A character in the Arundhati Roy scripted TV film When Annie Gives it Those Ones suggests planting fruit trees along railway tracks where rural India defecates (free compost), with water provided by sprinkler-fitted trains. Over the past few years, the railways have done something similar, cultivating jatropha for bio-diesel along the tracks and commercially (through an MOU with the Indian Oil Corporation) on vacant plots. Other schemes have medium-term leases to private parties for commercial tree plantation and also massive afforestation, to add to the country?s green cover.
Of late, various government departments like the railways and posts have announced that they seek to ?unlock? the value of the vacant land available through PPP projects. While it makes sense to tap innovative sources of finance by leveraging the large ?land banks? available around the country (the railways themselves have 43,000 hectares available), are PPPs the answer? How much of such vacant land has the potential for attracting private capital through PPPs without jeopardising the public partners? interests? PPPs are inherently complex financial contracts that require considerable expertise in structuring and are recommended only when there is a clearly defined public purpose. In congested urban areas, in case the plot is sizeable, a PPP model that entails the provision of public service buildings and facilities along with commercial retail space, as is being tried by the railways in some brownfield station-development projects, is likely to attract investment and potential revenue share for the public partner.
Different types of land available suggest that various non-PPP strategies may attract optimal private investment. In many cases, simple, conventional approaches to land-use may be more cost-effective and efficient, including outright sale. A completely risk-averse approach would be to adopt a conventional lease-model which allows land to be retained as is, with steady, but modest, revenues accruing. Where the size of the plot is limited, the options could be utilitarian short-term leases, like parking space contracts that do not involve significant capital investment for a private party. Alternatively, lots can be leased for ATMS or to local RWAs/sponsors for development as playgro-unds with simultaneous lease of advertising space (billboards). In case the lots are too small to be viable, divestment could be considered an option instead of retaining them on the books?this could help the public authority not only add to cash inflows (via auction for a purpose defined by the urban/town plans) but also reduce overhead maintenance costs, enabling concentration of attention on optimal land assets for providing essential infrastructure assets.
If adequate land is available outside urban limits, the setting up of units through joint ventures between the public and private entities would ideally look to maximise the value realised with minimum investment. Land could either be leased or used as equity investment or transferred at book value (?bought out?). The last option may be the simplest all around if the purpose of the land development is clearly stated and defined in the terms of agreement. However, if this option is not on the table, leasehold could be considered for the life-cycle of the project in the first instance, extendable through a process based on proving continuing relevance. This allows land to be retained as public stock, enabling intelligent recycling over time, as is done in China. The JV still has an incentive to make investments in buildings and related assets, since these investments are depreciated in its books over the estimated life of the project. The attempt is to ensure that lease charges do not adversely impact the total project costs while also attempting to ensure that the public partner benefits, even if marginally, from appreciation of land value.
In case this option is not found to be attractive for the private party, which may see any lease less than 99 years as temporary, the equity option could be exercised but the use of land as part of government equity would have several implications. How the product will be priced to capture the cost of land loaded onto project-cost cannot be determined before-hand. Further, the valuation of the land would be on book value but as land has become a matter of controversy there is always a possibility that the ?fair value? as considered by the auditors or the public at large may not be the book value on which the land was transferred as equity. It may also be sub-optimal for both parties to accept the land as the public partner?s equity as the land value as a percentage of the total project cost could distort the previously agreed upon equity proportions of the two parties.
Another option that could be considered where the land would be of value to the state authorities is for a barter?for instance, an area where the railways can actively consider land acquisition is along the approximately 1500 km Delhi Mumbai Industrial Corridor, which has potential for setting up high-speed trains to cater to business travellers and compete with low-cost air travel for cities 200-300 km away from each other (optimal for stoppages for high speed trains that can burn up the distance). Money spent on rail infrastructure has been proved to have a huge multiplier effect so the states involved may be agreeable to this option and arrange to provide land in exchange. This may also be useful to states to configure land use patterns in some areas, including around the stoppage points?the approach adopted by Japan, albeit with a focus on Tokyo, through coordination between national, regional and local planners. Unlocking land value while simultaneously steering economic planning efforts has been successful in Singapore too, though these are countries with severely limited land resources unlike India where the center-state dynamic is also different.
Lastly, whereas there have been some references by departments to the PPP potential in urban land for the development of retail housing stock, this may be fraught with complications as it is likely to be viable for a private developer only with a greater than 90 year concession?given the risk of changes to rent laws over thisperiod, this may be tantamount to losing the title to the land apart from being a nightmare to oversee.
The writer is a civil servant. Views expressed are personal
