The Rahul SPV solution

Congress Vice-President Rahul Gandhi’s proposal for a ‘natural resource investment’ special purpose vehicle (SPV) that would secure all regulatory approvals for individual projects before auctioning them to private players is a good idea. True, it has come at the fag end of the UPA Government’s tenure. But the idea is still worth pursuing irrespective of which formation comes to power as it has the potential to become a key factor in re-igniting investor interest, particularly in the infrastructure sector. It was not the lack of bidding enthusiasm that has resulted in the many highway projects getting stuck today. On the contrary, investors went all out to bag them, only to later discover how difficult it is to get the authorities to hand over unencumbered land or obtain permission for clearing the odd roadside tree plantation patch. Likewise, no company that bid for hydrocarbon blocks possibility anticipated the difficulties from these being in the vicinity of naval exercise and satellite launching sites. Or for that matter, that their development required resolution of marine ecology-related issues.

The short point is this: businessmen are expected to address project risks as long as they are of a commercial nature. Thus, it is for the highway developer to make toll and traffic projections and decide how much premium to offer in order to bag the right for building and operating a particular stretch. The same goes with bidding for blocks and drilling wells that may or may not yield enough oil and gas. But these risks are different from the uncertainties that emerge from obtaining environment clearances and other approvals from the myriad arms of government. The job of clearing the regulatory thicket lies squarely with the Centre. And the chances of it getting done are better through an SPV created specifically for that purpose.

There is a precedent, in the form of the SPVs that were set up to facilitate the development of ultra mega power projects (UMPP) under a policy launched in 2005-06. The SPVs were incorporated as wholly-owned subsidiaries of the Power Finance Corporation (PFC), each entrusted with the responsibility of obtaining various clearances, water linkage and coal mine allocation for a specific UMPP. Once these approvals were in place, the projects were auctioned through a tariff-based international competitive bidding process. The SPV was, then, transferred to the successful developer who won the right to build, own and operate the plants. The same model can perhaps be replicated across all infrastructure industries. A highway or power project bid-out after being accorded all the statutory approvals is likely to invite more investor interest. Also, the chances are that the investors in such cases would be genuine and not in the fray merely because they know the right minister or bureaucrat.

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