Government mulls over using Indian soft credit to build fast track

Government mulls over using Indian soft credit to build fast track

The government is mulling over using a huge portion of credit extended last year by India to build the Kathmandu-Tarai fast track road — a 76-km highway that will link the capital with the southern plains and work as a lifeline once second international airport is built in Nijgad.

During Indian Prime Minister Narendra Modi’s visit to Nepal in November, India had formally provided a line of credit of US$1 billion (approximately Rs 100 billion) to the government.
“We are now looking at the option of using $750 million of the pledged amount to build the fast track,” Tulasi Prasad Sitaula, secretary at the Ministry of Physical Infrastructure and Transport, told The Himalayan Times.

He, however, did not explain whether the government was also intending to use part of 40 per cent of the credit amount which was recently converted into grant by India to support reconstruction works in the aftermath of earthquakes. He only said, “We are yet to discuss this issue.”

The issue of using Indian credit to build fast track was discussed during a meeting held today at the Ministry of Finance. The meeting was attended by Finance Minister Ram Sharan Mahat, Minister for Physical Infrastructure and Transport Bimalendra Nidhi, National Planning Commission Vice Chairman Govind Raj Pokhrel, Sitaula and Mukunda Gajanan Sapre, executive director of India-based IL&FS Transportation Networks, which prepared the detailed project report on fast track in partnership with other firms.

In March, the government handed over the task of preparing the detailed project report to a consortium between IL&FS Transportation Networks, IL&FS Engineering and Construction, and Suryavir Infrastructure Construction.

The report, recently handed over to the government, is being evaluated by the Ministry of Physical Infrastructure and Transport.

If the ministry is satisfied with both the technical and financial components of the report, it can even hand over the project to IL&FS.

“So far we have gone through the technical part (of the report), and it looks pretty good,” said Sitaula.

For instance, the report has proposed installation of 30,000 solar lights throughout the 76-km highway.
It has also proposed increasing the width of the four-lane road by a metre.

If this suggestion is heeded, the width of the road would increase to 15 metres — 7.5 m on each side of the road — from existing 14 metres.

“What also appears genuine in the report is the cost of building the track, which stands at $980 million (approximately Rs 98 billion), excluding value added tax,” said Sitaula.
This estimate of IL&FS is similar to previous government projection of around Rs 100 billion to build the road.
However, IL&FS has also proposed building a six-lane road for which $1.3 billion has to be invested. IL&FS has also proposed that land for six-lane road be acquired now, as the highway will have to be widened in the next one-and-a-half decades due to rise in traffic movement.

“We are yet to take a decision on this matter,” said Sitaula.
As of now, the government has said it would make investment of around $150 million — about 15 per cent of the total project cost — in the project. And if IL&FS bags the project, it has said it would make equity investment equivalent to 20 per cent of the total project cost.

“The remaining 65 per cent of the project cost has to be mobilised in the form of bank loans. But IL&FS has lately started saying credit is not so cheap in the Indian market,” Sitaula said, adding, “This is one of the reasons why we are mulling over using Indian credit to build the fast track.”

If the government formally decides to mobilise $750 million in Indian credit to build the road, and if India agrees to it, road construction cost could be recovered in less than five years of commencement of commercial operation of the project. “But if the project relies on private bank credit, it could take eight to 10 years to achieve breakeven point,” Sitaula said.

During the International Conference on Nepal’s Reconstruction on June 25, Indian External Affairs Minister Sushma Swaraj had said: “Work on construction of the fast track and (second international) airport at Nijgad should be expedited with India’s participation.”

Source: THT