Planning Commission member BK Chaturvedi talks about the new infrastructure debt fund as also the problems and prospects of electricity, road and port sectors in the context of India?s ambition to multiply investments in infrastructure. Excerpts from an exclusive interview with FE?s Praveen Kumar Singh & KG Narendranath.
What would be the role of the proposed India Infrastructure Debt Fund (IIDF)? Would it be only for re-financing of old loans?
There are various estimates of the quantum of funds needed for various infrastructure sectors. We need more than $500 billion in the 11thFive Year Plan. The government cannot invest that sort of money and roughly 30% of the funds should come from the private sector as equity and debt.
As far as debt is concerned, there is a problem in accessing funds from the banking sector, as the tenure of bank deposits and that of infrastructure loans vary. Hence the need for a new fund to supplement the current mechanisms to support the infrastructure projects, including the India Infrastructure Finance Company Ltd, a government-run special purpose vehicle.
IIFCL is meant for re-financing. No final view has been taken as to whether the proposed debt fund should only do re-financing. IIDF should anyway provide long-term funds because infrastructure projects are mostly long-term projects with a concession period of 15-20 years. Importantly, this fund would be enriched by pension and insurance funds that have remained untapped so far.
How much do you expect pension and insurance funds to contribute to the IIDF?
That is yet to be decided upon. . It was thought that Rs 50,000 crore should be the initial corpus of the fund. But the real size of the fund would depend on the negotiations with the potential contributors. However, the intention is to get a substantial portion of funds from long-term sources like pension and insurance funds, and, of course, external commercial borrowings.
These are various mechanisms through which we can muster up resources, particularly long-term resources, for the sector. There is a great mismatch between bank deposits and lending for long term.
IIFCL has not been performing as was desired.
It has not been a long time since IIFCL came into existence. Its birth coincided with a downturn in the global economy. It has been wanting to get projects that have been funded by other sources earlier. So we (the Planning Commission) suggested that IIFCL need not substitute your funds by financing projects that are already getting loans, but look for financing new projects.
So IIFCL will now fund only new projects?
Yes, that is right. But it would not be the principal financier. It would fund projects that have already been appraised by other institutions. In other words, it will provide the last-mile financing.
Your own estimates show that the capacity addition in the port sector has not met the expectations. What kind of focus is given to this sector to remedy the situation?
Port sector has actually done well. If you take major ports, their capacity was 500 million tonnes and non-major ports had a capacity of 228 MT. By the end of 11thPlan, we expect the total capacity to go up to 1,200 MT because the private sector has done really well. Non-major ports will add between 300-330 MT by the end of the Plan. The major ports, which we were expecting to add 500 MT, would add some 280-300 MT. Of course, these are not up to our expectations or targets set. But the capacity addition, nevertheless, has been huge and unprecedented.
However, the investment that were expecting in the major ports did not materialise because we were busy finalising the model concession agreement and other documents. At the same time, minor ports being private ports are going ahead on their own. Some private ports, like Gangavaram and Mundra Ports & Special Economic Zone, are doing extremely well.
Why do we need to call some ports ?major ports? and retain them under trust ownerships?
This is an issue we need to think of in the Planning Commission. The differentiation is mainly due to historical reasons. Major ports were developed under Major Ports Act by the central government. Minor ports were developed by state governments and they were meant to handle a small portion of cargo. But over a period of time, non-major ports have also started handling big ships and cargo. Gujarat, Orissa and Andhra Pradesh have done really well in the area of minor ports..
Prime Minister Manmohan Singh has set up a committee under my chairmanship to address the policy issues related to ports. Currently, we are at work. The issues under consideration include:delays in fixation of tariffs; whether on a same port different jetties should have different rates for the same commodity etc. We would like enhanced efficiency (of port operations). We will give our report by the end of July.
What about the demand for freeing port tariffs?
There are two proposals? one to free tariffs and the other to modulate them. We would like that the consumers are not taken for a ride if there is a shortage of capacity. Once the capacity is large enough, then certainly there will be case for freeing the tariffs.
Do you think that the target of building 20 km of roads a day is realistic? Reportedly, the Planning Commission and the road ministry have some differences over the planning and implementation of national highway projects.
Well, that is a target the road ministry has set for itself. It is very laudable and the Planning Commission would indeed support that effort.
We are asking the road ministry to go ahead and step up the pace, and as the pace picks up, we will support you through whatever measures. We are watching the developments and we would like to support the endeavour. The broad point is, last year they had awarded some 3,500 km projects. This year, they have kept a target of 9,000 km. They are hoping of the field target of 12,000 km. If they are able to do it, then we would like to see how these projects can be funded and we would also like that quality is not compromised while building the roads.
We have found that the ministry is also quite concerned about the quality. There is no difference on the quality part. But we would like to see the performance on the ground.
How do you rate the performance of power sector in the Plan period so far?
It has to be seen in the context of requirement and past performance. In the context of past performance, the power sector has done very well because the past performance was around 20,000 MW and the sector has created infrastructure that is sufficient to deliver close to 60,000 MW. In the context of requirement, there is still a huge shortage. Attracting investments in certain areas like distribution is critical and we need to work on that. The progress is very slow on the distribution and transmission fronts and we are very concerned over it. Investors would be encouraged if the reforms come through. States are also going very slowly. I have noticed is that states have also started realising the importance of reforms in distribution. Private players are exerting pressure on the states to work faster as they want to invest in the transmission and distribution segments. The overall climate is changing.
In the transmission sector, private investment is coming through. Public private partnership projects are being awarded in a number of states. Haryana has done it. UP has asked for a number of such proposals. Other states are also working on this.
Open access is another area of concern. I am concerned about the fact that is that state regulatory commissions are not doing their major job of revising the tariff periodically. They have been rather slow in this regard.
Are you doing enough for gas & coal linkages for the sector?
We are trying to ensure gas and coal linkages, as required, for power projects. Gas availability has improved. New liquified natural gas capacities are coming up at Ratnagiri, Kochi and Dahej. Coal availability is a major concern and we are working on this with the coal ministry and the ministry of environment.
Till we are able to develop our thorium-based technology for nuclear power, we would continue to depend largely on coal. There is also a massive technology shift for solar power. It will take time for these technologies to be developed fully. Until solar power is available at a tariff of Rs 2-3 per unit, the technology is not going to make a big difference.
Technology can deliver and the world today is very concerned about it. The primary source of power, ie. solar is available but it will take some time to change the solar energy into consumable power at affordable cost. India is very rich in solar energy and it can be used profitably.
How feasible is technology transfer from overseas?
If the technology (for affordable solar power) was available abroad, we would have imported it wholesale. The fact is the cost of (solar) power is as high in foreign countries as it is in India. Research is going on in this field.
Is the government thinking of expanding the PPP (public private partnership) policy for airports to non-metro projects?
As of now, the policy is the government would do this (investment in non-metro airports) through the Airport Authority of India and get the city side developed through PPP. Planning Commission would have preferred that instead of using Airport Authority?s money, we have PPPs even in other airports through the viability gap funding or some other mechanism. New (greenfield) airports would come up through the PPP route. Such airports are being proposed in UP.
What is your take on the gas allocation policy with power and fertiliser sectors vying for larger shares?
I feel that power sector should get preference in gas allocation. The main reason is that you can import fertiliser but you cannot import power. Secondly, other fuels can be used for fertilizer sector and other industries, while gas should be used (increasingly) for power generation.
How to make user charges more suitable because that is one issue that is hindering private partnership in the infrastructure sector?
Rational user charges are very important, whether in ports, roads or power. People are not accustomed to paying a higher sum for these services. But the quality of service also has to improve.