Editorial: STEP on it

Dec 06 2013, 03:53 IST
Comments 0
SummaryFinmin objection to tied Japanese aid trips DMICDC

As projects go, the Delhi Mumbai Industrial Corridor Development Corporations (DMICDC) R3,25,000 crore project to build 24 cities is one of the most ambitious India has seen in recent times. What makes it more attractive, however, is that unlike many other projects especially in todays uncertain times, many of DMICDCs projects are ready to go. In September, for instance, DMICDCs board cleared 9 projects worth R1,20,000 crorethese are projects for which the land has been acquired, where the master planning has been done and top global consultants, one of whom was in charge of the London Olympics, have been hired to put together the projects. The seven states that make up the DMICDCDelhi, Gujarat, Madhya Pradesh, Uttar Pradesh, Rajasthan, Maharashtra and Haryanahave also come up, or are coming up, with special legislation to help the cities come up. The cities, which are to be built through a central-state government partnership are to be financed in an interesting mannerthe state will provide the land as its share of each SPVs equity, the centre will provide the funds for master planning and creating some initial trunk infrastructure and, as the trunk infrastructure gets built up, the land alongside it will be sold to finance the rest of it.

What can trip up the project, however, is the finance ministrys objection to the Japanese governments $4.5 billion aid for the initial part of the project along terms that are similar to those for the 1,500km Dedicated Freight Corridor (DFC) from Dadri to the Jawaharlal Nehru Port Trust. Under the terms of what is called a Special Terms for Economic Partnership (STEP) loan, at least 30% of the total value of contracts has to be procured from Japan. Under normal circumstances, objecting to the aid as being tied is valid, but this needs to be weighed against the advantages that this tied aid gives. An untied yen loan, and thats assuming that this would be available from Japan, typically involves an interest rate of 1.4%, a moratorium of 10 years and a repayment period of 30 years. A STEP loan, on the other hand, has an interest rate of a much lower 0.1%, the same grace period but a repayment period of 40 years. While the government must examine whether a tied project results in higher costsa good place to start is the DFC where the Western corridor is financed by STEP and the Eastern

Single Page Format
Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...