The NIP envisages more investments coming from the states (40%) as compared to the Centre (39%)
By Kumar V Pratap
It is generally believed that the Centre pioneers infrastructure policy initiatives and success stories. I use four case studies to dispel this notion, three recent ones and one from the turn of the millennium to show that the traffic is both ways and states show the way in many instances. The idea of this write-up is not to indulge in a Centre versus state one-upmanship, but to show that given India’s enormous infrastructure deficit, there is space for everyone to contribute.
Noida International Airport Limited (NIAL), Jewar: The Uttar Pradesh government awarded the Jewar Airport to the Swiss airport operator, Zurich AG, in December 2019. At a per passenger fee of Rs 400.97, Zurich AG’s bid was much higher than that of Adani Enterprises (Rs 360), Delhi International Airport Limited (Rs 351), and Anchorage Infrastructure-Fairfax (Rs 205). Phase I of the project is expected to be completed by 2023 at a cost of Rs 4,588 crore. This transaction is significant in that it involves 100% foreign equity in a greenfield infrastructure project, which is traditionally considered very risky for foreign investors.
Mumbai-Pune Expressway Asset Monetisation: IRB Infrastructure achieved financial closure of the Mumbai-Pune Expressway (205 km) in a major brownfield asset monetisation initiative at the state level for a total consideration of Rs 8,262 crore in June 2020. After the end of the initial concession period, the project was re-bid by the Maharashtra State Road Development Corporation (MSRDC) on Toll-Operate-Transfer (TOT) basis for a 10-year concession period. TOTs are a major asset monetisation strategy together with Infrastructure Investment Trusts (InvITs). Two significant points about this transaction are that this is the single biggest asset monetisation in India to-date and has been carried out in the especially difficult Covid-19 times.
In December 2020, the Gujarat Urja Vikas Nigam Limited (GUVNL) auctioned 500 MW of solar projects and it has set a new record of Rs 1.99 per kWh with the NTPC getting 200 MW, Torrent Power getting 100 MW, Saudi Arabia’s Al Jomaiah Energy and Water Co getting 80 MW, and Aditya Renewables getting the balance 120 MW using the bucket filling method. This is the lowest discovered solar tariff in India to-date and comes on top of the already discovered low tariff of Rs 2 per kWh in November 2020 when the federal government owned Solar Energy Corporation of India (SECI) tendered 1,070 MW in Rajasthan. The successful solar transaction is important in many ways and shows that the private sector, including foreign investors, would bid for well-developed projects with demand risk mitigation in the form of Power Purchase Agreements with credible buyers, notwithstanding Covid-19, because by its very nature, infrastructure investment is a long-term game. The coming of age of solar power also sidesteps the traditional trade-off between economic growth and sustainable development, and is crucial for the country to meet its voluntary Nationally Determined Contributions as part of its Paris Accord obligations.
Finally, among the most noteworthy and largely unsung success stories is the Delhi Power Distribution public-private partnership, through which the responsibility for power distribution in most of Delhi was transferred to the private sector (Reliance and Tata) in 2002. This successful state initiative in a very demanding sector (power distribution is one of the most difficult sectors for the private sector to get into because of low tariffs—there is a loss of Rs 0.72 per unit of power sold in the country—and associated political sensitivity of any move to make the tariffs cost-reflective) compares with the best in the world (Katharina Gassner et al, 2007).
A before-after analysis bears this out. Before 2002, there were high aggregate, technical & commercial losses (over 50%) contributed largely by electricity theft, uncollected revenue, and technical losses, leading to shortage of power, unscheduled blackouts and high Delhi Vidyut Board (the predecessor state-owned entity) losses. These losses were Rs 1,192 crore in 2001-02 (on the eve of privatisation) and were growing at an average of Rs 50 crore per annum.
The time was ripe for major reforms as Delhi had seen widespread agitation, and some riots, on account of the power situation at the time. After 2002, when power distribution was privatised in Delhi, the AT&C losses have come down to around 10%—Tata Power Delhi Distribution Limited (8.2%), BSES Rajdhani Power Limited (9%), and BSES Yamuna Power Limited (10.4%)—and the incidence of unscheduled blackouts and load-shedding as a per cent of energy supplied have become negligible. Most unelectrified colonies in Delhi have also been electrified. Though the electricity subsidy has increased in absolute amount (Rs 2,820 crore in FY20-21) as there is subsidised electricity for households consuming up to 400 units per month, it is nowhere near what it would have been in a business-as-usual scenario. It is also fiscally sustainable as electricity subsidy as a percentage of total budgetary expenditure of Delhi has come down from 8.6% in 2002 to 3.2% in 2019.
As India looks to implement the National Infrastructure Pipeline, constituted by about 7,000 projects valued at over Rs 111 lakh crore (about $1.5 trillion) over a six-year period ending in FY2024-25, one must keep in mind that the NIP envisages most investments coming from the states (40%) in comparison to the Centre (39%). The state-level infrastructure success stories outlined above show that this is indeed possible and the NIP can be credibly implemented.
The author is joint secretary (UT), Ministry of Home Affairs, and former joint secretary (Infrastructure Policy & Finance), Ministry of Finance. Views are personal