The government wears multiple hats as sovereign, developer and consumer, leading to conflicts of interest.
In the infrastructure sector, of the $1,000 billion investment envisioned by the government during the Twelfth five year plan, it is seeking $500 billion from the private sector. But, the private sector is a little reluctant to come forward and invest in infrastructure.
“The biggest fear is the government itself. It changes its stance ever so often,” said Vinayak Chatterjee, chairman of Feedback Infrastructure Services Private Limited. Corporates should stand up and demand accountability, and an independent regulatory agreement, he added. “The prime minister had said there would be an independent regulator. The Planning Commission too had spoken of it, but not much has happened,” he said.
On the infrastructure front, “Karnataka, I think, has great opportunity. But, the Centre may dilly-dally on the policy front,” Chatterjee said. He has suggested a way out: “You can empower the authority and for this the government should appoint people of stature.”
The government itself being one of the players in the sector, it wears multiple hats as the sovereign, developer and consumer. Hence, there’s a conflict of interest. There is a need for an independent regulator. India has a good history of independent regulators and if it has the ability to handle an independent regulator for other sectors, then why not one for infrastructure, he asks.
Stressing the need for a strong movement for an independent regulatory authority, he said Karnataka has demonstrated to the country that it can do it. But, the government should have bankable projects. When the government is talking of a $1,000 billion investment over five years, it means $200 billion of investments every year. And, it also means having a shelf of bankable infrastructure projects.
“But, does India have projects that are bankable?” he questions.
In infrastructure, the private sector alone cannot do it. It is the sovereign responsibility to decide if it should be in the PPP mode. The private sector cannot create infrastructure projects. There is no great action on the ports front, for instance. The sovereign must figure out $800 billion of bankable projects.
“What are the projects we are doing? Here’s a state that has a confident pipeline of projects. With Rs 30,000 crore of projects every year, it looks like Karnataka has got its maths right,” said Chatterjee.
There’s no single mechanism of the Centre or the state government to ask how many projects it has created. There’s hence a constant need to evaluate the pipeline of projects. The creation of bankable projects is the sovereign responsibility, he said.
“We are in a funny situation. The sovereign gives projects and on the other hand erects hurdles. It’s a hilarious situation. The sovereign creates projects, but also creates obstacles. You (government) create obstacles, so you (the government) should remove them,” added Chatterjee. That’s what the corporate sector in the infrastructure space wants, he said.
The sovereign must speak to the Railways, speak to the utilities to clear the way for a project like a road or power. “You can speak to the Railways; so you speak. The private sector’s job is to build. So, don’t clandestinely transfer the job of getting clearances to the private sector,” he suggests.
Chatterjee suggests the reverse BOT as a workable solution. An instance is that of the Mumbai-Pune road, where all clearances were secured first and then bids called for. A project up for bids after all the clearances have been secured can earn bid values three or four times higher. This is reverse BOT and is the way to earn more. Secondly, it’s a special purpose vehicle (SPV) with all hurdles cleared, including the sovereign obstacle.
The sovereign gets clearances for coal, power and all the utilities for their clearances. Bundle the SPV with all the clearances and put it up for bids. “Why should I as the private sector go to all concerned for clearances? The private sector must create a union and demand that they get projects with all clearances secured,” he said, expressing the collective angst of the private sector.
If the private sector is left with only implementation and operations, then it takes away much of the pain.
With a poor balance sheet and a number of regulatory problems, the mood of the private sector in the infrastructure sector is gloomy. So Chatterjee suggests that the government must set up a body like the Foreign Investment Promotion Board (FIPB) to fast-forward infrastructure investments. The private sector doesn’t want to push files through seven levels and 27 ministries.
Since the government creates the levels, it must make it easy. “So, we need an Infrastructure Fast-track Implementation Board,” he suggested, adding that if we raise the mood of the nation, then it would do a lot of good.
