Wednesday, September 2, 2009

Somebody In India Is Making Money Off This Formula

A chronology of the Indian Grand Prix, so far...

It has been ten years since Formula 1 has trying to make inroads in India. But the road is laced with potholes and open manholes and not a gravel trap in sight. Michael Taub, a British businessman, is one of the few who had been working over the possibility over the last decade.

Andhra Pradesh, Haryana, Karnataka, Maharashtra and Punjab were in contention when the idea first spawned in 2006 and a deal was to be finalized in December of that year. Calcutta and Hyderabad came close but political and financial agglomerations canceled it off. Hyderabad’s F1 ambition was nascent since 2003 but now has been a tally of infant mortality. It was Chandrababu Naidu, the then Chief Minister of Andhra Pradesh, who initiated the plan along with other major infrastructure projects including one of an airport. With the fall of his Government and with the induction of CM Y S Rajasekhara Reddy, that project was dropped. The proposed land was forwarded to IT developers. Calcutta on the other hand had the Left. So that was left out as well.

Location, Location, Location
South India has two racing tracks, one in Chennai and the other in Coimbatore. Although both are incapable of holding a Formula One event.

The focus remained in the North. The region of Greater Noida came as a necessity from the excesses of Delhi. The UP Government came up with the idea of creating Greater Noida, an extension of Noida, with stringent planning. Greater Noida is connected to Delhi via an expressway. Moreover, along with its connectivity from expressways and national highways, it is within an hour’s distance from the international airport.

The National Capital Region (NCR) was scheduled to host the Commonwealth Games in 2010. The Indian Olympic Association (IOA) President, Suresh Kalmadi justified the construction of the circuit on those grounds. He was quoted, "So we will have international airport, hotels and other infrastructure ready for this." He added to his justification for the Grand Prix, "I think we will be able to hold it. The purpose is to earn revenue for other Olympic sports." In lieu, the New Delhi Government had planned to build new flyovers to decongest crowded roads, renovate the airport and construct a new stadia and a Games village.

The IOA had initially proposed 2009 for the inaugural event which got shifted to 2010. The 2010 Commonwealth Games however pushed it to 2011.

The hotel and tourism industry would get an immediate boost and so will the country’s profile. It is said that the sport has the potential to generate around $170 million in revenue and employ as many as 10,000 people. Furthermore, the opportunity in advertising tie-ups between manufacturers and F1 is also a possibility. The amount spent for the entire event can be attributed as an expense for marketing India.

Samir Gaur, MD and CEO of JPSK Sports, reportedly said, "We are building a motor car racing track capable of holding an F1 race." This means that the track should be able to hold other races, both at national and international levels during other periods of the year. The track will be 5.5km in length.

Exit IOA, Enter JPSK
Kalmadi had announced the project, under the IOA banner, in June 2007, brushing aside questions then about the capacity of the IOA to raise funds that would be required to fulfil the conditions listed by Formula One Administration (FOA).

After the IOA initiated the proposal with Formula One Chief Bernie Ecclestone in June 2007 it was JPSK Sports Private Limited (JPSKSPL) that signed a deal eventually in November, 2007. This was not made public at the time.

Suresh Kalmadi, a member of the Indian National Congress, was later revealed that his family, his son, daughter and her husband, were involved with JPSK. This prompted a few key office-bearers of the IOA to issue a statement to claim that the IOA had actually backed out of the project in September, 2007.

Kalmadi had announced the agreement with Federation Internationale de L’Automobile (FIA), the sports governing body, on September 17, 2007, but he did not take the deal forward. The MoU expired just 13 days later on September 30. Only 20 days later, JPSKSPL was formed and inked the deal.

Suresh Kalmadi's son Sumeer owns Sulba Realty, which was given 13% stake in JPSKSPL. The answer became clear on November 16, 2007 when Sumeer inked an agreement for a 13% stake in JPSKSPL along with a Delhi-based businessman Sundar Mulchandani.

The share holding agreements made a provision for 74% shares for JPSKSPL's parent company Jayprakash Associate Limited, 13% stake for Sumeer's Sulba Realty and 13% for Mulchandani's Trackwork International Private Limited.

According to Ashok Khurana, executive vice-chairman of JPSK, the core area of the circuit would be spread over 4,000 hectares and building the infrastructure of the circuit would cost between Rs 1,200 and Rs 1,500 crore. The track was to be ready for inspection by the FIA by February 2011.

Formula One management (FOM) is to get an estimated $400m that JPSK has agreed to pay in fees in the course of the next 10 years. This means that the race contract will start out at around $25m a year and will rise by 10% for the 10 year term of the contract. The construction itself should not be a problem because that money will remain inside India.

Intervention: Political and from behind
During 2008, JPSK negotiated a deal over land with the state of Uttar Pradesh, which is run by Kumari Mayawati's Bahujan Samaj Party. This was allied to the UPA until June that year but then withdrew its support. This clearly did not go down well with the Government. The deal with Mayawati was done in September, with 2500 acres being declared a Special Economic Zone.

The plan was to use 1000 acres for the race track and the rest for other developments, in a project which will ultimately cost around $500m. It may be that the project is being blocked by the Government because of the involvement of Mayawati.

In addition to the $500m, an annual fee of Rs 50 hosting fee crore has to be paid to the FOM annually, Rs 10 crore as insurance cover and Rs 5 crore as FIA fees. 85,000 tickets have to be sold for approximately Rs 12,000 each. This in a cricket siphoned country will prove very, very difficult.

Furthermore, both the Motorsports Association of India (MAI) and the Federation of Motorsports Clubs of India (FMSCI) have expressed some skepticism. The latter's president, Rajat Mazumbar, has said that "The only authorised body that can run motorsports in the country is ours" despite the fact the deal has been signed with the IOA.

FOA has lots of infrastructure requirements pertaining to travel, accommodation of teams and supporting crews. For instance, the road between the airport and the circuit should accommodate the huge trailers employed by teams. China had a first hand experience in this regard when a few of their underpasses could not accommodate such trailers and were consequently delayed in their entry into the F1 calender.

And now…
The current dribble for funding is not new. In May 2006, the Indian Government has agreed to provide $1.1bn in funding. Sports authorities, however, maintained that the amount should follow an equitable distribution route for other sports as well.

The Union Sports Ministry has now rejected a request from JPSK Sports Private Ltd for release of foreign exchange worth $36.5 million as license fee to the UK-based FOA.

The JPSK Sports had approached the Sports Ministry last January for the release of foreign exchange after it was directed to the ministry by the Reserve Bank of India (RBI). The payment of $36.5m should have been made in January but JPSK had to ask permission of the RBI, which controls all international transfers, under the terms of the Foreign Exchange Management Act. The bank referred the question to the ministry, which rejected the request arguing that it was a "commercial initiative".

This hyphenated sputtering implicitly beckons that the whole process has been tied in political knots with infrastructure developments providing a quasi-justified perspective towards one thing - money!

Renault Roadshow - New Delhi on 8th-9th November 2008

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