Negotiations on Fast Track under way

Kathmandu, July 20

The government has started negotiations with Indian bidder regarding financial aspects of the Kathmandu-Tarai Fast Track road. Following the negotiations — likely to be completed within a week — the government will conclude whether to award the project to the bidder or not, according to the Ministry of Physical Infrastructure and Transport (MoPIT).

The negotiations started recently after the government approved the detailed project report (DPR) of the 76 km express way prepared by the bidder — a consortium of Infrastructure Leasing and Financial Services (IL&FS) Transportation Networks, IL&FS Engineering and Construction, and Suryavir Infrastructure Construction. Along with DPR, the bidder had also submitted a revised financial proposal to undertake the project under build, own, operate and transfer modality.

Sources at the MoPIT said that as the negotiation committee and the ministry officials are convinced with the DPR report, the chances of awarding the project to IL&FS consortium are very high. The previous financial proposal submitted by the bidder had drawn flak for seeking ‘extremely high’ minimum revenue guarantee (MRG).

Apart from piling pressure to explore other alternative to finance the project, it had also forced the government to ask the bidder to conduct the DPR first.

As per the old financial proposal of the bidder, the project needs at least Rs 317 billion revenue assurance from the government as return from the project within 25 years of operation. MoPIT officials said that fresh financial proposal has reduced MRG by floating different options to collect resources to undertake the project. The bidder has also slashed the minimum traffic volume in line with Asian Development Bank’s projection in 2010.

“The ongoing negotiations with the bidder are expected to be completed within a week,” said Tulasi Prasad Sitaula, secretary of MoPIT. He said that even though the DPR readied by the bidder was good, whether the consortium will bag the project or if the ministry will explore other options will depend on the negotiation results related to issues like financing mechanism and traffic volume on the proposed road.

In the DPR, the bidder estimates traffic volume to be below 7,500 units in the base year, the first year of service operation. The MRG that is based on traffic volume plays a vital role in the whole project. Under this provision, in case of shortfall in the minimum passenger car unit (PCU) agreed both by government and bidder in a particular year, the government will have to pay the bidder an equivalent amount caused by such deficit. Similarly, if the traffic is more than the minimum assured, then the surplus revenue generated by this will be shared equally between the government and the bidder.

As a result of criticism over the MRG and traffic volume, the MoPIT in March had decided to ask the bidder to first prepare DPR and signed an agreement to this regard. Sitaula said that if they fail

to reach a decision to award the project to IL&FS consortium, the government would be required to pay for the study conducted. Before the agreement, the Indian bidder had stated that it would cost Rs 600 million to carry out the DPR.

Additional features like three helipads along the proposed express road, lighting system along the 76 km road, widening of width by extra one metre than previously planned 14 metres, and construction of top class road than second class Asian Highway standard has made the DPR convincing, according to Sitaula. The features have added to the construction cost by around $100 million and now the total required fund stands at $980 million, excluding VAT.