"Domestic funds are much safer for core projects"

We have started the project in 1990 and I have been associated with the project in the last seven years. Mainly we have faced three issues. One problem is that we were responsible for total funding of the project, coordinating with all the three state governments and the central government for land acquisition and also for the complete design, construction and implementation of the project. Starting from the scratches we had to deal with the public, the government and the financiers so that the project never came to a stop.

For any infrastructure project of this nature, non-government organisations will raise objections. We handled this problem in the correct manner. Due to this problem, many infrastructure projects can get delayed. We have produced even satellite imageries of the project area to prove our point. For funding, we had gone through nerve-racking moments. Whenever we went to the market to raise money for the project, the market responded very well. From the part of our own banks and institutions there was a committed spirit.

However, this was not in the form of a subsidy. The financing of this project is based on an entirely new concept which makes the four beneficiary states viz Maharashtra, Goa, Karnataka and Kerala partners with the Ministry of Railways in this venture. Public also contributed to the funding by subscribing to bonds to the extent of three times the equity provided by thge government. Compared to conventional mode of funding the centre had to provide only 12 per cent of the funds required to complete the project.

Due to delay in implementing the project, the cost has gone up substantially. How will it affect the commercial viability of the project?

As against our original project cost of Rs 1,800 crore, the cost has gone up to Rs 3,375 crore. If you consider the inflation rate and the one year work stoppage due to agitation it is only marginal. The projects IRR (internal rate of return) is reduced only marginally.

Out of the total estimated fund requirement of Rs 3,100 crores (gross) inclusive of Rs 750 crore financing cost, Rs 800 is being contributed by five partners as their equity contribution and the balance is being raised by market borrowings.

Since the project is delayed by seven years, how will you repay the initial borrowings of five to seven year maturity. You will generate income only after KRC becomes fully operational. What is the lesson for other infrastructure projects in pipeline?

Infrastructure projects have long gestation period. In the case of KRC a ready traffic has been waiting for us -only we have to divert some of the trains from the existing routes. As per the traffic survey conducted by RITES, we expect a goods traffic of 7.405 million tonnes during 1997-98 – 3.195 million will be diverted from the existing routes. The total passenger traffic is also expected to be 21.197 million out of which diversion from railways will be 2.787 million passengers. We resorted to short term borrowings only to bridge the temporary gap.

For other projects in pipeline, it may not work out so easily. KRC’s first borrowing of five and seven years maturity will be coming for redemption. We have made full provision for this in the total project cost. The new infrastructure projects involving the private sector have to be very careful in arranging long term finance with low interest rate. Capital cost has to be kept at the possible minimum level. Government has given certain benefit and guarantees for KRC which may not be extended to private projects.

Do you think that external commercial borrowings (ECBs) will be suitable to finance infrastructure projects. As the income from such projects will not be in foreign currency, what will be the hedge against exchange rate risk?

Out of our total borrowing of Rs 2,600 crore, ECB is only Rs 400 crore. Therefore exchange rate fluctuation will not have much impact. As is happening in Thailand and other South-east Asian countries which resorted to more foreign currency borrowings to finance local projects there is a potential danger. My personal view is that for financing local projects, it is much safer to have internal generation of funds. If you maintain a sufficient balance between the external borrowings and Gross Domestic Product (GDP), you canavoid such a crisis.

Do you think that the KRC project would have been successfully completed by a private party and that the private sector can complete infrastructure projects better than the PSUs?

Given the will and commitment, the talent available with the public sector units could complete this project. We worked hard and our overhead cost is only 3 to 4 per cent of the project cost. On the contrary, in private sector projects it is higher at 8 to 12 per cent. Long gestation period is going to be a problem for the private sector projects.

Unlike other PSUs, KRC is controlled by four state governments and the Ministry of Railways. Are you free to take decisions smoothly especially when the interest of these parties are some times contradictory?

Rather than conflicts, there is full co-operation among all the partners. Besides the chairman and managing director, there are three functional directors and all the four state chief secretaries are represented in the board. The board is wellrepresented. To take important decisions, there is no problem.