The year just passed by was the witness for some important events in Indian infrastructure sector which may have their ramifications on the economy in the years to come. We have listed out ten such major events:
1) GMR pulls out of road project showing private disinterest in road projects
In January, Bangalore based GMR Infrastructure pulled out of Rs. 5,400 crore Kishangarh-Udaipur-Ahmedabad road project thereby bringing lacunae in country’s highway-building programme to the fore. GMR’s action indicated the mood in private sector towards transport projects in general. In fact, it was not just GMR but there were at least 10 major road projects which were abandoned by the private players due to various reasons. While private players complained about regulatory hurdles, including delays in environment clearance and land acquisition as the major reason for their disinterest, NHAI believed that liquidity crunch faced by many of these players played a major part in their exit. But the fact is that national highway development programme received a major setback in 2013 with no major build-operate-transfer (BOT) project was being awarded during the year.
2) OMC’s allowed to hike diesel price
In January 2013, the UPA government decided to hike diesel price within a small range every month till losses on the nation’s most used fuel are completely wiped out. Oil marketing companies were authorized to increase the retail selling price of diesel by 50 paise per litre every month and the government hoped to bring the under recovery to zero level in 19 months. However, firming up oil prices in the international market and steep depreciation in Rupee value vis-à-vis dollar threw the government’s calculations haywire. Despite increasing the diesel prices 11 times during the year, under recovery stood at Rs. 9.74 per litre at the end of the year
3) Reliance commissions Sasan UMPP and kicks up a controversy
Reliance Power Limited announced commencement of commercial operations of the first unit of its Sasan ultra mega power project in Madhya Pradesh on the last day of the fiscal 2013. However, the Western Region Load Despatch Centre that is responsible for daily scheduling and planning of power challenged Reliance Power over Sasan’s date for commencement of commercial operation before the CERC. Accepting the arguments of WRLDC, the regulator quashed the certificate given by the independent engineer to the Reliance Power and directed it to undertake fresh testing of the first 660 mw unit of UMPP. However, the appellate authority asked CERC to take a fresh look at its order.
4) CCEA approves natural gas price hike
In June, the Cabinet Committee for Economic Affairs (CCEA) approved the proposal to hike the natural gas natural gas price to USD 8.4 per mmbtu (metric million British thermal units) from April 1, 2014. By doing so the CCEA approved the Rangarajan committee’s formula for gas pricing. New price will apply uniformly to all producers, be it state-owned firms like ONGC or private sector Reliance Industries. The CCEA also noted that Rangarajan committee’s formula for gas pricing would be valid for five years and gas prices will be revised quarterly from April 1, 2014 onwards.
5) POSCO completes land acquisition and begins new hope
South Korean steel major at last completed land acquisition for the proposed steel plant in Odisha in the midst of local protests. Posco India required 2,700 acres of land to establish an eight-million tonne per annum-capacity plant. The steel major had signed an MoU with the state government in 2005 to set up a steel plant in the state. As per the original plan, POSCO was to set up 12 million tonne per annum steel plant requiring 4,004 acres of land. However, later on it scaled down its proposed plant size to 8 MTPA and also land requirement.
6) Kudankulam nuclear plant goes critical
In July India’s first 1,000MW pressurised water reactor at Kudankulam in south Tamil Nadu attained criticality. The plant commissioned six years after the scheduled date. Muclear Power Corporation of India Limited ’s project was in the midst of controversy with many environmentalists and locals opposing the project. Work on the second unit is progressing in full swing. Civil work at the sites for units III and IV was also progressing.
7) New Land Acquisition Bill passed but industry not enthused
In August, the Parliament passed new Land Acquisition Bill with an objective of providing fair compensation, thorough resettlement and rehabilitation of those affected, adequate safeguards for their well-being and complete transparency in the process of land acquisition. The new bill replaces more than a century old Land Acquisition Act 1894. However, industry bodies were united in criticizing the bill saying it created more problems and confusions than solving any of them.
8) Gram Sabhas vote against Vedanta’s aluminum refinery
In August, tribals in all the 12 gram sabhas voted against its Rs. 50,000 crore aluminium refinery project of Vedanta Resources Plc in the Niyamgiri hills of Odisha. The Odisha government held gram sabha in 12 villages in Niyamgiri hills spread over Rayagada and Kalahandi districts as per a Supreme Court order on April 18 that asked the forest dwellers to decide if mining in Niyamgiri hills – home to nearly 10,000 Dongria Kondh tribals besides other tribal groups – would affect their religious and cultural rights As a result, the refinery has to source its bauxite requirements from other mines which will increase the cost of the raw materials and thereby impacting viability of the plant.
9) Government starts second leg of airport privatization
In September, Airport Authority of India’s (AAI) decided to privatize six airports in the country. AAI had issued invitation for RFQ from eligible companies for operation, management and transfer of six airports in the country, namely, Chennai, Kolkata, Guwahati, Ahmedabad Jaipur and Lucknow. However, many experts expressed their skepticism about the proposal pointing at unfavourable economic conditions and tight liquidity situation prevailing in the country. If everything moves as per schedule, AAI should be able to sign Concession Agreement with the parties by February this year.
10) CCI recommends government to introduce more players in coal mining
In December, the Competition Commission of India (CCI), in a landmark judgment, penalized Coal India Ltd. (CIL) and its three subsidiaries Rs. 1,773 crore for abuse of market dominance and made a major policy recommendation that the government should introduce more players in the coal mining sector. The CCI ruled that the CIL through its subsidiaries operates independently of market forces and enjoys undisputed dominance and has imposed unfair/ discriminatory conditions in the matter of supply of non-coking coal to power producers. CCI found various anti-competitive factors in the coal sector which had its impact on the economy. The judgement will have its impact on the way fuel supply agreement is being drafted which many users feel is one-sided.