Another view on the Mylapore streetscape lecture - Opportunity vs Need

Most Infrastructure Projects are synthesized from public pain points. For example a flyover is built when decongestion becomes the need of the hour. New pipes are laid when there is shortage of water and so on. These projects would be championed by the public themselves as it has a direct effect and the media glorifies such initiatives. Netas consider these as feathers on their caps and leverage them as credentials.

Historically, Indian streets never had the concept of an organized street scape (more so in Mylapore which by itself is a historical place). You would find everything on Indian streets, ranging from flea markets, street food, hawkers, beggars to transformers (Kavitha pointed this out) and even garbage. And we have been happily living in this mess. In a broad sense, a better streetscape was never a burning issue for a developing country like ours and we had bigger problems to worry about, like shortage of everything (except people).

Kavitha's project intended to fundamentally change the idea of how the society looks at a walkway. She felt that the neighborhood deserved more - Much appreciated. However, this was opportunity based (not need based).

Now, lets consider Kavitha's mention of the "Car free Sundays" at Besant Nagar, which is a metropolitan locality (in contrast with the orthodox Mylapore). Perhaps Besant Nagar, with broad minded people, would possibly have accepted an opportunity based project.

Prof. Ashwin mentioned that this a stakeholder management issue and it clearly seems to be one. The thin line of difference between opportunity and need impacts the support received from parties involved. And this can make or break projects.

Other views are welcome....

Is Amaravati a Utopian Dream??

The relatively new born state of Andhra Pradesh had the foundation laid for its new capital city of Amaravati on 22^nd of this month. The proposed capital region is spread about an area of 7,420 sq. km and the capital city of 217 sq.km. It is the brain child of its Chief Minister N. Chandra Babu Naidu, as he faces one of his biggest challenge to construct the city. The master plan for the city was developed by urban planning consultants Surbana International Consultants Pte. Ltd based out of Singapore. They proposed an ambitious Seed Capital Area (SCA) Master Plan for the capital city. Some of the key highlights of the plan are as under-

1)   The SCA will house close to 3 lakh residents. Being a vibrant business hub, close to 7 lakh jobs are expected to be created

2)   The plan also proposes to construct an integrated network of Metro railway (12 km), Bus Rapid Transit (15 km), downtown roads (7 km), arterial and sub-arterial roads (about 26 km) and collector roads (about 53 km).

3)   The plan is to construct a city with world class aesthetic appeal but adhering to the sustainable green principles with extensive open green spaces

4)   Special emphasis has been laid on the ‘pedestrianisation’- with development of 25 kms of walkways linked to open green spaces to promote a ‘walk to work environment’

5)   A dedicated freight corridor and establishment of 7 industrial zones have also been proposed. A total of 938 kms of roads have been proposed

While every resident of the state including me will be excited to see a ‘‘Singapore’’ level at Amravati and so does its Chief Minister, he and his team have their task cut out. In this blog I want to discuss about the challenge the state faces in raising capital.

Funding- Any project in this capacity requires a large amount of capital especially since a new city is to be constructed. One option for the CM and his team is to go in for a PPP model. But again PPP projects on such a large scale have not been constructed in India. Moreover the roadblocks faced by the present HMRL project (PPP) in the neighboring state has not gone down too well for the private sector. Also given that the project is slated for completion in the year 2050, its too long a call for any private company.

The Centre has promised a sum of Rs. 60,000 crores as per the recommendations of the 14^th Finance Commission. In addition to paying the farmers for the compensation of their land, a huge deficit still exists. So how does the CM look to raise money for his ‘dream’ Project in addition to the state allocated budget and institutional borrowing? Some of the options he could avail are-

·         He can look into the option of Corporation investment from big companies along the industrial corridor in and around Amaravati (Vijayawada and Guntur). Companies can be encouraged to develop infrastructure in select pockets near their establishments by providing incentives such as free land, water and electricity.

·         Already a lot of investment is coming from Telugu Association of North America (TANA), the largest association of Telugu people living outside India. They are raising funds through campaigns like ‘My Brick-My Amaravati’ wherein donations are being accepted for buying bricks (at Rs 10 a brick)

·         The Chief Minister has already embarked on a journey to bring in investment from IT companies, like he did when he was the Chief Minister of the then Andhra Pradesh. 

So a lot depends on the Chief Minster himself and he needs to sail through the next election to come to power for another term in order to see his dream city take shape

References

a)   http://www.livemint.com/Politics/pJXIgjMM8849rTBxJDjiyL/Is-Amaravati-Chandrababu-Naidus-biggest-challenge-yet.html

b)   http://indianexpress.com/article/explained/andhra-pradeshs-new-capital-amaravati-in-chandrababu-naidus-capital-idea-desire-to-impress-connect/

c)  http://indiatoday.intoday.in/story/chandrababu-naidu-amaravati-capital-challenge/1/455244.html

  

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.

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.

References

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>

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.

AIIB:

• 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

reference:

http://www.rediff.com/news/column/how-brics-bank-can-affect-world-economics-and-politics/20140718.htm

http://www.livemint.com/Politics/tjdx86kAvM1Q9TjfAFyrFJ/China-launches-World-Banks-rival-AIIB-in-Asia.html?utm_source=copy

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

Reference

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 Sciences, 77(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 Review, 70(3), 475-484. 

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.  

[1] http://en.wikipedia.org/wiki/Indian_Rivers_Inter-link

[2] http://en.wikipedia.org/wiki/South%E2%80%93North_Water_Transfer_Project

[3] http://www.economist.com/news/china/21620226-worlds-biggest-water-diversion-project-will-do-little-alleviate-water-scarcity-canal-too

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!)

VARIOUS ENERGY SOURCES

REFERENCES:

http://economictimes.indiatimes.com/industry/energy/power/how-modi-government-plans-to-provide-247-power-eight-steps/articleshow/42015299.cms

http://www.bloomberg.com/news/2014-07-29/stolen-india-coal-sold-at-black-market-in-modi-s-backyard.html

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

Mumbai Metro : (Non) Cooperation between Infrastructure Players on RTI

   After struggling through a lot of problems similar to the Mumbaikar, the much coveted Mumbai Metro finally started running on 8th June 2014.  With total 63km of lines to be laid, the first line of 11.7 km between Versova-Andheri-Ghatkopar finally became operational. This PPP had raised lot of expectations not only from commuters point of view but also as a model on which other PPPs could be formualted. May it be cost and time overruns or  Reliance claiming the Metro to be Reliance Metro this project has shown the cooperation or (lack of it) that exists among Infrastructure Players.

  Latest to top it is the secrecy that Reliance Infrastructure has been maintaining about the project. Three RTI applications to get reports by RDSO, CMRS and Railway Board have not been responded to. This is not the first time Rinfra has been unwilling to share information with the public. It has ran away from taking responsibiltiy for signal failure near Jagruti Nagar Metro Station and technical failure at Ghatkopar Metro Station as well.
  Mumbai Metro One Pvt. Ltd. is the joint venture of Rinfra, Veolia Transport and MMRDA running the operations of the Line 1 of Metro. Rinfra has a major stake while MMRDA owns only 26%. With 3 of the 8 Board of Directors being from MMRDA other from Rinfra, the latter certainly has a upper hand in decision making process. Rinfra is a private organisation and hence does not come under purview of RTI. However, RTI experts claim that since CEO of MMOPL is Metro Rail Administrator, a public servant, MMOPL should come under RTI.
  In the current grievance redressal mechanism, Mumbaikars have to direct their pleas to MMRDA for information, which then alerts MMOPL, which may or may not reply since the RTI has not been served directly to it. Hence, Rinfra stays clean and non-accountable. Steps need to be taken to make the mechanism more transparent and hold Rinfra accountable, so that same mistakes are not repeated for other phases of the project. Any suggestions and also what are the problems that we may face in implementing them?

Source : http://www.dnaindia.com/mumbai/report-dna-exclusive-is-rinfra-s-mumbai-metro-a-top-secret-project-2012706

Public Vs Private - A contradiction

Hey ! I have recently come across an article in Economic Times. I thought of sharing some of the interesting observations.
There was a comparison made between the government run Kandla port and the privately run Mundra port in Gujarat.It turns out that the Mundra Port is excelling a lot more compared to the Kandla port. Mundra loads nearly seven times more cargo compared to Kandla.
The Adani Group which owns the Mundra Port charges up to five times more compared to the Kandla Port. But still the shippers prefer Mundra, this is mainly because of the high quality of infrastructure provided by Mundra in comparison to Kandla. Mundra does charge more but it properly uses the money in improving the Infrastructure which attracts the shippers.
Anand Sharma, director, Mantrana Maritime Advisory, said that "Shippers choose to go to a port with higher charges but better infrastructure than a port that is cheaper but is saddled with poor infrastructure. A cheaper, but clumsy port would eventually make shippers pay more in total end-to-end logistics cost".
(Economic Times, August 3-2014)

So, I think low tariffs do not make a port more attractive, in fact what matters is the infrastructure of the port. The government should start looking into this, may be it should start charging more and use the revenues in modernizing the ports.
Have a good read at:
http://articles.economictimes.indiatimes.com/2013-08-01/news/40963238_1_mundra-kandla-port-trust-adani-port
http://m.economictimes.com/advantage-pvt-easier-tariff-guidelines-for-govt-run-ports-not-sufficient-to-revive-them/articleshow/39493701.cms 

Land Acquisition Act, 2013

Land is needed for all infrastructure projects. Highway projects require more land in the cities and road side (for expansion) compared to other infrastructure projects and hence Land Acquisition is the main reason stated for delay in highway projects.

In India, land is considered as a source of livelihood and identity as majority of the people are agrarian. Many argue that it would not be fair on the government to rip this resource from the poor for the sake of infrastructure development. So, there is a need to balance the objectives of development and social justice. With this aim, the government took a step to replace the 120-year old prevailing Land Acquisition Act, 1894 with the Land Acquisition Act, 2013. This act came into force on 1^st Jan 2014. 

Some of the key reforms and issues in this act are as follows.

Reforms	Issues for implementation
There is a minimum consent to sell from land owners. This is fixed at 70-80% for projects involving private players.	Lands in India are highly fragmented. It is said that 12,000 owners were there in 1,000 acres to be acquired by Tata motors for Singur plant (West Bengal). It is difficult to get consent from these many owners.
Market value of land fixed based on consent of land owners, average prices of recent transactions in the vicinity, etc.	-Effective compensation becomes 2-4 times than before. Huge concern for Investors. -Definition of recent transactions and vicinity not given. -Since consent of owners are required, they would escalate costs to high values.
Gram sabhas, Panchayat and Collector are involved in decision making process.	-Sequential time would be 48-60 months from inception to payment of award -Since more levels of approval, there is scope for misuse of powers (corruption)
These new reforms are applicable for projects of 100 acres in rural and 50 acres in urban	Rather than land area measurement, the number of people displaced would have been a better criteria

The Act is criticised to be favouring land owners and not favouring new projects in this infrastructure deficient country. This also puts a lot of pressure on the government as it promises land owners so many benefits like 4X land value, Job to family member, house of 50 sqm. plinth area etc.

Rather than giving owners all these benefits, it would be better to give Land bonds (Infrastructure bonds) as currently practised in many countries. These land bonds would reduce upfront costs of payment to owners, would be a livelihood for owners who lost land and land owners would not delay the process as they are also stakeholders of the project. 

Reference- Infrastructuretoday - LA Bill
TOI - Land Bonds

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”)