Don’t blame Goldman. Solve Delhi-Gurgaon project instead

Nov 11 2013, 08:32 IST
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SummaryThere is demand for the road, and car owners are willing to pay for it.

There is demand for the road, and car owners are willing to pay for it.

Banks, which lent money for Delhi-Gurgaon Expressway will possibly lose more than 80 per cent of their money if the courts support the road regulator’s contention that the project should be terminated.

This is however a project, which does not need even high school math to show it has a powerful revenue stream. There is demand for the road, and car owners are willing to pay for it. Still from being a showcase public-private partnership road project, it has become a showcase for failure. And remember this was the first project where the government had received a premium from the operator effectively it did not have to provide any risk payment to support the construction.

The National Highways Authority of India feels the project should now be terminated, as the concessionaire has faltered on a lot of accounts. But in a termination the lender consortium of SBI and the new equity investor in the project, IDFC, both stand to make huge loss.

The lenders would only be eligible for around Rs 180 out of Rs 1,600 crore they lent. Worse, for the banks it could also become a fit case for a vigilance rap. What view these banks would now take for participating in another road project is obvious.

Meanwhile there has been a forensic audit by KPMG of the revenue stream but on which the banks are unwilling to rely on. It is clearly a fit case for policy intervention by the road ministry and even the PMO to make sense for PPP investments in India. That is, however, not likely soon since it has landed up as a long messy court battle.

So did Goldman Sachs break an unspoken covenant when they waded into political waters with their research report? The example of the Delhi-Gurgaon Expressway would show they haven’t. The lack of an effective governance framework where the most promising of projects becomes a death trap for those involved in it is a challenge that has dried up investments.

Throughout last year every foreign investor coming to India whom one met has made the same concerns evident. And it is obvious the present government has few answer for those concerns. The best example of this is the internecine squabble over foreign direct investment in brownfield pharma sector. The $1.6 billion Mylan investment is a casualty

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