Kick-starting the core sector

Private-public partnership projects in India suffer from a number of weaknesses, but this model is nonetheless the best route for building infrastructure.

Karnataka, and specifically Bangalore, has two well-known yet divergent examples of private- public partnerships (PPPs) in infrastructure development. One is a success story, though a delayed one — the Bangalore International Airport. The other is a project — the ongoing Bangalore-Mysore Infrastructure Corridor — that has progressed little in the past 16 years and yet seems to be going nowhere at all.

The Bangalore International Airport, now a functioning success, took more than a decade to fructify. The Bangalore-Mysore Expressway, which is nowhere near completion, has been dogged by frequent policy changes and a host of external factors. These two examples provide a perfect snapshot of PPPs in Karnataka.

Other than these show-piece projects, the Karnataka government has been working to put a mechanism in place to develop infrastructure through the PPP route, with some degree of success. Out of the total proposed investment of Rs 212,600 crores, 80 per cent (Rs 170,113 crores) is to be mopped up through the PPP route during the next five year plan. This points to the massive scale of the effort, one that is badly needed in a state with poor infrastructure.
 

PROBLEM AREAS IN PPPs

Project identification

• Tendency to rush into project announcements without proper preparation - the announcement is the news, not the implementation
• Poor shelf of good, well-thought-out viable projects
• Poor land records, no detailed site assessment; low coordination among government departments
• Poor demand data

Bidding

• Lack of transparency
• Few bidders
• Change in conditions leading to legal challenges
• Bid reassessment
• Issues in adopting Swiss challenge

Financial closure

• Asset liability mismatch for banks which are main source of funds
• Uncertain bankability and high risk association
• Lack of developed bond market
• Limited role of pension funds, insurance companies.

Development & Operations

• Land acquisition
• Delays in environmental clearances
• User fee determination
• Local community issues

Away from the limelight of the high-profile projects such as the international airport, the government has made good progress in developing a host of projects spanning transportation and logistics, urban and municipal infrastructure, tourism, industrial infrastructure, agri-infrastructure, education and healthcare.

Progress on the highways, the backbone of any economy, has shaped up quite well, except for the Bangalore-Mysore expressway. The intention is to implement the Suvarna Karnataka Development Corridor Programme, embracing the entire state. Such a corridor could benefit many areas in the region from Bangalore to Belgaum, and laterals of between 50 km and 1,500 km from the National Highway and rail network — a necessary freight corridor for trade and industry.

Sectors such as energy, road and rail linkages, inland container depots, free trade zones and urban infrastructure are the major segments to benefit from this corridor and make a significant impact on Karnataka’s economic growth. The Corridor proposes to cover 11 district headquarters and more than 20 major towns along the highways and major roads and rail links.

V Ravichandar, chairman of Feedback Consulting and an expert on infrastructure projects in Bangalore, says that while the developer of the Bangalore-Mysore expressway is to be complimented for hanging on despite many efforts to get them to exit, part of the problem is poor project structuring of the MoU from the outset.

“For instance, handover of leasehold land for development to the private party should have been linked to milestones on the entire BMIC corridor. Now we have a situation where, until the land is completely handed over, there is no obligation to complete the corridor. The government is to blame for structuring such a MoU in the first place,” he said.

While this project has come in for flak, the Karnataka government has identified more issues and challenges as it fine-tunes the PPP policy further. “Environmental clearances, financing issues, payment guarantee mechanisms and the huge quantum of funds required are some of the aspects which we are dealing with and working on,” said Raj Kumar Khatri, secretary, infrastructure development department, government of Karnataka.

These measures are part of a broader agenda that the government has drawn up in its new Industrial Policy 2009-14. It is an effort to enhance industry’s share of the Gross State Domestic Product to 20 per cent by 2014, generate 10 lakh jobs, double the state’s exports from the current Rs 130,000 crore, focus on providing quality infrastructure, focus on skill development and entrepreneurship, and enhance the development of micro, small and medium enterprises.

Khatri said the government was structuring policies to enhance the scope of PPP mechanisms in the state. “The Infrastructure Bill, for which the stakeholder consultation process is underway, is a major step which will help us create an Infrastructure Authority for speedy implementation of projects. We are also working on a draft energy policy, a civil aviation plan and a minor airports policy,” Khatri noted.

Taking the step further, the government is working on creating a bouquet of projects by moving from a “project” to a “programmatic” approach and developing an environment that is conducive to identifying and implementing PPP projects.