Structuring it right PDF Print E-mail
Wednesday, 08 June 2011 00:00
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The industry ministry’s proposal to buy back infrastructure firm IL&FS and IDFC’s 51% stake in the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC) hasn’t come a day too soon. The project, to develop 24 smart industrial cities over 5,500 sq km, each at a cost of R40,000-50,000 crore, is something India sorely needs—the idea is to raise industrial output in the six DMICDC states 1.6 times more by 2040 and smart planning, to ensure people can walk/cycle to their workplaces, will cut energy consumption by 40%. It was to be a model for urbanising India, so vital given that 270 mn more people will flock to cities by 2030. But IL&FS/IDFC’s stake had created a situation where the project had got irretrievably stuck. Buying out this stake and giving it to institutions like LIC carries the danger of the project going the way of other government projects, so the new governance structure has to be carefully thought out.

The way the project was originally conceived, DMICDC was to be a project consultant whose job was to get the city projects to a stage where they could be bid out to private firms; the government share was kept at 49% for obvious reasons, and the rest was to be given in small lots to the host of infrastructure financing firms India has, the likes of IIFCL and IDFC. As it happened, 41% was given to IL&FS and 10% to IDFC. Under the current scheme, DMICDC has morphed from just being a project consultant with success fees to being a project developer as well, setting up SPVs to develop trunk infrastructure—power plants and main roads, for instance. Once done, this will raise the value of land around it—state governments will own the land—and private firms can then be called in to develop the city.

So where’s the problem? The initial money, R3,000 crore per city, to do the master planning and develop the trunk infrastructure, is to come from the government; the government will also guarantee Japan-government funding to DMICDC; subsidiaries/associates of IL&FS/IDFC would likely bid for the cities/projects that DMICDC would be taking to bid-stage; when the value of SPVs doing the trunk infrastructure goes up, how do you ensure this accrues to the government which originally funded them ... It is issues like this the industry ministry is hoping to address when it goes to Cabinet to buy out IL&FS/IDFC. But it needs to provide some more clarity on why the project won’t end up becoming another slow-train to nowhere. Urban and industrial India can’t afford that.


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