Debt Vs Equity Financing

The appropriate ratio of debt to equity is vital in financial structuring of an infrastructure project.  Debt financing means borrowing for a particular project with provisions for repayment with interest. In equity financing, the capital is either invested by the stakeholders or by raising money via selling interests in the company (stocks/bonds).

Comparison

Equity need not be paid back while debt has to be. Additionally equity ownership adds credibility to a venture while high debt projects are considered to be risky. In debt financing, the lender has no claim on the profits generated as opposed to equity owners.  And the interest on loans is tax deductible thus providing a tax shield. Furthermore, actions taken by the company need not undergo clearance from the lender as opposed to voting from equity holders for approval (Thomson Reuters, 2013). On the other hand the advantages of equity financing cannot be over emphasized. It adds to the net worth of the venture providing financial strength and preserves the borrowing capacity for future needs ( Ebi Ofrey, 2011).

Figure 1: Growth: Debt Vs Equity Financing (Sweeney, 2013)

Both debt and equity have their pros and cons. It is up to the stakeholders in the business venture to analyze and arrive at the option that best suits their needs. Figure 1  (Sweeney, 2013) gives a graphical representation of expected growth via debt and equity financing. Hence, debt financing would be appropriate for business owners who do not want to dilute ownership, have limited ability to raise equity, or share future profits  (Sweeney, 2013).

Equator principles as a hindrance to developing economies

The equator principles defines the term "Designated countries" as "those countries deemed to have robust environmental and social governance, legislation systems and institutional capacity designed to protect their people and the natural environment." The list (which can be viewed at: http://www.equator-principles.com/index.php/ep3/324) of such countries comprises of almost exclusively developed countries. I find this quite one sided, it is obvious that developed countries will have far less pollution and energy usage emenating from construction when compared to developing countries. The latter have not reached their optimum yet, and as such they obviously need to keep their economic stability first.

To put things in perspective, there are just 6 out of the 70+ lending institutions from Asia and the Middle East, and just one from India (IDFC). IDFC only joined in the earlier half of this year, so it will be quite interesting to see how this move is received.

The equator principles, if applied to institutions financing projects in these countries, would definitely hinder their growth. This is probably why we see so few institutions from Asia and the Middle East.

It is not that these principles have not been violated. There have been cases such as the Baku-Tbilihi-Ceyhan pipeline, where the principles were tossed aside because the project had to go ahead. Selectively applying them in situations can lead to all sorts of irregularities in the future, all the way up to banks strong arming the client into doing things their way in the name of these principles. 

These factors have made lending institutions of developing countries very wary of the principles as they view them as something that will just slow them down and reduce their competitiveness.

Eminent Domain and its implication for project finance

This is an interesting article regarding eminent domain that was published very recently:
http://www.theatlanticcities.com/housing/2013/10/why-eminent-domain-cant-save-broke-cities-richmond/7358/

In most cases, we see it being used to seize land for an infrastructure or construction project. This is a case where the government of Richmond, California is attempting to seize the land from the project sponsors in order to save the numerous homeowners who have defaulted on their mortgages.

This has quite a few implications for the infrastructure market, as explained by this article.

While not illegal, this is a move that brings extremely bad faith.The main implication is that banks will have to stop lending to cities willing to resort to this form of eminent domain. These cities are then likely to fall behind due to a lack of funds to pursue projects. And if this is done by every city in America with similar issues, the effect on their economy would be crushing. Creditworthiness and trust would take a huge hit, similar to what happened to India after Dabhol.

Therefore, I am inclined to agree with the author when he says that this move is somewhat suicidal to the economy of Richmond or any other city that does it.

Findings on Tirupur Project

I came across a case study which was quite contradictory to the one which we had
discussed in class. The case study which was authored by Gaurav Dwivedi stated Tirupur as a
failure in meeting its customer needs leading to a lot of slum dwellers still depending on
water vendors and other water sources due to scarcity. A lot of facts regarding the
concession like operations, shareholding, debt, revenue, expenditure and profits, remains
unavailable to the public. Also there were confidential clauses incorporated in the
concession which were against the transparency concerns. In fact the author had to move
legally against the New Tirupur Area Development Corporation Limited (NTADCL) in order to
obtain real data regarding the project.

Ref: http://www.manthan-india.org/IMG/pdf/PPP-Tiruppur_Paper_IIMB_Conference_for_Website.pdf

USD 1 trillion for Infrastructure development

According to 12^th Five Year Plan in India, infrastructure sectors which includes power, roads, ports , civil aviation etc. has a projected investment of $ 1 trillion with an equal participation of private sector. In an annual plenary meeting of IMF and WB, finance minister P Chidambaram promoted PPP and included many sub-sectors like modern storage, education, health, irrigation, etc. for VGF scheme to achieve his target (reference).

Another upcoming example of PPP is 5MJC, a company that has a vision of building five major cities in the nation of Malawi. The government of 5Major Cities (Shekinah City, Heaven’s Gate City, Zion City, Zoe City and Zeal City) has planned to provide "strong" mayor-council system. The cities governments being responsible for public education, correctional institutions, libraries, public safety, recreational facilities and sanitation, water supply and welfare services which is in line with the Mercer’s Quality of Living  which for 2012 Infrastructure is based on electricity supply, water availability, telephone and mail services, public transportation, airports and traffic congestion.

One sided nature of the MoU between the MSEB and Enron in the Dhabol Project

The World Bank commented on the MoU between Enron and the MSEB as that it was biased in favour Enron. After the WB’s comment on the MoU the GOI’s Central Electricity Authority (CEA) did their own analysis and found certain abnormalities in the MoU. The findings include:

i) no specific details of project costs were provided as per Indian Law

ii) the date of start of the contract and payments were not mentioned i.e when the electricity is available or when the contract was signed

iii) the payment structure was different from the usual norms

iv) high price of power higher than anywhere else in the country

v) no provision to scrutinize the project was made to make sure that the payment of MSEB was corresponding to the actual electricity cost

vi) while MSEB guaranteed to buy a minimum amount of fuel, the fuel supplier was not adhered to providing minimum fuel.

vii) no study of economical justification or verification of the price of fuel was done by MSEB

Even after all these findings the authoritative bodies of the GOI gave approval for the project which was immediately followed by MSEB signing the PPA with Enron. 

Still even more anomalies can be observed in the project which makes it obvious of the quantum of illegal movements which would have taken place in the project.

Article ref: http://www.atimes.com/reports/CA13Ai01.html

A new kind of infrastructure risk

We’ve spoken a bit about the factor of risk in infrastructure projects, and categorized them as well.

The article here (A New Type of Risk in Infrastructure Projects, by Maria Craciun), adds to that categorization, using a few different lines of thinking. It also talks about a kind of risk we haven't mentioned..

Please find below a paragraph from the paper of particular significance with respect to PPPs:

To the above three risks it seems appropriate to introduce a fourth one, manifested especially in the latest years: the risk of financing. The global financial crisis that affected, 2008-2010, a significant part of the world economy, including the U.S., EU or Japan, gave birth to a new type of risk, one that initiators of investment projects had not witnessed before. This risk is determined by events which can lead to loss of project funding opportunities. So far, usually, the inability to finance a project has been due for the most part, to the project itself. Either this did not meet the requirements of potential lenders or providers of capital, or was confronted with a number of risks whose costs and whose ownership was deemed too expensive.

Please note the final risk the author talks about is something that has become predominant relatively recently. This risk is the risk of a good project not being able to take off because of the lack of sufficient funds. That point really stresses on the importance of PPPs because the risk can be totally mitigated if governments really are willing to fund and support private projects and set up partnerships with them. 

Although, I am not sure how valid this kind of risk is for the Indian scenario at present.

"PPP readiness" in Latin America- A gauge mechanism

“Evaluating the environment for public-private partnerships in Latin America and the Caribbean” is a good article with regard to the “PPP Readiness” in Latin America. Bolivia doesn’t seem to be on this list though, so we can’t really gauge how they’ve changed since Cochabamba. Perhaps if this sort of an analysis had been done beforehand, things might have turned out differently for the project (or the project may even have been scrapped).

One of the key observations I was able to pull from this was that countries that are more developed seem to score higher than ones that are less developed. Economic stability is a driving factor on this list.

It also mentions that centralized states score higher. But is a single government body taking all decisions from their side really the best thing? It probably would be the best thing for the PPP to succeed, but not necessarily the best thing for all the stakeholders involved if they are represented by a single entity. While the model seems to be having success, would the pros outweigh the cons?

(To access the article, go to http://www5.iadb.org/mif/en-us/home/knowledge.aspx and search for “PPP”)

Alandur Case Study

Alandur STP (www.wabag.com)

The STP at Alandur discharges the effluent in to the Adyar River and the sludge to an open dumping site at Palliakaranai (Alandur Sewerage Project: A Success Story of PPP Arrangements by Dr. Mukesh P Mathur). As far as current status goes, the project which included the construction of the STP, pumping station and the piping network was completed by the end of 2001. The 23,000 households that paid for the connection were split and categorized into phases to be connected to the sewer system. This includes  43% of the slum dwellers who opted to pay for separate sewer connections to their houses. As of today, 100% of the community is not connected to the sewer system yet. This is due to two main reasons: (1) the number of households that were willing to pay to be connected to the underground sewer system increased with increase in time, and (2) some of the households have not connected their septic systems to the main sewer, which is regarded as the responsibility of the house owner by the municipality. The O&M of the piping system is overseen by the City ever since the expiry of the contract in 2005. The STP contract with the private sector will expire in 2019.

Alandur STP (www.wabag.com)

The VfM analysis provided at http://toolkit.pppinindia.com/solid-waste-management/module3-rocs-asp7.php?links=asp7 gives a brief overview of why this particular project has been successful so far. For instance, the graded monthly sewerage fee collected by the municipality covers both the debt repayment and the O&M costs. Also, the detailed studies performed by the municipality prior to bidding, reduced any potential for scope creep. This in combination with the payment assurance by the municipality was one of the factors that enabled the successful implementation and operation of this project. 

Follow up on Cochabamba

The paper by Geraldine Dalton discusses the causes for failure of the Cochabamba project where private sector financing was used as a tool to carry out the project. While, the issues which led to the project being scrapped such as the water tariff hikes, terms of privatization, etc were discussed by the author, the passing of Law 2029 boggles my mind. According to Law 2029, the water was made into a State commodity and was exclusively licensed over to ADT. This not only meant people cant draw water from their own private wells, but also cannot collect rain water without a license. In September of 2001, the residents of Cochabamba took control of SEMAPA through La Coordinadora (La Coordinadora de Defensa del Agua y la Vida). The new SEMAPA has so far reduced the water tariffs, built a community water tank in Alto Cochabamba, installed 800 new water connections and connected 400 communities abandoned by the old company to water supply network. I have included an excerpt from the paper regarding the newly formed SEMAPA.

 As an institution, SEMAPA is a model participatory organisation. The company is run with full support and inclusion of its workers and its community rather than by ‘corrupt politicians’ (Shultz, 2001, Harden, 2001). This is achieved through the institutional focus of neighborhood citizens meetings that use local knowledge to prioritize local needs and to help solve water supply problems. Similarly, public hearings are used to define how SEMAPA should develop, and on a weekly TV show the SEMAPA Director Dr. Jorge Alvarado, answers the public's questions and hears their concerns (Barlow, 2001). This approach enables SEMAPA to optimize the financial resources available to it in order to meet social objectives in water provision and maintain and popular support for its operations.There are some constraints on SEMAPA’s continued success. Despite popular support, its affiliation with La Coordinadora has ruled out support from Cochabamba’s political and business elite. They have boycotted the organisation and refused to pay water tariffs (Harden,2001). Apart from loss of revenue, lack of support from this community is detracts from 16 SEMAPA’s institutional credibility. Although progress has been made, Cochabamba’s problems have not been solved. Jorge Cuba, a Bolivian journalist has noted that the city has no more than 5 hours of water a day and only 40% of the farmers in surrounding areas have access to clean water (Cuba, 2000). The true measure of ‘new’ SEMAPA’s potential as an organisation is its capacity to raise finance and address future as well as current water requirements.

Source: Private sector finance for water sector infrastructure: what does Cochabamba tell us about using this instrument? by Geraldine Dalton, Occasional Paper No 37, Water Issues Study Group, School of Oriental and African Studies (SOAS), University of London, September 2001

Increasing share of PPPs in JNNURM

I read this in ET today..... its good news.

The government plans to increase the funding for projects that are carried out via PPP mode under the JNNURM scheme. This is what we were discussing in class the other day- there was earlier little to incentivize the projects via the PPP mode.

Kamal Nath (Urban Development minister) has himself emphasized on the importance of PPP projects in India. Quoting him:"In our next urban renewal mission program, we propose that the central share in the case of PPPs will be enhanced by 20%".

This will be rolled out in phase-2 of the JNNURM. Although it does not guarantee better projects, in my personal view it will lead to increased capital inflows and better employment of technical knowledge. 

Urban Infrastructure: - Special Economic Zone in India

Urban Infrastructure: - Special Economic Zone in India

Special economic zone is geographical region which is designed for export goods and creating employment. SEZ comprises of free trade zone, industrial park, free economic zone, urban enterprise zone etc.

The objective of SEZ is

        i)            generate additional economic activity

       ii)            Promotion of export of goods and services.

     iii)            Promotion of investment from domestics and foreign resources.

     iv)            Creation of employment

      v)            Development of infrastructure.

SEZ Act 2005

SEZ act bill was passed in May 2005 and it came into effect in Feb 2006. This bill provide partial or complete exemption in custom/excise, income tax, dividend distribution tax, central sales tax and service tax for developer and operating unit. For operating unit, 100% tax exemption for first 5 years, 50% for next five year, and 50% of ploughed back profit for next 5 year. Ploughed back means it enables these units to reinvest profit into their business without paying the taxes. While for developer, they will continue to get 100% income tax exemption for 10 year in block period of 15 years.

It also has provision for Single Window Clearance Mechanism. It is trade facilitation idea which enables traders to submit regulatory document at single location or single entity. Such documents are typically custom declaration, import export permits and other certificates.

Indian Scenario

In India 143 SEZ are currently operating in our country (till June 2012).   And as of June 2012, 634 SEZ are approved by Indian Government. It results in tremendous increase in export which is shown in table.

Year	Export
2009-2010	INR 2.20 Trillion
2010-2011	INR 3.16 Trillion
2011-2012	INR 3.64 Trillion

In year 2010-2011, SEZ created 840,000 jobs in country. SEZ comprises of 23% of total India’s Export.

India and China: Scenario compared

ü  In India, apart from land grabbing exercise, SEZ is completely led by private sector. While in China, public sector is too involved in it.

ü  China has Command Economy, which means there is no other way for foreign traders or investor to enter into the country. While in India it is not which makes its importance a little.

ü  China has world class infrastructure, more liberal labor environment, and more attractive tax exemption which give chance for SEZ to grow properly, while in India there is always dirty political interference and buckling pressure from left parties which doesn’t facilitate SEZ and leads to some corruption scam.

ü  The only advantage which India has from China is that we have advantage of large English speaking workforce and better knowledge based industry.

Areas of Concern

ü  Role of State Government: - As every state doesn’t have capacity to build their own SEZ and can have different political Constraint, therefore central Govt. should take care of it.

ü  Conversion of Agricultural land to SEZ: - Though land used for SEZ in India is not much (75000 acres) which is .0025 % of agricultural land. But proper rehabilitation and reimbursements should be given to farmer who loses their land. For this Ministry of Rural development has formulated a comprehensive resettlement and rehabilitation policy.   

ü  Losses in Tax Revenues: - Because of various tax exemption, India is losing INR 75,000 Crore per year. But if we are able to get more profit out of it like creating employment, increase in economic activity etc... It’s not a bad deal!!

REFERENCES

Wikipedia,

Indian Infrastructure Report 2008,

Article by Amit Abhayankar  (Mumbai based Lawyer)

Time to review our PPP policy?

          Recent article in ET about The government's plans to 'overhaul' PPP framework came at right time when we were going through our module 1. We all must be agree on the presence of PPP practice in almost all sectors of infrastructure. sometime i wonder whether governments ( central & states) are thinking as if this is the only option. Though we must acknowledge the contribution of this system in overall infrastructure development in India, there is need to take review on this.
   Planning commission is going to undertake study on PPP with case studies ,  two infra projects and two power sector projects possibly come up with some new recommendation in coming months. This has a background of few PPP projects are felling apart and many still struggling to even start.(Recently FM has cleared projects almost 1-lakh crore)
  I have few questions ;
1. Why the companies like GMR,GVK, Reliance Infra are pulling out of such important projects worth almost 16,000 crores after allotment?
2. Who will be responsible for the delay in the projects and will it end in increasing the concession  period which ultimately burden on common people (e.g. case of Toll collection on highway)?

    There is one more example I would like to share. In Kolhapur dist ( Maharashtra state) PWD completed intra city road  work through PPP. Toll rates had been fixed. But the concept of paying toll even inside your city brought ire among the citizen and they got united over not to pay toll in any case. fortunately all political parties were united in this decision! so nobody is paying toll as on date. Now matter is still pending with State govt.
 In this case where is the 'PUBLIC' partnership? how will govt settle this issue? what if same episodes will occur in other projects?
As it is assurance from government to recover money invested by the private player, in such cases, government has to take the burden of repay. ( that too with interest)
Then what is the purpose of bringing private player in if government has to empty his own pockets ?
Do we need to restrict PPP model upto certain sectors? ex. power, railway, ports
Is it possible to try for actual public partnership in some projects where they are directly in contact i.e. water, waste, road,.?

Method of money flow from ECA to domestic company

Export credit agencies use the following methods to provide funds, loans and insurance to a domestic company for its international activities:-

(1)   Direct Lending – Various multilateral export credit agencies like Asia – Asian Development Bank, lends money directly to the domestic organisation (importing entity) in absence of any financial intermediary. Based on the credit rating agencies preferably Standard & Poor’s, Moody’s or Fitch Group which categorizes countries to be stable or not to repay its bond obligation.

(2)   Financial Intermediary Loans – In this method import – export bank like ECG (Export Credit Guarantee Corporation of India) provide funds to a commercial bank of that country and later channelizes the money to the deficit company. This converts the risky investment into relatively risk – free ones because the risk is spread among multiple borrowers.

(3)   Interest rate equilization – the borrower company gets a loan at below market interest rates from a commercial lender and the difference of rate compared with the commercial rate is compensated from the export credit agencies.

Portal to help developers highlight hurdles stalling large infra projects

This was something I came across while I was browsing on the web. I think this is a very good initiative to clear the red tape bottle necks as soon as possible.

"This would mark the first such neutral interface for firms that are usually left to 'manage' their paperwork with ministries and state governments directly. This is a critical component of an investment revival blueprint outlined by the special cell created in the cabinet secretariat last week to expedite pending projects.

Finance Minister P Chidambaram had said the cell would strive to expedite 241 projects worth Rs 7 lakh crore, out of total stalled investment plans of Rs 10.5 lakh crore. If all goes to plan as per the new approach mooted by the cell, around Rs 1 lakh crore of investments could get off the ground over the next three months, officials hope.

"For each stalled project, the devil lies in the details," said a senior government official, aware of the cell's deliberations. "Around 15% of projects are held up for very simple last-mile issues such as one nod from a state or central department nod. If we get those fixed in the next two months, it will infuse confidence in the process," he said.

Cabinet Secretary Ajit Seth has urged state governments to co-operate in the endeavor, Additional secretary Anil Swarup, who heads the cell, is learnt to have proposed that instead of discussing each project with multiple departments as per the traditional approach, the cabinet secretariat would facilitate intensive and focused tripartite discussions involving the ministry 'sponsoring' a project and the one whose nod is necessary for its implementation.

A working group, set up with senior officials from 13 ministries, has agreed to this approach and formed four sub-groups to focus on the ministries seen as the source of most delays - environment, coal, defence and home. The working group would evolve a protocol for resolving problem areas, while the sub-groups will try to settle specific issues. All ministries have been asked to assign a nodal officer of the rank of joint secretary or above to co-ordinate with the cell.

Tardy environment clearances hold up a majority of projects, while coal supply linkages have thwarted several power projects. The defense and home ministries often red-flag investments, citing security concerns. The sub-groups on coal and environment are slated to meet every week - given the plethora of affected projects.

"The CCI can take policy decisions or issue directions to ministries, but there's a lot of spadework needed to figure out the nuanced problems facing individual projects. If a problem cannot be resolved through discussions or arises out of a larger anomaly in policy, the Cell would escalate the issue to the CCI," said an official.

The link to the actual article can be found here

Which module is more effective for Indian cities ??Autonomy or strengthening of local bodies..

I came across an article where, one of the best planner(Bimal Patel) of the country is advocating for autonomy of local bodies in India. The aura of knowledge and work experience of author is high, and there are a number of national and international successful project delivered by him.
             http://forbesindia.com/article/independence-special-2013/bimal-patel-we-have-to-free-our-cities-from-the-states-clutches/35885/0?fb_action_ids=212335945592368&fb_action_types=og.likes&fb_source=other_multiline&action_object_map=%7B%22212335945592368%22%3A497846580306835%7D&action_type_map=%7B%22212335945592368%22%3A%22og.likes%22%7D&action_ref_map=%5B%5D

Whether he is trying to say, Because autonomy model of local bodies is successful for western nation so it may work here in India as well? I strongly feel that such kind of arguments for development of cities are going to be unsuccessful as, we are very different from western countries in terms of culture, economic status , habit, and social status etc.   

Cost Estimation in Mega Infrastructure Projects

I recently read an article that i think would be relevent here. http://www.theatlanticcities.com/jobs-and-economy/2013/07/why-mega-projects-end-costing-way-more-expected/6364/ . Mega projects that stretch over many years are bound to have some budget overruns, but to the tune of $300 million to $2.5 billion? With the increase in technical know-how and IT resources, should we not be able to estimate the costs appropriately? Is the author correct in that fact that there is optimistic deluding? I am surprised at the level of gap between the estimated cost and actual cost. According to Flyvbjerg, the error is not in the estimating technique. If it was so the numbers would be randomly high or low and not consistently low. His opinion is that most projects are under budgeted to get funding, project approval and for putting a political spin. The key fact seems to be the manipulation of inflation rate or other cost factors used by consultants which is used to tweak the numbers.

http://www.psmag.com/business-economics/derailing-the-boondoggle-4334/ 

Urban Infrastructure - An Overview

Due to my absence I could not share some of the things I learnt while preparing for the Urban Infrastructure Presentation. Here is a small overview on Urban Infrastructure Development.

Infrastructure, as discussed in the class, can be defined based on six parameters: Public Use, Economic Development, Capital Assets, Network/System, Lifestyle Optimization and Service. Urban infrastructure is nothing but the same, except the scenario is different. The needs to be catered to, the issues faced and the financing models are some of the aspects which play a crucial role in the development of Urban infrastructure.

Indian economy, since independence, was believed to be an agrarian economy. Urban Development was not much of a focus until the '90s. The rural areas continued to have their traditional local governing frameworks such as the Gram Panchayats which took care of the needs of their respective villages. Cities on the other hand, did not have a clear cut constitutional framework for self-governance. There was no stable governance and the financial resources necessary for development were not sufficient and were not channelized in a proper way.  

To meet these requirements and many others, in 1992, the 74^th Constitutional Amendment Act(CAA ) was passed. The Urban Local Bodies were thereafter enshrined with taxation powers and the revenue sharing between the state and the cities were channelized. This act also ensured the involvement of elected representatives in the planning at the district and metro level, thus ensuring grassroots level involvement in development.

Over the years, the cities have become centers of many small scale and large scale businesses and hence become centers of job availability. This led to the escalation of urban population exponentially. According to the census, the Urban Population increased from 286 million in 2001 to 377 million in 2011. Also, this population accounts to nearly 40% of the total population and 65-70% GDP comes from urban areas. Therefore Urban Areas have become key indicators of development. The Urban Local Bodies could not handle this escalation. For financial resources, they had to go through multiple clearances, which led to delays in many crucial projects.

In order to tackle these issues and to ensure that the 74^th CAA is implemented in its spirit, a set of reforms were introduced under the name, Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Phase I of JNNURM was launched in 2005. The motive was to reform the urban sector and enhance the urban infrastructure facility by entrusting more autonomy with the Urban Local Bodies. A total of 67 Cities (63 initially) have been listed under this.

JNNURM directly works through Ministry of Urban Development (MUD) and Ministry of Housing & Poverty Alleviation (MHPA). The MUD has been allotted Rs. 480 billion which has been distributed between two wings: Urban Infrastructure & Governance and Urban Infrastructure Development Scheme for Small & Medium Towns (UIDSSMT). The MHPA has been allocated Rs. 22 Billion distributed between its two wings: Basic Services to Urban Poor and Integrated Housing and Slum Development. The deadline for the first Phase of JNNURM was 7 years since its inception. However, was extended to 2014 in the year 2012.

Post 2014, the second phase of JNNURM will commence. This will be focusing primarily on small cities and towns. Some of the areas of key focus in the second phase are: Enhancing the capacities of Urban Local Bodies, improving their revenue generation, implement alternate financial methods and enhance land management.

JNNURM has made significant progress in major cities of the country. The link provided below is the website of JNNURM. Provided in this website are the completed projects in various sectors and various states.

 http://jnnurm.nic.in/completed-projects-2.html

However there are certain implementation related issues at process level, finance level and reforms level which need to be sorted out in order to achieve better efficiency. JNNURM projects are facing a lot of issues and the current scenario indicates that Phase I might not meet its extended deadline of 2014. Some projects have been stuck in legal issues, some are facing land acquisition problems and some are entangled in the multi-permission web. A lot of projects in major cities are held up. According to recent review 21 projects in West Bengal, 14 in Maharashtra, 11 in Andhra Pradesh, and 8 in Delhi might miss the 2014 deadline.

There is an urgent need for consistent implementation of reforms, and a need for capacity building at the Centre, State and Urban Local Bodies for effective on ground implementation. ULBs must be provided with more support and the multi-permission route must be simplified in order to speed up things. The whole point of setting up JNNURM was the effective implementation of 74th Constitutional Amendment Act. To keep the good work going, this must be reinforced for a speedier Urban Infrastructure Development. 

Amendments in Land Acquisition Policy

Today environmental and land acquisition issues are the two biggest sources of delay in infrastructure projects. In the Indian context where farmers are reluctant about the dispossession of their ancestral land with a little compensation is still better than the situation prevalent in China where farmers do not have land ownership rights. According to NSSO (National Sample Survey Organisation) data 2004-04 only 10% of the country’s population has control over 55% of the land and 60% of the population has right over only 5% of country’s land. In this blog some reforms done in the land acquisition policy has been discussed which brought long term private participation in various infrastructure projects.

1)  Land Acquisition Act of 1984 is being replaced with the Land Acquisition, Rehabilitation & Resettlement (LARR) 2011.

The state government was empowered to acquire land for any public purpose project by deciding the value of land based on the following :-

·         Government approved rates.

·         Capitalized value of average annual income from the land which means that the present worth of the land expected to earn in future by using appropriate discount rates.

·          Existing market rate based on land transactions data.

Now the proposed LARR bill 2011 (under revision) puts forward the following amendments :-

·         The land rates in rural and urban areas will be 4 times and 2 times the prevailing market rates respectively.

·         If the land acquired is not used for the purpose within 5 years then the same is restored back to the owners.

·         Consent of atleast 80% of the project affected families is obtained then government can acquire the remaining land for the benefit of public.

In India “Right to property” has been moved from fundamental right to constitutional right under 44^th Amendment Act of 1978. So I think that objective of policy like LARR 2011 are in line to support public welfare and protesting eminent domain

     
2)  Punjab Pre-emption Act of 1913

At the time when DLF was initiating an idea to build a world class city at the foot of the Aravalis in Haryana obtaining clearances for the land was a major concern. But eventually it acquired thousands of acres of land in Gurgaon by repealing Punjab Pre-emption Act of 1913. The existing Act gave the right to any family member to lay claim on sold property to its new owner.

Reference - Mega Projects in India : Environmental and Land Acquisition Issues in the Road Sector

Sustainable Rural Infrastructure

As per the presentation that was given by Mr. J.S.Mathur, Joint Secretary, Department of Drinking Water & Sanitation, MoRD on 22 June, 2011 the discrepancy between people who have access to toilets and those who have functional toilets are pretty high in all states. According to him, 79% of the people in NGP villages in Tamil Nadu have access to toilets but only 61% have access to functional ones. The reasons vary from having been constructed at the wrong location to poor installation, etc. This is only a part of the issue of what makes rural infrastructure a challenge. Involving local stake holders might solve some of the issues but the sustainability of the infrastructure will depend not only on the management of stake holders involved but also on solutions that are tailor-made for the community.

APF a video from TED Talks http://www.ted.com/talks/david_damberger_what_happens_when_an_ngo_admits_failure.html. Though the video is from the perspective of an NGO, the concept of the video is similar to what we were discussing in class.  Focusing on the needs of the people is the main idea and it goes one step further, introducing the concept of shifting of power to the beneficiaries to hold the infrastructure provider accountable. Also, the idea of a failure report for infrastructure projects is a novel idea. Would it not be worth the effort to analyze infrastructure projects and have a compilation of lessons learned that would prevent repetition of the same mistakes? In fact, acknowledging the failures, and discussing/documenting them might prevent reiteration of those mistakes and open up avenues for innovative solutions.

 A classmate of mine from DoMS is one of the founders of an innovative technology company aimed at providing water and power to rural coastal areas at an optimal cost. The technology used and the quality of water produced has caught the interest of soft drinks bottling companies, who are willing to have them set up the water treatment plants near their manufacturing units while agreeing to provide a certain percentage of water produced on site to nearby rural villages (where there is no drinking water supply infrastructure in place) free of cost. But there is no legal framework currently in place to support the Robinhood like idea. So, policy reforms to address such issues could also be part of the answer.

Another interesting read: http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4513 . As indicated in the interview by Mr. Atul Punj, efficient functioning at the lower level of the political ladder will also play a big part in providing sustainable rural infrastructure. This is a fact that has not been lost on the MoRD. MoRD has proposed the idea of e-panchayats, i.e equipping the local panchayats with IT infrastructure and thus bringing them under a unified umbrella. The byproduct of this change would be increase in accountability of the local body and restriction of manipulation/misuse of funds to an extent.

Contribution to economy from Slums

Asia's largest slum, Dharavi, lies on prime property right in the middle of India's financial capital, Mumbai. It is home to more than a million people.

In a city where house rents are among the highest in the world, Dharavi provides a cheap and affordable option to those who move to Mumbai to earn their living. Rents here can be as low as 185 rupees ($4/£2.20) per month. As Dharavi is located between Mumbai's two main suburban rail lines, most people find it convenient for work.

Though living conditions are extremely inhabitable, Dharavi  has a large number of thriving small-scale industries that produce embroidered garments, export quality leather goods, pottery and plastic. Most of these products are made in tiny manufacturing units spread across the slum and are sold in domestic as well as international markets.

In such a dilapidated state Dharavi continues to be the Mecca of recycling and reuses industry. Waste collected by rag pickers and various agencies is segregated and reused here.  Local residents are skilled to make plastic wire coverings out of the plastic collected from waste.

The annual turnover of business here is estimated to be more than $650m (£350m) a year. At least 50 industrial units in Dharavi, have a monthly turnover of Rs one crore each or that the average family income here is between Rs 13,000 and Rs 15,000 a month.

The state government has plans to redevelop Dharavi and transform it into a modern township, complete with proper housing and shopping complexes, hospitals and schools. It is estimated that the project will cost $2.1bn (£1.1bn). Though the redevelopment schemes are debatable, it will be implemented to improve the status of Mumbai and to make better use of that precious portion of land in the heart of the city.

Apart from Dharavi people from other slums do contribute to the economy directly or indirectly by seeking jobs like maids at local buildings, carpentry, electricians, construction labours etc.

Technology as the basis for infrastructure—Great leaps in India

(This article is an extension to the first article posted by Siddharth about how technology was used in the Kimbera Slum mapping project and UPS drivers for supply chain tracking. Following article quotes similar examples from India.)

As we all know that the issue of solid waste management has been a major concern for the government of Tamil Nadu and the corporation of Chennai and is being published in Hindu for couple of weeks now.

In today’s Times of India (page 5) I came across this article “Track emptying of garbage bins at click of mouse”. It’s about automation of the solid waste collection system. It is being adopted in Kodambakkam, Teynampet and Adyar zones. The 4,180 bins in 47 wards of the three zones are being tagged through a Global Positioning System (GPS). People can now keep a track whether the garbage in their locality is collected regularly by tracking it online. The drivers of compactors will click pictures of the cleared bins and upload them on to a monitoring system. On, garbage bins that are not cleared in the last 24 hours would be in red, while those cleared in the period will be in green. 

This system will help in efficiently monitoring the Solid Waste Collection in the city soon after its implementation.

 

 

The other example that I came across is that Dharavi Slum in Mumbai which is Asia’s Biggest Slum has been mapped using GIS.  GIS mapping has been implemented first time in India as part of the Dharavi Redevelopment project. Each and every structure and household in the 590 acre slum has been mapped. It would have been a tough task indeed considering the congested nature of slums.

 

The GIS-based biometric and socio-economic baseline survey will allow a user to- at the click of a button-narrow down on a particular structure and get information about its occupant with his/her picture, thumb impression, the family's profession, earning capacity, religion etc. The system will help to take appropriate decisions for redevelopment and also revenue generated from these sources can be accounted.

 

Non-Aeronautical Revenues in Indian Airports

There are seventeen international airports in India out of which six are managed by private companies. Through this article, I wish to make a comparison on the non-aeronautical sources of revenue generation between airports that are operated by AAI (Airport Authority of India) and ones managed by private players.

The chart below indicates the share of non-aeronautical revenues as a percentage of the total revenue. It is very evident that in the case of Delhi, Hyderabad, Mumbai and Bangalore, the share exceeds 38 percent (2010 data).  On the other hand, the average of the non-aviation revenue share of the other eleven airports owned and operated by AAI, is only a mere 17 percent.

The reason for this is clearly because private companies see non-aviation sources as huge profit making potential while bidding for PPPs. To achieve this goal of maximizing their profits, they develop the land surrounding the airport for commercial activities. This includes revenues from real estate development by construction of hotels, business parks, malls, parking facilities, etc.  This, at a later stage can be further developed into an aerotropolis, which according to the Wikipedia definition is “urban plan in which the layout, infrastructure, and economy is centered around an airport”. This is already existent in other countries. For example, the aerotropolis of Singapore Changi Airport has helped it earn 58 per cent of its revenues from non-aviation sources.

On the other hand, AAI only aims at providing aviation services in the best possible manner. AAI isn’t really bothered about development of the surrounding airport land. The majority of the non-aeronautical revenues would come from activities within the airport terminal like renting of shops, advertisements, etc. I believe AAI should make use of the existing potential to develop land surrounding the airport area and the revenues generated can thus be used to develop airports in Tier II cites or modernize/upgrade existing airports to meet the growing demands.  

Here is a recent news article (Link: http://www.business-standard.com/article/economy-policy/nod-to-privatise-kolkata-and-chennai-airports-113070400953_1.html) on Government approval to hand over the international airports at the Chennai and Kolkata to private operators. The two metro cities have huge potential to gain from non-aeronautical sources because of the ever increasing air traffic growth. Currently, Chennai and Kolkata are ranked the third and fifth respectively, among the busiest airports in India.    

Questions on the breakup and comparison of airport revenues

Hey everyone, I was thinking about how our airport revenue breakup matched up with those of other airports around the world. On an average, it seems that both aeronautical and non aeronautical revenues have an equal contribution to the total revenue. Why is the case so different in India with non aeronautical being far greater than aeronautical?

When you compare passenger traffic at IGI to say, Heathrow, you would find that London has almost double the footfall of Delhi. But if you compare aircraft movements, Heathrow has just 30% more than IGI, which should indicate that New Delhi makes a far greater percentage of its revenue from aeronautical sources when compared to London.

In addition to that, a huge number of people stop over at London in transit to their final destinations, which should push Heathrow’s non aeronautical revenues up even further.  But this is the exact opposite of what we actually see.  Any thoughts on why this is the case?

This is an interesting, albeit slightly old presentation that has a breakup of the kind of fees you would expect to fall under the aeronautical revenues category. It also talks about the different ways in which an airport can be owned and managed. Not sure how many of these are charged in airports at home, but it's worth a quick brush through.

http://ardent.mit.edu/airports/ASP_current_lectures/ASP%2007/Airport%20Charges%2007.pdf

Are farmers burdening on power sector directly and on industries indirectly?

            Remember the point got raised while the discussion on power sector..? the subsidy which is being offered by government of various states in India towards farmers, is one the reason for the debt on respective SEB. Even the extension of the same issue was ' why industries should take the burden of this subsidy'?  Well , i strongly disagree with the argument
           at first we can not compare these two sectors ( agree & industry ) on 'only' this power issue. There are other issues that we need to take into account if we want a comprehensive overview. for example; if government is subsidizing farmers for power , then are they not assuring and subsidizing water to industries? are they not subsidizing industries on land cost? are they not giving stamp duty & electricity duty exemption? In state of Maharashtra , 75% reimbursement of cost of water and energy audit being offered to industries.
           Considering all this still can we blame poor farmers for putting load on SEB? Ground reality is farmers are ready to pay electricity at commercial  rates, only thing is we need to get ready for inflation  in food products. Rather it will be good for farmers to pay electricity bills at commercial price and then demand for regular & without fluctuation power supply.
           There are many loopholes in goverment policies which can be rectified without much friction. but at the end of the day its all blame game and politics. In fact government can make farmers stack holders in such projects directly by issueing some bond / shares. Perspective may get changed.
* Just for sample here is the link of MIDC about their policies for industries.
http://www.midcindia.org/Lists/Policies%20Circulars%20and%20Notification/Attachments/87/Industrial%20Policy%20of%20Maharashtra%202013%20-%20Highlights.pdf

Skolkovo: Russia's emulation of the Silicon Valley

Here is an interesting read on how Russia is attempting to emulate the Silicon Valley on a 1000 acre stretch of land located an hour away from central Moscow
http://techcrunch.com/2013/08/09/skolkovo-15b/

I found a few points quite interesting:

1. The project has an aim beyond promoting entrepreneurship- to diversify the Russian economy away from its dependency on natural resources. This seems similar to the recent tourism infrastructure revolution in Dubai which too has realized that it can't rely on its oil resources for much longer. I found this interesting because the cause-effect relation seems to have reversed here: the construction of a road is not leading to economic benefits but rather the economic benefits are driving the construction of the road (not the best analogy but gets the essence).
2. It gives a good example of political motivation- the Medvedev-Putin friction.
3. It is also an example of PPP as Siemens, Cisco, Samsung etc. have agreed to set up R&D facilities in Skolkovo.
4. It shows that governments are sometimes willing to go a long way to attract FDI- the 'Startup visas' look like a first.

I do not think that this model is going to work out too well because-

1. The need is not the driver of the project- is the Russian community ready to build a Valley of their own?
2. Even if the returns exist they may be too slow in coming up- is the government going to be ready to invest for a long run with hopes of future benefits

It's like NHDP Phase IV all over again...

I found this article in the ET today:

http://economictimes.indiatimes.com/news/economy/infrastructure/mumbais-mega-infra-projects-hit-roadblock/articleshow/21666958.cms

(The post title is not the real caption of the article!)

This just reiterates what we discussed in class the other day- No decision is simply economic; the situation in fact is much more complex. Its well enough for the GOI to say that we invite bids, we engage private investors, we have allowed 100% FDI through the automatic route. Is this enough? Private investors pulled out of major projects simply because of lack of support during the project. And yes, its a tough decision for the government- on one hand, they need private investments for major infra projects, on the other, why would the ruling party want the opposition to get just one more 'argument' against it? But to think of it say, how ethical is it to forbid the private investor from charging toll after clearly including this in the contract? And now, the government receives not even a single bid for a major trans- harbour link project. Well, not very difficult to predict based on the historical events. Quoting a sentence from the article which I liked the most- " Executives travelling around the world for work point out how public transport is the biggest differentiator between India's business capital and other centres of business in the world.... A majority of the working population spends four hours a day commuting either packed like sardines in local trains or fighting traffic on the roads". "Some delays are inevitable" according to a senior executive at the nodal agency for these mega projects. Isn't there always an excuse?

Age- an important factor for Infrastructure

I came across this YouTube video from Patrick Schwerdtfeger which highlights one important factor of infrastructure- Age:

For me, the take-home messages were-

1. 'New Infrastructure lubricates the wheels of business'
2. 'Think bigger about your business, think bigger about your life', 'Bank on countries investing heavily in infrastructure'- Other factors being constant, it would be better to bank on the growth of countries that are investing in new infrastructure. This was also supported by the following GDP comparison between India and China on equitymaster.com. Though India and China had similar growth rates in the 90s, China has been one of the leading investor in infrastructure ever since. Here are some of its futuristic projects.                                             
3. Aging infrastructure can not only stagnate but even slow down business and reduces GDP.

Another example from a few days back which highlights the importance of the need of regularly upgrading infrastructure was the termination of the telegraph service by the Government of India. I was home at the time and didn't give it much thought but now that I reconsider the event, I think that telegraph about 20 years ago was as important to people as email is to us now. Though people might have sentiments attached to them but society has to move on- using telegram as a means of communication today simply seems ludicrous.

Another aspect of the 'age' dimension would be being too futuristic. As an example, maybe 10 years from now 3-D printing might be available at every nook and corner just like a photostat machine. But investing in it today may not actually bear fruit. A real example is that of Facebook's mobile app- they banked heavily on HTML5 but a low adoption rate by browsers and operating systems lead to poor user experience (one might say that the technical community was just not ready for it at that time even though they might be today).
This is like building a high capacity highway to an area which has not yet started developing.

Thus, I would like to add a 7th dimension to our list of characteristics of a good infrastructure project- 'relevance over time'. Even a project that is not relevant may be made for public use, may lead to economic development in the future, may provide services, may serve as a network on which other services may be integrated and may even lead to lifestyle optimization in the future but unless it is immediately relevant, it will end up being of little use.

What is infrastructure- a physical perspective

Today's discussion on how do we define infrastructure and infrastructure projects and the 6 parameters we look for (Public use, Economic development, capital assets, Network/System, Lifestyle optimization, Service) in infrastructure made me want to dig a bit deeper into what this meant in real life- what array of projects did it actually encompass.

For an Indian perspective, it is easy for us to come up with examples such as a well connected metro system, an intelligent transportation system, drinking water in pipelines and several others discussed in class.

But this, to me, sounded like a rudimentary understanding highly biased to the Indian context and developing nations in general.

I started looking for examples from places quite different from the Indian sub-continent and came up with two such examples, one from Nairobi, the capital of Kenya and the other from Pennsylvania, USA.

Here they are in a bit more detail-

1. Kibera is a slum in Nairobi with over 200,000 (estimates have also placed it at close to 500,000) inhabitants spanning 13 villages and 2.5 square kilometers. The attached video shows how Open Street Maps, a Volunteered Geographic Information platform helped in defining the area of Kibera and hence forcing the government to recognize this informal settlement (watch before proceeding).

On watching this video, two things immediately stood out for me-

1. Though the people were as backward as they get and skeptical in the beginning, once they realized that the mapping exercise was only directed only towards their welfare, public participation was effectively mobilized.
2. Technology was able to map the area with quite a level of detail at a high rate (3 weeks sounds impressive). It provided the people the ability to navigate, a fundamental and very important aspect of infrastructure, one which most of us take for granted today.

Once the area was mapped out, the facets of an infrastructure project were easily visible- public use, safety, economic development, lifestyle optimization and more. So simple navigation and mapping should also comprise an infrastructure project(?)

2. Gettysburg, Pennsylvania, USA-
Here is an example from a region with an advanced network of roads, water and sanitation, medical care, social infrastructure etc. A completely different definition of an infrastructure project is shown by this example.
Sustainability is one of the chief concerns of today's development. UPS Drivers is a company that hires 60000 drivers. If technology helps them save 1 mile per driver per day, they end up saving 20 million miles a year, 2 million gallons of fuel, 20,000 metric tonnes of carbon into the air and a lot of worn-out tires.
Here is a video in this context-

Even though the company itself is a privately owned MNC, their investment into research for smarter mobilization of resources should give it the title of an infrastructure company.

After watching these examples(and others), there are a few possible conclusions that I have drawn-

1. Infrastructure planning in the future is going to be a much more involved process with a lot of public participation. With growing social media such as Flickr and FourSquare, it has become possible to get answers to questions such as 'Which is the most happening place in the city on a Saturday night?' or 'How do tourists explore a city and how is it different from local people on a vacation? How can we improve their experience based on how the city talks back to us?'
2. Technology is going to be a big driving force in the development of infrastructure
3. Infrastructure is going to develop a 'soft' component (will social media platforms also form a part of infrastructure?). In addition to being 'soft', it is also likely to be interactive with technologies such as Google glass.
4. The 'hard' component of infrastructure will undoubtedly continue but will be more efficient based on the feedback from the 'soft' component.
5. If introduced appropriately to the under-developed areas, technology will lead to a growth rate which will be higher than ever before.

For me, exploring several example of infrastructure drove home to point of infrastructure being a service rather than a physical entity. Will love to hear a lot more views on this!