Submitted By:

Suraj Bansal (12304)

Ujjwal Chand (12310)

Monika Maheshwari (12319)

Ashish Naulakha (12320)

Financial Study of

Kathmandu Kulekhani Hetauda Tunnel

Road

Outline of Presentation

Background

Road length from Hetauda to Kathmandu: 227 km with travel time of 6-8 hrs.

Hetauda-Narayanghat-Mugling-Kathmandu: highest trafficked road

Short cut route out of the valley

Nepal Purbadhar Bikas Company Limited: build own operate and transfer the KKHT Highway.

4P compilation (Private, Public, Partnership and People)

Project Benefit

Save 15 billion annually on fuel and spare parts

Saves time and energy as the travel time :1.5 hours from 7 hours

Reduction in existing road maintenance cost

Promote employment opportunities and also positive impact on economic of surrounding regions

Help to lower the production cost in Kathmandu

Assumptions The estimated toll revenue: Increased by 30%

Straight line depreciation method

WACC was considered fixed although Debt to Equity ratio changes across the life of project.

The WACC was calculated as per the Debt to Equity ratio of year 2017, which is the starting year of operation

Operation and Construction cost of tunnel road is 10 times more as compared to normal road

No dividend was paid out during the project

No complexity for Civil Engineering was considered

Data Source

Secondary source: Published by the NPBCL and

various news articles.

Model

Capital Structure

50% Debt (BFIs) and 50% Equity (60+40)

Debt repayment period:15 years

Interest charged on Debt: 11% (+1 provision)

Project financing concept

Equity: ordinary shares and convertible preference shares

10% stock dividend to preference shares

Tax 20% with 40% rebate=12%

WACC: 11.14%

Model cont..

Revenue Structure

Cost Estimate

As per International Standards, the cost for

tunnel construction and operations has been

taken 10 times more than the average cost

for road construction.

Model

Cost Model (Road Tunnel Manual)

12%

9%

8%

71%

Costs

Heavy Repairs

Maintenance

Operation

Construction

Model

Leasing: Leasing revenue increases at the rate of 3% per year

from 2018.

Toll Revenue: NPBCL have fixed a toll rate in agreement with the

Government of Nepal (Increases 3.5% every year)

Operations costs increase at the rate of 2% per year from 2018.

Traffic increases at the rate of 5% every year

Project Analysis

Customization of Model

Under Normal Toll Rates and no LeasingNPV (for 30 years operation) (4,857,649,159)NPV (for 35 years operation) (1,587,889,421)

Introduced Leasing ConceptNPV (for 30 years operation) (4,465,166,668)NPV (for 35 years operation) (1,181,713,107)

3.5pc

5 pc 10 pc14.71

pc15 pc 20 pc 25 pc 30 pc 35 pc 40 pc

NPV (30 yrs) (3.39 (2.94 (1.42 - 0.089 1.602 3.106 4.611 6.110 7.606

NPV (35 yrs) - 5.061 2.189 3.770 3.868 5.546 7.216 8.886 10.55 12.21

(6.000)

(4.000)

(2.000)

-

2.000

4.000

6.000

8.000

10.000

12.000

14.000

NP

V (

in b

illio

ns o

f R

up

ees)

NPV for various increments in Toll Rates

Project Analysis

NPV

IRR

Discounted Payback Period

NPV (for 30 years operation) 4,610,872,060

NPV (for 35 years operation) 8,886,017,959

IRR Total Capital Equity

For 30 years of Operation: 12.12% 15.22%

For 35 years of Operation: 12.76% 16.68%

Discounted PayBack Period(from 2012): 30.18 years

Discounted PayBack Period(start of operation): 25.18 years

Sensitivity Analysis

Annual Traffic Increment

1.0% 3.0% 5.0% 7.0%

NPV (30 Years) (9,356,780,1 (3,484,061,0 4,610,872,06 15,919,160,1

NPV (35 Years) (8,134,923,2 (1,181,009,1 8,886,017,95 23,753,116,8

(15,000,000,000)

(10,000,000,000)

(5,000,000,000)

-

5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

30,000,000,000

NP

V

Sensitivity Analysis

Loan Interest Rates

10.00% 10.50% 11.00% 11.50% 12.00%

NPV (30 Years) 8,376,524, 6,448,812, 4,610,872, 2,856,019, 1,184,562,

NPV (35 Years) 13,437,699 11,099,940 8,886,017, 6,786,349, 4,798,595,

-

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

NP

V

Sensitivity Analysis

Construction Cost

100.00% 105.00% 110.00% 115.00% 120.00%

NPV (30 Years) 4,610,872, 2,929,730, 1,247,350, (444,066,2 (2,135,482

NPV (35 Years) 8,886,017, 7,204,876, 5,522,496, 3,831,079, 2,139,663,

(4,000,000,000)

(2,000,000,000)

-

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

NP

V

Sensitivity Analysis

Project Delay

Project Delay 0 years 1 year

NPV (for 30 years operation) 4,610,872,060 1,497,800,531

NPV (for 35 years operation) 8,886,017,959 5,344,437,493

Scenario Analysis (Fast-Track)

Scenarios Pessimistic Neutral OptimisticProbability 0.100 0.500 0.400

Project Traffic for 2016 (of estimate) 80.0% 90.0% 100.0%Weighted Average Toll Rate (of estimate) 85.0% 92.5% 100.0%

Pessimistic

Neutral OptimisticWeightedAverage

NPVs

NPV (30 Years) (7,997,389,89 (1,961,894,78 4,610,872,060 63,662,441

NPV (35 Years) (5,097,390,70 1,593,447,756 8,886,017,959 3,841,391,991

(10,000,000,000)

(5,000,000,000)

-

5,000,000,000

10,000,000,000

NP

V

Limitation

Accurate data for operation cost, cost of equity , bank

deposit rate, leasing income, annual operation cost

increase and leasing rate increase was not available

Various assumptions were made for the calculation of

NPV

Conclusion

Initial Analysis: Project Infeasible

Project affected by fluctuations in traffic

Lease commercial space

Increase toll revenue

Recommendation

Construction Materials Hedging

Infrastructure Debentures

Ensure High Traffic Flow

Construction on Time

Lobby for 5 year Extension

Challenges Stable government and strong commitment from all

political parties and stakeholders

Traffic tunnels are new to Nepal and because of fragile geology might be difficult

Requires trained personal, special equipments, and continuous power supply for operation and maintenance

High construction cost

Thank You