Anil trounces Mukesh in bidding for Mumbai sea link project

A consortium of Anil Dhirubhai Ambani Group's (ADAG's) Reliance Energy Ltd and Hyundai has bagged the contract for construction of the Mumbai Trans Harbour Link (MTHL) between Sewri in Mumbai and Nava-Sheva across the creek in Navi Mumbai, defeating another consortium led by Anil's elder brother Mukesh Ambani.

Sources said the REL-Hyundai combine quoted a concession period for the build-operate-transfer (BOT) project for nine years and 11 months, as against 75 years quoted by the Mukesh Ambani-controlled Sea King Infrastructure. The first phase of the project will comprise a six-lane dual carriageway linking Nava to Sewri and the second phase, which is expected to be completed by 2018, will consist of a double-track rail link running parallel to the road link on the north side. Government officials said the project cost had been revised to Rs 6,000 crore, with a construction period stipulated at five years. The REL consortium can charge Rs 250 for heavy vehicles and Rs 120 for cars and other light commercial vehicles, as toll charges. The bids were opened at the Maharashtra State Road Development Corporation (MSRDC) office today. It was found that REL's bids, both technical and financial, were better than that bid by the Sea King Infrastructure, said sources close to the development. The board of MSRDC, which is the nodal agency for the project, will meet soon to give its final approval, the sources added. An REL spokesperson declined to comment on the development, saying the company was yet to get confirmation on this from the government.

Initially, the REL-led consortium was disqualified at the technical bid stage on the grounds that one of the members of the consortium, Hyundai, did not meet the criteria of $200-million networth in the years which had been mentioned in the bid document. After the two consortiums short-listed for the project, L&T-Gamon Industries and IFFCO, opted out of the race, Sea King Infrastructure was set to get the contract. However, the REL consortium challenged the disqualification in court and got a favourable verdict from the Supreme Court. The apex court granted the consortium 90 days to submit their bid that ended on December 15 last year.

As a promoter / sponsor, one would have to decide whether the project will give an adequate return. For this purpose, desing a Base Case for this project with the following assumptions.

Assumptions

2. CAPEX(crs) 6000
3. Gestation period -yrs 3
4. Debt / Total Capex 70%
5. Initial traffic- (PCU / day) 1,00,000
6. Traffic escalation every year 10%
7. Toll per PCU in first year 150
8. Toll increase every year 5%
9. O&M for first year (crs) 5
10. O& M Escalation every year 6%
11. Interest Rate 9.00%
12. Depreciation Rate 20%
13. Tax Rate 30%

Mumbai Sea Link - Instructions

This is a case where interested companies had to bid for the project. The winning bid would be that company which bids for the lowest "Concession Period" (period for which toll can be collected by the company). To decide this the company has to design "Base Case" and see if the return to the promoters is "acceptable". If not, what can be done, given the same traffic and tolls, to make it an acceptable project - viable from the promoters' point of view.

1. XL Sheet Modelling
2. First work sheet - Assumptions. Use these numbers to calculate subsequent calculations. This would help in doing different iterations by changing the assumptions.
3. To start with assume the "Concession Period" to be 15 years
4. 2^nd work sheet - Calculation of PAT, Free Cash Flows, IRR, DSCR & IRR of Promoters' Cash Flow
5. 3rd work sheet- Cash Account - Opening Balance, Cash Inflow, Cash Outlflow and Closing Balance .....for each year
6. Have separate work sheets for calculating - depreciation, debt servicing (loan account),
7. Calculate "IRR of the Promoters' Cash Flows"
8. Link and display the "IRR of the Promoters' Cash Flows" and the Minimum DSCR in the 1^st work sheet....so that we can see in the 1^st work sheet itself what happens if we change the assumptions ("what-if" analysis)

Answer rating: 100% (QA)

To create the base case for the Mumbai Sea Link project well use the provided assumptions and Excel ... View the full answer