'Looking at passenger movement data‚ we have already been late in finding an alternative to TIA'
The need to immediately start development of two major infrastructure projects — Kathmandu Tarai Fast Track road and Second International Airport in Nijgadh — has received huge importance of late. The urgency was highlighted further after the crash-landing case of Turkish Airlines plane that blocked the Tribhuvan International Airport runway for four days in the first week of March, which cut off air service of Nepal with the rest of the world. Amid the growing need to develop both the projects, Ramesh Shrestha of The Himalayan Times spoke to expert Birendra Bahadur Deuja, former secretary who was involved in both the projects in different phases, regarding project concept, development modality and importance. Excerpts:
There is no doubt that both the projects are necessary as they complement each other. What could be the best way to complete them soon?
Both the projects have been put in high priority list for a long time, however progress has been sluggish. It is good that there has been an understanding now of the importance of these projects and they have been accorded high priority at all levels after the Turkish Airlines incident. Everybody knows how much these projects matter to the nation, however they have been delayed due to negligence of people at the decision-making level. Both the projects should have been extensively discussed with experts and professionals and developed by now. But for years, we have been engaged only in discussions rather than in implementing them.
Why is the development of the Second International Airport (SIA) taking so long?
Among half a dozen other locations, the current site chosen for the SIA was deemed the most feasible in 1995. The major advantage was that it was close to Kathmandu and Tribhuvan International Airport (TIA) is nearing saturation without any possibility for expansion. Despite the need to expedite its development, it did not get much attention from both bureaucracy and political leaders. The detailed project report (DPR) of the SIA has not yet been put forward for proper discussions. Development of such projects should be well discussed and planned with long-term vision. What makes the current location that was chosen for SIA unique is that there will be less problem in approach and descent of international flights as it will have east-west runway unlike the north-south runway of TIA. It will have two runways which will be 3.6 km apart as per the plan. In case of holding of aircraft, they will not have to go to Indian airspace as a space of 25 km will be available within the country for holding and circling. There is no substitute for the SIA in Nijgadh.
So what could be the best modality to develop both SIA and Fast Track road?
We had thought of carrying out these projects in build, own, operate and transfer (BOOT) model as there was a big whim of public private partnership (PPP) and BOOT worldwide in the last 20 years and both the projects required huge investment totalling over $2 billion. In many countries infrastructure development projects have been developed under this model. We also know through our experience during the bidding of Fast Track road that even the private sector cannot gather such huge resources for BOOT projects. There has been a tendency in which developers seek 80 per cent loan and put in 20 per cent equity. And for the 80 per cent loan, interest has been proposed at up to 15 per cent. Instead of paying such a high interest, there is a possibility that the project be built by the government itself. Normally, if you have long-term PPP BOOT projects, such projects are funded under low interest loan. Only for short-term projects with concession period of four to five years is it fine. BOOT is normally for fast d
evelopment of projects at a cheap rate. But, in both cases of SIA and Fast Track road, it looks that PPP BOOT cannot be implemented. In Fast Track road as traffic is not high, there is a possibility of an income of maximum Rs 500 billion and the government will have to pay around Rs 300 billion to the developer as per the proposal of lowest bidder. The main thing is that if you have to pay such a big amount to a developer under BOOT model, the government should forget about this idea and build it itself.
Do you mean to say that the government should scrap current procedure and start afresh to fund the project itself?
There is no need to rule out PPP BOOT completely. The government should think of ways that it could benefit and be determined to build both the projects anyhow within 10 years. If it wants to go with BOOT, it is also the responsibility of the government to help get resources for the private sector or bidder. To this effect the government should establish provision of non-recourse funding so that developers can get loan against the project. So far we do not have that provision and developers take loan from banks putting their properties as collateral. Or, there is also a provision of viability gap funding, under which the government also puts resources in the project. As we are talking of big projects, the government has to be very careful when selecting investment modality. In PPP BOOT modality, which we have opted for now, there is also a provision of negotiation with bidder that can put the government in a loss making position in the long run.
Should both the projects be handled in a single package or implemented separately?
Basically, they have to be implemented in a single package as they complement each other. There are also options for separate dealings and up to 40 per cent investment from the government can also be a good idea. The main thing is that we do no have cost estimation and designs carried out by independent international consultants. There should be a separate authority to implement these two projects and there can also be a dedicated advisory committee to provide suggestions. Initial focus should be on development of Fast Track road and at the same time the government should decide on SIA development modality and funding management by reviewing the old detailed project report prepared by Land Mark Worldwide. The road has to be ready at least two years before the SIA.
You earlier said that TIA is heading towards saturation. So for how long will it be able to cater to demand of air service?
Total flight movement at TIA is around 300 per day including domestic ones. Actually, TIA has already saturated and increasing flights further is challenging when it comes to safety issues. It is time for the government to have intensive management at TIA and make services of existing flights safe and effective. If possible we should reduce flight movement at TIA. Earlier, we had also looked into possibilities of building a separate domestic airport in Dhulikhel. But it was not feasible and it is true that it is impossible to detach domestic air service from TIA. Looking at the passenger movement statistics, we have actually already been late in looking for an alternative to TIA. There is more than seven per cent average growth per year in international passengers and 11 per cent growth in domestic passengers. This is very high growth according to international standard. But it is an encouraging sign because if we are able to cope with this increase then it will benefit the tourism sector.
What do you say about the minimum traffic or revenue quoted by Indian bidder — International Leasing and Financial Services (IL&FS) Transportation Networks, IL&FS Engineering and Construction, and Suryavir Infrastructure Construction — and the government decision to get the detailed project report (DPR) done first by the same bidder?
The minimum revenue guarantee sought in the Fast Track road is very high as the bidder has underlined the need of making income of over Rs 800 billion during the 25 years of operation of the road. The government assigned the task of preparing DPR first by signing a memorandum of understanding (MoU). But it is not clear if the financial proposal of the bidder submitted earlier is de-linked with this MoU. It will be good for Nepal if the bidder really conducts the detailed study at its own cost and later agrees to a reasonable term and cost for the project during the negotiation. But preparing the DPR is not that simple. It is not possible to complete the study within four months as agreed upon by both the government and bidder. It in a way shows that either the bidder has already started the DPR work or it will just complete it in a haste which will not give the real picture of the project and its costing. The project’s tunnel, bridge study, investigation, soil exploration and geotechnical investigation take a long time. I wonder if the bidder has already submitted preliminary designs as per bid condition. In an ideal case and thinking positively, if the bidder conducts the study for free it is fine. However, what is surprising is that the revenue quoted by the bidder requires the government to pay an estimated Rs 75 billion within first five years for deficit in traffic on the road. After the DPR, the bidder might slightly lower the quoted revenue but that too will not be acceptable. As IL&FS is already the lowest bidder for the project, the process of involving other financing mechanisms is also likely to face some difficulty, if the government decides to do so.
When government last issued request for proposal, the bidding documents were based on suggestions given by a team led by you. What was the idea of possible traffic in the Fast Track road at that time?
There have been a number of studies in between 2004 and 2012 on possible traffic on this road and based on those figures, the project does not look like a loss making one in terms of the toll charges to be collected and estimated investment of Rs 100 billion. Later there was another study which talked of the road getting 3,000-4,000 traffic on an average per day which gave a wrong picture. There was 4,000 average daily traffic in the Mugling-Kathmandu stretch in 2004. Taking this into account, there will be a minimum of 7,000 vehicle units each day on the Fast Track road. In case of the proposal of the bidder, the traffic it projected is too high.
Source: THT
