Mumbai sea link banks on ultra-high traffic flows

Reliance Energy has quoted a concession period that has taken even MSRDC by surprise.

The Reliance Energy-led consortium's ambitious bid, which helped it emerge the preferred bidder for the Rs 6,000-crore Mumbai Trans Harbour Link, has set a new performance benchmark in the infrastructure business.

The consortium has offered to build the 22-km six-lane bridge, which will connect Sewri and Nhava Sheva (see map), by 2013, recover the costs from revenues and hand it back to the nodal agency, the Maharashtra State Road Development Corporation (MSRDC), in just nine years and 11 months.

In technical parlance, this is known as the concession period.

To put this in context, the Mukesh Ambani-controlled Sea King Infrastructure, which was the only other bidder, quoted a concession period of 75 years.

Significantly, in 2004, MSRDC itself estimated a 35-year concession period for the sea link project. For the Mumbai-Pune expressway, the period was 30 years.

Indeed, Parvez Umrigar, managing director of Gammon, said his construction engineering company had decided to opt out of the sea link project because of the "frightening equation of risk and return". Umrigar declined, however, to comment on the Reliance Energy bid.

So what made the Anil Ambani-controlled Reliance Energy quote a concession period that has taken even MSRDC by surprise?

Reliance Energy declined to comment on the issue.

In its 2004 study, the MSRDC had projected a traffic of 50,000 passenger car units (PCUs) a day when the bridge was completed.

But back-of-the-envelope calculations show just to break even, the Reliance Energy consortium would need a minimum of 1,09,589 PCUs a day paying an average toll of Rs150 for around 10 years.

A passenger car unit considers one truck as 2.5 passenger cars to calculate the overall traffic.

An industry expert said the operational cost for the project will be at least Rs 500 crore over 10 years.

Besides, the usual debt-equity ratio for such infrastructure projects is 70:30. Assuming a conservative 5 per cent interest rate on the debt, the interest cost for a 15-year loan would be around Rs 3,000 crore.

If the consortium wants just a 10 per cent return on its investment, the traffic requirement on the bridge would easily be around 250,000 PCUs a day "" five times the MSRDC's traffic estimate.

MSRDC, however, said the traffic demand has changed a lot since 2004 and the figure is expected to be much higher in 2013, when the bridge is operational.

"The construction of the special economic zones (SEZs) by Reliance and the new airport in New Mumbai will increase traffic demand hugely," said Vijay Garva, chief engineer for the link at the MSRDC. He, however, did not give any fresh traffic estimates.

The MSRDC officials added that a lot of traffic on the Mumbai-Pune route would also be diverted to the bridge. The sea link will also ease pressure on the Mumbai-Pune Expressway, National Highway-4 and Mumbai-Goa Highway, where traffic is expected to increase.

The MSRDC is asking for a Rs130-crore performance guarantee to be kept with MSRDC so that the bidder sticks to the construction time schedule of five years.

Nitin Gadkare, state BJP president and former public works minister, said Reliance Energy is obviously banking heavily on the new airport at Panvel and the SEZ.

However, the calculations may go awry if any of these projects gets delayed, he said.

Gammon India, however, is not expecting an exponential rise in the traffic from south Mumbai to Nhava Sheva, which is the gateway to traffic from Mumbai to Goa and Pune. Besides, there is already a link bridge in Vashi connecting south Mumbai to New Mumbai.

Makarand Gadgil & Raghavendra Kamath