Faster clearances seen key in restarting stalled projects

Finance Minister P Chidambaram will meet India Inc leaders and bankers today to kick-start stalled projects

Tomorrow, Finance Minister P Chidambaram would meet India Inc leaders and bankers here to kick-start stalled projects. Many chief executives say projects are stalled due to issues related to land acquisition, environmental clearances and changes in the global economy. Bankers, however, also blame the wrong decisions taken by various companies.

“Many projects have stalled due to lack of land acquisition clearances, as in the case of the Navi Mumbai airport, wrong bids, as well as natural resources being hoarded by illegal means, in which cases investigations are underway,” said a banker, on condition of anonymity.

Bankers say in many cases, companies went ahead with projects without obtaining environment clearances or without securing coal, iron ore or gas through legal methods. Companies that received allotments by legal methods are not facing hurdles, they add.

“Some companies want government contracts that see valuation on the first day — such as natural resource linkages, licences and artificial barriers. They want these to raise equity without doing anything on the ground. They promise and get bank sanctions on the basis on the promised equity required. But when they cannot raise equity from outside; they get stuck because they don’t raise money. Then, while taking disbursements, they have problems with banks. They blame government policies and bankers,” said a banker. Often, it was greed that led to this state of affairs, he added.

Analysts say new infrastructure capital expenditure would require fresh equity infusion in projects. For this, a round of equity issuance/balance sheet strengthening would be required, as several projects were started through debt, without enough equity. “We think the process of recovery will, therefore, likely be gradual,” said an analyst.

The Centre for Monitoring Indian Economy’s report released in March indicates new capital expenditure investments declined to a decade-low.

The average four quarterly rate of new investment of $24 billion (Rs 1.3 lakh crore) was 57 per cent lower on a year-on-year basis and down 31 per cent lower on a sequential basis. On a quarterly basis, this was the lowest since June 2005.

Private, as well as government capital expenditure, has remained subdued, with private capital expenditure falling significantly. At six per cent, the number of stalled projects continues to remain high. Analysts expect this would be reflected in the sector’s performance in the quarter ended march. “Project completions in the March quarter are down, both on a quarterly and an annual basis---a reflection of the tough macro and execution issues on the ground and a narrower pipeline to execute,” said an analyst with Goldman Sachs.

With the government setting up the Cabinet Committee on Investments to offer single-window clearances for projects, analysts expect the lower interest rate regime ahead would boost capital expenditure activity.

Many companies such as Adani and Tata Power have moved the power regulator Central Electricity Regulatory Commission (CERC), seeking higher electricity prices from state governments, despite lower prices of electricity at the Power Trading Corporation exchange. The Haryana government has decided to appeal against the CERC order directing Haryana and Gujarat to pay higher electricity prices to Adani. After the Indonesian government raised tax, the calculations for many projects have gone awry. “In these cases, the government should re-bid the projects, instead of letting these companies charge higher prices from customers,” said a banker.

In many cases, after bagging projects, companies have sought changes in bid conditions, after a project is at the halfway stage. This led to bank funds being stuck and projects becoming unviable. “While making a bid, a company should foresee changes in the business environment---both in India and abroad,” said a banker. He cited the examples of the airports at Delhi and Mumbai, where passengers were now paying a higher fee for using the airports compared to the low bids made while bagging the projects.

Chief executives say due to the global slowdown, opportunities have dried up abroad. They add it’s time to invest in India and work on many projects that would start as soon as land acquisition and environment clearances were in place.
AWAITING CLEARANCE

• Navi Mumbai airport
• Ahmedabad Federa airport project
• NTPC Gandhar, Kawas power project
• Kishangarh-Udaipur-Ahmedabad Highway
• Bangalore Mysore highway
• JSW Bengal steel project
• Mumbai Metro
  Phase 2
• Ahmedabad Metro
• Hyderabad Metro
• Sasan power project