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India - Opportunities in Infrastructure for Foreign Investors

India - Opportunities in Infrastructure for Foreign Investors. Arvind Mayaram Department of Economic Affairs Ministry of Finance Government of India. Investment scenario. GCFI in infrastructure as percentage of GDP 4.6 % during the tenth plan

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India - Opportunities in Infrastructure for Foreign Investors

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  1. India - Opportunities in Infrastructure for Foreign Investors Arvind Mayaram Department of Economic Affairs Ministry of Finance Government of India

  2. Investment scenario • GCFI in infrastructure as percentage of GDP 4.6 % during the tenth plan • If growth in GDP to be sustained GCFI in infrastructure must keep pace. • Total estimated investment of USD 320-350 billion in infrastructure up to 2012

  3. Investment Opportunities in IndiaIndicative • TRANSPORT: • Roads ($ 48 bn.): BOT preferred mode; NHDP-40,000 kms • Airports ($ 9 bn.): 4 Metro, 35 Non-metro airports • Ports ($ 12 bn.): All new berths through BOT • Railways ($ 12 billion): Container trains, DFC, Stations • POWER Generation ($ 130 bn.): Transmission, Distribution OTHER SECTORS • Gas Pipelines: Cross Country, Intra-city pipelines • Telecom • Health and Education Infrastructure • Urban Mass Transport • Urban Water Supply, Solid Waste Management

  4. Government is committed to PPP mode- Why? • Maximizing investment • Budgetary constraints • Development of assets of world class standards • Improved maintenance and management of assets • Provision of efficient services • Affordable prices through greater competition • Risk Sharing

  5. What are Foreign Investors looking for? • Good projects • Demand Potential • Revenue Potential • Stable Policy Environment/Political Commitment • Optimal Risk Allocation Framework • Independent Regulation

  6. Does India have it?

  7. Good Projects • Large Package sizes are being insisted upon by GoI in the road and other sectors • Design based on superior technology which may not be available domestically

  8. Demand Potential Ports: 877 million tonnes of traffic by 2011-2012 15.5% growth expected in containerized traffic Airports: Passenger and cargo traffic slated to grow at over 20% annually Railways: Freight traffic is growing at close to 10% and passenger traffic at close to 8% annually Power: 13% peaking and 8% average shortage of power annually Telecom: Rural penetration less than 4%

  9. Revenue Potential • India scores because of its large untapped markets • Example: India is a telecom success story despite low Average Revenue per User- there is comfort in numbers • Power: High revenue recovery recorded in recent times with 100% recovery in many cases • High economic growth rate has translated into a larger disposable income and larger spending capacity • Willingness to pay exists provided delivery is of good quality

  10. Stable Policy Environment • Model Concession Agreements for each sector guaranteeing protection against change in law, change in taxation • Clarity in obligations of the authority and provision for penalty for breach of obligation

  11. Optimal Risk Allocation • Demand Risk is partly mitigated through provisions for change in duration of concession –both upside and downside • Competition from other suppliers limited through a variety of non-compete clauses • Escalation in input costs mitigated through indexation of user charges to inflation • Construction and performance risk to be borne by the investor • Political risk and force majeure risks borne by the Government

  12. Termination payments and terms protect against arbitrary termination by Government • Land acquisition risk borne by government • Risk relating to permits and approvals especially environment permission borne by government • Provision of other related infrastructure an obligation of the authority

  13. Independent Regulation • Telecom Regulatory Authority of India • Central Electricity Regulatory Commission/State Electricity Regulatory Commissions • Tariff Authority for Major Ports • Airport Economic Regulatory Authority • Robust ‘regulation by contract’

  14. Is there a financing constraint or is it the problem of lack of a good project pipeline?

  15. Steps taken by government to ease financing constraints • Viability Gap Funding (VGF) • India Infrastructure Finance Company Limited (IIFCL) • India Infrastructure Initiative ($ 5 bn. Fund) • Enhanced Annual External Commercial Borrowing ceiling • Bonds- reporting platform started and trading platform slated to start from July 1, 2007 • Permission to foreign financial institutions and multilaterals to raise rupee resources: ADB allowed to raise rupee resources • Encouraging development of new instruments such as grading of PPP projects/SPV rating by the major credit rating companies

  16. Creating a pipeline • Building capacity within institutions to handle large PPP program, including project preparation • Preparation of project preparation manuals, handbooks on procedures, toolkits, standard bidding and contract documents etc. • Expert support to central ministries/state governments for project preparation • India Infrastructure Project Development fund

  17. Thank You

  18. Sectoral Opportunities

  19. Power(Estimated investment: USD 60 billion) • Over 67000 MW capacity to be added in the 11th plan period (2007-08 to 2011-2012) • 9 UMPPs to be implemented during the 11th and 12th plans • Transmission capacity augmentation through JVs for new generation

  20. NHDP-II: 4569 km, $103800 mn. NHDP-III: 10000 km $155200 mn. NHDP-IV: 20000 km $66100 mn. NHDP-V: 6500 km $98100 mn. NHDP-VI: 1000 km $39700 mn. NHDP-VII: $38000 mn. State Roads programme are in addtion Roads (Estimated investment: USD 49 billion)

  21. Railways(Estimated investment USD 67 billion) • Dedicated Freight Corridors with PPP sub-projects envisaging more than USD 7 billion investment for the North South, East West Corridors alone • Container operations • Rail side warehousing • Logistics Parks • Development of Rail links to Ports • Dedicated rail links for evacuation of specific industrial items • Modernization of Railway Stations • Development of new routes

  22. Metro Airport development through PPP Greenfield Airports Concept of Merchant Airports being examined by Government City side development in 24 Non-metro Airports Provision of Services within airports Airports (estimated investment USD 9 billion)

  23. National Maritime Development Programme 387 port projects All new berths on PPP basis Gradual transition of old berths to PPP Ports:(Estimated investment USD 11 billion)

  24. Untapped rural potential with low rural tele-density of 1.9% which must increase to 10% by 2012 Almost a million broadband connections added in 2006-2007. With low penetration scope for further increase Telecom

  25. Urban Infrastructure • Mass Rapid Transit Systems at Mumbai at a capital cost of about USD 2.5 billion, Hyderabad and Kolkata at about USD 1 billion each, Ahmedabad at about USD 950 million and other cities

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