Caisse investment in India | Dilapidated highway, deficits and criticism

The offensive of the Caisse de dépôt et placement du Québec in Indian infrastructures is bumpier than expected. Its $1 billion toll road is in disrepair just five years after its inauguration, and the subsidiary that operates it is losing money.

Cracked roads, faulty signage, vehicles driving in the opposite direction, users relieving themselves at the side of the road… the deterioration of the Eastern Peripheral Expressway (EPE) even made the Indian Minister of Transport, Nitin Gadkari, angry in September last.

During a public outing, he attacked motorway operators because of failures in maintenance, particularly on the Caisse’s EPE.

“We will not spare you,” warned Minister Gadkari, quoted in The Economic Times. We will ensure that the bank guarantees of those who do bad work are confiscated and after that we will blacklist you. We will not authorize you to solicit new tenders. »

The Caisse paid almost twice as much for this highway as what the second bidder offered, in 2022. The Press also revealed Tuesday that its three former executives accused in a corruption case in India held key roles in its Indian highways subsidiary, Maple Highways¹.

The Fund aims to be reassuring

The minister’s criticisms of the state of infrastructure do not seem to shake the Quebec pension plan manager. The director of communications, Jean-Benoît Houde, returns the ball to the National Highways Authority of India (NHAI).

“Maple Highways, as operator, is well aware of the remediation work required on a portion of the asset, which is the responsibility of the NHAI,” he said, without elaborating.

However, public data is much more nuanced.

Maple Highways operates this infrastructure through a trust that it controls 75%, the Indian Highway Concessions Trust (IHCT).

The financial statements of this trust report disputes totaling more than 215 million. Of this amount, more than 145 million relate to sums owed to subcontractors. Another 72 million represents claims from the State linked in particular to the non-payment of certain benefits to workers, failures in maintenance and repairs, as well as deficient coating.

The Press tried in vain to contact the Indian Ministry of Transport.

Publicized failures

The Indian minister is not the first to highlight the poor quality of the latest highway acquired by the Caisse in India. In July 2023, a report from Times of India also looked at the failures on certain sections of the EPE. The report noted in particular many street lights turned off at night and a road patched in several places, which would complicate traffic.

The daily also noted that the absence of rest stops and sanitary facilities was giving headaches to users. For example, a family had to stop on the side of the road to allow one of their children to relieve themselves while vehicles were traveling at high speed nearby.

This portrait contrasts with the way the Caisse subsidiary presents itself, which prides itself, on its website, on creating “an ecosystem” that emphasizes a “safe, sustainable and pleasant road experience”.

A strategy that is slow to pay off

The Quebec institution’s strategy consisted of grabbing assets that generate stable income in emerging markets like India, the most populous country in the world. But the profits are still awaited.

IHCT, the trust controlled by the Caisse to operate its highways, is accumulating losses. These amounted to 25 million in Canadian dollars in 2023 before reaching 35 million for the financial year ended March 31.

During this period, however, its revenues more than doubled to reach around 120 million.

According to the financial statements consulted by The PressIHCT’s operating expenses quadrupled and its financing costs doubled.

Raphaël Duguay, professor of accounting at Yale University, was able to analyze the financial data of the Indian trust controlled by the Caisse.

“There is no cash flow going back to Maple Highways and the Caisse,” says the expert. There is no profit generated. Looking at the financial statements, there is little information other than that there is a loss. »

The Quebec institution is not upset by the absence of profits generated by its Indian highways, according to Jean-Benoît Houde. “The financial performance of the Maple Highways asset and platform is in line with our expectations taking into account the market, the sector, and the long-term investment perspective. »

1. Read the article “Three former Caisse executives accused of corruption”

1. Read the article “Key roles for ex-executives accused of corruption”