Destructive Development: the ADB’s Privatization Agenda

12 May 2013 by People’s front against IFI’s


In the name of poverty reduction and sustainable development, the Asian Development Bank (ADB) is promoting the transfer of natural wealth and public assets to private companies in India through loans and Technical Assistance (TA) in the transportation, energy, urban development, agriculture, water and public finance sectors. ADB supported infrastructure projects, Special Economic Zones (SEZs), urban expansion, industrial zones, information technology parks and industrial agriculture are resulting in widespread dispossession of urban poor, farming, pastoral, adivasi and forest communities, and in the capture of farmlands, forests, water and minerals by private corporations.

Regardless of actual environmental, social and economic conditions and needs in the country, the ADB continues to promote rapid economic growth as the most effective path to development, free markets as the most efficient allocators of resources and opportunities, and the private sector as the best options for delivering goods and services. Incredibly, private companies are actually paid and subsidised to make profits through public funds!

Private sector development is at the heart of all ADB operations and the private sector is aggressively pushed in all ADB supported projects through public-private partnerships (PPPs), private capital equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. investments, loan and risk guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). , co-financing, etc. Governments are advised to shift from “owner-producer” to “facilitator-regulator” of goods and services, and create an “enabling environment for private sector participation” through policy reforms and regulatory changes. The ADB’s Strategy 2020 document states:

To spur market-led growth, ADB will invest in infrastructure and advise governments on the basics of a business-friendly environment, including reliable rules, regulations, and policies that do not disadvantage private sector enterprise. ADB’s tools to catalyze change through greater private investments in DMCs will include direct financing, credit enhancements, risk mitigation guarantees, and innovative new financial instruments Financial instruments Financial instruments include financial securities and financial contracts. ... ADB will promote public–private partnerships in all of its core operational areas, gaining experience first in MICs, and then expanding these efforts to all DMCs. [1]

A Most Favoured Client

India is a founding member of the ADB since its establishment in 1966 and at present, its fourth largest shareholder. Since India started borrowing from the ADB in 1986, the ADB has approved168 sovereign loans amounting to US$27.2 billion. India has been ADB’s largest borrower for the 2010–2012 period and as of 31 December 2012, the India portfolio included 78 ongoing sovereign loans amounting to $11.2 billion. [2]

The ADB’s lending and TA portfolios in India have always been aligned with the Indian Government’s Five-Year plans to achieve rapid economic growth through infrastructure development, primarily in the energy, transport, and urban sectors, but increasingly also in water resources management, agribusiness infrastructure development, financial services and skills development.

From 2003 to 2006, ADB’s private sector operations in India increased from $82.6 million to $567.5 million, including $225 million in complementary financing for the National Thermal Power Corporation Limited (NTPC) loan. In 2003, ADB approved a $62.2 million loan for Powerlinks Transmissions Limited, which was the first public-private partnership (PPP) in India’s power transmission sector. In 2004, ADB approved a $9.7 million equity investment in Petronet LNG Limited, which involved the construction and operation of India’s first liquefied natural gas (LNG) import and a re-gasification terminal in Gujarat. In 2006, a $150 million loan was approved for Petronet to expand the capacity of the terminal in Gujarat. [3]

In 2006, a $300 million loan was approved for NTPC for expansion of the power generation capacity of thermal power plants in Chhattisgarh and Bihar. In September 2011, the ADB approved US$ 350 million through its Multi-tranche Financing Facility (MFF) for the Himachal Pradesh Clean Energy Transmission Investment Program, to fund electricity transmission system upgrades and hardware, as well as a capacity development component to assist the state to achieve its power sector reform objectives through its transmission utility, the H.P. Power Transmission Corporation Limited (HPPTCL). With five major rivers flowing through the state and hydropower generation potential equal to about one-fourth of the total hydropower potential of India, the ADB sees Himachal Pradesh as becoming the “hydropower state” of the country. [4]

Through its private sector window, ADB has supported the development of India’s financial markets, primarily through capital markets, investment funds Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
, banking, and housing finance. In 2006, a $50 million direct loan was approved in 2006 for SREI International Finance Limited to fund small and medium-sized private sector infrastructure projects, such as roads, power, and ports. Over the years, ADB also approved several investments in private equity Private equity Private equity or investment capital designates a specific form of institutional investment in private companies with the goal of financing their development, transformation and expansion. The most common forms of private equity are venture capital, which refers to investments in the creation and development of innovative start-ups, and Leveraged Buy-Outs. funds. These funds have invested in an array of private companies, as well as in infrastructure projects. [5]

Continuing the Destruction

Under Strategy 2020, ADB’s infrastructure operations will emphasize public–private partnerships and private sector engagement. ADB will promote a larger role for the private sector in financing infrastructure, either as a project sponsor or an institutional bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. or equity investor. The latter role carries great promise for augmenting the supply of capital for infrastructure in developing the region. [6]

The ADB argues that its core strategy of infrastructure-led growth to reduce poverty continues to be relevant for India. In order to meet the huge financial requirements of its ambitious physical infrastructure plans, the Indian Government is increasingly relying on PPPs. The ADB is supporting the mainstreaming of PPPs and PPP Cells are already operating across 16 states and 7 central line ministries in India. [7]

The ADB’s lending program in India over 2013–2015 will average around $2 billion annually in terms of sovereign operations. The funds will be allocated across four core infrastructure sectors— transport, energy, urban, and agriculture and natural resources— and two crosscutting sectors—finance and skills development— with continuing involvement of the ADB’s private sector operations in all these areas. The country partnership strategy (CPS) 2013–2017 currently being formulated will include support for the development of high-priority economic corridors, create markets for infrastructure finance, and promote regional cooperationand integration through the South Asia Sub regional Economic Cooperation (SASEC) platform. [8]

In Chhattisgarh, the ADB will provide US$ 430,500,000 to the Chhattisgarh Public Works Department to support six transportation corridors and road networks that will pass through forest and adivasi areas, near rich coal and mineral deposits.

In agriculture, the ADB aims to “diversify” growth, and increase “value addition” by promoting private sector investment in all stages of agricultural value chains in Chhattisgarh, Bihar, Maharashtra, Himachal Pradesh, Jammu & Kashmir, Punjab and Sikkim. Through the Agribusiness Infrastructure Development Investment Programme, private companies will have increased control over agricultural resources, production and marketing— especially for high value crops—with public sector agencies playing facilitating, coordination and supportive roles. The investment programme is financed through an MFF, tranche 1 of which for US$ 67,600,000 was approved in September 2010, and Tranche 2 for US$ 30,300,000 was approved in December 2011.

One of the most destructive projects that the ADB is involved in is the Delhi-Mumbai Industrial Corridor (DMIC), a mega infrastructure project that runs from Delhi to Mumbai through six states (Delhi, Uttar Pradesh, Haryana, Rajasthan, Gujarat and Maharashtra), covering an overall length of 1483 km. The DMIC is an extremely ambitious undertaking and includes the construction of super- highways, power plants, ports, railway lines, airports, SEZs, satellite cities, magnet towns, industrial nodes, technology parks, etc. The current estimated investment needed to operationalize the DMIC is USD 90 billion, majority of which is coming from the Japanese Government with significant involvement of the ADB. Although the Indian Government is the “owner” of the DMIC, 75 % of the projects in the DMIC will be privately owned, through PPPs.

The Indian Government has established a number of special purpose vehicles to ensure uninterrupted availability of funds for DMIC project development and preparation. These include the Delhi Mumbai Industrial Corridor Development Corporation Limited (DMICDC) and the DMIC Project Development Fund (DMIC-PDF). The India Infrastructure Finance Company Limited (IIFCL) has been authorized to borrow funds for the DMIC PDF from the Japan Bank for International Cooperation (JBIC) and other investors, with sovereign guarantees from the Indian Government. The IIFCL was established in January 2006 as a wholly owned “government company” to scale up the development of infrastructure through PPPs and catalyze long-term financing for infrastructure projects including roads, railways, seaports, airports, inland waterways, power, urban infrastructure, gas pipelines, SEZs and Tourism infrastructure projects.

The ADB has been supporting the IIFCL through direct finance as well as a financial guarantee facility of up to 50% of IIFCL’s underlying project risk. Since 2007, the ADB has provided IIFCL with two MFFs for a total of $1.2 billion: the India Infrastructure Project Financing Facility (IIPFF) I and II for $500 million and $700 million respectively. [9] The ADB has also provided TA and direct loans to the National Capital Regional Planning Board (NCRPB) to attract private investment and private operators in establishing complementary infrastructure to the DMIC.

The Importance of Resistance

The DMIC is an environmental, social and economic disaster in the making with a huge carbon footprint. This high-growth, private- profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. oriented mega fantasy will seize lands up to 200km on both sides of the Delhi-Mumbai Dedicated Freight Corridor, while the 11 investment regions and 13 industrial areas will require land of 100 - 250 sq. km each. Approximately 180 million people will be affected by the DMIC and hundreds of thousands of hectares of agricultural and grazing lands and wooded areas will be lost to corporate-led growth industries that will bring few benefits to local populations. The DMIC will capture the water needed by farmers to grow food and by rural communities for their daily lives. Studies show that the rivers in the DMIC region are already under severe stress and cannot withstand greater exploitation. [10] Water and land acquisition for the DMIC will dislocate of millions of people, destroy precious natural environments and resources, and create violent conflicts between local communities and state security forces.

In ADB supported infrastructure projects, the government is expected to acquire land, secure access to water and mineral deposits, facilitate financing, risk protection and guarantees, and put in place policies and regulations required to ease the operations of private companies. But such facilities, shares of benefits or even participation in decision-making about the projects are not extended to local communities whose lives and livelihoods are irreparably damaged by such projects.

Regardless of language about environmental sustainability, social and economic inclusiveness, gender equity and good governance, the ADB’s development model is predatory, undemocratic, discriminatory and destructive. This model will secure benefits for corporations and upper classes, but will impoverish workers, small- scale farmers, fisher-folk, adivasis and rural populations. This model will not allow urban and rural poor will to escape from poverty; rather, by over-exploiting the environment and capturing natural wealth for use by corporations and elites, the ADB’s development model will ensure that a large segment of India’s population is trapped in immiserating conditions. Those who resist or call attention to the injustices of the model will be branded as anti- development and anti-state, persecuted and incarcerated.

In order to retain democratic control over our lives, societies and environments it is imperative that we join forces to resist the ADB’s extractive, destructive development model and privatization agenda.


View online : http://www.pfifi.org/


Footnotes

[1Strategy 2020, The Long-Term Strategic Framework of the Asian Development Bank, 2008-2020. Asian Development Bank, 2008. Page 14. Note: MIC stands for Middle Income Countries and DMC stands for Developing Member Countries.

[2Asian Development Bank and India Fact Sheet:

[3India Country Partnership Strategy 2009-2012 Abridged Version. Asian Development Bank, July 2009. Page 15-16.

[4Ibid

[5Ibid

[6Strategy 2020, The Long-Term Strategic Framework of the Asian Development Bank, 2008-2020. Asian Development Bank, 2008. Page 18.

[7India Country Partnership Strategy 2009-2012 Abridged Version. Asian Development Bank, July 2009. Page 20.

[8Asian Development Bank and India Fact Sheet:

[9India: India Infrastructure Project Financing Facility. ADB Completion Report, Project Number: 40655Loan Numbers: 2404 and 2509 November 2012. Pages 1-2.

[10Delhi-Mumbai Corridor, A Water Disaster in the Making? Romi Khosla and Vikram Soni, Economic and Political Weekly, March 10, 2012. VOL XLVII NO 10

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