One of the key areas of concern remains the six laning option. According to the concession document, the promoter must explore the option of six-laning the section in the fifth year of operation. If he chooses not to exercise it, his concession period will be cut to nine years and another promoter will be bought in to create the additional two lanes. According to developers, essentially mega construction companies and some large corporates looking for an entry into the infrastructure sector, while four-laning is a very viable proposition in several heavy traffic sectors at this point of time, it is difficult to assess if there will besufficient volumes to justify investment in six-laning. As the conditions stand today, the promoter will have to make a call on the six-laning even as he bids for the four-laning, a difficult proposition for most bidders.

Another contentious issue is the toll escalation clause. The inflation is to be worked into the toll to the closest five rupees. For instance, if inflation causes an increase in the toll from Rs 20 to Rs 22, the promoter will have to charge only Rs 20, and then wait for two years before he can hike the toll rates. According to an analyst at one financial institution, this could seriously impact cash flow, even affecting viability.

While the toll escalation charges themselves will remain a contentious issue (promoters still have not given up the WPI v/s CPI battle), some developers have very seriously raised the issue of toll itself. According to one corporate house, "All vehicular traffic will be paying the surcharge on diesel and petrol on the grounds that the highway network has to beupgraded. To then charge toll will be seen as additional taxation and there will be consumer resistance." Others have not eliminated the possibility of public interest litigation. The story is a little different for the financial institutions.

They have found the draft acceptable. According to Ciby Anthony, general manager, project appraisals, IDBI, "The government has provided sufficient protection against force majeure, which is the most criticial factor for a funder in project of this nature." For instance, political risk has been almost entirely covered. According to the concession document, in the event of termination due to political risk the compensation is 150 per cent of the equity.

While the financial institutions are happy with it (since they will lend only for five to seven years), promoters are worried that if the termination comes in the last few years of the concession period, there could a negative return on the investment.

Likewise indirect political risk and acts of God have beencovered to the extent of 110 per cent and 90 per cent respectively. In the latter case, the compensation will only be on the debt due. Financial institutions are also quick to admit that although their concerns have been largely met, that is not to say that funding will go to the sector. Only due diligence will determine that. And viability factors still remain hazy. Clearly, developer concerns will have to be addressed if viable projects are to apply for funding in the first place.

Milestones covered on the way

Two years ago, when a small Mumbai-based construction firm, Atlanta Infrastructure, decided to construct the country's first private road on the National Highway, the Udaipur bypass, there were sceptics aplenty. The track record of the only other private road project, the IL&FS promoted Rau-Pithampur road, a state highway, was not too encouraging. But barely nine months after commissioning, the project has reached break even.

For a construction firm that had been building roads andbridges for the government for two decades, the 11.2 km, Rs 24.5 crore project was an acceptable risk. According to government estimates, in October 1996, when Atlanta was awarded the contract, traffic estimates were 19,151 passenger car units (pcus) per day. A survey conducted by Atlanta showed that only 40 per cent of this traffic would use a toll road. They therefore based their project at approximately 12,000 pcus a day. Atlanta finished the 36 month project in 17 months. At a 1:1 debt equity ratio, the IDBI and SICOM contributed Rs 5 crore each to the debt. The promoter, Raju Barot, put up 100 per cent equity of Rs 10 crore. The project was commissioned in April 1998.

According to Deepak Anklesaria, general manager, finance, there is a daily traffic of 8,000-10,000 pcus per day already which is steadily increasing. "I feel that the accurate traffic estimates are the key to our success," says Anklesaria. Since vehicles save 45 minutes by using the bypass, commercial vehicles have proved to be the roads'most loyal customers.

Average earnings per day have touched Rs 1.86 lakhs per day. Operating costs plus debt servicing need a cash flow of Rs 1.71 lakhs per day. Anklesaria clarifies that they would consider the project to have reached break even only when the promoters equity is given a dividend. But given the fact that the project is possibly one of the most successful BOT projects in the country, Barot's risk is paying off handsomely already.