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Marketing infrastructure projects

— FILE PHOTO

ALL-WEATHER PORT: Expansion work under way at Gopalpur Port (Orissa) to make it an all-weather port.

"Our assessment is that there has been a slowdown in key infrastructure sectors. While there is no evidence of a slowdown in investment, bottlenecks to enhanced production need to be addressed and removed.''

That was Union Finance Minister P. Chidambaram's note to the Prime Minister last week, seeking his intervention to give these key sectors a nudge and take off. Not stopping there, the Finance Minister shared his concerns with members of his Parliamentary Consultative committee too. He told them that the infrastructure deficiencies have become even more visible because of high growth. The most visible indicators of an overstretched infrastructure are the congested highways, airports and ports, he noted.

Without merely pointing to the known deficiencies, Mr. Chidambaram urged the MPs to impress on their home States, the advantages of adopting the Public Private Partnership concept to take up major infrastructure projects. The Centre had offered a series of incentives and expertise to the States to go in for the PPP mode.

States' reluctance

But the major question remains: Why are the States not opting for the PPP mode in a big way? Funds are not a problem; mega projects are needed in all core sectors; the need has been realised, but the projects are not coming up. Broadly, infrastructure includes road, rail, air and water transport, power, telecommunications, water supply, and irrigation. While irrigation projects are in the public sector, with State investment, the telecommunications sector has witnessed a revolution in recent years with the full involvement of the private sector. The civil aviation sector may be poised for a take off, again with the participation of the private players, but the ports seem to be waiting for more private investments. Indian Railways remains a public sector monolith, trying to identify segments in which private investments can flow. Though the National Highways Authority of India has launched an ambitious countrywide project to develop four and six lane highways linking various regions, so much more needs to be done in connecting areas. The government alone cannot find the required funds for this, which means going in for the PPP model.

To meet the XI Plan growth requirements, about 40,000 km of highways needs to be developed by 2012 and at least 60,000 MW of power generation capacity added. Revised estimates by the Planning Commission point to a requirement of $384 billion (Rs. 17,40,000 crore) at 2005-06 prices, which is now equivalent to $475 billion.

Where can this funding come from? Of course, the governments - both Centre and States - will continue to invest in areas or sectors for which private investments do not flow. So where will the private sector invest? Only where the returns are attractive enough. If the government wants PPP in, say, the power sector or in developing highways, these areas must be made attractive. But that will mean adjustments in user charges - the power tariff has to provide for a certain minimum return on investment, and the toll charges must provide for an attractive return on investment on high quality roads, as also for their maintenance.

An Executive Director in a major construction corporation that undertakes infrastructure projects in India and abroad says: "Many State governments approach us with proposals, sometimes we go to them with suggestions. There are tender invitations too. But when we get to brass tacks, the difficulties begin. Kickbacks are a problem we have to deal with and factor into the costs.

Getting land in time remains a major hassle. We are prepared for the risks, but it will be useful if the governments can prepare the ground for the whole project before inviting Expressions of Interest of tenders. It will not be cost effective to implement projects in stages. To get the best equipment on the ground, we will prefer to push the project through in one go and this can save costs to the governments too."

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