Monday, March 07, 2016

Jaitley proposes …

Jaitley proposes … and Capital disposes.
This is the thought that came to mind as I read that our finance minister has promised that infrastructure projects will go through the necessary processes like a high speed train (Modi’s pet project) and no delays will be brooked.
Yeah … I own the Howrah Bridge and am ready to sell it by square meters!
My earlier post touched upon financial sector and economic “reforms” the Capital continuously demands, in the days before the budget every year, and claiming without failure severe dissatisfaction with it after the fact. I mentioned that the sun never sets on these demands; if it is not one thing it is another.
That is the reality, Jaitley must understand, that underpins all the delays infrastructure projects experience. Unfortunately he is proposing solutions that are irrelevant to the problems he is set to demolish.
If you did a statistical analysis of infrastructure projects going by the vaunted PPP route, you would find that more than a significant percentage of them are delayed, not necessarily because the approvals were late in coming. That is the bogeyman the private finance and corporate lobbies promotes in public dialogue.
Ask these lobbies to find the correlation between the delays and the failure of the revenue models proposed for these projects. We would notice that both are aligned as sharply as Arjun’s arrow and the eye of the bird on the tree! The revenue models are excessively optimistic, the promoters knowing full well that they have as many chances as Duryodhan winning the Kurukshetra war.
But, the promoters also know that Krishna will be there to save them, like he did Draupadi! Money will flow from the government, like the endless saree from the little finger of Krishna!
To make a long story short, it is in the interests of the infrastructure project promoters-the second ‘P’ in PPP-to ensure delay of the project. This is the handle they need and get to bludgeon the first ‘P’ of PPP into granting them additional concessions. In what form? Go beyond the Concession Agreement, and allow them to rework the financial model, ask for more grants, more time, increase charges for use of the facility, say higher tolls, reworked Power Purchase Agreements. In transport projects, like NHAI projects, this is an endemic disease. I have a general knowledge of what happens.
When the project is promoted, the potential entrepreneur confidently trots out numbers to show that his revenue model – tolls, advertisement etc. - is impregnable. I know – there have been times where there were serious discussions for adding a single truck to the per day traffic numbers to get the FIRR up to the threshold, 15%, so that the banks will bite. The promoter does not believe in these numbers, of course, and, take this, neither does the NHAI. But, everyone would, if they are free to, acknowledge that these are exaggerated, yet they sign off.
The banks swallow the numbers and they perhaps have more reasons to approve the loan. Understand, banks approve en masse, a consortium of lenders, say 15 banks. No one wants to be left behind in being bailed out! Now, the non-performing assets, ironically, perform better than the performing assets, thanks to the government! Not very long ago, this made big news, but, I suspect it was suppressed beyond the first mention. I would not venture to guess under whose behest this news got very little play in the media!
Now, I come to the crux of the matter. If the project is completed on time, the entrepreneurs’ bogey man is dead. He would be tied to his revenue model, God forbid! He cannot justify going with the begging bowl to the government.
Now, you see why even if Jaitley proposes to speed up infrastructure projects, he would not be allowed to.
By whom?
Finance Capital.
Raghuram Ekambaram

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