Thursday, July 24, 2008

Electricity for the poor still a dream

This link gives an update on the rural infrastructure scheme launched in 2005 with a target completion in 2009. We are far behind the targeted figure of 125000 villages out of which only around 47000 villages have been electrified till April 2008 and 18000 more can be expected to be electrified by the end of 2009. This statistics can be viewed here which also gives the number of households below poverty line connected and targeted.

Saturday, July 19, 2008

Fuel efficiency law need of the hour, says Greenpeace

Greenpeace also launched a nationwide "Let's Drive Change" consumer campaign to support the Bureau of Energy Efficiency in creating strong mandatory fuel efficiency norms for the car industry in India.

Greenpeace demands:

• Mandatory "CO2 emissions labelling" on all new cars in the Indian market, to enable consumers to make informed and responsible car buying choices
• Mandatory CO2 emission standards for the industry, which will require car manufacturers to progressively reduce CO2 emissions from new cars to achieve a fleet efficiency of 80 gm CO2/km by 2020

If you also think that it is a good effort in working towards saving the environment, Please sign in here.

Fuel-efficiency norms coming for 4-wheelers

The road transport and highways ministry estimates there were about 100 million vehicles on Indian roads at the end of 2007, of which about 17% are passenger vehicles.

There is a proposal to make fuel efficiency norms mandatory by 2010. That means we might come to see more cars giving an average on 12-16 Km per litre.

“Yes, there is a proposal and we will discuss it with the industry representatives on the 21st (of July),” said Ajay Mathur, director general, Bureau of Energy Efficiency, or BEE, the body mandated to notify energy efficiency norms under the Energy Conservation Act of 2001.

More details are here.

Miscellaneous Links

  1. Centre to rebuild 11,500 km road network in northeast.
  2. MMRDA to raise funds, metro rail corridor planned
  3. Underground expressway to connect Sikkim and WB. This link is 53 Kms long at the cost of Rs 1550 Crores.

Wednesday, July 16, 2008

Road projects may get more co-drivers

This news item in ET says tht NHAI is in the process of revising the guidelines for bidding in RFQ statge. Developers went to the court asking for that change since NHAI asks for vast experiences in road sector which only large developers are experts in.

In addition, the government is considering to limit the number of projects that a single player can undertake in one year to 5-6. In order to prevent monopoly, there is also a proposal to limit the number of bids that a single company can make in a month.

I hope this will end up the monopoly of big firms like E & Y/ RITES/ IL&FS etc to name a few.

Monday, July 14, 2008

Miscellaneous Links

  1. HP announces more bus terminals across the state with private sector participation.Details are here.
  2. HCC to develop Badarpur expressway: Leading infrastructure development company Hindustan Construction Company Ltd has won a Rs 340-crore order for the 4.4-km elevated highway at Badarpur on NH-2 near Delhi. The project will be developed on BOT basis under a 20-year concession (including construction time of 20 months) from National Highways Authority of India.
  3. Private participation in education.
  4. Sad state of affairs in schools.
  5. Infrastructure sector growth slips to 3.5% in May
  6. Rail cargo charges to pinch more; set for big hike from 1 August.

Monday, July 7, 2008

Determinants of PPP

There is an IMF working paper prepared by Mona Hammami, Jean-Francois Ruhashyankiko, and Etienne B. Yehoue (Mona Hammami is a Ph.D. candidate at Oxford University. Jean-Francois Ruhashyankiko and Etienne Yehoue are Economists at the IMF. This paper was initiated while Mona Hammami was a summer intern at the IMF Institute.) In this paper they have put forward some basic questions like :
“Why are public-private partnerships (PPPs) increasingly widespread? Why are some
countries able to attract more investments in the form of public-private partnerships than
others? Why are certain types of PPPs found in some industries but not in others? What
determines the extent of private sector participation in such ventures with the public sector?”

This paper has made some hypothesis about the determinants of PPP in various countries. It says that there are factors related to:
1. Government constraints assumes two hypothesis:
H1: Governments with large deficits and a heavy debt burden are more likely to have PPPs.
H2: Rentier countries with large sources of exogenous revenue have soft budget constraints and are therefore less motivated to engage in PPP projects.
2. Political Environment assumes three hypothesis:
H3: PPP arrangements are likely to be positively correlated with ethnic fractionalization.
H4: Governments friendly to market-oriented policies are more likely to engage in PPPs.
H5: PPPs are more prevalent in politically stable countries with accountable governments.
3. Market Conditions and Macroeconomic Policies assumes two hypothesis:
H6: PPPs tend to be more common in larger markets where demand and purchasing power are greater.
H7: PPPs are more prevalent in countries with credible, predictable, and stable macroeconomic conditions. In particular, countries with lower inflation and stable exchange rates are more attractive candidates for PPPs.
4. Institutional Quality and Legal System assumes three hypothesis:
H8: Countries with weak institutions and low-quality bureaucracies are more likely to
display high country risk and are therefore less likely to foster PPPs.
H9: PPPs will be more common in countries with strong and effective legal institutions.
H10: PPPs will be more prevalent in environments where the legal code (laws on books)
better protects investors’ rights.
5. Past Experience with PPPs assumes this hypothesis:
H11: PPP arrangements are likely to be higher in countries with previous PPP experiences.
6. Private Participation in PPPs assumes one hypothesis:
H12: The extent of private participation in PPP arrangements is likely to be positively correlated with the degree of impurity of the goods or services to be provided and the technology structure required to provide them.
They have used the data from World Bank Private Participation in Infrastructure (PPI) database to prove their hypothesis set above. They have used econometric tools to analyze their data collected on PPP projects in various sectors. The research has indicated that “PPPs are at the heart of governments’ attempts to revive infrastructure investments in advanced as well as developing and emerging market economies.”

The results indicate that the market conditions channel is the most important channel of determinants of PPPs. The evidence suggests that larger market size and higher customers’ purchasing power are crucial determinants of PPPs. The evidence from the macroeconomic stability channel suggests that inflation or lack of price stability limit the number of PPPs. At the same time, the evidence does not show any significant difference of private participation in PPP arrangements across all regions except for sub-Saharan Africa. These regional disparities occur while holding constant all seven channels—government constraints, political environment, market conditions, macroeconomic stability, institutional quality, legal systems, and past experience with PPP.

If we see logically, then all the points mentioned above play an important role in attracting PPPs in a country.

VGF for metros to be increased to 50 per cent

Project Monitor reports "A high-level sub-committee on infrastructure has proposed an increase in viability gap funding (VGF) for metro projects by 30 per cent (from 20 per cent now to 50 per cent). A proposal to this effect is already under consideration with the finance ministry for metro projects.

The private players will only be allowed to enjoy the benefits of higher VGF only if they follow stricter guidelines. The urban development ministry is working on stricter guidelines the companies will have to follow at the time of preparing detailed project reports.

Moreover, projects will be scrutinised by government departments. All city authorities will have to mandatorily set up unified metro transport authorities that will ensure seamless disbursal of funds provided under the VGF policy. At present, the Centre provides 20 per cent loan to such projects as soft loans and the remaining 80 per cent cost is shared by the state government and the private partners."

Saturday, July 5, 2008

Finding the Missing Link

The Rs 6,000-crore Mumbai Trans Harbour Link project, a vital infrastructure aiming to connect Mumbai to Navi Mumbai, is at a dead-end. MSRDC had called for bidding and it took four years for the process. The nodal agency had to call for bidding again. The 22-km has been frustrated by all sorts of delays—environmental, bureaucratic, corporate and legal. This is India's longest link and it turnes out to be a fight between—Mukesh and Anil Ambani—the only two contenders.
MSRDC had kept the crieteria for selecting the developer having the lowest concession period. An intersting finding came forward. Mukesh Ambani's consortium had quoted 75 years concession period and Anil Ambani's consortium quoted less than 10 years- What a Mismatch.
If developers cannot be finalised, the state government may be left with little choice having to do projects on its own. It is a grim proposition considering the huge finances involved. Private participation is inevitable, and so is the imperative of taking tough business-like decisions says Project Monitor

Friday, July 4, 2008

Understanding PPP

The definition and types of PPP can be seen here in my earlier post.

A paper by B. Raganelli, G. Fidone, Public Private Partnerships and public works, 2007 explains the relationship between the Public and the Private partner in PPP set up .It says that the public and the private partner shares Principal– Agent Relationship. They share a bilateral relation and they have to depend on each other for their functions. They end up having Information Asymmetries. The public entity looks after the public interest and good quality public work whereas the private entity is more concerned about the corporate profit.

A decision has to be taken while selecting the private party for the proposed project. There has to be clear rules and regulations which help the private party to understand the project in a better way so that it doesn’t result in Information Asymmetry. These clauses should be in line of the Public as well as Private party’s interest.

After selecting the private party, public party is unable to monitor the private party because of high monitoring costs so another problem arises of Moral Hazard. The private party indulges in practices which are contrary to the policies of the concession maker. This results in non performance of the private party leading to delay in completion of the project. That is why Penalty clause is always there in the concession agreement. The moral hazard problem could be solved by providing some incentives to the private operators for early completion of the projects or giving quality results.

All three problems namely Principal-Agent relationship, Information Asymmetry and Moral Hazard can arise in any of the project where two parties are involved and responsibilities are shared. A solution to these problems can be derived by making the concession agreement include all the possible clauses which could cause these problems to occur

Thursday, July 3, 2008

DLF plans eight shopping malls by 2009

DLF will develop eight shopping malls under leasing format in the metros by March 2009, besides commencing operation in four malls by end 2008. The company will also open four shopping malls in the, of which three will be in Delhi NCR and one in Chandigarh.

Eight consortiums shows interest to revive airports

Eight consortiums have responded to the EoIs inviting consultants for or conducting pre-feasibility study on which of the 326 non-operational airports and airstrips around the country. Those in the fray include International Air Transport Association, KPMG and Deloitte Touche Tohmatsu India. KPMG has tied up with Mott MacDonald while Deloitte Touche Tohmatsu has joined hands with Zabir 2005 of Spain for carrying out the study. The study is to be conducted on airports and airstrips that are either privately owned or with state governments, the Army or Indian Air Force. The consultants report is expected to list out the investment needed in terms of land and other assets, apart from suggesting a road-map for development and methodology to be adopted for providing air connectivity in a phased manner.

Wednesday, July 2, 2008

Miscellaneous Links

  1. Eleven trains to be introduced by Southern Railway. News clip is here.
  2. Airlines cut flights to beat fuel woes. Kingfisher's Malaya in talks with RIL to import ATF(aviation turbine fuel) through oil companies.
  3. NMMC submits reports for metro rail project in Navi Mumbai.
  4. Ludhiana based Impact Projects signs JV for township projects in Amritsar.