Large strategic projects: State backing for the competitive edge

By: ENS Economic Bureau | New Delhi | Published:December 7, 2016 2:39 am
 infrastructure, power, infrastructure growth, large strategic projects, india economy, india news, business news Looking to play an active role in India’s infrastructure development and not to miss out on strategically important projects to Asian competitors.

In a move that may provide boost to India’s infrastructure development, Germany is looking to expand and redesign its foreign trade and investment tool so that its companies here are able to compete with Chinese and Japanese firms and grab large projects. Chinese and Japanese companies receive systemic political support, including full financial packages when their companies bid for large strategic projects in sectors such as railways, renewable energy, smart city development among others. German Parliamentary State Secretary Uwe Beckmeyer MdB said that now Germany will also support its companies to make them competitive. This may ultimately benefit India as higher competition among companies from various nations will ensure that India gets a more favourable bid for developing its infrastructure.

A German business delegation led by the minister in the Federal Ministry of Economics and Energy, is currently on a India visit to explore business opportunities.

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“We talked with entrepreneurs and government officials for business opportunities in ‘Make in India’ campaign. We have a new strategy on fresh stimulus to major strategic international projects abroad. We want to promote new markets and also prove German companies’ ability to compete with companies from China and Japan on international big projects,” Beckmeyer MdB said on Tuesday.

Looking to play an active role in India’s infrastructure development and not to miss out on strategically important projects to Asian competitors, Germany is making representations to various policy makers and to relevant government departments, where it is proposing that it will set up dedicated office that will put together financing packages for strategic projects.

“It is common practice in Asia to combine several promotional instruments, resulting in German companies becoming unable to compete….. At the same time many projects are receiving high-level political backing. This combination of a uniform package being offered at highly favourable conditions and high level political backing is something that German companies are routinely finding themselves unable to beat. This results in them being relegated to the position of a supplier, at best. We want to do something about this,” said a strategy paper prepared and presented by Federal Ministry of Economics and Energy, Germany.

The paper further said that since German companies would need strong political backing and will have to offer their customers well-structured, competitive financing plans in order to compete successfully. For this, the paper offered that, “A single contact person will be appointed for strategic projects abroad and have a dedicated office to support him or her in the task of putting together financing packages tailored to specific contracts.”

Speaking to the media in New Delhi, the Beckmeyer MdB said that Germany is open for dialogue on large strategic projects in areas such as railways, smart cities, renewable energy among others. He further added that the extent and the form of support for specific project will depend on the nature of the project.

Referring to questions being posed to Germany in the past on financing high volume projects in India, he said it is now in a position to extend financial support and wants to be in a position to support India in these fields.

“In case of large volume projects, our support could match competitiveness and this is what we have to do. German exports and economy are on a good path, we have a strong economic situation. We have also developed new coordinations to strengthen our position in business competing for projects abroad,” he added.

In October 2015, Japan offered to finance India’s first bullet train (505 km corridor linking Mumbai with Ahmedabad), estimated to cost $15 billion, at an interest rate of less than 1 percent. While Tokyo was picked to assess the feasibility of building the 505-km corridor linking Mumbai with Ahmedabad, China is bidding for other projects in Indian rail network.

China had won the contract to assess the feasibility of a high-speed train between Delhi and Mumbai, a 1,200-km route which is estimated to cost double of the Mumbai Ahmedabad corridor.

At the time when Japan was picked for the Mumbai-Ahmedabad corridor, AK Mittal, the chairman of Indian Railway Board had said, “There are several (players) offering the high-speed technology. But technology and funding together, we only have one offer. That is the Japanese.”

As Germany eyes such projects in India, it is also looking to compete on bidding front. To achieve this, Germany is also looking to improve its financing instruments.

Germany is particularly keen on high volume projects like high speed trains, ports, infrastructure, locomotives, renewable energy, and railways.

At present, India and Germany already have a cooperation agreement on energy. The minister said that India can gain advantage from Germany as it is an expert in the field of high-speed trains.

Germany is also working on establishing a single-touch point at political level in India and a coordinator will be appointed shortly to facilitate their businesses here. The German government will also offer financial cooperation to individual projects and disburse export credit guarantee with 100 per cent cover for public and private sector for projects abroad that are of strategic importance to Germany.

Decisions taken by Germany to improve its chances to win strategic projects:

* To appoint a federal government coordinator for projects abroad that are of strategic interest to the Federal Republic of Germany.

* To establish an office for smart coordination of promotional instruments and political backing, which will be set up jointly by the Federal Ministries that deploy instruments to promote foreign trade and investments

* On a case by case basis, establish a task force for projects abroad that are of strategic interest. This will be done jointly by the federal ministries that deploy instruments to promote foreign trade and investments.

* To appoint a central KfW contact (banking group) for the commercial financing of projects abroad that are of strategic interest.

* To hold ad-hock meetings of an inter-ministerial committee on projects abroad.

* To engage in close co-ordination on R&D related projects within the current early stage coordination process.

* To have a Federal foreign office to provide political backing to selected projects through its network of German representations abroad.

Along with this Germany will also put additional instruments to help its companies be even more competitive in case of individual projects. The paper said that if necessary, Germany will extend coverage to 100 per cent of the risk for these projects, which means that there will be no deductibles. They will also develop its approach to providing cover to foreign suppliers.

Decisions taken by Germany for helping individual projects:

* It will finance feasibility study for projects abroad

* It will disburse export credit guarantees for united financial loans with 100 per cent cover for both public and private sector customers

* It will expand the proportion of foreign input which is eligible for cover through export credit guarantees

* It will extend guarantees for united financial loan

* It will use the development cooperation instruments for foreign projects

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