If PPPs as well-planned, and fi­nanced, as the DMICDC one ran into all man­ner of prob­lems, it showed the gov­ern­ment’s abil­ity to make moun­tains out of mole­hills

The Financial Express - - FRONT PAGE - SHOB­HANA SUBRA­MA­NIAN

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 gover nment 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 gover nment land was al- ready parked with the DDA. Two years ago, the gover nment de­cided DMICDC would ex­e­cute it. Top gover nment of­fi­cials, from the prin­ci­pal sec­re­tary to Delhi’s lieu­tenant gover nor 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 ter ms of 0.1% in­ter­est, 10year 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 ex­press- way projects — Kis­hangarhU­daipur-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 chair man 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 gover nment de­cided to do away with the old bid­ding nor ms that forced power sup­pli­ers to take a call on fuel prices for 25 years — big power producers, howev- er, are un­happy with the new nor ms. 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.


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