Infra Str Ature

7/29/2019 Infra Str Ature

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INFRASTRUCTURE

Group

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5

SOURCE- PRINCIPLES & PRACTICEOFMANAGEMENT BY P. K. AGARWAL

(A PRAGATI EDITION)


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INDIA GROWTH STORY

Indias economic growth is attracting wide attention

India & China are enjoying high economic growth

In 2006-07 Indias growth was 9.4%

Economic prosperity is placing huge demands oninfrastructure

India is the third largest economy behind USA andChina


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Infrastructure Requirements

World Economic Forum has noted that Indias annualinvestments in infrastructure between 1998 and 2005averaged 4% of GDP compared to 8.2% for China

Government of India is addressing the infrastructurerequirements

11th Five Year Plan (2007-2012) calls for more thandoubling the financial outlay for infrastructure


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Investment requirements

Total financing requirements

$492 billion in the next five years

Of this, $147 billion to come from private investment

Share of private investment in total to rise from 17% to30% by 2012.

Investment to touch $1.48 trillion by 2017


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Interest of international investors

Strong interest evinced by international investors inIndias infrastructure

This includes Private Equity 3i, Blackstone etc

International banks Citigroup, Macquarie Bank (Australia), Mizuho (Japan), Deutche

Bank

Multilateral institutions including ADB, World Bank, IFC,JBIC, KfW


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Challenges before India

India growth story likely to continue

Strong economic growth will fuel further demand oninfrastructure

India should absorb the large investments ininfrastructure sector to sustain growth momentum

Indian rupee has appreciated against the dollar by 5%over the past year and 20% in the past five years


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Development of PPP market in India

PPPs in India are at a nascent stage Slew of measures by government

100% foreign investment allowed in infra sectors Model Concession Agreements evolved Viability Gap Funding (VGF) Setting up of IIFCL Regulatory institutions (Telecom Regulatory Authority,

Port Tariff Authority) PPPs in India are accelerating

118 projects valued at $13.4 billion are progressing inroads, ports, airport sectors


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Transport Sector the potential inIndia

Aviation infrastructure

100% foreign direct investment allowed

$ 9 billion programme to upgrade 25 airports Delhi and Mumbai International airports two

PPP projects with estimated investment of $3.8billion

19 greenfield airport locations identifiedAirport Economic Regulatory Authority being set

up


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Air transportation - growth

Passenger traffic is projected to cross 100 millionpassengers p.a. by 2010

Cargo traffic to grow at over 20% p.a. over the nextfive years- To cross 3.3 million tonnes by 2010

Maintenance, Repair and Overhaul (MRO) growingin a big way MRO market expected to grow by 10%


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Roads and Highways India has the second longest road network in the

world of 3.3 million KMs

Expressways and highways constitute only 2% ofthe above

US $54 billion earmarked for the sector

Cargo traffic expected to grow by 15-18% overthe next 5 years


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Roads - Potential

100% foreign direct investment allowed Incentives:

- 100% income tax exemption for a period of 10

years - Grants/viability gap funding for marginal

projects available - Model Concession Agreement formulated

Opportunities in construction equipment (earthmoving, material handling equipment etc),tolling equipment services and advisory(architecture, structural design, soil investigationetc)


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Railways

India has one of the largest railway networks in theworld (63,000 route KMs network)

Accounts for 30% of total freight traffic Traffic volumes set to double by 2012

Potential for rolling stock, locomotives, passengercoaches, track equipment, signalling equipment


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Ports

India has coastline of 7500 KMs

12 major ports; 187 minor ports

Traffic has grown by a compounded average of8.5% Traffic expected to reach 880 million tonnes by 2011-12

95% of Indias exports & imports moved by sea

India expects to double its exports to $150 billionin the next five years


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Ports

100% FDI under the automatic route is permittedfor port development projects

100% income tax exemption is available for aperiod of 10 years

Tariff Authority for Major Ports (TAMP) regulatesthe ceiling for tariffs charged by Major ports

Investment needed in the next 5 years $18 billion


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Ports - Opportunity Opportunities exist in

Development of greenfield ports

Development of container and bulk terminals

Logistics infrastructure

Dredging services

Port related equipment

Ship building, ship repair, maritime training


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Role of IIFCL

IIFCL is a SPV to provide long term finance toinfrastructure projects

Overriding priority to PPP projects Finance projects in sectors like roads, airports, ports,

power, urban infrastructure etc

Since inception in April 2006

Financed 77 projects to the tune of $4.3 billion with atotal project cost of $31 billion


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Conclusion

Investment requirements of infrastructure sectorhuge

India growth story to continue 50% of the population is below 25 years Huge domestic demand

Need to bridge infrastructure gaps to sustaineconomic growth

Opportunities for international investorssignificant India can leverage on its vast human capital to

successfully adopt the PPP model


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Indias Infrastructure

Challenges

Experimenting with thePublic Private Partnership

Route


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Scope of this interaction Introduce the concept, need and basic terms to

increase familiarity with the subject

Take the case of a road project to discuss theissues relating to PPP

Consider the issue from different stand pointsgovernment, private sector, financiers, projectaffected parties and citizens

Share PPP experiences from your countries

Clarify any doubts if they arise after this session oron the email later on


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Traditional Model -BudgetarySupport Public good - Public Function Highly capital intensive

Long gestation period

Uncertain returns Plan expenditure

Why change the mode ?


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PPP Model More funds will be available for construction

and maintenance

Greaterefficiency through competition

Scope forInnovation

International best practices and knowledgetransfer

Government can focus on merit goods where

there are no private takers


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Fundamental concepts

What is a PPP? Is it the same as subsidy?

What are the types of PPP?

(Management contract/Lease)(BOT/BOO/BOOT/BOLT)

(DBFO)


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What is the role of Governmentexperts in PPP? Determining which projects can be taken up throughPPP- are they bankable? Facilitation at the design stage- project preparation

detailed feasibility report Facilitation in the pre-construction stage

Providing avenues for long term finance Understanding contingent liabilities Ensuring quick and effective dispute resolution

mechanism Ensuring transparency and fair play through adequate

regulation and disclosure Building effective and sustainable partnerships


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Optimum Apportioning of Risk

Project risks Technology/Design risk Construction risk Operating risk

Market risk Foreign exchange riskMacro-economic risks Political or Regulatory Risk Environmental risk Force Majeure risk


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Building Capacity in Public /Private SectorGuardians of Public Money

Viability Gap Funding PPP Cells - PPP Appraisal Committee

Transaction Advisors

Training/Information kits Standard Bidding Procedures

Model Concession Agreement


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Changing Public Opinion Change the command mindset Demonstrate excellent and trouble free delivery

Educate people on getting value for money inpublic expenditure

Re-train Public sector employees


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External Control- RegulatoryBodies Why is independent regulation necessary?


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Venture Capital for pre-operativeexpenses India Infrastructure Project Development Fund Huge upfront transaction cost + high risk

corpus Rs.1000 million, up to 75% project dev cost interest free loan to be recovered from successful

bidders State Govts and local bodies eligible

If no interest by bidders converted to grant


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Facilitating Finance India Infrastructure Finance Company Ltd.

-raises resources under Govt. guarantees

- up to 20% of project cost and then on-

lends to viable projects-Long term tenor (10 + years)

f


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India Infrastructure FinancingInitiative (IIFI) Equity and debt funding for viable state sector

projects

Partners 5 billion corpus

IIFCL Citigroup

IDFC

Blackstone Group Holdings


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PPP in the Road Sector EPC vs item-rate contract BOT (Annuity)/BOT (Toll)

O&M contracts

Toll Policy

Major concernsPoor quality of contractors

Land acquisition and R&R

Capacity of NHAI and State PWDs

Environment/Forest

Traffic vs connectivity

Apathy to paying toll


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Internal Controls Define all terms Conditions precedent (Escrow account,Applicable permits,performance security,Financing Agreements)

Detailed account of obligations ofconcessionnaire

Obligations of Authority

Representations and Warranties

Mandatory Disclosure


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Internal Controls International Competitive Bidding Bid security/performance security

Outcome specification

Completion Certificate

If there is a change of scope?

O&M obligations

Safety requirements

Independent Engineer Dispute Resolution Mechanism


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Accounts and Audits Concessionnaire to appoint a Statutory Auditor

from a list of mutually agreed panel

Articles and schedules provided in the MCA


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The Interpretations Committee (IFRIC) of the

International Accounting Standards Board is

developing financial accounting standards for

PPPs.

The complexity of PPPs and the dependence

of national accountants on government financial

accounting data makes it highly desirable to havea common treatment of PPPs in the SNA and

in the accounting standards.

How should PPPs be accounted for?


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THANK YOU FOR YOUR ATTENTION

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