Finance Ministry refuses funds to Mumbai harbour link

The much-delayed Mumbai Trans-Harbour Link (MTHL) has suffered a fresh setback as the union finance ministry

Written by Surabhi | Mumbai/ New Delhi | Published:October 17, 2012 1:47 am

The much-delayed Mumbai Trans-Harbour Link (MTHL) has suffered a fresh setback as the union finance ministry has refused to approve its viability gap funding,asking the city’s development authority to treat the sea-link as a road and reduce the concession period to 30 years from 45.

The 22-km,Rs 9,630-crore MTHL is a critical infrastructure showpiece for the financial capital as it will drastically reduce the distance between central Mumbai and Navi Mumbai,and also connect to the proposed second airport there.

The longest sea-link in the country has been in the planning stage for more than three decades,and has gone through two failed rounds of bidding. The jolt from the finance ministry comes after the Mumbai Metropolitan Region Development Authority (MMRDA) short-listed five bidders more than four months ago.

Approvals from the central government for the request for proposal documents and the viability gap funding of 20 per cent of the total project cost are crucial for the shortlisted consortia to prepare and submit final bids.

However,the finance ministry is insisting that MMRDA treat the link as a road project. This means the standard Model Concession Agreement (MCA) for roads will apply. “It may be a bridge but it is a road project going by the standards of the Indian Roads Congress. So we have suggested bidding it out through the roads MCA,” a senior finance ministry official said.

Further,if MMRDA expects viability gap funding for the project,then the finance ministry wants it to reduce the concession period now proposed at 45 years. “Our calculations reveal the project will break even in 30 years. Why should the developer charge toll for an additional 15 years?” the finance ministry official asked,pointing to the Delhi-Gurgaon Expressway where the high court has had to intervene. The finance ministry has also raised concerns over the proposal to charge a congestion fee.

Additional Metropolitan Commissioner Ashwini Bhide,however,maintained that the MTHL is a sea-link and not a regular six-lane road project where the maximum concession period for recovery can be about 25 years. “There is no model concession agreement in place for a sea-link. The MTHL is a green-field project where the risk is much greater as we can only estimate what the traffic is likely to be.

Half the traffic will depend on the kind of development that comes up in the area,” she said.

Explaining the risk involved in the project,Bhide said the debt service coverage ratio,which refers to the available amount of cash flow to meet interest and principal payments on debt,needs to be more than 1 for the lenders to feel comfortable. “For a project like MTHL the ratio should be 1.4 or 1.5,but we have taken 1.2 in our calculations. If traffic is even 25 percent below what is estimated the ratio will go into negative,” she said.

Another reason the finance ministry is keen on pushing the roads MCA for the sea-link is the flexibility the state will have to call for bids for capacity augmentation once the MTHL reaches peak capacity. In case the concessionaire chooses not to submit a proposal or fails or declines to match the most preferred offer,then the government can terminate the concession agreement on payment of a termination fee.

In a recent meeting with the empowered institution of the Union finance ministry,Metropolitan Commissioner Rahul Asthana had said this clause cannot be adopted for the MTHL because if the contractor has to build additional capacity by adding two more lanes,then getting right of way,or ownership of land,would be very difficult.

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