In the 1970s, the Tamilnadu government planned the Coimbatore bypass road to ease the traffic congestion in Coimbatore and the NH-47 between Salem and Cochin. However, due to paucity of funds, the project had to be dropped.

In 1995, the Government of India (GoI) liberalized its policies and opened up the road sector for private investments. In September 1995, the GoI through its Ministry of Surface Transport (MoST)⁵ invited tenders from the private sector to finance and implement the construction, operation and maintenance of the Coimbatore bypass road project on BOT (build, operate and transfer) scheme. As the project was not viable on its own, the GoI after studying the various options, widened the scope by including the construction of an additional two-lane bridge on river Noyal on the NH-47.

A concession agreement for the integrated project of bypass and a bridge at Athupalam on NH-47 was signed on October 3, 1997 between the MoST, the government of Tamilnadu and L&T. L&T set up a special purpose vehicle (SPV) - L&T Transportation Infrastructure Ltd. (LTTIL), to implement the project. L&T held 100% equity in LTTIL. LTTIL implemented the project on BOT basis, with the revenue accruing directly to it.

The project was constructed by L&T-ECC (Engineering Construction Corporation) group, the largest construction organization in India. L&T-Ramboll Consulting Engineers, a joint venture between L&T and Ramboll of Denmark, was employed for quality control supervision and review of the critical pavement design.

The project was financed by share capital of Rs 416 mn and term loan of Rs 620 mn, with a debt- equity ratio of 1.5:1. As per the agreement with the Tamilnadu government, L&T had to hold a minimum equity of 26% at the end of 30 years⁶.

The debt financing was done by State Bank of India (SBI), L&T Finance, Housing and Urban Development Corporation (HUDCO), Housing Development Finance Corporation (HDFC), and Industrial Development Bank of India (IDBI). IDBI had sanctioned Rs.300 mn for the project in the form of infrastructure bonds. The loan was given in two tranches of Rs.150 mn each at 15% interest each. Principal repayment was to begin from the eighth year onwards.

SBI loaned Rs.300 mn to the project. Infrastructure Development Finance Corporation (IDFC) had structured a “liquidity support” arrangement to help SBI in emergency situation. This support enabled SBI to approach IDFC for refinancing in case it failed to raise the money from other sources. For IDFC, liquidity support was different from the take-out financing⁷ since it was lending on condition that the bank was unable to raise the money. Moreover, IDFC would not take the project risk even if it lends to the bank. IDFC would only be carrying the bank risk as it had given the money to the bank and not the SPV.

REVENUE GENERATION

L&T pointed out that the project helped vehicles save fuel and vehicle operating costs due to reduction of distance by 2.5 km and free flow traffic, besides time. Other benefits to the bypass users included less pollution, pleasant drive, good wayside amenities and lastly, safety.

L&T gave special emphasis to safety aspect of the road. Crash barriers were provided on the high embankment of the road, along with thermo plastic road markings. Traffic signals were erected at the junctions of Neelambur (Tamilnadu), Madukkarai (Kerala), Trichy Road (Tamilnadu), and Pollachi Road (Kerala). Speed breakers were erected at suitable locations on the major district roads crossing the bypass to regulate the speed of vehicles. Retro reflective signboards were also provided to illuminate junctions for better visibility at nights. L&T also set up trauma care with ambulance facility at the bypass.

Table I

Toll Charges for Using the Coimbatore Bypass Road

Type of Vehicle	Toll Charged (Rs.)
Car, jeep & van	19
Light Commercial Vehicles	28
Heavy commercial vehicles	56
Multi-axle vehicles	84

Source: IBS Center for Management Research

The Indian Railways asked L&T to build a rail overbridge instead of a crossing for the bypass⁸. However, L&T successfully argued that it was not part of the original project. In order to recover the additional costs, an alternative funding method had to be selected to keep the fixed costs to be recovered from the project at low. Hence, with the consent of the state government, L&T decided to toll the old Athupalam Bridge, which did not come within the route of the bypass (Refer Table II).

Table II

Toll Charges for Using the Old Athupalam Bridge

Type of Vehicle	Toll Charged (Rs.)
Car, jeep & van	5
Light Commercial Vehicles	15
Heavy commercial vehicles	15
Multi-axle vehicles	2

Source: IBS Center for Management Research

L&T also intended to provide necessary amenities for travelers such as petrol pumps, parking facilities, service stations, restaurants, drinking water facility, public telephone booths etc. The development of the real estate was to be taken up soon. Toll plazas of international standards were another attraction.

1. Discuss the implications of the state government’s poor support to the project, on the future investment in the concerned state? Give reasons.
2. What is the role of innovative financial instruments like takeout financing in the infrastructure sector?

Answer rating: 100% (QA)

Discuss the implications of the state governments poor support to the project on the future investment in the concerned state Give reasons LT spent Rs13 bn on the project that was scheduled to open in ... View the full answer