KIIFB looks set to spread its wings

The national seminar on "Opportunities and Challenges in Public Infrastructure Financing" that the Kerala Infrastructure Investment Fund Board organised in Thiruvananthapuram on Saturday was a virtual coming of age for a fundamentally and refreshingly new mode of financing the infrastructure deficit in the State.  

That the brains trust of the idea of KIIFB -- the highly pragmatic State Finance Minister Dr. Thomas Isaac and its zealous proponent CEO, Dr.K.M. Abraham - was willing to learn and unlearn was evident from the day's proceedings where they sat through taking notes, probing, asking questions and trying to analyse even as a cross-section of subject-matter specialists from across the country dwelled on the challenges and their own experiences in the field.

Any keen watcher of Kerala's developmental aspirations will vouch for the fact that the next big push for growth here has to come from infrastructure. The gains that we have made so far in the socio-economic sphere, which is the envy of even the developed world in a sense, is in threat of coming apart at the seams if infrastructure languishes.

Quite palpably, this urgency and the need for an unambiguously dramatic push in building up infrastructure was evident in the initial remarks of Dr. Abraham itself as he admitted that even States like Bihar and Haryana - not exactly paragons of development - had overtaken Kerala in per capita Plan expenditure quite a few years ago and there is no time to be lost in finding funds for our infrastructure development.

What was also heartening was the attempt to cross-fertilize from the best of experiences, without sticking to dogma, to make KIFBB deliver on its attempts soon. The diversity of the presentations ranging from Chandrababu Naidu's Amravati experiment to the Delhi-Mumbai corridor to the Tamil Nadu experience pointed to the wide range of options available to KIFBB to translate dream into reality.

As a banker, my interest was to ascertain how the equity or the own funds for the KIIFB projects will come. Whatever be the mode of financing that KIIFB is looking at, the success of fund mobilisation will depend on the availability of own funds for its projects. If own funds/equity can be made visible and the cash flows from the projects can be escrowed, there is no reason why debt or "owed" funds will not come in, especially given the realisation now among the financiers and the investors that returns/repayment has to be seen from a longer term perspective, than conventionally envisaged.

It is quite noteworthy here that the RBI's instructions on infrastructure financing itself uses the words "say, 25 years" for looking and assessing viability of projects.  The words "say, 25 years" are quite significant technically because it makes it clear that the regulator does not stipulate a ceiling on the number of years for which debt can be carried in the books of an SPV/Company raising funds, provided the servicing is done within the stipulated period.

As we all know, infrastructure is indeed for the long haul and it will be quite safe to assume that the life of most infrastructure projects like roads, bridges, hospitals, educational institutions, whatever, is a minimum of 30/35 years, subject to maintenance expenses.

So the amortisation schedule can be really long and the central bank now provides for financiers to assume longer repayment periods. Based on my own experience let me just cite the example of hotels, which now fall within the RBI's "harmonised"  list/ definition of  infrastructure.  Many a hotel project has been brought to its heels in debt servicing because the initial repayment assumed was a maximum of say 10 to 15 years. But the reality is that if well-built, the life of a hotel is a minimum of 50 years. In fact, the Taj at the Gateway and the Oberoi in Kolkata are 100 and going strong.

So  the success of KIIFB will lie in ensuring  that  "own" funds are demonstrable ,the borrowings are really long term (either through original maturity or through refinancing options) and cash flows for debt servicing are made "aseptic" through escrow mechanisms so that no future Government can tinker or touch it for other purposes. 

On equity, Dr. Abraham seems to have thought it through.  The share of Motor Vehicle Tax and the very reasonable 1 rupee cess on petrol (which itself will yield about Rs 250/300 crores in a year) are sufficient to leverage the debt required. KIIFB thus  looks set to prove the sceptics wrong and it will be good for Kerala, no matter what the colour of the ruling Front is.

(The writer is Chief General Manager, SBI)