against the best interests of Nepal and Nepali people,” assured Thakur. As per him, the project is profitable, because even if it requires the government to pay around Rs 26 billion as revenue guarantee to the developer during the first seven years of road operation, there will be earnings from three per cent interest, VAT, income tax and sharing of toll charges, among others.

MoPIT and IL&FS have already agreed to an annual minimum revenue guarantee (MRG) of $150 million. This means that if the traffic is low and earning stands at only $50 million in a year, the government will have to cough up the remaining $100 million to pay the developer. Once the concession agreement is signed, the construction will take five years and the developer will operate the expressway for a period of 25 years as per a provision of build, own, operate and transfer (BOOT) model.

In the programme, K Ramchand, managing director of IL&FS Transportation Networks, said that they would complete the project within the given time. “If we take eight years to complete the construction, our project operation period will come down to 22 years from 25 years,” he said.

Apart from this, both the government and the bidder have also agreed to include a condition which will allow the government to slap a penalty of Rs 10 million per day for up to 270 days and cancel the contract after that, if the developer fails to complete the project on time.

As per IL&FS, the Fast Track road it wants to build in Nepal would be a top-notch Asian standard road with modern toll facilities.

Participants in the programme urged the government to look into the possibilities of cutting the project cost and concluding the negotiations at the earliest.

Suman Prasad Sharma, secretary at the Ministry of Finance, said since the traffic was the main concern for the success of the project, it is necessary to find ways to increase the traffic on the proposed road.