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ISLAMABAD: The National Highways Authority (NHA) has planned to ring-fence the cash flows of M-6 (toll revenues less operations and maintenance costs) for the first seven operational years of the Hyderabad-Sukkur Motorway project to fund operational Viability Gap Fund (VGF) of Rs43 billion payment obligations, it was learnt.

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

The authority has issued Request for Proposals (RFPs) for the construction of the Hyderabad-Sukkur Motorway under Public-Private Partnership (PPP) on Build-Operate-Transfer (BOT) basis and would provide the VGF of Rs43 billion to improve the viability of the project.

According to the RFP, NHA/Government of Pakistan is undertaking construction of Peshawar-Karachi Motorway (PKM), a high speed, controlled access, six-lane motorway system.

According to official documents, the Government of Pakistan/NHA will provide financial support/VGF in the form of capital and operational VGF as given below: (i) GOP shall provide capital VGF with a maximum limit of Rs43 billion in the form of Equity ("Class B" equity shares) having no dividend and voting rights.

The capital VGF shall be provided during construction period (30 months) of the project and shall be paid in 10 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; (ii) NHA shall provide the Operational VGF, per annum for the first seven operational years of the project in the form of the "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 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 M-5 (toll revenues less operations and maintenance costs) for the first seven operational years of the project to fund operational VGF payment obligations.

In case of a shortfall, GOP/NHA will bridge the gap.

The provision of Capital and Operational VGF shall be secured by issuing revolving SBLC backed by sovereign guarantee to be issued by GOP or some other 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.

Whereas, maximum 70 percent of the project cost, after deducting the amount of GOP/NHA'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 construction period even if a section of the project is opened for vehicular traffic.

Seven and half percent annual toll escalation shall be applied during the first six years after service commencement date and thereafter, six and a half percent annual toll escalation shall be applied.

The concessionaire, inter-alia, shall exclusively bear the risks of demand including traffic, forex and cost and time overrun, all commercial risks, 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 traffic of Pakistan.

All the segments of the 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 as well as international private entrepreneurs, joint ventures and consortia to undertake the project on BOT arrangement, wherein, private party shall be responsible to finance, design, develop, construct, insure, operate, manage, maintain and transfer of the project, at the end of concession period, to the NHA.

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 right of way ("ROW") for the purposes of the project.

The concession will also include the exclusive right, subject to the terms of the PPP agreement, of the selected bidder to collect toll from vehicles/users using the project, except exempted vehicles, generate revenue through 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 effective date i.e. signing of the PPP agreement inclusive of financial close period.

The concessionaire will have to achieve Financial Close within 180 calendar days from the effective date.

During this phase the concessionaire shall keep the NHA well posted of its activities/correspondence with potential lenders/financial institutions.

The financial close period may be extended for another period of maximum 120 days, subject to approval of the NHA upon providing sufficient evidence of efforts made by the concessionaire for achievement of 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/submission of bid proposal, incorporation of the project company, negotiating the PPP Agreement or preparation of project design, whatsoever.

Construction period for the project will be 30 months from the date of achievement of financial close.

The successful bidder will have to incorporate a private limited company with the Securities and Exchange Commission of Pakistan (SECP) in the form of a special purpose vehicle (SPV), who will execute a PPP agreement with the NHA as concessionaire.

For a bid to be responsive, each bidder is required to provide, as a part of its technical proposal, a bid security in the amount of Rs150 million.

Copyright Business Recorder, 2021

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