The Hindu Business Line : `Urban infrastructure, the real challenge'

As Managing Director and Chief Executive Officer of the Infrastructure Development Finance Company (IDFC), Mr Nasser Munjee, has his pulse on infrastructure development in the country. A monetary economist, educated at the University of Chicago and the London School of Economics, Mr Munjee was with the Housing Development Finance Corporation since its inception in 1978 before moving to the IDFC, when it was started in 1997. He feels that there has been good progress on various fronts, especially roads, ports and power. However, the biggest cause of concern, he says, is urban infrastructure tackling which is all about good governance and which calls for a change in mindset.

In this interview to Business Line, he talked about the IDFC's role, counters criticism that the institution is more about treasury management than actually lending to infrastructure projects, and feels that the IDFC will gradually become an investment bank for infrastructure.

Excerpts from the interview:

Could we start off by talking about the proposal to go in for a public listing?

I cannot say much about it. Clearly it is something that the board will have to consider. We have a commitment in our shareholders agreement that we would come out with an IPO to provide them with an exit option. That is all there is to it.

But are the shareholders keen to exit the company?

No. All of them are quite happy with their stake and with the company's performance. It is still a commitment that we have to honour.

There is a perception that IDFC earns more out of treasury management than as return on investments in projects...

We have made phenomenal progress in the first five-six years of our existence despite having a Rs 1,500-crore capital, which is the largest that any institution has got. It was true that in the first two years our income from treasury operations was more than that from our core business. But, that is how it will be for an institution with such a large capital base and for infrastructure projects.

Today, my balance-sheet is Rs 5,000 crore and 80 per cent of my income is operational income. Today, we have approved more than Rs 12,000 crore. These are not bloated numbers. We have disbursed over Rs 4,000 crore. Given this sort of numbers, it is blatantly untrue to say this (that a majority of our income still comes from treasury operations).

More important, anything on infrastructure gets referred to us. We are the first point of call for all governments, international institutions, legal firms and consultants. We are working today with a number of State governments. We are going to work with the North-East Council.

I was in Kashmir recently and we are going to be working with the Government there. We have a joint venture in Karnataka, and have got nearly 30 public-private partnership projects going; we have an agreement with the Uttaranchal Government. With the Planning Commission, we are doing a study of the Uttaranchal economy. We are now going to set up a joint venture in Kerala. We have constituted the first road fund in Kerala. We are the first signatory in the developing world to the World Bank's prototype carbon fund.

We also have the 3i network, which has finalised its next report titled "Ensuring value for money". That is the key to infrastructure projects — ensuring value for the money spent. Which other organisation can boast of such analytical reports that take a critical look at issues?

IDFC has done the concession agreement of the annuity roads for the National Highway programme. We were the secretariat to the Prime Minister's council for the Golden Quadrilateral project. The Naresh Chandra report on civil aviation was authored by us. We have drawn up the power distribution framework.

These reports in the media that our income comes more from treasury operations are absolutely false. The figures are there for all to see. I can challenge anybody and ask which other institution that has been around longer has done more than us in its first five years of existence. What do ICICI, SBI, IDBI or even IL & FS have to show.

Is it because you talk more about your advisory services and expertise that there is this perception that you do only consultancy and earn your income from treasury operations? Would you have liked to do it differently?

No, not at all. The figures about our performance are there for all to see. It is either deliberate misinformation or I don't know what. And, what should I have done. Talk about my investments, that I have disbursed so much to this project and so much to that project. All that information is available...

In all this criticism about us, what is forgotten or deliberately ignored is the fact that we are the first point of reference for anything on infrastructure. The integrity of this organisation is indisputable. The expertise that we have built up is tremendous. I stuck my neck out when I said annuity based tolling was the only way to go ahead for the national highway development programme. I was even described in the media as a "Great Highway Robber".

My chairman and others on the board asked me why I was sticking my neck out. I told them that annuity based tolling was the only way forward if we were really serious on developing our roads. Now everybody has accepted that. But nobody is giving us credit for that.

Our advise has always been to ensure the best possible public good. Some of our recommendations have even affected some of the projects we have supported, but if the recommendation is good in the larger public interest, it has to be pursued. Our professional integrity is unmatched. We have refused to support projects that we did not think had chances of succeeding despite tremendous pressure from various quarters.

We also floated the first equity fund for infrastructure projects and managed to collect about Rs 850 crore. That is quite a large amount. And, we are all set to begin investing in projects.

You mentioned agreements with State governments. Not all of them have been successful and have progressed. Tamil Nadu, for instance...

Yes, that is true. But look at our joint venture in Karnataka — iDECK. It has initiated a number of projects. It is taking up some work in Kerala too. We are looking for a similar joint venture in Uttaranchal. In Tamil Nadu, yes, the joint venture has not progressed at all. That is also because Tamil Nadu is one of the better-administered States. And, it also believes that there is no need for private sector involvement. When that is the stand, there is no place for us.

Overall, what is happening on infrastructure?

Things are moving along. At least systems seem to be in place. The roads sector is one that has seen good progress. The national highway development programme is apace and the first phase is nearing completion. In ports, privatisation is happening and new terminals are coming up.

Power sector too will witness more action now that the Electricity Act is in place. Finally, the Government realised that distribution has to be tackled first if the power sector is to be set right. That is happening. Slowly investments will start flowing into generation too. We are quite active in the power sector.

But the biggest worry and the greatest challenge is urban infrastructure. That is an issue of governance. Where is there a single city that has 24-hours protected water supply? Can you point to a single stretch of road that is of international standards? We are talking of developing Mumbai as the financial hub of the region. We are only fooling ourselves. Look at the road from the airport to the city. There are hotels on either side, a big slum and what not. If you cannot get even this road in good condition, how are you going to develop the city as an international hub?

Look at what China did. When Hong Kong was handed over to the Chinese, the government clearly said Shanghai would be developed as an international city. They have gone ahead and done it.

We are still talking of developing Mumbai as a regional hub. How is that possible when we are not prepared to tackle even small problems? Why would any one want to do business in Mumbai when Dubai is a major centre with all the facilities that one can want.

But how do you then propose to deal with this issue. You mentioned that it is a governance issue. Then you will be stepping on too many toes if you take up the issue of urban infrastructure...

That is true. That is where reports like those published by the 3i network come into play. We have to keep talking about it till people begin to act.

It is not as if it cannot be done. Look at what Jaykar Jerome of the Bangalore Development Authority has done. He has had to face numerous law suits, but he has won each and every one of them. And, he has managed to transform Bangalore and the authority. And, more important, he is part of the system.

In this kind of a scenario, what do you think IDFC's role will be in the next five to 10 years?

We will have to become an investment bank for infrastructure. We will have to move towards identifying projects that are required and take them to those who are willing to fund such projects.

There are so many people outside willing to fund infrastructure projects, but the problem is in identifying viable ones and nurturing them and fostering more public private partnerships.

We are slowly creeping towards that goal of becoming an investment bank for infrastructure...

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