Hybrid annuity Model

Under this model, the government will provide 40 per cent of the project cost to
the developer to start work while the remaining investment has to be made by the
developer.
No one (private players) was ready to participate in the PPP-based projects as they
had lost faith (in the previous government). However, to encourage private
participation, we have also introduced a hybrid model, where we will share the risk
with them.”

Incorporating the latest technology, such as emergency evacuation and accident detection
system, the Chenani-Nashri tunnel, India's longest, has set a new benchmark for
construction firms to provide all-weather roads in tough terrain, a top NHAI official said.

On the features of the tunnel, Jain said the tunnel has a three-tier power system to keep the
tunnel illuminated.

Incorporating the latest technology, such as emergency evacuation and accident detection
system, the Chenani-Nashri tunnel, India's longest, has set a new benchmark for
construction firms to provide all-weather roads in tough terrain, a top NHAI official said.

With successful completion of the tunnel, replicating its modern technology features for
other projects in India will be easier and take less time, according to M. K Jain, Chief
General Manager, National Highways Authority of India (NHAI), which got the mandate to
get the 9.2 km Chenani-Nashri tunnel work done.

"The Chenani-Nashri project has set a benchmark for all other construction firms in India. Its
successful completion has not just paved the way for other construction firms to use the
technology but also increased the standard of infrastructure building in the country," Jain
told IANS here in an interview.

He said there is an urgent need for construction companies to utilise modern technology like
in Chenani-Nashri, rather than sticking to traditional construction methods for huge civil
projects in difficult terrain in states like Jammu and Kashmir.
Features and benefits[edit]
The Chenani-Nashri tunnel comprises two tubes that run parallel to each other — the main traffic
tunnel of diameter 13 m and a separate safety or escape tunnel of diameter 6 m alongside. The two
tubes — each approximately 9 km long — are connected by 29 cross passages at regular intervals
of every 300 meters along the entire length of the tunnel. These passages add up to about 1 km of
tunnel length, and the main and escape tubes, plus the cross passages make up about 19 km of
tunnel length. Since such a long tunnel could present the problem of a lack of oxygen, to ensure that
there is no excessive carbon-dioxide build-up inside, there are several exhaust meters that will
check the air all through the length of the tunnel. With inlets, every 8 meters, bringing fresh air into
the main tube, and exhaust outlets every 100 m opening into the escape tube, the tunnel is the
country’s first — and the world’s sixth — road tunnel with a transverse ventilation system.
Transverse ventilation will keep tailpipe smoke inside the tunnel at a minimum level in order to
prevent suffocation and keep visibility at acceptable levels, especially since the tunnel is so long.
The 29 cross passages between the two tunnels will be used to evacuate, through the escape
tunnel, a user who might be in distress or to tow away any vehicle that might have broken down in
the main tunnel. A total of 124 cameras and a linear heat detection system inside the tunnel will alert
the Integrated Tunnel Control Room (ITCR) located outside the tunnel to the need for intervention. In
the case of a traffic violation, the Control Room informs the traffic police deployed outside the tunnel,
who shall impose a fine on errant drivers on the spot.[5][4][13]
SOS boxes installed every 150 m will act as emergency hotlines for commuters in distress. To
connect to the ITCR to seek help, one would only need to open the door of the SOS box and say
‘Hello’, said an executive of the project. Commuters can use their mobile phones inside the tunnel.
To prevent diminution of vision as a result of change in the light while going in or coming out of the
tunnel, the lighting inside has been adjusted at a gradient of luminous strength. The tunnel is built
with fire safety measures. As soon as sensors detect fire, a safety protocol will kick in, and the
pushing of fresh air will stop and only exhausts will function. Longitudinal exhaust fans installed at
regular intervals will concentrate on 300 m on either side of the fire, pushing the smoke upward.
Ambulances or vehicles carrying foam will rush through the escape tunnel to evacuate commuters
and fight the fire.[5]
The heat detection system inside the tunnel will record rises in temperature in the tunnel — the
result of excessive emissions which may be caused by one or more vehicles. In such cases, the
ITCR will get in touch with staff inside the tunnel, and the offending vehicle will be pulled over into a
lay-by and subsequently removed by a crane through the parallel escape tunnel.[5]
The tunnel is located at an altitude of nearly 4,000 feet in difficult Himalayan terrain. Despite having
been excavated in such geographic conditions, both tubes are completely waterproof.[5]
Because of this two-lane tunnel, the distance between Chenani and Nashri and hence between
Jammu and Srinagar is reduced by 30 km and travel time is cut by two hours. The tunnel bypasses
44 avalanche and landslide-prone spots on the highway. It is an "all-weather" tunnel and enables an
increase in trade and tourism in the state. The tunnel also has parking spots in case of vehicle
breakdowns.[12]
KEY RATING DRIVERS

Advanced Stage of Completion: The affirmation reflects the project’s significant physical progress at 99.14% as
reported by the lender independent engineer’s report dated November 2016. According to management, the project is
expected to obtain provisional completion certificate in January 2017. That said, the project has already missed the
original commercial operation date (COD) of May 2016 and the revised COD of July 2016.
Demonstrated Sponsor Support: IL&FS Transportation Networks Ltd (ITNL; ‘IND A’; Outlook Negative) is the sole
sponsor of the project. According to management, the project incurred cost of around INR46,600 million against the
original estimate of INR37,200 million, with a cost overrun of around INR9,400 million. The entire cost overrun has
been funded by the sponsor in the form of short-term debt and an unsecured loan guaranteed by the sponsor.
Sponsor Support Crucial: The first principal repayment of the bank loans commenced in September 2016 - before
commercial operations – thereby increasing the project’s dependency on sponsor to service the debt until the receipt
of first annuity. The rating continues to hinge on the sponsor’s support and Ind-Ra’s expectation that the sponsor will
not only meet the debt service in a timely manner, but also fund the operation and maintenance (O&M) expenses until
the project receives annuity in line with the undertakings in transaction documents.
The sponsor has provided an explicit undertaking to fund any project cost overruns and major maintenance should
internal cash accruals be insufficient. The sponsor has undertaken to arrange a short-term loan to service interest
payments and O&M expenses for the period from the COD until the receipt of the first annuity payment. CNTL has to
create a three-month debt service reserve account and a major maintenance reserve account from the project cash
flows.
Limited Revenue Risk: The Company has contracted for fixed availability-based annuity payments with government-
owned counterparty, National Highways Authority of India (‘IND AAA’; Outlook Stable).

Reasonably Strong O&M Contractor: The concession stipulates that performance deductions for reasons including
lane non availability in annuity payments can be passed to the O&M contractor – ITNL, the sponsor. ITNL has a
reasonably sound operating track record in receiving annuities without any deductions in other operating availability
based projects. However, a clear view on O&M will be obtained only after construction completion and commencement
of O&M phase, given such a long tunnel is being constructed and maintained for the first time.
Moderate Refinancing Risk: Financing risks include annually varying interest rate, tight coverage ratios and a
refinancing risk in the form of a 27% bullet repayment in 2026. The latter is however moderated by a five-year tail in
the concession that provides enough cash flow to service the refinanced loan according to the agency’s base case.

RATING SENSITIVITIES

Positive: A demonstrated record of sustained receipt of annuities could result in a positive rating action.

Negative: Future developments that could, individually or collectively, lead to a negative rating action include:
- Material delay or deduction in receipt of annuity
- Absent timely sponsor support
- Significant weakening of sponsor’s credit profile

COMPANY PROFILE

CNTL is a special purpose vehicle, sponsored by ITNL (100%) to implement the four laning of the Chenani-to-Nashri
section of the National Highway 1A (including a two-lane, 9km tunnel in the Udhampur district near Jammu) on a
design, build, finance, operate and transfer basis under a 20-year concession (expiring in May 2031) from National
Highways Authority of India. The project's cost is being funded by a senior term loan of INR29,760 million
(INR28,641.3 million drawn as on 31 October 2016), subordinated debt of INR3,720 million (INR3,578.7 million
drawn as on 31 October 2016), sponsor equity of INR3,720 million (100% infused) and the remainder by sponsor
infused unsecured loan.

The project is of complex nature as it involves cutting of the Himalayan rocks.

Advanced tunnelling and drilling equipment are being used for the project.

The remote location of the tunnel in the mountain ranges, geology and logistic
constraints raise several engineering and management challenges to the contractors.

Trinitrotoluene (TNT) explosions were used during the initial phase of tunnel
construction through the hills

The work initially got delayed due to dispute between construction workers and
executing agency and then inclement weather conditions particularly heavy snowfall,
flash floods, landslides and 2014 floods played spoiler too.

Construction uses New Austrian Tunnelling method (NATM) technique. Under NATM, the
tunnel is sequentially excavated and supported.

The project is of complex nature as it involves cutting of the Himalayan rocks.

Advanced tunnelling and drilling equipment are being used for the project.

The south section also requires surface works of 1.3km, while the north approaching
portal requires 0.6km of embankments and slope cuttings. Other infrastructure will
include technological and service buildings, toll plazas, other project facilities and soil
dump areas.

Of the economic and social impact the completed overall NH 1A upgrade will have,
Debabrata Sain, Atlas Copco’s India marketing manager, says, “The 288km distance
between Jammu and Srinagar will be reduced to 238k, but more importantly the 12-
hour journey will be covered in about five hours, avoiding perilous points such as
Khooni Nala, known as bloody path, where shooting stones slide at the speed of a bullet
taking a heavy toll on lives. The tunnels will also end the snow-related traffic jams that
last several days.”
Sain said shorter travelling distances within Jammu and Kashmir and on to further
destinations will save individual citizen and business vehicle fuel costs, vehicle wear and
tear costs, and, at the same time, reduce environmental pollution through lower carbon
emissions. “There will be other benefits such as increased commerce and tourism, more
employment for local people, and skill development among local youths,” he adds.