Business Today - - CONTENTS - By Anilesh S. Ma­ha­jan Il­lus­tra­tion by Raj Verma

The risk of stressed and stranded projects is keep­ing in­vestors jit­tery about In­dia’s in­fra­struc­ture build­ing strat­egy

De­spite huge strides, the risk of stressed and stranded projects is keep­ing in­vestors jit­tery about In­dia’s in­fra­struc­ture build­ing strat­egy.

THE OPEN­ING UP OF THE 135-kilo­me­tre East­ern Pe­riph­eral Ex­press­way, and a phase of the 136-km Western Pe­riph­eral Ex­press­way, will en­hance con­nec­tiv­ity in the Na­tional Cap­i­tal Re­gion (NCR). Th­ese cor­ri­dors are es­ti­mated to re­move roughly 50,000 trucks out of Delhi’s con­gested roads and ac­cel­er­ate freight move­ment around the NCR.

The ex­press­way is part of larger phys­i­cal in­fra­struc­ture de­signed to con­nect: a) the Lud­hi­ana-Delhi-Mum­bai ded­i­cated freight cor­ri­dor (DFC), b) the Delhi-Mum­bai in­dus­trial cor­ri­dor, and c) the Delhi-Kolkata DFC. In the larger scheme of af­fairs, this, plus the res­ur­rected Delhi-Bun­delk­hand High­way, the widened Delhi-Meerut, Del­hiHis­sar high­ways, and the up­com­ing in­ter­na­tional air­port at Je­war makes the ex­press­way very sig­nif­i­cant. This is all the more im­por­tant since Na­tional High­way One and Delhi-Agra-Luc­know Ex­press­way have been widened.

Com­ple­tion of the ex­press­ways en­cir­cling Delhi took nine years longer than sched­uled be­cause of land ac­qui­si­tion is­sues and end­less lit­i­ga­tion. In Ut­tar Pradesh, the gov­ern­ment’s of­fer to triple the cur­rent cir­cle rate to ac­quire land for the Je­war air­port saw farm­ers hold­ing out for more. The land ac­qui­si­tion prob­lem, it seems, is not go­ing to be easy to solve.

There are other is­sues too. De­spite of­fi­cials’ claims that the gov­ern­ment’s will­ing­ness to share the risk was im­prov­ing mat­ters, in­vestors have been

chary about many In­dian in­fra­struc­ture projects believ­ing that risk looms large. Mean­while, newer play­ers also haven’t been able to garner in­vestor con­fi­dence even as older play­ers re­coup from losses.

The NDA regime un­der late prime min­is­ter Atal Bi­hari Va­j­payee was the first to push for a mul­ti­pronged strat­egy to pump in pub­lic funds for in­fra­struc­ture cre­ation. Of­fi­cials in­sist that two sub­se­quent regimes of the UPA gov­ern­ment, how­ever, used this to lever­age pri­vate cap­i­tal. Year on year, ex­pen­di­ture rose sharply from the 2014/15 UPA In­terim Bud­get of ` 1.81 lakh crore.

Faulty pol­icy, poor ex­e­cu­tion, and in­ef­fi­cient de­ci­sion-mak­ing re­sulted in in­vestors left with bleed­ing cor­po­rate bal­ance sheets and banks bur­dened with non-per­form­ing as­sets (NPAs). Cor­po­rates and banks alike are still to re­cover from th­ese losses, re­ferred to as the twin bal­ance sheet prob­lem by for­mer chief eco­nomic ad­vi­sor Arvind Subramaniam.

The Modi dis­pen­sa­tion in­her­ited a messy sit­u­a­tion in a hos­tile en­vi­ron­ment. To solve the prob­lem, it ear­marked ex­pen­di­ture – from the Bud­get as well as out­side gov­ern­ment re­sources – of ` 5.97 lakh crore in the on­go­ing fis­cal.

And in or­der to en­sure timely ex­e­cu­tion, the prime min­is­ter mon­i­tors im­ple­men­ta­tion of the big projects, of­ten us­ing Pro-Ac­tive Gov­er­nance and Timely Im­ple­men­ta­tion (PRAGATI). “We have taken many projects to PRAGATI and many times just the list­ing of an item in the agenda ends all bot­tle­necks,” says Alkesh Sharma, CEO and MD, Delhi-Mum­bai In­dus­trial Cor­ri­dor De­vel­op­ment Cor­po­ra­tion.

Mean­while, since he took charge of the rail­way min­istry, Piyush Goyal has pushed for ac­cel­er­ated track-lay­ing and elec­tri­fi­ca­tion. In the last fis­cal, Rail­ways laid 4,405 kms of track whereas it had man­aged only 7,666 kms in the pre­ced­ing three years.

Rail­ways of­fi­cials are con­fi­dent that the first phase of the DFC will kick off in 2019; and that the


en­tire stretch con­nect­ing Delhi and Mum­bai will be func­tional within a year of that.

The 4,405 kms rail­way tracks would re­duce lo­gis­tics costs, with a view to im­prov­ing ex­port com­pet­i­tive­ness. Sam­ple this: it re­quires be­tween a week to a fort­night of in­land tran­sit from Delhi to load a con­tainer on an ex­port ves­sel. A sim­i­lar jour­ney in China will need five-six days. Im­proved in­fra­struc­ture will nat­u­rally re­duce in­ven­tory costs. Re­li­able power sup­ply and bet­ter com­mu­ni­ca­tion net­works are the need of the hour. Though the gov­ern­ment is mak­ing ef­forts to im­prove elec­tric­ity sup­ply, sub­dued de­mand has pushed plant load fac­tor at sub- 60 per cent.

Once Bit­ten, Twice Shy

De­spite the ef­forts of the gov­ern­ment, Trans­port Min­is­ter Nitin Gad­kari and

Power Min­is­ter Raj Ku­mar Singh have their work cut out for them if the fund­ing en­vi­ron­ment is to re­main be­nign. Bankers are in no mood to deal with risks and, as a re­sult, 56 large road sec­tor projects and 11 power plants are in dan­ger of be­com­ing NPAs.

The two min­is­ters along with In­terim Fi­nance Min­is­ter Piyush Goyal have held a se­ries of meet­ings with the RBI and other banks to find a mid­dle ground but to no avail.

In­sid­ers blame the Rail­way Board for in­ef­fi­cient de­ci­sion-mak­ing but say Goyal’s roped in Pub­lic Sec­tor Un­der­tak­ings un­der his min­istry and make head­way in track elec­tri­fi­ca­tion and sta­tion re­de­vel­op­ment.

More than the rail­ways, it is the min­istry of road trans­port and high­ways that seems to fac­ing a com­plex set of is­sues. It moved to the Hy­brid An­nu­ity Model (HAM) to de-risk projects where con­trac­tors take projects with an­nu­ity-based re­turn com­mit­ments; and more­over, th­ese projects can be se­cu­ri­tised after com­ple­tion to toll com­pa­nies. Stake­hold­ers had high ex­pec­ta­tions that all pos­si­ble big road projects would be farmed out; close to 48 large projects have al­ready achieved fi­nan­cial clo­sure. But fi­nan­cial in­sti­tu­tions, in or­der to avoid stress on bal­ance sheets, are de­mand­ing more con­ces­sions. Bankers fear that there are a few key play­ers grab­bing the lion’s share, and this could build up to over­lever­ag­ing.

The power min­is­ter is also fac­ing an up­hill bat­tle with the RBI. Star­ing him in the face is the threat that nearly 34 projects are on the verge of be­com­ing NPAs. Sources said Singh is very up­set that the RBI “ar­bi­trar­ily” banned debt-re­struc­tur­ing in­stru­ments such as Strate­gic Debt Re­struc­tur­ing (SDR) and the Scheme for Sus­tain­able Struc­tur­ing of Stressed As­sets (S4A).

The power sec­tor got a brief respite in June when the Allahabad Court put ac­tion against non- de­fault­ing power sec­tor play­ers on hold pend­ing hear­ing of the power sec­tor’s pe­ti­tion against the RBI or­der. At the time of go­ing to print, the mat­ter was sched­uled to be heard on Au­gust 20.

In fact, the sec­ond vol­ume of the Eco­nomic Sur­vey re­leased this month noted that 5.9 per cent of bad bank loans were from power sec­tor. With a yawn­ing gap be­tween sup­ply and de­mand, dis­tri­bu­tion com­pa­nies con­tinue to pre­fer sup­plies from the state-backed Na­tional Ther­mal Power Cor­po­ra­tion rather than pri­vate play­ers. This nat­u­rally wor­ries bankers. Pulled in mul­ti­ple direc­tions by stake­hold­ers with di­verse view points, the gov­ern­ment in July formed a com­mit­tee un­der Cab­i­net Sec­re­tary P.K. Sinha, with sec­re­taries from power, fi­nance, coal, oil, and gas to look for a mu­tu­ally ben­e­fi­cial so­lu­tion.

Build­ing world- class in­fra­struc­ture is go­ing to be a long haul.


MD & CEO, Delhi- Mum­bai In­dus­trial Cor­ri­dor



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