Delays are part of Indias learning curve in PPP model

Written by Shubhra Tandon | MG Arun | Updated: Feb 19 2013, 06:20am hrs
Long winding delays in regulatory approvals have crippled the infrastructure sector in India. While the power sector is grappling fuel linkage issues and inability of the state electricity boards to increase tariffs, aggressive bidding and delay in environment clearances have proved costly for the roads sector. Lalit Jalan, CEO of the R17,900-crore Reliance Infrastructure, three of whose infra projects are under a cloud over clearances, refers to this as a learning process in public-private partnerships. He also explains how power transmission and distribution business as well as cement will help it mitigate the risks in infrastructure, in an interview with Shubhra Tandon and MG Arun. Edited excerpts:

Recent instances of companies walking out of infrastructure projects over delays have cast a shadow on the sector. What has been your experience

We have faced a lot of difficulties in getting all the clearances. What we do is, we almost become the arms of the government, the NHAI, and the local panchayat, and work with them to make things happen. Also, we have bid for meaningful projects, unlike others who bid for poor projects and then look for clauses to get out.

Look at Larsen & Toubro, they have not walked out of single project, and so havent we. For our Delhi-Agra project, we worked with the authorities for almost 10 months to get the clearance.

But does it not lead to inordinate delays and cost overruns

Projects do end up taking more than three years because of these delays. Then there are time and cost overruns. Sometimes, things also get into a legal tangle. But I call it the learning process in public-private partnerships. Because without PPPs, there is no future. The GMR, GVK walkout was the bottoming out of the sector.

What solution do you propose to remove these roadblocks

I dont think the government should be in this business. They should do defence, police, and create social infrastructure, which are non-profitable in nature. And make the environment enabling for the private sector. Take the example of the Delhi Metro Rail Corporation. It has built a good 200 km of metro in about R35,000 crore, their total revenues is R600 crore, and they say they are profitable. You will give (loans at) zero rate to the public sector, you can give the same rate for private sector too.

You have already burnt your hands in the airport metro project in New Delhi...

I think it is an outstanding project, as we have built it with lot of care. But when we built it as per the project report, it was said there will be 40,000-45,000 passengers under one integrated terminal. There will be connectivity between all stations, and bus lines none of those things happened. The real estate market completely cracked, interest rates and forex went through the roof. It has been done in record cost and time of 27 months. But if the basic statistics change, what do you do

So, its not about safety, as has been widely publicised

No, nothing. Safety was the civil part of it, which we brought to the notice of the government. We agreed with the government that the line has to be shut down. It took them seven months to repair, so if it was some minor repair, they could have fixed it in one day.

So now you will be compensated for it

Of course, that is as per the agreement. The thing also now is that the lines economic dynamics changes perpetually. So, what is the lifecycle cost of maintenance of that line now, I dont know.

So you have a provision of perhaps exiting that project

Yes, as per the agreement, there is a provision. But we are committed to the line. We want the line to be viable. But it is floundering for no fault of ours.

How do you think these things will impact RInfra How will you mitigate these risks

RInfra fortunately is a very stable company. We have three arms. The electrical energy, generation and distribution arms are very stable and have stable cash flows.

Its only our metro business which is undergoing some stress today. The Mumbai metro will start by September this year. But Metro II has not seen the light of day. We are in discussions with the MMRDA (Mumbai Metropolitan Region Development Authority). Unless we get the clearances, this line cannot be built. They want to change the line, the scope, we are ready to work with them but I will not spend R2,000 crore and just build some viaduct in the middle of the road.

Would it see the same fate as Haji Ali-Worli sealink, which you exited last year

Difficult to say. I hope not.

So would you be treading with a lot of caution in future

Yes, we are not bidding for the Mumbai Trans-Harbour Link, because we found the risks were too many. We are exploring the elevated railway project. So I am looking to put R25,000-30,000 crore. It is not a small amount, so I have to weigh the risk. But this is not the only business we know, I can spend half a billion dollars and put up a 5 million cement plant in two years. Cement plant will come up this year.