Major Issue In Infrastructure Projects Delay Construction Essay

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Infrastructure - While Infrastructure is recognized as a crucial input for economic development, there is no clear definition of infrastructure according to the current sage of the term in India. For policy formulation, setting of sectoral targets and monitoring projects, a clear understanding of what is covered under the rubric of 'infrastructure' is necessary to ensure consistency and comparability in the data collected and reported by various agencies over time. The National Statistical Commission headed by Dr. C. Rangarajan, attempted to identify infrastructure based on some characteristics.

This Note compiles definition of infrastructure from various reports / notifications of different agencies and concludes with decision taken by the Empowered Sub-Committee of the Committee on Infrastructure on this subject in the meetings held on 11th January, 2008 and 2nd April 2008 under the chairmanship of Deputy Chairman, Planning Commission.

Dr. C. Rangarajan Commission's Notion of Infrastructure (2001):

The Rangarajan Commission indicated six characteristics of infrastructure sectors, (a) Natural monopoly, (b) High-sunk costs, (c) Non-tradability of output (d) Non- rivalness (up to congestion limits) in consumption, (e) Possibility of price exclusion, and (f) Bestowing externalities on society. Based on these features (except b, d, and e), the Commission recommended inclusion of following in infrastructure in the first stage:

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o Railway tracks, signalling system, stations

o Roads, bridges, runways and other airport facilities

o T&D of electricity

o Telephone lines, telecommunications network

o Pipelines for water, crude oil, slurry, waterways, port facilities

o Canal networks for irrigation, sanitation or sewerage.

The Commission further recommended that considering characteristics (b), (d) and (e) also, the above list may be extended to include the following in the second stage:

o Rolling stock on railways

o Vehicles, aircrafts

o Power generating plants

o Production of crude oil, purification of water

o Ships and other vessels.

However, the Rangarajan Commission recommended that the list of infrastructure activities should be finalized by the Ministry of Statistics and Programme Implementation (MOSPI) on the basis of the characteristics recommended by them for identification of infrastructure.

Dr. Rakesh Mohan Committee Report (1996) and the Central Statistical Organisation (CSO):

Dr. Rakesh Mohan Committee in "The India Infrastructure Report" included Electricity, gas, water supply, telecom, roads, industrial parks, railways, ports, airports, urban infrastructure, and storage as infrastructure. Except industrial parks and urban infrastructure, all these sub-sectors are treated by CSO also as infrastructure.

Reserve Bank of India (RBI) circular on Definition of Infrastructure:

As per the RBI, a credit facility is treated as "infrastructure lending" to a borrower company which is engaged in developing, operating and maintaining, or developing, operating and maintaining any infrastructure facility that is a project in any of the following sectors, or any infrastructure facility of a similar nature:

i. a road, including toll road, a bridge or a rail system;

ii. a highway project including other activities being an integral part of the highway project;

iii. a port, airport, inland waterway or inland port;

iv. a water supply project, irrigation project, water treatment system sanitation and sewerage system or solid waste management system;

v. telecom services whether basic or cellular, including radio paging, domestic satellite service (i.e. a satellite owned and operated by an Indian company for providing telecom service), network of trunking, broadband network and internet services;

vi. an industrial park or special economic zone;

vii. generation or generation and distribution of power;

viii. transmission or distribution of power by laying a network of new transmission or distribution lines;

ix. construction relating to projects involving agro-processing and supply of inputs to agriculture;

x. construction for preservation and storage of processed agro-products perishable goods such as fruits, vegetables and flowers including testing facilities for quality;

xi. construction of educational institutions and hospitals;

xii. any other infrastructure facility of similar nature.

For raising external commercial borrowings funds, the RBI has defined infrastructure to include

(i) Power,

(ii) Telecommunication,

(iii) Railways,

(iv) Road including bridges,

(v) Sea port and airport,

(vi) Industrial parks and

(vii) Urban infrastructure (water supply, sanitation and sewage projects) vide their circular dated 2nd July, 2007.

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Insurance Regulatory and Development Authority (IRDA):

The IRDA vide their notification dated 14th July 2000, regarding Registration of Indian Insurance Companies Regulation, 2000 stipulates that every insurer in the business of life insurance shall invest and at all time keep invested not less than 15% of his controlled funds in Infrastructure and Social sector. Besides, those insurers who are in the business of General Insurance (i.e. non-life insurance) are required to invest and at all time keep invested not less than 10% of their controlled funds in Infrastructure and Social sector. For this purpose, IRDA defines infrastructure to include road, highway, bridges, airport, port, railways including BOLT, road transport system, water supply project, water treatment system, solid waste management system, irrigation project, industrial parks, sanitation and sewerage system, generation-transmission-distribution of power, telecom, project for housing, or any other public facility as may be notified in the official gazette.

Income Tax Department:

For an infrastructure company, Section 80-IA of the Income Tax allows deduction of 100% profit from its income during initial 5 years of operation and then 30% deduction of profit from income during another 5 years. For this purpose infrastructure covers electricity, water supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation, storage (at ports) and industrial parks/SEZ.

World Bank:

The World Bank treats power, water supply, sewerage, communication, roads & bridges, ports, airports, railways, housing, urban services, oil/ gas production and mining sectors as infrastructure.

Economic Survey:

The Economic Survey considers power, urban services, telecommunications, posts, roads, ports, civil aviation, and railways under infrastructure sector.

Decision of the Empowered Sub-Committee of the Committee on Infrastructure on definition of infrastructure:

The Empowered Sub-Committee of the Committee on Infrastructure in its meetings held on 11th January, 2008 and 2nd April 2008 under the chairmanship of Deputy Chairman, Planning Commission discussed the subject matter. There was consensus on including the following in the broad definition of infrastructure:

(i) Electricity (including generation, transmission and distribution) and R&M of power stations,

(ii) Non-Conventional Energy (including wind energy and solar energy),

(iii) Water supply and sanitation (including solid waste management, drainage and sewerage) and street lighting,

(iv) Telecommunications,

(v) Road & bridges,

(vi) Ports,

(vii) Inland waterways,

(viii) Airports,

(ix) Railways (including rolling stock and mass transit system),

(x) Irrigation (including watershed development),

(xi) Storage,

(xii) Oil and gas pipeline networks.

A Comparative Table on definition of Infrastructure sector and decision of the Empowered Sub-Committee of Committee on Infrastructure (CoI) is given below -

Mega projects (primarily infrastructure) receive a sizable investment (~10%) of the gross fixed capital formation in India. Environmental clearances and land acquisitions have been the two major reasons for delays in the projects. However, there has been a steady increase in the proportion of projects running on schedule and a sharp decline in the proportion of projects with cost overruns. These accomplishments have been achieved due to better financing, project management, and reform in the regulatory frameworks related to environmental and land acquisition aspects.

The acceptance of a user fee and development of alternate sources of revenue have helped attract larger investments in mega projects. With increasing private sector participation, delays due to project management are expected to reduce. The modifications in the regulatory framework on environmental and land acquisition issues are moves in the right direction. However, methods used for assessments related to environmental impact and land acquisition are still manual, making the whole process time consuming. Technology could be a good instrument in reducing the time required for these assessments as well as in bringing transparency in the system. Decentralization with capacity building at the state level would also help in the long run in reducing these delays.

Environmental Issues

Initially, laws were enacted for environmental concerns related to water, air, noise etc, as and when they became areas of concern. Later, an integrated law was passed by the government.

As the number of projects and private investments increased, bureaucratic delays became a concern. Laws were modified to overcome these delays. Between 1980 and 1998, nine Acts, Bills, and Amendments related to environment were enacted. These included the Forest Conservation Act 1980, the Environment Protection Act 1986, the National Environment Appellate Authority Act 1997, and the Coastal Regulation Zone notification 1991.

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The Environment Protection Act (EPA) 1986 came into existence soon after the Bhopal gas tragedy. It became an umbrella legislation, and attempted to seal the existing gaps in the law. It empowered the central government to take measures to protect and improve the quality of the environment, by setting standards for emissions and discharges, by regulating the location of industries, and by protecting public health and welfare (EPA, 1986).

The need for the Environmental Impact Assessment (EIA) was formally recognized at the Earth Summit held at Rio de Janeiro in 1992. In India, the EIA Notification was enacted in 1994, with the EPA as its legislative foundation (MoEF, 2008). The Act has been amended in 1997, 2006, and 2007. The process of getting the clearances as per the EIA Act is illustrated in below figure.

Thirty-two categories of developmental projects require EIA approval. In addition, all developmental projects, whether or not mentioned in the schedule, and if located in an environmentally fragile region, must obtain clearance from Ministry of Environment and Forest (MoEF), a central government entity set up in 1985. Prior to this clearance, they must also obtain clearance from the State Pollution Control Board (SPCB). If the location involves forestland, a No Objection Certificate (NOC) shall be obtained from the State Forest Department (SFD). Both SPCB and SFD are the state entities functioning in the geographical region where the project exists.

Over the years, regulations have been simplified with an aim to reduce the total time required for the approval process. The simplifications include reducing the number of interfacing agencies and approvals, and allowing parallel activities for clearances. As per the EPA Amendment Act 2007, environmental clearance for project proposals were to be granted usually within the mandated time frame of 120 days from the date of receipt of complete information from the project authorities. The project clearances had been delayed due to non-submission of the requisite information. Some of the steps taken to expedite the process included (Wildlife Protection Society, 2008):

" A time limit of 90 days for completing appraisals, 30 days for communicating the decision, and 60 days for completing the public hearing by SPCB was fixed.

" The investment limit for a project requiring MoEF clearance was raised from Rs 500 million ($ US 10 billion) to Rs 1000 million ($ US 20 billion) for new projects.

" The requirement of public hearing for Small Scale Industries located in industrial areas/estates. These include widening and strengthening of highways, offshore exploration activities beyond 10 km (6 mi) from the nearest habitat, mining projects of major minerals with lease upped 49 acres (20 hectares), modernization of existing irrigation projects and units to be located in Export Processing Zone (EPZ) and Special Economic Zone (SEZ).

" The requirement of the EIA report for pipeline projects was dispensed with.

" NOC/consent to establish was not insisted upon at the time of receipt of the application for environmental clearance.

" Authority was delegated to the state governments for granting environmental clearance for certain categories of thermal power projects.

Land Acquisition Issues

The land acquisition policy has experienced less number of modifications in the Act. The prevailing laws related to land acquisition are:

(i) Land Acquisition Act of 1894,

(ii) The National Highways Act of 1956,

(iii) National Policy on Resettlement and Rehabilitation for Project-Affected Families of 2003, and

(iv) State government policies (few state governments have special policies).

The Land Acquisition Act of 1894 empowered state governments to acquire land for any public purpose project. It provides three methods for arriving at the value of land, which were:

(i) government approved rates,

(ii) capitalized value of average annual income from the land, and

(iii) Prevalent market rate based on the land transactions data. The process

of land acquisition under this Act is illustrated below.

As the figure shows, much depended on the District Collector's satisfaction.

The National Highways Act of 1956 had provisions for acquiring land through a competent authority (a person authorized by the central government by notification in the official gazette). Under the Act, publication of the intent of the government to acquire land, surveys, hearings of objections, and the declaration of acquisition were to be completed within a year. This Act reduced the time frame significantly. This Act included provisions for compensation to only the title holders based on the market value of the land, additional payments for trees, crops, houses, or other immovable properties, and payments for damage due to severing of land, residence, or place of business.

The National Policy on Resettlement and Rehabilitation for Project-Affected Families of 2003 provided additional compensation to project-affected families, over and above the provisions of the Land Acquisition Act. It recognized the multipurpose use of land by both title holders and non-title holders of the land. State laws varied in terms of their compensation package and the definition of project affected people to some extent.

Poor compensation and undervalued market price of land have led to many disputes by the affected population. The undervaluation was as high as four to ten times, due to both regulatory arbitrage (government has to provide clearance for land use change) and information asymmetry (title holders may be difficult to identify due to poor record keeping). As of November 2008, the central government was considering the modification of the prevalent Land Acquisition Act by modifying the definition of "public purpose," increasing the compensation package, imposing restrictions on non-used land, and simplifying the process of dispute resolution.

Brief Overview of Railway Land

Railway land has been defi ned under the Railways (Amendment) Act, 2005, as 'any land in which a Government Railway has any right, title or interest' and

includes all lands within the fences or other boundary marks indicating the limits of the land appurtenant to a railway.1 Over the years, Indian Railways (IR) has been acquiring land for its operation of trains. According to the latest available information, IR had 4.3 lakh hectares of land as on 1 April 2006. Some of this land has been provided by the state governments free of cost or on nominal charges and the rest acquired in exchange for market-determined compensation.

Legal Provisions for Land Acquisition By IR

For land acquisition, IR follows the procedures laid down in the legal provisions of the Land Acquisition Act (LAA) 1894. Actions such as publication of Preliminary Notice under Sec. 4(1) of the LAA, 1894, declaration under Sec. 6 (1), award enquiry, passing of final award, disbursement of payment, etc. are done by the competent authority of the state government. Th e assessed approximate land acquisition cost including solatium and interest, etc. As per statutory provisions is deposited in advance with the State Government by IR. Although IR has generally used LAA, 1894 for acquisition, it is possible for IR to directly negotiate with the landowners.

Sec. 11 of the Railways Act, 1989 has signifi cant implications for the institutional structures under which the private sector can invest in a railway project, which

inter alia involves acquisition of land. Th is section and its implications need to be understood before we outline the case studies.

Sec. 11 states that,

…Notwithstanding anything contained in any other law for the time being inforce, but subject to the provisions of this Act and the provisions of any law for the acquisition of land for a public purpose or for companies, and subject also, in the case of a nongovernment railway, to the provisions of any contract between the non-government railway and the Central Government, a railway administration may, for the purposes of constructing or maintaining a railway-

(a) make or construct in upon, across, under or over any land, or any street, hills, valleys, roads, railway, tramways, or any rivers, canals, brooks, streams or other waters, or any drains, water-pipes, gas-pipes, oil-pipes, sewers, electric supply lines, or telegraph lines, such temporary or permanent inclined-planes, bridges, tunnels, culverts, embankments, aqua ducts, roads, lines of railways, passages, conduits, drains, piers, cuttings and fences, in take wells, tube wells, dams, river training, and protection works as it thinks proper;

(b) do all other acts necessary for making, maintaining, altering or repairing and using the railway.

Thus, Sec. 11 of the Railways Act, 1989 provides the authority to IR to execute works for provision of railway lines and related installations. The importance of Sec. 11 is in enabling better access to right of way and land and enables faster and more assured implementation of projects. It overrides all other laws including environment laws, local state laws, and municipal laws and thereby reduces the clearances required. Without access to such a provision, a railway project may not be viable.

However, the authority provided under Sec. 11 is available with greater certainty to Government Railways. Since 'railway' is defined to mean a railway or any portion of a railway, for the public carriage of passengers or goods, a railway that is not to be used for public carriage of goods or passengers will not fall within the above mentioned definition under the Railways Act. Thus, it

would not be eligible for the benefit of Sec. 11, which acts as a major disincentive for completely captive nongovernment railways.

A non-government railway can have access to Sec. 11, but subject to the provisions of a contract with the Central Government. Since there is no framework governing contracts between the Government of India and nongovernment railway, the latter would be completely exposed to executive discretion.2 There is, therefore, an underlying practical encouragement to government railways within the legal framework.

As per the present provisions of the Railways Act, 1989, the most suitable railway projects (albeit in a limited manner) for private investment will be government railway projects (that is, projects in which Government of India owns part of the project). Hence, most rail-port connectivity projects involving private investment are being executed through the special purpose vehicle (SPV) route (where the Central Government is a partner) as it then enables the private partner to use the provisions of Sec. 11 of the Railways Act, 1989.

Case Study: Haridaspur-Paradip New Line Project

The Haridaspur-Paradip New Line Project is an 82 km long port connectivity project under the National Rail Vikas Yojana (NRVY). It is meant to provide railway connectivity to the iron-ore mines in Banspani area of Orissa to Paradip port, to enable export of iron-ore from India. The project is being implemented by Rail Vikas Nigam Ltd (RVNL) through a project-specific SPV called Haridaspur-Paradip Railway Company Limited (HPRCL).The landed cost of the project is approximately Rs 1,000 crore and it is targeted to be completed by March 2010. For this project, land is being acquired by East Coast Railway (a Zonal Railway and part of the IR) on behalf of HPRCL, but the cost of land acquisition is being entirely borne by the SPV. As per the Concession agreement signed between Ministry of Railways and HPRCL, all the new land

acquired by East Coast Railway on behalf of HPRCL will be given to the SPV at a total licence fee of Re 1 per annum for the period of the concession. The title of the land will, however, remain in the name of East Coast Railway and the SPV will hand back the possession of the land when the concession period ends or is terminated.

Such an arrangement has been devised to utilize the provisions of the Railways Act, 1989 for acquisition of land for the project. As already mentioned above, it is much easier to acquire land for a government railway than for a non-government railway. Under this arrangement, land is being acquired for East Coast Railway and not for the SPV, which therefore, makes the acquisition of land a simpler process.

RVNL had been awarded the contract for the construction of this line for the entire project in May 2007. Due to the problems mentioned below, the work has not progressed much. If the state government and IR are unable to make the site available for construction, the contractor may not continue the work on the project and this will be a serious setback in terms of project cost and time overrun.

PROBLEMS IN LAND ACQUISITION FOR THE PROJECT

The project involves acquisition of 270 acres of government land and 1440 acres of private land. Acquisition of private land is being done under LAA, 1894 while government land is being alienated under the Orissa Government Settlement Rules. East Coast Railway has acquired land in a 70 km stretch out of 82 km in Kendrapada, Jajpur, and Jagatsinhpur districts. An amount of Rs 46 crore has been paid to the state government, which is much higher than the initial estimate of the cost of land. The balance land to be acquired is spread over the alignment at different locations. The progress has since been slowed down on account of the following problems, which have cropped up in the land acquisition process.

Executive Decisions are Inconsistent with Government Rules

The villagers are not permitting the construction contractor appointed by RVNL to undertake the activity of earthwork and bridge construction on the land already acquired, both private and government. The reason for agitation by villagers is that in some of the villages, the rates paid for state government land are 10 to 20 times higher than that for private land. For a comparative statement of price (village-wise) of the Rayati land and government land is enclosed (see Annexure Table A18.1). Such a wide variation in the pricing of land has resulted in resentment among the private landowners. The villagers are demanding the same rate for compensation as is being given for government land. The District Collector, as per the Orissa Government Settlement Rules, should have determined the price of the government land on the basis of transactions made for the private land in the vicinity. Instead,

the Collector charged Railways on the basis of prices for homestead land or urban land instead of agricultural land. The decision of the Collector is not in consonance with the government rules.

Unfair Demand for Compensation

In some areas, even the government land is in possession of farmers who are raising crop on this land without payment of any taxes or levies. They are now demanding compensation at the same levels as those given to other title holders of private land. Since they do not have title to the land, it is obviously not possible to grant them compensation. Similarly, the forest department had permitted project-related construction on some forest land, which lacked tree cover. However, it is found that this land is also being cultivated by non-title holders and they are not permitting the construction without compensation.

Furthermore, the custodians of the temples located on the alignment are demanding that compensation be paid to them, although as per law, the compensation is to be paid to the endowment commission. To bypass this issue, the RVNL decided to change the alignment of the railway line so as to avoid passing through the temple land.

A Case of a Single Hold-out

A building in village Nanpur, namely Pollishree Sikshya and Sanskrutik Vidyalaya near Birupa river is yet to be taken over for possession by the railway. The owner is refusing to accept the compensation and threatening to file a false criminal case.

Poor Law and Order Situation

There are many instances where the contractor's men are being threatened and beaten up by the locals. Several FIRs have been lodged with the police. The areas severely affected are in Kendrapara district and Jajpur district. To sort out this issue, Principal Secretary, the Commerce & Transport had convened a meeting in April 2008, which was attended by collector and superintendent of police of these districts and officers from the Railways. Unfortunately, the results have not been very encouraging.

Cess Charges for Government Land

Tehsildars have levied cess for government land being acquired at the rate of 75 per cent of the capitalized value, which works out to Rs 10 lakhs per acre. As a result of the above difficulties in acquiring land for the project, the work progress has been slow and the revised cost of acquiring the land is now estimated at Rs 54.5 crore, which is way above the original estimated cost (as in April 2005) of Rs 23.7 crore. This has had an adverse impact on the project financials. The main lesson from this case is that in the absence of full cooperation of the state government and its functionaries, railway projects can be unduly delayed and viability affected.