The National Highways Authority of India (NHAI) has shortlisted eight companies for implementing the Moradabad bypass project. This is the first road project on a modified design-build-finance-operate model and is expected to be the showcase project for private sector investment in roads.
The shortlisted companies include Larsen and Toubro (L&T) and the Indian Rail Construction Corporation (Ircon). Both have sufficient experience in road projects. L&T is associated with the Coimbatore bypass and the second Narmada bridge and Ircon is the engineering, procurement and construction contractor for converting the Bangalore-Hosur highway into six lanes.
Shortlisted bidders for the Moradabad bypass project will have to submit financial bids within 45 days and will be expected to start work by mid-October so that the project is ready for commercial operations within 24 months.
The engineering, procurement and construction contractor will be expected to pick up 15 per cent of the equity in the special purpose vehicle created to implement the project that is equivalent to 5 per cent of the project cost. This means that the engineering, procurement and construction contractor will have to pick up equity of at least Rs 4 crore. The remaining equity (about Rs 25.5 crore) will be held by NHAI, though SBI Caps, the financial advisor to the project, is also expected to pick up a small equity stake.
This special purpose vehicle will, in turn, leverage for debt funds entirely on a project recourse basis. Debt service payments will be made only from project revenues. Borrowing rates have not yet been worked out, though it is widely expected that the special purpose vehicle is likely to be in a position to borrow at fine rates since the lenders will be in a position to take advantage of Section 10 (23G) of the Income Tax Act, which exempts institutional financiers from tax on interest earnings from infrastructure projects. In addition, the project is also expected to borrow at low rates in view of the NHAI backing for the project. NHAI has reserved the right to divest from the project once it begins earning revenues.
The engineering, procurement and construction contractor will also be allowed to divest from the project and book capital gains after the construction period. Consequently, the engineering, procurement and construction contractor will also be in a position to avail the benefits under Section 10 (23G).
At present, engineering, procurement and construction contractors earnings are only from project construction and do not include earnings from dividends and capital gains in infrastructure projects. NHAI is expected to finalise the design for the project after shortlisting the engineering, procurement and construction contractor. The modified design-build-finance-operate format that is being worked out allows the special purpose vehicle to choose its own project design.
