Government’s Role in Road Toll Collection: The Coimbatore Bypass Experience

Mayank Mangle
169278039
The case is about the Coimbatore Bypass project which included construction of Athupalam
Bridge and Coimbatore bypass. The project was floated by the MoST in 1995 which was filled
by only one company and was also awarded to the same company L&T Transportation
Infrastructure Ltd (LTTIL). The Athupalam Bridge was completed first and was operational for
normal public within 1 year of its construction by December 1998 and the bypass by January
2000. The project was expected to have an investment of ₹90 Cr where ₹87Cr would be invested in
the construction of the bypass for a length of 27.67 km and the rest ₹3Cr for the Construction
of two additional lanes to the existing bridge over river Noyyal rather the actual total cost on
completion of the project was ₹110 crores, of which ₹42 crores was funded by LTTIL as equity
and ₹68 crores by institutional financiers as debt. The revenue model of the project was
through tolling where the Athupalam Bridge would account for 60% of the revenue which will
be collected for a period of 20 years and the rest 40% from the bypass which will be for 30
years. As per the agreement, LTTIL was given a concession to levy toll for a period of 20 years
on the Athupalam Bridge and 30 years on the Coimbatore Bypass. The agreement clearly
specified that while the traffic risk was with LTTIL, the risk due to non-payment of tolls would
be with the state government.
Though the project was expected to provide comfort to the public but rather it proved to be a
problem for the people, LTTIL and the government. It is a clear example of a failed BOT public
private partnership project where the project details and inefficient project structuring as LTTIL
recorded a cumulative loss of ₹12.6 crores within 4 years. The main reasons which can be
derived from case which resulted in the failure are:
a. Unrealistic revenue projections where Athupalam bridge which costed almost 3% of
the entire project was expected to generate 60% revenue.
b. Lack of participation from the private players for the bidding process.
c. No prior work was done to check the demand and need of the public and whether they
were willing to pay for the facility.
d. Delay in the project which resulted in increased amount of interest on the loan.
e. One of the biggest mistake was that it ignored the users that will made multiple trips
per day and such users will find trip wise toll charges an expensive affair.
f. Government did not fulfil its duties properly where in spite of being responsible for the
payment risk, it did not fulfil its role by taking action towards ensuring toll compliance
or compensating for the losses.
This case raises questions on the future of the PPP model where the private firm and
government work hand in hand in the development of countries infrastructure. This also
raises question on Toll based revenue model and government’s role in case of any issue
regarding the same. And, whether for the BOT projects, annuities rather than tolling would be
a preferred route as tolling is very demand sensitive which increases risk from investors point of
view.