August 5, 2014
The Times of India (Delhi)
Biswendu.Bhattacharjee | Agartala
While the Delhi high court on Monday agreed to review its decision to ban e-rickshaws in the capital, Tripura has long brought these vehicles within the ambit of legislation and is probably the first state to do so.Replicating the provisions of the Motor Vehicles Act, 1988, the state framed the `Tripura Battery Operated Rickshaws Rules 2014′ to regulate the movement of battery-operated rickshaws in urban areas of the state.The rules, notified in January , state that a driving licence is mandatory for e-rickshaw drivers, who must not be less than 20 years of age. It will be valid for three years, unless cancelled or suspended if the driver flouts rules.
The licence fee of the battery-operated rickshaws is Rs 300, renewal fee Rs 100, registration fee Rs 1,000 and trade certificate fee Rs 1,000. The operator has to pay Rs 100 as annual road tax.
The rules say engineers of urban local bodies of the rank of executive engineers must issue fitness certificates for the vehicles after a technical assessment.
Each battery-operated rickshaw will have to provide insurance cover to protect the riders. An e-rickshaw can seat four people at the most and can ply only within the jurisdiction of urban local bodies. Registration numbers will be provided once the applications are screened.
“We have notified 55 routes in which these rickshaws can operate. All fall within the Agartala Municipal Area. So far, we have received 531 applications from operators,“ said Agartala mayor Prafullajit Sinha.
For six months, these rickshaws had operated in Tripura cities without any registration and licence.
November 26, 2013
TORONTO: The International Finance Corporation, the World Bank’s private sector financing arm that recently concluded its first-ever global issue of rupee-linked bonds, has urged India to simplify its complex regulatory landscape and aggressively tap domestic investors to finance its massive infrastructure building plans instead of relying on foreign capital.
“In India, the most recent (spate of economic tumult) or what I call a ‘mini-crisis’, has triggered some soul searching in the .. in the government,” said IFC CEO and executive vice president Jin-Yong Cai. “India is trying to do the right thing and build up infrastructure. It is really about how to deal with the complex regulatory framework.”
Jin-Yong, who headed Goldman Sachs’s China business before joining the IFC last year, said there is a lot of interest among global investors about opportunities in India, citing the success of the first tranche of offshore rupee bonds worth $160 million issued by the corporation last week.
“We just launched rupee-linked bonds for investing in India as part of a $1-billion programme, which saw strong subscription interest from investors,” he told an audience of large infrastructure investors and financiers at the national conference on Public Private Partnerships (PPPs) hosted by the Canadian Council for PPPs last week.Warning that the current situation of cheap global capital flows won’t last forever, he said India must develop capital markets and harness local saving for its trillion-dollar infrastructure development agenda “In terms of financing those (infrastructure) transactions, they want to bring in foreign capital. But the best way to mitigate the financial risk more often is to mobilise local capital (which) India has a lot of,” Jin-Yong said.
While the huge amount of global liquidity and cheap capital flows provided a window of opportunity for countries such as India looking to build infrastructure, the IFC CEO said it could also be great risk – as was evident from the adverse impact on emerging markets in recent months due to speculation about the US Federal Reserve’s tapering strategy.
“When you have cheap capital, you think the good days will continue but it’s a time to put your house in order. If the government doesn’t do the necessary reforms and develop local capital markets, I’m not too sure over-issuing long-term debt is a good thing, particularly if you over-borrow from foreign currencies,” he said.
Inadequate infrastructure is the main factor that holds back economic development and blunts poverty alleviation efforts in emerging markets such as India, he said. But fears over regulatory risk and political instability keep global investors away from infrastructure projects, Jin-Yong said
“Political leadership is clearly a prerequisite for successful PPPs. This is where institutions like the IFC and World Bank can play a critical role in advising and influencing governments to ensure that an equal system is worked out where investors benefit along with the people,” he said.
India accounted for $4.5 billion of IFC’s committed investment portfolio as of June this year, higher than any other country. In 2013, the corporation invested $1.38 billion in Indian ventures.
“The shortage of capital in developing countries is unimaginable and for them, using PPP is not an option – it’s a must,” he said, explaining why PPPs form part of IFC’s core approach to addressing the global infrastructure deficit.
The IFC has a portfolio of more than 100 infrastructure projects built on a PPP basis in 50 countries, and its equity investments in such projects have delivered over 20% returns in the last 10 years.
“The actual risk may not be as high as perceived, especially if you are involved in critical infrastructure creation,” he said. “The government will worry as one bad experience will mean other investors won’t come there,” he concluded.
(This was in Toronto at the invitation of the government of Canada)
November 14, 2013
The recent restructuring exercise of road contracts demonstrates India’s adaptability but a road regulator – not a committee – is needed
On October 8, 2013, the Union Cabinet gave an “in-principle” approval to a one-time premium restructuring package for a slew of premium-based road contracts that had become “stressed” on various counts. The government subsequently constituted a committee under C Rangarajan, chairman of Prime Minister’s Economic Advisory Council (PMEAC), to detail out the eligibility conditions and terms of the scheme. The committee empanelled five members, and is expected to come up with its recommendation in December. The five members of the committee are ministry of road transport & highways (MoRTH) Secretary Vijay Chibber, Planning Commission Secretary Sindhushree Khullar, PMEAC Secretary Alok Sheel,
National Highway Authority of India (NHAI) Chairman R P Singh and Expenditure Secretary R S Gujral. A representative from the private sector, an independent business leader, would have been a useful addition considering it is a public-private partnership (PPP) matter.
The “in-principle” Cabinet approval was welcomed by all the concerned developer groups, many of whom are currently incapable of supporting their projects in their existing form. This is because of their own financially stressed positions, unexpectedly low traffic, delays in sovereign deliverables, and in some cases – aggressive and irrational bidding. The relief package involves back-ending the scheduled premium payments in the initial years when traffic is lower, growth drivers indeterminate, and capital requirements and debt servicing at their peak. This relief in the initial years is to be compensated by higher premia in subsequent years, so that the net present value (NPV) of the promised cash flows to NHAI remain protected.
The opposition to the scheme is primarily on the issue of moral hazard and the adverse impact that any such ex-post accommodation mechanism has on the sanctity of bidding processes.
Although one cannot obviously question the imperative to avoid such events in the future, for now at least, practical considerations point towards going ahead with the reset for the following seven reasons:
(1) Renegotiations need to be understood, accepted and imbibed as an integral part of PPP processes, especially at the early stage of their evolution. An overview of more than 1,000 PPP concessions studied by the World Bank Institute in Latin America and Caribbean from 1985-2000 throw up these characteristics of PPP renegotiations:
- 41.5 per cent have undergone renegotiations.
- Out of the total concessions in transport infrastructure sector, 55 per cent of the concessions underwent renegotiations.
- 85 per cent of renegotiations occurred within four years of concession awards and 60 per cent occurred within three years.
- Renegotiations occurred mostly in concessions awarded through competitive bidding.
So, renegotiating a PPP project is by itself not taboo.
(2) It is clear in hindsight that the magnitude of risks and the ability of different stakeholders to manage them had not been adequately assessed. The private sector has shown through its overaggressive traffic estimation, high-debt leveraging and exuberant bidding that it often lacks management maturity, as well as risk assessment and forecasting skills. NHAI has also conclusively demonstrated its inability to eliminate outlying bids, procure sovereign clearances, perform timely land acquisition and clear due processes in clearly defined and accountable time frames. The need for contract renegotiations becomes inevitable till such shortcomings are addressed.
(3) From NHAI’s point of view, the high premiums accruing to it, even after the reset, would no way compare to the expected low or vanishing premia if the projects were to be put up for rebidding in the current adverse investment mood and environment. NHAI is estimated to receive more than Rs 1.51 lakh crore over the next 20 years from developers in return for awarding projects. If the projects were to be rebid, it is not unlikely that over-cautious developers could consider a 30 to 40 per cent decline in traffic projections that could effectively wipe out any premium, or even bring the bidding to a request for viability grant.
(4) Rebidding will inevitably lead to huge delays in getting these projects off the ground, and would mean further increases in project costs. It would adversely affect all downstream benefits of gross domestic product growth, job creation, spur to the construction sector, capital-goods sector order-book accretion and a required resurgence of the investment sentiment, particularly PPP sentiment.
(5) The NPV-neutrality, as a public-policy paradigm, passes the test of transparency and fairness. It legitimises the eligibility of the highest bidder to continue. GMR, for example, under the back-ended schedule, is believed to have to pay up in Rs 59,000 to 65,000 crore over its 26-year period as against Rs 32,000 crore originally.
(6) Annulling of the previous bids will send serious negative signals to domestic and global investors.
(7) Unlike the recently allowed compensatory tariff dispensation by the Central Electricity Regulatory Commission (CERC) for imported coal-based ultra mega power projects, there is no alteration in user charges (toll) as part of the restructuring.
At an office discussion led by Rajeev Bhatnagar and Debal Mitra of the Highways Division, the following views were offered on some contentious points:
(i) Coverage and eligibility: The road ministry is considering the bailout of only 23 projects but the developer community has opined that the package should be made available to all affected premium-based projects (estimated at 40 plus in number) as similar financial impediments would be faced by most, if not all. A parameter-based “stress” ranking should determine nature and grades of relief to be considered.
(ii) Discounting rate: The 12 per cent discounting rate proposed by the Cabinet seems harsh, to the point of being unacceptable, considering it had approved a rate of 9.75 per cent for the spectrum fee deferrals by telecom operators last year. Besides, the rate is based on existing interest rate levels as benchmarks that are at the high end, whereas for a typical concession period of two decades or more, one should consider mirroring through-the-cycle interest rates. Burdening the already leveraged projects with higher discounting rates would defeat the purpose of the bailout. A 10 per cent discounting rate appears fair.
(iii) Penalty: The Cabinet has also proposed levying an exemplary penalty of up to 0.5 per cent of project cost, if the default is attributed to the developer. This is conceptually acceptable both as a penalty and as a deterrent.
(iv) Bank guarantee: There is a view that developers furnish a bank guarantee to the extent of the maximum difference between the earlier and current premium. Since the original concession agreement did not impose the submission of any bank guarantee for the premium, bank guarantees for the incremental amount seem illogical.
(v) Premium re-scheduling: Developers have demanded a moratorium of 6 to 8 years, while the Planning Commission has proposed a set percentage of premium gaps being backloaded every year. Given that the specifics of each project are different, the most appropriate stance will be to leave it to NHAI to decide the optimal schedule bilaterally with the developer.
(vi) Empower NHAI after committee decision: Once the Rangarajan Committee has conveyed the format, NHAI should be fully empowered to settle with concessionaires. Kicking the settlement can once again between the PMO, law, finance, Planning Commission, MoRTH et al should be clearly avoided.
(vii) Road regulator: As I have stridently argued in an earlier Infratalk (Road regulator needed by yesterday, July 3) having an empowered and credible road regulator would have allowed the system to effect a solution much earlier rather than this practice of creating ad-hoc committees for every problem that surfaces.
In conclusion, this highway premium restructuring exercise, along with the recent imported-coal price pass-through decision by CERC, is demonstrating India’s ability to gradually come to grips with PPP renegotiations as an inevitable process issue.