VADODARA HALOL TOLL ROAD

Group B4

Overview

VHTRL is a SPV to strengthen, widen and operate and maintain the 31.7 km Vadodara Halol Highway VHTRL was promoted by the GoG and IL&FS
Alternative to the NH8; Shorter by 50km; Avoided congested area of Ahmedabad Concession Agreement signed on October 17, 1998; Commercial operations began from October 24, 2000. Actual revenues as proportion of projected revenues declining over the last 2 years

Reasons for decreasing Events in Telecom Sector actual revenues/projected revenues Economic recession reduction in actual traffic as compared to projected Withdrawal of Sales Tax concession to Panchmahals district reduction in the industrial activities Diversion of traffic to Madhya Pradesh due to penalty on truck overloading at Gujarat border Traffic diversion due to ongoing construction on adjoining Halol-Godra segment Leakage of traffic onto the service road

Recommendations Increase the toll for the multi-axle vehicle (MAV) category; Use option 2 From exhibit 5, the weighted average MAV toll rate is Rs. 4.7/km Using option 2, the weighted average MAV toll rate is Rs 4.4/km (Revenues - Three axle : Four Axle : Five Axle = 96:32:1) Rationale: Multi Axle vehicles will continue to use the Vadodara Halol Toll Road as the Ahmedabad route is 50 kms longer and passes through Ahmedabad Assuming Diesel price as Rs 18/litre and vehicle average of 15km/litre, they incur 60Rs extra Further, they incur additional time in passing through Ahmedabad Heavy vehicles would find it further difficult to navigate through Ahmedabad city

Increasing reliance on MAV for toll revenues 40.5% in FY1, 67.1% in FY2, 73.5% in FY3 Exhibit 6

Recommendations Refinance the project Rationale: The project financing was closed during 2000 a period of high interest rates Subsequently Alan Greenspan cut rates 11 times in 2001, ECB four times RBI also reduced rates four times bringing the bank rate to an all time low of 5.75 per cent as of October 2002 Use variable interest rates as it was envisaged that the rates will decrease further in the future Currently, the D/E ratio is 1.98:1; Infuse fresh equity into the business to reduce the leverage getting favorable interest rates for refinancing During 2001-02, many private equity players like ChrysCapital etc. entered in the Indian markets IL&FS can look to dilute their stake by raising money from private equity

Recommendations Other sources of revenue Sell advertising/hoarding space along the Vadodara Halol Toll road to generate additional revenue Increase the marketing to increase the internal traffic; Use Pavagadh combined offer of charging for both entry and combined offer up the hill

Impact

Increase in toll charges 4.4/2.9 * 20.1 20.1 = Rs 10.4 million New equivalent cost of debt 10% (assumed) Interest expenses 10% * 800 = Rs 80 million Savings in interest = Rs 42 million Increased revenues due to hoarding Increased traffic due to marketing the Vadodra Halol toll road for entry to Pavagarh, thereby generating additional revenues