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December 2014 Economy and Policy

Published on: 2014-12-15 00:00:00     985 times read    0  Comments
--By Dr Chandra B Shrestha
 
Historically, the Kathmandu Valley was connected to India through a trade route: Thori of Parsa– Hetauda – Bhainse – Bhimphedi – Khulekhani – Chitlang – Chandragiri Pass to Thankot in Kathmandu. Later on, Raxaul was connected with the Indian railway, which made Birgunj as an entry point. A motorable road was constructed along Birgunj – Hetauda – Bhimphedi, which shortened traveling time between Kathmandu to Terai. However, the Mahabharat Range, which stood between Mid Hill and Terai remained the serious obstacle. In order to remove this obstacle, the then Royal Nepal Army completed the detail design of the Kathmandu Valley to Hetauda road in 1954. Subsequently the Nepal Army constructed 70 Km of the Kanti Rajpath out of 91 Km in 1960. However, in parallel to this initiative, the Tribhuvan Highway was constructed with the Indian assistance and was completed in 1956. What were the historical reasons for not selecting the much comfortable Kanti Rajpath, which avoided high altitude range has not been understood so far. As the Tribhuvan Highway Road Project was implemented by the Indian Army, which may have another very important strategic objective and for which they had to take alignment through high altitude ranges.
 
However, Nepal continued search for the shortest and most convenient route linking Kathmandu with Birgunj. After connecting the Prithvi Highway at Mugling with the East-West Highway at Narayangadh in the early eighties, all vehicles using the Tribhuvan Highway since 1956, started to use 92 km additionally longer route for reaching from Hetauda to Kathmandu. An excessive gradient with numerous loops was the main reason for drifting away traffic from the Tribhuvan Highway. In 1992, UNDP sponsored a study on the Kathmandu – Hetauda – Birgunj Corridor, which selected Pharping Humane route with 23 tunnels. The Japanese study in 1991 proposed three corridors and Swiss study in 1992 proposed five corridors. DANIDA supported study in 1993 proposed three tunnels and examined seven alternatives, which was followed by a Japanese study in 1994. In 2003, a Bagmati Corridor Feasibility study was conducted. The Asian Development Bank (ADB) supported conducting feasibility studies and Preliminary Design of the Fast Track in 2008, which laid a basis for taking forward this project. 
 
Project’s Significance
The 'Fast Track' is a project, which was dreamt by at least four Nepali generations. The Fast Track is proposed along the Bagmati corridor, which originates at Sano Khokana and travels through Chhaimale, Gausel, Malta, Thingen, Budune and Chhatiwan and reaches Nijghad where it meets with the East-West Highway. The proposed project also intends to widen the 18 km stretch of East-West highway between Nijghad and Pathalaiya Section. It will decrease the travelling distance by 159 km and save travelling time by more than four hours. The alignment is presented in Figure 1.
 
The project will generate 31 per cent economic internal rate of return (EIRR). However, the economic benefits above do not explain the whole story. The Nijghad International Airport will not be viable in the absence of this Fast Track road. The Nijghad Airport and the Fast Track Road Project will have capacity to invite increased numbers of Buddhist and Hindu tourists as the travelling time to Janakpur from this airport will be around 1 hour and to Lumbini 4 hours. This road will bring Eastern Development Region closer to Kathmandu by about 4 hours. This will push urbanization around Birgunj, Nijghad, and Hetauda area counter balancing the excessive population growth in Kathmandu. Kathmandu valley will have opportunity to develop itself as an administrative centre, historical heritage site and an academic centre. As Kathmandu has been experiencing diseconomies of scale, a majority of industries can be shifted to central eastern terai. Shifting majority of export-oriented industries there will take them closer to international airport and also to the Kolkata port. This road will leverage national integration, as it will address Madhesi grievances directly. An intensive industrial and commercial development in central eastern terai will greatly help to improve social harmony between Madhesi and Pahadi communities. More importantly, it is one of the important sections of the North South Transit Route to link Birgunj with Rasuwaghadi thereby establishing linkages between Tibet and the Indian sub-continent. The Chinese government is extending railway line till Rasuwaghadi and with Fast Track linking it to Nepal and India, it will play a pivotal role in materializing trade potential between these three countries.
 
Government’s Off-the-Cuff Approach
The government has been adopting off-the-cuff approach since the very beginning of this project. First of this was in 1996, when it called for  Expression of Interest (EOI) to implement the Kathmandu Terai Fast Track Road project without having a governing Act in place. Such an Act, the Private Financing in Build and Operation of Infrastructures Act was approved only in 2006. 
 
Second, is the repeated attempt to develop the project in the Design, Build, Operate, Maintain and Transfer (DBFOMT) model. In 1996, it intended to acquire only land and entrust rest of the responsibilities to concessionaire. In 2008, it offered only toll-based concession, and the same was also followed in 2010.  It agreed to provide grant up to 15% of the capital costs in 2012 and accepted unsolicited proposal from an Indian firm, the IL&FS Company, in 2014 that requested minimum vehicle guarantee scheme. In 2014 September, it re-advertised and it is learnt that it has received three proposals. These repeated adverts could be interpreted as less effective working approach of the concerned authority.
 
Third, estimating transport demand has remained a dubious activity. In 2008, transport demand on the fast track was estimated at 5,500 vehicles per day. However, other surveys carried out in 2013 revealed that the transport demand on the track would be between 3,000 or 4,000 vehicles per day in 2014. These discrepancies highlight the need to re-forecast traffic flows. Gaining an accurate view on traffic is particularly critical in determining final design specifications and in making intelligent tradeoffs between different technical options. Demand will also have bearing on Fast Track’s commercial characteristics if the government seeks to integrate tolling into some aspect of the project’s overall funding strategy. This created highly confusing situation between the government, investors and the donors. 
 
Fourth, some degree of lapses was felt in the issuance of Kathmandu Kulekhani Hetauda Tunnel Highway Project (KKHTH) license. Despite number of serious flaws in the project, why did it provide license to a private company? Having no connection of KKHTH with Birgunj means no possibility of increasing per unit load and speed between Birgunj to Hetauda and consequently to Kathmandu. If KKHTH is built, government will have to compensate the prospective Kathmandu Terai Fast Track Road Project Concessionaire for the differential volume of traffic caused by KKHTH. Moreover there are a number of design elements of KKHTH, which do not allow it to become an expressway. The estimated cost of NRs. 36 billion is in lower side by all standards. The issue is not whether the Nepal Purwadhar Bikash Company would be able to construct KKHTH but the real issue is why government did not consider such technical and financial issues while issuing the license?
 
Fifth, government acquired land and allowed the Nepal army to start earthwork excavation without concluding the detail design. The 2008 feasibility study was based on the present road standards. However, Fast Track requires significantly higher geometric standards. With 3.5 m wide Nepal Army excavated section, the slope cuts are about 50 m, which definitely reach at least to 100 m if the road section is widened to four lane expressways. Road sections with hillside cut slopes in excess of 35 meters may be more costly than an alternative involving some form of structure.  The road alignment is extremely fragile and excessive hill-side slope invites accelerated landslides. 
 
Sixth, the government has remained risk averse in terms of the funding decision. It is clearly understandable that the government wants to use the private sector’s financial resources as has been used by various countries. Under certain circumstances, it is really cost-effective solution. However, the private sector remains normally shy with the project of this scale of technical complexity. The available financing opportunities for the project are extremely limited in the country.
 
Government has agreed to offer a minimum revenue guarantee to the concessionaire in addition to the initial grant of NRs. 15 billion. Tentatively the amount of minimum revenue guarantee will be around NRs. 8 billion annually. Why is the government interested to pay such a hefty amount to the developer is not understandable. Assuming that the total project cost is NRs. 100 billion, the project payback period with the minimum revenue guarantee will be around 12 years. If the actual vehicle toll tax is also considered, the payback period goes down to around 8 years or so. Under such circumstance, government’s reluctance for allocating resources for the fast track has become mysterious. It is also susceptible whether the concessionaire will report the exact number of vehicles that pass through the Fast Track and thereby the exact revenue it collected, particularly under the current governance condition of the country. 
 
Prudent path to go ahead
Though there is consensus in Nepal to construct the Fast Track, the point of discussion has been on how to construct it. If basic trade and transport related indicators are analysed its need is clearly evident.  It would save approximately NRs. 4000 per one-way trip for a heavy truck. Assuming 5,000 vehicles will pass through it on an average day, the annual savings will be around NRs. 7.3 billion. The Fast Track will have a direct impact on the settlement pattern which will decrease concentration in Kathmandu Valley and increase in central terai region. These are desirable impacts from national perspectives.
 
In order to move ahead seriously, the government has to form a powerful Fast Track Authority. In the absence of such an institution, it will be very difficult to implement such a complex project. Government has to estimate reliable transport demand based on status quo and developmental scenario. Secondly, the technical fundamentals of the project have to be correct. For example, alignment, required design standards etc. 
 
Most importantly, government has to be clear in terms of funding instrument. The concessionaire will not bring money as grant to Nepal. The private sector may finance infrastructure investment expecting future returns. Ultimately the investment has to come from user charges such as tolls, fuel cess, vehicle taxes etc.; transfers from general tax revenues;  bilateral or multilateral grants from foreign institutions.  It is sensible for the government to consider these cold realities while choosing funding instruments. Under these circumstances, the government should have the courage to make investment from its own coffer rather than expecting from external concessionaire particularly when it demands minimum revenue guarantee.
 
The author is a regional planner with specialization in transport planning and is the incumbent director of Nepal Transportation and Development Research Centre.

#Historically   # the Kathmandu Valley was connected to India through a trade route: Thori of Parsa– Hetauda – Bhainse – Bhimphedi – Khulekhani – Chitlang – Chandragiri Pass to Thankot in Kathmandu. Later on   # Raxaul was connected with the Indian railway   # which made Birgunj as an entry point. A motorable  
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