Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed

Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

CHAPTER - 11
FINANCIAL ANALYSIS
11.1 General
The financial viability analysis for the proposed road forms the basis for assessing whether the
project is attractive enough for private sector participation. The analysis ascertains the viability
of the investment proposal on BOT format. A provision of maximum 40% government grant is
also considered if the project fails to achieve the desire result on BOT format. The financial
analysis covers aspects like financing through debt and equity, loan repayment, debt servicing,
taxation, depreciation, etc. The viability is evaluated in terms of the Project IRR [Financial
Internal Rate of Return (FIRR) on total investment] and the Equity IRR (FIRR on equity
investment), using discounted cash flow analysis, where both costs and revenues have been
indexed to take account of inflation.

11.2 Tollable Traffic

All motorised vehicles (other than two and three wheelers) on the road would be tolled except
certain categories of toll-exempt vehicles such as certain government vehicles, ambulances, fire
brigades, etc. Leakage of vehicles from toll plaza has taken as 0% of the total traffic on the road,
since the volume is low. According to the guidelines of the MCA, growth rate of traffic is
considered as 5% per annum.

11.3 Capital Cost and Phasing

The capital cost of the project relates to construction cost and includes civil works cost for Road,
Bridges / CD Structures & Approach roads, Junction Improvement, Project Facilities, Traffic Sign
& Road Appurtenances etc. Under BOT format, the government has to provide ROW land free of
cost and encumbrances to the concessionaire. The cost for environmental mitigation measures
would be borne by the concessionaire. Hence, costs other than for civil works cost and
environmental mitigation cost, viz. LA, R&R, afforestation and utility shifting are taken to be
borne by executing authority. In order to arrive at the cost for financial analysis, various other
components have to be considered, which are discussed in the following paragraphs.

Base Cost
The base cost for financial analysis comprises the cost to the BOT concessionaire and excludes
the cost to executing authorities. It includes civil construction cost and pre-operative expenses.
The base cost is at 2019 prices.

Other Cost
With a view to account for inflation, Financial Cost comprising processing fee, sponsor’s
contingency etc, Interest during construction, the base costs have been escalated at a rate of 25

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Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed
Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

percent on Civil Cost as per MCA guidelines.

Landed Project Cost

The total landed cost of the project is the cost at the time of commissioning and includes
aggregates of civil cost, financial overheads, escalation costs and interest during construction
(IDC).
Project Cost Summary

Sl. Items Rs. Cr.

A Total civil cost 1407
25% of Civil cost for contingency, Others 227
B supervision, financing cost and
interest during construction IDC 125
C Total Project Cost 1759

The construction is phased over three years (2020-2022). Cost Phasing would be 30%, 40% &
30% over 3 years.

Under BOT arrangement the permissible maximum limit of viability gap funding is 40% of capital
investment.
Grant, Loan & Equity Requirement - during construction (Rs Crore)
Total
Equity 294
Government Grant 654
Loan / Debt 686
IDC 125
Total Project Cost 1759

125,
7% 294, 17%

Equity

686, 39% Government Grant

654, 37% Loan / Debt

IDC

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Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed
Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

11.4 Operations and Maintenance Cost

Operation and maintenance cost as considered in the financial analysis is as follows:
o Annual Maintenance @ 0.5% of the Civil Cost on every year
o Periodic Maintenance @ 2% of the Civil Cost at every 5 years
o Toll Collection Expenses @ Rs 5.00 Lacs/year per Toll Plaza
o Office Expenses @ Rs 5.00 Lacs/year per Toll Plaza
o Patrolling, Electricity Expenses @ Rs. 0.40 Lacs/km/year

11.5 Basic Assumptions of Financial Model

Financial viability analysis has been done using a financial model. The model projects the key
financial statements of the private investor over the concession period. A concession period of
20 years has been considered. Depreciation of capital items is calculated by using two methods,
viz. the Written Down Value (WDV) Method and the Straight Line Method (SLM). The WDV
method favours income shielding and is, therefore, used only to calculate taxes payable by the
concessionaire. A tax holiday (i.e. 100 percent tax exemption on profits) for a block of 10 years
has been assumed as per the Government’s latest incentives for encouraging investments in the
road sector. These tax incentives must be availed within the first 20 assessment years of
operation. The corporate tax rate, at 33.23% is adopted for the analysis. Minimum Alternative
Tax (MAT) rate of 19.93% on the book profit is also considered where there is no corporate tax.
Summary of assumptions are as below

Operating Year to Traffic 2024 Start

Operating Period 20 Years
PPP Finishes at the end of 2044 End
Construction Start Year 2021 Start
Construction Time 3 Years
Construction End Year 2023 End
Expected Inflation 5%
Year of Accounting 2019
Corporate Tax Rate 33.23%
Minimum Alternate Tax (MAT) 19.93%
Tax Exemption Start 2022
Tax Exemption Length 10 Years
Cost of Equity 15%
No. of Lanes 2 Lane
No. of Toll Plaza 1 No.
Loan Term 20 Years
Moratorium 5 Years
Long Term Loan Rate 12%

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Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed
Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

VGF as % of Capex 40%

Debt/Equity Ratio 70%

11.6 Project Revenue

The toll revenue has been calculated for all categories of fast moving vehicles using the project
road viz. Car, Bus, LCV, HCV and MAV. The toll rates considered for the analysis are based on
existing practices for National Highways.

The fees structure / toll rate has been taken from National Highways Fee (Determination of
Rates and Collection) Rules, 2008 and Amendment Rules, 2014 (dated 16 th January 2014) –

For structures more than 60m, 10 times of the length has been considered
For Bypasses, 1.5 times of the length considered

Toll Rate for 2007-08 base year for 4-Lane National Highway,

Vehicle Type Base Rate of Fee per Km (In Rs.)

Car, Jeep, Van & LMV 0.65
LCV, LGV, Mini Bus 1.05
Bus, Truck 2.20
HCM, EME, MAV 3.45
Oversized 4.20

Toll Rate for 2-Lane National Highway is 60% of that of 4-Lane National Highway (refer sub rule
3 of Principal Rule 4)
Toll Rates are revised based on WPI as per Rule 5 of (Determination of Rates and Collection)
Rules, 2008 and modified subsequently.

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Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed
Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

11.7 Financial Viability on BOT – Toll Mode

To assess whether the project is commercially viable, the returns to investors, in terms of
Project IRR and the Equity IRR, are compared with the target IRRs. The target IRR for the present
investment proposal is considered as 15% on equity investment. Since the investment proposal
without any government proposal does not yield any result, a 40% grant is considered in the
analysis. The entire grant will be provided as equity support.

Results of Financial Analysis on BOT - Toll Basis

Doc No: CET/4047/NHIDCL/NH-102B/FDPR Revision: R0 April, 2020 Page: 336

Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed
Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

Project NPV Rs cr. -953

Project IRR % Low (Can’t be calculated)
Equity NPV Rs cr. -240
Equity IRR % Low (Can’t be calculated)

The return on the proposed investment is not enough even after a VGF of 40% on the TPC as
equity support. Thus the project fails on the financial viability.

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Consultancy Services for Carrying out Feasibility Study, Preparation of Detailed
Project Report and providing pre-construction services in respect of 2 laning of Final Detailed Project Report
Churachandpur -Tuivai road section (length- 162Km) on NH-102B in the State of Financial Analysis
Manipur. Package - IIIA

11.8 Conclusion
The project fails to generate the desired level of return, even with a grant of 40% on TPC. Thus
the project does not qualify to be implemented on the BOT - Toll mode. It’s recommended
that the project to be implemented through EPC mode.

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