The Coimbatore Bypass Road Project

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Challenges

L&T faced problems with the tolling of the old Athupalam bridge, which did not come within the route of the bypass. This bridge was an already existing facility being used by the incoming traffic from Kerala to Tamilnadu. Transport operators had initially refused to pay the tolls. The bulk users of the bridge including the state transport corporations of Tamilnadu and Kerala had refused to pay the tolls. The Tamilnadu state government too backtracked and sought concessional tariff for state transport buses on the plea that the transport department was in the red. The Tamilnadu government was willing to pay only Rs.50 per bus for making more than three trips a day instead of the originally planned Rs.15 per bus per trip. L&T agreed to the subsidized toll rate on the condition that the state government compensated the revenue losses sustained by the company9. The Coimbatore District Bus Owners Association (CDBOA) and the Lorry Owners Association refused to pay even the subsidized tariff.

The CDBOA had even taken the issue to Madras¹⁰ High Court against the tariff but the Court directed the private operators to pay the toll charges. However, they refused to comply with the court's orders. Since December 1998, L&T was unable to collect the tolls from road users and this resulted in a loss of Rs.74.1 mn as of June 2000. This included Rs.11.4 mn due from the Tamilnadu government towards reimbursement of losses incurred out of the subsidized toll payment for the state transport buses. N R Naramsimhan, GM (developmental projects)- L&T felt that unless the state government gave L&T powers to deal strictly with the non-payers, it would be impossible to recover the investment. He felt L&T might even request the state government to take over the project.

L&T contemplated on invoking the force majeure clause¹¹ and pulling out of the project. L&T was also under tremendous pressure from the financial institutions, which had lent money, to create additional securities. MoST had asked the state government to take a quick decision as a delay would have an adverse impact on other BOT projects in the state.

Questions for Discussion

1. Discuss the implications of the state government's poor support to the project, on the future investment in the concerned state? Give reasons.
2. What is the role of innovative financial instruments like takeout financing in the infrastructure sector?

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9] About 230 buses made a minimum of 2,180 trips a day. L&T claimed that it would sustain a loss of Rs.20,000 per day on government vehicles alone.
10] Madras (renamed Chennai) is the capital of Tamil Nadu.
11] Force majeure is an event or accident beyond any person's control. It includes natural disasters (or acts of God), mass acts of human agency, such as war and civil strife.