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Panagarh-Palsit highway in Bengal -- NHAI invites annuity tolling quotes

Our Bureau

NEW DELHI, Oct. 9

THE National Highways Authority of India (NHAI) has invited financial bids from the six short-listed bidders for developing the Panagarh-Palsit section on NH-2 in West Bengal on a build, operate and transfer (BOT) method using the annuity tolling system.

The concession document for the annuity-based BOT highway project had been given to the pre-qualified bidders. A pre-bid meeting of the short-listed bidders would be held and the prospective operators had been asked to submit the price bids by November 3 0, the Government sources told Business Line.

Under the annuity tolling method, the highway project operator would not collect tolls from the users directly. This method involved payment of a fixed semi-annual sum by the NHAI to the project operator during a concession period spanning 18 years (incl uding the construction period) to compensate the operator for the capital cost and operating expenses of the project plus a certain percentage of returns thereon.

The fixed semi-annual payment would depend on the satisfactory maintenance of the highway facility. The concession document had defined the maintenance parameters of the proposed highway during the operation period for the purpose of annuity payment and non-performance would invite penalty.

``If the highway is not maintained according to the performance level stipulated by the NHAI in the concession document, the annuity payment gets affected'', the sources said.

On the positive side, the annuity system takes out the major risk - traffic risk - involved in constructing highway projects. In other words, the annuity method was traffic-neutral since it was not linked to actual traffic using the facility.

With the NHAI assuming the commercial risk relating to traffic volumes, the annuity mode gives a greater order of comfort to the investors. This would result in a lower cost of capital which, in turn, would have an impact on the annuity amount quoted by the bidders, an official with one of the short-listed companies told Business Line.

As per the bidding criteria, the project would be awarded to the bidder quoting the lowest annuity amount semi-annually from the NHAI.

Besides, once the traffic risk is removed, the project becomes highly attractive to the private operators.

While quoting the annuity amount, the private operator would be allowed to factor in the capital cost, inflation rate, foreign exchange risk if any and commercial risks other than traffic risk.

Reliance Industries Limited, Larsen & Toubro, Kvaerner Construction International Ltd. (U.K.), Road Builder M, IJM Corporation Bhd. and Gamuda WCT ( all from Malaysia) are in the fray to bag the highway project.

The scope of the project includes widening of the existing two-lane road on the 64 km-long stretch between Panagarh and Palsit on NH-2 into a four-lane divided carriageway and rehabilitation of the existing two-lane stretch at an estimated cost of Rs 300 crore ($69 millions).

The NHAI had appointed Infrastructure Development Finance Company (IDFC) as financial advisors for the pilot project being undertaken on annuity tolling basis.

Related links:
Panagarh-Palsit highway project -- Six cos shortlisted
Six firms submit RFQ for Bengal highway project

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