BW Communities

Time To Rebuild...

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[(Pic by Sanjay Sakaria) Roads: Gearing Up For Change O.B. Raju, Managing Director, GMR Highways, & Director, GMR Infrastructure History shows that right from the invention of the wheel to the present age of multi-modal transport, the progress of human civilisation bears close links with transportation. Importantly, transportation has played an instrumental role in improving the quality of human lives. Rail, shipping, road and air transport have driven industrialisation, created the world’s greatest cities, spurred international trade and globalisation, and allowed for free movement of people and goods. There is an intrinsic link between efficient road networks and economic prosperity, with new transport connections enabling new economic relationships. A robust transport system is an important enabler for sustained economic prosperity. For example, a 5 per cent reduction in travel time for all business and freight travel on the roads could generate a few thousand additional ‘man-hours’ for a country and save crores of rupees. Good roads will ensure low maintenance cost, better fuel consumption and safer means of commute. As individuals and as business leaders, we have also experienced that delays and unreliability of road network can cost people and businesses dearly; increase business costs and affect productivity and innovation. Roads cannot create growth by itself: they are just enablers, which can improve productivity when other conditions are right. Transport corridors are the arteries of domestic and international trade. They boost competitiveness in imports and exports. Road networks support the productivity and success of urban areas and their catchments. They get people to work, support deep and productive labour markets and allow businesses within the area to reap the benefits of agglomeration. They contribute equally to the development of rural economy by creating new markets and also provide faster access to existing markets to sell agricultural produces. The Road Ahead Looking forward, roads will play key economic roles in India’s future by supporting the success of the country’s highly productive and cost efficient goods and services in the global market, and enabling efficient freight distribution. To meet its ambitious economic goals for roads, the government has already taken many measures. But these have to be strengthened further. The most important aspect is to have balanced development across the country. There is an immediate need to standardise the roads in the country. Our roads require regular preventive maintenance, more so in the dense traffic corridors. We need to create more passenger amenities. Truck lay-byes and related facilities are essential where freight movement is frequent. Our road networks need to be supported by the cutting-edge toll collection mechanisms. Implementing electronic toll collection system across the highways will help reduce the time wasted at toll plazas. For example, users can drive through a plaza without stopping to pay toll, as an on-board unit installed on their vehicle shall complete the transaction by communicating with a transponder at the plaza. O.B. Raju Managing Director, GMR Highways, & Director GMR Infrastructure To ensure that projects are viable and attract private and foreign investment, current policy measures need to be strengthened. These include availability of funds at cheaper interest rates, liberal fiscal and tax incentive packages and a review of contractual provisions constraining the funding of projects by financial institutions. To reduce execution level challenges and ease faster implementation, the government needs to hasten the process of land acquisition and explore faster approval process. It must ensure that enough checks and balances are built into the project-review system. The government should continue to invest and deliver sustained transport investment, along with the private sector. Investment in infrastructure by the government during this recession will provide great benefits in future. Not to mention the huge employment-generation capability of infrastructure investment; it is an added advantage for the country. The government spending will also help deliver a transport system capable of supporting the continued success of India’s economy in the global market. Of course, this calls for a paradigm shift in the planning and execution of road projects. {mospagebreak} Aviation: Clearing The Runway Kapil Kaul, CEO, South Asia, Centre For Asia Pacific Aviation (Capa) Indian aviation industry is on a foggy runway today, courtesy the global recession and fluctuating oil prices, among other things. However, this crisis offers an opportunity to restructure the sector in order to make it more sustainable. The restructuring process must factor in four key aspects: airline viability, the policy regime, the role of Air India and the Airports Authority of India (AAI) and, more importantly, long-term planning. First off, restoring airline viability is critical. Indian carriers are so heavily taxed that even surviving is a big challenge for them. The first step to restore viability is to reduce excessive state-level sales tax to a uniform 4 per cent by categorising aviation turbine fuel (ATF) as a public utility raw material under the declared good status. This will help airlines reduce overall costs by 8-10 per cent. The next step is to bring ATF pricing in line with global benchmarks. Capa projects that fuel prices may once again touch $150 (per barrel) in two years, with the global economy recovering, and if this punitive taxation is not removed, it will clip the industry’s wings forever. For A Smooth Takeoff So, it is imperative that airlines cut capacity by about 20 per cent and defer expansion until 2011. Air India has to lead this flight. Reducing the huge debt burden is another challenge. India’s three big airlines (Air India, Kingfisher Airlines and Jet Airways) now have about $8 billion debt on their books. This is likely to reach $15 billion in three years due to their aircraft purchase programmes. These three airlines will incur about $3 billion in interest payments in the next three years — a burden they simply cannot afford. To rein this in, airlines have to defer aircraft purchases, refinance on terms that are more favourable and increase the equity base by divesting. Government, banks and aircraft manufacturers must ensure that the restructuring is effective. Kapil Kaul CEO, South Asia, Capa The current regulatory and policy regime needs to be more stable, involved and well directed. In India, private airlines control about 85 per cent of the domestic market and private airports have about 60 per cent of national passenger throughput. Therefore, it is critical to have an effective regulator, which has expertise on the issues plaguing the aviation sector. The lack of a coherent and stable aviation policy is, in a way, a reflection of the state of our regulatory structure. That said, restructuring of the Ministry of Civil Aviation in line with a good model such as the UK Civil Aviation Authority is important. The role and relevance of Air India and AAI also need a relook. Air India needs to be privatised within the next three to five years, as continued government ownership creates conflicts with respect to the policy environment. AAI’s current business model will become unviable soon, since most of the profitable airports have already moved to the private sector. The private sector will have to adopt a larger role in airport development and management. We have 50-odd airports under AAI management, which have limited or no traffic. They should be handed over to the state governments for upgradation, with AAI providing only management and strategic expertise. AAI needs to be restructured keeping a focus on air safety, air traffic control (ATC) and other strategic aspects of airport development. Finally, the sector needs a long-term holistic masterplan. All stakeholders, including the government and industry leaders, must be party to the plan. There needs to be a clear vision of aviation development for the next 10-20 years. What is decided today must keep in mind how this would impact the viability of the industry in the future. If we are to create a sustainable industry, we need vision and planning. Land: Their Own Soil Sebastian Morris, Professor, IIM Ahmedabad The new Land Acquisition (Amendment) Bill 2007 seeks to reform the land acquisition processes in India in many ways. Though a step in the right direction, the Bill is riddled with incompleteness and contradictions. It also allows the state to hedge its responsibilities. Today, the issue of land acquisition revolves around the use of eminent domain (the power of the state to seize citizens’ land by providing due compensation). Democracies need eminent domain, but they must be careful with its use. They must ensure that when land is compulsorily acquired, the compensation is more than adequate. Sadly, the Indian land law does not ensure this, given its origin in the need to maintain the imperial rule. In all cases of compulsory acquisition, the state itself should not ascertain the value of the property, but professional and independent valuers should do that. Also, the highest value arrived at, by using the standard methods of valuation, should stand. Today, farmers get little of the post-sale value (even when the sale is not under eminent domain but to a private party). This is because of a regulatory depression in value or as a result of what can be called regulatory takings. Notable among these takings are the non-agriculture clearance required, the processes involved in converting farmland for non-agricultural use and the prohibition of sale to non-farmers. {mospagebreak} Sebastian Morris Professor, IIM Ahmedabad These regulations are operative in many states. They depress prices pre-sale to as much as one-tenth of their post-sale value. So, the jump in prices, entirely on account of (prior) regulation, causes heartburn and deprives the farmer of appreciation in land values, and gives it all on a platter to the developer-buyer. Reform The Rules Clearly, the solution is in getting rid of these inane restrictions, and cover all land only under urban zoning restrictions and other meaningful planning-based restrictions. Mercifully, having incorporated a clause that the future values should be taken into account, the proposed law goes somewhat forward when eminent domain is involved. But it allows vast rents to be made by buyers when they, rather than the farmers, are able to get the clearances. Land, unlike many other traded assets, is subject to the holdout problem. In land aggregation, some can hold out to extract value from the buyer-aggregator. To overcome this, a provision can be used whereby any private party could register in the collector’s or tehsildar’s office that he is in the market for land purchase and is interested in certain pre-declared plots. After registration, the buyer-aggregator can start the process of negotiation with the titleholders. Once he has purchased 70 per cent of the land area and the titles, and if there is hold out, he can appeal to the government to buyout the rest at the highest price paid to any party who has sold the land. This provision will ensure that the buyer has formally put in a negotiating position vis-à-vis the community and cannot play an individual seller against another. Prakash Tulsiani, Managing Director, Port Pipavav (Pic by Subhabrata Das) The existing land law does not give the required fillip to the need for cities to use town planning schemes (land pooling and shrinkage to develop roads and serve other public purposes) rather than acquisition. Town planning schemes have been repeatedly used (even when not too competently executed) to great advantage by Ahmedabad. Similarly, the use of Transfer of Development Rights can be used to great effect by the state and public authorities in order to make town planning less onerous on those giving up land. Finally, the way the proposed Bill is worded is also causing problems. The responsibilities of the government are being hedged through phrases such as “the state may”, whereas it should have been “the state will”. The sooner the policymakers can incorporate these suggestions, the better. Port: A New Cruise Prakash Tulsiani, Managing Director, Port Pipavav The shipping industry is one of the oldest industries in the world. Globally, it has been a prime catalyst for economic growth in several countries for several centuries. In fact, it was the shipping industry that actually ushered in what is today called globalisation. Even today, the industry continues to be the backbone of economies across the world, though the romance of ships and sailing — embodied in tales such as Twenty Thousand Leagues Under the Sea or Treasure Island — no longer exists. In India too, the shipping industry’s rapid growth will lead economic recovery in India and the world, once the current sluggishness in the economy gets over. Despite the fact that Budget 2009 was silent on the shipping sector, the government has encouraged the sector through building ports, ushering in privatisation and announcing substantial investments to the tune of Rs 55,000 crore in various projects. Further, the government has launched the National Maritime Development Programme with an investment of more than Rs 1 lakh crore to improve the traffic-handling capacity of all major ports. The new shipping minister, G.K. Vasan, has also pledged many new ports, especially in states such as Gujarat. The Centre is also encouraging state governments to set up non-major ports through public-private partnerships — an ideal way forward. Port Pipavav is a good example of that. Building new ports and modernising old ones are important. But focusing only on waterfront infrastructure is not enough. What will truly make ports efficient is the evacuation of cargo on land and, therefore, the infrastructure support on land. A port requires an efficient network of roads and railways in order to be successful. Ports, roads and railways have a symbiotic relationship. Without the last two, the first cannot survive. Given this scenario, India desperately needs dedicated corridors to transport goods. Today, though attracting shipping lines to Indian ports has become much easier, we still have a long way to go to transport goods to their final destination within India. Often, this becomes our weakness, as delays lead to losses and erosion of bottom lines. Future Tracks In this context, one must say the government has taken the right step by planning dedicated freight corridors in the country. It has planned the Western corridor in the first phase of the project — from Mumbai port to New Delhi via Vadodara, Ahmedabad, Palanpur (Gujarat), Jaipur and Rewari (Haryana). The government has already started acquiring land for the project. As it can improve transit times by at least 40 per cent, the project needs to be completed on a fast-track mode. There are other issues as well. The Indian road network is the second-largest in the world with about 3.3 million km of roads. But expressways, national and state highways and major district roads account for only 2 per cent of the total road network. Since the Golden Quadrilateral highway network and other landmark projects do not cater to port traffic requirements, we need separate infrastructure projects to support ports. {mospagebreak} Alleviating pressure off roads and rails is important. To this end, we should aggressively promote coastal shipping. Encouraging public-private partnerships will also give a fillip to the industry. We should have policies to incentivise coastal shipping so that much of the domestic cargo movement can move off roads and rails. This will be easier and faster to accomplish, as it does not involve complex and time-consuming land acquisition activities. Coastal shipping also has the advantage of being environment-friendly.   Most importantly, we must take a holistic view of port development. We must plan and punctually execute a complete network of roads, railways and ports. If this is achieved, India’s economy can cruise ahead to great progress. Anil Razdan, Former Power Secretary (Pic by Bivash Banerjee) Power: Let There Be Light Anil Razdan, Former Power Secretary Business and industry look for adequate, reliable and quality power at affordable cost. However, its attainment requires a paradigm shift in targets, manufacturing capacity, investment, management at execution and delivery levels, and a manifold increase in trained workforce. Given the resolve the country shows today, this is attainable. An appropriate emphasis on the power sector is a way to ensure that there is no slowdown in its progress. It can only lead to higher economic growth, increased demand for cement, metals, more skilled jobs and a better standard of living. Today, India’s power demand is about 107,000 MW, while the availability is 94,000 MW. That leaves a shortage of 12 per cent. The present installed capacity is about 151,000 MW. However, the demand is expected to rise up to 153,000 MW by the end of the 11th Plan (2011-12), and 218,000 MW by the end of the 12th Plan (2016-17). To meet this surge, the government has envisaged a capacity addition target of over 78,000 MW for the 11th Plan. This is four times what has been added in the past five years. For the current Plan, 80,000 MW capacity is under monitor and 16,000 MW has already been commissioned. The overall picture looks bright. Furthermore, the overwhelming reception to the initial public offerings of power companies over the past three years has proved that the sector enjoys high investor confidence. Evidently, private investment and enthusiasm is overtaking public investment in the sector. The generation, transmission and distribution of power need to be unshackled. Power generation under any kind of ownership or fuel is welcome, provided the fuel is available and viable. The mega power policy benefits should be available to captive (independent) and merchant power plants. The continuing private investments on equipment such as inverters are wasteful and uneconomic. It makes better economic sense to invest in utilities or captive power generation for large commercially utilisable generation that can be fed into the grid. Hydropower is essential to meet the peak-hour requirements. It is a state subject, though. Grid frequency can only be maintained with hydro. In fact, peaking power tariffs will encourage more investment. We must also encourage competition in domestic equipment manufacturing. BHEL has been able to supply only about 5,000 MW equipment a year. It is not adequate. We have the space for at least four major players. More competition means lower prices, better delivery and quality. Coal will continue to be our mainstay for fuel owing to domestic availability. Due to severe shortage of natural gas, which is less polluting than coal, fast-track capacity addition of nearly 14,000 MW has been put on hold. Gas deserves to be given on top priority for power generation. Unlike other commodities, power can hardly be imported. Conjunctive use of natural gas for generation and air-conditioning can yield fuel efficiencies of about 80 per cent compared to 55 per cent for generation. Liberalise Norms In sum, electricity must flow freely across the country. The states need to step up investment in transmission and distribution (T&D). The open access system for power has to be made fully operational. Here, the restrictive practices of some states are deplorable. Also, the Rs 2,72,000-crore National Electricity Fund announced in Budget 2008 for meeting the 11th Plan requirement of state sector in T&D is yet to start functioning. These desired results will not be achieved without liberalising lending and exposure norms for the capital-intensive power sector. For the commercial viability of the distribution segment, which is the real customer interface, stringent reform has to be adopted by all states. There has been reasonable improvement in the aggregate technical and commercial (AT&C) losses, which average 30 per cent today. But this has to come down to at least 15 per cent. Moreover, avoiding time and cost overruns helps reduce project costs. Demand side management, entailing energy conservation and energy efficiency, deserves the highest attention of consumers, particularly the industry. The standards and labelling programme of the Bureau of Energy Efficiency and the listing and rating of Energy Service Companies (ESCOs) are a help in this regard. Doing more work with less energy is good for the economy and the environment. Hence, energy-efficient goods need duty cuts, which are long overdue. There are no short cuts to overcome power shortage. We need political will, perseverance and stepped-up investment to achieve that. (Businessworld Issue Dated 18-24 Aug 2009)