WHITHER MY LAND? A farmer in Shamshabad, Andhra Pradesh, where the FabCity SEZ is coming up, ponders his future

Whenever Suzlon Energy sets up a wind power equipment manufacturing facility anywhere in the world, it sends Jitendra Tanti. He heads the company’s infrastructure division and has set up many such facilities. Most recently, he set up a $60-million integrated wind turbine generator facility in Tianjin Hitech Industrial Park, south of Beijing. The 600-MW project that came up in a 90-acre site was completed in six months. The land acquisition process took two weeks.

Before that, Tanti had set up another such facility in Minnesota in mid-west US. That was a $40-million, 600-MW project on a 38-acre site. The land acquisition process took barely 24 hours.

But Tanti will tell you that when it comes to buying large tracts of land, home is his toughest terrain.

Over eight months ago, he set out to acquire 1,100 acres near the New Mangalore Port in Karnataka to build two special economic zones (SEZs). But he has made tardy progress.

Farmers own some of this land and are willing to sell, but are not able to. “They inherited it from their great grandfathers. But they don’t have any records. We have to first help them establish their land documents before we can buy it from them,” bemoans Tanti. Already, the project is three months behind schedule.

It is a similar tale across the country. Whatever the intentions of SEZ builders — some of them see this as a long-term infrastructure business, but many see it as a quick-return realty play — they are all finding land acquisition to be extremely difficult. The 432 SEZ builders (who have got government clearance) together hope to acquire over 300,000 hectares (1 hectare=2.5 acres). But on the ground, very little progress is being made.

The land that SEZ developers hope to acquire is a minuscule portion of the total 188 million hectares currently under cultivation. But many SEZ projects are eyeing large tracts of farmlands. No wonder, land acquisition by SEZs has become a major political issue.

However, this story is not about the politics of the land acquisition debate. Businessworld believes that farmers should have complete freedom in deciding if they want to sell or not. Also, no pressure should be brought to bear on them. Beyond that, market prices should enable the farmer to make his own economic decision. That, unfortunately, is not always the ground reality (see ‘A Tale Of Three Farmers’).

This story is about the economics of the debate and how delays in land acquisition could severely impair the viability of many SEZ projects. “Very few players have got the land now. There are some SEZs that have got government clearance, but don’t yet own a single acre of land. Some with approval for 5,000 hectares have only 300 hectares till now,” says Anshuman Magazine, managing director, CB Richard Ellis (India), a real estate consultant. “Getting the land is the real challenge,” says Rajendra Singh, chairman, powers and SEZ division, DS Constructions. He is in the process of acquiring 6,000 hectares for the DS Group’s two SEZs.

Do It Yourself And Pay The Price

There are quite a few models for land acquisition, but each has its problems and delays. The first is essentially an open market purchase on a ‘willing buyer, willing seller’ basis. Here the SEZ builder has to buy the land himself. For example, Reliance’s Maha Mumbai SEZ is acquiring about 10,000 hectares in

Maharashtra’s Raigad district. (The offer price per hectare is in the Rs 6 lakh-10 lakh range.) Forty-four of the 65 SEZs proposed in the state are taking this route.

But where agricultural land is involved, such acquisitions invariably attract political and social opposition. Locals of Raigad are vehemently opposing Reliance’s land acquisition plans. In September, thousands held a protest rally.

Sometimes, the state industrial corporation helps the SEZ developer acquire land. The Andhra Pradesh Industrial Infrastructure Corporation, for example, is acquiring 5,000 acres for Satyaveedu Reserve Infra City in Chittoor. Last year, land price in this region was between Rs 50,000 and Rs 75,000 per acre. Now prices are about Rs 1 lakh-1.5 lakh an acre and increasing. But Satyaveedu is offering Rs 3 lakh per acre. That is the price for speed.

Earlier, fears of farmer opposition had forced Satyaveedu Reserve Infra City to scale down its project from 13,000 acres to 5,000 acres. “Since 13,000 acres is massive, we have decided to reduce the size. But there is always scope for expansion,” says Sunil Reddy, managing partner, Satyaveedu.

Farmer opposition also put the Rs 4,000-crore Kakinada Special Economic Zone (KSEZ) project in jeopardy. It was, in fact, shaping to be one of the better SEZs in the country. It managed to find an anchor tenant in ONGC (which planned to set up a refinery). It even got ONGC to pick up a 26 per cent equity in the SEZ. It also roped in IL&FS as an investor with 26 per cent equity. Besides, KSEZ had borrowed Rs 500 crore (of the Rs 2,600 crore debt component) from a consortium of banks including Bank of India, Canara Bank and Andhra Bank at an interest rate of 8.25 per cent in mid-2006.

Unfortunately, 20 per cent of the 12,000 acres needed for the project was agricultural land. Farmers in the mandals of Kakinada such as Thodangi and Pithapuram opposed the project and raised environmental objections. The result: a financially sound project was stalled for over six months. ONGC’s refinery, originally planned near Pithapuram mandal (near the port), has since been shifted to a new location further away from the port. To avoid further delays, KSEZ decided to go for direct purchase of land at a flat rate of Rs 3 lakh per acre as against the Rs 1.05 lakh proposed by the government. About 4,000 acres of land has so far been acquired. “About 8,500 acres has been booked. But we haven’t signed up with anyone since the entire land is not in our possession,” says M.S. Murty, COO, KSEZ.

WRITING ON THE WALL: “We won’t give away our land. Reliance go away! Mukesh Ambani go away!” — Raigad locals vent their ire.

Call In The Government

The most popular way of roping in the government is to get a state industrial corporation to do the acquisition. This leads to a joint venture through a ‘land for equity’ deal.

For instance, Videocon, Bharat Forge and Mahindra & Mahindra have got into a joint venture with the Maharashtra Industrial Development Corporation (MIDC). The MIDC is to acquire a total of 9,000 hectares of land for three projects. This apart, the City and Industrial Development Corporation (CIDCO) is transferring about 2,140 hectares of land, already in its bank, to joint venture partner Navi Mumbai Special Economic Zone (Reliance is the main promoter). But these days, state governments are wary about who they partner with, and most also impose certain conditions.

Take MIDC’s scheme, for one. Wherever it acquires land for itself or for its partners, it will acquire 15 per cent more on the periphery of the main SEZ. This will be developed along with the SEZ. Locals from whom the land was acquired will have the option to buy this 15 per cent land at half the development cost. Their strategic location on the SEZ borders could open up several business opportunities. That way, they would also be partners in progress.

Get All Or Nothing

Many SEZ developers face a peculiar problem — all land that makes up an SEZ has to be contiguous with no breaks in between. This is proving to be difficult where fractured holdings from hundreds of owners have to be acquired and sewn together into one contiguous unit.

Sources say that even though Reliance’s SEZs in Maharashtra are acquiring large tracts of land, they are not contiguous. They do not rule out the possibility of Reliance opting for several ‘notifications’ rather than wait for all land to be acquired. (A notification is the official government recognition of an SEZ. This is given only after land is acquired; tax breaks also kick in only after this.) This means that Reliance may have to start with several smaller SEZs, rather than one large one.

KSEZ is also evaluating the possibility of getting SEZ status for the 4,000 acres land acquired so far. “At least some units can start off their activity,” says Murty. He does not rule out the possibility of ending up with 2-3 small SEZs and then merging them into a single entity. If this becomes common practice, India could become a country of over 1,000 SEZs.

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With reports from S. Kalyana Ramanathan