THIRUVANANTHAPURAM: Additional chief secretary and Kerala Infrastructure Investment Fund Board CEO Dr K.M. Abraham claimed that land acquisition was the only thing that stands in the way of the success of the KIIFB experiment.
But Dr Abraham seems not to have reckoned with the investor’s instinct for self preservation, especially of those from foreign shores. With the state government categorically ruling out investor-pleasing measures like “user fee” or “toll”, the Rs 50,000 crore mountain of investment that finance minister Dr Thomas Isaac has set as the target for KIIFB in the next five years now looks like a tortuous climb.
Mr Sanjeev Kaushik, the CEO and managing director of India Infrastructure Finance Company Limited, gave Isaac and Abraham a reality check. “These foreign lenders come in expecting 9-18 per cent returns. No infrastructure project in the country can provide such a return,” he said. Mr Kaushik was here to take part in the seminar organised by KIIFB on ‘Opportunities and Challenges in Public infrastructure Financing’ here on Saturday. This leaves the KIIFB in a highly vulnerable situation as nearly 60 per cent of its projects are socially relevant ones like roads or cathlabs or schools or irrigation canals that belong to the ‘zero return’ category.
It is not as if there is no capital itching to fly in. In fact, investors are waiting for a call with their money bags at the ready. Mr Prakash Rao, the executive director of National investment and Infrastructure Fund, spoke of ‘sovereign wealth funds’, the safety net money that rich countries especially in the Gulf have accumulated over the years thanks to favourable global trends. He said that sovereign wealth funds would swell to $50 trillion by 2050.
“But these countries, like Saudi Arabia, have shown to be highly risk averse. They are looking only at assets that show a clear revenue flow,” Mr Rao said. “They will not fly into a blind pool of equity,” is how Mr Kaushik put it.
Mr S Krishnan, Tamil Nadu’s planning principal secretary, suggested “pay-for-use” measures. “Increasing prosperity drives demand as well as a willingness to pay,” he reasoned. Mr Kaushik recommended the charging of “user fee” for infrastructure projects like airports and inland waterways. The LDF government has ruled out such politically sensitive measures but will be transferring a portion of motor vehicles tax and the whole of petroleum cess to the KIIFB kitty. There was also the suggestion that the state government, or at a later stage the KIIFB, could sell or monetise its stake in existing infrastructure projects where a cash flow has already been established, and channel the money into greenfield projects from which investors keep a distance. For instance, it would mean selling the state’s stake in the commercially viable Nedumbassery airport and use the money to promote a greenfield venture like the construction of, say, a light metro.
Foreign funds are costly, too. “The landed cost of funds from multilateral lending agencies, because of the hedging that has to be done, is considerably higher, at 9.5 per cent,” Mr Kaushik said. He said that India Infrastructure Finance Company Limited had to decline $300 million and $450 million from JICA and ADB recently as they had become uncompetitive.
Another issue is the shorter tenure of many of the financial instruments that the KIIFB is banking on like Alternative Investment Funds and Infrastructure Investment Trust (InVIT). “Generally they have a tenure of three to five years, and at the most seven. This, when we are speaking about projects that have a gestation period of 15 to 30 years,” said lawyer Somasekhar Sundareshan.
Such a grim prognosis prompted Prof Sushil Khanna of IIM (Calcutta) to wonder aloud whether there were no investors willing to lend at lower cost. “KIIFB is about investing in social projects, and to expect returns of over 20 percent would be too much,” Mr Khanna said. Prof Sris Chatterji of Fordham University referred to “impact investing”. It is about investing in areas that have significant social impact. Prof Chatterji said that there was an emerging class of investors who care for social impact along with financial returns. Somasekhar Sundareshan. He cited LifeSpring, a joint venture between impact investor Acumen and Hindustan Latex Ltd hat had created a string of small-sized hospitals across the state, as an example.
