It’s time for hard-core performance

That infrastructure needs to be top on the new government���s to-do list was underscored by the decline in the six core industries that grew 2.7% in 2008-09, sharply down from the 5.9% it clocked a year ago.

According to the Economic Survey for the year ended March 31, 2009, the crucial power sector was the worst performing among the core industries including crude oil, petroleum refinery products, coal, cement and finished steel (carbon).

The growth in total power generation for 2008-09 stood at 2.7% as against the targeted 9.1%. However, the private sector stood out with a growth rate of 12.1% as against the 2.3% managed by the central thermal power utilities.
���This reflects private sector���s ability,��� said Vinayak Chatterjee, chairman of Feedback Ventures, an infrastructure consultancy.

���The performance of private firms in the telecom sector has already been established. They can also perform here (in the power sector), if given proper environment,��� he said. Against a capacity addition target of 11,061 MW in 2008-09 only 3,454 MW could be added up to March 31, 2009. According to experts, besides larger policy issues, power sector reforms need to resolve problems such as delay in supplying equipment, shortage of skilled manpower for construction and commissioning of projects, contractual disputes and shortage of fuel.

Roads too didn���t fare well, the Survey pointed out. The government is yet to award contracts for building over 16,000 kilometres, mainly due to the tussle between the Planning Commission and the Ministry of Road Transport & Highways over model concession agreement (MCA), said an expert, requesting anonymity.

The public-private-partnership (PPP) model was devised by the government to attract private investments in core sectors but has failed to impress in the road sector. According to Jai Malwani, KPMG���s head of infrastructure & government, some of the bidding criteria, particularly on the cost assumptions (which were often dated) and the revenue sharing models linked to traffic increases and expansion obligations made it very challenging for bidders to model operating scenarios and price their bids.

KPMG���s Mr Mavani said the credit crises, which was at its peak in the last quarter of 2008, was also one of the reasons for lack of interest by private investors in infrastructure projects. ���It is essential that long term (10-12 years) funding is made available to the sector through specific credit enhancement measures like creation of Road Finance Corp (akin to Power Finance Corp) or IIFCL taking equity positions etc,��� he said.

However, the Survey observed that the availability of finance is only a necessary condition for investment. ���Once a project is financially closed, it is faced with issues like land acquisition disputes, rehabilitation, contractual issues, shortage of raw materials, capital goods and fuel, environmental disputes and inadequate availability of skilled manpower. These problems result in delays in the projects,��� it said.

The government needs to address all these issues ���systematically���, so that timely implementation of projects could be possible. Financial viability of infrastructure projects depends on their timely completion, the Survey said.