Submitted By:
Suraj Bansal (12304)
Ujjwal Chand (12310)
Monika Maheshwari (12319)
Ashish Naulakha (12320)
Financial Study of
Kathmandu Kulekhani Hetauda Tunnel
Road
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
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%
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
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