IL&FS in MoU to connect Kathmandu with Indian border

Mukund Sapre, executive director of the Mumbai-based developer Infrastructure Leasing and Finance Services (IL&FS) and Satyendra Sakyaand, Joint Secretary of Nepal's Ministry of Physical Planning, Works and Transport Management, yesterday signed a memorandum of understanding (MoU) to prepare a detailed project report (DPR) for a $968.9 million fast-track road project.

The project is the government’s fourth initiative to boost infrastructure development in the country this year, with several ministries under strong presidential pressure to bolster both power and transport connectivity across the country.

“The fast track road project will significantly improve the transport reliability by providing a cost-effective investment program to improve transport links between Kathmandu and Birgunj as well as creating positive synergy to promote sustainable growth. The Nepal Fast Track Road Project provides us an opportunity to transform the dynamics of the Asian Highway Network,” said Sapre in a written exchange with Infrastructure Investor.

It involves the survey, design, engineering, financing, procurement, construction, operation, maintenance, and transfer of the 76-kilometre-long Kathmandu to Nijgadh Expressway; and the survey, design, engineering, financing, procurement, construction and transfer to MOPIT of an approximately 18-kilometre-long two-lane addition to the Nijgadh to Pathlaiya section of the East West Highway. It is to be delivered as a Public Private Partnership (PPP) on a Build Operate Transfer (BOT) basis.

The DPR is expected to be completed within four months. Should IL&FS be successful in its proposal and both parties be interested in the second part of the agreement, they will carry through with the construction phase.

Apart from the technical requirements specified in the EOI, bidders were asked to provide proof of financial capacity of net worth $150 million at the close of the preceding financial year as well as the experience of completing a highways, tunnels and bridges project on BOT for a total costs of not less than $1 billion, jointly with a government entity.

IL&FS trumped a rival bid by New Delhi-based Oriental Structure Engineers thanks to its ability to best quote minimum traffic guarantee in accordance to the terms of the PCU.

“With reference to the economics of the Public Private Partnership element in particular to this project, the government's participation through its offering of a minimum traffic guarantee limits the losses and reduces the risk of the concessionaire in order to allow for a stable implementation and continuity of the project, which is very important,” commented Sapre.

“The risk of the project is reduced by eliminating payoffs below a certain level, and it can also increase the average return. An ADB study validates that the Project’s EIRR for the expressway is estimated at 31.1 per cent, well above the threshold. We believe this approach will help the government to leverage their investment capabilities.”