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Analysis

A view through an infrastructure investor’s prism

Active policies to address the three issues revolving around the value, scarcity and contract enforcement that investors utilise to determine both investments and the required rate of return can help make policies useful.

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Perspectives on infrastructure assets vary widely: While investors focus on investment returns, policymakers analyse both financial and socio-economic benefits. It would be worthwhile for policymakers to view things through an investor’s investment prism because an understanding of the critical factors that shape investment decisions will help frame better policies to expedite Indian infrastructure creation.

The “raw value” of an infrastructure project is what a potential investor evaluates first. For example, in a renewable energy wind project, the wind potential of a site is what an investor evaluates. For a transportation project, the investor evaluates the potential passenger traffic. This so-called “raw value” is a huge determinant of the financial viability of a project.

Segregating infrastructure sectors and projects by such “raw value” can help government and industry alike to work towards directing infrastructure capital more optimally. Additionally, such analysis helps in framing policies for those sectors that deliver very substantial social and economic value but are not financially viable on their own.

A robust framework that helps determine “raw value” can aid all the stakeholders, especially the government, to work with investors and multilateral trade agencies to find financing solutions for such socially and economically relevant projects. Eventually, India needs to create an information repository of sorts that provides the global investor base information and access by asset type and investment potential.

Once the “raw value” of a project is determined, an investor tries to gauge what is called its “scarcity value”. Take, for instance, transportation projects. If the transportation potential of connecting City “A” with City “B” is attractive, then is building an airport to connect the two cities the most optimal infrastructure asset? That is, in spite of the traffic potential, is an airport a “scarce” enough asset to deliver attractive returns?

The investor will gauge whether the airport is likely to face competition from a competing train network or a highway. Being cognizant of the long-dated nature of infrastructure assets is important. Hence investors will have to gauge the “scarcity value” of the asset to determine the attractiveness of the asset over the long investment horizon and, therefore, eventually decide on their willingness to invest in the asset.

It is essential for the government to find a balance between allowing investors to make returns commensurate with the risk taken and allowing the public to have access to a well-priced and high-quality infrastructure asset. The twin objectives of consistency and transparency in policy are crucial in this regard.

The government’s ability to formulate and communicate the strategy effectively regarding not just sectors but individual assets is vital. To indeed expedite infrastructure creation, granular policy across industries will be needed, more so for much-needed greenfield infrastructure projects.

Apart from “raw value” and “scarcity value”, an investor considers a third factor: The quality of the underlying contracts signed for the asset. Investors look for high-quality counter-parties with whom to sign contracts. More importantly, the government’s ability to deliver a robust legal system for contract-enforcement, as also a more efficient system for conflict-resolution, will attract more significant investments.

Lowering the risk perception for Indian infrastructure assets is essential not merely to attract more investments but also to attract investments at lower financing costs. Reducing the cost of capital is going to be a significant driver of infrastructure projects through their improved financial viability.

Another area that merits attention is the possibility of the government working even more closely with Export Credit Agencies of various countries to offer foreign exchange hedges, while “importing infrastructure investments”. Solutions that not only reduce the legal risk in investments but also partially eliminate the foreign exchange risk can help boost investments significantly.

Active policies to address the three issues revolving around the value, scarcity and contract enforcement that investors utilise to determine both investments and the required rate of return can help make policies useful.

Policy frameworks can potentially be refined using these three key factors that shape investment decisions. Most importantly, one does not need to improve concurrently on all three fronts for all infrastructure sectors; incremental improvement on one element can provide a significant fillip to infrastructure investments.

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can contacted at [email protected] or @Taponeel on Twitter)

Analysis

‘Crop insurance scheme benefits companies more than farmers’

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New Delhi, July 18 : It is yet to be seen how much the Modi government’s ambitious crop insurance scheme has benefitted farmers, but one section that has definitely hit the jackpot is the insurance industry, which collectively earned around 85 per cent profit, excluding expenditure on administrative purposes and reinsurance, during the 2017-18 kharif season, government data shows.

According to the Agriculture Ministry’s data, all 17 insurance companies — five public and 12 private — empanelled under the Pradhan Mantri Fasal Bima Yojana (PMFBY) registered a margin of Rs 15,029 crore as they paid out claims of a mere Rs 2,767 crore against the Rs 17,796 crore collected as premium.

PMFBY is exempted from Service Tax (now a part of GST), as per its operational guidelines.

Similarly, these companies have earned over 96 per cent profit under another crop insurance scheme — Restructured Weather-Based Insurance Scheme (RWBCIS) — during kharif 2017-18 as they received Rs 1,694 crore as premium and paid out just Rs 69.93 crore as claim compensation, figures accessed by the IANS show.

During the last kharif (2016-17) season, the insurance companies had earned 44 per cent profit as they received Rs 15,735 crore while they incurred expenditure of Rs 8,862 crore in claims made by the farmers.

According to the Agriculture Insurance Company of India (AICI), the nodal agency for these schemes, the business has been “profitable” since they were launched in February 2016.

“A good monsoon has certainly helped increase food production, which we think has led to such profits,” said a senior AICI official, who wished not to be named.

Earlier, under previous insurance schemes, the AICI had paid as much as Rs 2.80 as compensation claim against the premium of Rs 1, causing it to incur significant losses, said the official.

The government and insurance companies cite a “good monsoon” and “higher production” for the low claims. But there were cases of extreme climatic conditions, drought like situations, and floods at many places, said Chandra Bhushan, deputy director of the non-profit Centre for Science and Environment (CSE).

“You cannot call it a good year to back low pay-outs since issues such as extreme climate and floods have been reported at many places. There are issues with assessment, payment dispersal along with technology issues. If claims are so low like 15 per cent (of premium collected), the country’s agriculture has no problem. There is no need to have any such crop insurance scheme then,” he added.

Interestingly, these insurance companies are bound to safeguard their interests by taking reinsurance cover and the government is to provide protection to them in case premium to claims ratio exceeds 1:3.5 or the percentage of claims to “Sum Insured” exceeds 35 per cent, whichever is higher.

Farm activists find a “big lacuna” in the design of the PMFBY, saying it has been more beneficial to the insurer than farmers.

Kavitha Kuruganti of non-profit Alliance for Sustainable & Holistic Agriculture (ASHA) said Crop Cutting Experiment (CCE), which is done to obtain accurate estimates of crop output, is conducted in a unscientific manner.

“The samples collected for CCE are not scientific. The consequences are that the farmers are not benefitted but the companies,” she said.

In addition, claims made by farmers for crop loss have found not to be settled by the insurance companies on time.

“Claims are not provided in time. Also, banks do not send data (to companies) in time. There are several lacunae with the implementation. But the big laucuna is with the design of the product,” Kuruganti said.

As many as 3,31,96,239 farmers bought crop insurance under PMFBY to insure 3,34,73,346 hectares of land during kharif 2017-18.

However, claims of only Rs 2,767 crore were paid against the reported claims of Rs 5,052 crore.

Interestingly, the government could not yet complete claims settlement for winter crops cultivated during rabi 2017-18 when the process “ideally” should get over in “a month” after the harvesting.

According to the ministry data, claims worth Rs 14 crore were made under PMFBY for rabi 2017-18 and the payout was Rs 12.1 crore till early June against the premium of Rs 5,128 crore collected by the insurers.

A top official told IANS that the ministry was “aware” of the “big profits” and delays in settling claims.

“Although companies are earning more profit now, there are chances that they may incur losses in future if significant crop losses are reported. Also, we have asked the companies and states to speed up the settlement process by adopting new technology,” said the official, who requested anonymity.

Under the scheme, farmers have to pay just 2 per cent of total premium in case of kharif, 1.5 per cent for rabi and 5 per cent for horticulture and remaining premium is shared equally by the Centre and the states.

However, there is no cap on the actuarial premium rates charged by the insurance companies, which Kuruganti said was “very high” for some crops.

(Saurabh Katkurwar can ne contacted at [email protected])

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Analysis

Agusta case: Indian authorities fail to produce evidence against Michel in UAE court

The Indian government was supposed to produce evidence in the United Arab Emirates (UAE) court by May 19, 2018 against Michel. “But the government did not present any evidence,”

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Agusta Westland Chopper SCAM

New Delhi, July 17 : In a setback to efforts to extradite British national Christian Michel James — one of the alleged middlemen in the Rs 3,600 crore AgustaWestland VVIP chopper deal case — Indian authorities failed to produce any evidence before the UAE courts within the stipulated time, according to the lawyer of the accused.

The Indian government was supposed to produce evidence in the United Arab Emirates (UAE) court by May 19, 2018 against Michel. “But the government did not present any evidence,” Michel’s lawyer, Rosemary Patrizi Dos Anjos, told IANS over phone from Milan in Italy.

She said the government “does not have any evidence against” him and therefore its officials were unable to produce any, adding that there was “no evidence against Michel in Italy, Switzerland or India.”

Dos Anjos said the Indian government was given a further time of 45 days by the UAE court at its next hearing to produce evidence out of which 30 days had already expired without any movement.

Dos Anjos also said that Michel was questioned by CBI officials in Dubai a month ago. Michel is still in the UAE, according to her.

Neither the Enforcement Directorate (ED) nor the Central Bureau of Investigation (CBI) were willing to comment on the case.

In January this year, the ED had lodged a request with the UAE authorities for extraditing Michel. Both the ED and the CBI had filed chargesheets in bribery cases in Indian courts and non-bailable warrants had been issued against the accused.

Last year, a red corner notice was issued against Michel by the Interpol on a request by the CBI. RCNs were also issued against two Italians involved in the scam — Carlo Gerosa and Guido Haschke.

According to Indian investigative agencies, Michel had received at least Rs 235 crore for ensuring that the chopper contract went to AgustaWestland. He was a frequent visitor to India, having undertaken 300 trips to this country between 1997 and 2013.

ED sources said that bribes to Michel were paid through a web of companies located abroad and in India on the pretext of payment for consultancy work. He also used his Dubai-based firm Global Services FZE as a conduit for money.

In its chargesheet, the CBI had named former Indian Air Force chief S.P. Tyagi, his cousin Sanjeev Tyagi, alias Julie, the then IAF Vice Chief J.S. Gujral and advocate Gautam Khaitan as the four Indians involved in the scam. The chargesheet mentioned Khaitan as the “brain” behind the deal.

Others named in the chargesheet included Giuseppe Orsi, the former chief of Italian defence and aerospace major Finmeccanica and Bruno Spagnolini, former CEO of AgustaWestland, apart from middlemen Michel, Haschke and Gerosa.

On January 1, 2014, India cancelled the contract with Finmeccanica’s British subsidiary AgustaWestland for supplying 12 AW-101 VVIP choppers to the IAF, over alleged breach of contractual obligations and on charges of paying kickbacks amounting to Rs 423 crore.

The CBI, which registered an FIR in the case on March 12, 2013, had alleged that Tyagi and the other accused received kickbacks from AgustaWestland to help it win the contract. The FIR mentioned charges of criminal conspiracy, cheating and those under the Prevention of Corruption Act.

According to the CBI, Tyagi allegedly took bribes of several crores from AgustaWestland through the middlemen — and a complex set of companies in several countries — to change the specifications of the contract. The operational flight ceiling of the choppers was reduced from 6,000 metres, as originally proposed, to 4,500 metres and the cabin height was brought down to 1.8 metres.

The twin modifications were allegedly meant to rig the deal in favour of AgustaWestland, which eventually walked away with the order to supply the 12 choppers for the Communication Squadron of the IAF for ferrying the President, the Prime Minister and other VVIPs.

The CBI probe revealed that several payments were made to the Tyagis by Haschke, Gerosa and Michel.

Tyagi, who was IAF chief from 2004 to 2007, his cousin and Khaitan were arrested in December last year by the agency. They are now out on bail.

by By Anand Singh

(Anand Singh can be contacted at [email protected])

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Analysis

Croatia in World Cup: The story of its origin

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Players of Croatia

Croatia’s prominence in the football World Cup freshened memories of its origin in the war which expanded after German Foreign Minister Hans-Dietrich Genscher recognised Croatian and Slovenian independence, ahead of other European Union countries which were palpitating because German reunification in 1989 had already added to their anxieties.

As the Persian expression goes, “Ek na shud, do shud.” Before one source of anxiety could subside, another surfaced. Cardinal Franjo Kuharic, headquartered in Zagreb’s magnificent Cathedral, marched off to the Vatican to seek the Pope’s and Italy’s support. This was promptly given. Some EU member-countries began to have nightmares of the “Axis” being revived.

I was in the Cardinal’s office in the Cathedral which dominates Zagreb square when the door of the ante room flung open and Father Juraj Jezerinac of the Topusko Parish walked in. I had been introduced to him at the earliest stages of the conflict in one of the livelier cafes in Zagreb square. He was full of stories. One night his orthodox Serb counterpart from the neighbouring church compound came to him, looking very conspiratorial.

He had received word from the Orthodox headquarters in Belgrade that Orthodox Priests must lead all Serb populations out of Western Croatia in the Topusko area because the Serb army was preparing to attack the area and annex it as part of Greater Serbia. This was a scoop.

Was further proof required to confirm coordination between the Catholic and the Orthodox churches? They would put aside their intra-church conflicts and join hands against the Bosnian Muslims. The cruel irony was that Sarajevo, the centre of art, music, theatre, literature in former Yugoslavia, was primarily a Bosnian Muslim city. Like Lucknow, Sarajevo went down, nursing art and culture, unable to cope with the assault of philistinism.

At the outset when, some EU members suspected German and Italian encroachments, Britain and France came covertly on the side of Serbia which had been with them during World War II. Gen. Michael Rose, leading the UN Peacekeeping mission in Bosnia, became a regular feature on global TV giving briefs on the Bosnian dead on a daily basis.

Nothing could have exceeded Serbian brutality than the four-year-long siege of Sarajevo. Graphic accounts of this siege, beamed mornings, afternoons, evenings to global audiences on a daily basis, decisively altered the political landscape in Turkey, a development of which the West remained totally oblivious.

Sarajevo derives from Caravan Sarai, pointing to the city’s Ottoman past. The effect of the Bosnian tragedy on the Turkish electorate brought to power Necmettin Erbakan of the Refah party, akin to the Muslim Brotherhood. This was anathema to the upholders of Turkey’s secular Kemalist constitution. The Erbakan government was dismissed.

That is when two of Erbakan’s protégés, Tayyip Erdogan and Abdullah Gul, reinvented themselves as the (AKP) justice and Development Party. The rest is recent history.

The siege of Sarajevo was graphically chronicled by a daily newspaper, Oslobodenje, which won global awards for its bravery. The paper’s office itself was an astounding sight. The offices and the press were in a huge basement, beneath the debris of a multistoreyed building brought down during the war. The editor, Kemal Kurspahic, whom I had met at the last Non-Aligned Summit attended by Rajiv Gandhi in Belgrade, looked none the worse for his travails. But he had, nevertheless, developed a mark on his forehead. This happens when the forehead hits the ground for “namaz” (Muslim prayers) five times a day over months and years.

“Have you become a devout Muslim?” I asked.

“There is no alternative but God when the world abandons you.” There was conviction in his voice.

“Who helped you publish the paper in these circumstances?”

His reply stunned me. “George Soros.”

Throughout the four-year conflict Europe maintained a hands-off policy to avoid internal divisions within EU. Observers like Salman Rushdie described European restraint as hypocritical.

“You reverse the religious affiliations of the protagonists on the ground and not just NATO but even European forces would have entered the theatre immediately to end the bloodbath.” They refrained from intervention because Muslims were the victims.

Those of us involved in covering the conflict knew that Rushdie, and others like him, were speaking the truth. But the mainstream narrative was fudged even on such crimes as the Srebrenica massacres in which 8,000 young Bosnian men were separated from their families and shot dead by Serb militias. Why did the Dutch peacekeeping forces move away from the site of the massacre?

The 78-day US bombing of Serbia during the Kosovo war was designed to oust the Serbian dictator, Slobodan Milosevic. Russians had been outmaneuvered by the Western alliance in a theatre Moscow considered its pan Slavic sphere of influence. Therefore when the responsibility of various part of Kosovo was being distributed between countries of Europe, Russian armoured carriers barged into the area around Pristine airport uninvited. They are still in occupation of that airport. Britain, Germany, France control other segments of Kosovo, a tiny country dotted with exquisite monasteries. The great monastery of Decan in the care of the Italians where priests produce the world’s finest wines and schnapps.

Just as the sun sets, a young priest runs around the building carrying on his shoulder a giant rattle called the tallantone, alerting the inmates just in case the “Turk invader” has eyes on the “House of God”. This hostile mythology is sustained in many countries on the periphery of what was once the Ottoman Empire.

Considering that this World Cup has been a celebration of multiculturalism, how do I explain my being distracted into Balkan tribalism? How swiftly a nation of 4.5 million has made its mark, wrenching itself away from a recent and messy past. Supposing Sefik Ibrahimovic had not migrated from Bosnia to Sweden in 1977 where the great soccer star Zlatan Ibrahimovic was born? Well, Zlatan could have claimed a slot in the Croatian team with considerable justification. His mother, Jurka Gravic, is after all a Croat. Remember, there was multiculturism in the Balkans too before sectarian tribalism was let loose.

(Saeed Naqvi is a commentator on political and diplomatic affairs. The views expressed are personal. He can be reached on [email protected])

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