If infrastructure-spend grew, it was despite government

As public-private-partnership (PPP) projects go, Delhi Mumbai Industrial Corridor Development Corporation’s (DMICDC) 24-city-5,500 square kilometre project —seven of which, over 2,000 square kilometres will be set up in Phase 1 costing R325,000 crore — is probably the most ambitious India has seen after the NDA’s 5,846-km Golden Quadrilateral project that cost R60,000 crore. It is also the best planned, with the best project managers in the world associated with it for detailed engineering — this includes AECOM which developed cities like Songdo in China and the Shatui area in Hong Kong and CH2MHILL which was in charge of the London Olympics. 

Yet, given the non-issues that have racked the project, it symbolises everything that is wrong with India’s PPP projects — a vital problem given infra-spend in the current Plan is projected to double to $1tn, and half of this is to come from the private sector.

DMICDC’s structure envisages each city being developed in an SPV between it and the state government where states contribute their share of equity by buying land while DMICDC pays for the trunk infrastructure for the city — as this develops, land around it is sold and the money from this is used to build up other parts of the city. DMICDC has already done the master planning and the detailed engineering of the R70,000-crore 903-square kilometre Dholera city in Gujarat and initial construction work should start in 2014.

While celebrating DMICDC, keep in mind the hurdles it faces. A R40,000- crore exhibition-cum-cargo complex at Dwarka in Delhi with 20 lakh square feet of exhibition space, 3,500 hotel rooms and an air cargo complex was the perfect project to kick off in an investment-starved country, more so since the government land was already parked with the DDA. Two years ago, the government decided DMICDC would execute it. Top government officials, from the principal secretary to Delhi’s lieutenant governor and even the urban development minister, have ordered DDA to transfer the land to DMICDC, but to no avail.

If this wasn’t bad enough, the issue of funding DMICDC continues to hang fire. The Japanese have committed
$4.5bn in a first instalment (see box) on very generous terms of 0.1% interest, 10-year moratorium and 40-year repayment. The aid, however, requires that 30% of the project cost must comprise Japanese goods/equipment including that of, say, Japanese companies in India. With the finance ministry objecting to tied aid despite not much evidence of higher costs due to this — and despite Japan’s known efficiency in infrastructure provision —chances of more Japanese aid to this and other corridors are in a limbo.

DMICDC doesn’t face environmental problems, which are the bane of other infrastructure projects. Which is why both the GMR and GVK groups drove off the expressway projects — Kishangarh-Udaipur-Ahmedabad and Shivpuri-Dewas — they had successfully won. That’s also why the year began with NHAI threatening to take the environment ministry to court and it is ending with the NHAI trying to renegotiate 23 projects — they have offered to pay NHAI a R98,000-crore premium — that are stuck with many promoters citing environmental delays to exit projects that no longer look viable. While PMEAC chairman Rangarajan is in charge of coming up with a solution, it’s not clear if this will work since these projects have mostly expired as no work was done on them in the stipulated period — NHAI’s Plan B involves rebidding them, perhaps in smaller stretches to get more bidders.
Ultra-mega power projects, once considered the way to go for PPPs in power, are also stuck in all manner of problems with Indonesian coal costs spiking dramatically. While this solution awaits a final ruling by the electricity regulator, the government decided to do away with the old bidding norms that forced power suppliers to take a call on fuel prices for 25 years — big power producers, however, are unhappy with the new norms. The only saving grace, though, is that with the power restructuring package infusing cash into the sector, outstanding dues are being paid. The sector, however, remains precarious and new projects coming on stream are going to face an uncertain future, more so given the state of demand.

The ports sector fared poorly with no PPP project getting awarded between 2008 and 2010 due to the delay in drafting the model concession agreement and a bungling Tariff Authority for Major Ports. The situation hasn’t got much better since. In the current financial year, projects with capacity of 81 million tonnes were awarded till November-end as against the targeted 282 million tonnes. To give some perspective, if India aims to raise its foreign trade share from less than 1.8% of world trade to 4% of global trade by 2020, this requires the port capacity to increase from 1.2 billion tonnes right now to 3.3 billion tonnes in another eight years, entailing average investments of R36,000 crore a year.

Airports fared a bit better with short-listing of operators for Chennai and Kolkata airports expected in a few weeks.

The year ended on a happy note, relatively speaking. Apart from Dholera, DMICDC is close to beginning work on a few small townships in Uttar Pradesh and Madhya Pradesh; the Hyderabad metro project which got badly derailed when the Satyam scandal broke out in 2009 was rescued when L&T won the bid in 2010 — after financial closure in August 2011, L&T Metro Rail Hyderabad has begun to lay rails on the metro viaduct between Nagole and Mettuguda, a stretch of 8 km on the 72-km metro corridor. 

All told, the situation is far from ideal, but given the shape the economy is in, and the very poor financial shape of most infrastructure companies — the interest cover for some of the bigger groups like GMR and GVK is well under 1 — not much better could be expected.