Opposition to the user-pays principle (UPP) in many infrastructure projects should bring about a change for the better ? greater private sector participation in building India?s infrastructure ? says William Streeter, head of Global Infrastructure at credit rating agency Fitch. Many foreign firms could partcipate in India?s growth story via special purpose vehicles if issues like UPP are addressed, he opined in an interview with FE?s Saroj Kumar. Infrastructure-rich economies have witnessed cycles of privatisation and nationalisation, succeeding each other in their growth history, he feels. Commendably, ministry of surface transport under the national highways development programme has already acquired 17,000 hectares of the proposed 39,000 hectares in the first quarter for right of way purposes in the Golden Quadrilateral Project. Excerpts:

How important is the user-pays principle (UPP) in various projects like tolling of highways in recouping returns and repaying the principle and interest to creditors ?

Very essential. In many BOT toll road projects bid out to the private sector under highways development programme, toll collections represent the bulk, if not entire, of the revenue from which debt service has to be met.

Why majority of project financing is done via debt route not via equity route in India?

Abundance of bank credit is the prime reason for the phenomena, followed by limitations on raising equity, given the limited number of developers who implement a majority of projects in the country.

Is it true that cost overrun of various infrastructure projects in India is around 10% to 50%?

While it is difficult to make a broad-brush generalisation, in several Fitch-rated projects, cost overruns of around 10% are fairly common. It can go up to 30%.

Is shorter principal amortisation, say starting from the 7th month of the project, a disincentive to the project bidding companies in India ?

Given the history of delays that infrasructure projects suffer from during the construction phase, a principal moratorium of only six months post-commercial operation data (COD) could most likely necessitate a loan rescheduling or restructuring.

Could companies involved in various projects retire the debt before interest rates spiral?

On completion of construction, most projects would lend themselves to a migration from the bank loan market (with variable interest rates) to the fixed income bond markets. Once completion risk is out of the way, projects can be refinanced by bank through debt swapped bonds and protect themselves from spikes in interest rates.

Is there a need to set up more regulatory bodies by the government in dealing with infrastructure development sectors ?

Yes. There is a great need to set up regulating agencies for faster growth of infrastructure. As the PPP model gains greater currency, the need for an independent regulator in different sectors cannot be over-emphasised.

What is your take on government ownership in various rail projects like metro rail where government is the majority stakeholder? Why we don?t have private sector participation in such mega projects ?

Urban transit projects around the world are generally highly capital intensive and farebox revenues from ridership alone do not offer payback without some form of external support like grants, subsidies etc and /or supplementary streams of revenue such as land development. Since fares are also pegged at moderate levels in order to ensure equity (in terms of making the service affordable to large sections of the population irrespective of their capacity to pay on usage), the absence of high degree of certainty on returns makes the private sector hesitant.

Comment on suitability of viability gap funding in the context of debt-based financing in various projects?

This is an excellent programme that allows the government to get essential infrastructure built particularly in those cases where the project economics render it unattractive to the private sector.