Hopeful Fast Track builder asks for help with funding

Hopeful Fast Track builder asks for help with funding

21 July 2015 | The Kathmandu Post

Prithvi Man Shrestha

KATHMANDU, JUL 21 - The Indian consortium which recently completed a detailed project report (DPR) of the Kathmandu-Nijgadh Fast Track Project has asked the government to help it obtain soft loans to build the national pride project. The government and the consortium, consisting of Infrastructure Leasing and Financial Services (IL&FS) Transportation Networks, IL&FS Engineering and Construction and Suryavir Infrastructure Construction, have been holding negotiations for the construction contract. The consortium had been selected to conduct the DPR in March with the possibility of getting the contract to build the expressway which will link the capital with the southern plains. A provision in the agreement requires the government to buy the DPR if the implementing company does not get the construction contract. Tulasi Prasad Sitaula, secretary at the Ministry of Physical Infrastructure and Transport, said that the Indian developer had sought soft loans in the form of direct loans or allow it to issue bonds to raise money to develop the project at a low cost.

“The developer has said that it can also construct the project with commercial loans which have an interest rate of around 13 percent in India, but that will increase the cost of the project, and the developer will have to be given more time to recover the outlay,” said Sitaula. Likewise, the developer has sought a value added tax (VAT) waiver on construction materials or an expanded revenue guarantee after the completion of the project.  The government has already decided to make variability gap funding (compensation for lower than projected vehicle movement on the highway) and become a shareholding partner in the project to assure the developer. According to Sitaula, these issues are now being discussed with the Finance Ministry, and once it gives its decision on the matter, a decision will be taken on awarding the project to the Indian developer.  

Finance Ministry officials said that there has been discussion on various options including providing soft loans to developer at  the ministry.  Bhuvan Karki, under secretary at the International Economic Cooperation Coordination Division at the ministry, said that the government is considering if providing credit to the Indian developer, similar to the Nepal Electricity Authority, would help to expedite the project construction and at lower cost. “As generating resources for roads is difficult as compared to other types of project, we are weighing an option of providing soft loan,” he added. According to officials, there has also been discussions on providing the Indian line of credit to the developer to finance the project.

India has pledged $2 billion in total over the last one year—$1 billion for big infrastructure projects announced during the visit of Indian Prime Minister Narendra Modi to Nepal last August and another $1 billion for earthquake recovery. As it will take time to start the construction of the Budhi Gandaki Hydropower Project for which half of the $1 billion Indian aid was intended, the government has been considering diverting the money for the Fast Track Project. “It is better to use the Indian money for the Fast Track instead of keeping the credit line idle until the Budhi Gandaki becomes ready for construction,” said Sitaula. “The construction of the Fast Track Project can move ahead within a few months.”

Usually, the developer itself mobilizes resources for the development of infrastructure projects under the build, operate and transfer (BOT) system, however, discussions are being held for finance to be arranged by the government for the Indian developer. The government has made a similar arrangement in the case of Kabeli Hydropower project by securing soft loan from the World Bank. The funds will be channelised to the project being developed by the private sector and the developer itself will bear the foreign exchange risk. According to Sitaula, as the developer will not be using only its own money but will be borrowing from international financial institutions, the government can arrange funding to enable it to complete the project at a lower cost. Meanwhile, the consortium has submitted the DPR of the project which has estimated the total cost of the project at $980 million excluding VAT. The price tag has swelled by $100 million due to the widening of the pitch by 1 metre to 15 metres and the divider area by 1 metre to 4 metres besides the installation of lights along the 76-km highway.