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Two zones that'll change Maharashtra

Arti Sharma | August 23, 2003

It was love at first sight for Nikhil Gandhi, chairman, Sea King Infrastructure. One year ago Gandhi gazed over a sprawling 6,000-acre expanse of land squeezed between Khopta, Raigad and Thane districts.

He immediately decided that he had found his Promised Land and that the vast areas before him would be the perfect place to create a giant Special Economic Zone that would match the largest in the country.

"There was something so positive about the location that we immediately filed for approval," says Gandhi.

The Maharashtra government approval came in 44 days in December and immediately Gandhi and a team of 46 consultants started work on a blueprint for the project.

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Earlier this month with great fanfare, Gandhi finally inaugurated his ambitious plans for the sparsely inhabited area that will, after an investment of Rs 5,500 crore (Rs 55 billion), become a trade zone that will be called Maha Mumbai.

Is it a pipe dream or will it be turned into gigantic reality?

Gandhi, who has successfully opened India's first privately developed mechanised ports in south Gujarat, plans to develop the land and turn it into a mega-township with houses, schools and hospitals.

He's attempting to attract a slew of industries to the site including electronics, telecom, pharmaceuticals and food processing.

Also, he hopes to pull in businesses like banking and finance, biotechnology, information technology; housing, recreation, education and healthcare.

At the end of ten years, Maha Mumbai, spread over 10,000 hectares, will become a mini city -- self-sufficient so that no one will have to go out of the zone.

Says Gandhi: "The whole area will become so vibrant, like a regional hub. It will generate fresh investment and employment opportunities."

Gandhi isn't the only one who is thinking big. Next to Maha Mumbai is another vast 2,207-hectare  plot of land that is about to be turned into a bustling SEZ.

The project that will cost a whopping Rs 7,500 crore (Rs 75 billion) over ten years is being steered by the Government of Maharashtra-owned nodal agency -- City and Industrial Development Corporation (CIDCO).

CIDCO will hand the project over to developers and so far eight bidders have submitted tenders for the development of the SEZ in Dronagiri, Kalamboli and Ulwe -- parts of Navi Mumbai. Work is expected to start by year end.

Is change brewing in Maharashtra?

Gandhi believes that it is and so does the state government. Maharashtra has always been in the front ranks as one of India's most developed states.

But the government is worried that other states are catching up with it. Now, it's hoping that projects like Maha Mumbai and its own SEZ will boost exports from the state.

One optimistic prediction is that Maha Mumbai will single-handedly boost Maharashtra's exports 200 per cent in the next 10 years.

The Maharashtra government hopes that the zones will compete with world-beaters like China's Shenzhen SEZ district and similar zones in the Middle East as well.

"We have to be world class to attract the maximum amount of foreign investment," says Gandhi.

CIDCO has already developed housing, recreation, education facilities, infotech parks and connectivity in large parts of Navi Mumbai.

Now the new zone will try to attract a range of industries from IT, ITES to  gems and jewellery, auto ancillaries, machinery, pharmaceuticals, garments and electronics among others.

"If a lot of foreign direct investment comes in, it will be a boon for the state and will change the face of Navi Mumbai," says CIDCO vice chairman and MD, Vinay Mohan Lal.

Why is the state government so gung-ho on SEZs? The fact is that economic growth in the state has slowed according to the Economic Survey of Maharashtra, 2002-03.

From an average annual growth of 7.5 per cent between 1985-86 and 1994-95, growth is down to 4.2 per cent between 1995-96 and 2001-02. The Government is attempting to change this and at the same time give exports a boost.

"Exploiting the full potential of the concept of SEZs will bring the state large dividends in terms of economic and industrial development and employment," says Vishwas Dhumal, principal secretary (industries), government of Maharashtra.

Is the state government being too optimistic? It isn't the only state that is attempting to cash in on the new rules on SEZs.

Rajasthan and Gujarat have already framed rules about SEZs. Other states like Andhra Pradesh and Orissa are also following suit.

The concept of SEZs was introduced through a revision in the EXIM policy of 1997-2002 by former Union Commerce Minister Murasoli Maran.

Essentially, since SEZs are specifically duty-free enclaves that are exempt from customs duties and other levies, they allow traders to operate in a hassle free environment.

The only condition is that the entire production must be exported. Says Lal, "An entrepreneur would want everything to be as simple as possible so he is left free to operate his business."

But Maharashtra has one advantage that the others don't. It has the giant city nearby and besides that there's Mumbai Port. That's why both projects are thinking on a gigantic scale.

Also, they want to leave room for growth and adequate infrastructure development. Says Gandhi, "You have to make the area a viable, livable option with an administrative set-up to operate it. It will make the area accessible and attractive."

Where do both projects stand at the moment? While CIDCO already owns roughly 95 per cent of the land, Sea King is in the process of completing land acquisition.

Unlike other state governments that have handed out land to developers for SEZs, Maharashtra has asked Sea King to directly negotiate land prices with the inhabitants.

"If the government has to acquire the land and then hand it over, the project will be pushed back by months. This way both parties can reach a mutually beneficial agreement," says Dhumal. Meanwhile, draft plans and ground work has already begun.

Gandhi expects that construction work will begin in the next few months. Under the plans he has drawn up, the first phase will be funded through Rs 3,400 crore (Rs 34 billion) of vanilla debt, Rs 750 crore (Rs 7.50 billion) of equity/subordinate debt and Rs 1,350 crore (Rs 13.50 billion) of direct equity.

Meanwhile, construction is expected to commence at the Navi Mumbai SEZ  in March 2004. "We are assessing the technical, financial capabilities and their ability to successfully market the SEZ," says Lal.

CIDCO has already received eight bids from companies like Sea King, Larsen & Toubro, Anik Development Corporation, Essar Construction and Essar Shipping, Reliance Capital, GMR Power and GMR Infrastructure as well as a consortium of Videocon International and Hiranandani Constructions among others will submit their tenders for the project by end-October.

"We are clearly interested in the CIDCO project since we are adjacent to them. If we get the tender then we will just merge both properties, otherwise we will co-exist," says Gandhi.

The base price for the bid is set at Rs 47 lakh (Rs 4.7 million) for the land for a period of 60 years. The bidder will get a 74 per cent share in the special purpose vehicle to be set up by the government.

The remaining 26 per cent will remain with CIDCO.

And the developer will be expected to fund the Rs 917 crore (Rs 91.7 billion) required in the first phase through a 60:40 debt/equity ratio.

After phase one is developed, CIDCO will transfer development rights for additional phases to the developer.

And the Maharashtra Government will earn 2.5 per cent, 5 per cent and 7.5 per cent of the gross investment respectively in phases for the life of the project.

Once the projects take off, it will be up to the developers to ensure the occupancy and the success of the SEZ. The gestation period for infrastructure projects is usually seven to 10 years.

Sea King plans to recover its costs in seven years by providing basic infrastructure like land management, utilities like water, power and basic constructed facilities.

But there are major challenges facing both. For one, these two projects will be pathbreakers in some ways. Also, lenders have expressed reservations about funding two giant projects right next to each other.

Then, there's the problem of political factors and difficulties like the ones that Sea King faced at Positra. The Sea King Positra project has come to a virtual standstill after the Gujarat government failed to allocate the land for the project.

Positra is back to being the barren land it was and Gandhi is now focusing on the development of Maha Mumbai.

Then, the big question is whether both SEZs will have the infrastructure and utilities to match the likes of Shenzhen in order to yield the results the Maharashtra government expects.

"The time taken from planning to implementation is too long. One only hopes that it doesn't hit a road block in between and remain hanging," says S K Saraf, chairman and MD of Rs 250 crore (Rs 2.50 billion) trading house, Technocraft Industries, and president of the apex body of 100 per cent EOU owners -- Confederation of Export Units.

The government has, of course, travelled this route before. It has tried to boost exports by opening export processing zones (EPZ) and free trade zones (FTZ).

However, even though several EPZs and FTZs did come up, they contributed merely 3 per cent to the country's exports. Nevertheless, it is optimistic that the new SEZs will finally work.

Take the Santacruz Electronics Export Promotion Zone (SEEPZ) in Mumbai which was set up in 1974 to promote the electronics industry and subsequently the gems & jewellery industry.

The EPZ was converted into an SEZ post the revision in the Exim policy. "It just got all the benefits of  being an SEZ without really providing the kind of infrastructure that world-class SEZs have," says Saraf.

Primarily, SEEPZ lacks space to grow further. It is much smaller in land area than either Maha Mumbai or Navi Mumbai. Moreover it does not house any residential, recreational, educational facilities and caters to only two industries.

And due to the dependence on just two industries it is open to fluctuations in business.

For instance, the drop in IT business resulted in a reduction of occupancy. The number of units occupied in SEEPZ fell from 212 in 2000-01 to 183 in 2002-03.

However, despite this lacuna, SEEPZ is the only converted SEZ to register exports to the tune of Rs 6,017 crore (Rs billion) in 2002-03.

"What has really worked for us is the locational advantage and the product mix. The two industries are now well established in the zone," says Baldev Singh, joint development commissioner, SEEPZ.

This year 235 approved units will be occupied in SEEPZ.

Apart from this the Maharashtra Industrial Development Corporation (MIDC) is putting up two new towers for the IT and gems & jewellery industries behind SEEPZ called SEEPZ ++.

"This model can be utilised in several other industrial belts like Thane-Belapur as well where there are several industries already existing," says MIDC chief executive officer, V K Kanade.

Nevertheless, the developers are gung-ho about the future. The long-term plan is to have other SEZs in places like Aurangabad and Nagpur.

"Let these succeed, then we will look forward," says Dhumal. Adds Gandhi, "India needs just three SEZs like Shenzhen to reach where China is today."

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