Sometimes, it’s good for India Inc to be India Outbound

Vietnam is the latest entrant in the PPP marketplace, thanks largely to World Bank’s guidance. Kamran M Khan, Programme Director at Global Infrastructure Finance Centre of Excellence at World Bank-Singapore Urban Hub, spoke with Shashidhar Nanjundaiah recently at a road show organised in Mumbai to promote Vietnam’s first PPP project.

World Bank works in different countries on similar projects. How is Vietnam different or similar or what has been your experience?
A very interesting question. I do work on different countries on similar issues, but because countries are at different stages of development, and World Bank is positioned differently in the various countries.

So, with that caveat, Vietnam is an interesting country in that I see Vietnam as sort China minus x number of years. (As you may know, we do a lot of work in China as well.) They have some very similar things happening in Vietnam that tend to emulate the Chinese model-in certain senses. So in Vietnam it is not as the policy or decision making process is not as devolved, but quite careful.

On public-private partnership (PPP) and infrastructure finance they grew very fast as you know Vietnam sort-of became the darling of the world and so on so and they were going at fast pace and then they had an inflation issue. So, they had a macroeconomic issue that they had to manage before the financial crisis; indeed, before the global financial crisis [of 2008-9], there was one in Vietnam. In that process, Vietnam became careful about spending from the public budget, I believe the [crunch] reinvigorated the approach to PPP.

The government has a commercial, business-like approach to the public sector, somewhat like China in that [the government] does not get lost in emotionalism and propaganda. Every government has a little bit of that, but relative to other countries, Vietnam is much more business-like: If a project makes economic sense, and there is a need to connect a corridor with a lot of commercial traffic, the project is seen as necessary. Then a decision is be made between whether it should be on PPP or merely a public project.

So there is a prior, quantitative commitment from the [Vietnamese] government to the private concessionaire of how much the government will take on (and not take on).
Yes. If we tell them what needs to be done, they will deliberate upon it in a business-like manner and come back with that final decision of how much they can accomplish.

It is interesting that World Bank is undertaking a project in a corridor that seems to be already industrially developed. Is this a first of its kind [in Vietnam] that would then be followed in Vietnam by more projects in less developed areas?
Yes, and I kind-of see where you are going with this, so, let me answer this on two levels:

One is that this is not the only it is a series of projects so we have made a commitment to the government to help them set up a PPP programme-not one project alone, but a whole programme, including the framework, the legal framework, the legislative, the administrative, and so on. We are firm about getting governments to commit to doing projects, not merely talk about them, so that they learn the processes. A lot of countries talk for extended periods of time, and we are partially to be blamed at times to for just talking.

So, this is a first project and as you can see, we have taken a practical approach. We are reviewed by global experts to take this forward, and we have another set of projects coming that are one or two or three years behind and necessarily.

While our first one is a road project, we are looking at other sectors, too. The important thing, though, is to be practical about what we do. Let me cite an example. We can write a lot [about an infrastructure project], including the financial model, who invests how much, and so on. Except that the budget law in Vietnam does not go beyond five years; ie, they can only allocate budgets five years at a time. How are you going to take the risk after the first five years?

Projects separate the theory from the reality.

What was the biggest challenge then for this project in practice thus far?
The big questions were around whether we would be able to convince the government not to put a cap on the viability gap funding (VGF). With a cap on VGF that is public knowledge, all the bids get directed to, and end at, that cap.

No VGF cap? That is an interesting thought.
Yes; we have no VGF cap. If the number makes the project viable for PPP, the government can then determine the VGF; if the bids are too far out, the government could decide to go it alone.

Fortunately, in this case, the government came out to be very positive, so we moved forward. Those are the kinds of risks we want to address right away.

I understand that the 100 km stretch is viable, and you might want to think about urban development, real estate and forms of ribbon development around the expressway. What happens to a place that less so?
That is a somewhat complicated concept. When you are trying to establish a PPP programme, one of those objectives in our efforts to eradicate poverty is to help them achieve economic growth. PPPs help in limiting the money the government has to spend from public budget. Sometimes we are guilty of mixing the two [goals-viability and development], and that does not do good for anybody.

Even this [expressway] project wasn’t happening, and probably would not happen, without our involvement through policy and advisory cover to help the government arrive at the right decisions.

So why seek investments from India and why not other countries?
You tell me can you think of any other country.

I would have thought of something like, maybe Australia?
Yes. We aimed Korea because of the regional investment interest, and Singapore because it is the melting pot of the APAC and ASEAN regions. We wanted to add South Asia, and then India was a no-brainer. The other factor is the tremendous amount of capital, capability, capacity and interest in the infrastructure sector in India. Sometimes, it’s good for India Inc to be India Outbound.

Also because there’s a slowdown domestically, so many of them are twiddling their thumbs right now.
Well, that could be the case, but even if they were not I think [being outbound] still adds significant value for Indian companies to expand. Indian firms have done well and I think that doing well abroad. My personal view is that it would be good to move money around the world to developing countries both from developed and developing countries.

But is it also about expertise?
Absolutely.

Vietnam has suffered from lack of infrastructure, and then a downturn struck mid-last decade. In 2010, the government approved 24 PPP projects-none of which fructified. By default, Dau Giay-PhanThiet Expressway (DPEP) between Ho Chi Minh City and Phan Thiet City has now become Vietnam’s first PPP project to get off the ground…thanks largely to World Bank’s advisory and hands-on help.