Taking data from secondary sources (NBPCL Company and news), a financial model was developed to test the attractiveness of this project in terms of adding value to the investors.

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

2. Outline of Presentation

4. 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)

5. 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

6. 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

7. Data Source
 Secondary source: Published by the NPBCL and
various news articles.

8. 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%

9. Model cont..
 Revenue Structure

10. 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.

11. Model
 Cost Model (Road Tunnel Manual)
12%
9%
8%
71%
Costs
Heavy Repairs
Maintenance
Operation
Construction

12. 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

13. Project Analysis
 Customization of Model
Under Normal Toll Rates and no Leasing
NPV (for 30 years operation) (4,857,649,159)
NPV (for 35 years operation) (1,587,889,421)
Introduced Leasing Concept
NPV (for 30 years operation) (4,465,166,668)
NPV (for 35 years operation) (1,181,713,107)

14. 3.5
pc
5 pc 10 pc
14.71
pc
15 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
NPV(inbillionsofRupees) NPV for various increments in Toll Rates

15. 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

16. 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
NPV

17. 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
NPV

18. 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
NPV

19. 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

20. Scenario Analysis (Fast-Track)
Scenarios Pessimistic Neutral Optimistic
Probability 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%
Pessimisti
c
Neutral Optimistic
Weighted
Average
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
NPV

21. 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

22. Conclusion
 Initial Analysis: Project Infeasible
 Project affected by fluctuations in traffic
 Lease commercial space
 Increase toll revenue

23. Recommendation
 Construction Materials Hedging
 Infrastructure Debentures
 Ensure High Traffic Flow
 Construction on Time
 Lobby for 5 year Extension

24. 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

25. Thank You