Tuesday, October 13, 2015

Bujagali Hydropower Project: A social challenge

Bujagali hydro power plant was much needed project as per the government which might not be the case as that fund could be used for other development programs which can show up result earlier than a power plant since Uganda is poor country. But let us assume that the project was needed to be done. now there were many flaws:
  • No feasibility and project study was done by the government or authorities even though this is considered as the most important step in any project.
  •  Government just decided that we need to do the project and privately selected the company for the same, no transparency and competitive bid was involved which could have ended in much more reasonable prices 
  • World bank known for its support for the socially relevant project played an important role and decided to finance the project with the help of different agencies, but WB itself did not do any studies or any member was involved in any of the committee which did the studies which made WB rely on the report which will be sent by the third party. That created problem when NGOs started protesting and WB did not had its own reprt so it got confused who is right here. 
  • Here the biggest challenge was the social impact which was linked with economics of the country also. I realized here that the physically resettlement is not always the option as there are cultural and emotional or economical factors are also involved which are attached with the place where they live.
  • Since the EIA was done when project was allotted and was done by the AES. There is high probability that it will show it as good project to get the finance. This was 2500 pages report which is hard to read also.
  • A comprehensive study of the project with member from the WB, government and company would result in a good DPR which will help project to go along.

Thursday, November 20, 2014

Way ahead for sustainable financing in Indian Infrastructure

Sustainability is a mix of Social sustainability, Economic Sustainability and Environmental Sustainability

Social Sustainability is achieved by providing infrastructure services to the socially deprived sections. Viability Gap funding (VGF) which enables funding for projects which would not be economically feasible is a way ahead to achieve social sustainability. VGF is funded through money earned by Government from commercially viable projects through Negative funding. In Germany, a certain percentage of work in a project should be handled by socially deprived sections of the population. This kind of work allocation in India will develop the socially weak sections of Indian society.

Economic Sustainability is possible by New Public Management (NPM) principle of PPP where the private parties are encouraged to finance Infrastructure relieving the Government of fiscal deficit. An alternative funding source, Foreign Direct Investment (FDI) is subject to political and financial risks and FDI players are averse to invest in India. In such cases, developing the domestic finance market is the way to sustainable financing. Real Estate Investment Trusts (REITs) incentives and Infrastructure Investment Trust (INVIT) proposed in budget 2014 are welcome moves towards achieving sustainable funding in India.

Environmental sustainability can be achieved when banks adopt Equator Principles. A move in this direction was initiated by Infrastructure Development Finance Company (IDFC) in 2013 when it adopted the equator principle. IDFC is India’s leading finance player and the first to adopt Equator Principles. However, sustainable funding can be ensured only when all banks adopt them. Also, there should be banks which exclusively finance sustainable projects to speed up sustainable constructions in India. UK’s Green Investment Bank (GIB) lend to investors who work on renewable energy projects. Another way to go ahead is tie up with foreign institutions to learn from them. In 2014, India and German KfW Development bank signed loan agreements for sustainable development of Tamil Nadu towns.

1.    "IDFC" Sustainable Infrastructure Development and Environment Management. Web. 7 Nov. 2014. <http://www.idfc.com/our-firm/environment_management.htm>.
2.    The Greening of Infrastructure Finance, Insight magazine, Issue No. 2, Spring 2012
3.    German Embassy, New Delhi, 2014, “Germany India sign agreement for sustainable infrastructure development” <http://www.india.diplo.de/Vertretung/indien/en/__pr/Business__News/Kfw__2014.html>

Thursday, November 13, 2014

Meeting the $1 trillion investment in infrastructure

                           AIIB which stands for Asian Infrastructure Investment Bank was launched last month on 24th october 2014. I think that this bank along with the BRICS bank would pose a major challenge to the Bretton woods twins the IMF and the world bank and it has possibility of boosting the growth rate in infrastructure in India.

World Bank:US dominated bank

  • United States is discouraging the World Bank from lending to coal-based power projects in the asia.

IMF:Europe led bank

ADB(Asian development bank):Japan dominated bank

BRICS new development bank: 

  • At least 25 per cent of our power generation capacity over the next decade is based on Chinese equipment import. This means roughly $30 billion (about Rs 180,000 crore) of power equipment could be imported from China. 
  • The BRICS bank could also offer cheaper loans for such power projects in BRICS countries.

  • Asian development bank lends not more than $10 billion a year while asia needs $800 billion of investment in infrastructure annually between now and 2020
Why this BRICS and AIIB are good for India?
  • 12th Five year plan says we need $1 trillion dollar investment in infrastructure. Few billions dollars we get as ‘soft loan’ from AIIB, BRICS  bank  is help in achieving this plan.
  • India is 2nd largest stakeholder in AIIB, so it has large voting power and help India in getting loans according to its interest
  • Cheaper loans


Monday, October 27, 2014

Accountability issues in PPP

We have been seeing of late in New Public Management (NPM) about the changes required in Government’s role. A number of stages are required to get an approval for a project. Government tends to keep the process intact rather than the end result. All this is done to keep the government machinery accountable.

Accountable to.. (Willems & Dooren, 2011)
  1. Political mechanisms – future elections, political debate, questions of opposition
  2. Judicial review – questioning by the courts
  3. Superior authority – chain of hierarchical command, government auditors, regulatory bodies, ombudsman
  4. Groups – Citizens, Interest groups (NGO’s)

In India, the ‘5 C’s and 1 M’ which question government decisions are CBI, CVC, CAG, CJI and CIC. The M is of course Media (governancenow.com)

Now, the account holders (people, judiciary, authority) concentrate on the process and not the performance of accounting. It has become easier to hold someone accountable for a 'failure in finance and fairness' rather than on a 'failure in performance'.
What is required now is a change looking at efficiency and value for money.
Few solutions in this regard as mentioned in (Forrer et.al, 2010) are
  1. Cost- benefit analysis -  to show (people, judiciary and authority) that the project is done because of the benefits
  2. Get social and political support – by increasing transparency and involving people in decision making
  3. Performance measurement – based on implementation and benefit to people

  1. http://www.governancenow.com/news/regular-story/how-get-governance-going-plug-policy-paralysis
  2. Willems, T., & Van Dooren, W. (2011). Lost in diffusion? How collaborative arrangements lead to an accountability paradox. International Review of Administrative Sciences77(3), 505-530. 
  3. Forrer, J., Kee, J. E., Newcomer, K. E., & Boyer, E. (2010). Public–private partnerships and the public accountability question. Public Administration Review70(3), 475-484. 

Monday, October 6, 2014

Water Redistribution - Learnings from China

Many of us would be quite aware of the 'Indian Rivers Inter-Link' [1] project which was proposed in 2005. This is a very large scale project that intends to interlink Indian rivers by a network of canals so as to reduce floods in certain zones of the nation while alleviating the water shortage problem in others. It seems like quite a reasonable thing to do and the government has been in the process of surveying the zones and estimating costs and benefits since 9 years now. There are environmental and relocation issues that the officials have foreseen and will look to address if the project goes ahead, which, judging by its current state seems to be the case. But these are predictions and all international comparisons that have been done so far are with similar projects in the West, where social and economic situations are very different from those in India. 

But now, an opportunity for comparison with a similar project in a nation whose conditions are very similar to those of India has presented itself. China has finished constructing a canal more than 1200 km in length from Danjiangkou Dam in the central province of Hubei to the capital, Beijing [2]. The issues they faced were similar, heavy concentration of industries and agricultural lands near the economy-driving capital area had depleted and polluted the water naturally available in the region and so the only solution they could conjure up was to 'borrow' from the water abundant South. And just like India's Inter-Link project, this seemed like a prudent thing to do and so, being China, they quickly did it.

The Economist [3], however, has a very interesting take on the project and points out secondary and tertiary impacts that make the project seem far less prudent. They say that while the canal will solve the current problem and meet a significant proportion of the demand, this portion will quickly shrink over time with an accelerated increase in population, number of industries and farmlands, spurred by the canal. Additionally, the article mentions "By lubricating further water-intensive growth the current project may even end up exacerbating water stress in the north". And this argument seems largely valid. When there is abundant supply of a commodity, its value decreases and people tend to use more of it, rather carelessly. Moreover, shifting billions of cubic metres of water may stimulate the spread of diseases which is something that even might not have been considered during the planning process. 

They point out the real issue: the high demand for water and inefficient use of it. And this problems only gets exacerbated by the 'solution'. Agreed, that some amount of redistribution will have to happen to address the problem in areas that face acute shortage. But a more enduring solution would be controlled tapping of sustainable local resources and promotion of efficient utilisation techniques. Also, the government shouldn't hesitate in charging high tariffs from the industrial users of the redistributed water. This case also highlights a very interesting aspect of project conception/appraisal: sometimes projects are not the solution and therefore, unneeded and the appraisers should feel comfortable accepting that.  

Tuesday, September 9, 2014

Eight steps away from 24x7 power!

                       With the closed civil nuclear deal between India and Australia, the NDA govt. of India comes up with an 8 point plan with an aim(although a very bold one!) to provide 24*7 power for all domestic, industrial and commercial purposes.
  1. Rationalization of coal supplies and focus on improving productivity and efficiency of coal production. Target: coal output of 1 billion ton by 2019
  2. Restructuring the coal regulatory body giving it more independent power in decision taking and its implementation
  3. Steps to control of coal theft (Yes! coal theft actually amounts to around $1.5 billion)
  4. Nuclear energy generation
  5. Hydel plants in J&K on fast track basis
  6. Faster environmental and forest clearances (cleared long-pending transmission projects worth Rs 12,272 crore)
  7. More focus on green energy sources-wind and especially solar energy(solar ultra mega power plant in Sambhar)
  8. Gas based energy generation of worth 24,148 MW

Merits:  Firstly the government has begun to focus on efficiency and productivity of energy reserves (from the first 3 points above). Secondly, the 8 point plan reflects that the government is determined to explore renewable and nuclear energy sources(last 5 points above).

Possible improvements: One possible area that might need serious thinking--- instead of concentrating on generation alone (which resulted in looking at it as an isolated system independent of transmission and distribution), we have to start making efforts to integrate and improve the whole process of "generation, transmission and distribution".
It is high time that we realize that 'the whole is greater than the sum of its parts' (true,even though its entirely counter-intuitive!)

Tuesday, August 26, 2014

Ministers handing out infrastructure projects to please voters

On 11th August 2014, there was a news article in the Economic Times titled "Akin to railways, aviation ministers handing out airport projects to please voters" [1]. I found this interesting since this brings out the influence of politics on infrastructure projects, an aspect that is often overlooked and overpowered by financial and technical perspectives in discussions about projects. 

The articles mentioned that "Andhra Pradesh is the new focus area for the civil aviation ministry which, with a politician from the state heading it, has set the wheels in motion to develop three international airports in the state, including one to be built from scratch." I wouldn't so much focus on the particular state or minister as much as I'd like to focus on the fact that many a times, projects are unnecessarily taken up to please voters.  In this particular case, the three airports that are slated to be given international status are Tirupati, Vijayawada and Vishakhapatnam, with the former two being upgradation projects and the last being an entirely new development. 

All three of these cities face shortages of basic amenities [2] [3] and the capital and expertise invested in the construction of airports could have been channeled to tackle these fundamental problems rather than using them to construct international airports, which, in fact are not even needed. With the national carrier Air India operating out of its hubs in T3 Indira Gandhi International Airport, New Delhi and T2 Chattrapati Shivaji International Airport, Mumbai [4], what every other city needs to have is a domestic airport of international standards instead of having an international airport that is underutilised. Moreover, the presence of an international airport in the state at Hyderabad further renders the development of more airports unnecessary. A passenger travelling to the US or Europe is typically taken to one of the hubs and then flown out of the country. For short distance flights to the Middle-East or the Far-East, mid sized international airports of Hyderabad, Chennai, Bangalore etc. are more than capable of handling the present and future traffic volumes. 

A classic case of how underutilised these projects become is the Raja Bhoj airport in Bhopal, the city where I hail from, that was upgraded to handle international air traffic in 2011 but the only international flights that are operated out of the airport are the seasonal Hajj flights operated by Saudia, Bhopal being a city with a considerable Muslim population. The upgrade did instill a sense of pride among the residents of Bhopal when it happened but now it is felt that maybe those funds could have been used to speed up the implementation of the Bhopal Bus Rapid Transit System or the Narmada Pipeline which address much more fundamental issues that the city faces. 

It is obvious that these projects are taken up by politicians to please the voters in their constituency because of the mileage that association with terms such as 'international' generate. It would be interesting to see what becomes of these airports over the next few years since quite clearly, these aren't well thought out projects aimed at developmental or social gains as much as they are aimed at ensuring the continuation of political reigns. 

  1. [1] http://goo.gl/JrMTf6
  2. [2] http://goo.gl/DI6wuu
  3. [3] http://goo.gl/wHWGWC
  4. [4] http://goo.gl/QiIxm8