<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[(Reuters)
The rewards of patience are sweet. in that case, nobody watching the Indian infrastructure scenario needs fear diabetes. Earlier this month, the Manmohan Singh government announced a stimulus package. This entailed a total spending (plan and non-plan) of Rs 3 lakh crore over the next four months. The package also mentioned a spending of Rs 1 lakh crore especially for the highways sector. Can it really pull off this tough act, especially on the infrastructure front? And even if it does, is there any guarantee the package will kick-start the economy?
After unveiling what is surely the first of more than one stimulus package, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia told BW, “We are also looking at increase in public spending... all of which is directed to ensure that growth is maintained.” Ahluwalia is but echoing the views of the Prime Minister (PM) who, at the G20’s November conclave in Washington, noted that “investment in infrastructure will provide an ideal counter cyclical device” to the ongoing global financial crisis. “Investment in infrastructure today,” he said, “is perhaps the best signal for reviving private investment, including FDI, tomorrow.”
The PM is right. But ground realities are not easily persuaded. In the past four years, infrastructure projects have largely remained on paper or incomplete, even though between the different administrative ministries and the Planning Commission, vast amounts of time have been spent on formulating policies.
Opinion, though, is divided on the government’s performance in infrastructure. “The first three years did see some activity, such as airport privatisation, but that came to a halt this year,” says Amrit Pandurangi, who heads the transport practice for PricewaterhouseCoopers, in Gurgaon. Vinayak Chatterjee, chairman of New Delhi-based Feedback Ventures, disagrees: “I see the past three-four years a bit differently. We have compressed a lot of learning on many infrastructure sectors into a short period, which would have taken many more years in other countries.”
The Planning Commission’s projections show that India requires investments of approximately $580 billion (Rs 28.4 lakh crore) in infrastructure projects across electricity, ports, roads, metro rail, urban infrastructure and airports.
The government had begun well. One of the first tasks undertaken by the PM was to create a special Committee on Infrastructure (CoI) directly under him, for which the Planning Commission was to serve as secretariat. But a major hurdle, according to officials involved in the discussions, was that the Planning Commission’s views on infrastructure policy matters assumed significance even if other ministries, including finance, subscribed to other views.
“Normally, the line ministry or the administrative ministry, such as the power ministry for the power sector, should be given the freedom to decide, as it (the line ministry) would have a better understanding of ground realities,” says Pandurangi. “But having another power centre, such as the Planning Commission, to also decide on policy matters means that we are moving far away from reality.”
The facts bear this out.
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(Bloomberg)
Blacked Out
Since Independence, India has always fallen short of planned capacity addition in power infrastructure. In the Tenth Plan (2002-07), barely 20,000 MW capacity was added, a shortfall of more than 50 per cent. In the 11th Plan (2007-2011) period, the power sector consumes a massive 30 per cent of the total projected investments. But for the first time, some foresight — advance order booking, promoting equipment-supply companies such as L&T alongside BHEL — was applied. Moreover, developers of the Sasan and Mundra ultra-mega power projects (UMPPs, each of 4,000 MW) have told the power ministry that some units are likely to be commissioned before 2011.
But there is bad news, too. Officials say the government has already postponed the tender process for the UMPP in Jharkhand’s Tilaiya as one of the bidders — Tata Power — has sought more time in view of the ongoing financial crisis. However, Tata Power’s Managing Director Prasad Menon told BW, “It is the government (which) has postponed the bid.”
“Given the current financial situation, the ministry will review projects on the basis of a few key parameters: fuel linkages, land availability, and the debt and equity mix,” says Power Secretary Anil Razdan. This review, he says, will be done shortly.
In fact, securing fuel assets is as important as adding capacity. Already, coal shortages are threatening to affect existing power plants. Over the past five-six months, 30-55 of the 70-odd thermal power stations have had less than seven days of coal stock; many reported zero stocks. This has prompted the Centre to ask Coal India (CIL) and National Thermal Power Corporation (NTPC) to import 16-19 million tonnes (MT) of coal from global spot markets.
Miles To Go
Let’s take roads next. This sector, which has been the focal point of inter-ministerial disagreements, claims to require 15.4 per cent of the total projected investments of Rs 28.4 lakh crore. Work on the famed 5,846-km Golden Quadrilateral (GQ), the first national highway road project connecting Delhi,Kolkata, Chennai and Mumbai undertaken in early 2000, was to be completed by 2004-2005. So far, only the Mumbai-Delhi corridor has been completed. Officially though 97.5 per cent of the GQ is said to be complete, and the whole project is now expected to be completed by mid-2009.
November 2008 figures show that of the 8,362 hectares of land to be acquired for the GQ, 98.38 per cent has been acquired. Then, GQ is the first road programme of the National Highway Development Project (NHDP) 1. On paper, apart from NHDP 1, there are NHDPs 2, 3, 4, 5, 6 and 7. It was NHDP 1’s poor implementation record that prompted the government to work out a model concession agreement (MCA) for roads with clearly outlined responsibilities for the government and the developer. “Having a model document is a good concept, but such documents should allow flexibility,” says Pandurangi, “What is good for six-lane highways may not be so for four-lane highways. If an MCA becomes the document for all road projects, then flexibility will be lost.”
The MCA’s controversial clauses went through prolonged discussions between ministries — road transport, finance and Planning Commission — and resulted in its final version emerging two years late, in 2007. “There is just too much tinkering with policy, which is preventing developers from sticking to decisions,” says M. Murali, director general of the National Highways Builders Federation (NHBF). “We have already lost more than a year and a half over qualification criteria, which would have decided about Rs 50,000 crore of investment for over 7,000 km of national highways.”
GUIDING LIGHT
Action points being considered by PM Apex panel for infrastructure:
Identify group and single project exposure limits for banks funding infrastructure projects as constraint; ask RBI to temporarily relax these norms for the next, say, 18 months.
Zero in on the definition of infrastructure. The Planning Commission has one, RBI has one and the Income Tax Act has one.
Reverse restrictions imposed on external commercial borrowings (ECB) to the pre-21 May position.
Banks to be told to abide by earlier loan documents. They should not renegotiate rates on account of an increased ‘risk perception’.
Explore the option of providing assured finance for PPP projects approved by the government or the PPP appraisal committee.
High And Dry
As with roads, an MCA for the ports sector was to be developed by August 2005. However, inter-ministerial disagreements resulted in targets set by CoI being shifted as many as eight times starting August 2005, with the final draft being cleared only on 3 January 2008 by the Union Cabinet. When BW asked former Shipping Secretary A.K. Mohapatra the reasons for the missed deadlines, he declined to comment.
“Even two years ago, when the investment climate was ripe, policies were getting muddied,” says J.P. Rai, CEO of Skil Infrastructure, which is into ports, SEZ and shipyard building. “Now, the situation is very different — investments are being put on hold.” The delay in the ports’ MCA has put other major decisions on hold. For instance, in a meeting held by CoI on 12 May 2005, it was decided that “new berths at major ports would be constructed through the public-private partnership mode after June 2005”. A status check of government documents shows that, till date, the Department of Shipping, despite setting a target of 52 berths for 2006-12, has awarded only six. Of this year’s target of nine berths, none have been awarded.
One of the cornerstones of port development is to reduce ‘dwell time’ of ships. In February 2006, CoI asked the shipping ministry for a plan to bring dwell times down to international levels, but a final policy is still awaited.
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A Clause Is The Cause
The government’s role is to facilitate investments through policy measures. But two policy examples — restrictive clauses in model qualification documents (RFQ) prepared by the Planning Commission on behalf of the government, and offering commercial land to project developers — have invited criticism from stakeholders.
The stalemate has reached a stage where almost all developers of infrastructure projects — whether pertaining to roads, ports, airports, power or railways — are in complete disagreement with clauses in the RFQ that allow a fixed number of tenders (only six bidders in the case of roads) to enter the final phase of price bids. “This one clause in the RFQ document has not only affected the road projects, but has also affected progress in awarding airport and port projects,” says Pandurangi.
Another bottleneck is assigning marks on the basis of experience at the pre-qualification stage, which automatically disqualifies new companies wanting to enter infrastructure development. Moreover, those that win one contract will get higher scores for subsequent projects, thereby leaving all infrastructure projects to be dominated by a few companies. “The principle is sound, as this clause aims to attract the most capable companies in the execution of infrastructure projects,” says Chatterjee. “However, it should be applied to large infrastructure projects such as airports, and not to small ones.”
Since December 2007, as many as 60 tenders under NHDP 3, the largest national highway project meant to connect towns and cities of importance with four-lane roads, have been on hold because of this clause in the RFQ document, which has been challenged by a host of highway developers, including the NHBF. “When the highway projects first started, there were probably only three-four such companies,” says NHBF’s Murali. “Over the years, through a process of capacity building, this number has gone up to 150. If the intention of this clause is to weed out non-serious bidders, why would companies want to spend Rs 1-2 crore to process documents just to qualify for bidding?”
(Pic by Tribhuwan Sharma)
The Delhi High Court, which has not accepted the developers’ plea, said in November that the deletion of the clause at this late stage would be like “changing the rules of the game mid-way”, and that this would further delay the awarding of contracts for projects of national importance. The finance ministry endorses this view as the bidding process has already reached an advanced stage. “This clause has been deleted from future highway tenders,” admits S.V. Patwardhan, chief executive director of Madhucon Projects. “However, now things are different. Given the current financial situation, banks are not funding projects. A tacit ‘wait and watch’ approach has been adopted.”
A more recent issue is the clubbing of commercial land to ‘cross-subsidise’ an infrastructure project, over and above the new concept of viability gap funding (VGF), where the government offers up to 40 per cent of a project’s cost as a grant to improve its financial viability.
This is not without dangers. While the Maharashtra government refused to stake land for its metro rail project, the Andhra Pradesh government did. Thereafter, the Hyderabad project got mired in controversy over allegations that the winning consortia (Maytas) had unfair advantage as the land clubbed with the project was already owned by the consortia. “It is not a good idea to club commercial land with infrastructure projects as real estate has its own vagaries,” says Chatterjee. Officials agree with this.
More often than not, there is no consensus on the right way forward — whether on MCAs, qualification documents, or even the exact definition of ‘infrastructure’. For instance, while banks follow the Reserve Bank of India’s lead, there is another definition that allows exemptions under the Income Tax Act. Indeed, this issue was flagged off at the PM’s Apex Committee meeting recently, while considering the stimulus package (see box ‘Guiding Light’).
The government is already preparing a policy document to list out the pros and cons of offering land to infrastructure projects. This can be expected to lead to more discussions and, no doubt, more disagreements. Somewhere in this unresolved territory between good intentions and confused policy lies the future of Indian infrastructure. Whatever you can rightly say about India, as economist Joan Robinson once said famously, the opposite is also true.
kandula dot subramaniam at abp dot in
(Businessworld Issue 30 Dec 08-05 Jan 09)