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An Indian Perspective on New Development Bank & Asian Infrastructure Investment Bank

The Asian region has experienced the emergence of new MDBs over last few years. For many years, the Asian Development Bank was the only development bank in the region and has been dominated by the Japanese owing to the number of votes it has as compared to other members. However, the newly constituted NDB in 2014 has two key Asian members, India and China. The Asian Infrastructure Investment Bank (AIIB) led and initiated by China in 2015, and with a mandate to have at minimum 70% of shares allocated to Asian countries is sure to become another major player to support infrastructure development activities of the region as well as global south. The AIIB and NDB are two separate entities in their operations and constitution even though there are overlaps in memberships of the two banks.

Mumbai Resolution of the People’s Convention on Infrastructure Financing

In the political resolution adopted at the end of the People Convention on Infrastructure Financing delegates resolved to challenge the undemocratic and economically unsound functioning of IFIs including AIIB, World Bank, IFC and others. The Convention also resolved to push for people-centered alternatives in all sectors of the economy, and to advance an inclusive model of development in which finance and infrastructure support the vulnerable and the poor communities, instead of supporting primitive accumulation of natural resources and maximising the profits of the multinational corporations and global elite further contributing to the increased inequality in the society.

Risky venture The AIIB’s hands-off​ approach to funding infrastructure in India

AIIB’s proposed deal with India’s $2.1 billion National Investment and Infrastructure Fund (NIIF) would also threaten to revive a host of stalled projects in the country potentially including coal, power, petroleum, railways and roads – many of which are currently shelved because of high social and environmental risks and opposition by local communities.

इंफ़्रास्ट्रक्चर निवेश: विकास या विनाश

एशियन इंफ़्रास्ट्रक्चर इन्वेस्टमेंट बैंक और भारत का नेशनल इन्वेस्टमेंट एंड इंफ़्रास्ट्रक्चर फ़ंड के निवेश संकट की और एक इशारा

भारत में जलविद्युत विकास को बड़े पैमाने पर बढ़ावा

इस सेक्टर में निजी क्षत्रे को आकर्षित करने के लिए सरकार ने 2016 में इस पर चर्चा शुरू की कि नवीकरणीय ऊर्जा के क्षत्रे को और विस्तृत किया जाए ताकि 25 मेगावाट क्षमता से अधिक के जलविद्युत स्टेशन भी उसमें शामिल किए जा सके। इससे सरकार को 2022 तक 175 मेगावाट नवीकरणीय ऊर्जा उत्पादित करने के लक्ष्य को हासिल करने में मदद मिलेगी।

Schedule of the Workshops at the Peoples’ Convention on Infrastructure Financing

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At the Peoples Convention on Infrastructure Financing, almost 90 regional, national, and international grassroots and research organisations have come together to organise 20 workshops related to Infrastructure Financing; Development Financial Institutions; Policies and Safeguards; Urban Development; Transport; Port and Coastal Infrastructure; Energy and Energy Finance; Trade and International Financing; Water and Water Sector Reforms; Privatisation and PPPs, Gender; Social Marginalisation among other areas.
 So far over 200 people have registered for these workshops. The individual registrations for the workshops are still open. You can find a detailed schedule of the workshop here.

Bullet Train: Propelling Public Debt in India

Krishnakant of the Paryavaran Suraksha Samiti, Gujarat on the rationale of the proposed bullet train between Mumbai and Ahmedabad.

PPPs, Infrastructure, and Economic Development

Shalmali Guttal, Focus on the Global South, discusses the IFIs, PPPs, Infrastructure, and Economic Development.

Coastal Infrastructure and Fishers Struggle in India

Jesu Rathnam, Convenor, Coastal Action Network, on the coastal infrastructure and fishers struggle in India

IFIs, Infrastructure, and Commons

Soumya Dutta, Beyond Copenhagen Collective and PAIRVI, linking IFIs, their push for Infrastructure, and impact on commons.

Infrastructure projects in Tamil Nadu and their Impacts

Nityanand Jayaraman on the Infrastructure projects in Tamil Nadu and their Impacts

IFIs and their Impact on People

Shaktiman Ghosh, National General Secretary of the National Hawkers Federation, on the IFIs and their Impact on People

Why Should People be Vigilant About Asian Infrastructure Investment Bank?

Peoples’ Convention on Infrastructure Financing

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Invitation of the Peoples’ Convention on Infrastructure Financing

Concept Note of the Peoples Convention on Infrastructure Financing

Brochure

conferenceAt the Convention, there will be multiple workshops organised by the WGonIFIs in Mumbai during June 21-23, 2018. You can click here to participate as an individual or an organisation. You can also organise workshops.

Peoples’ Convention on Infrastructure Financing

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Tentacles of the International Finance in India

This document is an effort to compile data of investments coming into India from MDBs, ExIm banks and other bilateral investments, to help understand the landscape of financing from these institutions and helping to understand the overlaps of international financial institutions in certain key sectors.

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New Report Warns AIIB to do Due Diligence before Investing in NIIF

 

FInancing-the-future-AIIB-and-Indias-NIIF

A latest report has asked Asian Infrastructure Investment Bank (AIIB) to “tread carefully” on National Infrastructure and Investment Fund (NIIF), a fund of fund that seeks to create long-term value for domestic and international investors seeking investment in energy, transportation, housing, water, waste management and other infrastructure-related sectors in India.

The report, released by the Bank Information Centre-Europe and Centre for Financial Accountability, titled ‘Financing the future? The Asian Infrastructure Investment Bank and India’s National Investment and Infrastructure Fund’ warns that the AIIB do due diligence at all levels before approving a new $200m deal with India in April for fear of turning the key on some highly-controversial projects now being stalled by local community opposition.

The Prime Minister Narendra Modi has also vowed to revive long-stalled infrastructure projects, especially in the coal, power, petroleum, railways and road sectors. Quoting a recent data from the Centre for Monitoring Indian Economy Pvt. Ltd (CMIE), the report mentions that the value of stalled infrastructure projects in the quarter ended September increased to Rs13.22 trillion. The CMIE’s analysis shows that 39.04% of the total stalled projects were in the electricity sector by value.

The report observes that the first proposed Indian investment on the AIIB’s books in 2018 reflects both the Indian government’s prioritisation of infrastructure financing, and the interest of AIIB in both India and financial intermediary (FI) lending, a financial model involving investing indirectly through third parties such as an infrastructure or private equity funds — which makes it difficult to track the money — thus posing a substantial risk of being spent on the coal or other harmful projects by the back door.

The report observed that FI lending is becoming the dominant model of financing at development banks. The AIIB started FI lending in 2017, when it approved approving three FI investments: in Indonesia’s Regional Infrastructure Development Fund, the India Infrastructure Fund, and the Emerging Asia Fund. Next up is a potential $200 million commitment to India’s National Investment and Infrastructure Fund.

“Around the world, we have seen how extremely risky this model of ‘hands-off’ lending through financial intermediaries can be. Without stronger safeguards and transparency, the AIIB will simply lose sight of its original investment and the damage it could cause,” said BIC Europe Campaigns Director and co-author Kate Geary in a media release.

“The AIIB must tread very carefully here because it is still accountable for any project that harms local communities in India or damages the environment – regardless of how much distance the AIIB might claim to have from it,” Geary said.

Exhorting AIIB to learn from the IFC’s problematic experience with its FI portfolio and to avoid the associated social, environmental and reputational damage, the report recommends putting in place mandatory robust policies and systems around financial intermediary investments to ensure transparency, accountability and efficient channels of communication with all stakeholders.

The recommendations include: Scrutinising the existing project portfolio and pipeline of proposed FI clients; Reviewing the track record of the FI client in applying the environmental and social framework and making this assessment public; Ensuring that FI clients require sub-projects to be compliant with all AIIB policies especially the Environmental and Social Framework (ESF), Complaints Handling Mechanism (CHM), Public Information Policy, and all relevant sectoral strategies and guidelines; Monitoring the proposed client’s social and environmental due diligence and supervision of its investment; and Ensuring FI sub-project affected communities have access to redress, including through the AIIB’s accountability mechanism.

The Key Infra Projects are Anti-people

“AIIB has created a superstructure, an ecosystem which acts as a complex web of shining terminologies and projects to attract investments, which actually is a smoke screen to hide the fact that there’s no human development happening” senior activist Medha Patkar said in her speech.

The Infra being Pushed is not what the People Demand

Senior activist Ulka Mahajan of Sarvahara Jan Andolan said, “The infrastructure that is being developed is not what people demand, but it is what global capital demands. The international financial institutions are promoting corporate interests over that of people and also pushing the states to the financial debt. On the one hand, the Maharashtra government does not have money to allocate 26,000 crores for the social sector, on the other hand, it has 42,000 crores for the Mumbai-Nagpur expressway, which will reduce the present distance only by 24 km.”

AIIB and the Blue Economy

Skeletal of Himanshu Damle’s Presentation on AIIB and Blue Economy in Mumbai during the Peoples’ Convention on 22nd June 2018

Main features in AIIB Financing

  1. investments in regional members
  2. supports longer tenors and appropriate grace period
  3. mobilize funding through insurance, banks, funds and sovereign wealth (like the China Investment Corporation (CIC) in the case of China)
  4. funds on economic/financial considerations and on project benefits, eg. global climate, energy security, productivity improvement etc.

Public Sector:

  1. sovereign-backed financing (sovereign guarantee)
  2. loan/guarantee

Private Sector:

  1. non-sovereign-backed financing (private sector, State Owned Enterprises (SOEs), sub-sovereign and municipalities)
  2. loans and equity
  3. bonds, credit enhancement, funds etc.

—— the portfolio is expected to grow steadily with increasing share of standalone projects from 27% in 2016 to 39% in 2017 and 42% in 2018 (projected)

—— share of non-sovereign-backed projects has increased from 1% in 2016 to 36% of the portfolio in 2017. The share of non-sovereign-backed projects is projected to account for about 30% in 2018

AIIB-Blue Economy

Why would AIIB be interested in the Blue Economy?

  1. To appropriate (expropriate) the potential of hinterlands
  2. increasing industrialization
  3. increasing GDP
  4. increasing trade
  5. infrastructure development
  6. Energy and Minerals in order to bring about a changing landscape
  7. Container: regional collaboration and competition

AIIB wishes to change the landscape of infrastructure funding across its partner countries, laying emphasis on cross-country and cross-sectoral investments in the shipping sector — Yee Ean Pang, Director General, Investment Operations, AIIB.

He also opined that in the shipping sector there is a need for private players to step in, with 40-45 per cent of stake in the partnership being offered to private players.

Blue Economy

Projects aligned with Sagarmala are being considered for financial assistance by the Ministry of Shipping under two main headings:

  1. Budgetary Allocations from the Ministry of Shipping
    1. up to 50% of the project cost in the form of the budgetary grant
    2. Projects having a high social impact but low/no Internal Rate of Return (IRR) may be provided funding, in convergence with schemes of other central line ministries. IRR is a metric used in capital budgeting to estimate the profitability of potential investments. It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. IRR is sometimes referred to as “economic rate of return” or “discounted cash flow rate of return.” The use of “internal” refers to the omission of external factors, such as the cost of capital or inflation, from the calculation.
  2. Funding in the form of equity by Sagarmala Development Co. Ltd.
    1. SDCL to provide 49% equity funding to residual projects
    2. monitoring is to be jointly done by SDCL and implementing agency at the SPV level
    3.  project proponent to bear operation and maintenance costs of the project
      1. importantly, expenses incurred for project development to be treated as part of SDCL’s equity contribution
      2. preferences to be given to projects where land is being contributed by the project proponent

What are the main financing issues?

Role of MDBs and BDBs for the promotion of shipping sector in the country
provision of long-term low-cost loans to shipping companies for procurement of vessels
PPPs (coastal employment zones, port connectivity projects), EPCs, ECBs (port expansion and new port development), FDI in Make in India 2.0 of which shipping is a major sector identified, and conventional bank financing for port modernization and port connectivity

The major constraining factors, however, are:

  1. uncertainty in the shipping sector, cyclical business nature
  2. immature financial markets

Sucheta Dalal on the Growing Crisis in the Indian Banking Sector

Financial analyst and journalist Sucheta Dalal said that the Indian banking system is at the verge of crisis, reeling under the mounting bad loans, caused by unfettered corporate loans. Referring to government’s announcement in the Parliament that Rs. 2.4 lakh crore bad loans are written off, she said that “ if farm loan waiver was proposed the world would have gone on a spin, while the loans of big corporations are written off and there isn’t a whimper.”

Riding on Debt: Financial Assessment of Delhi Metro

Delhi Metro is the largest metro system in India and is also considered one of the most “successful” public transport projects. After nearly three decades of construction and operation in Delhi, the demand for creating metro systems in all million plus cities has grown despite being a capital intensive project. Few scholarly articles published in the last decade which have questioned the relevance of metro system in Indian cities have often been dismissed by the policymakers, and popular media.

Join global campaign to urge the AIIB to take concrete steps to address the climate crisis, by shifting investments from fossil fuels towards sustainable renewable energy and to support energy access for poor communities.
For more information and asking AIIB to stop funding fossil fuels, visit: http://www.bigshiftglobal.org/aiib

Complete resources on AIIB

The AIIB’s Investments in Financial Intermediaries: CSOs Call for Disclosure and Accountability

Public Statement from the Concerned Civil Society on the AIIB Accountability Framework

CSOs Ask AIIB’s India Executive Director to not to go Ahead on NIIF

Clean, Lean, and Green: A Short Briefing on the Asian Infrastructure Investment Bank