Banks & Indian Infrastructure Projects

Recently, the India Infrastructure Company Ltd (IIFCL) has bagged sovereign guarantees for raising Rs 5,000 crore for funding big-ticket projects in the country and some MoUs were signed by IIFCL with the three public sector banks — Canara Bank, Vijaya Bank and Syndicate Bank, with an option of raising the funds either from the domestic or international markets.

This will be also done though several global venture capital funds by extending the funds to the IIFCL either direct debt or in the form of equity.

IIFCL's funding for projects would be in the form of direct participation in project loan syndications along with the banks or in the form of refinancing support to the lending institutions. This was because bank finance for infrastructure was likely to face asset liability mismatch problems in view of the long lending tenures. The MoUs with the three banks involved providing IIFCL's support in their project lending efforts. This included participation in big-ticket loan syndications. IIFCL would function on the basis of the credit appraisal and due diligence reports of the banks.

Till date, Canara Bank was lead bank in 13 projects, Syndicate Bank was the lead in four projects and Vijaya Bank was the syndicate leader in two projects. So far, IIFCL had signed 10 MoUs with banks and financial institutions. Banks such as Canara Bank and Vijaya Bank already have substantial exposures in infrastructure projects that include power, roads, telecommunication and urban projects. as for instance, Canara Bank now has an exposure of Rs 12,000 crore in the sector and it intended pushing up this figure to Rs 20,000 crore by this year end. Vijaya Bank's exposure is Rs 3,500 crore in the sector.

Some concerns like assets liability mismatches (ALM), other lending risks, risks in project financing, the risks involved interest, liquidity and credit risks etc. could be eliminated with the participation of IIFCL, as ther would be no fixed rate lending for projects. Lending would be on commercial terms, that could involve floating or periodic resets in loan covenants.

The curent statistics reveal that funding requirements for infrastructure was estimated at $360 billion or about Rs 3 lakh crore per annum. Even assuming a conservative debt equity ratio of 3:1, bank funding would have to be at least Rs 2.25 lakh crore each year. As per reports, these investments in infrastructure were necessary to sustain the high GDP growth of 9 per cent.

Hence, I feel that there is no risk associated with the funding source since as mentioned above, small capped players will play their role safely with the aid of big players like IIFCL.

Explicitly modern concession agreements speak about the significant role played by lenders in deciding the flow of funds and ensuring their right and timely utilization. Effective implementation of 'Equador Principles' in Indian Infrastructure would fetch long term benefits. Lenders ofcourse would be able to contribute to streamline the projects since they are a fundamental part of Project building. The Government has also realized these facts and would be keen to keep up with the pace of FDIs and hence should encourage more participation of International + National Financial Institutions in Indian Infrastructure Projects.

It is upto the Policy Makers and Decision Imposers to take an advantage of this current scenario before the fruits are ripped off!!!!

Negotiations....

There is no doubt that pre-planning and indepth analysis will definitely lead to making project a success. When we deal with construction Projects, we may encounter 'N' no. of parties with their 'N' different opinions. Its very difficult to come to conclusive terms. So often disputes arises and 'negotiations' become a very deterministic tool to approach the problem / difference of opinions.

Time is the essence of any project but as long as time is utilized effectively in resolving the issues, the project success can still be guaranteed. The main theme behind negotiations lie in understanding the issue at the root level rather than simply blabbering about issues. Most of the times issues arise due to miscommunication, false information, misconceptions, incomplete data, etc. that could be exemplified by our case studies. Conoco and NGOs could have used efficient and fair negotiations with the indegenous people to come at consensus. At times, the absence of regulatory or mediatory agency could help in sorting out the matter. It can be stated from the "Game" that was demonstrated last week.

People should be really aware about their requirements and they should consult the right people in right way by means of right negotiations at the right time.

Some of the organizational behaviour qualities like attitude, leadership, teams, cross functional groups, can highly influence the 'tactics of negotiation', which if utilized in proper direction, could fetch successful results.

The successful married life of couples who understand and adjust with each other and negotiate clearly to resolve their problems, can be a paradigm for the success of negotiations on construction projects.

multi cultural projects

hi all,
There's an interesting article about the risks faced in a multi-cultural venture in an infratructural project. There has been a rise of multicultural project teams, widely separated by geography with team members from different cultures and backgrounds working together to achieve a common objective, in past few years. The key factors affect the success of these projects can be as follows:

• The lack of physical proximity is the first key factor. The geographical separation of a project team poses difficulties of communication.
• For the project manager of a multicultural project, there can be difficulties in assessing the skills and competencies of team players. Training and education standards and the relative value of qualifications can be very different in different parts of the world. Job methods vary and can be different because of specific local conditions such as working in heat, earthquake risk or local trade practices.
• Mobility can be a problem that affects competence: it can be difficult to find people who can work effectively away from their home environment.
• Another key issue affecting multicultural project teams is language. A project must have a common language to ensure a common understanding. In many situations, this means that non-native speakers are working in their second or third language with a consequential loss of effectiveness, as well as increased risk of mistakes or misunderstanding. In situations where interpreters or translators are required, this has the effect of significantly slowing down the whole communication process and is very costly. Even where team members of different nationalities speak the same language, there can be difficulties. Words in American English can have totally different meanings to English in the UK, whilst conventions and abbreviations can often be very different.
• Risk is present in all projects but becomes more pronounced in global projects where there are often new risks, particularly if the project is being built in a part of the world where security is an issue. In some countries, contract law is not well established and other local laws may not be well understood by other nationalities.
• Risks in communications and risks arising from misunderstandings and misinterpretation are much greater.
• Risks in communications and risks arising from misunderstandings and misinterpretation are much greater.
• There are differences of standards in many countries that can extend to attitudes towards health and safety. Design standards can vary and local factors such as climate, topography and infrastructure can dramatically affect a project. Local customs can also be bewildering, especially for staff living overseas where there might be different attitudes towards gifts, entertainment and hours of work.
• In many countries of the world, different ethical standards apply. This affects attitudes towards the law and, indeed, national laws can be very different in different territories. In some countries, bribery and corruption have become institutionalised and are the only means by which some local officials can earn a living.

PPPs in US infrastructure

This months issue of the Journal of Construction Engineering and Management brought out by the American Society of Civil Engineers has an interesting article on the use of Public Private Partnerships (PPP) in US infrastructure projects.

As we all know, most infrastructure in the US is quite old and is in great need of renewal and replacement. PPP is an efficient way of mobilizing resources and achieving optimal project performance. So how many of the infrastructure projects in the US are done through the PPP mode?

The authors conduct a survey and find out that only 12% of the organizations surveyed have used BOTs or PPPs to build infrastructure!! The authors then attempt to understand why the other 88% continue to use conventional modes of public finance and come up with several explanations. A common thread that runs through these explanations is a lack of capacity within public agencies and a lack of exposure to PPP's, thereby making the implementing agencies a little skeptical of the overall potential of PPPs. In addition, the US also has no laws on PPPs unlike the Model Concession Agreements in India.

The research done in this paper is not very rigorous - the method of analysis is merely a straight aggregation and averaging of survey data. However, what is interesting is that the lack of capacity (i.e. understanding, know-how of fundamentals) as regards PPP leads to an over-reliance on public procurement even in developed countries. Many of the same arguments explain why there is a lot of rhetoric on PPPs in India, but relatively few projects that are actually implemented in this fashion.

What can we do to improve the situation? Comments?

The bujagali project: what is happening?

The bujagali project is spreading its success among the locals. The locals started to eek out a living by setting up food-stalls near the site.The landlords have started to rent their lands near the site. People are going for loans to set up businesses and improve their living standards.The article below explains it! http://allafrica.com/stories/200710031232.html


another related article i found regarding the project financing were
http://allafrica.com/stories/200710021168.html
http://allafrica.com/stories/200710030062.html

This project is just taking shape! hope there is a lot in it for the Ugandans!!!

Setusamudram Ship Canal Project

Hello all.
If you remember, sir talked about the viability of the Setu Samudram project in terms of reducing the time of navigation in the last class. I think this makes a good case study for IPM course!
Here is my understanding of the project.

• The project does not serve the very purpose it is being done! It will reduce the travel distance by only 120 nautical miles. And usually the ships travel at 12-13 knot speed. But when it enters setu samudram waters, they have to slow down to half of the speed. This ultimately means saving of only around 1 hr 30 mins of travel time, if the same ship had gone via normal route around Sri Lanka. Now the question is, is it worth spending Rs. 2400 crores on this project just to save 1.5 hrs? and remember, no ship will pay a huge toll and use this shipping canal. The project, if realized, will be an economic disaster.
  
• Next worst thing is the effect on the marine ecology. The coral reef will be completely destroyed by dredging of the sea bed. These are the coral reefs that slowed down the Tsunami waves and lessened the effect of it on to the other side of Indian coast. Not only that. The water surrounding the island nation of Sri Lanka is the habitat for very rare species of whale which is on the verge of extinction. Their habitat will be severely affected by this project.
• Now onto the social impact of the project. Thousands of fishermen have to quit fishing and also the place, which is their habitat for hundreds of years. There is absolutely no rehabilitation plan so far being thought of for them. And the govt is hardly listening to their woes.
• There is also zero planning on the part of the parties involved in the dredging as to where to dump the excavated soil. The contract document says, it will be dumped in some safe place. But what is that place? where it is? how to transport the soil to that place? what are the aftermaths of dumping those thousands of tonnes of soil from sea bed on to the land? No answer what so ever.
• In terms of strategic gains, India is gaining only 1 out of 10 or even less. The Setusamudram area on to the Lanka side has a lethal sea-bourne marine unit of LTTE. The consequence of any friction with LTTE - I need not tell it!
  
• In fact, an issue like this shows how poorly we are managing our strategies. China has already built naval control points all around India. Pakistan has been of great support and help to China. China is building an ultra modern naval point off the Karachi shore, to control West part of India. It already has one such base in one of the Myanmar islands, and is closely watching the activities at Chandipur, the missile karma-bhoomi of India. And it is no secret many of the LTTE weapons are China made!!
• It is a nonsense argument that the project will bring economic prosperity to Tamil Nadu. It will only bring disasters!

• one China friendly 'National Newspaper of India' along with its buddy blind politicians of Tamil Nadu is supporting the project so much as if without this there wont be any progress in Tamil Nadu! how to stop this misguidance?
  
• where are the NGOs, Arundhati Roy and Medha Pathkar?!
• why are the govts silent on these aspects? what are the possible solutions to the socio - economic - environmental issues?