The tussle between merchant power producers on the one side, and the Central Electricity Regulatory Commission (CERC) and the Ministry of Power on the other, over capping the price that the producers can charge, is reaching an endgame. CERC, which is holding a public hearing next week on the issue, has proposed to fix the minimum tariff at Re 0.10 per kwh and the maximum at Rs 11 per kwh.Merchant power producers are those who set up electricity plants without long-term power purchase agreements with either the state or electricity distributors. They sell electricity in the short-term market to those who are facing a temporary shortfall. On the other hand, other independent power producers set up power plants only after the purchase agreement has been signed with the state or with a distributor.The regulator, CERC, believes that the short-term power market structure is still imperfect with a supply deficit and virtually nil competition. During high-consumption months — June and July in north India, for example — distribution firms buy power at any cost to maintain supply. This inflates the retail tariff payable by the consumers and such abnormally high prices — sometimes as high as Rs 15 per unit for peak power — can be charged by merchant power producers. The power ministry believes there should be a cap on this price. The ministry, however, had to backtrack due to strong opposition from investors of merchant power plants, who say that they are taking immense risks because they are operating without guaranteed power purchase agreements. Now, CERC — empowered to regulate price under the Electricity Act, 2003 — has stepped in with its views.Most experts argue against any cap on competitive power as it runs against the spirit of free markets. Globally, power exchanges have price caps, set fairly high but to act more as a safety valve and not to stifle normal market swings. For example, on the Australian NEM (National Electricity Market), which covers the bulk of the country's power trading, the price cap is set at an equivalent of Rs 350 per kw. Kameswara Rao, leader of energy, utilities and mining practice at PricewaterhouseCoopers, suggests mandating utilities to build excess capacity or spinning reserve for use in such exigencies is one way out of the high prices commanded during peak power demand. This is hardly practical in India, which is running persistent energy deficits of about 15 per cent over several years now. The only practical option seems to be to entice investments in new plants. As new capacity comes on stream, the merchant and trading rates will quickly drop to the cost of production. The debate is beyond that, says Prabjot Bhullar, partner, Khaitan and Co. While CERC can regulate the tariff, the present move raises several legal and regulatory issues such as ‘conflict' with the ministry's stand on selective merchant power cap rather than a complete cap, a state subsidy to consumers, grounds for intervention due to ‘imperfection in markets', and a distinction in merchant sales between states and other producers. In 2007-08, the maximum power sold in the short-term was by the states, which qualify neither as generating companies nor as licensees, a status that CERC has acknowledged as a regulatory impediment.A power-hungry nation, India's peak power deficit is growing at 12.6 per cent per annum, duly reflected by prices on exchanges. Merchant power — the surplus power without any long-term purchase agreements — carries higher risks in terms of recovery. The persistent enthusiasm to cap rates on sales from such units is inviting the investors' wrath. "Ultimately, the consumer will shoulder the additional burden as every producer has to meet his internal rate of returns," says Rupen Patel, managing director of Patel Engineering, which is setting up a 1,300-MW plant in Tamil Nadu. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 14-09-2009)
Read More
A 30-km stretch of national highway between Nagpur and Amravati in the Vidharba region of Maharashtra is quintessential of India's National Highway Development Programme (NHDP): a single lane (initially planned as four) of potholed road. ‘Men at work' signboards stand out, but no workers are in sight for kilometres. A half-constructed flyover, which was to reduce travel time by 20 minutes, is now a shelter for junked buses and trucks.India's highway development programme also faces a similar plight. Bureaucratic turf battles, uninterested state governments and lack of leadership have brought highway rollouts to a naught. On paper, NHDP has seen a close to 10-fold expansion during 2000-05. Started in 1999, with the 5,000-km Golden Quadrilateral (GQ) project (which was to connect the four metros — Delhi, Mumbai, Kolkata and Chennai), NHDP is now supposedly constructing 55,000 km of highways through seven phases. But on the ground, many of the schemes remain as incomplete as the Vidharba stretch.In recent times, the bane of highway development in India has been a lack of unanimity on a policy to award projects and shortlist bidders. Initially, NHDP Phase I was to convert existing (two-lane) inter-state highways into four-lane highways over the GQ stretch. The contracts to build roads were given to companies by the National Highways Authority of India (NHAI), the nodal agency for implementing NHDP. These works ranged from 30 to 100 km stretches. NHAI had to perform the crucial task of acquiring land for the lane expansion. It also had to collect toll for the recovery of investments. While the government extended all sops, and even created a dedicated central fund for the GQ, the projects faced a bumpy ride — deadlines were missed; contractors did not complete works; state governments did not cooperate. And GQ, which was to be completed by 2004, started lagging behind.On the flip side, the completed stretches became a showcase of the benefits good roads bring — economic development. That success prompted the erstwhile NDA government to expand NHDP beyond GQ, and it conceived the North-South-East-West (NSEW) corridor (connecting Srinagar, Kanyakumari, Porbandar and Silchar). But there was a change in policy in mid-2000 that required the road projects to be offered to operators on build-own-transfer (BoT) basis. Under this mode, the concessionaire would build, run the road project and earn money through tolls, and transfer the project back to NHAI after the concession period.Minding MCAs And RFQsThis needed a model agreement outlining the risks, rewards and duties of both NHAI and the BoT operator. While NHAI had already prepared a model concession agreement (MCA) with some modifications, advisor to the deputy chairman of the Planning Commission, Gajendra Haldea, wanted NHAI to consider an MCA he had prepared during his stint with the research institution NCAER, based on the Jaipur-Kishangarh project, the first BoT project under NHDP. This triggered a series of discussions between the transport and finance ministries and the Planning Commission on the controversial clauses, with the final version of the MCA emerging only after two years.This final version was not only controversial for its stringent clauses (like the requirement on 80 per cent land acquisition), but much to the dislike of many officials, it even had a copyright granted to Haldea. The MCA "is filled with landmines, and is so perfect that it can't be implemented", says an official. "What was the need for a new MCA? No developer had problems with the old MCA, nobody challenged it in the court," asks T.R. Baalu, former road transport minister. While NHDP grew from phase one to seven, there was no unanimous policy to award works. When works were to be awarded in 2007, BoT bidders moved court against the bid documents called request for qualifications (RFQ) that had emerged through long inter-ministerial discussions. "We were spending more time in dealing with policy papers and meetings with Planning Commission than being on the field to resolve ground-level bottlenecks," says former road transport secretary L.K. Joshi.The clause for shortlisting RFQ caps the number of bidders who could be shortlisted to place price bids. Even if there are 100 bidders in the pre-qualification stage, the clause allowed only six firms to bid. Assigning marks on the basis of the bidders' experience at the pre-qualification stage meant new firms were always at a disadvantage, leaving all projects to be dominated by a handful of big players. Vinayak Chatterjee, chairman of infrastructure consulting firm Feedback Ventures, says these clauses should be applied only to large projects. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } As a result, for more than a year starting 2007, about 60 national highway tenders had been on hold, even as a host of highway developers, including the National Highway Builders Federation (NHBF), challenged RFQ. In all, these projects would have resulted in Rs 50,000 crore of investment, says M. Murali of NHBF.Suneet Maheshwari, chief executive, L&T Infrastructure Finance, says it would help if "the process and documentation was made friendly and more international investor-compliant". For now, there is no end in sight though Road Transport Minister Kamal Nath confirmed to BW (see interview on page 30) that MCAs can be altered: "It is not the Gita or the Bible which can't be changed." Outlining the need for more flexibility in policy documents, Nath says, "We have to have something that is workable (concession agreement, bid documents, etc.) and investor friendly." Even Haldea now agrees with this view (see ‘The Pathbreaker').Meanwhile, all other stretches, but for the Delhi-Mumbai link in GQ, are still to be completed. GQ, to be completed by 2004, stands 98 per cent complete, but the remaining kilometres remain a bottleneck. The 2 per cent land needed for GQ's completion is still to be acquired, thanks to a tardy land acquisition system. Even in the NSEW corridor, close to 40 per cent of the land is still to be acquired. THE PATHBREAKER"My Copyright Was To Check Plagiarism"Gajendra Haldea has been closely associated with NHDP since its inception. He has been a vocal critic of how the programme has been executed so far. He spoke to BW on some of the contentious issues. Excerpts.What went wrong with NHDP?Unfortunately, NHAI does not have the capability to run PPP projects. About two years ago, the Cabinet had said NHAI should have a separate PPP cell. But nothing happened since. About 90 per cent of the GQ project was done through cash contracts. If these were done on PPP, Rs 30,000 to Rs 40,000 crore would have been saved. In fact, NHAI didn't follow the (successful) PPP model of the Jaipur-Kishangarh project in NHDP-II. If other projects were modelled on this, the story of highways would have been different. But things are improving now. The minister has set a target of 7,000 km, and given that all policies are in place, we can wipe out the past.On MCA and your copyright claims...The MCA attempts to strike a delicate balance between conflicting interests. However, out of over 300 pages, it is the two lines (on the copyright) that got attention. The copyright I claimed was just to prevent plagiarism. I don't get a single paise out of this. The MCA has evolved through a process of inter-ministerial discussions. Any amendment to that needs to follow the same route. There is nothing against amending MCA. Sanjay Sethi, executive director and head of infrastructure, Kotak Investment Banking, says that it appears that for the first two years of the previous UPA regime, the government had taken its eyes off the ball. And when NHAI started offering projects in 2007-08, market conditions had changed. Due to policy delays, about 30 road projects under GQ faced time overruns of over 60 months. In new programmes, the award of contracts was way beyond the targets.In NHDP II, the achievement for two consecutive years was barely 3 to 5 per cent. And NHAI was barely able to meet 50 per cent of the target of project completion. Besides, NHAI saw as many as five chairmen in five years. Reason: non-performance! Baalu says the changes were necessary. He says in one instance the chairman arrived 35 minutes late for a parliamentary committee meeting.The Toll And The Way ForwardIn a key policy shift, Nath says "projects that are tollable, will be tolled. Those that are not tollable, will not be". Initially, all projects had to bid on the basis of tolls. So, the new move will cut the time taken to bid for projects. But much of this depends on the progress made in award of contract, as there is a huge time lag from the date a project is identified to the date it is awarded. No project was offered in 2007-08 due to legal disputes. Atul Punj, chairman of Punj Lloyd, says NHAI should check unrealistic bidding by contractors, but Sethi says that once a clutch of developers has passed the RFQ stage, but does not finally win the project, these developers should be allowed to participate in price bids for other projects, without having to go through the RFQ process again.All this is just the tip of the iceberg. States' cooperation in developing NHDP is also vital. Nath plans to link the release of funds to states, from the central road fund, to their role in expediting clearances. Nath has also asked investors to come up with suggestions to make NHDP more investor-friendly. One suggestion, by Ajit Gulabchand, chairman of HCC, is to have a fast dispute resolution system. But here are some hard facts. Even if a few projects are awarded today, they would take more than a year to start. Since no works were awarded for close to a year, expect no fresh roads for two years.kandula(dot)subramaniam(at)abp(dot)in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
Read More
A lot is being bandied about the production of oil by Cairn India from the Mangala fields of Rajasthan, and how in the next two years it would become 20 per cent of local production. But that is like comparing apples with oranges. India largely imports its oil requirements, and so the Cairn production figures need to be compared with the country's consumption rather than local production. India imports 2.4 million barrels of oil per day, while it produces only 680,000 barrels of oil per day. By 2011, when Cairn India will produce 175,000 bpd (on peak production), it will fulfil 6 per cent of India's oil requirements.For an economy like India with high oil dependency, it needs a Cairn every year. "India has been incrementally consuming 160,000 bpd every year and that is equivalent to Cairn's peak production," says Ballabh Modani, an oil analyst with Enam Securities. India needs a lot more oil than just Cairn's.----------------------------------------------------------------------------------------STRICTLY BUSINESSPetroChina, Asia's largest oil company, will pick up a 60 per cent stake in two five-billion barrel Canadian oil sands projects — MacKay River and Dover fields — for $1.7 billion from Athabasca Oil Sands. Canada's oil sands are estimated to hold 173 billion barrels of oil. Oil sands projects are more complex and costlier than conventional oil projects.Click here to view 'A Problem Worth Nothing' var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 14-09-2009)
Read More
Builders, wanting to make a killing during the Dussehra-Diwali festival period, upped prices and killed an opportunity. Buyer inquiry was mistaken for the return of good times. But unrealistic prices has put off consumers.During Diwali, realty pundits had expected a flurry of buying on the back of lower prices, freebies and special festival offers. "The expected discounts during Diwali did not happen," says Pankaj Kapoor, CEO of realty tracking agency Liases Foras. "We did not see much movement because of higher prices."Shashi Kumar, head of the real estate wing at Birla Sun Life Asset Management, is more unsparing in his criticism: "Builders have not learnt their lesson; their greed is ruining the market." Mumbai's Stamp Duty Office registration data reveals there has been a 13 per cent month-on-month drop in the number of apartments registered in August 2009.Undeterred, builders are gung-ho about increasing sales and demand. Mumbai-based builder Vijay Wadhwa claims he sold 80-100 flats during the festival season. DLF, one of India's largest developers, says it has mopped up Rs 100 crore in advances for the 1,250 apartments in the second phase of its Capital Greens project at Moti Nagar in Delhi.The revival in the market is perceptible. Demand grew by 15 per cent during the July-September quarter. HDFC reported a 26 per cent increase in loan disbursements for April- September, totalling Rs 22,343 crore. However, this is still a far cry from the 35-40 per cent demand growth in the October 2007-March 2008 period.Clearly, the property market is not out of the woods even though some segments are reporting higher sales. Tapasije Mishra, group CEO of IDFC-SSKI Securities, says the affordable housing segment has seen good sales in the past two months. However, Wadhwa says many of these are distress sales and in many cases, "the margins are just Rs 200-300 per sq. ft".The commercial market is still to pick up and leasing rates continue to plummet. For instance, Hindustan Construction Company is realising lease rentals way below expectation for its swanky corporate park in Mumbai's suburb of Vikroli at Rs 45 per sq. ft a month. Similarly, Samsung recently took 90,000 sq. ft on rent on Gurgaon's Golf Course Road for Rs 58 per sq. ft a month against the prevailing rate of Rs 80. This trend is likely to continue with increasing supply. Property broker Jones Lang LaSalle Meghraj projects the December supply to touch 55 million sq. ft against a demand of 25 million sq. ft in the period.Realtors are becoming innovative to keep their heads above water. "When under pressure, they reduce rates for some new projects and rake in their working capital needs," says Liases Foras's Kapoor. "Then they hike them again and adopt a take-it-or-leave-it attitude." Builders have also got a reprieve with foreign investment coming in, which has allowed them to convert their debt into equity on a project-by-project basis. "A further 30-35 per cent fall (in prices) in the residential market is necessary for property economics to become sustainable," says Kapoor. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 02-11-2009)
Read More
While all the good news about the stockmarkets is spreading cheer among the population at large, something less benevolent may be creeping up on us: rising oil prices. Global crude prices have gone up to $80 a barrel, the highest level seen in 2009 so far. It is still about half of the $150 per barrel peak we saw in 2007. Two factors seem to be driving this: first, expectations of demand have gone up as economic news across the globe is stabilising, and second, the weakness of the US dollar against other currencies. With prospects for dollar weakening further, investors are using crude oil as a hedge against inflation. (You can buy only so much gold.)A report titled Heads in the Sand by Global Witness — an international non-profit organisation, which exposed the infamous ‘blood diamonds' trade — says there will be a global supply crunch soon. Last year, the Paris-based International Energy Agency (IEA) said there could be a gap of 7 million barrels a day between supply and demand by 2015.And alternatives to fossil fuels such as ethanol are encountering problems of their own. In Brazil, rising sugar prices have hiked the price of ethanol to above 70 per cent of that of petrol, which makes it uneconomical; so drivers in Sao Paulo and Rio are switching back to petrol. By extension, that implies greater demand for oil, which doesn't look very good for India, given our dependence on oil imports. Another big hike in crude oil prices, and our recovery from the slowdown could go up in flames. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 02-11-2009)
Read More
Ratnagiri Gas and Power (RGPPL) is learning a rather unpalatable truth. It costs a lot more to fix a mistake 18 years down the line than the original project cost. Worse, even after spending a lot of money, and five years of effort, it is still not sure of achieving all the goals it has set. We are talking of the jinxed Dabhol power project. The 1,940-MW mega power plant is still grappling, rather unsuccessfully, with its contentious antecedents. NTPC and GAIL had formed a joint venture in 2005 to take charge of the company, but their efforts to breathe life into the three generation blocks have run into umpteen problems. But no one was expecting a smooth run. Not after the many roadblocks this project has faced. The first phase (740 MW of naphtha-based power) started in 1992, but ran into a storm of protests when it was alleged that the plant and its power was too expensive. Then, when it started producing power, it could not find buyers. Even when the price for power was re-negotiated, its erstwhile promoters — Enron, GE and Bechtel — could run it for barely a year with just one of the three power blocks in the plant running. The more-expensive second phase, or the LNG plant, was not even completed when the company shut down. The Rs 4,000-crore LNG complex was only 50 per cent complete, even though the Rs 13,000-crore power project complex was physically in place. The bigger problem was ensuring gas supply for its turbine. In both pricing of power and arranging gas supply, the state-run NTPC and GAIL have inherent advantages. But the challenges they faced in resuscitating RGPPL in the past five years were of a different nature. The plant that was designed to be the world's largest gas-fired plant had been dysfunctional for years and it was an uphill task to get the turbines going again. They were able to get it up and running in November 2006. Now, finally, the LNG complex is ready — 18 years after the project started. The power plant, too, is running and the cooling water complex is being upgraded. However, at a conservative estimate, it will take another 4-5 years to get the plant running at its full capacity. Will Dabhol still be relevant by then? Yes, but its relevance is likely to go beyond Maharashtra. The state has over 5,000 MW of power plants in the pipeline and most are likely to come up before the Dabhol plant becomes fully operational. But RGPPL can sell power to other states. Besides, the LNG terminal that is part of this mega project can — with a few more baseload stations — become a major hub for gas supply in the future. Takeover To Makeover RGPPL took charge of the Dabhol plant on an as-is basis. This meant that it had to pump in huge investments to set up the infrastructure that was not there, over and above the $900 million that the previous owners had put in. NTPC and GAIL have a 60 per cent share (each having put in Rs 592 crore as equity); another 24 per cent is owned jointly by IDBI, SBI, ICICI Bank and Canara Bank through a combined equity investment of Rs 500 crore and the balance equity is held by the Maharashtra State Electricity Board (MSEB). Currently, RGPPL is focusing on the 2.3-km jetty in the Arabian Sea — a crucial part of the supply chain for importing gas. The man-made ‘breakwater' holds back the sea, thus allowing large ships to dock safely. "They (the erstwhile promoters) finished only 700 metres as against 2.3 km of total length. Another Rs 500 crore has to be spent on this," says A.K. Ahuja, managing director of RGPPL. It will take another three years to complete. That time frame is making RGPPL nervous. Now that the LNG terminal is ready, it costs a lot to keep it idling. In fact, the maintenance cost of the plant machinery is so high that RGPPL is willing to seal long-term import contracts for LNG at $11/mmbtu (million British thermal unit), a rate that is much higher than the $6/mmbtu it pays to get gas from the Krishna-Godavari basin through the Panvel-Dabhol pipeline. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } RGPPL is even ready to pay a premium for immediate supply. "We will get ships with smaller quantities," says Ahuja. As against ships that can carry 89,000 cubic metres of LNG, these ships will carry a load of around 60,000 cubic metres of gas. This "quick arrangement" of LNG is expected to be at $16/mmbtu. Unlike in the Enron days, however, high input costs will not derail Dabhol power. Under a tolling arrangement, the price of gas for the power plant would remain at $6/mmbtu, resulting in a regulated power tariff of Rs 3.9/unit. GAIL, on the other hand, can sell gas from the KG basin pipeline to other customers at differential prices to recoup the difference between the LNG price and the domestic gas price. Hence, what started out as an integrated LNG-cum-power project is now being virtually split into two separate business units with the LNG complex becoming one profit centre and the power blocks another. The main reason for this shift is the high price of LNG coupled with other regulatory issues (price of power is regulated and does not allow for the cost of the LNG terminal to be recovered from the power tariff). Plans are already underway to pipe the LNG unloaded at Dabhol right up to Kochi. Once the breakwater is ready, Dabhol may well become a major hub for gas in the country. Start And Stop Just how poor a state the project was in when RGPPL took over in October 2005 is evident from the fact that there wasn't even a blueprint to understand the design of the entire plant. "It was like a jigsaw puzzle where we had to reconstruct the entire project by putting bits of pieces of information given to us by the erstwhile promoters," laments Ahuja. Ahuja's problems become apparent as one walks around the plant site. Rows and rows of containers can be seen lying around the ground. Some are open while others are still shut. "We still don't know what is inside some of these containers and what they are meant for," says an official. Further down, a BMW stands abandoned — no one knows who is the owner. In the guesthouse, there are broken dishwashers and microwaves that none of the current caretakers know how to operate. There is even an abandoned Jacuzzi in the auditorium. RGPPL's priority has obviously not been the upkeep of the area surrounding the plant, but getting the plant ready and running. However, running a plant that had not been generating power for nearly five years was a mammoth task, admits Ahuja. Chandan Roy, who recently retired as director operations of NTPC and played a key role in the revival of the Dabhol plant, says the years of inoperation led to an information gap. While the erstwhile promoters ran the first block (1999-2001), RGPPL started with the second block, using the naphtha left behind by the previous promoters. The switch from naphtha to gas was not long in coming. By September 2007, Blocks 2 and 3 were using 5.6 MMCMD (million metric cubic metres a day) gas supplied by Petronet. However, even as fuel supply was arranged, the power plant was facing "catastrophic failures". "While hiccups were expected as the plant was shut for a long time, the magnitude of failures was totally unexpected," says Ahuja. In 2007, one unit of Block 2 failed because the fan blades were shaving off the roots and damaging the entire turbine. The entire unit had to be shut down and sent for repair — to Singapore. A year later, another unit of Block 2 and one from Block 3 faced similar problems. To avoid further disruptions, RGPPL did a thorough check up of the turbines and found that machines in all the three blocks needed repair. One after another, these machines were shipped to either the UK or Singapore — the service centres for GE turbines — for repair. Currently, a recently repaired turbine is being refitted at the plant. "While the plant has a spare rotor at the site to take care of unforeseen eventualities, the last such repair and refit should be done by the end of this financial year," explains Ahuja. GE's initial assessment was that such machine failures were the result of corrosion as the plant was shut for a long time. But an executive at the plant says it may have been a technical error: "When in operation, the blades were oscillating at a frequency well beyond their prescribed level." The truth could be a combination of the two. Power plant experts say that the 9FA series of turbines supplied by GE to Dabhol were the first of their kind. Plus, keeping the machinery shut for over six years, and the variant ambient temperatures could have led to such failures. In defence of its turbines, GE says in a statement, "Our F-Class technology is an established industry leader for advanced technology, heavy duty gas turbines with a global installed base of more than 1,000 and over 32 million fleet operating hours." Whatever the reason for the problem, it cost RGPPL dear. Today, the company rates the plant as a 1,940 MW-plant — 210 MW less than what was originally conceived. But going ahead, RGPPL wants to ensure that such problems don't crop up again leading to further losses. In coordination with GE, the company has put in place the Blade Health Monitoring Service (BHMS) — where engineers will constantly monitor the wear and tear of the machine while it is in operation. As a result, any extreme wear and tear that can lead to a failure will be spotted in advance. Further, the two companies also have an eight year-agreement whereby GE would assist RGPPL in upkeep and maintenance of these machines. But what happens at the end of this service agreement? By that time, the plant would technically be over 18 years, though it would have run for barely 10 years since 1999. However, plant managers are confident that with proper upkeep and support, the plant would run for another 20 years. Whether or not their optimism pays off, only time will tell. bweditor(at)abp(dot)in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
Read More
As they watch Dubai's hugely leveraged property sector crash, real estate developers in India must be heaving a sigh of relief. They too suffered a severe rap on the knuckles after the financial crisis of 2008, but have now limped back to some semblance of normalcy. Debts have been rescheduled, demand (at least in certain segments) is slowly picking up, and buyers and investors — though still suspicious — are willing to listen. The fate of Dubai is not clear as of now, but in India, the real estate sector's crisis — barring some small players who still risk going bust — seems to have temporarily receded.For three years (2004-07), a heady mix of unchecked growth and expansion, huge inflows of money and unscrupulous practices permitted the sector to enjoy rates of return way beyond any other. Returns of 100-200 per cent on projects were not unheard of. Developers were not keen to work on a project unless it promised astronomically high returns. Even when the economic crisis struck in 2008, India's real estate developers were relatively safe. Post crisis, realty companies listed on the stockmarket still enjoyed massive profit margins. The net profit-to-sales ratio for listed companies stood at 36 per cent in the past 12 months. With a profit margin of 42 per cent, the 12 months prior to that was even better. In sum, the real estate sector in India continues to have a party. But this wild merrymaking could actually be coming to an end, if a proposed model real estate regulation Bill floated by the Centre becomes the law. The government hopes to convince the states to adopt the Bill. And if that happens, it could change the way the sector functions here. "Perhaps, no other sector in India has been as little regulated as this, and no other that needs it more," says Finance Secretary Ashok Chawla. He says the government is obliged to protect consumers, especially from dubious developers who often promise way more than what they deliver.Regulation can prevent a Dubai-like casualty, say experts. Some argue that Indian companies have just escaped what is happening in Dubai now. Jayesh Desai, partner, Ernst & Young, who has been tracking the sector for over 15 years, says India's recent real estate crisis, which for now seems to have subsided, was mainly the sector's own making, coupled with the fact that there is no regulation in the industry. Drawing a parallel, Desai says companies in both India and Dubai "borrowed heavily to build (land) banks, and to invest in projects with long gestation periods". Indian companies have — at least for now — been rescued by banks in India, and buyers have not been hurt too badly. But in Dubai, many buyers are likely to suffer, something that strong regulation could check. "Industry, especially the larger players, should be seeking regulation, not opposing it," says Desai.The call for strong regulation is echoed by many. Sachin Sandhir, who heads independent regulatory body Royal Institute of Chartered Surveyors India, says regulation is essential in India where he fears "another bubble is rebuilding" even before the last one is fully over. "Regulation is very much needed. Buyers currently have no recourse, and this would be an alternative redress mechanism." He also says it is not always the developer who is to blame for delayed or incomplete projects. So, a third body mediating and listening to all points of view could work even to the developers' advantage. "Regulation will be good for all concerned including developers and the health of the industry," says Sandhir.Just Another Stumbling BlockOf course, there is a big lobby that begs to differ. Real estate firms — particularly the large, organised ones — are against a regulator as well as many provisions in the Bill. Though neither DLF nor Unitech wanted to go on record for this story, some of their officials spoke in their individual capacity. "This is just another licensing authority. You can add one more to the number of clearances (50-60) and agencies we need to pay off," says a top official with one of the largest real estate firms. The companies refuse to be quoted since they are in "a constructive dialogue on the Bill with the government" and do not want to be singled out as opposing it. "The Bill is nothing short of draconian," says a real estate company CEO as he rattles off all the negatives he sees in the Bill. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } The industry is questioning some of the best provisions of the Bill. To start with, the developers argue that the regulatory authority would be just another way for the officials to make money. But Kiran Dhingra, secretary at ministry of housing and urban poverty alleviation, denies this. "The idea is only to bring in transparency. If you are a developer, and have got a project approved, you put up the information on the regulator's website," she says. "Everyone has access to this information. So, chances of buyers being cheated or putting their money into dubious projects are reduced. Nowhere have we said the regulator will register or license the developer."Dhingra says they get several complaints of developers selling land that does not belong to them (so it cannot be transferred to the buyer) or delaying projects for 2-3 years. "At least, all these will stop. Developers cannot sell projects unless they have all the approvals," she says. "Who will protect such consumers? The regulator will provide redress in these cases," says Kumari Selja, union minister for housing and urban poverty alleviation (see interview on page 30). This also annoys the developers. They argue that in too many cases, delays in a project are caused due to the authorities not giving clearances on time. Another provision they oppose is the need to provide a 5 per cent bank guarantee to the "competent authority". Asks one of the executives of a large real estate firm: "Who will decide which is the competent authority? Will it be in a position to finish the project? For instance, would you trust HUDA (Haryana Urban Development Authority) to complete an apartment block you invested in?" The developers say such provisions will only raise the project cost, which will have to be borne ultimately by the buyer.The Bill provides an alternate recourse mechanism, other than the notoriously slow courts, to consumers. It stops developers from using the money raised for one project to buy land for or develop another. "This is critical since many developers are tempted to use the proceeds from one sale to buy land for another. As a result, consumers have to wait endlessly for their project to begin, let alone finish," adds Dhingra.In fact, some firms are able to see the advantages of the Bill — provided it is not too stringent and just separates the wheat from the chaff. Says Gaurav Bhalla, managing director of the Vatika Group: "Regulation is desirable, but it must be within limits." It should ensure that the dubious, fly-by-night developers are weeded out and consumers are not cheated, but should not make the life of more credible players difficult.Bigger Is No BetterNot everyone, however, agrees that established players are any better. In fact, a number of complaints are against well-known developers. And one does not need to look far for examples. In Gurgaon, developers such as DLF and Unitech have come under fire for delayed projects, changes in specifications and not providing even the basic facilities. "I used to be an advocate of Unitech, but now if someone paid me to buy Unitech properties, I would not," says Rakesh Seth, managing director of marketing solutions firm Finedge India. He has invested in a few Unitech projects, all of which are delayed by over two years. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } In a unique case recently, residents at Ambience Lagoon Island in Gurgaon have got together to throw the developer out. They say the developer has built a new hotel and mall in area designated for residences. They charge the developer has slowly taken away their tennis court, and has rented out area in the clubhouse to call centres. The fight has got ugly enough for the residents to issue a notice to the developer to vacate. Says Deepak Gupta, vice-president of Ambience Residents Welfare Association: "We have suffered in silence for seven years, and have tried to make peace. But we have now been pushed to the wall." He says this is not a unique problem — many RWAs in Gurgaon or Noida have similar stories.For example, DLF's Aralias and Ikon projects on Gurgaon's Golf Course are either delayed or have been relaunched after being sold at exorbitant rates at which there were no takers (DLF BelAire and DLF Park Place). DLF Magnolia, again on the same road, has seen changes in the number of floors and other specifications, besides being delayed. In Chennai, DLF flat owners forced the developer to reduce prices of apartments sold to them during the boom period.Worse than delays are cases where residents are forced to live without basic, essential amenities. Mukul Deva, managing director of MSD Securities, who stayed in Unitech's Uniworld Garden in Gurgaon, found to his horror that trucks came in every night to the chic complex to remove the day's sewage. The complex, where flats cost more than Rs 1 crore, does not have basic sanitation, he says. It was one of the reasons why Deva decided to move out of not only Gurgaon but India — he is now based in Singapore.Most buyers, hence, would be happy if the new Bill were to become a reality. But that is a big if. A large real estate lobby is working to water down the key provisions in the Bill. While they feel the current draft is a lot better than the initial one the ministry started out with, they are still unhappy. Further, this being a model Bill, it has no legal validity or binding on the states. Dhingra hopes the government will be able to persuade the states to adopt the Bill, and set up regulators. But this is also easier said than done as, often, politicians who make laws are in cahoots with the builder lobby. Many are sceptical whether the political class is able to see the benefits of protecting consumers, and weigh it against protecting the builder lobby. Till it does, consumers have to just keep their fingers crossed.anjulibhargava(at)gmail(dot)com var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
Read More
Click here to view 'India's Most Competitive Cities' var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 13-12-2010)
Read More
