Indian projects valued at more than $160 billion remain stalled a year after Prime Minister Manmohan Singh set up a panel to accelerate investments, sapping earnings at companies such as Lanco Infratech Ltd. (LANCI)
Lanco has failed to get Environment Ministry approval for the final 2 percent of the land it needs to build a 69.3 billion-rupee ($1.1 billion) power plant in the eastern state of Odisha, impeding progress for a project that’s been stalled for five years, said three people directly involved with the matter, declining to be identified because the matter is private. The generating unit is among the 42 projects approved by Singh’s one-year-old Cabinet Committee on Investment in 2013.
Bureaucrats unnerved by graft probes and a possible power shift in 2014’s general election are delaying approvals and hurting Singh’s effort to boost economic growth from a decade low. While the premier set up the cabinet panel on Jan. 2, 2013 to revive investment, many of the 3.47 trillion rupees of projects the Finance Ministry said were cleared by the end of August, have yet to see their issues resolved, according to the Centre for Policy Research.
Investors are shunning power projects because of the delays, “which is hurting equity-raising plans of many companies,” said Hari Das Khunteta, former chairman at Rural Electrification Corp. and chairman at Altius Finserv Pvt., a Mumbai-based consultant. “Delays are raising the cost of projects, which developers are finding difficult to make up through tariffs.”
Lanco’s application to mine coal required for the first unit of a 1,320 megawatt power plant has been pending with the Odisha government for the past three years, according to Singh’s panel. The company also hasn’t yet signed a fuel supply accord with state-run Coal India Ltd. (COAL) for a second 660-megawatt unit of the project, the people said.
A. Narasimhan, a New Delhi-based spokesman for Lanco didn’t respond to e-mailed questions.
The company is poised to report a record loss of 11.7 billion rupees in the year ending March 31, according to the median estimate of nine analysts compiled by Bloomberg.
The shares of New Delhi-based Lanco today declined 1.3 percent to 7.65 rupees in Mumbai, the first decline in seven trading days. The stock slumped 44 percent in 2013, compared with a 9 percent increase in the benchmark S&P BSE Sensex (SENSEX) index.
Singh’s Projects Monitoring Group, which assists the Cabinet Committee on Investment, lists 278 projects, ranging from power plants to roads, valued at about 10 trillion rupees that await various government approvals.
“The CCI has been tinkering at the margins rather than attempting deep-seated reforms to address the structural fault lines,” said Rajiv Kumar, a senior fellow at the Centre for Policy Research, a New Delhi-based think-tank on economy and governance. “The government should look at removing the obstacles for Coal India to raise its production. I don’t think the CCI has even attempted to do that.”
New Delhi-based Jindal Steel & Power Ltd. (JSP), which is controlled by Naveen Jindal, a lawmaker from the ruling Congress party, has had to cut its investment plans after failing to get mining clearances on time. The company reported its lowest profit in five quarters in the three months ended Sept. 30.
“Project delays are reducing the return on projects,” said K. Rajagopal, chief financial officer at Jindal Steel. “We have been waiting for a coal mining permit for a coal block in Odisha for more than a year, even though the project is almost complete.”
Difficulties in buying land and getting government approvals have also impeded Coal India’s plans to raise production. The company, which produces more than 80 percent of India’s coal, is struggling to get clearance for mines that could add 20 million tons to its annual output, Chairman S. Narsing Rao said Dec. 12. Coal India may fall short of its production target this year by 7 million tons, he said.
A separate, $8 billion mill proposed by Posco in Odisha, delayed by eight years, faces a probe by the pollution watchdog over a claim that laws were ignored during land purchases.
The International Monetary Fund estimates that investment fell to 35 percent of India’s $1.8 trillion gross domestic product in 2013, from a recent peak of 38 percent n 2007. The Reserve Bank of India projects economic growth of 5 percent in the 12 months that began April 1, matching the pace of the year before, which was the weakest since 2003.
“Despite all approvals, there have been delays in land acquisition because of opposition by local vested interests and that is one key factor delaying projects,” said Jitendra Mamtora, chairman at Transformers & Rectifiers India Ltd., a power equipment maker in Gujarat.
Concern about a shift in power after general elections due by May is also prompting officials to delay approvals. The vote will pit Singh’s Congress party, saddled with graft scandals, a faltering economy, and a currency that plunged to a record low in 2013, against the opposition Bharatiya Janata Party and its prime ministerial candidate Narendra Modi.
Modi, chief minister of Gujarat, is promoting his record of governance and stronger-than-average economic growth in the state he has ruled since 2001. Opinion polls show the BJP winning the most seats among 543 up for grabs while falling short of a majority.
The national auditor has accused Singh’s government of costing the exchequer as much as $53 billion by favoring certain companies in the awarding of mobile-phone licenses, and handing out coal-mining permits without auctioning them.
The government needs to fix the structural difficulties to revive the economy, rather than making cosmetic recommendations, said Kumar of Centre for Policy Research. If not addressed immediately, project delays could translate into more loan defaults and ultimately a financial crisis, he said.
“There are multiple approvals needed for a project, and the processes are quite complicated, often involving the state governments,” Anil Swarup, additional secretary at the Cabinet Secretariat and the top-most bureaucrat at the Project Monitoring Group, said in a phone interview. “While CCI can hasten decision-making, it can’t bypass the laws or the procedures.”
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