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Funding National Waterways

Funding National Waterways

The ambitious plan of utilising existing underutilised waterways and creating the new national waterways will require government initiative and huge investments.
India has remarkable potential of 14,500 km of navigable waterways. However, only 4,300 km comprising five waterways have been designated as National Waterways. Realising the exponential growth in this sector in the coming years, the government in the year 2016 has, under the National Waterways Act 2016, declared an additional 106 inland waterways which brings the total number of National Waterways to 111. During the recent Maritime India Summit 2016, the government showcased the resource potential in front of the world community and presented a roadmap to attract investments from various investors in this sector for the systematic development of the total 111 National Waterways.

In this article, we have endeavoured to deal with the aspect of funding for the National Waterways with the focus on various sources of funding and the challenges to procure the same.

The ambitious plan of utilising the existing underutilised waterways and the new national waterways will require government initiative and huge investments. As per one of the sources , an investment of a staggering amount of Rs.35,000 crore may be required in a short span of the next two years. Considering that the sector has been neglected for the past several decades, garnering the kind of interest and investment required for this sector may be a challenge in itself.

To address the challenges faced by this languishing sector, to begin with, multiple funding options are available in the Inland Waterways Authority of India Act, 1985 (IWA Act), which can be explored. Sections (17) to (19) of the IWA Act deal with the provisions of finance and funding of National Waterways. In terms of Section 17, the Inland Waterways Authority of India (IWAI) has the right and power to levy fees and charges for the services and benefits rendered in relation to the use of the National Waterways (at such rates as may be laid down by applicable regulations). Section (18) deals with the provisions of grants and loans to the IWAI by the Government for the development of this sector. The IWAI can also source funds in terms of Section 18(A), whereby the IWAI can borrow money by the issue of bonds, debentures, or other instruments, as the IWAI may think fit for discharge of all or any of its functions under the IWA Act. Section 19(1) deals with the provision of the constitution of funds to be called the Inland Waterways Authority of India Funds, in which money received from grants, loans, fees, charges and such other sums shall be credited, which in turn can be utilised in terms of the provisions of Section 19(2).

In order to encourage and gain the confidence of the stakeholders, initially, the government may have to infuse funds from its own kitty. The government is fully aware of this requirement and has declared budgetary support of about Rs.350 crore for the development of inland waterways . Further, the Shipping Ministry also intends to utilise part of the funds from the Central Road Fund which is meant for development and maintenance of roads and railway overbridges for the development of inland waterways. The government is also contemplating to access other funds like the National Clean Energy Fund etc., to meet the funds requirement of this sector. The Minister of Coal, Piyush Goyal, in the Maritime India Submit 2016, mooted that the government can consider creating a seed fund (which funding provisions are already encapsulated in the IWA Act, as discussed above). The corpus to this fund can be contributed by the ministries of Shipping, Coal, Power and New Renewable Energy. The Minister further suggested that the initial corpus can then be leveraged to raise additional funds for the development of National Waterways.

The government can also explore other funding options which include grants and loans from multi¡lateral agencies, international and regional development banks like the World Bank, the International Financial Corporation, International Monetary Fund, International Development Association, Asian Infrastructure Development Bank, etc. The provisions of the IWA Act also delineate the powers of IWAI and provides that IWAI can borrow money from various modes of funding such as issue of bonds, debentures or other instruments (with or without equity participation) which are also predominately used in other infrastructure projects.

The government may also consider making the infrastructure bonds more attractive by increasing the prevailing rate of interest (which is currently about 7.4 per cent to 7.8 per cent) and further increasing the limits for categorisation of high networth investors so that the individuals investing higher amounts can also enjoy the same rate of interest.

Bond financing of projects is widely prevalent in countries like the USA, the UK, Germany, etc. Though an expensive and conservative source of finance, it can provide a large amount of funds at fairly less restrictive and onerous terms to meet the humongous funds requirement of this sector.

Countries like the United States, Europe, Japan, Korea and China which have significant usage of waterways as mode of transportation of goods and passengers have utilised similar avenues and sources of funding like a dedicated trust fund, levying users and license fees (for using the facilities), issue of bonds, incentivising the key players in the sector, providing tax and other concessions.

All said and done, the government has its limitations and may not be able to pool in the required resources for creation of necessary infrastructure. Coordinated investment steps may therefore be necessary in the coming years. Viability gap funding, as is prevalent in other sectors such as roads, airports and railways, may also be adopted for encouraging the development of this sector. The government can also consider taking up the construction and development of waterways which are not so viable or when it has other challenges on the cost-sharing model during the development and construction stage. This will provide the much-needed confidence to private participants in such projects and demonstrate the commitment of the government. Once the project is built, the entire cost of operating and managing the project can be borne by private participants. Out of the revenue generated from the operation of such waterways, a part of the same can then be paid to the government towards the initial investment for the agreed time period.

Participation of Private Players
The substantive role of public-private partnership as a means for harnessing private sector investment cannot be ignored. In order to provide a level playing field, the government intends to open up not only the ownership and operation of vessels for cargo, but also in varied areas like construction and operation of terminals and river ports, designing and construction of low draft vessels to mitigate the adverse effects of dredging, fairway development including hydrographic surveys, dredging works, navigational aids, construction, barge constructions, training of vessel crew by establishing an Inland Waterways Training Institute (as provided in the IWA Act), provision and maintenance of navigational facilities and provision of pilotage services, etc., to name a few.

The government may also provide similar concessions which are currently provided for the development of National Highways like tax exemptions. In addition, the government may also dole out attractive incentives, concessions, customs duty exemption, allow enhanced depreciation rate for vessels, provide vessel building subsidy, seek participation by preparing realistic policies aligned with the laws and regulations, assure minimum business (in certain cases), etc.

The IWAI is expecting private participation in two areas, which being setting up of cargo terminals and running of vessel services on the identified waterways . It is proposed that the IWAI will award contracts for the cargo terminals to the private participants quoting the lowest project cost. Further, the Central government intends to grant leases at concessional rates for the development of cargo terminals and assistance for vessel building at domestic shipyards. The private operator can recover the cost and earn returns on investment by levying user charges during the concession period, which may vary on a case-to-case basis.

Each funding option needs to be individually analysed, taking into perspective the relevant project and its fund requirement. Before accessing any source of funds, the pros and cons need to be clearly analysed and understood. This will require careful deliberation by the parties involved in the project. One should also take into account the cost of inflation, liquidity, foreign exchange, and pricing risk and take adequate steps to mitigate the same.

Clear policies, along with the government working towards creating a positive atmosphere amongst the private players and undertaking the projects in a transparent, result-oriented and time-bound manner can help the government to channelise and use the funds available from various sources for undertaking this mammoth task.

This article is authored by Shisham Priyadarshini and Amish Shroff of Rajani Associates.

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