Financial Crisis

Hi all,

I have one issue to discuss...I know all the classes are over now! And even Exam too...!

But had one issue for discussion so posting my thoughts on the blog...

Well, As we all know about the financial meltdown across the Globe leaving the finance giants and banking sectors in a HUGE HUGE trouble.

Most of the construction companies and infrastructure developers are indirectly affected from this Financial Meltdown, since they get their finances for the project from these finance and bank sectors....

So now the issue is:

“What can we (Infrastructure Developer/Government) do to come out of this FINANCIAL DEPRESSION?”

Putting in simpler terms what strategies can be thought of, so as to ease the fund flow?

To minimize the effect our Finance Minister has come up with a strategy to lower the Interest Rate and try to boost the present financial condition...[Source: Business Line]

What can be the other mechanisms to avoid/minimize the effect of Financial Crisis?

I know that this problem is not so easy to solve...

One option would be to give a pause to the development/improvement programs for the time being!

Another option would be to take small projects, which involves lesser capital and can be borne by the developer himself.

Another (Strange & Out of Hat) option would be to do every development/improvement project on CREDIT!!!

Can you suggest some of the strategies??? Since the thoughts what I mentioned above are not the right solutions!!!

- Jeetu

PPPs for affordable housing

Very recently, my research has moved in the direction of figuring out whether PPPs can be used to develop affordable housing in Tamil Nadu for the Economically Weaker Sections (EWS) and Low Income Groups (LIG) in society. There has also been a lot of talk recently on building 'nano homes' and the last edition of Infrastructure Today had several articles related to this.

The second master plan for the Chennai Metropolitan area estimates housing demand for the EWS and LIG segments to be 8,00,000 by 2026. Informal estimates seem to suggest that we are currently building at the rate of a mere 2000 houses per year! This seems to be a clear case for PPP where private sector efficiencies might have to be harnessed to deliver 8,00,000 houses by 2026. The catch is that by definition, affordable housing (300 sq ft pirced at Rs 3,00,000, say). is not very profitable and therefore might not be very attractive to the private sector.

So how do we solve this conundrum? I have some thoughts but would like to see suggestions that you guys come up with.

Stanford Blog on Infrastructure

Stanford University's Collaboratory for Research on Global Projects (CRGP) also hosts a blog that contains several infrastructure-related articles from an international perspective. All of you might consider browsing through this at some point.

Only Central & State Government must handle future metro projects...

This is the essence of an article in a news paper (23rd sep) written by E.Sreedharan (managing director of Delhi Metro Rail Corporation Ltd) to Montek Singh Ahluwalia (Deputy Chairman, Planning Commission, Government of India).


Already news came (on 30th Aug) in Economic Times that govt is willing to construct all future metro projects through BOT process. If this is true, private companies are the owners. The central Govt is just there to release funds. So there is a chance that they can extend the railway network thereby their properties near the project may increase to 2 to 3 folds.

Govt tries to charge less fares for the prosperity of the society and the private companies are not interested to take up the project unless they get high package amount. this may some times leads to losses for the Govt.

BOT projects are difficult to extend or repairs as each private company has their own way of constructing.

There is a chance of grabbing the valuable Govt lands for the construction. These all can be saved if govt involves, thereby ticket fares can be decreased so that purpose is served. In one Sentence, Govt have to handle large govt lands to private companies in the future if they nod for BOT projects as the private companies are the owners.

Conclusion: Only central & State Govt are the owners of future metro projects as BOT projects leads to more trouble in the future.

Both Central & State Govt s must involve in the metro projects. Only State Govt ownership also doesn't help much as it lacks the uniformity among the states.

This also helps to encourage the manufactures and producers in India.

BTO

I would like to add on the issue of What Rajesh told in class.
in context with doing a BTO.to go about doing a BTO , Build-Transfer-Operate. Building a infrastructure by the private sector and transferring it to public sector and the operation through the same private sector.
one thing when the Govt.raises the tax during transfer , can hold good, instead of private players raising the tax and getting vast opposition.
Also giving the operations and maintenance to the same private sector will be more efficient, than giving to another private player who might complain about the standards of the infrastructure and quality issues. also such a move would ensure quality standards, or other wise when two players one for building and another for operation might subsidize the quality at the cost of other.

PPPs in the USA

I recently read this article in the New York Times that talks about the perception of PPPs in the USA. The article makes for very interesting reading because almost all the issues mentioned are identical to those currently faced in India. For instance the article talks about opposition to private ownership of roads, reservations about government "selling out" to private companies and so on. Yet, the USA also seems to face the same problems with respect to crumbling infrastructure and lack of financial resources. Developed or developing country, PPP issues seem to be quite similar!

SEZ BY GVK IN TAMIL NADU

This is article from times of india (20/8/08) . IT shows interest of TIDCO in development of SEZ.
Gvk company offered six times of actual value of land and also training and job opportunities for those who sold the land. I think these offers made people to sell land voluntarily. One more interesting aspect is pondicherry govt promised to supply power to the SEZ. If govt provides support in all aspects i think India will be on par with China in few years.

Problems in Power

I read a very interesting article this morning in the Hindu Business line on States going back on power contracts that they signed with private power providers.

We will talk about this a lot more when we get into PPPs, particularly when we discuss the Dabhol example. However it might be interesting for all of you to see the political dimensions of the infrastructure problem. The article says that the new Meghalaya government cancelled a contract entered into by the old government on the grounds that it was a "violation of the states policy"! The moral of the story is that you might have demand (a need for, or a lack of power), and you might have supply (private power providers), but other social/political/legal/environmental issues can easily scuttle the project!

Comments?

PPP in IRRIGATION

We have seen in one of the classes that in India there has been 0% PPP till now in irrigation. But its interesting to see that the worlds first PPP irrigation project started in Morocco in 2004. Here is the article.

World's first PPP irrigation project for Morocco

Available online 7 October 2004.

The Moroccan government has chosen a private partner for the planned public private partnership (PPP) irrigation project in the citrus-growing area of Guerdane, Taroudant province.

This Guerdane project is the first PPP irrigation project in the world.

Surface water is urgently needed for irrigated citrus farming in the 10 000 hectare Guerdane perimeter, which currently depends largely on the extraction of rapidly diminishing groundwater supplies drawn up from the Souss basin.

The bid for the Guerdane PPP irrigation project was won by a consortium led by Omnium Nord-Africain (ONA), a Moroccan industrial conglomerate. As part of its contractual obligations, the ONA-led consortium will enter into a 30-year concession for the construction, co-financing, and management of an irrigation network. The network will channel water from a dam complex, located 60 miles from Guerdane, to 600 citrus farmers. The Guerdane irrigation project will cost an estimated US$85 million to build.

Reference: science direct doi:10.1016/S1359-6128(04)00448-3
Also a good pdf on PPP in Irrigation is available here :http://www.oecd.org/dataoecd/30/0/37739223.pdf