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NHA Issues Request for Proposals for Construction of Hyderabad—Sukkur Motorway Under PPP

The National Highway Authority has reportedly planned to ring-fence the cash flows of the M-6 (toll revenues fewer operations & maintenance costs) for the first seven operational years of the Hyderabad-Sukkur Motorway project to fund an operational Viability Gap Fund (VGF) of Rs. 43 billion payment obligations.

The motorway forms part of the trade corridor linking the ports of Karachi and Gwadar with China, Afghanistan, and the Central Asian states.

The National Highway Authority (NHA) has issued a Request for Proposals for the construction of the Hyderabad—Sukkur Motorway under a Public-Private Partnership on a Build-Operate-Transfer basis and will provide a VGF of Rs. 43 billion to improve the viability of the project.

According to the Request for Proposals, the NHA/Government of Pakistan is undertaking the construction of the Peshawar—Karachi Motorway, high-speed, controlled access, and a six-lane motorway system.

According to official documents, the NHA/Government of Pakistan (GOP) will provide financial support/VGF in the form of Capital and Operational VGF as:

  1. the government shall provide capital VGF with a maximum limit of Rs. 43 billion in the form of Equity (‘Class B’ equity shares) having no dividend and voting rights. The Capital VGF shall be provided during the construction period (30 months) of the project and shall be paid in ten equal quarterly installments. Each installment shall be released at the beginning of each quarter. The disbursement of Capital VGF shall be ensured through an escrow account arrangement;
  2. the NHA shall provide the Operational VGF per annum for the first seven Operational Years of the project in the form of a subsidy (annual equal amounts). The bidder’s quote of the VGF amount shall be inclusive of all the applicable taxes. The Operational VGF installment shall be paid in the first quarter of each Operational Year (from Operational Year 1 to 7). Each installment shall be released at the beginning of the first quarter of each Operational Year.

As an effort to enhance the viability/bankability of the project, the NHA has planned to ring-fence the cash flows of the M-6(toll revenues fewer operations and maintenance costs) for the first seven operational years of the project to fund the Operational VGF payment obligations. In case of a shortfall, the NHA/GOP will bridge the gap.

The provision of Capital and Operational VGF shall be secured by issuing revolving SBLC backed by a sovereign guarantee to be issued by the GOP or another GOP-backed guarantee financial instrument to ensure the bankability of the project.

The concessionaire shall be responsible for arranging project financing and shall be required to commit a mini 30 percent of the project cost [after deducting the amount of financial support as capital VGF and toll and other income during construction]. A  maximum of 70 percent of the project cost [after deducting the amount of the NHA/GOP’s Financial Support as upfront VGF and toll and other income during construction] shall be arranged by the concessionaire as debt.

No toll escalation shall be allowed during the construction period even if a section of the project is opened for vehicular traffic. Additionally, 7.5 percent annual toll escalation shall be applied during the first six years after the service commencement date, and thereafter 6.5 percent annual toll escalation shall be applied.

The concessionaire, inter-alia, shall exclusively bear the risks of the demand, including traffic, forex, and the cost and time overrun, all the commercial risks, and the design, construction, performance, and insurance risks. The NHA shall share the risk of change in law, force majeure, and political risk.

The general alignment runs parallel to the National Highway N-5 which carries approximately 65 percent of the traffic of Pakistan. All the segments of the Peshawar—Karachi Motorway (PKM) have either been completed or awarded for construction except the Hyderabad–Sukkur motorway link of the PKM section.

The NHA is soliciting proposals from well-reputed national and international private entrepreneurs, joint ventures, and consortia to undertake the project on Build-Operate-Transfer arrangement, wherein the private party shall be responsible to finance, design, develop, construct, insure, operate, manage, maintain and transfer the project to the NHA at the end of the concession period.

The NHA envisages granting an exclusive and non-assignable concession to the selected bidder to undertake, develop, design, finance, construct, insure, commission, manage, operate, maintain; and, at the end of the concession period, transfer to the NHA all the Project Assets, including but not limited to, Service Areas, Allied Facilities and all the superstructures, buildings and civil works built on the Right of Way for the purposes of the project.

The concession will also include the exclusive right, subject to the terms of the Public-Private Partnership (PPP) Agreement of the selected bidder to collect toll from the vehicles/users using the project, except exempted vehicles, generate revenue through the toll, and by exploiting the commercial use of the Service Areas and other Allied Facilities built by the bidder as part of the concession and to appropriate the same during the concession period.

The concession will be for a maximum period of 25 years, commencing from the effective date, that is, the signing of the PPP Agreement inclusive of the financial close period. The concessionaire will have to achieve the Financial Close within 180 calendar days from the Effective Date. During this phase, the concessionaire shall keep the NHA well posted on its activities/correspondence with potential lenders/financial institutions.

The Financial Close period may be extended for another period of a maximum of 120 days subject to the approval of the NHA upon providing sufficient evidence of efforts made by the concessionaire for the achievement of the Financial Close.

In case the concessionaire is unable to achieve the Financial Close, its Financial Close Bond shall be forfeited and the NHA shall not be liable to any claim(s) (in part or as a whole) for any expense(s) that are incurred on, inter-alia, the preparation or submission of the bid proposal, incorporation of the Project Company, negotiating the PPP Agreement, or the preparation of project design, whatsoever.

The construction period for the project will be 30 months from the date of achievement of the Financial Close.

The successful bidder will have to incorporate a private limited company with the Securities & Exchange Commission of Pakistan in the form of a special purpose vehicle that will execute a PPP agreement with the NHA as a concessionaire. For a bid to be responsive, each bidder is required to provide a Bid Security of Rs. 150 million as a part of its Technical Proposal.

courtesy: propakistani

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