Home >companies >LIC, IIFCL purchase of majority stake in DMICDC gets govt nod

New Delhi: The much-delayed Delhi Mumbai industrial corridor (DMIC) may finally gain momentum with the finance ministry approving the purchase of a majority stake in DMIC’s apex body by government-owned financial institutions.

Life Insurance Corp. of India (LIC) and India Infrastructure Finance Co. Ltd (IIFCL) will buy stakes in the Delhi Mumbai Industrial Corridor Development Corp. (DMICDC) from Infrastructure Leasing and Financial Services Ltd (IL&FS) and Infrastructure Development Finance Co. (IDFC).

File photo of Life Insurance Corporation Building in Channaught Place. Photo By Rajeev Dabral

DMICDC was incorporated in January 2008 with an authorized equity base of Rs10 crore. The government held a 49% stake in the special purpose vehicle (SPV), IL&FS 41% and IDFC the balance 10%.

DMIC proposes to develop what it calls self-sustainable smart cities on either side of the 1,483km-long western dedicated rail freight corridor between Dadri in Uttar Pradesh and Jawaharlal Nehru Port Trust in Navi Mumbai.

DMIC will run across six states—Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra—and a majority of the projects in the corridor are envisaged to be implemented through public-private partnerships.

It is touted to be the largest infrastructure project in the world, with an estimated $90-100 billion required only to set up the infrastructure over the next 30 years.

“IIFCL and LIC will buy out the stake jointly. Since there are no assets owned by the corporation, the stakes will be bought at face value," the finance ministry official said on condition of anonymity. “As cabinet has cleared the equity transfer, it will be finalized at any time."

The department of industrial policy and promotion (DIPP) official, also speaking on condition of anonymity, said the department has written to all the stakeholders to take the process forward.

The new structure, which received cabinet approval on 15 September, has been designed as a model for urbanization and manufacturing with the least contribution from the government, the DIPP official said.

“In the earlier structure, the upsides arising out of bidding of projects and monetization of land value in future would have gone to the private companies even though the government of India is funding project development in the DMIC region. This will no longer be the case," the official said.

“Besides, the presence of government-owned financial institutions will combine the transparency and accountability of the government with the flexibility, efficiency, autonomy, innovativeness and business-like?approach of DMICDC for implementation of projects in the DMIC region."

In the new structure, the DMIC apex authority will be chaired by finance minister Pranab Mukherjee and the state-level authorities by the respective chief ministers.

A DMIC fund will be set up as a trust. It will be chaired by the secretary of the department of economic affairs in the finance ministry and will comprise the DIPP secretary and financial adviser and representatives of the department of expenditure, Planning Commission and the chief executive of of DMICDC, who will also be the chief executive officer of the trust.

The fund will contribute debt and equity to the SPVs on a case-to-case basis, after investment proposals submitted by DMICDC are approved by the board of trustees. The government grant will be revolving in nature to enable the development of more cities.

The cabinet, in the 15 September meeting, also approved Rs17,500 crore over five years for providing assistance through debt or equity to the SPVs and for the development of trunk infrastructure in the industrial cities along the DMIC.

The cabinet also approved a financial assistance of Rs1,000 crore over five years for further project development activities.

Ajay Dua, former secretary of DIPP, said the buying out of the majority stake in DMICDC is a welcome step.

“Due to the presence of private players in the DMICDC, operational problems were coming up. State governments had issues and did not have enough faith on DMICDC as it was a private venture," he said.

It will also be easier now to get funds from the Japan Bank for International Cooperation (JBIC) as it does not lend to private companies, Dua said.

During the visit of Japanese Prime Minister Yoshihiko Noda to India in the last week of December, the Japanese side announced a $4.5 billion contribution for projects with Japanese participation, through financing from JBIC and official development assistance from Japan International Cooperation Agency to the DMIC facility.

The DIPP official said the Japanese side has also made a request for a 26% equity participation in DMICDC by the government of Japan. A number of DMIC projects are ready for implementation and “discussions for formation of city-level SPVs in Gujarat and Maharashtra with the respective state governments have already been initiated", he added.


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