Govt glosses over soft loan financing

- PRITHVI MAN SHRESTHA, Kathmandu

Jul 29, 2015-

Amid criticism of the government’s plan to award the Kathmandu-Nijgadh Fast Track Project to an Indian consortium, officials involved in negotiation have defended the government plan to extend a soft loan to the developer, arguing that it would be infeasible to develop the project taking out a commercial loan.

The consortium of Infrastructure Leasing and Financial Services (IL&FS) Transportation Networks, IL&FS Engineering and Construction and Suryavir Infrastructure Construction is supposed to get $750 million (Rs75  billion) at three percent interest and additional $150 million (Rs15 billion) in grant from the government to develop the project as per the negotiations concluded on Sunday.  

With the project estimated to cost $980 million, according to the detailed project report (DPR) prepared by the same consortium, the developer is investing very little amount on its own as an equity.

Former prime minister and senior UCPN (Maoist)  leader Baburam Bhattarai on Wednesday questioned the government’s motive behind investing almost all the cost of the project while awarding it to the private sector developer. He also said that the project could be developed by involving Nepali contractors and experts if the government has to invest almost all cost of the project. “Many Nepali engineers and contractors have constructed the project of this magnitude within and outside the country,” said Bhattarai at a press meet where his position was backed by a few lawmakers from ruling Nepali Congress, CPN-UML, experts and some Nepali contractors.

Usually, the private sector is supposed to generate resources to finance the project being developed under build, operate and transfer modality and the developer recovers and makes earning through the collection of toll from the operation of the project within certain period.

However, Secretary at the Physical Infrastructure Ministry Tulasi Prasad Sitaula said the option of government financing the consortium to develop the project was considered as it is infeasible to develop the project taking out commercial loans.

The consortium demanded around Rs75 billion in viability gap funding (revenue guarantee for traffic deficit) within 12 years to make the project viable against the currently agreed Rs21 billion, according to Sitaula.   

After its request to provide high-viability gap funding under commercial loan financing was turned down, the consortium proposed the government to provide it a soft loan that it would pay back through earnings from the road operation. 

“With Finance Ministry being flexible to provide the soft loan to the developer, the negotiations reached to a conclusion,” said Sitaula.

The Indian consortium was supposed to develop Kathmandu-Nijgadh Fast Track Project by managing its own resources, according officials. Besides the soft loan, the government also agreed to provide the Indian consortium Rs15 billion in grants which, according to officials, will be used to upgrade the two-lane 18-km Nijgadh to Pathlaiya section of the East West highway into four lanes.  

While the Physical Infrastructure Ministry said that it concluded the negotiation based on assumption that the government would provide the soft loan to the Indian consortium, officials at the Finance Ministry maintained that they are studying the document and yet to approve the loan. “We have not yet consulted with India on whether Rs100 billion line of credit that it has committed to Nepal for this purpose,” said a Finance Minister official. “We will discuss the matter with India’s Exim Bank team that is scheduled to arrive here next week.” Bhattarai has also criticised the government decision to let the project developer collect ‘world’s most expensive’ tolls from vehicles plying the highway after its completion. 

Physical Infrastructure and Transport Ministry said the developer will charge Rs1,600 per car, Rs3,100 (bus), Rs4,600 (heavy truck) and Rs800 (two wheelers) as per the agreement with the Indian consortium. Transport Engineer Surya Raj Acharya said the road will have the second most expensive toll charges in the world, after Japan.

Published: 30-07-2015 08:03

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