The Coimbatore Bypass Road Project

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Case Details:

Case Code : FINC010
Case Length : 5 Pages
Period : 1997-2001
Pub. Date : 2002
Teaching Note : Available
Organization : L&T
Industry : Construction - Building Materials & Equipment, Financial Services
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction

The Coimbatore Bypass was the first road project to be implemented in South India on BOT¹ (build, operate and transfer) basis.

The project was a pioneering initiative, which incorporated private sector participation and levy of toll on users to ensure sustainability in the long run. The road ran between Neelambur on the Salem side of NH-47 Tamilnadu and in Kerala,² Madukkarai on the Palghat side.

The project involved construction of a 28-km long two-lane bypass road, the 32.2m new Athupalam bridge across the river Noyal, the railway overbridge at Chettipalayam Tamilnadu and the maintenance of the old bridge at Athupalam, all in the state of Tamilnadu. Larsen & Toubro (L&T)³ was authorized to collect and retain the fee from users of the new and old Athupalam bridges.

The bypass was expected to ease the traffic congestion in Coimbatore city, Tamilnadu and the Salem-Cochin national highway running between Tamilnadu and Kerala.

The shippers, mostly export oriented units relying on the Cochin port for shipments, were other major beneficiaries as transportation time could be saved using the new road. Construction was started in January 1998 and completed in 22 months⁴ time. The Athupalam bridge was opened for traffic in December 1998 and the bypass became operative from January19, 2000. The project cost was about Rs.1.04 bn. The project concession period was for 12 years, and was expected to set a precedent for assessment of traffic risk patterns in the country for toll-based roads. However, the project ran into problems when users refused to pay the toll for the old Athupalam bridge. They argued that the old bridge was already in existence...

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1] In a typical BOT model, the government entity enters into an agreement with a private sector company to finance, design and build a facility at its own cost. The private company is then given a concession, usually for a fixed period to operate that facility and obtain revenues from its operation before transferring the facility back to the government at the end of the concession period. This enables the project company to receive sufficient revenues to service its debts during this period. In the BOT model, title to the assets of the concession (mainly land) remains with the public authority.

2] Tamilnadu and Kerala are states of the Indian Union.

3] Larsen & Toubro is an engineering and construction conglomerate with additional interests in IT, cement and electrical businesses.

4] The project was contracted to be completed within 29 months. However, L&T hurried to complete the construction ahead of schedule, so that it would be able to collect the toll faster.