Can’t work without MRG: Indian firm

  • ktm-tarai fast track
- Post Report, Kathmandu

Aug 18, 2015-

An Indian consortium that is expected to bag the contract of the Kathmandu-Tarai Fast Track project has said it will not be able to undertake the project without minimum revenue guarantee (MRG).

Amid protests by some political leaders and experts against the MRG provision, one of the consortium partners -- Infrastructure Leasing & Financial Services Limited (IL&FS) -- said as recovering investment  only from toll fee is highly unlikely, the government must ensure the MRG.

The consortium comprising IL&FS, Transportation Networks, IL&FS Engineering and Construction and Suryavir Infrastructure Construction had recently concluded negotiations with the Ministry of Physical Infrastructure and Transport, under which it has been ensured an annual MRG of $155 million.

The government has also assured providing soft loans of $750 million and additional $150 million equity support to the consortium. As the project cost, including the value added tax (VAT), stands at $1.1 billion, the government is set to cover almost all the cost.

Given this context, political leaders, including former Prime Minister Baburam Bhattarai, and some experts are questioning the motive behind allowing the Indian company to develop and operate the project although the government is funding almost all the costs.

“If the highway receives low number of vehicles affecting the toll, the Nepal government has to ensure the company make up the deficit revenue of $155 million annually,” said K Ramchand, managing director of IL&FS, at an interaction here in Kathmandu. “If the project succeeded to collect the said amount it is fine, but if it fails, there should be other compensating measures.”

He said the company could not take risk. “The Nepal government should try to come up with a specific road traffic forecasting,” he said.

The total leasing tenure for the fast track will be of 30 years. This will include five years of construction period while the company will take care of the maintenance for the remaining 25 years.

However, the Parliamentary Finance Committee Chairman Prakash Jwala said it was unfair that the government bears the entire risk, including the foreign exchange risk.

The government has planned to provide the current or future line of credit from India to the project. It has already asked India for additional line of credit dedicated to the project. “It is unfair the government provides $150 million equity support and allocates Rs75 billion in soft loan to the Indian company. And on the other hand, the Indian side does not want to take any investment risk,” he said. “It’s not a win-win deal.”

He urged government officials to discuss whether the revenue guarantee amount could be reduced.

Gajendra Thakur, secretary of Ministry of Physical Infrastructure and Transport, said the project is expected to reach break-even within seven years of operation.

Finance Secretary Suman Sharma said the government is still negotiating the revenue guarantee amount and financing. “We should think how to increase vehicle traffic by coordinating and linking India’s trade route to Nepal,” he said.

Indian Ambassador to Nepal Ranjit Rae said the problems should be resolved through talks. “The project should not be judged on how many vehicles will ply on the express highway,” said Rae, adding the Indian government wishes the project negotiation would conclude as soon as possible.

Published: 19-08-2015 07:59

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