Indian Infrastructure January 2015 by raman

Rs 100

Interview with NITI Aayogâ&#x20AC;&#x2122;s Dr Bibek Debroy

a magazine devoted to policy and finance www.indiainfrastructure.com

VOLUME 17

â&#x2014;?

NO. 6 JANUARY 2015

Renewed optimism

Special section: 39

Construction 18 28 32 34

Strategies to ease financial burden of stressed power projects Transfer of ownership revives hope in SpiceJet Landmark Agra-Lucknow expressway Connectivity at non-major ports

Volume No. 17

PUBLISHING Alok Brara EDITOR Devangshu Datta EDITORIAL OPERATIONS Director: Mudita Mehta Consultant: Shyama Warner RESEARCH Sr. Associate Director: Atika Wadhwa Associate Directors: Ritika Arora, Namrta Bangia, Rittwika Sharma Sr. Analysts: Farhan Ahmed, Dolly Khattar, Anchal Mittal, Sharif Qamar, Reya Ramdev, Yashu Ramnani Analysts: Ritoja Basu, Neha Bhatnagar, Nikita Chhabra, Akanksha Mahajan, Rahul Jain, Bhavya Laul, Priya Mishra, Deeksha Soni, Charu Agarwal, Jaspreet Kaur Anand, Pallavi Chahal, Aakash Choithani, Kritika Gautam, Shambhavi Sharan, Yashi Tandon BUSINESS DEVELOPMENT Sr. Vice-President: Raman Dev Narang DESIGN Art Director: Joybroto Dass Graphic Designer: Jaison Jose ADMINISTRATION Jose James Saroj Kumar CIRCULATION Sumita Kanjilal PHOTOGRAPHY Gagandeep PRINTING/PROCESSING IPP Ltd OFFICE B-17, Qutab Institutional Area, New Delhi 110 016 Phone +91-11-4103 4600-01 Fax +91-11-2653 1196 Email: info@indiainfrastructure.com

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Issue No. 6

Editorial he outlook remained difficult for infrastructure financing through calendar year 2014. The difficult macroeconomic environment and lingering sector-specific issues meant that multiple projects remained in limbo. Interest rates remained high and banks are very close to their sector limits. The major positive development was the installation of a new government, which appears committed to restart stalled infrastructure development. The government has initiated several reform measures and those should lead to improved conditions. But the change in sentiment has not yet translated into much action on the ground. Financing activity remains muted in terms of concrete numbers. Activity was low in fiscal year 2013-14 and on many parameters, financing activity declined even further in 2014-15 (between April and December 2014). Less money was raised by the debt route. The infrastructure debt funds have not yet proved to be popular. The number of projects achieving financial closure declined and so did the tapping of overseas funding via the ECB route. Even multilateral funding of Indian projects dropped. However, the easing of FDI norms resulted in much higher FDI inflows. More money was raised by the QIP route. A few corporates got set for IPOs. While private equity activity did not increase, some private equity investors managed to book profits and there is hope that this segment will revive as profits rotate back into the segment. The NDA government has rebooted the reform process. Long-pending issues such as land acquisition, environmental and forest clearances have received due attention. Presidential assent for amendments to the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was a major breakthrough. The changes introduced will allow fast-track processing of land acquisition across a multitude of infrastructure sectors. However, this has to be ratified by an act of Parliament instead of being an ordinance, which will lapse with time. Some steps have been taken to speed up processes for requisite green clearances. The easing of the FDI policy for several segments of the railway sector was another major development. The budget (2014-15) also introduced the concept of infrastructure investment trusts, which would have “tax efficient pass-through” status, for PPPs and other infrastructure projects. These structures should reduce the pressure on the banking system. The Reserve Bank of India has introduced a number of measures to ease infrastructure financing via the banking sector, which is collectively the largest infrastructure lender. Banks were permitted to extend long-term loans with exemptions from the normal regulatory pre-emptions. There are hopes of a turnaround in the infrastructure sector and the sentiment is very positive. The proposed reforms should address long-standing problems. The government has to find ways to push these policy changes through in Parliament, however, to ensure investor comfort. Once reforms are implemented on the ground, and stalled projects restart, there will be a major boost in financing activity.

Picture courtesy: shutterstock Images

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Contents >> NEWS BRIEFS Across sectors

>> SPOTLIGHT Interview with Dr Bibek Debroy: “NITI Aayog’s role is to document 16 best practices and become a forum for information dissemination” >> POWER Under pressure: Strategies to ease financial burden of stressed 18 power projects Distribution thrust: IPDS to cover areas left out of R-APDRP purview 20 >> OIL & GAS PAHAL scheme: Greater efficiency in LPG subsidy mechanism Key statistics

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>> CIVIL AVIATION Fresh Hope: Transfer of ownership to turn around SpiceJet

>> ROADS & BRIDGES Performance audit: Highlights of CAG’s report on national highway PPP projects Landmark project: Uttar Pradesh plans to build India’s longest greenfield expressway in record time Key statistics >> PORTS & SHIPPING Improving connectivity: Rail links for non-major ports Key statistics: Rail-port connectivity projects Second wind: Chennai replaces container terminal with outer harbour >> SPECIAL SECTION: CONSTRUCTION Overview and outlook: Focus on fast-tracking construction activity Recent developments: Turnaround in sentiment Sector-wise opportunities: Significant construction likely in

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railways, roads, ports and power Performance of key companies: Higher growth anticipated Construction materials: Expected surge after the slowdown Equipment market: Government’s emphasis on infrastructure to drive growth >> SECTOR FOCUS: INFRASTRUCTURE FINANCE & INSURANCE Overview: Caution mixed with optimism Policy and regulatory initiatives: New announcements to facilitate funding Debt financing: Tough scenario Equity financing: Signs of revival Stressed assets: Limiting the damage Financial closures: Muted activity Multilateral funding: Playing a critical role Insuring infrastructure: Limited options but comprehensive coverage Key statistics >> URBAN INFRASTRUCTURE Interview with Pradeep Singh Kharola: “Phase I will be completed by the end of 2015” Green signal: Ahmedabad-Gandhinagar metro project abuzz with activity Interview with Chandrakant J. Gudewar: “Mobile-based applications hold the most relevance for our organisation”

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>> TELECOM Creating waves: New spectrum bands spike global operator interest

>> KEY FINANCINGS

>> PEOPLE K.S. Popli, Aseem Gupta, D.K. Sen, Ashok Agarwal, K.K. Sharma, Sunil Jose

FORM IV Publisher Alok Brara Printer Alok Brara Owner India Infrastructure Publishing Private Limited Editor Alok Brara Printing Press International Print-o-Pac Limited, C-4 to C-11, Hosiery Complex, Phase-II Extension, Noida 201305 Place of Publication B-17, Qutab Institutional Area, New Delhi 110016

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>>news briefs: sector view

Key Developments Across sectors ◗ Aviation The Ministry of Civil Aviation (MoCA) has appointed M. Sathiyavathy as the Director General of Civil Aviation (DGCA). She is additional secretary and financial adviser at MoCA; she was earlier chief secretary in the Puducherry government. She is the second woman to hold the DGCA’s post.

look of its cabin earlier, with 16 seats in business class, 36 in premium economy and 96 in economy. It is the first full-service carrier in India to offer premium economy seating. The carrier will initially begin operations with two Airbus aircraft. The fleet will increase to five by end-March 2015 and to 20 by 2017.

According to reports, non-aeronautical revenues earned by the Airports Authority of India (AAI) have increased by 52 per cent, from Rs 8.19 billion in 2010-11 to Rs 12.41 billion in 2013-14. Non-aeronautical revenue sources include earnings from duty-free shops, operating express courier terminals, common user cargo terminals, etc.

AirAsia India has added Pune to its network by launching flight operations on the Bengaluru-Pune and Pune-Jaipur routes on December 16, 2014. Apart from Pune and Jaipur, the airline connects Bengaluru to four other Indian destinations – Chennai, Kochi, Goa and Chandigarh. Meanwhile, Jaipur has become the 12th destination to have air connectivity from Pune.

AAI has issued a request for qualification tender seeking applications from domestic and international companies to operate, manage and develop the airports at Chennai, Kolkata, Ahmedabad and Jaipur. However, the tender is only to manage and develop, not privatise the airports.

Air India may reportedly not receive Rs 7.2 billion of the Rs 65 billion equity infusion scheduled for 2014-15, due to the government’s fiscal constraints. The equity infusion was mainly being used to repay loans taken by the national carrier to pay for aircraft ordered in 2005.

According to the Maharashtra government, Phase I of the proposed Navi Mumbai International Airport will start commercial operations by 2019. The airport will come up on an area of 2,268 hectares, of which 671 hectares will be private land. Of the 671 hectares, the City and Industrial Development Corporation of Maharashtra has already acquired 592 hectares and it has also secured all the necessary approvals for airport development. In Phase I, the airport will have the capacity to handle 10 million passengers per annum. The project is estimated to cost Rs 145.73 billion.

Maritime Energy Heli Air Services (Mehair) has launched the first intrastate flight in Gujarat, connecting Ahmedabad and Porbandar in Saurashtra. The flight was operated with a Cessna 208B Grand Caravan aircraft with a capacity of nine passengers. The fare is priced at an introductory offer of Rs 4,999. These flights will operate three or four times a day on weekdays between Ahmedabad, Porbandar, Bhuj and Jamnagar. Mehair will initially run a single aircraft. It plans to expand its fleet in a phased manner. In the first phase, the cities of Ahmedabad, Bhuj, Porbandar and Jamnagar will be connected, while in the second phase, flights will be introduced between Ahmedabad, Surat, Bhavnagar, Dwarka, Keshod, Rajkot and Mandvi. As part of the contract, the Gujarat government will provide a subsidy on various flights operating within the state.

AAI has invited bids to privatise domestic cargo operations at the Mangalore International Airport, Karnataka, from April 1, 2015. The last day for submission of bids was January 8, 2015. In order to incentivise private players, AAI exempted them from paying a royalty of 13 per cent. At present, AAI is developing a new cargo terminal on an area of 3.05 acres near Kenjar (this building was previously known as Dakkan Park). The operations of this will be outsourced to private players. However, AAI will continue to handle international cargo at the old terminal building at Bajpe. The DGCA has given an air operator permit to Vistara (a full-service airline), which began commercial operations from January 9, 2015, with a Delhi-Mumbai flight. The new airline will also service the MumbaiAhmedabad and Delhi-Ahmedabad routes. The airline unveiled the first 6 ❘ Indian Infrastructure ❘ January 2015

◗ Oil and gas The government has increased excise duty on diesel and petrol by Rs 2 per litre with effect from January 2, 2015. The levy will not result in an increase in retail prices as fuel retailers will offset this rise against declining crude oil prices. The increase in excise duty is expected to yield about Rs 60 billion to the government between January and March 2015. The government will use the proceeds to fund infrastructure development, in particular the construction of 15,000 km of roads by March 2016. Meanwhile, state-owned oil marketing companies (OMCs) slashed petrol and diesel rates by Rs 2 per litre with effect from December 16,

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2014. Following this, petrol in Delhi costs Rs 61.33 per litre and diesel is priced at Rs 50.51 per litre. This is the fourth cut in diesel prices following the deregulation of the fuel on October 18, 2014. Additionally, the government has slashed petrol prices eight times consecutively in the last four months. This steep reduction in prices is on account of a continuous fall in international crude oil prices. The price of non-subsidised liquid petroleum gas (LPG) has been slashed by Rs 43.50 per cylinder on account of the continuous decline in oil and gas prices. Following this, a 14.2 kg cylinder of non-subsidised LPG will cost Rs 708.50 in Delhi. Meanwhile, LPG consumers across the country have started receiving direct cash subsidy into their bank accounts from January 1, 2015. As a result, consumers would now buy LPG at market prices while receiving a direct transfer of subsidy to their accounts. Domestic LPG users will receive Rs 568 in their bank accounts the moment they join the Direct Benefit Transfer Scheme for LPG (now renamed PAHAL). At present, subsidised LPG costs Rs 417 per 14.2 kg cylinder. The government has decided to extend subsidy on gas supplied by private producers in the north-eastern region to attract global investors. The subsidy was so far only limited to the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL). The companies which are actively involved in production in the region include ONGC, OIL, Geopetrol International, GAIL India Limited, Hindustan Oil Exploration Company and Jubilant Energy. The government had decided to bear 40 per cent of the cost of gas in the region to protect consumers from a gas price hike. In addition, the Directorate General of Hydrocarbons has been asked to appoint a global consultant by January 2015 to conduct a study, and suggest a policy to encourage exploration and production (E&P) of oil and gas in the region. The consultant is expected to examine the underlying causes for limited E&P activities in the area and suggest practical solutions. ONGC has notified three recent discoveries in the Krishna-Godavari (KG) basin, Mumbai offshore, and the Cauvery basin. The first discovery has been made in its nomination deepwater block, KG-OS-DW-III (KG basin). The Mumbai offshore discovery includes a new pool discovery in well WO5-11 (WO-5-G), situated about 160 km west from the nearest coastline in Maharashtra. In the Cauvery basin, ONGC has made a significant gas discovery in well MD-5 in the CY-ONN-2002/2 block. Reliance Industries Limited (RIL) has relinquished its KG-D3 block due to operational restrictions placed by the Ministry of Defence (MoD). RIL held a 60 per cent stake in the block, while BP and Hardy held a 30 and 10 per cent stake in the block respectively. The restrictions imposed by the MoD ruled out any further exploration or development activities in the impact zone area and inhibited the contractor from undertaking any fur-

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ther work and investment in the unrestricted area of the block due to an anticipated increase in cost and risk. In addition, company officials have also quoted the uncertainty of long-term natural gas pricing in India as one of the causes. India’s largest liquefied natural gas (LNG) importer, Petronet LNG Limited (PLL) has received its thousandth cargo under a long-term contract with Qatar-based RasGas at the Dahej LNG terminal in Gujarat. PLL had signed an agreement with RasGas in 1999 for the import of 7.5 million metric tonnes per annum of LNG.

◗ Ports and shipping The Central Board of Excise and Customs has extended 24x7 customs clearance facility from four to 18 seaports with respect to the import and export of specified goods with effect from December 31, 2014. The facility is now available at the ports of Chennai, Cochin, Kamarajar, Gopalpur, the Jawaharlal Nehru Port Trust (JNPT), Kakinada, Kandla, Kolkata, Mumbai, New Mangalore, Mormugao, Mundra, Okha, Paradip, Pipavav, Sikka, V.O. Chidambaranar and Visakhapatnam. The facility relates to the import of goods covered by facilitated bills of entry and exports via factory-stuffed containers and those exported under free shipping bills. The facility came into existence in September 2012 at four seaports and has been extended as per the announcement made in the Union Budget 2014-15. The Ministry of Shipping (MoS) has relaxed certain provisions under Section 407 (1) of the Merchant Shipping Act, 1958, which opens up the domestic sector for foreign shipping lines. The move allows foreign cruise vessels to transport individuals between two domestic ports without taking permission from the Directorate General of Shipping. The Ministry of Commerce and Industry has released a new draft of the National Offset Policy with the intent to boost domestic manufacturing in various sectors, including ports and shipyards. As per the policy, foreign companies selling goods worth over Rs 3 billion to the government or PSUs will have to procure supplies equivalent to a minimum of 30 per cent of the estimated cost of the imports, from domestic companies. The Ministry of Finance (MoF) and the Planning Commission have rejected the proposal from the MoS to waive Rs 7.15 billion of penal interest due from the Cochin Port Trust (CPT). The Department of Expenditures, under the MoF, had asked CPT to prepare a report on its future operations due to uncertainty over its profitability in operations. The performance of the port has suffered due to severe underutilisation of the international container transhipment terminal at Vallarpadam and delay in the laying of gas pipelines by PLL. Four private firms have evinced interest in undertaking a dredging project at Mormugao port. This is the first such project in India to be undertakJanuary 2015 ❘ Indian Infrastructure ❘ 7

>>news briefs: sector view en on a public-private partnership (PPP) basis. The interested companies are the Jindal Group, Adani Group, Mercator Limited and International Seaport Dredging Limited. The project entails deepening draught levels at the port to 19 metres from the current level of 14.1 metres at an estimated cost of Rs 3 billion. Upon completion, the port will be able to handle Capesize vessels of 150,000 deadweight tonnage. Gujarat Pipavav Port Limited (GPPL) has entered into an agreement with NYK Auto Logistics (Thailand) Company Limited for the development of a dedicated common user integrated roll-on, roll-off yard at the port. GPPL has subleased land for the project to NYK and is also supposed to ensure provision of port and related facilities for facilitating seamless movement of automobiles. The terminal is planned to be developed with an annual capacity to handle 250,000 units of automobiles and is scheduled to be commissioned by the second quarter (April-June) of 2015. The Gujarat Maritime Board (GMB) has signed an MoU with Dubai-based Institute of Chartered Shipbrokers and Norway-based Maritime Forum for setting up a maritime cluster in the state. The cluster is likely to be set up in Ahmedabad or Surat. GMB intends to provide various services at the cluster to shipping lines, shipping agents, freight agencies, finance firms, maritime institutes, etc. The Mundra international container terminal (MICT) handled over 1 million twenty-foot equivalent units (TEUs) of container throughput in 2014. The terminal caters to about 55 vessels and 160 trains per month with over 30 crane moves per hour. The traffic has registered a compound annual growth rate of about 16 per cent since 2003 given that the terminal handled 20,000 TEUs in its first year of operation. Kolkata-based Garden Reach Shipbuilders and Engineers Limited (GRSE) successfully delivered India’s first warship to a foreign country. The $58.5 million CGS Barracuda, with a length of 74.1 metres, was delivered to Mauritius on December 20, 2014. The offshore coast guard patrol vessel can move at a maximum speed of 22 knots, with an approximate displacement of 1,350 tonnes. So far, GRSE has made 92 warships for the Indian Navy and the Indian Coast Guard combined. The MoS has provided the Bangladesh government 100 million Bangladeshi taka during 2014-15 for the development of inland water transit and trade protocol. The specific inland water routes under the protocol are Kolkata-Karimganj-Kolkata, Silghat-Karimganj-Silghat and Dhulian-Rajshahi-Dhulian. The protocol will be renewed on a regular basis under a set mechanism.

◗ Power The Ministry of Coal (MoC) has notified a draft approach paper for the auction of captive coal blocks that were cancelled by the Supreme 8 ❘ Indian Infrastructure ❘ January 2015

Court in September 2014. The floor price of coal blocks for sectors including steel, cement, sponge iron and captive power is proposed to be over Rs 150 per tonne. The intrinsic value of a block would be calculated by computing its net present value (NPV) based on a discounted cash flow approach. The bidders would have to give 10 per cent of the NPV as upfront payment. The MoC has also initiated the process of registration of bidders for e-auction of the cancelled captive coal blocks. The ministry has notified a list of 24 blocks for the auction, of which six are earmarked for the power sector. The MoC has selected MSTC Limited as the agency to conduct the e-auction of the blocks. The last date for the sale of the tender at the MSTC website is January 29, 2015 and that for submission of the technical bids is January 31, 2015. The qualified bidders will be announced on February 12, 2015 and financial bids will be submitted through an electronic auction during February 14-22, 2015. The winning bidder will be notified by February 27, 2015. The Ministry of Power (MoP) has scrapped the bidding process for two ultra mega power projects (UMPPs), namely, the 4,000 MW Cheyyur UMPP in Tamil Nadu and the 4,000 MW Bedabahal UMPP in Odisha. The bidding saw no participation from private players and NTPC Limited and NHPC Limited were the only bidders. The MoP plans to initiate a fresh bidding process based on revised standard bidding documents, which are likely to be drafted over the next two months. Nuclear Power Corporation of India Limited has commenced commercial operations of the first 1,000 MWe unit of the Kudankulam nuclear power project in Tamil Nadu. The project has so far generated 3,350 MUs since December 7, 2014. The maximum allocation of power has been made to Tamil Nadu (562 MWe), followed by Karnataka (221 MWe), Kerala (133 MWe), Andhra Pradesh (50 MWe) and Puducherry (33.5 MWe). The prime minister has launched a scheme for the distribution of light emitting diode (LED) lights under the Domestic Efficient Lighting Programme in Delhi and a national programme for LED-based home and street lighting. The scheme entails installation of LEDs for domestic and street lighting in 100 cities targeted for completion by March 2016. In Delhi, the LED bulbs will be distributed in a phased manner from March 2015 onwards. These will be provided to domestic consumers at an initial payment of Rs 10 each and the cost recovered at the rate of Rs 10 per month for 12 months from their electricity bill amounting to Rs 130 for an LED bulb as against the open market retail price of Rs 350 to Rs 600. The estimated annual savings for households in Delhi per LED bulb will be Rs 162. NTPC has terminated the Rs 20.66 billion contract awarded to Russiabased Technoprom Export (TPE) for the supply of power equipment for the former’s 1,980 MW Barh Stage I thermal power plant in Bihar. This is following TPE’s reluctance to meet the commissioning schedule tar-

>>news briefs: sector view geted by NTPC. TPE demanded Rs 12 billion to meet the deadlines proposed by NTPC for commissioning of Unit 1 by December 2015 and Units 2 and 3 by June 2016 and January 2017 respectively. TPE had earlier sought NTPC’s approval for completion of Unit 1 by December 2016. The work on the project stalled subsequent to a contractual dispute between the two firms and fresh deadlines were set in 2011. Posttermination, NTPC has encashed the Rs 8 bank guarantee given to TPE and is now likely to rope in Bharat Heavy Electricals Limited to complete the remaining work on the project. The Supreme Court has rejected Jindal Steel and Power Limited’s (JSPL) plea to grant it extra time of 36 months for payment of Rs 17.93 billion as additional levy for illegal mining following the captive coal block deallocation. JSPL is required to pay Rs 7.69 billion with respect to coal block Gare Palma IV/1 and its subsidiary, Jindal Power Limited, is required to pay Rs 10.25 billion for its Gare Palma IV/2 and IV/3 coal blocks.

◗ Railways Dedicated Freight Corridor Corporation of India Limited signed a loan agreement worth $1.1 billion with the World Bank in December 2014. The funds will be used for the second phase of the 393 km electrified double line on the Mughalsarai-Bhaupur section of the eastern dedicated freight corridor (DFC). In May 2011, the World Bank agreed in principle to part-finance the eastern DFC from Mughalsarai to Ludhiana and sanctioned $975 million for Phase I. The project is scheduled to be commissioned by 2019. As per the review of the developments in infrastructure sectors in 201415 (April-November) by the Planning Commission, the Ministry of Railways (MoR) has been able to add only 60.7 km of new lines to the railway network. The figure accounts for about 20 per cent of the targeted addition (300 km) for 2014-15. With respect to doubling of lines, only 241.07 km has been completed during the period as against the targeted 710 km, which is equivalent to 34 per cent of the target for the entire year. The government has been able to electrify 493 km, which is 37 per cent of the target of 1,350 km for 2014-15. In terms of gauge conversion, 161.55 km has been converted of the targeted 450 km. The total earnings of Indian Railways (IR) on originating basis during April-December 2014 were approximately Rs 1,146.56 billion compared to Rs 1,018.57 billion during the same period of the previous year, registering an increase of 12.57 per cent. The total goods earnings increased from Rs 687.77 billion during April-December 2013 to Rs 771.62 billion during April-December 2014, an increase of 12.19 per cent. During AprilDecember 2014, total passenger revenue earnings stood at Rs 319.55 billion compared to Rs 276.46 billion during April-December 2013, registering an increase of 15.59 per cent. The revenue earnings from other coaching services amounted to Rs 30.22 billion during April-December 10 ❘ Indian Infrastructure ❘ January 2015

2014 compared to Rs 28.62 billion during the same period in the previous year, an increase of 5.58 per cent. However, the total passenger volumes carried by IR registered a decline of 1.64 per cent, falling from 6,360.15 million to 6,256.16 million. IR carried 808.56 million tonnes (mt) of revenue earning freight traffic during the period April-December 2014, against 768.74 mt carried during the corresponding period of 2013, registering an increase of 5.04 per cent. During December 2014, revenue earning freight traffic carried by IR stood at 95.46 mt, an increase of 3.58 per cent over the 92.16 mt carried in December 2013. A 10-member task force has been constituted for giving suggestions to improve productivity in railway operations, manufacturing and other IR departments. The task force will be headed by the executive director, mechanical engineering department (infrastructure), Railway Board. Other members include executive directors from various departments including electrical engineering, track modernisation, etc. Meanwhile, the MoR has decided to constitute a new directorate in the Railway Board, named Directorate of Environment Management. The directorate will be responsible for ensuring effective utilisation of water resources, and conduct of energy and water audits and all matters related with environment management. It will be headed by an adviser from the mechanical engineering department with participation from various departments, including electrical engineering, public grievances, finance, etc.

◗ Roads and bridges An ordinance pertaining to the Land Acquisition Act, envisaging procurement of land for industrial corridors, rural infrastructure, defence, PPP projects and housing has received Presidential assent. The ordinance was cleared by the cabinet on December 29, 2014. The ordinance makes significant changes to the Land Acquisition Act, including the removal of a consent clause for acquiring land for the aforementioned five areas. Under the amended law, the mandatory “consent” clause and social impact assessment will not be applicable. However, the compensation, rehabilitation and resettlement packages will be applicable as per the new Land Acquisition Act for the acquisition of land for these five aforementioned purposes. Under the new act, compensation in rural areas has been increased by four times, while in urban areas it has been doubled from the existing market value. The Ministry of Road Transport and Highways (MoRTH) is reportedly planning to introduce a comprehensive policy on tolling on national highways. The proposed policy aims to deal with all issues pertaining to toll collection. The new policy will come into effect after receiving approval from the cabinet. In a separate development, the MoRTH has reportedly announced that all new projects supported by the National Highways

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Authority of India (NHAI) will use cement concrete as raw material. The ministry will procure cement at a cost of Rs 120 per bag (excluding taxes and transportation costs). The MoRTH has relaxed the norms for road construction in the northeastern states. The relaxation is aimed at promoting inexperienced contractors to execute the trans-Arunachal Pradesh highway project. In a separate development, the public works department of Arunachal Pradesh has submitted a proposal for survey and investigation of the 2,000 km Tawang-Vijoynagar road along the MacMohan Line and sanction of Rs 80 million for the construction of the proposed 431 km eastwest highway between Bhalukpong and Ruksin. The MoRTH is planning to ask the MoF to ensure that the additional funds raised through the fuel excise duty hike are allocated for road construction. Excise duties on petrol and diesel were recently hiked by Rs 2 per litre. The Ministry of Environment and Forests (MoEF) has stated that the Signature Bridge project in Delhi does not require environmental clearance. In May 2014, the lieutanant governor of Delhi asked to speed up the Signature Bridge project. The project, which has witnessed several extensions of the completion deadline, is now expected to be commissioned by September 2015. The project’s cost, initially estimated at Rs 4.64 billion in February 2006, has now escalated to Rs 11.85 billion. It is being implemented by the Delhi Tourism and Transportation Development Corporation. Construction works for the project are being undertaken by a consortium comprising Gammon Infrastructure Limited, Brazil-based Construtora Cidade and Italy-based Tensacciai. After its completion, the bridge will ease traffic flow from the Outer Ring Road and colonies on both sides of the Yamuna river, around the old Wazirabad bridge. NHAI is likely to scrap the proposal for the formation of an asset reconstruction company (ARC) to aid stressed road projects. Reportedly, banks and non-banking financial companies did not evince interest in the formation of the ARC to bail out stressed road projects, due to the lower interest rates associated with this. In August 2014, NHAI had given inprinciple approval for setting up an ARC to take over bank loans that are likely to turn into non-performing assets. The MoRTH has launched a web portal for online approval of movement of overdimensional and overweight cargo. This is part of the digitisation of the road sector, which will ensure smoother movement of heavy transport. As per the MoRTH, 108 e-tolls have become operational and the number will rise to 350 by March 2015.

◗ Telecom The Cabinet Committee on Economic Affairs (CCEA) has approved the proposed spectrum swap deal between the Ministry of Communications

briefs<<

and IT and the Ministry of Defence. As per the deal, the Ministry of Communications and IT will swap 15 MHz of spectrum in the 1900 MHz band with the equivalent quantum of frequency airwaves in the 2100 MHz band, which is currently held by the defence forces. However, the swap will reportedly take over a year to complete due to the associated complexities. Further, this spectrum will not be put for sale in the February 2015 auctions. Meanwhile, CCEA has also approved the creation of a defence band across 49 slots between 3 MHz and 40 GHz, including nine slots that will exclusively be used by the defence forces. Further, additional 31 spectrum slots have been earmarked for both defence and commercial use by organisations such as the information and broadcasting ministry (for television and radio), space department and civil aviation ministry. Nine slots will require further negotiations between the defence and other ministries because of interference-related issues. A working group will be set up to resolve these issues. DoT has issued the notice inviting application (NIA) for the upcoming spectrum auctions. As per the NIA, the auction format will be simultaneous, multiple-round ascending type conducted through e-bidding. Successful bidders will have the option of paying a full upfront payment within 10 days of declaration of final price or make a deferred payment. In service areas other than metro circles, the existing licensee will have to cover at least 10 per cent of the block headquarters within three years from the date of spectrum allotment. Further, the operators will have to cover at least 20 per cent and 30 per cent of the block headquarter in the fourth and the fifth year respectively. The Telecom Commission has approved a pan-India reserve price of Rs 37 billion per MHz of spectrum in the 2100 MHz band for the auctions scheduled in February 2015. The reserve price is 36 per cent higher than Rs 27.20 billion recommended by the TRAI. Further, the commission has decided to put up only 5 MHz of spectrum in the 2100 MHz band for sale in the forthcoming auctions, as against TRAI’s suggestion of auctioning 20 MHz of spectrum. The commission’s decision will now be placed before the Ministry of Communications and IT for the final approval. TRAI has released a set of recommendations titled “Definition of Revenue Base for the Reckoning of Licence Fee and Spectrum Usage charges”. In these recommendations, TRAI has stated that the revenue generated by telecom operators from non-telecom activities such as financial investments and property rents be excluded while calculating the adjusted gross revenue (AGR). TRAI has recommended a concept called applicable gross revenue, which will consist of gross revenue, less revenue from non-telecom streams as well as receipts from the Universal Service Obligation (USO) Fund. TRAI has also suggested that the uniform licence fee be reduced from the current 8 per cent to 6 per cent of the AGR. Further, TRAI has recommended that the share of USO Fund levy in the licence fee be reduced from 5 per cent to 3 per cent January 2015 ❘ Indian Infrastructure ❘ 11

>>news briefs: sector view of AGR so that the proceeds received by the government from licence fee are not affected. The Tata Sons Limited has received an in-principle approval from the Reserve Bank of India (RBI) for its proposal to buyback Japan-based NTT DOCOMO’s stake in Tata Teleservices Limited (TTSL) at the price agreed upon by the two parties under the stake acquisition agreement in 200809. According to RBI, although the transaction is not in line with the central bank’s 2014 order, it has accepted Tata Sons’ proposal in order to maintain India’s strategic relationship with Japan. The case is related to DOCOMO’s decision of selling its stake in TTSL by exercising the put option, which was a part of the stake acquisition agreement. According to the Department of Industrial Policy and Promotion, the telecom sector received FDI worth $2.47 billion in April-November 2014. The cumulative FDI (since April 2000) in the telecom sector increased from $589.30 billion in November 2013 to $814.46 billion in November 2014. Bharti Airtel has awarded a 4G contract worth $200 million to Finlandbased Nokia Networks. Under the contract, Nokia Networks will be responsible for building the telecom operator’s 4G network in the 1800 MHz band in six circles. The circles covered under the deal are Mumbai, Madhya Pradesh, West Bengal, Odisha, Punjab and Kerala.

◗ Urban infrastructure L&T Metro Rail Hyderabad Limited has commenced test runs in automatic train operation mode on the Nagole-Mettuguda stretch of the upcoming metro system in Hyderabad, Telangana. The France-based Thales has equipped the system with a communication-based train control signalling system for automatic operations. Phase I of the metro system will span 71.2 km and cover 66 elevated stations. It will serve three high density traffic corridors – Miyapur-L.B. Nagar (29.87 km, 27 stations), Jubilee bus station-Falaknuma (14.78 km, 16 stations) and Nagole-Shilparaman (26.51 km, 23 stations). The Delhi Metro Rail Corporation has announced plans to launch two new corridors under Phase III, the Jahangirpuri-Badli (4.48 km, three stations) corridor and the Badarpur-YMCA Chowk (13.87 km, nine stations) corridor, in early 2015. Phase III of the Delhi metro project involves the development of seven corridors, which span 135.4 km and cover 91 stations. Meanwhile, the Haryana government has given in-principle approval to extend the Delhi metro network from YMCA Chowk in Faridabad to Ballabgarh. The project is estimated to cost Rs 6 billion. The state government will contribute Rs 4.7 billion while the central government will contribute Rs 1.3 billion towards the project. IL&FS Rail Limited has awarded a contract to Thales to install an automatic fare collection system on Phase II of the Rapid Metro rail pro12 ❘ Indian Infrastructure ❘ January 2015

ject in Gurgaon, Haryana. The line will span 7 km from Sikandarpur (terminus of Phase I and interchange with the Delhi metro) to Sector 55-56, covering six stations. The Phase II project is expected to be completed in 24 months. The Kerala Water Authority (KWA) is undertaking a project to construct a water treatment plant (WTP) and a check dam to augment water supply to Thiruvananthapuram city. The proposed plant, with an installed capacity of 120 million litres per day (mld), will supply 100 mld water to the city and 5 mld water each to Maranalloor, Malayinkeezhu, Vilappil and Vilavoorkal panchayats. The civic agency is also planning to construct a 1.5 metre high check dam across the Neyyar river. Water from the check dam will be diverted to the proposed WTP at Maranalloor. The project is estimated to cost Rs 2 billion and KWA has submitted the project estimate to the state government for sanction. KWA is planning to begin the tendering process within two months of the approval of the project. The Bareilly Municipal Corporation and the Uttar Pradesh Jal Nigam are planning to set up two sewage treatment plants (STPs) in Bareilly to curb discharge of untreated wastewater into the Ramganga river. The project is being taken up under the National Ganga River Basin Authority and entails an estimated investment of Rs 700 million. The plants will be set up in the Sarai Tulfi and Nakatia areas from where many drains flow into the river. The civic agency has nearly completed the formulation of the detailed project report and once this is done, it will be sent to the central government for approval. Construction work will commence upon receipt of approval. The plants are likely to be completed by January 2016. The Coimbatore City Municipal Corporation in Tamil Nadu has been directed to complete an underground drainage system project covering 42 city wards by February 2015. The Rs 3.7 billion project is being implemented under the Jawaharlal Nehru National Urban Renewal Mission and involves laying 640.8 km of pipelines and the construction of three STPs, at Ukkadam, Ondipudur and Nanjundapuram. So far, the civic agency has completed work on laying 498 km of pipelines, connected houses to the drains and constructed 19,154 of the total 20,993 manholes. While the STP at Ukkadam is complete, construction of the plant at Ondipudur has been delayed due to issues related to land acquisition. Development work on the Nanjundapuram STP is currently under way. The Municipal Corporation of Gurgaon (MCG) is studying various technologies to operate the solid waste treatment plant at Bandhwari. In this regard, it has invited private agencies to advise the corporation on the technologies that can be used to treat garbage. Around six agencies have already made presentations and a few more presentations are expected. After this, MCG will commence the shortlisting process. The plant is reported to have been shut since 2013 and it is estimated that about 150,000 tonnes of untreated garbage has collected around its premises. ◗

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>>spotlight

Interview with Dr Bibek Debroy “NITI Aayog’s role is to document best practices and become a forum for information dissemination” The 65-year old Planning Commission has just been replaced by the National Institution for Transforming India (NITI) Aayog. The government notified a cabinet resolution on January 7, 2015 with respect to the constitution of the new body, which was approved by the prime minister on January 1. The government has also notified the names of the office bearers. Dr Bibek Debroy, member, NITI Aayog, and chairman, High Level Committee for Railway Restructuring, talks about the role of the new body, infrastructure development and private sector participation as well as restructuring of Indian Railways (IR)… What will be NITI Aayog’s priorities with respect to infrastructure development? What are the kinds of activities that it intends to pursue in this area? This is somewhat premature. There is a Cabinet Resolution that sets out the mandate of NITI Aayog. Most of the negativity associated with the historical Planning Commission is around the conventional “planning” exercise, irrelevant now because of the private and decentralised nature of allocation of resources now, and the centralised template of centrally sponsored schemes (CSSs). But there is still long-range planning that a body has to do, not in the conventional planning sense, but in terms of where we would like India to be in, say, 20 years, be that in terms of human development indicators or doing business indicators, or something else. This requires public expenditure, decentralised and made more efficient, not only down to the level of the states, but also to districts and local bodies. This is the kind of work the Perspective Planning Division of the former Planning Commission was originally expected to do. But it fell into disuse. In a decentralised and federal country, it is important for a body like NITI Aayog to perform this intermediary role between the central government and the states, act as something like a secretariat to the National Development Council and also play a facilitating role for the Inter-State Council. However, in terms of the Cabinet Resolution, NITI Aayog will clearly not have a fiscal role, such as the conventional 16 ❘ Indian Infrastructure ❘ January 2015

tank. It is expected to get involved in implementation and the structure ensures coordination with union ministries/departments and states, such as through the regional councils. While the word “reform” has many definitions, NITI Aayog’s role is to document best practices in different states and become a forum for information dissemination.

plan transfers. The prime minister is the chairperson of NITI Aayog. When all the, members join and NITI Aayog has held its first meeting, the prime minister will no doubt tell us what he wants us to focus on. Until then, while the mandate is known, any speculation about priorities and timelines is premature. One of the things that the Planning Commission did was to provide position papers. But it was observed that many ministries did not have the required staff to prepare such documents. Who would do these tasks now? Indeed, this has also been mentioned in the Cabinet Resolution and this is also the reason why NITI Aayog has been described as a think

What are the lessons that we can learn from infrastructure development efforts in the past five years? There are several studies to show the importance of infrastructure for growth, interpreted as gross domestic product (GDP) growth. However, infrastructure, and I am using the term in the sense of physical infrastructure, not social infrastructure, has many dimensions. Apart from anything else, under the seventh schedule of the constitution, some areas of infrastructure are union responsibilities. Others are state and some others are in the concurrent list. So far, the obvious success of infrastructure development has been in telecom. The obvious failure has been in electricity. If roads, water and electricity are ensured, many of the problems of poverty, deprivation and unemployment will disappear. This is the best possible interpretation of inclusive development, in all of India’s 600,000 villages. Ensuring these is also on the government’s agenda of development. Ideally, India’s expenditure on infrastructure should be at least 10 per cent of GDP. It has probably declined to about 5 per cent now, primarily because of the problems road con-

spotlight<< struction has run into. In developing infrastructure, two issues are critical. First, how does one identify those who are poor and subsidise them? Across the board low user charges are unworkable, whether that infrastructure is publicly or privately provided. Second, which are the areas where there are true market failures, making public provisioning essential? In everything else, in the absence of market failures, it should be possible to provide choice and competition, stimulating efficiency. However, when there are multiple providers, what is the best regulatory structure? How does one get credible and independent regulators? What is your perspective on the role of publicprivate partnership (PPP) or other forms of private participation in infrastructure development in India? Private entry ensures competition and choice for consumers. This also stimulates efficiency in existing public sector players. However, the expression PPP is indiscriminately used and there isn’t a uniform template across all kinds of PPPs. A PPP for road construction might be completely different from a PPP for port development. The expression PPP thus masks a great deal of heterogeneity. Private finance probably cannot account for more than 10 per cent of the total amount India needs for all kinds of infrastructure development. Therefore, there is also an issue of making public expenditure more efficient and freeing up the resources required for public investments. Having said this, most private investments have been via the debt route, not via the equity route. Since a typical infrastructure project has a long duration, one needs to figure out if there is some way of using equity. Most successful PPP initiatives, so far, and in the area of infrastructure, involve private management of public assets. How interactive will the NITI Aayog be? As I have explained before, NITI Aayog is structured such that it is meant to be more interactive, not just vis-à-vis the government, but also outside it. Wisdom is not vested only within the government. This government has displayed

receptivity towards receiving inputs and suggestions from the public at large. This government is much more interactive and I expected NITI Aayog to behave in a similar way. What is your view on railway restructuring? The Committee on Railway Restructuring will prepare a draft report by the end of March 2015. This will not only be presented to the government, but will also be placed in the public domain, so that everyone can comment. After that, the report will be finalised by the end-August 2015. Pending that, it is unfair on my part to anticipate what the report will contain. There are terms of reference (TOR) for the committee too, placed in the public domain. With these caveats, my personal thoughts on the major issues facing the railways are the following. First, there are non-commercial and nonviable lines, and trains that IR runs. These represent what can broadly be called social cost obligations. Since the The Nineteenth century, there have been suggestions that these unremunerative bits should be cleanly separated from commercial functions and the social cost should therefore be reimbursed by the government to IR. Unfortunately, these recommendations have never been implemented. Second, for transparency in commercial and non-commercial functions, the costing and accounting has to move towards commercial principles. As of now, it is mired in budgetary practices that follow standard government norms. Third, when the social cost is clearly identified and reimbursed, the financial link between the union government’s finances and IR’s finances must be cleaned up. The present structure of providing gross budgetary support with one hand and taking it away in the form of dividends with the other hasn’t worked at all well. Nor is it transparent. Fourth, IR’s finances are in bad shape and there is a scarcity of resources in spending on tracks, safety, modernisation, depreciation and even rolling stock. There can be more innovative ways of raising resources, including better use of the assets IR possesses. Fifth, there has to be greater decentralisation, down not only to the level of the zones, but

also the divisions, with perhaps some rationalisation exercise undertaken for the present structure of zones and divisions. This decentralisation also involves separation between regulation, policy making and operations, with a cleaner division between the railway ministry, the Railway Board and the zones/divisions. Sixth, for running passenger and goods trains, though not for ownership of tracks, it is possible to permit greater private sector entry. Seventh, there has to be greater focus on IR’s core role, which is that of running trains, not non-core activities. Eighth, there has to be greater unification and harmonisation across the multiple forms of entry present today, leading to departmentalism and functioning in silos. This can only be done prospectively, not retrospectively. In which areas of the railways should private investment be focused? This depends on what one means by investments. If it is large amounts, it will primarily be in and around ports, cargo terminals and construction of high speed tracks. Besides production of rolling stock, private investment is possible for some stations, especially greenfield station development. In many non-core areas, lower private investment is always possible. Outsourced catering and station maintenance are also some areas for private investments. What is the biggest challenge that facing IR? The biggest challenge is one of managing and sequencing transition. We are in position A, which is the present inefficient and inadequate status. We need to go to position B, say 20 years from now. Different countries have different models for that position B. Suffice to say, in most countries, that position B does involve a substantial dose of public sector provisioning of rail services. Whatever be the Indian destination of position B, the real challenge is managing the shift from A to B. Any expectation that this transformation will happen overnight is unrealistic and is doomed to fail. Earlier committees have often not spent enough time on this transition and that is the reason our committee is focusing explicitly on this. ◗ January 2015 ❘ Indian Infrastructure ❘ 17

>>power

Under Pressure Strategies to ease financial burden of stressed power projects he power sector presents increased challenges for banks, even more so at a time when lenders are already reeling under a massivse overhang in bad loans due to the economic slowdown. At more than Rs 5,000 billion, bank exposure to the power sector ranks among the largest across infrastructure sectors. According to official estimates, over 32,000 MW of projects are currently stuck due to fuel issues alone, while industry estimates peg the number of stressed assets at nearly four times more, due to a host of sector-specific issues including fuel. These projects, many of which are under construction, present a high risk of loan repayment defaults unless structural issues are addressed immediately. The government and regulators have stepped in to salvage the situation after taking note of the red flag raised by bankers. Several rescue strategies are under consideration and a number of options have been proposed for relieving the financial pressure from stressed power assets. These range from an asset reconstruction fund to easing of lending structures for coal- and gas-based projects. Indian Infrastructure takes a closer look at some of the affected projects, the issues and challenges faced by banks, and the proposals for removing the financing bottlenecks for these projects…

Affected projects At present, projects with a rated capacity of almost 136 GW are stressed as per the Association of Power Producers (APP), which is the apex body for developers. The estimated investment in these projects is close to Rs 6,230 billion. Apart from fuel shortages, the issues that have affected these projects are time and cost overruns, under-recovery of fixed and variable charges, lack of power purchase agreements (PPAs), etc. 18 ❘ Indian Infrastructure ❘ January 2015

“Distressed power assets are reflective of a temporary phase of overcapacity or underutilisation of capacity due to constraints in the fuel supply chain. In the past five years, we added 70 GW of capacity, but we missed adding comparable transmission capacity, we missed strengthening the distribution network or improving the discoms’ financial health by reducing losses or increasing tariffs,” says a sector expert, Rajesh K. Mediratta, director, Indian Energy Exchange. As per recent Ministry of Power (MoP) estimates, around 32,328 MW worth of projects do not have any coal or gas supplies. Coal-based projects account for around 16,221 MW of capacity, while the remaining 16,107.8 MW are gas based. The majority of the stressed coalbased projects are under implementation; these account for around 11,285 MW of capacity. About 67 per cent of this capacity belongs to upcoming or established independent power producers. Around 76 per cent (or 12,268 MW) of the stressed gas-based capacity comprises projects that have already been commissioned.

Impact on banks The debt portion of stressed assets (136 GW) is a significant Rs 4,360 billion. Hence, there are concerns that they will further affect the asset quality of banks. “There is a large-scale risk of projects turning into non-performing assets (NPAs). This will have a cascading effect

on the entire banking sector as the higher provisioning required for NPA assets will affect the profitability of banks and lead to a further erosion of investment sentiment,” says Ashok Khurana, director general, APP. As per the latest industry estimates, the sector’s share in total stressed advances increased from 4.5 per cent of gross advances in March 2009 to 19.4 per cent in March 2013. Fuel shortages, rising losses and high debt in state utilities have been the key reasons for this. The situation is mirrored in the number of power sector cases that have been registered for corporate debt restructuring (CDR). As of September 2014, data from the CDR Cell shows that a total of 19 cases with an aggregate debt of Rs 310 billion were received from the power sector. This is significantly higher than the 13 cases aggregating a debt of Rs 172 billion that were received in September 2013, and around 11 cases aggregating a debt of Rs 50.06 billion as of September 2012. The Supreme Court’s coal block cancellations have added to banks’ financial woes. As per the finance ministry, the impact of the cancellations on public sector banks (PSBs) due to likely stoppages in power production is estimated at Rs 964.8 billion. This represents around 17 per cent of the cumulative exposure of Rs 5,824.7 billion of all PSBs to the sector. According to Kameswara Rao, partner, PricewaterhouseCoopers, stressed assets pose a far wider and more serious problem to the economy as a whole than to just the sponsors and lenders. “The ecosystem of suppliers and engineering, procurement and construction firms, which are thinly capitalised and bear large working capital, are hit by the distress even more and, in turn, add to the time delays and project costs. The compounding of these problems means that the government cannot kickstart new capital project activity without first dealing with the stressed assets.”

Finding solutions “As the need and demand for power is well known and acute shortages are being faced in many regions, the affected power projects are inherently viable. They can perform optimally

power<< and meet their debt obligations if certain issues are resolved. Both finance ministry officials and Reserve Bank of India (RBI) officials have assured us of their support in relieving the stress being faced due to genuine reasons,” says Khurana. In recent months, RBI has taken several positive measures to ease bank funding for infrastructure projects. In July 2014, RBI issued a notification allowing flexible structuring of new long-term loans to infrastructure projects under the 5:25 scheme. As per the scheme, banks are allowed to fix a longer amortisation period for loans to projects in the infrastructure and core industry sectors, that is, up to 25 years, based on the economic life or concession period of the project, with periodic refinancing every five years. In December 2014, RBI expanded the scope of the scheme to include existing standard longterm project loans worth over Rs 5 billion, which were to be flexibly structured and refinanced. “RBI’s notification on the provision for refinancing loans for operational projects is a significant positive for the power sector. It is expected to benefit the cash flow position of such projects by way of amortising the principal over a relatively longer repayment period, aligning with the life of the project cash flows,” as per a report from rating agency ICRA Limited. Meanwhile, several measures for providing financial relief to stressed projects are under consideration. One of these is the setting up of a special asset reconstruction company (ARC) for the power sector (as well as a separate one for the road sector). As per this proposal, the ARC will take over pending power sector projects to revive them so that they can successfully take off and loans from the banking sector do not turn into NPAs. The ARC is likely to include PSBs and power sector PSUs such as the Power Finance Corporation and the Rural Electrification Corporation. The State Bank of India is examining the proposal. Also under consideration is a proposal for a separate equity fund to bail out stressed projects. Sector observers, though, have mixed opinions about its usefulness. Some argue that the primary issues facing stressed plants (fuel sup-

Trends in commercial bank lending to the power sector (Rs billion) Bank

Total exposure as of March 2014

Total exposure as of March 2013

Year-oon-yyear growth (%)

State Bank of India

489.40

327.97

49.22

IDBI Bank

476.10

492.90

(3.41)

ICICI Bank

453.56

448.20

1.20

Canara Bank

470.53

347.40

35.44

Punjab National Bank

101.98

84.70

20.40

Axis Bank

242.80

254.00

(4.41)

Sources: Regulatory disclosures of respective banks; India Infrastructure Research

ply, power evacuation and offtake) are more physical in nature than operational or financial. On the positive side, it could play an important role in providing cheaper long-term financing. A working group of bankers under the chairmanship of the chairman and managing director (CMD) of India Infrastructure Finance Company Limited has also been set up to look into the issue of stressed power projects as well as the suggestions made by power producers. In a report submitted to the Department of Financial Services, the group recently made several recommendations, which include a switch from the competitive bidding-based tariff regime to a regulated regime for salvaging power plants that are stressed due to unexpected fuel price escalation. The group has also recommended a proper study of all projects that have PPAs under Section 63 (competitive bidding-based tariffs) to examine under-recoveries in the changed economic scenario and explore ways of financing such under-recoveries. The report also suggests long-term fuel supply agreements for projects with deallocated coal blocks and projects with coal linkages. For gas-based projects, the working group has recommended that lenders should re-examine the viability of such projects and take up the matter for a special package on a case-to-case basis.

The road ahead Amid these proposals for reviving stressed assets, there is significant interest being generated for these projects among buyers with deep pockets, given that the valuations are quite attractive.

In December 2014, NTPC issued an expression of interest for acquiring coal-based power projects to utilise its cash reserve of around Rs 50 billion. The company is looking at an acquisition of 3,000 MW-4,000 MW of capacity. Private equity major ICICI Ventures and Tata Power were also reportedly in talks to take over troubled power plants that have been facing regulatory uncertainties, fuel supply disruptions, low demand and high debt. In summary, the overall outlook for the power sector is quite strong, despite the increasing level of stressed assets, given that such assets remain inherently viable. “We expect the increasing market prices to bring good times for generation assets in the next two years,” says Mediratta. A policy framework for operationalisation of the measures proposed by bankers will be critical in the future. There is also a case for reducing interest rates to help cash-strapped projects. Tapping new sources of long-term funds for projects, such as the employees’ provident fund, will also help the sector get back on track. In addition, regulatory support is needed to address the issue of stressed assets. “The majority of distressed assets largely suffer from cash flow and regulatory issues, which can be resolved through financial restructuring and by reworking the contracting terms through regulatory due process,” says Rao. These measures, along with government support on resolving structural issues, which have been encouraging in the past few months, could mitigate project risks and help investors regaining confidence in the sector. ◗ Reya Ramdev January 2015 ❘ Indian Infrastructure ❘ 19

>>power

Distribution Thrust IPDS to cover areas left out of R-APDRP purview

he distribution segment has been facing multiple issues, such as ageing infrastructure, high aggregate technical and commercial losses (AT&C) and financial fragility. These have led to underinvestments in the distribution network and poor upkeep and maintenance of assets. With the aim of addressing these issues and ensuring reliable power supply in urban and semi-urban areas, the government has launched a mega initiative: the Integrated Power Development Scheme (IPDS). It has a proposed outlay of over Rs 320 billion and aims to strengthen the sub-transmission and distribution networks in those urban and semi-urban areas that have not been covered by the Restructured Accelerated Power Development and Reforms Programme (R-APDRP). Another of its primary aims is to improve metering in these areas. A look at the objectives, targets, coverage, funding and timelines of the scheme…

towns that were not included in the R-APDRP. “The IPDS will work towards restrengthening and augmenting the distribution infrastructure in urban areas that have a population of less than 30,000. So, all those areas that were left out of the R-APDRP will be covered,” says R.K. Verma, chief engineer, Central Electricity Authority (CEA). The scheme essentially has three components: strengthening the sub-transmission and distribution network in urban and semi-urban areas; metering in urban and semi-urban areas; and enabling IT in the distribution sector. Under the scheme, critical gaps in the subtransmission and distribution network will be identified and assessed with regard to parameters like voltage regulation, the high tension (HT) and low tension (LT) ratio, optimum loading of transformers and lines, reactive power

Specific targets under IPDS

Outline and objectives

Particulars

The scheme, which was proposed in the Union Budget 2014-15, was granted approval by the cabinet in November 2014. The IPDS is applicable for the balance period of the Twelfth Plan (2014-15 to 2016-17) and for the Thirteenth Plan. One of its key aspects is that it covers all

New/Augmentation of substations

20 ❘ Indian Infrastructure ❘ January 2015

11 kV/22 kV lines

Target 2,700 no. 170,000 km

33 kV/66 kV lines Meters at the consumer

21,900 km 5,800,000 no.

end/distribution transformers/feeders Source: Ministry of Power

management, power factor improvement and standard of performance. The works proposed to be undertaken under the first component include the creation of new substations, including gas-insulated switchgear (GIS) substations, along with the associated 66 kV, 33 kV, 22 kV and 11 kV lines. More transformers will be added to the existing substations in order to augment their capacity. Along with renovation and augmentation of the existing lines, the scheme will include the erection of HT lines as well as installation of new distribution transformers and capacitors. The laying of underground cables is planned for densely populated and areas of religious importance, as is the deployment of aerial bunched cables in theft-prone areas. A high voltage distribution system will also be established to curb energy pilferage, reduce peak power losses, improve voltage profiles and enhance system reliability. IT applications including enterprise resource planning (ERP) systems and customer care services will also be taken up. Under the scheme’s second component, metering, the installation of suitable static meters for feeders, distribution transformers and all categories of consumers (for existing unmetered connections as well as those needing the replacement of faulty and electromechanical meters) will be taken up. The meters will be relocated to pillar boxes established outside the consumer premises, along with the associated cables and accessories. The scheme will also entail the establishment of advanced metering infrastructure, including the installation of smart meters in towns where supervisory control and data acquisition is being established under the R-APDRP. Boundary meters will be set up for the ring-fencing of non R-APDRP towns, while automated meter reading technology will be installed for feeders, distribution transformers and highload customers. Apart from this, ongoing work under the R-APDRP related to IT, communications and automation technologies will be leveraged to attain the objectives of the new scheme. The R-APDRP has now been made a part of the IPDS. Thus, the latter’s third component, IT enablement, will essentially focus on achieving the targets set under the R-APDRP in the

>>power Funding pattern of the scheme Agency

Nature of support

Quantum of support (% of project cost) Other than special category states Special category states#

GoI

Grant

Discom contribution*

Grant

Lender (FIs/banks)

Loan

Additional grant from GoI on reaching

Grant

50 per cent of the total loan component

(30 per cent), i.e., 15 per cent

(10 per cent), i.e., 5 per cent

prescribed milestones Maximum grant by GoI (including an additional

Grant

grant on reaching prescribed milestones) #Jammu & Kashmir, Himachal Pradesh, Uttarakhand, and all north-eastern states including Sikkim; * The minimum contribution of the discoms is 10 per cent (5 per cent in the case of special category states); however, discom contribution can go up to 40 per cent (15 per cent in the case of special category states), if they do not avail of loans; in case the discoms do not avail of loans, the maximum eligible additional grant will be 15 per cent (5 per cent in the case of special category states) on the achievement of the prescribed milestones; the loan component will be provided by PFC or other financial institutions/banks.

Twelfth and Thirteenth Plans by carrying them forward to the IPDS. Apart from these activities, the scheme involves the establishment of the National Power Data Hub at the CEA, the completion of missing optic fibre links for connecting the 33 kV or 66 kV grid substations under the National Optical Fibre Network (NOFN) project, the provisioning of solar panels, and training and capacity building.

Implementation and timelines The Power Finance Corporation (PFC) has been appointed the nodal agency for the implementation of the scheme, while a project management agency will be responsible for the monitoring and timely implementation of the project. A monitoring committee, set up under the chairmanship of the power secretary and consisting of representatives from other ministries, will monitor the scheme’s implementation. A model benchmark for power systems in urban areas that sets standards for digital and prepaid metering, the underground cabling of 11 kV and LT lines, and AT&C loss limits will be prepared by the CEA within 45 days of the approval by the Cabinet Committee on Economic Affairs (CCEA), that is, by January 5, 2015. Projects under the scheme are to be completed within 24 months of the date of issue of the letter of award (LoA) by the utility. An extension may be provided by the monitoring committee on a case-by-case basis. 22 ❘ Indian Infrastructure ❘ January 2015

Funding The scheme is set to entail an outlay of Rs 326.12 billion, of which Rs 253.54 billion (or 78 per cent) will be covered through gross budgetary support from the Government of India (GoI). The balance funds will be contributed by the states and discoms from their own resources and via loans from financial institutions (FIs). All discoms, including those in the private sector, will be eligible for financial assistance under the scheme. In the case of private sector discoms, the scheme will be implemented through a state-owned agency and the assets created will be owned by the state governments. These will be handed over to the private discoms for the duration of their licence period. The outlay for the sub-transmission and distribution network component of the scheme (including the establishment of new substations and the augmentation of existing ones; 66 kV/33 kV/22 kV/11 kV/LT lines; GIS substations; renovation and modernisation of existing substations and lines; and ERP implementation) is expected to be Rs 301.92 billion. The metering component, meanwhile, will entail an outlay of Rs 17.1 billion. For the R-APDRP, which has now been included in the IPDS, the CCEA has already approved a cost of Rs 440.11 billion, including budgetary support of Rs 227.27 billion. This outlay will be in addition to the Rs 326.12 billion sanctioned for the IPDS. The scheme’s maximum grant support from the GoI is expected to be 60 per cent for

states other than those in the special category. An additional grant of 15 per cent (in the case of non-special category states) and 5 per cent (in the case of special category states) can be availed of from the GoI) upon the completion of the prescribed milestones. Ten per cent of the GoI grant will be released after the approval of the detailed project reports by the monitoring committee and the signing of bipartite or tripartite agreements between the discoms, state governments and the nodal agency on behalf of the Ministry of Power. The issuance of the LoA by the utility will entail the release of a further 20 per cent of the GoI grant. The release of another 60 per cent will be contingent on two factors: at least 90 per cent utilisation of the grant released previously, and a 100 per cent release of the discom contribution. The remaining 10 per cent of the grant will be released after the completion of the project work.

Conclusion The scheme has immense potential to provide a push to the distribution sector by dealing with the critical issues of high AT&C losses and financial losses. A key advantage for the IPDS is that significant groundwork has already been done and the teething troubles sorted out through the ongoing R-APDRP, which had encountered several delays in its initial period. However, its positive impact will be entirely contingent on its robust and timely implementation. ◗ Jaspreet Kaur Anand

>>oil & gas

PAHAL Scheme Greater efficiency in LPG subsidy mechanism ndia has witnessed considerable growth in liquefied petroleum gas (LPG) consumption. LPG consumption grew at a compound annual growth rate (CAGR) of about 6 per cent between 2008-09 and 2013-14. One of the primary factors responsible for growth is the massive subsidies associated with domestic LPG consumption. At present, every household is entitled to 12 subsidised cylinders (14.2 kg each) per annum. This is irrespective of socio-economic status. Hence, the rising LPG consumption has translated into a mounting subsidy bill for the government. During 2013-14, the government incurred an expenditure of about Rs 464.58 billion on account of LPG subsidy. Owing to political reasons, the government has not reduced the number of subsidised cylinders below 12 per annum per household. Therefore, in order to limit the rising subsidy bill, it has launched a modified direct benefit transfer of LPG (DBTL) scheme, now renamed Pratyaksh Hanstantarit Labh (PAHAL). By ensuring an efficient subsidy delivery mecha-

24 ❘ Indian Infrastructure ❘ January 2015

nism, the scheme is expected to curb leakages as well as reduce incentives to divert subsidised cylinders for commercial use.

PAHAL scheme to plug leakages in LPG subsidy mechanism On January 1, 2015, the government made available the PAHAL scheme in all 676 districts across India, making it the world’s largest social benefit transfer scheme. The scheme would cover over 153 million consumers. Of these, over half of the LPG consumers have joined the scheme and the government has transferred Rs 12.6 billion as part of the scheme. According to the Ministry of Petroleum and Natural Gas (MoPNG), the proportion of the rural population joining the scheme is greater as compared with urban inhabitants. This is a considerable achievement for the government as estimates suggested that over half of the LPG subsidy prior to the scheme was utilised by the richest 30 per cent of India’s population residing in urban centres. State-wise, more than 40 per cent of consumers who have joined PAHAL are

from Odisha, Bihar, Chhattisgarh, Uttar Pradesh, Assam and Meghalaya. Over 35 per cent of consumers are from Gujarat, Tamil Nadu, West Bengal, Uttarakhand, Jammu & Kashmir and Arunachal Pradesh. Under PAHAL, LPG consumers would get a cash subsidy of about Rs 568 directly transferred into their bank accounts. While consumers would pay the market price, the subsidy amount would be paid in advance as soon as the first booking for a refill is made after joining the scheme. This is expected to ensure the customer has the extra money required to pay to make payment for the LPG cylinder at the market price. Information regarding cash transfer compliance status will be available on the portal www.mylpg.in. As on January 1, 2015, the market price in Delhi for a 14.2 kg cylinder was Rs 708.50 and the subsidised price was Rs 417. The market price is subject to monthly revision. For consumers who do not join the scheme by March 31, 2015, LPG cylinders will continue to be provided at the subsidised price. If these consumers do not join the scheme even after June 30, 2015, LPG cylinders will be given at the market price and the subsidy will be parked with the oil marketing companies (OMCs). Once they join the scheme, this parked subsidy would be credited to their bank accounts. As regards non-subsidised LPG cylinders, the government slashed the price of non-

oil & gas<< subsidised LPG by Rs 43.50 per cylinder on January 1, 2015. This is on account of a continuous decline in oil prices. Global crude oil prices have declined by approximately 55 per cent from $112 per barrel in June 2014 to $50 per barrel in January 2015. As a result, the government has reduced the rates of marketpriced LPG cylinders every month since August 2014. There has been a cumulative decline of Rs 214 per cylinder during this period. The government had launched Phase I of the PAHAL scheme in 54 districts on November 15, 2014. Under this pilot scheme, the OMCs had credited Rs 5.9 billion to consumers’ accounts till December 31, 2014. Industry players opine that the government expects to save Rs 100 billion-Rs 120 billion per annum following the successful implementation of the PAHAL scheme. It is noted that about 17,714 customers had opted out of the PAHAL scheme as of December 2014. These customers belonged to all three PSUs – Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL). Of these, 7,567 were IOC customers, 5,881 were HPCL customers and the remaining 4,268 were BPCL customers. Under the scheme, customers who had opted out were given the option for easy exit as they could afford the market price of LPG cylinders.

Other measures for greater LPG penetration Apart from the PAHAL scheme, the government is taking additional measures for greater penetration of LPG cylinders. On January 5, 2015, the MoPNG launched the sale of 5 kg LPG cylinders for below poverty line (BPL) families. The scheme is part of the oil companies’ corporate social responsibility (CSR) activities to cover the BPL population in urban areas. Pursuant to the pilot scheme, a BPL family would be provided with an LPG connection without having to pay any security deposit. The scheme is available till March 31, 2015. The government also plans to introduce smaller LPG cylinders weighing in the 1-4 kg range, going forward.

India’s LPG consumption between 2008-09 and 2013-14 (’000 tonnes)

17,000

16,294

16,500 16,000 15,350

15,500

15,601

15,000 14,331

14,500 14,000 13,500

13,135

13,000 12,500

12,191

12,000 2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Source: Petroleum Planning and Analysis Cell

The MoPNG has also launched the sale of 5 kg cylinders under the Free Trade LPG (FTL) scheme in Bhubaneswar, Odisha. The scheme would cover all sections of society including economically weaker sections, students, and migrant labourers, who typically do not possess address proof. In the initial stage, LPG cylinders under the scheme are available at nine retail outlets in Bhubaneswar and four retail outlets in Cuttack. To benefit BPL families further, the MoPNG is set to launch a new pilot project providing concession to households seeking new gas connections in the country. The project is scheduled to be launched on January 25, 2015. Under the project, the MoPNG will provide a subsidy of about Rs 1,400 on new gas connections to BPL families up till March 2015. Following this, a consumer has to spend nearly Rs 2,400 for a new gas connec-

The government has launched a modified direct benefit transfer of LPG scheme. Pahal should curb leakages and reduce incentives to divert cylinders for commercial use.

tion. Moreover, the MoPNG is trying to bring gas penetration in Odisha at par with national penetration. At present, penetration in the state in terms of the number of gas connections is only 27 per cent, which is far lower than the national average of 60 per cent. These schemes are part of the welfare programmes undertaken by the new government. It is noted that a significant portion of weaker sections and rural households in India use firewood and agricultural residue, dung cake, and coal/charcoal as cooking fuels. These fuels produce high levels of indoor air pollution, posing substantial health risks. In order to mitigate this, the government aims to increase penetration of LPG for urban poor and rural populations.

Conclusion Given the mass outreach and the inclusion of a large rural population, PAHAL has the potential to save billions of rupees per annum if it is successfully implemented. The scheme has also provided an easy exit route for customers who do not want to avail of subsidy on domestic gas cylinders. While every household is eligible for the scheme, the government is sending a strong message in requesting the affluent not to consume subsidised LPG cylinders. Savings would contribute significantly to the easing of the fiscal deficit. ◗ Kritika Gautam January 2015 ❘ Indian Infrastructure ❘ 25

>>oil & gas

Key Statistics Oil and gas discoveries Discovery name

Block

NELP/ Pre-N NELP

Oil/Gas discovery

Nagayalanka-SE-1

KG-ONN-2003/1

NELP

Oil

D-35

CY-DWN-2001/2

NELP

Gas

RX-8Z

Ravva

Producing Field

Oil

D-33

GS-OSN-2000/1

NELP

Gas

R-13

Ravva

Producing Field

Oil

D-09

NEC-OSN-97/2

NELP

Gas

RX-1

Ravva

Producing Field

Oil

D-10

NEC-OSN-97/2

NELP

Gas

RX-3

Ravva

Producing Field

Oil

D-11

NEC-OSN-97/2

NELP

Gas

Gujarat State Petroleum Corporation Limited

D-15

NEC-OSN-97/2

NELP

Gas

KG-16

KG-OSN-2001/3

NELP

Gas

D-20

NEC-OSN-97/2

NELP

Gas

KG-19

KG-OSN-2001/3

NELP

Gas

D-21

NEC-OSN-97/2

NELP

Gas

KG-20SS

KG-OSN-2001/3

NELP

Gas

D-32

NEC-OSN-97/2

NELP

Gas

KG-21

KG-OSN-2001/3

NELP

Gas

D-40

NEC-OSN-97/2

NELP

Gas

KG-22

KG-OSN-2001/3

NELP

Gas

KG-31

KG-OSN-2001/3

NELP

Gas

Reliance Industries Limited

Oil and Natural Gas Limited

Discovery name

Block

NELP/ Pre-N NELP

Oil/Gas disscovery

Vadatal- 3

CB-ONN-2004/2

NELP

Oil

CHANGARA-1

CB-ON/2

Pre-NELP

Oil

Vadatal- 5

CB-ONN-2004/2

NELP

Oil

KHEDA-1

CB-ON/2

Pre-NELP

Oil

Aliabet-2

CB-OSN-2003/1

NELP

Gas

VASO-2

CB-ON/2

Pre-NELP

Oil

Aliabet-3

CB-OSN-2003/1

NELP

Gas

“P-1, (PROSPECT-1)”

CB-ON/2

Pre-NELP

Oil

Aliabet-4

CB-OSN-2003/1

NELP

Gas

PNE-1

CB-ON/2

Pre-NELP

Oil

Madanam-3

CY-ONN-2002/2

NELP

Oil

PNE-2

CB-ON/2

Pre-NELP

Oil

KGD982NA-M#3

KG-DWN-98/2

NELP

Oil

TS-10

CB-ON/2

Pre-NELP

Oil

KG-DWN-98/2-A-2

KG-DWN-98/2

NELP

Oil

Focus Energy Limited

DWN-A-1

KG-DWN-98/2

NELP

Gas

SSF-2

RJ-ON/6

Pre-NELP

Gas

DWN-M-1 (Padmavati)

KG-DWN-98/2

NELP

Oil

SSG-1

RJ-ON/6

Pre-NELP

Gas

DWN-P-1 (KanakDurga)

KG-DWN-98/2

NELP

Oil

Jubilant Oil and Gas Private Limited

DWN-R-1 (Annapurna)

KG-DWN-98/2

NELP

Gas

Kathalchari-1

NELP

Gas

DWN-U-1

KG-DWN-98/2

NELP

Gas

Note: Oil and discoveries for which field development plan has to be submitted by operator

Cairn India Limited Nagayalanka-1Z

AA-ONN-2002/1

NELP: New Exploration Licensing Policy

KG-ONN-2003/1

26 ❘ Indian Infrastructure ❘ January 2015

NELP

Oil

Source: As per the latest data made available by Directorate General of Hydrocarbons

Airports Development in India 2015 Sector Analysis, Upcoming Projects and Market Outlook India Infrastructure Research (publisher of Indian Infrastructure magazine) is currently developing and will soon release the fourth edition of “Airports Development in India” report. The report will have chapters on (in addition to the appendix): z

Executive Summary

Sector Outlook

Overview

No-frills Airports

New Government’s Approach to Airport Development

Maintenance, Repair and Overhaul

Size and Growth

Cargo Infrastructure

Financing Experience

Brownfield Project Pipeline

ep wr

ne z

PPP Experience and Outlook

Greenfield Project Pipeline

Airlines Overview

Key Greenfield Airport Profiles

In addition to the above, there will be sections with detailed information on key airports and leading industry players: Airport Profiles: Each airport profile will cover traffic trends, capacity, current infrastructure, key ongoing projects, upcoming projects, financial performance, etc. Player Profiles: Each player profile will cover background, operations, key initiatives, financial performance, etc. The report is priced at Rs 50,000 (plus 12.36 per cent service tax) for a Site Licence and Rs 75,000 (plus 12.36 per cent service tax) for an Enterprise Licence. There is also a special pre-publication “early bird” discount. The report is priced at Rs 40,000 (plus 12.36 per cent service tax) for a Site Licence and Rs 60,000 (plus 12.36 per cent service tax) for an Enterprise Licence for orders and payments received before or on February 13, 2015. The report is available along with a presentation in PDF. The report will be ready by late-March or early-April 2015.

To order a copy, please send a cheque or draft payable to “India Infrastructure Publishing Pvt. Ltd.” and mail to: Meha Anand Assistant Manager, Information Products

B-17, Qutab Institutional Area, New Delhi-110016, India Tel: +91-11-41688614(D), Fax: +91-11-26531196 Mobile: 91-9953572299 Email: meha.anand@indiainfrastructure.com

Website: www.indiainfrastructure.com

>>civil aviation

Fresh Hope Transfer of ownership to turn around SpiceJet

he decision to transfer the ownership, management and control of SpiceJet to co-founder Ajay Singh from Sun Group chairman Kalanithi Maran and Kal Airways has resulted in some hope that the airline could be turned around. The low-cost carrier (LCC) has been buffeted by intense financial turbulence over the past few months. The cash-strapped airline had to curtail operations a great deal by grounding aircraft, and it was facing employee agitation due to non-payment of salaries. The transfer will be the third change of ownership in a decade for SpiceJet.

Early operations The company which is currently SpiceJet Limited was initially established as ModiLuft Limited, when it was launched by Indian industrialist S K Modi, in technical partnership with the German flag carrier Lufthansa in 1993. ModiLuft operated on domestic routes with a fleet of B737-400, until it shut down in 1996. The airline ownership changed hands due to lack of funds and was renamed Royal Airways, an airline that never got off the ground. However, since ModiLuft’s Air operator’s certificate had not lapsed, Ajay Singh raised funds and re-launched the carrier as SpiceJet. SpiceJet began operations in May 2005, at 28 ❘ Indian Infrastructure ❘ January 2015

the peak of the low-cost boom, and was India’s second-largest LCC in terms of market share by 2008. The airline’s ownership pattern changed again in June 2010 when Kalanidhi Maran, acquired 37.7 per cent equity stake by investing Rs 7.5 billion. Further, in 2012, Maran increased his stake in SpiceJet to 42.7 per cent by investing Rs 1 billion. As of December 2014, Kalanidhi Maran and his company Kal Airways together held 53.48 per cent equity stake, while Ajay Singh held 4.5 per cent.

Flailing bottom lines While the airline’s market share has steadily increased, especially after the grounding of Kingfisher’s operations, its financials have not followed a similar trend. The airline, which briefly reported net profits for 2009-10 and 2010-11, has been reporting losses consistently thereafter. After sharply reducing losses by over 68 per cent in 2012-13 over the previous fiscal (2011-12), there was a big slippage again when the airline saw a net loss of over Rs 10 billion in 2013-14. This was the biggest net loss since launch. In first half of 2014-15, the airline reported total revenue of Rs 31.4 billion, and a net loss of Rs 4.3 billion, compared to a total revenue of Rs 29.6 billion and a net loss of Rs 5.1 billion during

the same period 2013-14. According to the airline, the loss was on account of the falling rupee value, which offset gains due to increase in traffic throughput and higher fuel prices. The airline claimed that had the value added tax on aviation turbine fuel (ATF), which is 25-30 per cent, been just 4 per cent less, SpiceJet’s loss in 2013-14 would have been halved. Although external factors did contribute to the ailing finances, internal managerial decisions have also affected the bottom line. The airline has a history of relying on promoters’ funding and it needed to rope in strategic investors sooner. Instead, the airline relied on short-term strategies, such as advance purchase sales and promotions designed to stimulate the market. Within the first six months of 2014, the airline announced around 15 promotional offers, which strengthened its market share and cash flows temporarily. For example, SpiceJet managed to accrue Rs 4-5 billion by announcing “Diwali Dhamaka” offers, “early bird sales”, “super sales” in which it sold all-inclusive tickets at Rs 1,800. However, such revenue gains were too small to offset the airline’s ailing finances.

Turbulent times As liabilities and dues increased, SpiceJet had to resort to route rationalisation and fleet reduction to remain operational. Operating 340 daily flights as of July 2014 with around 35 aircraft, it has shrunk operations to around 200 daily flights served with a fleet of 17 aircraft as of January 2015. According to reports, SpiceJet has been registering a daily revenue loss of Rs 20-25 million since October 2014 because of cancelled flights. With the reduced schedule, the market share has also taken a hit. As of November 2014, SpiceJet held a 14 per cent market share, compared to 20.9 per cent in July 2014. As of January 2015, the airline owed outstanding bills of around Rs 14 billion to vendors, lessors, airport operators and oil companies, among others. Overall, it had overdue bills of around Rs 20 billion outstanding. SpiceJet has dues of around Rs 3 billion

civil aviation<< with the AAI in lieu of airport charges, and the authority has repeatedly set new deadlines for the airline to clear its dues. However, the airline missed the latest deadline (January 15, 2015) and has been making daily partial payments to AAI since then. If the dues are not cleared by January 27, 2015, SpiceJet will be put on cashand-carry mode. Additionally, SpiceJet also has dues of Rs 300- Rs 400 million to private airports. Delhi International Airport Limited (DIAL), has adopted a part-payment and part-credit strategy for the airline. DIAL has already encashed the airline’s Rs 150 million bank guarantee for nonpayment of dues of about Rs 250 million. Mumbai International Airport Limited has asked spiceJet to clear its dues of Rs 200 million by February 1, 2015 or be put on cash-andcarry mode. The airline is also under pressure from lessors to return leased aircraft. However, the airline, which had to suspend its flights briefly for two consecutive days in December 2014 as oil marketing companies (OMCs) refused to supply it fuel due to non-payment, has cleared all outstanding debts to OMCs, and is making daily payments for ATF supplies.

Promised turnaround SpiceJet is nonetheless hopeful of a complete turnaround soon. An unexpected positive development has been the 40 per cent fall in global crude oil prices, which brought down the

SpiceJet’s market share as of July 2009-2014 (%) 19.8 17.8

12.6

13.2

2009

2010

14.0

2011

cost of ATF to the lowest since 2011. ATF prices have reduced in India by 23-24 per cent, compared to July 2014, bringing much-needed relief for SpiceJet. According to Centre for Aviation (CAPA), SpiceJet will need at least $450 million in investments for a complete turnaround, of which $250 million will be required immediately and the remaining $200 million must be invested over the next few months. SpiceJet had presented a revival plan to the Ministry of Civil Aviation in late December 2014. But it was asked to submit a revised plan with more details. Thereafter, in January 2015, SpiceJet’s board announced that it will

-2,000

614.50 -485.30

-721.40

2005-06

2006-07

2012

2013

2014

Source: Directorate General of Civil Aviation

SpiceJet’s net profit/loss (Rs million) 2,000

20.9

transfer the ownership, management and control of SpiceJet Limited to Ajay Singh, as part of the revival plan. As per reports, a consortium led by Ajay Singh and including JPMorgan will infuse Rs 15 billion in three instalments of Rs 5 billion each. The first instalment will be paid in January and the last in March 2015. The infusion will likely be used to fund working capital requirements in the initial phase. Additionally, prior to the new investors, Maran will invest Rs 800 million into the airline. As part of SpiceJet’s turnaround, which is expected to take around a year, the airline will also phase out the Bombardier aircraft acquired for short-haul trips, and maintain only a fleet of B737s. The airline’s top management is also expected to change.

1,034.32

Conclusion 2007-08

2008-09

2009-10

2010-11

2011-12

-1,335.10

-4,000 -6,000

2012-13

2013-14

-1,910.76 -3,525.70

-6,057.68

-8,000 -10,000

Source: SpiceJet annual reports

-10,032.40

The promised equity infusion and the change in management could lead to a turnaround. Two external factors now seem positive. Air traffic is growing, given a gradual economic revival within India. Oil prices are expected to remain low for a while and this will certainly help in cost reduction. However, it will also be crucial to streamline key processes and improve operating efficiencies within a short period of time. ◗ Ritoja Basu January 2015 ❘ Indian Infrastructure ❘ 29

>>roads & bridges

Performance Audit Highlights of CAG’s report on national highway PPP projects n December 2014, the Comptroller and Auditor General (CAG) released a performance audit of public-private partnership (PPP) projects implemented under the National Highways Authority of India (NHAI). The CAG examined the implementation of 94 PPP projects under Phases II, III, IV and V of the National Highways Development Programme (NHDP), out of a total of 207 projects awarded as of March 31, 2014. Of these 94 projects, about 78 per cent were implemented on a build-operatetransfer (BOT) toll basis and the remaining on a BOT annuity basis. The projects were selected based on the total project cost, quantum of expenditure, stages of completion as well as geographical location. The report highlights anomalies in the implementation process of the NHDP and quantifies the financial losses and delays attributable to these irregularities. Indian Infrastructure provides excerpts of the key findings of the report...

Missed targets: Among the four phases consid-

ered, none had been completed till end-March 2013 (except Phase IV, which is scheduled for completion in 2017-18). The progress as on the scheduled completion date ranged from around 19 per cent under Phase V to around 38 per cent under Phase III. Since 2009-10, NHAI has consistently missed the Ministry of Road Transport and Highways’ (MoRTH) target of constructing 20 km per day. The construction rate ranged from 3 km to 18 km per day during 2010-13 (200910 and 2012-13). Issues in land acquisition, delays in obtaining approvals from the concerned ministries/departments/local bodies such as environment/forest clearances, shifting of utility infrastructure, etc. are some of the reasons for the delays. Financial mismanagement: A review of the receipt and application of funds revealed that at the end of each financial year, NHAI was left with substantial unspent funds. This is indicative of the authority’s inability to invest effi-

ciently in projects. NHAI estimates the financing requirements based on the probabilistic model and not on a project-wise analysis. This financial mismanagement also highlights the need for improving the assessment of requirement as well as synchronisation of borrowings from the market with the requirement. Since NHAI issues bonds which carry an interest rate of about 8 per cent, such improvement will also avoid the unnecessary burden of payment of interest on borrowed funds. Inconsistent traffic estimation procedures: Performance assessment of a few projects also revealed inconsistency in estimating traffic volumes. The report points towards the fact that NHAI considered only tollable traffic instead of total assessed volume of traffic (that is, carrying capacity of a road). This resulted in longer concession periods and as a result, a higher burden on road users by way of toll for the extended period, which amounts to about Rs 280 billion. Additionally, NHAI’s decision to allow tolling on four partially completed stretches resulted in an extra burden of about Rs 1.61 billion on road users. Execution delays: Of the 94 projects evaluated, 22 reported delays ranging from 100 days to 373 days in the signing of concession agreements. Notably, only 10 agreements were signed in time. A total of 35 projects reported issues in receiving approvals related to rail overand underbridges, which resulted in delays of anywhere between 100 days and 1,946 days. Further, issues in securing environmental clearances pushed project deadlines by 26 days to 1,350 days. Almost 37 per cent of the projects reviewed reported delays in financial closures ranging from 105 days to 568 days. The delays were mainly due to non-fulfilment of the required conditions either by the conces-

30 ❘ Indian Infrastructure ❘ January 2015

roads & bridges<< sionaires, or the authority, or both. NHAI’s revenues were impacted as a result of delays. The authority witnessed delays in operationalisation of six completed annuity projects, which resulted in the loss of Rs 2.59 billion of toll revenue. In addition, Rs 1.71 billion worth of revenue could not be collected due to delays in the issue of toll notification and failure to commence tolling after the issue of notifications for some of the projects. Improper project structuring: As per the CAG, a substantial amount of government funding was wasted due to irregularities in project structuring and delays due to the tardy pace of pre-construction activities. For instance, NHAI incurred a cost of about Rs 8.5 billion on account of change of scope in 23 projects, of which around Rs 6.5 billion was on account of incomplete detailed project reports (DPRs)/feasibility studies. Unwarranted project restructuring: Furthermore, projects considered unviable on a BOT (toll) basis by the DPR consultants/authority/Public Private Partnership Appraisal Committee (PPPAC) or during the bidding process were restructured after making major changes in the initial project parameters to make them viable. These projects include the Jaipur-Tonk-Deoli stretch, Madhya Pradesh/Maharashtra borderNagpur stretch, Hazipur-Muzaffarpur stretch, Kanpur-Kabrai stretch, and the KishangarhUdaipur-Ahmedabad stretch. However, fresh requests for qualification (RfQs) were not invited in such cases, which as per the CAG vitiated the process of competitive bidding. The report also identified cases of unwarranted widening of national highways to four/six lanes even when the minimum threshold traffic was not expected to be achieved in the next five to 12 years. For instance, two project stretches were approved for four-laning despite the fact that the stretches would not meet minimum traffic requirements. This resulted in additional construction costs of Rs 17 billion. Also, the user fee for four-lane highways is about 67 per cent higher as compared to that for two-lane highways. In 25 projects, the total project cost (TPC) estimated by the concessionaires was higher

Key recommendations O

Transparent objectives and criteria need to be framed while identifying and selecting road stretches for upgradation.

Timelines for approval of projects need to be formulated and an appropriate monitoring mechanism should be devised.

Technical and financial feasibility should be adhered to in the case of project restructuring and the cost of the project should be revised with due diligence. Further, the concession period after restructuring should also be determined as per revised traffic projections of traffic. Restructured projects should go through a fresh bidding process to ensure competitiveness and transparency.

At the time of widening to four or six lanes, the Manual for Specification and Standards must be followed consistently.

NHAI should ensure consistency in the adoption of norms for traffic estimated while determining the concession period.

NHAI may increase the effectiveness of its land acquisition units so that land can be handed over within the scheduled time and projects can also be completed without delays.

The authority may consider including the estimated cost of utility shifting in the TPC for the project itself rather than reimbursing the cost of execution to the concessionaire in order to avoid large variations.

NHAI needs to initiate timely action for issue of fee notification to avoid loss of toll revenue.

The authority needs to review the system of declaration of appointed date and also design a mechanism to ensure that the concessionaire does not derive undue advantage of the funds at its disposal by diverting toll revenue into financial instruments rather than investing them for approved project purposes.

NHAI needs to ensure that norms for release of grant are consistent across concession agreements. Due diligence needs to be exercised to avoid premature release of grant.

compared to the TPC worked out by NHAI. In these projects, the TPC worked out by the concessionaire was higher by 50 per cent. Such variance poses serious risks for NHAI in the event of termination of the project. In contravention of the provisions of the model concession agreement, NHAI prematurely released viability gap funding worth Rs 7.7 billion for four six-laning projects. Besides, almost Rs 9 billion of toll revenue collected under three of these projects was not transferred to the “withheld amount account” even though the concessionaires did not achieve milestones. Perennial staffing constraints: Optimal staffing is another major issue identified in the report. NHAI is managing its staff mostly with officials on deputation from other government departments and by appointing consultants. In November 2009, the Ministry of Personnel,

Public Grievances and Pensions directed the MoRTH to ensure that within two years, the structure of NHAI should be reformed to provide for its own independent cadre through direct recruitment and absorption of deputationists. However, the ratio of persons on deputation to regular employees was 83:17 as of March 31, 2013. In a nutshell, the audit clearly highlights that the planning and implementation of PPP projects has been plagued with deficiencies. In spite of the creation of an institutional framework comprising the Cabinet Committee on Infrastructure, the Cabinet Committee on Economic Affairs, the PPPAC and NHAI, the outcome has not been satisfactory. The process of identifying and prioritising road projects was found to be opaque and road stretches originally selected for development were replaced with other stretches at a later stage without justification. Z January 2015 ❘ Indian Infrastructure ❘ 31

>>roads & bridges

Landmark Project Uttar Pradesh plans to build India’s longest greenfield expressway in record time he 302 km Agra-Lucknow greenfield expressway is planned as the longest expressway in India. This will be Uttar Pradesh’s second landmark expressway project after the 165 km Yamuna Expressway, which was operationalised in August 2012. It needs an investment of over Rs 150 billion, making it one of the biggest road projects under construction. Construction work began in November 2014 and is scheduled to be completed by September 2016. The implementing agency, the Uttar Pradesh Expressway Industrial Development Authority (UPEIDA), is confident of completing the project in 22 months time. “The project duration is 36 months, however, the contractors have agreed to complete the project in 22 months,” says Navneet Sehgal, chief executive officer, UPEIDA. Moreover, the authority has agreed to dispense monetary incentives of up to 0.4 per cent of the contract cost on completion of the package ahead of schedule.

Alignment

construction (EPC) route, with the state funding the project. UPEIDA has awarded contracts to PNC Infratech (Agra-Firozabad), Afcons Infrastructure (Firozabad-Etawah), Nagarjuna Construction Company (Etawah-Kannauj), Afcons Infrastructure (Kannauj-Unnao) and Larsen & Toubro (Unnao-Lucknow). All projects have been awarded a defect liability period of 60 months. Earlier, the project was planned to be developed on a public-private partnership (PPP) basis, but it failed to attract investors due to the economic slowdown.

Progress so far The project requires around 3,300 hectares of land. UPEIDA plans to invest Rs 50 billion in the acquisition of land itself. Speaking about progress on the land acquisition front, Sehgal says, “So far, we have managed to acquire about 3,000 hectares of land, which is about 90 per cent of the total land requirement. The remaining land is expected to be acquired within the next two months.” The State Bridge Corporation has also started work on two bridges, which will connect the Yamuna Expressway and the Agra-Lucknow Expressway. The first eight-lane bridge would come up over the Yamuna river under the Agra inner ring road project near village Mahal Badshaah. It is estimated to cost Rs 983.2 million. The second eight-lane bridge would be

under the Fatehabad-Agra inner ring road project on the Tundla Yamuna bridge rail section at an estimated cost of Rs 1.46 billion.

Reducing travel time and spurring growth With the completion of the project, travel time between Agra and Lucknow is expected to reduce to four hours from eight hours. It will also connect with the Yamuna Expressway and reduce travel time between Lucknow and Delhi. In addition, the project is expected to spur economic development. Talking about project objectives, Sehgal says: “The primary objectives of the project are to provide faster and smoother connectivity between Lucknow and Delhi and prove a lifeline for the region which has been lying neglected.” As part of the project, four new residential townships would be developed on the lines of the Yamuna Expressway project. These townships will be based on the smart city model, with each township spread across 1,500 acres. “Four agriculture marketing centres will be built along the expressway to link vegetable and fruit producers directly to buyers. In addition, traditional industries located along the upcoming stretch will gain access to large markets like Delhi, Agra and Lucknow,” says Sehgal.

The expressway will pass through 10 cities and districts in the state, namely, Agra, Firozabad, Mainpuri, Etawah, Auraiya, Kannauj, Kanpur, Unnao, Hardoi and Lucknow. For development, the expressway has been divided into five packages – Agra-Firozabad, Firozabad-Etawah, Etawah-Kannauj, Kannauj-Unnao and UnnaoSumming up Lucknow. The six-lane access-controlled expPost an initial glitch, where UPEIDA was unable ressway will have a carriageway width to attract private interest in end-2013, the Details of Agra-Lucknow expressway project of 22.5 metres with a design speed of authority managed to award the project up to 120 km per hour. The expressway on EPC basis within a year. The expressSections Length (km) EPC contractor can be expanded to eight-lanes way should provide a major push to comAgra-Firozabad 55.5 PNC Infratech Limited depending upon traffic. The median mercial opportunities in western and cenFirozabad-Etawah 62.0 Afcons Infrastructure Limited width will be 4.5 metres with a paved tral Uttar Pradesh. Going forward, the Etawah-Kannauj 57.0 NCC Limited shoulder of 3 metres on either side. expressway may be extended till Ballia, Kannauj-Unnao 64.0 Afcons Infrastructure Limited eastern Uttar Pradesh, for a total length of 750 km. However, the current focus is on EPC model of development Unnao-Lucknow 63.0 Larsen & Toubro Limited ensuring on-time completion. Z The project is being implemented throuSource: Uttar Pradesh Expressway Industrial Development Authority gh the engineering, procurement and Sharif Qamar 32 ❘ Indian Infrastructure ❘ January 2015

roads & bridges<<

Key Statistics National highways update Length of roads awarded after 2009 (km) Year

Targeted length of NHs as per work plan recommended by B.K. Chaturvedi Committee

Revised work plan as adopted by MoRTH

Actual length of NHs awarded

Shortfall (%)

Achievement per day (km)

3,347.45

73.55

9.17

2009-10

12,652

2010-11

11,092

5,071.38

54.28

13.89

2011-12

9,192

7,994

6,502.22

18.66

17.81

2012-13

2,637

10,653

1,115.76

89.53

3.06

2013-14

1,477

–

37,050

42,391

16,036.81

–

Total

MoRTH: Ministry of Road Transport and Highways; NH: National highway Source: Performance Audit of Implementation of Public Private Partnership Project, National Highways Authority of India

Sources and application of funds by NHAI during 2008-09 to 2012-13 (Rs billion) Year

Opening cash and bank balance

Funds generated from operations

Funds generated from financing activities Borrowings Other than borrowings Total funds generated

Funds inveested in road projects

Closing cash andd bank balance 52.36

2008-09

54.18

15.36

23.04

69.44

92.48

109.65

2009-10

52.36

27.91

15.51

45.05

60.56

116.31

24.52

2010-11

24.52

11.95

24.66

102.80

127.46

135.27

28.66

2011-12

28.66

13.10

125.12

76.60

201.72

133.45

110.02

2012-13

110.02

(61.12)*

29.02

142.00

171.01*

142.61

77.30

*Includes Rs 61.83 billion payable to the government for the period prior to April 1, 2010 on account of toll and negative grant, etc. transferred to capital account during 2012-13

Source: Performance Audit of Implementation of Public Private Partnership Projects in National Highways Authority of India

Delays due to pre-construction issues (no. of projects) Delay in signing concession agreement In time

More than zero but less than 60 days

More than 60 but less than 100 days

More than 100 days

Delay in approval of RoBs/RuBs

Delay in obtaaining environmental clearance

Not applicable

Not available

Less than 180 days More than 180 but less than 365 days More than 365 days but less than 3 years More than 3 years

Note: The assessment is for the 94 projects evaluated by the CAG in the performance audit. Source: Performance Audit of Implementation of Public Private Partnership Projects, National Highways Authority of India

January 2015 ❘ Indian Infrastructure ❘ 33

>>ports & shipping

Improving Connectivity Rail links for non-major ports

he port sector has shifted its focus to developing infrastructure and improving port connectivity, in contrast to purely concentrating on capacity augmentation as in the past. Non-major ports are likely to handle 54 per cent of the total traffic by 2016-17, compared to about 43 per cent presently. The provision of adequate connectivity will be a major differentiating factor. The formulation of the Policy for Participative Models in Rail Connectivity and Capacity Augmentation Projects is expected to enhance the prospects related to the development of non-major ports.

Experience so far Overall, the experience with regard to port connectivity has been mixed. While the long-established private non-major ports of Pipavav and Mundra have established superior connectivity and therefore benefited, several newly developed ports or those currently under develop34 ❘ Indian Infrastructure ❘ January 2015

ment are struggling to provide connectivity. Inadequate railway capacity on trunk routes adds to the woes of private developers. So far, non-major ports have undertaken port connectivity projects either through the formation of special purpose vehicles (SPVs) with either Indian Railways (IR) or Rail Vikas Nigam Limited (RVNL) or on their own. RVNL has formed three SPVs for undertaking port connectivity projects for non-major ports. These are Kutch Railway Company Limited for Mundra port, Bharuch Dahej Railway Company Limited for Dahej port, and Krishnapatnam Railway Company Limited (KRCL) for Krishnapatnam port. Similarly, IR has formed two such SPVs. Pipavav Railway Corporation Limited (PRCL) was entrusted with establishing the railway network of 271 km for Pipavav port. The port has performed well in terms of cargo carried through the developed railway network and resulting revenues. Traffic at the port increased from 1.28

million tonnes (mt) in 2009-10 to 7.9 mt in 2013-14, recording a compound annual growth rate (CAGR) of 57.61 per cent. The associated revenue figures stood at Rs 2.29 billion in 201314, increasing from Rs 0.55 billion in 2009-10, registering a CAGR of 42.85 per cent. On the other hand, Adani Ports and Special Economic Zone Limited invested its own funds for providing Mundra port with improved connectivity. It boasts of a privately developed 76 km railway line. This line directly connects various infrastructure facilities at the port including multi-purpose terminals and container terminals with IR’s network at Adipur, located in Kutch district in Gujarat. Similarly, The Dhamra Port Company Limited constructed a 62 km railway line from Dhamra to Bhadrak/Ranital Link Cabin on the main Howrah-Chennai line as part of Phase I plans; the line was commissioned in May 2011. On an average, the port company dispatches six to seven rakes per day.

ports & shipping<< Policy for Participative Models in Rail Connectivity and Capacity Augmentation Projects To attract private investment in rail connectivity projects, the MoR has come out with a new policy, Policy for Participative Models in Rail Connectivity and Capacity Augmentation Projects. The policy was approved by the Cabinet Committee on Infrastructure in November 2012, and released in December 2012. The primary feature of the policy is the involvement of port companies, state governments, infrastructure and logistics providers, foreign direct investors and other private investors in the development of rail infrastructure. The five models of investment under the policy through which private players can participate are non-government railway; joint venture (JV) with equity participation by the railways; capacity augmentation through funding by customers; build-operate-transfer (BOT); and BOT (annuity) model. In the case of the first three models, the Railway Board can take a decision instead of seeking permission from the cabinet for each project. The latter two (BOT and BOT [annuity]) follow the existing appraisal and approval procedure laid down by the Ministry of Finance through the Public Private Partnership Appraisal Committee route. Non-government railway and JV with equity participation by the railways are the two most preferred models by developers for port connectivity projects.

As of December 2014, 10 rail-port connectivity projects entailing a total investment of about Rs 55 billion have received in-principle approval under the policy, of which two – DigniJaigarh port new line and Gandhidham-Tuna port new line – are under way and the rest are awaiting implementation. These two projects are expected to be completed in 2017 and April 2015 respectively.

Issues and challenges Port connectivity projects face various issues. Some of the shortcomings in the approach of IR towards PPP projects, including rail-port connectivity projects, have also been brought to light by the Comptroller and Auditor General (CAG). In its report tabled in Parliament in July 2014, the CAG highlighted various issues related to irregularities in project execution and management. Delays in acquisition of large tracts of land is one of the major reasons for project delays. KRCL is facing significant delays in executing Phase II of the port connectivity project due to land acquisition concerns. The entire land area was to be acquired within six months from the date of commencement of the project which, reportedly, has still not been completed. This has led to escalation in the cost of the project (more than 100 per cent) and this has added to the problems. Resistance from the respective owners and delays in approval from the Ministry of Environment and Forests

further adds to the woes. Issues with concession agreements also persist. Delays in signing of concession agreements is another major cause for concern. The signing of concession agreements has stretched to as long as 540 days in one case (Kutch Railway Corporation Limited), which resulted in delays in the execution of projects. Execution of a traffic guarantee agreement with the SPV was listed as a prerequisite, ensuring minimum flow of traffic through the route and associated revenues. However, such an agreement with respect to non-major ports was only executed with PRCL. Further, the concerned agreement was deemed incomplete by the CAG as it did not lay down the provisions for revision of minimum quantum of guaranteed traffic once the targeted traffic volumes were achieved. In addition, the costs of such projects have increased considerably due to revision of track parameters by the Ministry of Railways (MoR), with changes such as increase in axle load, increase in track centre distance, overhead electrification, etc. Further, costs related to operation and maintenance of such projects are humongous and dependent on the level of traffic and these factors are stumbling blocks. Uncertainty of traffic due to the nature of railway operations is another issue that impacts the viability of a project. This is due to the presence of alternative routes for movement of cargo.

The way forward

JSW Jaigarh port-rail connectivity project JSW Jaigarh Port signed an MoU with Konkan Railway Corporation Limited and the Maharashtra Maritime Board (MMB) on December 1, 2014 for the Jaigarh port rail connectivity project. Reportedly, this is the first project to be developed under the policy for Participative Models in Rail Connectivity and Capacity Augmentation Projects. The scope of the project involves laying a railway line of 33.7 km to connect the port with the existing railway network. An SPV will be floated for the execution of the Rs 7.75 billion project involving Konkan Railway Corporation Limited, MMB, and JSW Jaigarh Port. The project will be financed with a debt-equity ratio of 70:30 and the equity portion will be funded with a 63 per cent contribution from JSW Jaigarh Port, 26 per cent from Konkan Railway Corporation Limited and up to 11 per cent from MMB. Studies related to traffic and bankability of the project have already been carried out and the revenue for the first year of operations is projected at Rs 1.14 billion. The project has been sanctioned by the MoR and is likely to be completed within a time frame of 30 months. Jaigarh port currently has a capacity of 15 million tonnes per annum (mtpa); however, the operational capacity of the port stands at 8 mtpa due to connectivity issues.

The Twelfth Five Year Plan (2012-17) projects the share of non-major ports in total maritime traffic at the end of the period to stand at 54 per cent of total Indian port traffic (compared to 39 per cent in 2011-12, the terminal year of the Eleventh Plan). Adequate connectivity is a prerequisite if these targets are to be realised. As per India Infrastructure Research, projects worth over Rs 700 billion, involving a capacity addition of at least 630 million tonnes, are in the pipeline with respect to development of ports at the state level (including the expansion of existing ports and development of greenfield ports). This signifies the need for establishing superior means of connectivity to enchance the prospects related to the viability of these projects. ◗ January 2015 ❘ Indian Infrastructure ❘ 35

>>ports & shipping

Key Statistics Rail-port connectivity projects Key port connectivity projects under RVNL Project

Type

Panvel-Jasai (JNPT)

Doubling

Gandhidham-Palanpur (Mundra)

Gauge conversion

Bharuch-Samni-Dahej (Dahej)

Gauge conversion

Krishnapatnam-Venkatachalam

Doubling with electrification

Obulavaripalle-Venkatachalam

New line

Boisar-Nandgaon

New line

Nargol port

New line

Distance (km)

Cost (Rs billion)

Present status

28.5

1.02

Completed

301.0

4.51

Completed

62.0

2.00

Completed

16.5

0.86

Doubling completed

93.0

7.33

25 per cent work completed (as of July 2014)

24.0

4.50

14.0

2.50

NA: Not available; JNPT: Jawaharlal Nehru Port Trust Source: Rail Vikas Nigam Limited

Projects under the policy for participative models in rail connectivity and capacity augmentation projects with in-principle approval Project

State

Date of in-pprinciple approval

Length (km)

Cost (Rs billion)

New Bhubaneswar station to

Odisha

January 2013

13.10

Maharashtra

March 2013

7.70

Route/Model Non-governmental railway (private line model)

Astaranga port new line Inda Pur-Dighi port new line

JV with RVNL

Digni-Jaigarh port new line

Maharashtra

7.71

JV with KRCL

Bhadrak-Dhamra port new line

Odisha

May 2013

7.60

Non-governmental railway (private line model)

Hazira port new line

Gujarat

September 2013

7.34

Non-governmental railway (private line model)

Gandhidham-Tuna port new line Gujarat

October 2013

1.42

Non-governmental railway (private line model)

Hamrapur-Rewas port new line

Maharashtra

July 2012

3.49

JV with RVNL

Lalitpur-Udaipura electrification

Uttar Pradesh,

January 2014

0.40

Customer funding

Madhya Pradesh Dholera-Bhimnath new line

Gujarat

January 2014

2.52

Non-governmental railway

Kodinar-Chhara port new line

Gujarat

3.51

Non-governmental railway

JV: Joint venture; NA: Not available; RVNL: Rail Vikas Nigam Limited; KRCL: Krishnapatnam Railway Company Limited Source: Railway Board

36 â?&#x2DC; Indian Infrastructure â?&#x2DC; January 2015

ports & shipping<<

Second Wind Chennai replaces container terminal with outer harbour he Chennai Port Trust (ChPT) is again in the limelight with its Rs 51 billion outer harbour project. The plan was drawn after repeated failures of ChPT to bid out the mega container terminal project due to various issues including increasing congestion and poor connectivity. The success of the project depends upon how effectively the port trust can manage such issues.

Project details and implementation The project will be developed with a basin area of about 300 hectares and a backup area of over 90 hectares with a potential to develop a total of 2 km quay length. The outer harbour will be developed with a 2.75 km extension of the existing outer arm breakwater and also a new northern breakwater of about 1.73 km emanating from the eastern breakwater of the fishing harbour. The proposed location is north of the existing Bharathi Dock and east of the existing operational fishing harbour at Kasimedu. The project will cater to different sets of clean cargo like liquid bulk, break bulk and containerised cargo upon its commissioning. The project is planned to be developed under public-private partnership mode on a design-build-finance-operate-transfer basis with a concession period of 30 years. As per

The way forward

the request for qualification (RfQ) document, the concessionaire will be responsible for designing, upgrading, construction, operation, maintenance and financing of the project. ChPT intends to complete the development of marine-related infrastructure (breakwater construction, dredging, etc.) in three years’ time, between 2015-16 and 2017-18. The project cost is estimated at Rs 51 billion, of which terminal development accounts for the largest share of 39 per cent, followed by the breakwater at 31 per cent and dredging works at 13 per cent. In September 2014, the port trust invited RfQ bids for the project. The last date for submission of bids was extended from the initial plan of October 24, 2014 to December 29, 2014. However, reportedly the port trust did not receive any bids for the project within the stipulated time period. The outer harbour project has replaced the

Components of Chennai outer harbour project Components

Details

Breakwater

Total length of 4.5 km

Dredging

Planned initial depth of 18.6 metres

Berth-side development

Two container berths, ro-ro berth, multi-purpose berth and liquid berth (total quay length of 1,420 metres)

Ground reclamation and improvement Ancillary infrastructure requirement

Reclamation of 90 hectares of land Includes facilities related to road, internal rail yard, external power infrastructure, etc.

Source: ChPT

earlier plan of the port trust to build a mega container terminal, which did not elicit interest from bidders, primarily due to poor connectivity. The Rs 36.86 billion mega container terminal project was planned to be developed with an annual container capacity of 4 million twenty-foot equivalent units (TEUs).

As per the initial studies, the project is expected to handle 1.48 million TEUs of container traffic by 2027-28. In terms of general cargo traffic, the project is likely to scale volumes of 6.93 million tonnes (mt) by 2027-28, while the traffic at the roll-on, roll-off (ro-ro) berth is projected to be about 250,000 units of automobiles. According to industry analysts, the success of the project depends on the provision of adequate rail and road connectivity. Various connectivity projects that were envisioned to benefit the port operations are facing delays. The Ennore-Manali Road Improvement Project is stuck with a last mile connectivity issue that is affecting free flow of container traffic towards Chennai port’s northern side. The elevated expressway from the port to Maduravoyal has been stalled due to objections on project alignment. The need for fast-tracking this project arises due to rising competition from Kamarajar port. Kamarajar port has already awarded the contract to Adani Ports and Special Economic Zone Limited for the development of a container terminal with a capacity of 1.4 million TEUs. The company initiated construction in October 2014, and is expected to complete it by October 2017. Increasing congestion at the port adds to the woes. The port has witnessed the lining up of trailers over long distances towards the port which has an adverse impact on efficiency. This has resulted in the diversion of traffic from Chennai port to nearby ports including V.O. Chidambaranar, Kamarajar and Krishnapatnam. The port trust will have to counter the above-mentioned issues which pose a threat to the viability of the project. The private sector is expected to show greater interest once the port trust addresses these key issues of connectivity and congestion. ◗ Aakash Choithani January 2015 ❘ Indian Infrastructure ❘ 37

Construction

:special section<<

Special Section

Construction

Overview and outlook: Focus on fast-tracking construction activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Recent developments: Turnaround in sentiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Sector-wise opportunities: Significant construction likely in railways, roads, ports and power . . . . . . . . . . . . . . . . 46 Performance of key companies: Higher growth anticipated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Construction materials: Expected surge after the slowdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Equipment market: Government's emphasis on infrastructure to drive growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

January 2015 â?&#x2DC; Indian Infrastructure â?&#x2DC; 39

>>special section: Construction

Overview and Outlook Focus on fast-tracking construction activity

he construction industry is a significant contributor to the Indian economy both in terms of activity as well as in terms of employment. Construction contributes about 7.4 per cent to the gross domestic product (GDP) and it is also the second largest employer after the agricultural sector, employing over 40 million skilled and unskilled people. The Indian construction industry has delivered on many large projects. For example, it has been instrumental in the successful completion of the Golden Quadrilateral projects in the highways sector and in multiple expansions of ports and airports. The construction industry is currently at an inflection point. It has struggled for the past few years but a turnaround is expected on the back of policy changes and better regulatory measures. Much of the slowdown in the past 24-30 months can be attributed to a generic slowdown across infrastructure sectors. Infrastructure accounts for 54 per cent share in the construction industry’s turnover. Many infrastructure projects have been stalled due to delays in land acquisition, want of statutory clearances, lack of funds, rising interest rates,

40 ❘ Indian Infrastructure ❘ January 2015

as well as sector-specific issues such as fuel shortages in the power sector and aggressive bidding practices in national highway projects.

Industry size and growth The construction industry can be divided into two components — real estate (office, retail and industrial) and infrastructure. Of these segments, infrastructure construction accounts for the larger share at about 54 per cent. According to the Reserve Bank of India, the contribution of the construction sector to GDP (at factor cost) in 2013-14 was about Rs 4,267 billion, translating into 7.4 per cent share of the construction sector in GDP (at factor cost). The share of the construction sector has declined slightly in the past five years from 7.85 per cent of GDP in 2009-10 to the current levels. Growth in construction: In 2013-14, the construction industry grew by only 1.6 per cent. This is marginally higher than the reported growth rate in 2012-13 of 1.1 per cent. The construction sector was hit hard as several infrastructure projects were stalled due to land

acquisition issues, and lack of environmental clearances and funds. Industry experts say that if the infrastructure sector is to achieve the investment target of Rs 56 trillion in the Twelfth Plan period, the construction industry must grow at an annual average rate of 15-16 per cent. This is unlikely to be achieved, given the current economic environment. Growth in contracting: The industry structure is highly fragmented with both organised and unorganised players. An analysis of financial and operational performance of the 42 listed domestic construction companies indicates that total revenues amounted to Rs 2.1 trillion in 2013-14, which is a compund annual growth rate (CAGR) of 11.73 per cent over Rs the 1.35 trillion in 2009-10. Further, order inflows in the sector remained muted in 2013-14. Between 2009-10 and 2013-14, the order book position of 24 construction companies (for which order book data is consistently available for the last four fiscal years) grew at a CAGR of 5.98 per cent. Sector-w wise performance: The highways sector,

Construction

which is a key contributor to construction revenues, witnessed sluggish growth in the past two years. During 2012-13, about 2,800 km of national highway length was completed under the National Highways Development Programme (NHDP). This declined to about 1,900 km in 2013-14. In the power sector, the hydro and nuclear segments missed targets for the first two years of the Twelfth Plan. A similar trend was seen in railways and ports. Growth in the equipment market: After a temporary recovery in 2010, the production and sales of construction equipment saw a slowdown in 2011. According to industry estimates, the size of the construction equipment market as of 2014 stands at Rs 300 billion-Rs 350 billion. The industry has reported a year-on-year growth rate of 15-20 per cent in the past few years, except for 2012. Growth in the materials market: The key materials used include cement, steel and bitumen. The production and consumption of these materials had a CAGR in the range of 3-8 per cent between 2009-10 and 2013-14. In the recent past, the slowdown in the infrastructure sector has had an impact on demand and, consequently, production of these materials, resulting in low rates of capacity utilisation.

Issues and challenges The biggest issue faced by the construction industry is related to land acquisition. The key

reasons are resistance from local communities due to differences between the value offered and the market value, and the arbitrary nature of rehabilitation and resettlement programmes. To streamline the process of land acquisition, the government introduced the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. However, this has led to an increase in payments of compensation of four times the market value for rural areas and twice the market value for urban areas. In cases where acquisition is taking place for private companies, the act requires the consent of no less than 80 per cent of those whose land is sought to be acquired. However, the government has recently done away with the consent clause in a new ordinance in the case of procuring land for industrial corridors, rural infrastructure, defence, public-private partnership projects and housing. Further, delays in obtaining environmental and forest clearances are a major hurdle. This is mainly due to the multiple approvals required at various levels – central, state and local. As a result of delays, projects suffer huge time and cost overruns. In the case of obtaining wildlife clearances, the entire process takes about three years. The key sectors affected by the delays include power, highways, ports, airports and railways. Although the government has initiated measures to fast track processes, the impact is yet to be seen on the ground. Another major issue that has hit the sector hard in the past two years is funding con-

Sector-wise infrastructure development during 2012-13 and 2013-14 Sector

Details

2012-1 13

2013-1 14

Highways

NHDP (length completed) (km)

2,844.00

1,901.00

Ports

Ports capacity added (major) (mtpa)

48.38

55.61

Ports capacity added (non-major) (mtpa) Power Railways

19.10

Conventional power capacity added (MW)

20,622.80

17,825.00

Renewable energy capacity added (MW)

3,163.00

3,640.00

Construction of new railway lines (km)

224.00**

289.00^^

Gauge conversion (km)

605.00

383.00^^

Doubling

389.15**

121.73^^

** Till February 2013; ^^ Till January 2014; NA: Not available Sources: National Highways Authority of India; Indian Ports Association; Central Electricity Authority; Ministry of Railways

:special section<<

straints. While banks have assumed a cautious stance towards lending to infrastructure projects, promoters are struggling to arrange equity for new ventures. Over the years, banks have reached sector exposure limits, and their inherent apprehensions regarding funding infrastructure projects have deepened. In this context, it becomes imperative to introduce long-term sources of financing. Insurance and pension funds, external commercial borrowings and infrastructure debt funds may thus be tapped to meet the financing requirements of road projects. Other issues affecting the construction industry include inadequate planning while undertaking projects (poor quality of detailed project reports and lack of detailing in feasibility studies) and insufficient skilled manpower.

Outlook The central government has undertaken a series of reforms to fast track infrastructure development. The initiatives range from significantly scaling up budget allocations, to easing of environmental clearance and fund-raising norms for commercial banks. While investor interest has been restored to some extent, the success of initiatives will be measured only by the end of the current fiscal. Going forward, the existing gap in infrastructure is expected to fuel demand for construction activities. The total investment in infrastructure for the Twelfth Five Year Plan (2012-17) is pegged at Rs 55,746.63 billion. Around 48 per cent of the investment is expected to come from the private sector. In the current economic environment, the sluggish pace of project execution has stalled the cash flow of developers. This, coupled with the uncertain global environment, has dented investors’ confidence. Industry experts are of the opinion that even if 50 per cent of the targeted plan investment from the private sector materialises (this would be about Rs 13,370 billion), it will be a significant achievement. In the best-case scenario, assuming that the remaining 52 per cent (Rs 28,987 billion) of the total fund requirements is met through public funding, the actual investment in the Twelfth Plan will be about Rs 42,350 billion. ◗ January 2015 ❘ Indian Infrastructure ❘ 41

>>special section: Construction

Recent Developments Turnaround in sentiments he grim macroeconomic scenario, coupled with a huge project backlog, has slowed down construction activity. Not many projects were announced or awarded in the last two years. There are also many stalled and delayed projects across all infrastructure sectors. However, the advent of the new government in May 2014 has led to an improvement in sentiment and stepped up activity to some extent. The focus has been on restoring the confidence of stakeholders and investors. While investor interest has been restored to some extent, the success of initiatives will be measureable only by the end of 2014-15. Indian Infrastructure provides an update of key developments in the construction sector during the past 12-18 months…

Pace of project award and execution Project awards lagged behind targets in most sectors. In the road sector, there was a significant slowdown in the pace of project award and construction. One key reason for the slowdown was the inability of a large number of projects to attract adequate bids. During 2014-15, national highway projects covering 4,000 km were awarded and construction work was completed on roads covering about 2,000 km as of December 31, 2014. The recently awarded national highway projects include the Chhapra-RewaghatMuzaffarpur section, four-laning of the Aurangabad-Yedeshi section, and four-laning of the Bikaner-Phalodi section. In the state road segment at least 10 key projects were completed, and over seven key projects were awarded in 2014. These include the Agra-Lucknow expressway in Uttar Pradesh, Chennai Outer Ring Road project, and six-laning of the BengaluruMysore state highway. No new ultra mega power projects 42 ❘ Indian Infrastructure ❘ January 2015

(UMPPs) were awarded in the past few years. The new government was planning to award two such projects in Tamil Nadu and Odisha. However, bids were scrapped recently. In 2014-15 (April-October 2014), 5,245 MW of coal-based capacity was commissioned, of which 600 MW was added by central PSUs, 2,250 MW by state PSUs and 2,395 MW by the private sector. Besides, an additional coalbased capacity (in addition to the capacity scheduled to be commissioned during 201415) worth 3,240 MW was also commissioned during this period. According to India Infrastructure Research, in the past 15 months (October 2013 to December 2014), a total of 12 projects worth at least Rs 19 billion were completed at major ports. Together, these projects have added a total capacity of about 59 million tonnes (mt) to the major ports. Since October 2013, a total of 15 projects have been awarded at the major ports. These projects are likely to add a capacity of at least 110 mt at an estimated cost of Rs 160 billion. The fourth container terminal at the Jawaharlal Nehru Port Trust (JNPT) entails the highest investment of Rs 79.15 billion, accounting for a share of about 50 per cent of the total cost of awarded projects. There was a reasonable amount of activity with respect to the development of the

non-major ports. Movement was seen on various fronts including commissioning of operations, expansion of facilities on existing ports and development of greenfield ports. JSW Jaigarh Port launched the work for its Phase II expansion, while Mundra port signed an agreement for the development of a fourth container terminal at the port. Gujarat Pipavav Port Limited signed an agreement for the development of a dedicated common user roll-on roll-off facility at the port. In the railway sector, the cabinet gave its approval for setting up of an electric locomotive factory at Madhepura, Bihar, and a diesel locomotive factory at Marhowra, and a new rail coach manufacturing unit at Kolar in Karnataka to manufacture 500 coaches per annum at an estimated cost of Rs 14.6 billion. Also, the Cabinet Committee on Economic Affairs approved three new line projects in February 2014. These are the Ajmer-Sawai Madhopur line via Tonk in Rajasthan, a new rail line between Gadag and Wadi in Karnataka and a new broad gauge line between Pirpainti and Jasidih (Mohanpur) in Jharkhand. Further, three critical coal connectivity lines in Jharkhand, Odisha and Chhattisgarh that had been stuck on account of land acquisition and environmental clearance issues, were taken up on a fast-track basis during the year. The completed Indian Railway (IR) projects include the 26 km Udhampur-Katra new line, the 20 km Dudhnoi-Mendipathar new line and the 21 km Harmuti-Naharlagun new line providing rail connectivity to Katra in Jammu & Kashmir, Mendipathar in Meghalaya and Itanagar in Arunachal Pradesh respectively. Also, in November 2014, the foundation stone was laid for the 51 km Bhairabi-Sairang new line, which will provide rail connectivity to Aizawl in Mizoram. This project, which is estimated to cost Rs 23.84 billion, is likely to be completed by March 2018. Other segments like urban transport, water and sanitation, and airports did not record much progress on the project execution front. In the past 12-15 months, about 27 km was added to

>>special section: Construction Policy developments during 2014 Sector

Initiatives

Power

Integration of the power, coal and renewable energy ministries to improve coordination among the three ministries that were generally not aligned with each other On August 25, 2014, the Supreme Court declared the allocation of 218 captive coal blocks, made by the central government between 1993 and 2011, to be illegal, thereby ending months of speculation about the irregularities in the coal block allocation process. On September 24, 2014, all blocks, with the exception of government-run blocks on a non-joint venture basis and two blocks allocated for the Sasan UMPP, were cancelled. The Coal Mines (Special Provisions) Ordinance, 2014; the Coal Mines (Special Provisions) Rules, 2014 (Draft); extension of 10-year tax holiday until 2016-17 for power projects.

Highways

In November 2014, the Ministry of Roadways and Ministry of Road Transport and Highways (MoRTH) signed an MoU on policy related to construction of rail overbridges/rail underbridges on national highway corridors. The central government relaxed the norms pertaining to customs duty exemption on road construction equipment. The MoRTH announced uptake of Rs 200 billion worth of projects in the Ladakh and Leh regions of Jammu & Kashmir. The MoRTH is signing long-term contracts with cement companies to purchase construction material at a lower cost. The MoRTH has been empowered through a cabinet decision to decide on the mode of delivery of projects. The ministry has also been authorised to appraise projects up to Rs 10 billion as against Rs 5 billion earlier.

Ports

In January 2014, new guidelines related to land management by major ports were announced to help the ports in monetising excess landholdings. Special economic zones to be developed in Kandla and JNPT. Besides, the government came out with Draft Revised Guidelines for Determination of Tariff for the Services Provided by Major Port Trusts, 2014 in February 2014. Announcement of the Sagar Mala project, which aims to connect all coastal cities through ports, roads and rail. Guidelines on Priority Berthing of Coastal Vessels at Major Ports; Exemption from Paying Duty on Bunker Fuel.

Railways

Development of Diamond Quadrilateral of high speed lines. Launch of high speed rail corridors on two routes – Mumbai-Ahmedabad and Delhi-Varanasi-Patna. Approval of 100 per cent foreign direct investment in infrastructure development of IR in August 2014; the Ministry of Railways came out with model concession agreements for executing its projects on public-private patnership (PPP) basis.

Airports

Government announced a scheme for the development of new airports in Tier I and Tier II cities. The new government has released the draft civil aviation policy, bringing momentum to long-awaited industry demands. The draft has brought clarity regarding the six Airport Authority of India airports, initially planned for privatisation.

Urban transport The budget has allocated Rs 1 billion for the Ahmedabad and Lucknow metro projects to come up on PPP basis. The government is planning to reduce the population (in towns/cities) norm for financing metro rail projects. In July 2014, the central government unveiled plans to build 100 smart cities across the country with geographic information system-based town planning, using the latest technology. In September 2014, the Ministry of Urban Development released a set of 13 benchmarks that define a smart city covering services such as transport, spatial planning, water supply, sewerage and sanitation. In December 2014, the cabinet gave its approval for transfer of land for the implementation of metro rail projects Water supply

Plans to provide safe drinking water and sewerage management, promote use of recycled water, provide solid waste management services, etc., to 500 cities on PPP basis; undertaking water reforms in Delhi. States asked to consider developing a statewide water supply grid to supply potable water to all water-scarce areas in their region.

Source: India Infrastructure Research

India’s currently operational urban rail network. These are the Mumbai metro Line 1, Gurgaon metro Phase I and the Mumbai monorail Phase I. Meanwhile, ongoing projects such as the Hyderabad, Bengaluru and Chennai metro projects recorded modest progress. Six key contracts for civil construction and electrical works for the Jaipur, Delhi and Chennai metro projects were awarded between 44 ❘ Indian Infrastructure ❘ January 2015

September 2013 and December 2014.

Key policy developments In contrast to subdued development in terms of project execution, there were several key policy developments. The new government, with a string of initiatives undertaken within a short time frame, has clearly charted out plans for the construction industry. The Ministry of Environ-

ment and Forests launched an online portal for according clearances related to environment and forests to projects in June 2014 and August 2014 respectively. The cabinet approved an ordinance to amend the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 in December 2014 and Presidential assent for this ordinance has been received. ◗

>>special section: Construction

Sector-wise Opportunities Significant construction likely in railways, roads, ports and power he infrastructure sector is expected to see significant developments in the medium term. It will be supported by the central government’s ambitious plans to develop infrastructure on priority basis as well as policy measures undertaken in the past six to eight months. Quite a few sectors, such as roads, power, ports, and airports, are expected to bounce back quickly. There are many projects in the pipeline. Indian Infrastructure presents construction opportunities across various infrastructure segments…

Roads The Indian highway sector offers the maximum construction opportunity. A pipeline of multiple highway projects is lined up. Recent policy and regulatory initiatives by the central government should drive demand for projects. The majority of the national highway and state highway projects are expected to be on engineering, procurement and construction (EPC) basis while the uptake of projects on a public-private partnership basis will be low.

46 ❘ Indian Infrastructure ❘ January 2015

India’s highway sector offers huge opportunity in the next three to five years. According to India Infrastructure Research, construction opportunities in the highways sector could be to the tune of about Rs 1,700 billion. This is estimated assuming that construction will account for 65 per cent of the total project cost. As of October 2014, the National Highways Authority of India (NHAI) was yet to award about 14,600 km of national highways under the National Highways Development Programme (NHDP). The majority of the construction opportunities are under Phases III, IV and VI. According to India Infrastructure Research, over 200 national highway projects, covering about 24,000 km, are at various stages of implementation (recently awarded, announced, detailed project report under preparation, stalled, and under bidding). These projects are worth over Rs 1,000 billion. The highest construction opportunities are in the states of Gujarat, Maharashtra, Madhya Pradesh and Uttar Pradesh – together worth an estimated Rs 490 billion. Further, there is significant construction

opportunity under centrally funded projects like the Special Accelerated Road Development Programme – North East (SARDP-NE) and the Pradhan Mantri Gram Sadak Yojana (PMGSY). Under the SARDP-NE, the length sanctioned is 3,924 km and the completed length was 1,584 km as of June 2014. Of the remaining 2,213 km road length, 1,913 km is targeted for award during 2014-15 and the balance 300 km during 2015-16. There is also a significant opportunity under the second phase of the PMGSY, which was launched in 2013. Besides these, a number of projects are up for development at the state level. The leading states in terms of upcoming road projects include Maharashtra, Karnataka, Tamil Nadu, Uttar Pradesh, Bihar, Madhya Pradesh, Andhra Pradesh, Rajasthan and Gujarat.

Power The power sector, like other infrastructure sectors, has been facing tough times in the past one-two years. Typically, 65-70 per cent of the total project cost of a given hydropower project consists of construction work. The construction

Construction

component in thermal power projects (coal and gas based) accounts for about 40 per cent of the total project cost. Based on India Infrastructure Research’s analysis, there are about 175 projects worth over Rs 8,400 billion in the power sector (coal, gas and hydro based), which will provide opportunities for construction players. Upon completion, these are expected to add 157,566 MW of generation capacity. Hydropower projects, which have the maximum construction component, account for 28,800 MW of expected capacity addition. The total coal-based power project pipeline, as of October 2014, comprised 258 projects aggregating over 300,000 MW across various stages of development. Upcoming projects have been held up due to lack of clearances, inadequate fuel supply and delays in land acquisition. The new government has taken cognisance of these challenges, and in the last few months announced a host of steps aimed at resolving them, improving overall investor sentiment in the sector, as well as providing a push to power projects in the pipeline. Issues such as fuel security, power offtake, land acquisition, and clearances, among other things, need to be addressed.

Ports The need for creation of fresh port infrastructure (due to India’s increasing share in global trade) has resulted in abundant opportunities for construction players. Since the BJP government assumed charge in May 2014, the focus on port infrastructure development has been renewed. While there are many projects in the pipeline, meeting long-pending challenges will be instrumental in determining onthe-ground development. A number of port projects are under way in several states to increase overall cargo handling capacity, and provide connectivity, as well as modernise existing facilities. According to India Infrastructure Research, the port sector offers about 130 projects aggregating over 1,700 million tonnes (mt) and Rs 1,400 billion worth of investments, as of December 15, 2014. Of this, 62 per cent of the investment opportunity is expected to come from the major

:special section<<

Status of NHDP as of October 31, 2014 (km) Phase

Total length

Total four/ six-llaned

Golden Quadrilateral

5,846

North-South-East-West

Under implementation 0

Balance length for award 0

7,142

6,325

400

417

III

12,109

6,300

4,464

1,345

14,799

776

5,509

8,514

6,500

1,919

2,162

2,419

1,000

–

1,000

VII

700

659

Port connectivity Other national highways Total

380

379

1,754

1,408

346

50,230

22,975

12,901

14,354

Source: NHAI

ports. The greenfield non-major port project pipeline tracked by India Infrastructure Research stands at 33 projects with a total estimated cost of Rs 510 billion. The projects involve development of container terminals, berths for handling dry cargo and liquid cargo, and greenfield ports; providing rail and road connectivity; and development of port-based special economic zones and free trade warehousing zones. These ports are coming up in the states/union territories of Karnataka, Gujarat, Odisha, Maharashtra, Kerala, Andhra Pradesh, Tamil Nadu, West Bengal and Puducherry. However, most projects are yet to obtain environmental clearances, achieve financial closures, or start construction works. To meet the targets, it is necessary that the new government take steps to improve the pace of capacity augmentation at Indian ports as well as incentivise potential investors. Options like the creation of a level playing field for the development of major and non-major ports (at present, conditions are more favourable for developers in major ports) should be explored.

Railways The railway sector is construction intensive, with almost 78 per cent of the total project cost pertaining to construction works. The sector offers a pipeline of projects (including ongoing and upcoming) worth over Rs 12.12 trillion,

and a construction opportunity roughly worth Rs 9.45 trillion. The largest projects are the development of the dedicated freight corridor (DFC) and high speed rail (HSR). Around 100 railway projects, entailing a total investment of over Rs 9,800 billion, have been announced. These include six public-private partnership projects cumulatively worth over Rs 2,454 billion. With HSR (Diamond Quadrilateral project of high speed trains) gaining focus in 2014, the Mumbai-Ahmedabad corridor project is likely to provide huge opportunity for developers. Moreover, it is expected that bids for selection of the private developer for the Sonnagar-Dankuni section of the DFC will be invited soon. In the Railway Budget 2014-15, the government indicated that it will strategically shift focus from sanctioning new projects to completing ongoing works. It has proposed prioritising and setting timelines for the completion of ongoing projects and a decision support system for project implementation. It is expected that 100 per cent approval for foreign direct investment in the sector will be cleared. Also, the recently framed model concession agreements will provide a more transparent, balanced, fair and bankable framework. Together this should attract private players.

Airports India’s airport sector is going through a period of January 2015 ❘ Indian Infrastructure ❘ 47

>>special section: Construction change. There should be abundant construction opportunities with new greenfield airports planned to be developed, and a focus on connecting smaller cities with low-cost airports. According to Indian Infrastructure, there are 74 airport projects worth over Rs 450 billion that would offer significant opportunities to construction players. Of these, 58 projects have been announced, seven are stalled, five are planned, two have been awarded, and one is under bidding. Most of these facilities are located in the states of Karnataka, Kerala and Maharashtra. To enable regional air connectivity, the development of low-cost airports has been taken up at Tier II and Tier III cities on priority basis. In the long term, 200 of these no-frills facilities will be developed across India. The first batch of 51 cities is under consideration. With respect to expected investments, each of these facilities will require about Rs 0.5 billion to Rs 2 billion, depending on required works at a given site. These are in the states of Andhra Pradesh, Jharkhand, Bihar, Punjab, Uttar Pradesh, Arunachal Pradesh, Assam, Madhya Pradesh, Odisha, Rajasthan and Maharashtra. The increasing number of air passengers in India, along with the development of newly urbanising areas, clearly warrants more airports. However, the major hurdle in the implementation of airport projects is land acquisition, which dampens the enthusiasm of stakeholders, including construction businesses. The new ordinance which has changed certain clauses pertaining to consent in the new Land Acquisition Act is expected to overcome land acquisition issues.

Urban transport In India, both rail-based mass rapid transit systems (MRTS) as well as bus rapid transit systems (BRTS) have been introduced and more such systems are planned. However, the railbased MRTS has been more popular, since metro and monorail systems are proving more suitable to combat growing urban congestion and pollution. Both the central and state governments are actively promoting the uptake of metro/monorail projects. The urban rail transportation sector in 48 ❘ Indian Infrastructure ❘ January 2015

India is set to expand significantly. Five operational metro projects are being expanded (Delhi metro [Phase III]), Kolkata metro [east-west corridor], Bengaluru metro [Phase I], Mumbai metro [Line 3] and Gurgaon metro [Phase II]). Further to this, new metro rail projects are being implemented in six cities, and these are planned to be executed by 2016-17. These are the Jaipur metro (12.1 km), Hyderabad metro (71.6 km), Chennai metro (45.1 km), Kochi metro (25.6 km), Lucknow metro (22.9 km) and Navi Mumbai metro (23.4 km). The combined network of these metro projects will be over 200 km. Line 2 of the Mumbai monorail project, spanning 11.28 km, is also under implementation and is scheduled for completion by 2016-17. In addition, eight new metro and four monorail and light rail projects are in the planning stage – the Bengaluru (Phase II), Pune, Nagpur, Chandigarh, Bhopal, Indore, Patna and Ahmedabad metro projects; the Kozhikode and Thiruvananthapuram light rail systems; and the Chennai and Bengaluru monorail systems. There are 16 BRTS projects sanctioned across various cities. Among these, operations have commenced in nine cities and the projects are currently under expansion. As per India Infrastructure Research, about 1,200 km of networks, covering over 730 stops, have been planned in upcoming BRTS projects. The cities include Ahmedabad, Amritsar, Bhopal, Bhubaneswar, Delhi, Hubli-Dharwad, Jaipur, Kolkata, Indore, Naya Raipur, Pune, Pimpri-Chinchwad, Rajkot, Surat, Vijayawada and Visakhapatnam.

Water and irrigation Construction opportunity in the water supply and irrigation sector is offered mainly by drinking

water supply and wastewater treatment projects, and irrigation projects. While cost structures vary across various segments, on average, construction accounts for almost two-thirds (nearly 66 per cent) of the total cost of a given project. The proportion of construction is higher in irrigation projects, where about 75 per cent of the project cost pertains to construction. According to India Infrastructure Research, there are 44 projects worth Rs 305.6 billion in the water supply and wastewater sector that would offer opportunities to construction players. Of these, 28 projects are announced, 11 have been awarded, while the remaining five are under planning. These are in the states of Andhra Pradesh, Bihar, Delhi, Gujarat, Haryana, Punjab, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Tamil Nadu, Odisha and West Bengal. With regard to the irrigation sector, there are currently 15 projects at the planning stage. These are in the states of Maharashtra, Madhya Pradesh, Karnataka, Odisha and Assam. While the cost estimates of these projects are not available, they would entail significant construction works. With respect to irrigation and wastewater treatment, the country is yet to reach the desirable level. This shortfall presents a significant potential for the construction industry. However, it is important that issues like regulatory hurdles and delays in land acquisition are dealt with in order to enhance the delivery mechanism.

Conclusion It is estimated that Indian infrastructure sectors will together generate a construction opportunity of over Rs 18 trillion in the next four to five years. Of this, about half will come from the railways. Other sectors that offer significant construction opportunity include roads, ports and power. To achieve investment targets for the various infrastructure sectors, the government needs to resolve the issues on an urgent basis. Some of these relate to land acquisition, environmental and forest clearances, financial constraints, the necessity to develop more efficient approaches to project planning and bidding, and the unavailability of skilled manpower. ◗

>>special section: Construction

Performance of Key Companies Higher growth anticipated

Existing market structure India’s construction industry includes organised as well as unorganised players. While the organised segment consists of firms and independent contractors that manage business on a professional platform, unorganised players primarily work on a subcontracting basis. In addition to these, there also exists a segment of contractors-cum-developers that have managed to design new business models. Such players take up the development of infrastructure projects, while exposing contractors to associated revenue and funding risks.

For the purpose of analysis, India Infrastructure Research considered all the listed domestic construction companies across various infrastructure sectors. These companies earn their revenues mainly through the engineering, procurement and construction (EPC) business. However, a number of these have also made forays into 50 ❘ Indian Infrastructure ❘ January 2015

Total revenue: Analysing the data for the 42 listed construction firms, the growth in total revenue has been declining since 2010-11. While there is an increase in the absolute figure for the total revenues of these firms, it has been at a diminishing rate. In 2013-14, the aggregate total revenue of these companies was recorded at Rs 2,098.32 billion, a year-on-year growth rate of 3.25 per cent, which was lower than the growth of 6.93 per cent witnessed during the preceding year, 2012-13. In absolute terms, during the five-year period 2009-10 to 2013-14, the total revenue of these companies increased from Rs 1,346.27 billion to Rs 2,098.32 billion at a compound annual growth rate (CAGR) of 11.73 per cent. In addition, India Infrastructure Research analysed the recent semi-annual financial performance of infrastructure companies selected on the basis of their diversified presence in the infrastructure space and market capitalisation. These are L&T, Jaiprakash Associates, NCC Limited, Sadbhav Engineering Limited, Ashoka Buildcon Limited, HCC, Simplex Infrastructures

Revenue of listed construction companies 2,500

1,900.44

2,000

2,032.20

2,098.32 20

1,625.79 1,500

1,346.27

Key construction players

Revenues and order books

infrastructure development. A list of 42 such companies has been compiled and the dominant players include Larsen & Toubro (L&T), Punj Lloyd, Hindustan Construction Company (HCC), NCC Limited, Simplex Infrastructures, and Jaiprakash Associates. Apart from the listed players, others that are actively involved in the industry include Afcons Infrastructure Limited, BSCPL Infrastructure Limited, Bhagheeratha Engineering Limited, Bridge & Roof Company (India) Limited, East Coast Constructions and Industries Limited, Essar Projects (India) Limited, PNC Infratech Limited, Soma Enterprise Limited, SMS Infrastructure Limited, Sew Infrastructure Limited, and Progressive Constructions Limited. Robust demand has attracted foreign contractors who have set up subsidiaries and are actively executing projects, either on their own or in joint ventures. These overseas players include IJM (India) Infrastructure Limited, Sunway Construction India Private Limited, Leighton Welspun Contractors Private Limited, Doosan Heavy Industries and Construction Company Limited, and Ssangyong Construction.

Rs billion

ndia’s construction sector has been strongly impacted by the slowdown in economic growth. Several factors such as a GDP growth rate of less than 5 per cent in the past two years, high interest rates, muted demand, policy inflation, and poor investment sentiment have resulted in the poor offtake of infrastructure projects. This has had a significant impact on the construction sector as a whole. Construction players have suffered from thin profit margins on account of poor project execution and large amounts of outstanding debt. In addition, stretched balance sheets have also enhanced the financial risks. The cost structures have remained unfavourable, with higher expenses incurred for employee costs, raw materials and interest payments. Meanwhile, on the revenue front, order inflows are low, placing companies in an uncomfortable position.

1,000

500

0 2009-10

2010-11

2011-12

2012-13

Revenue of Listed Construction Companies (Rs billion)

Sources: Company reports; Bombay Stock Exchange

2013-14 Year-on-year growth

>>special section: Construction

Expenditure of listed construction companies 2,500

1,918.38

Rs billion

2,000

1,500

2,054.82 20

1,763.31 1,447.14

1,240.40

Limited, Lanco Infratech Limited, J Kumar Infraprojects Limited, and Punj Lloyd. Considering the total income of these 10 companies, the average figure for the period April-September 2014 was Rs 65.84 billion, an increase of 3.29 per cent over the Rs 63.74 billion recorded in the corresponding period of 2013-14. Of the 10 companies considered, half registered a growth in total income, while the remaining half witnessed a decline.

1,000

500

Order book position: Of the sample of 42 construction companies, India Infrastructure Research has consistent order book data for the five years 2009-10 to 2013-14 for 24 companies. During this period, the overall order book of these companies grew at a CAGR of 5.98 per cent. The order books grew from Rs 2,969 billion in 2009-10 to Rs 3,746 billion in 2013-14. Owing to the slowdown, several companies recorded a dip in their order book position over this period. In 2013-14, 18 of the 24 companies reported lower order backlogs than in the previous fiscal year. Also, in the first half of 2014-15, fresh order flows and the pace of clearing the order backlog remained the key determinants in shaping the total income of the industry. Total expenditure: Trends in the total expenditure figures of the select construction companies highlight an increase in total expenditure over the years. However, similar to the revenue trends, the rate at which the expenditure has been increasing has also slowed down. The total expenditure of construction firms increased by around 8 per cent and 7 per cent in financial years 2012-13 and 2013-14 respectively, much less than the growth rate of 21 per cent in 2011-12. Meanwhile, the expenditure figures for the first half of 2014-15 of the selected construction companies reveal that there was an increase of 4.37 per cent during April to September 2014. The total expenditure by these 10 players amounted to Rs 59.14 billion, compared to Rs 56.67 billion recorded in the corresponding period of the previous fiscal year. Elevated interest rates, and rising input and 52 â?&#x2DC; Indian Infrastructure â?&#x2DC; January 2015

0 2009-10

2010-11

2011-12

2012-13

Expenditure of listed construction companies (Rs billion)

2013-14 Year-on-year growth

Sources: Company reports; Bombay Stock Exchange

fuel costs contributed to the rise in expenses. The maximum increase of 38.24 per cent was recorded by Sadbhav Engineering, while others such as Lanco, Jaiprakash Associates and HCC registered a decline. Profit margins: A sample of 40 companies (for which data for the required parameters was consistently available for the period 2009-10 to 2013-14) revealed a declining trend in the median operating profit margin (OPM) as well as net profit margin (NPM). During 2013-14, the median OPM for these companies fell to 9.64 per cent from 11.39 per cent in the previous fiscal year. During the same period, the median NPM fell to -0.11 per cent from 1.07 per cent. The decline in NPM has been more pronounced than declines in OPM. The declining trend of NPM is reflective of the high interest and tax outlays, which have persistently been affecting profit margins of construction companies. In addition, the extended working capital cycles and the need to support developer businesses have increased the quantum of debt. This, coupled with the higher overall cost of capital, has enhanced the interest burden and trimmed the NPM. Meanwhile, with regard to OPM, data reflects that the increasing variable costs of operations over the years have depressed the operating profits of firms. An overall slowdown in the infrastructure sector led to limited new order

inflows, impacting operating revenues along with operating profits. The analysis of semi-annual results of the top 10 firms reveals that profit margins have been impacted by more than commensurate increase in total expenditure. Income has not witnessed a similar rise. Cost-side pressures from a less volatile but depreciated rupee, rising finance and input costs, along with rising fuel and transportation costs have trimmed profit margins. Only a few firms such as HCC, Simplex, Lanco Infratech and J Kumar saw an increase in their OPM in the first half of 2014-15 as compared to the same period in 2013-14. Also, for some players such as Jaiprakash Associates, Sadbhav Engineering, Ashoka Buildcon, HCC and J Kumar, the NPM in the first half of 201415 was lower than in the first half of 2013-14.

Conclusion The focus on infrastructure development has been renewed by the BJP government. Many new projects were introduced in the Union Budget 2014-15. This bears testimony to the intended focus on infrastructure development. Consequent to this, a large number of projects await on-the-ground implementation. This bodes well for the construction industry as a whole. Construction companies can thus expect to see improved revenues and better profit margins as execution challenges are tackled on a priority basis. â&#x2014;&#x2014;

>>special section: Construction

Construction Materials Expected surge after the slowdown ndia is expected to become the third largest construction market in the world by 2025. Consequently, the long term demand for construction materials is likely to be strong. Although infrastructure activity has been witnessing a slowdown for the past two years, it is strongly believed that given a high level of planned spending on infrastructure by the new government, construction activity will pick up soon. Cement, steel and bitumen are among the key materials predominantly used in construction. A wide range of other materials including aggregates, geosynthetics, sand, paints, timber, etc. are also used. The demand consumption patterns and future growth prospects of some of the key materials used in the construction industry are listed below.

Cement India is the second largest cement producer in the world with a production capacity of over 256 million tonnes (mt). The demand for cement in 2013-14 was muted owing to the slow pace of execution of infrastructure projects (mainly roads and power) as well as slowdown in the execution of housing projects. However, the quarterly survey of construction output released by the Census and Statistics Department reveals that the total gross value of construction works executed by major contractors in the first quarter of 2014-15 increased by 12.7 per cent compared to a year earlier. Consequently, the demand for cement is expected to rise going forward. On the supply front, the market for cement in India is geographically divided into five regions and each market has its own demand-supply and price dynamics due to geographical concentration of the raw materials needed for cement production. Post-liberalisation, the cement industry has 54 â?&#x2DC; Indian Infrastructure â?&#x2DC; January 2015

grown continuously, with the supply of the commodity always matching demand. Owing to a huge capacity addition (about 90 mt) over the past two years, there has been oversupply, leading to lower capacity utilisation. India produced 256.11 mt of cement in 2013-14, a marginal increase of 1.64 per cent over the 251.96 mt of cement produced during 2012-13. This is lower than the significant growth rate of 12.12 per cent achieved in 2012-13. One of the causes was believed to be lower demand from end-user industries. During 2014-15 (April-May 2014), cement production was reported to be around 48.3 mt. India consumed 248.7 mt of cement in 2013-14, representing an increase of 4.47 per cent as compared to the volume of cement consumed in the country in 2012-13. Overall cement prices in India remained subdued in 2013-14. The attempts made by a few cement companies to increase prices in the third quarter of 2013-14 were either partially or completely reversed.

Sector-wise share in consumption of cement, as of July 2014 (%) Commercial and institutional: 13 Infrastructure: 17

Industrial: 6

Housing: 64

Source: HDFC Research

A significant capacity addition of around 159 mt has been reported for the Indian cement industry since 2007. Supply has outpaced demand, resulting in excess production capacities. Industry experts are of the view that growth in cement demand and a slowdown in capacity addition will lead to an improvement in the capacity utilisation rates of cement companies. The growth of the cement sector will be closely linked to the growth of the real estate, industrial and infrastructure sectors. The demand going forward is expected to be strongly tied to the real estate sector. But infrastructure will remain among the key growth drivers. Some key sectors that account for cement demand include highways, airports, railways, water supply and irrigation, and urban transport. The demand for cement in India is expected to reach 550-600 million tonnes per annum (mtpa) by 2025, largely on account of growing infrastructure construction and rising housing requirements. However, the way forward for the cement industry is also dependent to a large extent on the removal of policy bottlenecks.

Steel India is the fourth largest steelmaker in the world after China, the US and Japan. Even though the past two years have been difficult for steel, the future prospects seem promising on account of renewed focus on infrastructure development by the new government, and expected recovery in economic growth. The demand for steel is chiefly from sectors such as construction, automobiles and machinery and equipment, together accounting for 80 to 85 per cent of the total steel consumed. During 2013-14, a total of 73.93

>>special section: Construction

Movement in WPI of cement, steel and bitumen (2004-05=100) 389.96 319.68

304.27 238.04

249.42 168.63

166.98

123.45

126.20

2011-12

2012-13

2013-14

149.02

150.84

156.97

120.18

113.47

2009-10

2010-11

Source: Ministry of Commerce and Industry

mt of steel was consumed. Meanwhile, the supply of steel in India has often fallen short of the demand. This is clearly evident from the fact that the country has largely remained a net importer of steel. However, in the previous fiscal year (2013-14), India became a net steel exporter. India produced 85.01 mt of finished steel in 2013-14. The year 2014-15 started on a positive note with regard to steel production. During the first quarter (April-June), India produced 22.01 mt of steel, an increase over the 19.57 mt reported during the corresponding period of 2013-14. The increase was primarily amid signs of an improved economic outlook. On the consumption front, India consumed 73.93 mt of steel in 2013-14, almost similar to the previous year. Consumption growth remained sluggish due to factors such as the economic slowdown and the poor execution of infrastructure projects. During 2014-15 (April-June), 18.82 mt of steel was consumed domestically, an increase over the 17.8 mt reported in the corresponding period of 2013-14. In terms of prices, domestic steel exhibited a mixed trend between 2009-10 and 2013-14. During 2009-10 to 2010-11, the wholesale price index (WPI) for the metal declined from about 120 to 113, reflecting the overall weak economic scenario due to the global recession. Thereafter, steel prices were on the rise during the period 2011-12 to 2013-14. The total installed capacity stood at 99.57 56 ❘ Indian Infrastructure ❘ January 2015

Cement

Bitumen

Steel

mtpa in 2013-14, an addition of 2.86 mtpa over the 96.71 mtpa recorded in the previous fiscal year. Overall, the installed capacity for steel production grew at a compound annual growth rate (CAGR) of 7.34 per cent during the five-year period from 2009-10 to 2013-14. Capacity add-itions in the steel industry, however, have been higher than the offtake of the metal, thereby impacting the production decisions of the players. This has resulted in the sector being an underutilised one, mirroring a global trend. Meanwhile, with the construction industry poised to regain growth momentum, the demand for steel is also set to increase. The government has set a target of reaching 300 mt of steel production capacity by 2025-26. The main demand drivers will include the development of smart cities, the oil and gas transportation network, railways, water and sanitation, bridges, telecommunications, wind energy, urban transport and airports.

Bitumen Bitumen is another important material. Bitumen roads are preferred over concrete roads as these can be strengthened to improve in stages with the growth in traffic. Approximately 95 per cent or more of roads in India are bitumen/flexible pavement roads. At present, four grades of bitumen are used in constructing roads in India – VG-10, VG-20, VG-30 and VG-40.

The latest data released by the Ministry of Petroleum and Natural Gas reveals that domestic bitumen production amounted to 4.78 mt in 2013-14, an increase of 2.35 per cent over the bitumen production in India in 2012-13, which was 4.67 mt. Meanwhile, the consumption of bitumen increased to 4.93 mt in 2013-14 from 4.67 mt in 2012-13, a yearon-year growth of 5.56 per cent. Region-wise, the consumption of bitumen during 2013-14 was the highest in western India, which accounted for 30.53 per cent of total consumption. This was followed by the northern region at 28.29 per cent, southern region at 26.23 per cent, eastern region at 12.81 per cent, and north-eastern region at 2.12 per cent. Owing to higher consumption, India has resorted to importing bitumen, with the import figure rising drastically in 2013-14. The price of bitumen has also shown an upward trend over the past few years. The main demand driver for bitumen is expected to be the infrastructure sector, with the majority of demand from the road sector. According to India Infrastructure Research, construction opportunities to the tune of about Rs 1,700 billion exist in Indian highways. The Ministry of Road Transport and Highways (MoRTH) plans to develop a total of 66,117 km of roads under various programmes. However, the MoRTH has decided to use cement in the construction of upcoming road projects as long as the cost difference is not more than 20 per cent more than that of a road constructed using bitumen.

Conclusion The Union Budget 2014-15 has laid considerable focus on fast tracking infrastructure development. The renewed thrust on infrastructure development, along with some signs of economic recovery, bodes well for the construction material industry. Efforts from the government are required to expedite approval procedures for implementation of infrastructure projects. At the same time, ways of enhancing production of construction materials need to be explored to prevent rising demand from inflating import bills. ◗

New Report

Mining in India 2015 India Infrastructure Research (publisher of Indian Infrastructure magazine) is currently developing and will soon release the sixth edition of “Mining in India” report, the most comprehensive and up-to-date study on the mining segment in India. The Indian mining industry has been on a downturn over the past few years. Recent policy and regulatory developments hold the promise of taking the sector on the growth path again. “Mining in India 2015” provides a comprehensive overview of the mining sector in the country. Key recent developments such as de-allocation of captive coal blocks and partial lifting of iron ore mining ban that are expected to have a significant impact on the sector will be analysed in detail. The report examines the key trends and presents the outlook for the sector. It also profiles the key players and analyses the upcoming mining projects. The 2015 edition will have 4 distinct sections: Section I: Macro Analysis: Overview, Recent Developments, Emerging Policy Scenario, Focus on Coal Mining, Key Players and Industry Performance, Factors Impacting the Mining Sector, Future Outlook, Financing and Cost Economics, Equipment Market, Environmental Issues Section II: Trends in Key Minerals: Coal, Lignite, Bauxite, Iron Ore, Other Metallic Minerals, Non-Metallic Minerals Section III: Company Profiles: Each profile will include production trends, project announcements and initiatives, recent contracts, expansion plans, financial performance. Section IV: Mining Projects: Review of major mining projects proposed and under development - Mineral-wise Analysis of Project Pipeline (developer, capacity, cost, location, current status and expected completion), Projects by Stage and Projects by State. The report is priced at Rs 50,000 (plus 12.36 per cent service tax) for a Site Licence and Rs 75,000 (plus 12.36 per cent service tax) for an Enterprise Licence. The report along with a presentation in PDF format will be ready by end-February 2015.

To order a copy, please send a cheque or draft payable to “India Infrastructure Publishing Pvt. Ltd.” and mail to: Meha Anand Assistant Manager, Information Products Tel: +91-11-41688614(D), Fax: +91-11-26531196 Mobile: 91-9953572299 Email: meha.anand@indiainfrastructure.com India Infrastructure Publishing Pvt. Ltd., B-17, Qutab Institutional Area. New Delhi - 110 016, India

>>special section: Construction

Equipment Market Government’s emphasis on infrastructure to drive growth he demand for equipment has declined over the past few years owing to the slowdown in construction activity. Badly hit sectors include highways, power, railways, ports and mining. However, now that a new government is in power, equipment manufacturers are upbeat about a general economic recovery and a turnaround of the infrastructure sector in particular. Hence, they are planning or have already undertaken capacity expansions. This is largely on the back of government’s stated emphasis on fasttracking infrastructure development. The construction equipment market is monopolised by a few large players in the organised segment. However, after-sales service and components are largely provided by small players in the unorganised segment. Currently, earthmoving and road machinery dominate the construction equipment industry with about two-thirds share in total sales of construction equipment. The rental and leasing segment is experiencing high growth on account of the constrained financial position of developers and the easy availability of a wide range of construction equipment.

Equipment categories The construction equipment industry consists of four broad segments. These are earthmoving equipment, construction vehicles, material handling equipment, and other construction equipment. About one-third of the construction machinery comprises earthmoving equipment, including backhoe loaders (front shovel/bucket backhoes and small backhoes), excavators, loaders, graders, dozers, and wheeled shovels. The second most widely used type of machinery includes concrete equipment like asphalt finishers, transit mixers, concrete pumps and batching plants. In the material handling segment, cranes constitute the largest category. Backhoe loaders are the most commonly 58 ❘ Indian Infrastructure ❘ January 2015

of construction equipment are present in India. BEML Limited (erstwhile Bharat Earth Movers Limited), is the only public sector company in the construction equipment industry in India. The key private equipment manufacturers include Caterpillar, JCB India Limited, Greaves Cotton Limited, Escorts Construction Equipment Limited, and Volvo Construction Equipment. Partnerships with global majors have provided domestic construction equipment companies access to advanced technology and experience in project management. Consequently, local players have also undertaken significant manufacturing capacity additions, besides venturing into new product segments.

Production sales and capacity addition

used equipment and accounted for about 50 per cent of total construction equipment sales in 2013. This is mainly because first-time and small-scale contractors want to own the equipment within five to seven years of operation and as such backhoe loaders are the best choice to execute projects. Notably, the share of backhoe loaders has increased significantly since 2009, while the share of crawler excavators has declined.

Equipment manufacturers The construction equipment industry in India is highly fragmented. On the one hand there is the organised segment, consisting of private firms and independent contractors, who operate on small, medium and large scales. On the other hand, the unorganised segment features many stand-alone private contractors who operate on a small scale. While the big players in the organised space (about 50 in number) account for about 90 per cent of the total industry revenue, the unorganised segment accounts for the remaining 10 per cent. The bigger players in the organised sector focus mainly on the assembly of the components supplied by the smaller players in the unorganised sector. Currently, 30-35 large and global manufacturers and about 200 small and medium manufacturers

Sales and production numbers have slowed down in the last few years. As per data from OffHighway Research, equipment sales (in terms of units) stood at 55,946 units during 2013 as against 66,156 units during 2012, a drop of about 15 per cent. However, India has emerged as a manufacturing hub for construction equipment. Currently, almost all the major foreign construction equipment players have either set up manufacturing units, or tied up with domestic players to access the Indian market, which is self-reliant and produces almost all categories of construction equipment. Equipment manufacturers continue to expand their production capacity. In November 2014, JCB India commissioned its fourth manufacturing facility in India, at Jaipur. This involved an initial investment of Rs 5 billion. Further, Caterpillar India’s $150 million Perkins engine manufacturing plant is coming up in Aurangabad, Maharashtra. This will start production in 2015 and roll out engines for gensets and original equipment manufacturers (OEMs). In April 2014, Schwing Stetter commissioned a manufacturing plant in Sriperumbudur, Tamil Nadu. Other key players that have announced their investment/expansion plans include Sandvik Asia, Sany Heavy Industry India, KYB Conmat, Electromech, and Tractors India Limited (TIL).

Export and import of equipment The Indian construction industry is heavily

Construction

dependent on imported products, primarily due to their cost effectiveness and favourable duty structure. Between 2012-13 and 2013-14, the import of machinery declined by 2 per cent, while the export level increased by 14.6 per cent. The import of construction equipment has been adversely affected by the fluctuations in foreign exchange rates. China remains a key source of imported machinery – primarily wheel loaders and dozers. The construction equipment industry exports a wide range of machinery to Indonesia, Malaysia, and several countries in Africa and South America. One of the major exporters is BEML Limited, which accounts for 80-85 per cent of total exports in value terms.

Renting and leasing of equipment Renting and leasing allow contractors and developers to save on capital-intensive machines. Since a variety of contractors are available, developers can concentrate on their core business and increase their projects’ internal rate of return (IRR). On the other hand, owners of equipment can earn returns on idle equipment, while saving on maintenance, repair and associated costs. The Indian equipment rental market comprises several small regional companies (with fleets of less than 10 units of equipment each) and only a handful of large players from the organised sector. About 10,000 rental companies are small players and fall in the unorganised segment. According to industry estimates, the top 10 rental players account for 30-40 per

cent of the total market. The big rental players include Gmmco Limited, Gemini Equipment and Rentals Private Limited (GEAR India), Quippo Infrastructure Equipment Limited and Sanghvi Movers Limited.

Issues and challenges The construction equipment market faces longstanding issues and concerns, which needs the urgent attention of all stakeholders. Apart from the slow growth rate of infrastructure development, there are several structural and regulatory issues facing the construction equipment market in India. One of the biggest issues is that the construction equipment industry is highly capital intensive and involves high manufacturing lead time. In addition, equipment manufacturers face the issue of high costs of borrowing and lower depreciation rates (about 15 per cent for this sector). Commercial banks and other nonbanking financial companies therefore need to offer innovative construction equipment financing schemes. Another issue is related to after-sales service by equipment manufacturers. Construction equipment manufacturers have not fully tapped the after-sales service market. Currently, revenue from after-sales service in India is 2-8 per cent, which is much lower than the global average of 12-20 per cent. This is primarily because of the easy availability of non-OEM spare parts and cheaper services offered by unorganised players. Other issues affecting the equipment market include lack of adequate skilled labour,

India’s export and import of earthmoving, construction and mining equipment (no.) 13,537 12,948

12,689

4,514

2011-12

2012-13

Source: Department of Heavy Industries

2013-14

2011-12

5,636

2012-13

6,460

2013-14

:special section<<

Production and sales of construction equipment in India (units) Year

Production

Sales

2008

42,847

46,113

2009

38,683

40,859

2010

55,992

59,130

2011

69,036

72,162

2012

66,835

66,156

2013

55,946

Source: Off-Highway Research

technology gap, and dumping of low-cost and inefficient equipment by foreign countries like China, South Korea and Hong Kong.

Future outlook Going forward, construction activity is expected to increase on the back of the government’s emphasis on fast-tracking infrastructure projects. In the next few years, investment to the tune of about Rs 12,500 billion has been envisaged for key infrastructure projects. These are in the railway sector (dedicated freight corridor, Delhi-Mumbai Industrial Corridor, etc.), road sector (National Highways Development Programme and state highway projects), ports and shipping, power, urban transport, and airports. In addition, demand for higher levels of mechanisation in mining operations, a key ingredient behind rising production, will lead to higher sales of mining equipment. This will directly benefit the construction equipment market, which is poised to grow at a compound annual growth rate (CAGR) of 19-20 per cent during the next five years. According to the Report of the Working Group on Capital Goods and Engineering Sector for the Twelfth Plan (2012-17), the market size of the earthmoving and mining equipment industry is expected to cross Rs 450 billion by 2016-17, growing at a CAGR of about 14 per cent during the plan period. The key categories that are likely to witness higher growth in demand include earthmoving equipment (backhoe loaders, crawler excavators, etc.) material handling equipment and road construction equipment. ◗ January 2015 ❘ Indian Infrastructure ❘ 59

Infrastructure Projects in Pipeline 2015 India Infrastructure Research (publisher of Indian Infrastructure and Power Line magazines) is currently developing and will soon release the second edition of “Infrastructure Projects in Pipeline” report. The 2015 edition of the report presents a comprehensive view of the upcoming projects across eleven key sectors – power, oil and gas, coal, renewable energy, roads and bridges, ports, airports, railways, urban transport, water supply and sanitation, and waste management. It further segments the pipeline by key project development stages – projects announced, awarded, under construction and completed. The report will have two sections with fourteen chapters: Section I: Overview: z

Executive Summary

Infrastructure Project Pipeline

Project Pipeline Analysis (by sector, ownership, state, promoter, contractor, etc.)

Section II: Project Pipeline Analysis by Sector: z

Roads and Bridges

Oil and Gas

Ports

Renewable Energy

Urban Transport

Coal

Railways

Water Supply and Sanitation

Airports

Waste Management

Power

eport

new r

Each sector will have a separate chapter providing details in terms of number of projects, investment size, capacity, pipeline by project stage, projects announced, projects awarded, projects under construction (expected completion in 2015-16/ 2016-17/ 2017-18), projects completed in 2014, outlook and projections. In addition, subscribers will receive three quarterly updates providing information on: z

New Projects

Financial Closures

Project Commissionings

Key New Developments (policy/market/finance)

Project Awards

Updated Project Pipeline

The report (along with the quarterly updates) is priced at Rs 60,000 (plus 12.36% service tax). There is also a special pre-publication early bird discount. The price is Rs 54,000 (plus 12.36% service tax) for orders and payments received on or before February 6, 2015. The report along with a PDF presentation will be ready in February 2015.

To order a copy, please send a cheque or draft payable to “India Infrastructure Publishing Pvt. Ltd.” and mail to: Raktima Majumdar Manager - Information Products B-17, Qutab Institutional Area, New Delhi-110016, India Tel: +91-11-46078365, 41034600, 41034601; Fax: +91-11-26531196 Mobile: 91-8826127521 Email: raktima.majumdar@indiainfrastructure.com Website: www.indiainfrastructure.com

infrastructure finance & insurance

:sector focus<<

Sector Focus

Infrastructure Finance & Insurance

Overview: Caution mixed with optimism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Policy and regulatory initiatives: New announcements to facilitate funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Debt financing: Tough scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Equity financing: Signs of revival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Stressed assets: Limiting the damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Financial closures: Muted activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Multilateral funding: Playing a critical role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Insuring infrastructure: Limited options but comprehensive coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Key statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

January 2015 â?&#x2DC; Indian Infrastructure â?&#x2DC; 61

>>sector focus: infrastructure finance & insurance

Overview Caution mixed with optimism inancing activity in the infrastructure sector has been low key for the past few years. Due to adverse factors ranging from a difficult macroeconomic environment to sector-specific issues impacting investment decisions, multiple projects have taken a hit. The paucity of funds and high interest rates have also been major bottlenecks. In the past year, the biggest positive development was the advent of a new government, which sent strong messages with regard to its commitment towards restarting the economic engine through infrastructure development. Infrastructure financing in the form of debt, primarily tapped through banks, infrastructure finance companies, external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) showed a decline during 2014-15 (April-December) compared to the corresponding period of the previous fiscal

62 ❘ Indian Infrastructure ❘ January 2015

year. Bank credit contributes the lion’s share in total credit flow to infrastructure projects. Banks extended loans to the tune of Rs 475 billion to the sector in 2014-15 (April-December), a decline of 26.81 per cent over the Rs 649 billion in the corresponding period of 2013-14. The grim lending scenario was an outcome of the cautious approach adopted by lenders, given rising non-performing assets (most of which are infrastructure related) and a large number of debt restructuring cases. Infrastructure finance companies too remained wary of on-lending funds to projects. Key players such as IDFC Limited, Srei Infrastructure Finance Limited, India Infrastructure Finance Company Limited, and the Housing and Urban Development Corporation together disbursed over Rs 237 billion in 2013-14 a reduction of nearly 40 per cent over the Rs 408 billion that was disbursed by these players in 2012-13.

Considering fund-raising through ECBs and FCCBs, funds to the tune of over $12.06 billion were raised by infrastructure companies during 2014-15 (April-November 2014), lower by 11 per cent from the corresponding figure of $13.56 billion in April-November 2013. Players in the oil and gas sector tapped nearly half of the total ECBs raised. Other sectors such as telecommunications and power also received significant ECB financing. A new source of debt financing, infrastructure debts funds (IDFs), which were touted to be a major source of debt for infrastructure projects, are yet to gain traction. A total of five such funds are operational at present. But they have financed only a couple of infrastructure projects thus far, lagging behind expectations. During the first nine months of 2014-15 (April-December), six projects worth over Rs 93 billion achieved financial closure. Of these, four projects worth about Rs 75.14 billion were in the road sector, one was in the renewable segment and one in the urban infrastructure space. Comparing the situation with the corresponding period in 2013-14 (AprilDecember), there is a big decline in investment value. During April-December 2013, 14

infrastructure finance & insurance

projects worth over Rs 600 billion secured financial closure. Sector-specific issues and overall investor diffidence towards infrastructure projects led to the reduction in closures. The scenario in equity financing too remained grim. In 2014-15 (April- December), 11 deals worth over Rs 45.25 billion were witnessed. This fell significantly short of the 12 deals worth over Rs 87 billion in the corresponding period of 2013-14. In the entirety of fiscal year 2013-14, there were 13 deals worth over Rs 89 billion. However, investor sentiment improved after May 2014, when the new government assumed charge. This led several investors to book profits and exit their initial investments. In 2014-15 (till December), 9 PE investors exited investments. Sector-wise, a maximum of six transactions were witnessed in the diversified sector. Of the remaining three, two exits were in the telecommunications sector and one was in the ports and shipping sector. The improved landscape was also reflected in capital market activity, wherein more infrastructure companies tapped equity financing. In 2014-15 (till December), 14 companies carried out qualified institutional placement (QIP) transactions, raising over Rs 140 billion. In 2013-14, only the IIFCL Mutual Fund Infrastructure Debt Fund resorted to the QIP route for raising Rs 3 billion. Moreover, a few players, such as VRL Logistics Limited, toll management firm MEP Infrastructure Limited, Sadbhav Infrastructure Limited and PNC Infratech, filed documents for initial public offerings (IPOs). Equity fund flow through foreign direct investment (FDI) also picked up owing to more upbeat business sentiments, along with some signs of recovery in Gross domestic product growth. In the present fiscal year (till October 2014) over $4,575 million of FDI equity inflows towards infrastructure was witnessed. This was much higher than the $2,996 million witnessed in the entirety of 2013-14. Meanwhile, lending activity by international and multilateral financiers plunged. During the first nine months of 2014-15 (AprilDecember), loans from multilateral agencies

were provided to 12 infrastructure projects worth over $3.48 billion. These were in sectors such as renewable energy, power, urban infrastructure and roads. With regard to the number of projects financed, the Asian Development Bank supported seven projects; the World Bank two projects, Japan International Cooperation Agency one project, and International Finance Corporation two projects. This was in contrast to 23 projects worth $6.7 billion provided lending support during the previous fiscal’s corresponding period. During the entire 2013-14 fiscal, 31 projects received debt worth $10.21 billion from these multilateral and international financing agencies.

Outlook: Hopes pinned on policy and regulatory reforms In a bid to facilitate the flow of funds towards infrastructure projects, a slew of policy and regulatory measures have been announced. The reform process gained steam after the new government came to power. Some long-pending issues such as land acquisition, and environmental and forest clearances have received due attention. Presidential assent for amendments to the Right to Fair Compensation and Trans-

The biggest positive development was the advent of a new government, which sent strong messages with regard to its commitment towards infrastructure.

:sector focus<<

parency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was a major breakthrough. The changes introduced will allow fast track processing of land acquisition across a multitude of infrastructure sectors. A number of steps have also been taken on the recommendations of a committee established for the purpose of reviewing processes for the requisite green clearances. The easing of the FDI policy for several segments of the railway sector was another major development witnessed in the past year. Several proposals under the Union Budget 2014-15 were also for increasing investments in infrastructure. These proposals pertained to setting up of infrastructure investment trusts (InvITs), which would have “tax efficient passthrough” status, for public-private partnerships and other infrastructure projects. These structures, expected to attract funds from domestics and foreign sources, would reduce the pressure on the banking system while also making available fresh equity for projects. The Reserve Bank of India introduced a number of measures to ease infrastructure financing for the banking sector, which is collectively the largest infrastructure lender. Banks were permitted to extend long-term loans with an option of refinancing every five to seven years, with exemptions from the normal regulatory pre-emptions to raise funds through long-term bonds, relaxed norms for take over of infrastructure loans, and early detection of loan default where among the significant changes introduced by the central bank.

Conclusion On the policy front, a number of significant developments would be positive for attracting funds for infrastructure projects. Two major sources of long-term funds, such as insurance and pension funds, remain untapped. Fundraising through bonds too remains tardy, with only a handful of players resorting to this route. Thus, this area warrants policy attention. Steps taken towards enhancing project viability will guide investments in the future, while helping the economy grow faster via the multiplier effect imparted by good infrastructure. ◗ January 2015 ❘ Indian Infrastructure ❘ 63

>>sector focus: infrastructure finance & insurance

Policy and Regulatory Initiatives New announcements to facilitate funding he financing scenario for infrastructure projects has been difficult in recent times. The government has now taken some important long-pending steps aimed at facilitating the flow of long-term funds. A look at some major policy and regulatory measures in the past year that would facilitate investments into infrastructure projects… ● The government replaced the Planning Commission with the National Institution for Transforming India [NITI] Aayog, which will serve as the government’s “think tank” for policymaking and related issues. NITI Aayog will serve the government at both the central and state levels, with relevant strategic and technical advice across the spectrum of key policy elements. It will also seek to end slow and tardy policy implementation by fostering better inter-ministry and centre-state coordination. ● Land acquisition for projects has been a perennial issue that has deterred investors. To address this, the Right to Fair Compen-

64 ❘ Indian Infrastructure ❘ January 2015

●

sation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was introduced, which was put into effect on January 1, 2014. However, several clauses continued to adversely affect the land acquisition procedure, resulting in amendments to the act in December 2014. The changes allow a fast-track process for several sectors – rural infrastructure (including electrification, housing for poor including affordable housing), industrial corridors and infrastructure projects (including projects taken up on public-private partnership basis, where ownership of land continues to be vested with the government). An ordinance to this effect was passed by the cabinet and subsequently secured Presidential assent. This is expected to bring relief to a number of stalled projects, especially in rural areas, where there are holdups are due to land acquisition-related issues. The ordinance could also beef up investor interest in such projects. Securing environmental clearance is another

major hurdle in the way of cost-effective and timely project execution. In August 2014, the government formed a committee headed by former cabinet secretary T.S.R. Subramanian to review and suggest changes to major environment laws such as the Environment (Protection) Act, 1986; Forest (Conservation) Act, 1980; Wildlife (Protection) Act, 1972; Water (Prevention and Control of Pollution) Act, 1974; and the Air (Prevention and Control of Pollution) Act, 1981. The committee submitted its report in November 2014. According to a recent report of the World Bank, at the executive level, orders have been passed to ease environmental clearance procedures. The Expert Appraisal Committee, the statutory body that recommends environmental clearance, has been barred from seeking additional environmental impact studies in the final (second) stage of clearance procedures. Also, the acquisition of land is no longer a necessary condition for environmental clearance; proof of

infrastructure finance & insurance

●

land acquisition proceedings will suffice. This is a significant development with regard to projects that fail to fetch funds from investors due to pending green clearance. The banking sector, which is the lead financier of infrastructure projects, also saw several reforms. In a recent measure witnessed in December 2014, the Reserve Bank of India (RBI) allowed banks to flexibly structure existing project loans – to infrastructure and core industries – with the option to periodically refinance these. Banks have been permitted to refinance project term loans periodically (say, every five to seven years) after the project has commenced commercial operations. The apex bank has also made it easier for banks to raise funds through long-term bonds. These bonds will be exempt from regulatory preemptions, such as cash reserve ratio, statutory liquidity ratio and priority sector lending. In February 2014, the apex bank relaxed norms for banks to take over infrastructure loans, by allowing such loans to be treated as standard assets even if they are rescheduled. In January 2014, the central bank laid down rules for early detection of loan default. Meanwhile, addressing the problem of rising NPAs in the banking sector (a major share of NPAs consist of loans to power projects), the government established a committee headed by S.B. Nayar, to explore ways to turn viable projects around. The committee submitted its recommendations in November 2014. Among the 23 suggestions are those pertaining to long-term fuel linkage, regulated tariff regime, pass-through of increasing fuel cost, and financial package for projects stranded owing to fuel shortage. In order to ensure speedy completion of viable projects, the committee has also stressed the need for the necessary financial support, coupled with longer amortisation of debt repayment and a long-term fuel supply mechanism. On the foreign direct investment (FDI) front, the government has eased norms for investment in several railways areas. In August 2014, the government allowed 100 per cent private investment and FDI under the auto-

●

matic route in rail infrastructure (other than construction, operation and maintenance. The eased FDI policy includes areas such as suburban corridor projects through PPP, high speed train projects, dedicated freight lines, rolling stock including train sets, and locomotive/coach manufacturing and maintenance facilities, railway electrification, signalling systems, freight terminals, passenger terminals, infrastructure in industrial parks pertaining to railway lines/sidings including electrified railway lines and connectivity to main railway lines, and mass rapid transit systems. The move will facilitate private investment including FDI inflows into infrastructure projects, including the elevated rail corridor project in Mumbai, high speed train projects, port connectivity projects, dedicated freight corridors, logistic parks, station development, locomotive manufacturing units and power plants. Investments through PPPs would not only infuse much-needed capital but also help introduce new technology and global best practices. In the Union Budget 2014-15, the government proposed setting up infrastructure investment trusts (InvITs), which would have “tax efficient pass-through” status, for PPPs and other infrastructure projects. These structures, expected to attract funds from domestic and foreign sources, would reduce the pressure on the banking system while also making available fresh equity for projects. The norms for InvITs are expected to be finalised by the Securities and Exchange Board of India (SEBI) in August 2014. The budget also proposed the establishment of 3P India, an institution with a corpus of Rs 5 billion that would provide support to mainstreaming PPPs. The Indian government along with 20 other counterparts, signed an inter-governmental MoU on establishing the Asian Infrastructure Investment Bank (AIIB) in Beijing. By signing the MoU, India has become eligible to participate in the negotiations for arriving at mutually acceptable articles of agreement to constitute this bank. The AIIB, aimed at financing infrastructure projects in the Asian continent, is likely to benefit India by providing access to

●

:sector focus<<

resources for the financing of national and cross-border infrastructure projects. The government also revealed its plans to establish two separate asset reconstruction companies (ARCs) to salvage companies in the power and road sectors from bad debts. The ARCs would facilitate the revival of stalled road and power projects. In addition, the creation of a Rs 500 billion-equity fund for the power sector is also under way, which will ensure financing to ensure 24x7 electricity supply in certain parts of the country. To ease tapping of funds from the capital markets, SEBI has expanded the eligibility of firms, which can come out with a shelf prospectus by adding entities making public issues of tax-free bonds, that is, infrastructure debt funds and non-banking financial companies. A shelf prospectus enables frequent issuers of securities to raise money without having to file a separate prospectus for regulatory clearance for every issuance. It shortens the clearance process, making it easier for firms to raise money. Another important reform pertained to the easing of norms for unlisted companies (including those present in the infrastructure sector) to raise capital from overseas. The extant FDI policy was modified to allow unlisted companies to raise capital abroad without the requirement of prior or subsequent listing in India initially for a period of two years. The modification is subject to a number of conditions. India Infrastructure Finance Company Limited (IIFCL) has been allowed to act as the sole lender for a project after the exit of other bankers funding the same project. Earlier, IIFCL could only lend as part of a lenders’ consortium, which would extend loans only for the first eight years of the 2025-year concession period for projects valued at Rs 30 billion and above. Project developers had to approach 12-15 banks since each bank has exposure limits of Rs 22.5 billion (except the State Bank of India). IIFCL may now lend even in the later years of the concession period, thereby offering a longer repayment period to developers. ◗ January 2015 ❘ Indian Infrastructure ❘ 65

>>sector focus: infrastructure finance & insurance ly less than the previous fiscal’s (2012-13) disbursal of Rs 1,106.14 billion. The annual data depicted a flat trend in the extension of bank credit to the infrastructure sector during 2012-14, coinciding with the period of feeble macroeconomic growth.

Debt Financing Tough scenario typical infrastructure project relies on debt to finance close to three-fourths of the total project cost. The majority of this is usually sourced via the banking sector and infrastructure finance companies (IFCs), with the rest being met through external commercial borrowings (ECBs). The past one or two years have been marked by a tough macroeconomic scenario. This has impacted the stance of debt financiers towards the infrastructure sector, which is among the most badly hit due to weak economic growth. Other factors such as a volatile rupee, execution delays, and elevated interest rates continue to impact the debt financing scenario for projects. This is reflected by a decline in exposures funding by all major debt financiers. Indian Infrastructure takes a look at the trend of debt financing of infrastructure over the past 10-12 months…

Bank credit Most of the debt financing requirements of the infrastructure sector are met through bank credit. Both public and private sector banks have around 15 per cent (average figure) of their total exposure in infrastructure sectors. Some key banks that are actively involved in lending to the infrastructure sector are the State Bank of India, ICICI Bank, Axis Bank, Bank of Baroda, Punjab National Bank, IDBI Bank and Syndicate Bank. While lending funds to such long-tenure projects, banks face a serious issue of asset-liability mismatches. This has resulted in rising non-performing assets, which is an especially grave issue in the case of public sector banks. During 2014-15 (April-November), the banking sector extended loans to the tune of Rs 475 billion to the infrastructure sector. This was a decline of 26.81 per cent over the Rs 649 billion loaned in the corresponding 66 ❘ Indian Infrastructure ❘ January 2015

period of 2013-14. Considering sector-wise exposure, the maximum share was cornered by power and roads. Of the cumulative exposure as of November 2014, 60 per cent pertained to the power sector, 19 per cent to the road sector, followed by 10 per cent of the funds extended to telecommunications, and the remaining 12 per cent to other infrastructure segments. This trend was similar to that in the corresponding period of 2013-14. The decline in bank credit during the period under consideration was largely on account of sector-specific issues that prevented infrastructure projects from qualifying as “viable”. For instance, the power sector, which is the largest absorber of bank credit, suffered due to the lack of coal availability. In the road sector, bidder interest was low, and the public-private partnership (PPP) model was put on the back burner, resulting in few projects seeking funds. Considering the entire fiscal year 201314, a total of Rs 1,100 billion was extended to the infrastructure sector, which was marginal-

Infrastructure finance companies IFCs are important debt financiers. During 201314, key players such as IDFC Limited, Srei Infrastructure Finance Limited, India Infrastructure Finance Company Limited (IIFCL), and the Housing and Urban Development Corporation (Hudco) together disbursed over Rs 237 billion across sectors. This was nearly 40 per cent less than the Rs 408 billion disbursed by them in the previous fiscal. The decline in on-lending by IFCs has been a result of challenges in the operating environment over the past few quarters, which has impacted risk appetite. While the lack of longterm funds was always a challenge for IFCs (barring public sector IFCs), the large level of vulnerable accounts, increases in interest costs and rupee depreciation posed add-itional challenges.

External commercial borrowings In recent years, ECBs have emerged as an important source of debt for projects. These

Bank credit to the infrastructure sector (Rs billion) 1,467.25

1,500 1,400 1,300 1,200 1,100

1,098.94

1,000 900

1,106.14

1,100.00

2012-13

2013-14

924.75 2009-10

Source: Reserve Bank of India

2010-11

2011-12

>>sector focus: infrastructure finance & insurance Top 10 ECB raising companies in 2014-15 (April-November) Borrower

Amount raised ($ million)

Purpose

Month

Sector

ONGC Videsh Limited

2,211.50

Refinancing of earlier ECB

July 2014

Oil and gas

Reliance Jio Infocomm Limited

1,000.00

Refinancing of earlier ECB

November 2014

Telecom

Reliance Jio Infocomm Limited

750.00

Rupee expenditure

October 2014

Telecom Oil and gas

India Oil Corporation Limited

650.00

Refinancing of earlier ECB

June 2014

Reliance Industries Limited

550.00

Import of capital goods

April 2014

Oil and gas

Suzlon Energy Limited

546.92

Refinancing of earlier ECB

July 2014

Renewable energy

Oil India Limited

500.00

Refinancing of earlier ECB

April 2014

Oil and gas

Oil India Limited

500.00

Refinancing of earlier ECB

April 2014

Oil and gas

Reliance Jio Infocomm Limited

500.00

Refinancing of earlier ECB

November 2014

Telecom

NTPC Limited

500.00

Power

November 2014

Power

Source: Reserve Bank of India

instruments facilitate long-term funding at lower interest rates but there is currency risk in case of rupee depreciation. The interest differential between domestic and overseas rates favours the tapping of overseas funds if currency risk can be tolerated. During 2014-15 (April-November), over $12.06 billion was raised by infrastructure companies through ECBs and foreign currency convertible bonds (FCCBs). Of this, $8.11 billion was raised through the automatic route and the remaining $3.94 billion was raised through the approval route. The total amount raised was 11 per cent lower than the corresponding figure of $13.56 billion in the same period of the previous fiscal. During the entire year 2013-14, fund-raising through ECBs and FCCBs amounted to $24.5 billion. Sector-wise, nearly half of the amount raised via ECBs was sourced by oil and gas companies. These included players such as Oil India Limited, Reliance Industries, Hindustan Petroleum, and Essar Oil Limited. Players in the telecommunications sector accounted for nearly 20 per cent of the total ECB fundraising; the power sector tapped 10 per cent, followed by infrastructure financing (8 per cent), renewable energy and aviation sectors (nearly 5 per cent each), diversified players (about 4 per cent), and roads and logistics players accounted for the remaining 1 per cent. The tenure of funds ranged from one year to 16 years. Apart from financing business plans, 68 ❘ Indian Infrastructure ❘ January 2015

Lending by key NBFCs (Rs billion) Name IDFC Limited

2009-1 10

2010-1 11

2011-1 12

2012-1 13

2013-1 14

129.61

267.03

184.04

176.96

29.59

Srei Infrastructure Finance Limited

90.17

124.97

186.00

107.99

79.00

IIFCL

50.95

53.49

50.19

62.38

54.82

Hudco

30.98

51.05

69.05

60.79

74.38

Total

301.71

496.54

489.28

408.12

237.79

Source: Financial documents of the respective players

many companies resorted to fresh ECBs to refinance earlier ECBs.

Limited success of IDFs Infrastructure debts funds (IDFs), which were touted to be a major source of debt for infrastructure projects, are yet to gain traction. Currently, among non-banking financial companies, two IDFs are operational, namely, India Infradebt Limited and L&T Infra Debt Fund (L&T IDF). Under the mutual funds framework, three IDFs are operational. These are promoted by IL&FS, IIFCL, and Srei Infrastructure Limited. A noteworthy IDF-related deal was India Infradebt’s Rs 500 million tripartite loan pact for the Zirakpur-Parwanoo highway with Himalayan Expressway Limited, promoted by the Jaypee Group. Meanwhile, the investments of IL&FS include those in non-convertible debentures of hydropower projects. The remaining IDF investments, including those of IIFCL, are in certificate

deposits and fixed deposits of banks. It has been highlighted that IDFs (under the NBFC framework) are finding it tough to acquire assets as the original lenders (primarily banks) are not willing to sell them, after having assumed the maximum project risk at the beginning of the loan tenure. Under the mutual fund route, investment appetite is questionable, given the rating issues of projects.

The way forward Debt financiers have adopted a cautious approach towards infrastructure in the recent past. While there has been an improvement in investor sentiment after the coming of the new government, the impact of policy measures addressed to make the sector “investor-inviting” would only be visible over the medium term. Concerted efforts from all stakeholders towards enhancing the viability of projects will be a key determinant of the quantum of investment flows, be it as equity, or as debt. ◗

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>>sector focus: infrastructure finance & insurance

Equity Financing Signs of revival quity financing is often considered the barometer of investor sentiment towards the infrastructure sector. It meets around one-third of the total cost of a typical infrastructure project. In the past few years, macroeconomic factors such as feeble economic growth, policy lags, and issues pertaining to project execution have impacted equity investors’ decisions to a large extent. During 2014-15 (till December 31, 2014), the trend in private equity (PE) deals in the infrastructure sector remained flat. However, the change in government at the Centre in May 2014 sparked investor optimism and the resultant higher valuations tempted a number of PE investors to cash out their investments and book profits through exits. Another outcome was a surge in activity in the capital markets, where a number of infrastructure companies resorted to equity raising funds via the qualified institutional placement (QIP) route.

Indian Infrastructure analyses the trend in infrastructure financing through equity…

PE deals Overall, infrastructure financing through PE deals has largely remained flat for several years after a peak during financial years, 2009-12. In 2014-15 (till December), there were 11 deals worth Rs 45.25 billion. This was significantly less than the over Rs 87 billion raised from 12 deals in the corresponding period of 2013-14. In the entire financial year 2013-14, there were 13 deals worth over Rs 89 billion. A sector-wise analysis of PE deals in infrastructure during the current fiscal year shows

that the maximum deals (five) were in renewable energy. Two deals each were concluded in telecommunications and logistics, while power and “diversified” reported one deal each. Considering deal value, the renewable energy sector cornered the maximum, Rs 21.38 billion through the five deals. However, considering all transactions, the top deal was witnessed in De-cember 2014, when the Canada Pension Plan Investment Board completed an investment of Rs 10 billion in Larsen & Toubro Infrastructure Development Projects Limited (L&T IDPL). During 2013-14, 13 deals worth over Rs 89 billion were seen. However, a major chunk of this pertained to the Rs 67.96 billion deal where Qatar Foundation Endowment invested in Bharti Airtel. While the renewable energy sector remained an investor favourite (witnessing five deals worth over Rs 13 billion), other sectors that witnessed PE activity included power, urban infrastructure, logistics, ports and roads.

Exits The advent of the new government that assumed charge in May 2014 gave a fillip to investor sentiment, which also had a positive impact on the infrastructure sector. In 201415 (till December), nine PE investors exited

Sector-wise PE deals in the infrastructure sector during 2014-15 (April-December) Investor

Target

Value (Rs billion)

Sector

Kedaara Capital

Mahindra Logistics

2.00

Aspada Investment Company

Schedulers Logistics

0.13

Logistics Logistics

Asian Development Bank (ADB)

Welspun Renewables Energy

3.10

Renewable energy

Standard Chartered Private Equity Limited

Sterlite Power Grid Ventures Limited

5.00

Power

Goldman Sachs, ADB and Global Environment Fund

ReNew Power Ventures

8.35

Renewable energy

Core Infrastructure India Fund Private Limited and

SolarArise India Projects Private Limited

2.00

Renewable energy

Global Energy Efficiency and Renewable Energy Fund EIG Global

Greenko

7.93

Renewable energy

IFC, Goldman Sachs Asset Management,

Tikona Digital Networks Private Limited

2.85

Telecom

Oak Investment Partners, Everstone Capital and L&T Infrastructure Finance Company Limited Canada Pension Plan Investment Board

L&T IDPL

IFC

Idea Cellular

GE Energy Financial Services

Atria Power

NA: Not available Source: India Infrastructure Research

70 ❘ Indian Infrastructure ❘ January 2015

10.00 3.89 NA

Diversified Telecom Renewable energy

infrastructure finance & insurance

investments. Sector-wise, six such transactions were witnessed in the diversified sector. Two exits were in telecommunications and one in ports and shipping. The largest profits were booked by Providence, Rhode Island, that sold part of its holdings in Idea Cellular. It sold a 2.3 per cent stake to realise Rs 14.14 billion via an open market transaction. The partial exit translated into 3x returns on its eight-year-old investment, thereby marking an internal rate of return of 15 per cent in local currency (excluding dividends). In the previous fiscal year, four PE exits were seen with one each in the road, renewable energy, logistics, and telecom sectors. In terms of realisations, a maximum of Rs 1.5 billion was realised by the International Finance Corporation (IFC) from Samson Maritime Limited.

QIPs In recent months, the QIP route has gained popularity among infrastructure companies for tapping equity financing. Developments such as change in government, a slew of significant policy announcements, and signs of recovery in economic growth have led to positive investor sentiment. Until some months back, stretched balance sheet pressures coupled with factors like high interest rates, volatile markets, policy laggards and macroeconomic slowdown kept most infrastructure firms away from the equity market. In 2014-15 (till December), 14 companies carried out QIP transactions, raising over Rs 140 billion. Of these, eight are diversified

:sector focus<<

PE exits in 2014-15 Investor

Company

Sector

Realisation

Beacon India Private Equity Fund

NCC Limited

Diversified

Rs 70 per share

HDFC

Reliance Ports and

Ports and

Terminals Limited

shipping

ChrysCapital

Gammon India

Diversified

Rs 300 million

ChrysCapital

NCC Limited

Diversified

Rs 552 million

Providence

Idea Cellular

Telecom

Rs 14,140 million

Temasek

Bharti Infratel

Telecom

$90 million

StanChart PE

Man Infraconstruction

Diversified

Rs 360 million

Temasek

Shriram Transport

Diversified

Rs 3,100 million

Sequoia Capital

Pratibha Industries Limited

Diversified

Source: India Infrastructure Research

players, two each are in the telecommunications and power sectors, and one each in the infrastructure finance and railway sectors. Based on the quantum of funds raised, the top QIP transaction was carried out by Reliance Communications which secured funds to the tune of Rs 48 billion. In 2013-14, only IIFCL Mutual Fund Infrastructure Debt Fund resorted to the QIP route raising Rs 3 billion. Infrastructure companies such as Adani Ports and Special Economic Zone Limited and Alstom T&D India Limited carried out initial public placements (similar to QIP, but carried out to reduce the promoter’s shareholding in the company).

IPOs While fund-raising through initial public offerings (IPOs) has remained dry for a long time now, some fund-raising through this route is on the anvil with a number of infrastructure play-

ers heading to the capital markets. In 2014, a bunch of infrastructure companies such as goods and passenger transport services provider VRL Logistics Limited, toll management firm MEP Infrastructure Limited, Sadbhav Infrastructure Limited and PNC Infratech filed documents for public floats.

FDI equity flows In recent years, equity financing through the foreign direct investment (FDI) route has emerged as an important source of funding. General investor optimism towards the Indian economy in 2014-15, especially after the general elections, facilitated the flow of funds through this route towards the infrastructure sectors. Till October 2014, there was a total of over $4,575 million of FDI equity inflow towards infrastructure sectors. This was much higher than the $2,996 million that was witnessed throughout 2013-14.

FDI inflows in infrastructure ($ million) The way forward Sector

2013-1 14

2014-1 15 (till October)

Power

1,066.08

486.29

Non-conventional energy

414.25

414.14

Petroleum and natural gas

112.23

1,021.03

1,306.95

2,470.99

Telecommunications Air transport

45.98

46.54

Sea transport

20.49

134.45

Ports

0.32

1.90

Total

2,966.30

4,575.34

Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry

The focus on infrastructure development is desirable to restart the economic growth engine. The new government has managed to impart some impetus and turned sentiment around. This is reflected in the heightened activity in the capital markets and higher FDI flows. While PE investments are yet to gain much momentum, conducive policy measures and the resolving of long-pending issues pertaining to the infrastructure sector will be the ultimate determinants of future sentiments. ◗ January 2015 ❘ Indian Infrastructure ❘ 71

>>sector focus: infrastructure finance & insurance

Stressed Assets Limiting the damage

he weak economic environment, high interest rates, and delays in securing statutory approvals such as environmental clearances and land acquisition have obstructed the timely execution of many infrastructure projects in the last two years. This has delayed the cash flows of developers and impeded their ability to meet their financial obligations. As a result, many loans to the infrastructure sector have turned into stressed or non-performing assets (NPAs), weighing down the balance sheet of financiers. According to the Reserve Bank of India (RBI), the share of infrastructure in overall stressed assets increased from 8.4 per cent at the end of 2010-11 to 29.2 per cent by 201314. This was despite the fact that the share of advances to the infrastructure sector grew slowly during this period, from 13.5 per cent to 14.4 per cent. Over half of the stressed assets are in five sectors – infrastructure, iron and steel, textiles, mining (including coal), and aviation. About 24 per cent of total advances are extended to these sectors. One of the primary factors behind the

72 ❘ Indian Infrastructure ❘ January 2015

increasing number of stressed assets is poor appraisal of projects during a boom period. Additionally, macroeconomic factors such as poor demand, uncertain policy and regulatory framework, high inflation, poor business sentiment, and high interest rates compound the challenge. Moreover, sector-specific issues

play a key role in shaping the scenario of stressed assets. The issue of stressed assets has worsened for public sector banks (PSBs) over the years. According to the Ministry of Finance (MoF), the gross NPAs of PSBs rose to an alarming Rs 2,430.43 billion, as of September 2014, an

Efforts to contain stressed assets Taking cognisance of the alarming rise in the value of stressed assets, RBI has introduced a framework outlining a corrective action plan that offers incentives for early identification of stressed assets by banks, timely revamp of accounts considered to be unviable, and prompt steps for the recovery or sale of assets in the case of loans at risk of turning bad. The framework came into effect on April 1, 2014. It includes the following proposals: ●

Centralised reporting and dissemination of information on large credit

●

Early formation of lenders’ committee with timelines to agree on a plan for resolution

●

Incentives for lenders to agree collectively and quickly on a plan (better regulatory treatment of stressed assets if a resolution plan is under way, or accelerated provisioning if no agreement can be reached)

●

Independent evaluation of large value restructurings mandated, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors

●

More expensive future borrowing for borrowers who do not cooperate with lenders

●

More liberal regulatory treatment of asset sales.

infrastructure finance & insurance

increase of 19.4 per cent year on year. This is about 5 per cent of gross advances by PSBs. For private banks, gross NPAs were about Rs 263.89 billion as of September 2014. Sector-wise, the aviation industry saw the maximum rise in stressed assets as a percentage of total assets in the past few years. This is attributed to high fuel costs (due to taxes). Fuel costs account for about 40-50 per cent of the total operating costs of airlines in India. This is in contrast to the global average of about 30 per cent. This has significantly affected the competitiveness of the Indian air transport industry. In the case of telecommunications, companies have engaged in price wars due to fierce competition, resulting in the lowest voice tariffs in the world. In this scenario, compressed margins and an increased debt burden (due to aggressive bidding for spectrum) have resulted in an increase of stressed assets. The woes of the power sector are on account of lack of fuel to run power plants and non-remunerative tariffs. Apart from the poor financial health of the state electricity boards, coal supply issues continue to plague the sector. Some projects are also stalled due to environmental hurdles. Similarly, the road sector is marked by a high ratio of NPAs. As per the Ministry of Road Transport and Highways, about 260 projects worth over Rs 600 billion are currently stalled.

:sector focus<<

Industry-wise classification of live cases registered with the CDR Cell (Rs billion) Sector

As of September 2014

As of September 2013

% change

426.55

418.12

2.02

Power

310.36

172.25

80.18

Ship-breaking/Shipbuilding

114.46

67.32

70.02

Telecom

107.85

98.08

9.96

48.51

48.52

-0.02

3.33

2.00

6.50

Iron and steel

Petrochemicals Metals (non-ferrous) Source: Corporate Debt Restructuring Cell

Sale value of stressed assets to ARCs as of March 2013 and March 2014 (Rs billion) As of March 2014 Public sector banks

As of March 2013

121.0

3.2

Private sector banks

5.9

2.7

Foreign banks

0.1

1.7

127.1

7.6

Total Source: RBI

The aforementioned factors have significantly impacted the performance of the corporate sector as well. This is highlighted by the number of cases registered for corporate debt restructuring (CDR). As of September 2014, there were 286 live cases registered with the CDR Cell, with an aggregate debt value of Rs 2,623.6 billion. Among various infrastruc-

ture sectors, the power sector witnessed a substantial increase in the aggregate value of debt requiring restructuring between September 2013 and September 2014. Apart from this, banks have offloaded a larger number of stressed assets to asset reconstruction companies (ARCs) in the past two years. There was a huge rise in loan sales to ARCs during 2013-14, raising concerns. The figure increased from Rs 7.6 billion as of March 2013 to a humongous Rs 127.1 billion as of March 2014.

Outlook A very large share of NPAs currently pertain to the infrastructure sector. Some market studies indicate that the scenario may worsen in the future. According to a report published by India Ratings and Research (January 2014), stressed assets, including bad loans and restructured loans, are likely to increase to 14 per cent of total loans by March 2015. In order to limit this, addressing the issue of high NPAs has become one of RBI’s top priorities. Ensuring the better financial health of the Indian banking system would bolster confidence. ◗ January 2015 ❘ Indian Infrastructure ❘ 73

>>sector focus: infrastructure finance & insurance

Financial Closures Muted activity he slowdown of the past two years has resulted in weak investor sentiment. Policy lags and execution delays continue and the effect is that potential investors have become more cautious about committing funds to infrastructure projects. This is clearly reflected in the decline in the number of infrastructure projects that achieved financial closure in the past two years. However, since infrastructure is a key focus area for the BJP-led government, this trend is expected to reverse. Indian Infrastructure analyses trends in financial closures that have been reported across different sectors...

Decline in investment value According to India Infrastructure Research, during the first nine months of 2014-15 (AprilDecember), six projects worth over Rs 93 billion achieved financial closure. Of these, four projects worth about Rs 75.14 billion were in the roads sector, one was in the renewable energy segment and one in the urban infrastructure space. Comparing the situation with the corresponding period in 2013-14 (April-December), there is a big decline in investment value. During April-December 2013, 14 projects worth over Rs 600 billion secured financial closure. Across all of 2013-14, 16 projects worth over Rs 640 billion tied up funds. Of these, six projects were in the road sector, three in the renewable space, four in power, two in urban infrastructure, and one in the oil and gas space. Among these, the biggest project to tie up funds was the 1,200 MW power project at Tamar, Chhattisgarh, which is being implemented by Jindal Power Limited. The estimated cost of the project is Rs 77.4 billion. Most of the interest in the first nine months of 2014-15 (April-December) was in the road sector. The biggest project in value terms 74 ❘ Indian Infrastructure ❘ January 2015

entailed the development, operation and maintenance of a 12.5 km stretch on National Highway (NH) 1 in Jammu and Kashmir. The stretch comprises a 6.5 km long tunnel and approaches of 6 km. The estimated value of the project is Rs 32.89 billion. In August 2014, Shrinagar Sonmarg Tunnelway Limited, a special purpose vehicle of IL&FS Transportation Networks Limited, tied up a Rs 23.63 billion loan with ICICI Bank. Apart from this, one project in the renewable space and another in urban infrastructure achieved financial closure during 2014-15 (April-December). In a recent development, Welspun Renewables Energy Private Limited closed financing for its 126 MW wind project in Rajasthan in December 2014. The debt component was Rs 6.3 billion. With regard to the urban infrastructure sector project, the Gujarat International Finance Tec-City (GIFT City) project achieved financial closure for its Phase I infrastructure development in May 2014. The estimated cost of core infrastructure development in Phase I was Rs 18.18 billion. A consortium of banks is providing about Rs 11.57 billion. The remaining Rs 6.61 billion would come through equity and internal accruals over the next three years. While financial closures were seen in several sectors during 2013-14, the situation has changed in 2014-15 (April-December). Only

three segments – roads, renewables and urban infrastructure – could tie up funds during 201415 (April-December). No major project achieved financial closure in the aviation, ports and shipping, and urban mass transport segments.

Sector-specific issues impacting financial closures: Hopes pinned on policy measures Roads: With regard to the number of financial closures in the road sector, no major change was seen in 2014-15 (April-December), as compared with the corresponding period in the previous fiscal. The operating environment in the road sector continues to be tough. Several key issues related to decelerating global and domestic growth, land acquisition, environmental clearances, and stretched developer finances have adversely impacted project awards. This has led to subdued investor interest in both national highway and state road projects. Consequently, many projects have received only one or two bids, some awards have been cancelled and achieving financial closure has been difficult. In order to reverse this trend, the government has formulated new strategies and initiated various measures. For instance, the government has permitted commercial banks to raise long-term funds (for a minimum tenure of seven years) for the infrastructure sector. The amount raised is exempt from regulatory conditions like cash reserve ratio, statutory liquidity ratio and priority sector lending. Further, efforts have been made to ease the environmental clearance process. These include environmental and forest exemptions for road widening projects with a length of up to 100 km and projects near border areas. Another such initiative is the launch of an eclearance system for industrial and infrastructure projects. Power: The conventional power sector continued to witness low investor interest. No major project achieved financial closure in the first nine months of 2014-15 (April-December) as compared with three projects in the corresponding period during 2013-14. Upcoming

infrastructure finance & insurance

:sector focus<<

Key financial closures achieved in 2014 Project 189.6 km Goa/Karnataka border-Kundapur

Developer IRB Westcoast Tollway Private Limited

Month of financial closure (2014)

Estimated project cost (Rs billion)

Sector

January

26.39

Roads

four-laning project on NH-17 in Karnataka Kudgi power transmission line

L&T Infrastructure Development Projects Limited

February

13.50

Power

Chennai Outer Ring Road (ORR) project

GVR-Ashoka Chennai ORR Limited

April

14.40

Roads

Sambalpur-Rourkela road project

L&T Infrastructure Development Projects Limited

May

12.93

Roads

GIFT City project, Gujarat (Phase I)

GIFT

May

18.18*

Urban

98.71 km Solapur-Yedeshi four-laning project,

IRB Infrastructure Developers Limited

September

14.92

Roads Roads

infrastructure Maharashtra 12.5 km Srinagar-Sonmarg-Gumri road project

Srinagar-Sonmarg Tunnelway Limited

September

32.89

126 MW wind project, Rajasthan

Welspun Renewables Energy

December

Renewable energy

* Core infrastructure development Source: India Infrastructure Research

projects have been held up due to lack of clearances, inadequate fuel supply and delays in land acquisition. Additionally, the poor financial health of utilities has resulted in inadequate investments at the intra-state level. This in turn has led to congestion in transmission and distribution networks, which has restricted power transmission across regions. The Supreme Court, on August 25, 2014, declared the allocation of 218 captive coal blocks, made by the central government between 1993 and 2011, to be illegal, thereby ending months of speculation about irregularities in the coal block allocation process. The verdict on the cancellation of captive coal blocks plunged the sector into deep uncertainty, which is expected to adversely impact associated projects as well as investor sentiment. Taking cognisance of this, the government has announced a host of steps to improve investor sentiment. In a significant development, the government launched a portal for eauction of 23 coal mines in Phase I. This is expected to enable greater transparency in the mining sector. Additional measures to address policy bottlenecks in the power sector include the integration of the power, non-conventional and coal ministries. This would help align the goals of various energy ministries and improve coordination. Further, the proposed Electricity (Amendment) Bill, 2014 is expected to promote

competition, efficiency in operations and improvement in the quality of supply of electricity. While investor confidence had been the lowest in the power sector, measures such as the initiation of e-auction of coal blocks, and the proposed Electricity (Amendment) Bill, 2014 should improve sentiment. Renewable energy: The renewable energy sector continued to be a promising investment destination. The Indian renewable energy industry, which was mired in policy uncertainty, has seen a number of positive developments over the past year, thereby boosting investor confidence. For instance, tariff hikes in most states have encouraged developers to press on with their project investment plans, resulting in considerable capital inflow. Additionally, on account of the steady increase in conventional power tariffs, the cost competitiveness of renewable energy solutions vis-àvis conventional power has improved considerably over the past few years. Moreover, domestic banks and non-banking financial institutions have become more comfortable with providing funds to renewable energy developers. Falling project costs, improved project development expertise and a better-thanexpected performance of on-the-ground projects have changed domestic lenders’ perception of the clean energy sector.

Aviation: The aviation sector remains among the most beleaguered of all the infrastructure sectors. The pace of project execution, inordinate delays in project take-off, and the high quantum of investment requirements has made it unattractive for investors. Ports and shipping: No major project in the ports and shipping industry could tie up funds in the past two years when the industry was reeling under the pressure of a global economic slowdown. Additionally, there are issues such as land acquisition problems and low private interest. On the policy front, the government has initiated several measures to expedite the process of project implementation. These include the formulation of Guidelines for Land Management by Major Ports, 2013 and Policy Guidelines for Land Management by Major Ports, 2014. This is expected to improve investor sentiment.

Conclusion In light of inherent infrastructural bottlenecks, the number of financial closures remained low during the past several months. In order to boost sentiment, the government is actively announcing policy measures across all infrastructure sectors. The extent to which these measures will be successful in achieving the intended targets is a matter that is dependent on their efficient implementation and regulatory vigilance. ◗ January 2015 ❘ Indian Infrastructure ❘ 75

>>sector focus: infrastructure finance & insurance

Multilateral Funding Playing a critical role

he role of multilateral agencies in providing funding to various infrastructure projects in India has increased over the years. The four key international agencies are the World Bank, the Japan International Cooperation Agency (JICA), the Asian Development Bank (ADB) and the International Finance Corporation (IFC). These institutions provide lending support through a multitude of instruments, and with different structures, which are determined on a project-to-project basis. Indian Infrastructure discuses the current scenario for multilateral funding in terms of loans extended to infrastructure projects… During the first nine months of 2014-15 (April-December), loans from multilateral agencies were provided to 16 infrastructure projects worth over $3 billion. These were in sectors such as renewable energy, power, urban infrastructure and roads. Of the total amount of debt extended, the maximum share was that of the World Bank ($1.21 billion). This was followed by ADB ($1.45 billion), JICA ($257 million) and IFC ($73 million). ADB supported 11 projects, the World Bank two projects, JICA one

76 ❘ Indian Infrastructure ❘ January 2015

project, and IFC two projects. This was in contrast to 30 projects worth $4.96 billion that were provided lending support during the previous fiscal’s corresponding period. During the entire 2013-14 fiscal, 38 projects received debt worth $7.21 billion from these international financing agencies.

World Bank The World Bank funds infrastructure projects through loans and grants. The agency approves loans based on the developmental goals that the projects have set out to achieve rather than on pure financial considerations. The loans are extended through two lending organisations

Lending support by multilateral agencies to key infrastructure projects during 2014-15 (April-December) 1,600

1,448

1,400 1,200

1,207

12 Loan amount ($ million) 10

Number

1,000

800 600

400 200

257

0 World Bank

JICA

0 ADB

Source: Compiled from various multilateral agencies by India Infrastructure Research

IFC

infrastructure finance & insurance

Table 1: Key World

:sector focus<<

Bank-funded infrastructure projects in 2013-14 and 2014-15 (April-December)

Project

Sector

Approval date

Project cost ($ million)

Total commitment ($ million)

Implementing agency

May 2013

515.0

360.0

Irrigation Department,Government

Uttar Pradesh Water Sector Restructuring

Urban

Project (Phase II)

Infrastructure

Second Kerala State Transport Project

Roads

May 2013

445.0

216.0

Kerala State Public Works Department

Rajasthan Road Sector Modernisation Project

Roads

October 2013

227.0

160.0

Rajasthan Public Works Department,

National Highways Interconnectivity

Roads

October 2013

1,146.1

500.0

Ministry of Road Transport and Highways

of Uttar Pradesh

Improvement Project Second Gujarat State Highway Project

Roads

December 2013

323.0

175.0

Rural Water Supply and Sanitation Project for

Urban

December 2013

1,000.0

500.0

March 2014

1,440.0

165.0

Maharashtra Water Supply and

Low Income States

infrastructure

Maharashtra Rural Water Supply and

Urban

Sanitation Programme Project

infrastructure

Eastern Dedicated Freight Corridor – II

Roads

April 2014

1,650.0

1,100.0

Mizoram State Roads II – Regional Transport

Roads

June 2014

107.0

Sanitation Department Dedicated Freight Corridor Corporation of India Limited Government of Mizoram

Connectivity Project Source: World Bank

under the World Bank – the International Bank for Reconstruction and Development and the International Development Association. During the first nine months of 2014-15 (April-December), the World Bank committed an amount of about $1.2 billion for two infrastructure projects. Both these projects are in the road sector. This is a significant decline compared to 2013-14 (April-December), when the World Bank committed close to $1.9 billion for six infrastructure projects. During the entire 201314 fiscal, the bank provided funding worth $2.08 billion to seven key infrastructure projects. Details of major World Bank-funded infraTable 2: Key

structure projects during 2013-14 and 2014-15 (April-December) are given in Table 1.

IFC IFC is a lending arm of the World Bank which finances development projects in the private sector. During 2014-15 (April-December), IFC’s debt component was recorded at $73.04 million, which was extended to two projects in the renewable energy space. Compared to the corresponding period in 2013-14, the agency provided loans worth $67.77 million to three projects. Of these, two were in the renewable energy sector and one was in the logistics sector.

Overall, four projects worth $117.8 million received lending support through IFC during 2013-14. In the case of equity financing, IFC made investments worth $288.77 million in three infrastructure entities during 2014-15 (April-December). Of these, the biggest equity investment $199.11 million was made in Power Grid Corporation of India Limited in June 2014. Details of major IFC-funded infrstructure projects in 2013-14 and 2014-15 (April-December) are given in Table 2.

JICA JICA has been an active lender to infrastruc-

IFC-funded infrastructure projects in 2013-14 and 2014-15 (April-December)

Project

Company

Sector

Approval date

Debt ($ million)

Expansion in warehousing capacity

Snowman Logistics Limited

Logistics

April 2013

2.76

Develop, construct and operate solar generation assets

Acme Solar Energy Private Limited

Renewable energy

April 2013

50.00

40 MW Jath wind energy project at Vaspet in Maharashtra

NSL Renewable Power Private Limited

Renewable energy

December 2013

15.01

Two wind farms with capacity of 170 MW in

DJ Energy Private Limited and Uttar Urja

Renewable energy

March 2014

50.03

Madhya Pradesh

Projects Private Limited

40 MW solar power plant in Rajasthan

Azure Clean Energy Private Limited

Renewable energy

August 2014

13.94

Four wind projects with capacity of 182.4 MW in

Green Infra Corporate Solar Limited

Renewable energy

October 2014

59.10

Rajasthan and Madhya Pradesh Source: IFC

January 2015 ❘ Indian Infrastructure ❘ 77

>>sector focus: infrastructure finance & insurance Table 3: Key

JICA-funded infrastructure projects in 2013-14 and 2014-15 (April-December)

Project

Sector

Approval date

Loan amount (billion yen)

Mumbai Metro Line 3 Project Bihar National Highway Improvement Project (Phase II) Haryana Distribution System Upgradation Project

Urban infrastructure Roads Power

September 2013 January 2014 March 2014

Delhi Mass Rapid Transport System Project (Phase 3) (Tranche 2) Agra Water Supply Project (Phase II) New and Renewable Energy Development Project (Phase II)

Urban transport

March 2014

Urban infrastructure Renewable energy

March 2014 September 2014

71.00 21.43 26.80 140.00 16.28 30.00

Executing agency Mumbai Metro Rail Corporation Bihar State Road Development Corporation Uttar Haryana Bijli Vitran Nigam Limited and Dakshin Haryana Bijli Vitran Nigam Limited DMRC Uttar Pradesh Jal Nigam IREDA

Source: JICA

ture projects in India. It provides long-term loans at concessional rates through its official development assistance (ODA) facility. To secure funding from the agency, the Indian government submits official requests (seeking ODA loans) to the Japanese government at the end of each fiscal year for the next year. Following this, JICA conducts fact-finding surveys, and reviews the feasibility and maturity of the proposed projects. During the first nine months of 2014-15 (April-December), JICA extended loans for only one infrastructure project – the New and Renewable Energy Development Project (Phase II). On September 1, 2014, the agency signed a loan agreement worth 30 billion yen with the India Renewable Energy Development Table 4: Key ADB-funded

Agency (IREDA) for the project. The project is aimed at extending support to power producers so that they can invest in new renewable energy projects such as wind and solar power through IREDA. In 2013-14 (April-December) too, only one project received lending support through JICA. However, in the entire 2013-14 fiscal, JICA provided loans worth 275.5 billion yen to five projects. Among these, the maximum amount (140 billion yen) was received by the Delhi Metro Rail Corporation, which is implementing the third phase of the Delhi Mass Rapid Transport System Project. Notably, this is the second tranche of the entire loan amount. Details of JICA-funded projects in 2013-14 and 2014-15 (AprilDecember) are given in Table 3.

infrastructure projects in 2014-15 (April-December)

Project

Sector

Approval date

ADB debt ($ million)

Assam Power Sector Investment Programme

Power

July 2014

ACME-EDF Solar Power

Power

October 2014

100

Karnataka Integrated and Sustainable Water

Urban

October 2014

Resources Management Investment Programme

infrastructure

Rajasthan Urban Sector Development Programme

Urban

(Tranche 1)

October 2014

Infrastructure Renewable energy

October 2014

500

Assam Power Sector Investment Programme

Power

November 2014

502

Clean Energy Finance Investment Programme

Renewable

November 2014

200

(Tranche 1)

energy

(Tranche 4)

78 ❘ Indian Infrastructure ❘ January 2015

ADB extends funding to infrastructure projects either through loans, technical assistance, or a combination of both. During the first nine months of 2014-15 (April-December), ADB extended loans worth $1.39 billion to seven projects in the infrastructure sector. In the corresponding period in 201314, ADB had provided debt worth $2.38 billion to 20 projects. In the entire 2013-14 fiscal, about $2.66 billion worth of loans were given to 22 projects. Sector-wise, funds were provided for three power projects, two renewable energy projects and two urban infrastructure projects. Of these, the largest amount of debt ($500 million) was provided to the Clean Energy Finance Investment Programme. The loan was approved in October 2014. Under the project, ADB agreed to support lending for IREDA’s renewable energy sub-projects in India, including wind, biomass, solar and cogeneration. Details of key ADB-funded infrstructure projects in 2014-15 (AprilDecember) are given in Table 4.

Conclusion

Clean Energy Finance Investment Programme

Source: ADB

ADB

Multilateral funding will continue to play a critical role in infrastructure development. Over the years, there has been greater interest in funding projects with private sector participation. Moreover, priority is being given to environment-friendly infrastructure projects. Therefore, international agencies are expected to increasing the quanta of loan to publicprivate partnership projects in the future. ◗

infrastructure finance & insurance

:sector focus<<

Insuring Infrastructure Limited options but comprehensive coverage nsurance coverage for infrastructure projects is limited. The infrastructure insuranc segment accounts for only 7 per cent of the total general insurance pie, a paltry proportion compared to the value and size of projects involved. There are only a few specialised covers available to suit the special insurance needs of infrastructure projects. Further, most of the available products are standardised covers which belong to the “one-size-fits-all” mould. The insurance products available in the market come under two categories – products covering specific risks and comprehensive packages to cover several risks in the same policy. The advantage of comprehensive packages is that these insure a bundle of construction and project risks under a single package rather than purchasing policies for each component separately. However, given the large-value projects involved, many covers are available only for projects with a sum insured over Rs 1 billion. Infrastructure projects require customised insurance covers. Insurers generally consider infrastructure projects under the engineering projects segment. The available products cover four to five years of the early project life cycle of an infrastructure project. The composition of products for infrastructure project insurance and for the components therein are largely similar in nature in both the public and private sectors. The availability of comprehensive insurance options goes a long way in providing comfort to project developers as well as project financiers. Further, administrative costs pertaining to insurance are lower and comprise only a marginal portion of the overall costs involved. Broadly, the following types of insurance products are currently available in the market.

Machinery Breakdown Insurance This policy covers losses due to accidental, electrical and mechanical breakdowns of any type of machinery, plant and equipment arising due to both internal and external factors. It reimburses the insured for the cost of repairs and replacement of machinery. All types of machinery such as water and electrical pumps, turbines, transformers, electrical motors, telecom equipment, etc. can be covered under this policy. The policy, however, does not cover loss or damage arising from fire and allied perils. The premium rate depends on the type of machinery to be insured. Discounts are offered in respect of standby facility, availability of spares and past claims experience. Contractors Plant and Machinery Policy This policy is yet another way of providing cover to plant and machinery owned by a contractor. The policy covers a wide range of construction equipment, including bulldozers, cranes, excavators, compressors, etc., which is usually used for construction of roads and bridges. The policy pays the full cost of replacement of parts along with repair charges, and cost of

dismantling and re-erection. The premium charged depends on the type of equipment and the location of operation. Loss or damage due to electrical or mechanical breakdown or due to boiler explosion is not included under this policy. Electronic Equipment Insurance Policy This policy covers material loss or damage to all electronic equipment and data mediums as well as increased cost of working arising out of unforeseen physical loss or damage to electronic equipment. The policy provides cover against any damage other than specified perils and forms of damage. The premium rate is 1 per cent for equipment valued at more than Rs 0.1 million. This policy is particularly common amongst telecom operators to provide cover to telecom equipment. Boiler and Pressure Plants Policy This policy provides covers against damage caused due to explosion of boilers and pressure vessels, not covered under fire insurance. The premium charged depends on the type of boiler, type of fuel and the age of equipment. Discounts could be allowed for seasonal factories and standby facilities. Storage-cum-Erection Policy This policy provides cover against all physical risks a project is exposed to right from the warehouse of the supplier of equipment to its erection, testing and commissioning at the site. In case the supplier has arranged transit insurance up to the site, such a policy can be limited to cover risks at the project site only. For projects exceeding Rs 15 billion, specially designed policies are available. Fire Insurance This policy is called the Standard Fire and Special Perils (SFSP) Policy. It provides cover January 2015 ❘ Indian Infrastructure ❘ 79

>>sector focus: infrastructure finance & insurance against losses arising due to fire, lightning, explosions, aircraft damage, overflowing of water tanks and pipes or damage to property due to strikes, floods, storms and earthquakes. Premium rates are generally dependent on the physical occupancy of the structure to be insured. Discounts are given based on past claims experience of the company in question and the installation of fire extinguisher appliances. Some extensions offered under the policy include earthquake, spontaneous combustion, deterioration of stocks in cold storage, impact of damage due to own vehicles, etc. This policy is common amongst industries involved in setting up power generation plants and oil and petrochemical plants, airport authorities and telecom operators. Marine or Transit Insurance This policy covers risk involved during transportation of goods by sea, inland waterways, and road and rail both within India and abroad. The cover is provided for marine voyage, offloading and storage, and ports and inland transit to the site of erection and unloading. Marine cover is provided under separate subpolicies including Marine Import Transit, Marine Export Transit, Marine Inland Transit, and Marine Hull. Marine insurance policies are issued on “agreed value” basis. The premium rate for this policy depends on key factors such as the nature of cargo, scope of cover, packing, mode of conveyance, distance and past claims experience. Consequential Loss Policy Apart from providing cover for the material damage to the property insured, insurance companies also provide protection against loss in profits suffered by the insured while the damaged property is being repaired or replaced. For instance, the standard fire and machine breakdown policies provide cover only for material damage to the insured property. However, they do not provide protection against the loss in profits suffered while the damaged property is being repaired or replaced. The Consequential Loss Policy therefore provides 80 ❘ Indian Infrastructure ❘ January 2015

cover against loss of profit arising from interruption of business consequent upon damage to the property insured. Besides, many infrastructure projects are subject to delays due to unforeseen events during storage, commissioning, transit, erection, etc. Such factors often result in delays in project commencement and in consequent loss of profits, thereby affecting the repayment schedules. For instance, in the erection of a thermal power plant, the turbines may be manufactured and assembled abroad and shipped to India. There may be a delay in the shipment, causing severe financial loss to the contractor and the principal as a result. Even after the project starts, there may be an event that causes material damage to some part of the project. As a result, the insured may have to incur significant costs in redoing and redesigning work on the project. The delay, however, should have occurred due to claim payable under the Marine-cum-Erection Policy, Storage-cumErection Policy or CAR/EAR policies. All such risks can be covered under the Consequential Loss Policy, which is also termed as the Business Interruption Policy or Loss of Profit Policy. The policy pays for actual loss of gross profit and negative impacts of debt service charges, increased cost of working and special expenses such as penalties. The indemnity period is the maximum period required to put the business back into normal operation after damage to insured property by an insured peril. This period could vary from six months to three years. Contractors All Risks (CAR) Insurance Policy CAR insurance offers comprehensive coverage for all types of civil engineering projects such as construction of flyovers, roads, dams, etc. This policy covers physical loss or damage to property, as well as third-party liability related to work conducted on the contract site. The premium for such a policy depends on factors such as type, value and duration of the project. The CAR Insurance Policy provides an “all-risk” cover thereby covering all perils unless specifically excluded. However, the policy does not cover damage due to faulty design or defects in material used or workmanship.

Many construction majors such as Hindustan Construction Company, Gammon India Limited, Punj Lloyd Limited and Ideal Road Builders have opted for such a policy. Erection All Risks (EAR) Insurance Policy EAR insurance offers comprehensive coverage for plant and machinery construction risks. It covers physical loss or damage to such property, as well as third-party liability related to work conducted on the contract site. Like CAR, this policy too covers all perils unless specifically excluded. The premium for such a policy depends on factors such as type, value and duration of the project and the period of testing. The policy is often used for infrastructure projects involving a higher concentration of electromechanical works or large-sized projects such as erection of thermal power stations, fertiliser plants, oil refineries, etc. Industrial All Risks Policy This is a comprehensive package policy which provides cover against fire and special perils, machinery breakdown, boiler explosion, electronic equipment, consequential loss and natural calamities such as earthquakes. The premium rates work out to at least four times lower under this policy compared to taking each policy separately. Usually the minimum sum insured for such a policy is Rs 1 billion. This policy has been particularly popular for power projects. Conclusion The competitive general insurance sector with a plethora of private players has led to the introduction of and improvements in product offerings. Competition has ensured lower rates of premium rates for different products and the quality of services has also improved. However, for the infrastructure sector, more products tailor-made to cover the risks involved in development of projects are an urgent requirement, particularly with the large scale investment planned in the coming years. On the contractor side, more awareness is required about the available products as well efficient risk management by choosing the most appropriate cover. ◗

infrastructure finance & insurance

:sector focus<<

Key Statistics Investment in infrastructure Industry-wise deployment of gross bank credit (Rs billion) 2010

2011

Mining and quarrying (including coal)

180.84

Petroleum, coal products and nuclear fuels

785.79

Cement and cement products Iron and steel Construction

2012

2013

2014

228.57

324.95

346.00

353.00

575.67

700.55

643.00

635.00

247.22

285.57

371.85

459.00

541.00

1,274.64

1,631.89

1,927.49

2,366.00

2,685.00

442.19

501.35

567.03

522.00

614.00

Infrastructure Power

1,878.40

2,691.96

3,288.60

4158.00

4,883.00

Telecommunications

593.62

1,004.25

935.94

878.00

904.00

Roads

735.69

925.69

1,143.83

1313.00

1,574.00

Other infrastructure

591.15

644.21

822.49

948.00

1,036.00

3,798.86

5,266.11

6,190.86

7,297.00

8,397.00

Total Note: All figures are as of March. Source: Reserve Bank of India

Lending by international financing agencies to the infrastructure sector ($ billion) Agency

2009-1 10

2010-1 11

2011-1 12

2012-1 13

2013-1 14

2014-1 15*

3.74

2.49

3.00

0.06

2.08

1.21

Japan International Cooperation Agency

2.26

0.02

2.61

3.31

2.35

0.28

Asian Development Bank

0.79

1.46

2.96

1.18

2.66

1.45

World Bank

*April-December Sources: World Bank; Asian Development Bank; Japan International Cooperation Agency

Foreign direct investment in infrastructure ($ million) Sector

2010-1 11

2011-1 12

2012-1 13

2013-1 14

2014-1 15 (till October)

Power

1,272.35

1,398.80

535.68

1,066.08

486.29

Non-conventional energy Petroleum and natural gas Telecommunications

194.6

655.75

1,106.52

414.25

414.14

487.36

185.87

2,042.73

112.23

1,021.03

1,658.66

1,962.92

303.87

1,306.95

2,470.99

Air transport

140.97

63.26

15.84

45.98

46.54

Sea transport

134.45

299.96

138.20

64.62

20.49

Ports

10.92

0.00

0.32

1.90

Total

4,064.82

4,404.80

4,069.26

2,966.30

4,575.34

Source: Department of Industrial Policy and Promotion

January 2015 â?&#x2DC; Indian Infrastructure â?&#x2DC; 81

>>urban infrastructure

Interview with Pradeep Singh Kharola “Phase I will be completed by the end of 2015” Phase I of the Bangalore metro project is expected to be operational by the end of 2015. So far, about 17 km of the metro is operational. In a recent interview with Indian Infrastructure, Pradeep Singh Kharola, managing director, Bangalore Metro Rail Corporation Limited (BMRC), spoke about the current status of the project, the financing and tendering experience, key challenges and future plans. Excerpts… What is the current status of the Bangalore metro project? What are the timelines? The Bangalore metro project comprises Phases I and II, which are being concurrently undertaken. Phase I involves the construction of 42.3 km of lines, comprising 18.1 km for the eastwest corridor (Purple Line) connecting Byappanahalli to the Mysore Road terminal with 17 stations and 24.2 km for the north-south corridor (Green Line) connecting Hesaraghatta Cross to Puttenahalli with 24 stations. Of the total length under Phase II, 8.88 km will be underground and the rest will be elevated. Of the total 41 stations, 31 will be elevated, seven underground and two at grade. Phase I is in the last leg of completion. In terms of physical and financial advancement, BMRC has achieved about 90 per cent progress. Under Phase I, about 17 km is operational. By February 2015, BMRC will add about 3 km and another 2-3 km in two to three months thereafter. Hopefully, all the work will be completed by end-2015. The Rs 260 billion Phase II involves the construction of four extensions and two new lines spanning 72.09 km and 61 stations, of which 13.79 km and 12 stations will be underground. While Phase I is nearing completion, the tendering work under Phase II has commenced. Tenders for civil works have been floated and are expected to be awarded soon. Tenders for procurement of all related works will be issued in 2015. Phase II will entail a completion period of five years. 82 ❘ Indian Infrastructure ❘ January 2015

Who are the key financiers of the project? The Japan International Cooperation Agency (JICA) is the biggest financier. Funding has also been secured from French development agency Agence Francaise de Development (AFD) and domestic sources like HUDCO and scheduled banks. BMRC secured Rs 3 billion by floating domestic bonds, becoming the first metro to mobilise resources via this route. What are the key challenges faced during implementation? Execution of a project of this size in a living city like Bengaluru is a task in itself. Land acquisition and utility shifting is a huge challenge in big cities. Coordination amongst a large number of major agencies/stakeholders is another issue. Several activities such as civil construction, shifting of sewer lines and drinking water lines, traffic diversion and safety of people have to be undertaken in a synchronised manner. The timing of these activities is very important. Besides, there are

“Land acquisition and utility shifting is a huge challenge in big cities. Issues related to manpower and project management also pose a challenge.”

also issues related to manpower and project management. Notably, managing long-term financing poses a minor problem. For instance, obtaining JICA funding has not been a challenging process for BMRC. How has been your experience in the tendering process? Generally, there has not been any delay in awarding of contracts for rolling stock, electrical and mechanical, and automatic fare collection. However, award of contracts related to civil works has seen delays. In some cases, we had to cancel the bid process and restart. How do you ensure getting good technology for the project? The specifications of the bid documents should be such that they attract the best technologies. Moreover, international players are well aware of the latest technologies. Again, it is very important that the contractual agreements and the bid documents are very comprehensive in nature. What are your views on indigenous manufacturing for metro projects? Phase I of the project had a substantial import component. Under Phase II, the documents will be prepared in such a way that the indigenous factor is addressed. Even if it is an imported commodity, the supplier should start manufacturing in India. Under Phase II, indigenisation would be a key factor and will help in the development of technology within India itself. In the long term, maintenance issues related to imported technologies can also be dealt with easily if these technologies are developed domestically. ◗

urban infrastructure<<

Green Signal Ahmedabad-Gandhinagar metro project abuzz with activity he Ahmedabad-Gandhinagar metro rail project is the first metro rail project in Gujarat and it will connect the adjacent cities of Ahmedabad and Gandhinagar. Though the development of the metro in Ahmedabad was conceptualised in 2005, the project has undergone several changes in the route leading to delays and cost escalation. The central government accorded approval to the project in October 2014 and subsequently acquired 50 per cent stake in the implementing agency, Metro-Link Express for Gandhinagar and Ahmedabad Company Limited (MEGA) . The recent invitation of construction and consultancy bids indicates the project is now on the fast track. The project involves construction of an overall network of about 82.36 km. Phase I entails construction of two corridors spanning a total length of about 37.77 km. The 17.23 km long north-south corridor extends from the Agricultural Produce Market Committee (APMC) to the Motera stadium and covers 15 elevated stations. The east-west corridor will cover a distance of 20.54 km between Thaltej Gam and Vastral Gam via 14 elevated and four underground stations. Rolling stock specifications include 3.2-3.6 metre wide stainless steel or aluminium lightweight coaches with a length of 22-25 metres. The system will have a design speed of 80 km per hour and will be installed with a continuous automatic train control system based on the

communication-based train control system. Further, automatic fare collection system, train information system, integrated system with fibre optic cable, etc. will also be deployed. Overall, Phase I is estimated to entail an investment of Rs 112.73 billion. This investment is being financed through a combination of central and state government allocations and long-term debt. Of the total cost of Phase I, the Centre has committed to contribute Rs 19.9 billion in the form of equity and subordinate debt. It has allocated Rs 500 million to the project in the Union Budget 2014-15. Moreover, after the acquisition of 50 per cent stake in MEGA, the Centre is likely to infuse additional equity of Rs 19.9 billion, resulting in a total investment of Rs 39.8 billion. MEGA has also sought financial assistance from the Japan International Cooperation Agency (JICA). In September 2014, JICA agreed to extend financial assistance for execution of Phase I. It will provide a long-term soft loan of Rs 59 billion at an interest rate of 1.4 per cent. The pay-back period for the loan

Planned network for Ahmedabad-Gandhinagar metro rail Phase I Corridor

Route

Length (km) Underground

North-South

APMC to Motera Stadium

East-West

Thaltej Gam to Vastral Gam

Total Source: MEGA

No. of stations

Elevated

Total

Underground

Elevated

Total

17.23

–

6.335

14.20

20.536

6.335

31.43

37.766

–

will commence after 10 years. In the past few months, MEGA has invited bids for various components of the project. Prequalification bids for the general engineering consultant contract were invited in September 2014 and reportedly, 17 domestic and international firms have submitted bids for the contract. These include consortiums led by Systra S.A., Mott MacDonald, DB International and TÜV SÜD South Asia. At present, MEGA is in the process of scrutinising the bids received. The selected firm will be appointed as the main adviser for the entire project and will carry out the entire range of work, from designing to commissioning. Bids have also been invited for construction of the viaduct for the stretch from Vastral Gam to Apparel Park up to ramp start in Reach R-1 (excluding the portions of metro rail stations), and for detailed design consultancy services for 13 elevated metro rail stations on the east-west corridor. The contracts for both works are yet to be awarded. In December 2014, MEGA invited bids for detailed design consultancy services for the construction of the Apparel Park depot on the eastwest corridor and five elevated stations on the north-south corridor. The last date for submission of bids is February 6, 2015 for the former and February 3, 2015 for the latter. The scope of work will include development of stations and the viaduct portion within the station and transition spans on either side of the stations. With the subsequent award of tenders, work on the project is likely to commence by mid-February 2015 and is slated to be completed by December 2018. Going forward, plans are in place to extend the metro rail to the airport and Gandhinagar as part of Phase II and to some other areas of Ahmedabad as part of Phase III. The metro rail system is also expected to integrate with different transport systems like the Ahmedabad Municipal Transport Service and bus rapid transit system (BRTS) and towards this end, it will have six stations in common with the BRTS. Given an estimated daily ridership of 457,671 passengers in 2018, the metro is expected to be a boon to development in Ahmedabad. ◗ Nikita Jain January 2015 ❘ Indian Infrastructure ❘ 83

>>urban infrastructure

Interview with Chandrakant J. Gudewar “Mobile-based applications hold the most relevance for our organisation” The Solapur Municipal Corporation is undertaking a number of initiatives to improve urban governance through better information dissemination. In a recent interview, Chandrakant J. Gudewar, Municipal Commissioner, Solapur Municipal Corporation shares his views on the role of information technology (IT) in urban governance, the progress of ongoing initiatives and key priority areas. Excerpts… What is the average annual allocation to the IT department? On an average, the IT budget is in the range of Rs 10 million to Rs 15 million. However, in 201415, we allocated Rs 70 million towards the IT budget. What factors should be taken into consideration while allocating the IT budget? The IT budget is generally decided by the corporators. Earlier, the municipal commissioner was responsible for convincing corporators to make the required allocation towards IT for good governance. However, generally, an allocation of about 5 per cent of the total budget should be made towards IT. What strategies should urban local bodies adopt for implementation of IT budgets? Generally, citizens are required to engage with corporation officials for payment of taxes and charges such as property tax, betterment charges, water tax, building permissions, etc. These are the areas where maximum corruption occurs. Therefore, IT solutions play an important role in these areas. In this regard, we have already issued a tender for geographic information system (GIS)-based mapping of property. We are also deploying IT solutions for providing building/construction-related solutions. What is your perspective on making a corporation IT enabled? According to me, all corporations should have basic infrastructure in place on a priority basis. At present, there are hardly two or three ULBs in India with the requisite infrastructure. Specific to Solapur, the city is facing the prob84 ❘ Indian Infrastructure ❘ January 2015

lem of inadequate water supply. To supply water on a 24x7 basis, an investment of about Rs 14 billion needs to be made. The second major challenge in Solapur is inadequate drainage infrastructure. There is an urgent need to replace old drainage lines, which require a minimum investment of about Rs 7 billion. Thus, the main challenge is development of basic infrastructure, while the deployment of IT solutions comes later.

How do you plan to meet the training needs for your staff? This is the most neglected part of the organisation. Most officials who come in contact with citizens are not trained and are generally local people. Therefore, training is essential for changing their behaviour towards citizens. We have signed an agreement with a training institute in Hyderabad. Additionally, employees are also sent for training to government institutes. However, we will not be able to provide training to all our employees in the next two to three years.

What are your current and future plans for deployment of IT solutions? We have invited tenders for GIS-based property mapping and smart street lighting. It is essential to shift from conventional street lighting to LED-based lighting, which will save up to 60 per cent of energy consumption. A number of private companies have shown interest in these projects.

In your opinion, what should be the key areas of focus for private IT players? IT players should majorly focus on domain, application, and customisation of solutions.

What steps are being taken to increase the use of IT solutions in your organisation? We have made a detailed project report for egovernance. Besides, citizens can send us an SMS for all other services and grievances, and we respond to them.

What are your future plans for adoption of the applications with most relevance? Work has already been started on GIS, online payment of taxes and online registration of complaints. We have developed a website for online payment of tax. A tender has also been awarded for GIS mapping and creation of databases of 15 departments including property tax, water tax, registration of complaints, gardens, building permissions, drainage, water supply, town planning, etc. Once the GIS mapping is completed, we plan to develop a mobile application for easy access and bill payment of various utilities. ITbased sensors are very helpful for 24x7 water supply and billing. These initiatives are expected to become operational in about 18 months. ◗

What are the major challenges? Convincing government officials, who have vested interests, is the most challenging work in any corporation. Government officials often prefer money over merit, which becomes the biggest challenge faced by all corporations. Most corporations are de facto controlled by vested groups and thus they generally oppose all new initiatives.

Which solution/products/technologies hold most relevance for your city? Currently, mobile-based applications hold the most relevance for our organisation.

10th Annual Conference on

CITY GAS DISTRIBUTION IN INDIA Trends and Outlook; Issues and Opportunities February 23-224, 2015, Le Meridien, New Delhi Mission The mission of this conference is to examine the recent policy, regulatory and market developments. It will also discuss the opportunities and challenges. It will showcase successful projects, technologies and best practices.

Agenda/Structure

Key Trends and Outlook Policy/Government Perspective Operators' Viewpoint Regulatory Perspective Gas Supply Outlook

Pipeline Infrastructure Development CGD Economics Focus on CNG networks Focus on PNG Networks Metering and Billing

Network and Asset Integrity Management Focus on IT Applications Innovations in Materials/Equipment Project and Technology Showcase

Delegate Fee The delegate fee is Rs 22,500 for one participant, Rs 37,500 for two, Rs 52,500 for three and Rs 67,500 for four. Service tax of 12.36 per cent is applicable on the registration fee. Organisers:

Co-sponsors so far*:

Smart Utilities For delegate registrations, contact: Nishpreet Bhasin Tel: +91-11-41034616, 41034615, +91-9953452964

*Lead and co-sponsorship slots are still available

For sponsorship opportunities, contact: Varun T. Boyle Tel: +91-11-41034610, 41034615, +91-9999430521

Conference Cell, India Infrastructure Publishing Pvt. Ltd., B-17, Qutab Institutional Area, New Delhi 110016. Fax: +91-11-26531196, 46038149. E-mail: conferencecell@indiainfrastructure.com

>>telecom

Creating Waves New spectrum bands spike global operator interest he higher data carrying capacity of access technologies such as HSPA+ and long term evolution (LTE) can be effective in providing mobile broadband services to endusers only when these are complemented by supportive and capable backhauls. Over a period of time, optical fibre has evolved as the most practical wired solution for backhaul as well as for the backbone network, given its extraordinary capacity. However, its deployment, especially in India, involves multiple challenges such as difficult terrain, long deployment time, logistics issues, heavy government levies for obtaining right-of-way permissions, and cumbersome approval procedures. In view of these challenges, microwave technology has become the most widely used medium for backhaul connectivity. However, microwave does not have the matching capabilities of fibre and therefore, is not sufficient to handle the growing data demand.

86 â?&#x2DC; Indian Infrastructure â?&#x2DC; January 2015

Operators in many countries where high speed LTE services have been launched have started exploring new wireless spectrum bands that are scalable and flexible in providing the necessary bandwidth, and allow them to reduce wireless backhaul expenditures. Two such higher frequency bands are the E-Band (71 GHz-76 GHz/81 GHz-86 GHz) and the VBand (57 MHz-64 MHz), which cater to the increasing capacity/traffic requirements. While the E-Band is optimised for last mile, zerofootprint macrocell backhaul, the V-Band is optimised for microcell/small cell backhaul. With operators installing backhaul solutions in these bands, mobile network architecture is evolving from a single-layer access network to a multilayer access network. In a multilayer network, macrocells provide capacity and coverage while microcells or small cells provide high capacity hotspots. The small cell technology in the V-Band

enables mobile carriers to reduce the load on their networks and deliver data services seamlessly and cost effectively to end-users by riding on a partner Wi-Fi network. This process, known as Wi-Fi offload, works efficiently since all smartphones come preconfigured to access data services over a Wi-Fi network in the range of a mobile network. Meanwhile, macrocells in the E-Band can effectively fill gaps in the backhaul where fibre cannot be deployed or needs to be complemented.

Regulatory framework According to the ITU Radio Regulations, the 71 GHz-76 GHz and 81 GHz-86 GHz bands are available for fixed line as well as mobile services. Many countries have opened the E-Band for outdoor point-to-point communication. The Federal Communications Commission (FCC) was the first to regulate and allocate EBand spectrum in the US in 2003 through a light licensing approach, followed by Ofcom in the UK in early 2007. In the light licensing approach, the spectrum charge comprises only the cost of administering the allocation process. As the EBand allows a high level of frequency reuse, the process for allocation of frequencies can be automated, thus keeping the cost of administra-

telecom<< tion low. Regulators worldwide are also following FCC and Ofcom’s lead, by allocating this spectrum in a steady manner. Australia and Russia are some examples of countries in which spectrum in this band is being utilised for backhaul connectivity. In comparison, the 60 GHz band is a licence-exempt spectrum band in countries like the US, the UK, Australia and Japan. Although the ecosystem for this band is less developed and the equipment available for it is also expensive, efficient planning can solve the bandwidth crunch.

Key technical parameters for spectrum in E-Band and V-Band in various countries V-B Band Frequency range (GHz)

Maximum antenna gain (dBi)

Korea

57.1-63.9

59-66

57-64

Not specified

Maximum EIRP (dBm) E-B Band Frequency range (GHz)

Europe

71-76/81-86

Maximum transmit power (W)

Maximum antenna gain (dBi)

–

Light licence

–

Maximum EIRP (dBW)

Equipment for both the V-Band and E-Band is commercially available from a number of manufacturers. Traditional vendors like Ericsson, NEC, Huawei, Alcatel-Lucent, Nokia and ZTE are the biggest players in the E-Band market while microwave vendors such as DragonWave, Intracom, SIAE and Siklu are giving them tough competition. Some of them are even developing their own chipsets, giving stiff competition to chipset vendors such as Qualcomm and Broadcom. In the V-Band space, products are being sold by companies like BridgeWave Communications, LightPointe, DragonWave, Inc., Proxim Wireless, Sub 10 Systems and Siklu. Samsung is also emerging as a key player in this domain. It has reportedly developed a Wi-Fi technology with speeds that are up to five times faster than the current speeds being used. This new 60 GHz Wi-Fi technology is capable of enabling record breaking data transmission speeds of up to 4.6 Gbps. The current Wi-Fi speed for consumer electronic devices stands at around 866 Mbps or 108 MB per second.

Licensing process

The requirement for mobile backhaul capacity is anticipated to grow significantly due to the increasing use of latest multimedia and other data-centric applications, especially in urban areas. The large-scale launch of LTE networks will only escalate this demand. Given the spectrum crunch in the industry, exploring the option of using unlicensed spectrum bands for data offloading has become a necessity for telecom operators. Policymakers, therefore, need to for-

Japan

Maximum transmit power (MW)

Commercial availability

Case for India

Leading vendors offering products for the 60 GHz band Company

Product family

Country

BridgeWave Communications

AR60 and AR60X, FE60U, GE60

LightPointe

AireBeam

DragonWave, Inc.

Avenue Link, Avenue Link Site, Avenue Site

Canada

Proxim Wireless

Tsunami QB-62000

Sub 10 Systems

Liberator V-320, Liberator V-1000

Siklu

Etherhaul 600

Israel

Source: AUSPI

mulate guidelines for using this spectrum. The Telecom Regulatory of India has proposed to the Department of Telecommunications (DoT) that the usage of high capacity backhaul E-Band and V-Band should be explored for allocation to telecom service providers in order to increase broadband penetration in the country. The department also seems to be in favour of promoting the use of

With the growing data proliferation, there is a greater need to frame appropriate guidelines for carriers in the E-Band and V-Band in line with the international trend.

these spectrum bands. It is soon likely to seek the regulator’s views on freeing up the 60 GHz frequency band for Wi-Fi offload deployments in order to address a potential spectrum crunch in the 2.4 GHz band, which is currently used for delivering Wi-Fi services. DoT is also likely to seek the views of the regulator on potential changes in the licence norms and interconnect agreements of internet service providers, which will have to partner with mobile carriers to facilitate such Wi-Fi offload services.

Conclusion Summing up, with the growing data proliferation, there is a greater need to frame appropriate guidelines for carriers in the E-Band and VBand in line with the international trend. These bands can help operators cater to the high throughput needs that will be generated by the roll-out of technologies like LTE. ◗ Dolly Khattar January 2015 ❘ Indian Infrastructure ❘ 87

>>financial news

Key Financings Across sectors ◗ Policy The ordinance modifying the Land Acquisition Act has received Presidential assent. The ordinance envisages procuring land for industrial corridors, rural infrastructure, defence, public-private partnership (PPP) projects and housing and it was cleared by the cabinet on December 29, 2014. The significant changes in the Land Acquisition Act include removal of the consent clause for acquiring land for the aforementioned five areas. Under the amended law, the mandatory “consent” clause and social impact assessment will not be applicable. However, the compensation and rehabilitation and resettlement packages will be applicable as per the new Land Acquisition Act for acquiring land for these five purposes. Under the new act, the compensation in rural areas has been increased by four times while in urban areas it has been doubled from the existing market value. IDFC Limited has signed an MoU with the Russian Direct Investment Fund to jointly invest up to $1 billion in infrastructure projects in India. Under the MoU, a framework for joint investment in infrastructure and related sectors will be created. Each entity will commit up to $500 million to fund projects in sectors such as ports, toll roads and hydropower. The Thirteenth Finance Commission has sanctioned funds worth Rs 73.6 million for the Ghaziabad Municipal Corporation in Uttar Pradesh. The funds will be utilised for undertaking various civil works and for the procurement of equipment like motor pumps, tankers, machines, etc. In addition, the commission has also approved 12 projects of the 34 project proposals that were submitted to it for clearance. The approved projects include procurement of a super sucker machine to clear accumulated sewage, drilling of 11 tube wells in various locations within the municipal boundaries, and laying of 12 km of water supply pipelines and 1.5 km of a sewage pipeline.

◗ Loans/Bonds The central government has signed agreements with the Asian Development Bank (ADB) for grants worth $136.8 million for infrastructure development in Jammu & Kashmir and Karnataka. In one agreement, the government has sought a $60 million loan to support improvements in water supply and urban transport infrastructure in Jammu & Kashmir. This is the third tranche of the loan under the Jammu & Kashmir Urban Sector Development Investment Programme and it aims to supplement the urban infrastructure upgradation scheme initiated under Project 1 and Project 2. Under the second agreement, ADB will 88 ❘ Indian Infrastructure ❘ January 2015

provide loans $75 million and $1.8 million, carrying a term of 25 years, for improving water resource management in three towns in Karnataka in the upper Tungabhadra sub-basin. The loan agreement aims to improve water resource management in urban areas, and modernise and expand urban water supply and sanitation. US-based Simpa Networks, Inc., which operates a subsidiary, Simpa Energy India Private Limited, has raised $4 million in debt funding to scale up clean electricity solutions in rural India. The funding has been raised by the Overseas Private Investment Corporation (OPIC), the US government’s development finance institution, and GDF Suez through their Rassembleurs d’Energies programme. Simpa is backed by many development financial institutions including ADB, the International Finance Cooperation, OPIC, Sorenson Impact Foundation (Jim & Krista Sorenson), Schneider Electric, and GDF Suez Rassembleurs d’Energies. Since its inception, the firm has delivered over 65 MW-hours of energy. State-owned dedicated green energy financing institution Indian Renewable Energy Development Agency (IREDA) is planning to raise Rs 15 billion in 2015-16 through the issuance of tax-free bonds. Over the next three years, the agency expects to lend Rs 140 billion-Rs160 billion. The securities would be termed “green bonds” as the end-use will be restricted to projects in the renewable sector. IREDA had made a similar tax-free bond issue in February 2014 to raise Rs 5 billion. According to reports, the central government is likely to approach the Japan International Cooperation Agency (JICA) for assistance in the development of a proposed major port at Sagar. The total cost for the project is estimated at Rs 119 billion and the government has decided to put in a request with JICA for a soft loan of Rs 47.15 billion. The loan amount is likely to be used for dredging 58 million cubic metres of approach channel at a cost of Rs 12.23 billion and establishing rail and road connectivity, including the construction of a bridge over the Muriganga river, at a cost of Rs 34.92 billion. Lava Mobiles is planning to raise funds worth Rs 1 billion by end-June 2015. The company has appointed EY as its consultant to help raise funds from external investors through equity placements. Lava has been evaluating proposals to decide how much equity it should place for the investment. The World Bank will provide a second round of financing to the eastern

financial news<< dedicated freight corridor (DFC) project. The bank will extend a loan of $1.1 billion towards the development of the project, which was approved by the bank’s board in April 2014. The eastern corridor stretches across 1,839 km, from Ludhiana to Kolkata. An earlier loan of $975 million for the 343 km Khurja-Kanpur section of the eastern DFC was approved by the World Bank in May 2011. This project is under implementation.

Pradesh, Madurai-Kanyakumari in Tamil Nadu and Jalandhar-Amritsar in Punjab, would be completed by March 2015. The remaining four road projects would be sold in 2015-16 as part of the company’s strategy to exit all BOT projects and focus on water, and engineering, procurement and construction projects.

Welspun Renewables Energy Private Limited has achieved financial closure of its 126 MW wind project in Rajasthan. The debt requirement of Rs 6.3 billion has been met through long-term funding from a consortium of financial institutions. Slated to be commissioned by June 2015, the on-ground construction work for the project has progressed well ahead of schedule. Apart from receiving backing from national institutions, Welspun Renewables has also received financial infusion from a major international financial institution.

The Canada Pension Plan Investment Board (CPPIB), through its subsidiary, has made an initial investment of Rs 10 billion in Larsen & Toubro Infrastructure Development Projects Limited (L&T IDPL). The investment has been made through the subscription of compulsory convertible preference shares. The CPPIB had entered into a definitive agreement with L&T IDPL in June 2014. A second tranche of Rs 10 billion, or a higher amount agreed between CPPIB and L&T IDPL, will be invested after 12 months from the date of initial investment. The transaction will be subject to the necessary regulatory approvals. It is the first direct private investment by a Canadian pension fund in an Indian infrastructure development company.

State-run power generation company National Thermal Power Corporation (NTPC) has signed two term loan agreements to secure funding of Rs 30 billion, in a bid to meet capital expenditure requirements. While HDFC Bank has extended a loan of Rs 20 billion, the remaining Rs 10 billion has been loaned by Syndicate Bank. Both loan agreements have a door-to-door tenor of 15 years that specifies the total period within which the amount has to be repaid. NTPC expects to spend Rs 224 billion during 2014-15. The company is currently generating 43,128 MW of electricity and has drawn up a long-term plan to generate 128,000 MW by 2032. Hyderabad-based infrastructure company IVRCL Limited has allotted nearly 88 million equity shares of Rs 2 each to corporate debt restructuring (CDR) lenders. This allotment is towards the first tranche of conversion of funded interest term loan (FITL) into equity. The proposed debt recast was approved by the CDR empowered group in June 2014. There is a moratorium of 28 months on the FTIL which is to be paid within eight years after the moratorium, with an interest rate of 11.25 per cent. Infrastructure financing firm L&T Infrastructure Finance Company Limited plans to raise up to Rs 4.5 billion through the private placement of debentures to fund business expansion. The company will issue secured, redeemable, non-convertible debentures of face value Rs 2.5 million each, amounting to Rs 2.5 billion, with an option to retain oversubscription of Rs 2 billion. IVRCL Limited is set to retire outstanding debt to the tune of Rs 25 billion by March 2015, through the sale of three build-operate-transfer (BOT) assets. Talks pertaining to the sale of assets are in the final stages and the deals are expected to be finalised soon. IVRCL had put on block all its BOT assets comprising seven road projects and a desalination plant. Of these, the desalination plant near Chennai had already been sold, while the sale of three road projects, namely, Indore-Jhabua in Madhya

◗ Equity moves

Sequoia Capital has exited its investment in TD Power Systems Limited through an open market share sale. It sold its entire stake at around Rs 795 million. Sequoia had invested in the firm during the IPO in 2011. Spice Mobility has received approval from its board of directors for voluntary delisting of equity shares from the Bombay Stock Exchange and National Stock Exchange and will now seek approval of the member shareholders. The proposal of voluntary delisting was put forth by its promoter, Smart Ventures, that holds 74.36 per cent stake in the company. Cash-strapped infrastructure company IVRCL Limited has agreed to offload its entire stake in subsidiary Chennai Water Desalination Limited (CWDL) to Dubai-based Utico FZC. The stake sale is part of Hyderabadbased IVRCL’s strategic business plan to monetise its BOT and build-ownoperate-transfer (BOOT) assets. The two companies signed a non-binding agreement for the transaction, which is expected to be completed in three months. The transaction is, however, subject to approvals from the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB), lenders and other relevant authorities, and satisfaction of certain agreement-related conditions. CWDL was floated as a special purpose vehicle (SPV) to set up a 100 million litre per day seawater desalination plant in Chennai on a BOOT basis for 25 years, with a project cost of around Rs 5.5 billion. While IVRCL holds 75 per cent stake in CWDL, the remaining 25 per cent stake is held by Spanish partner Befesa Agua. The project has been operational since July 2010 with a 25-year concession period under a bulk water purchase agreement signed with CMWSSB. GMR Hyderabad International Airport Limited (GHIAL), a subsidiary of GMR Infrastructure Limited, has acquired a 44.61 per cent stake which was previously owned by Malaysia Aerospace Engineering Sdn Bhd (MAE) in MAS GMR Aerospace Engineering Company Limited (MGAE). January 2015 ❘ Indian Infrastructure ❘ 89

>>financial news The company bought 9.6 million shares, representing 44.61 per cent stake, in MAS GMR Aerospace Engineering for a nominal consideration. Prior to the acquisition, MGAE was a joint venture partnership between MAE and GHIAL. Post-transaction, MGAE has become a wholly owned arm of GHIAL. MGAE, which started its commercial operations in November 2011, is operating an aircraft maintenance, repair and overhaul (MRO) unit located at a special economic zone near the Hyderabad International Airport. The MRO unit was set up for an investment of around Rs 3.5 billion and the facility was fully owned by MGAE. According to reports, the Jawaharlal Nehru Port Trust (JNPT) will own a stake of 60 per cent in an SPV which is to be formed for the development of Iran’s Chabahar port. The Kandla Port Trust will own the remaining stake in the SPV which is likely to be named Indian Ports Global and valued at $85.21 million. Formalities relating to formation and registration are likely to be completed within a month’s time after the Ministry of Shipping (MoS) nominates a third director for the SPV. Bharti Infratel is reportedly planning to acquire a stake in telecom infrastructure company Viom Networks. The stake acquisition will help the subsidiary of Bharti Airtel to expand its portfolio. Viom Networks has been planning to sell a stake to raise funds for network expansion. New York-based private equity firm I Squared Capital has reportedly agreed to acquire 100 per cent stake in Jaipur Mahua Tollways Private Limited (JMTPL) from IJM Corporation Berhad. JMTPL operates 109 km of toll roads connecting Jaipur and Agra. The project has a concession of 25 years and has been operational since 2009. The deal, which is to be done through the ISQ Global Infrastructure Fund, will initially entail acquisition of a 74 per cent ownership interest, while acquisition of the remaining 26 per cent will be subject to approval from the National Highways Authority of India (NHAI). As per reports, the deal value stands at about Rs 5.25 billion. OnMobile Global has received approval from its board of directors for the buy-back of equity shares in the open market through a stock exchange mechanism. The company will buy back shares at a maximum price of Rs 86 per share for an aggregate amount of Rs 490 million. The company had earlier bought back equity shares in 2011. Norway-based Telenor is reportedly exploring the possibility of acquiring a stake in Tata Teleservices Limited (TTSL). It has initiated talks with TTSL. In this regard, it is examining the option of acquiring NTT DOCOMO’s stake in TTSL subject to the former’s approval and then merging its operations with Uninor’s. Currently, NTT DOCOMO owns 26 per cent in TTSL, which it acquired from the Tata Group in 2008. However, in 2014, NTT DOCOMO decided to exit its Indian operations through the sale of its stake in TTSL by exercising its put option, which was part of the stake acquisition agreement signed with the Tata Group. As per the 90 ❘ Indian Infrastructure ❘ January 2015

terms of the agreement, TTSL is required to buy back NTT DOCOMO’s stake at 50 per cent of the original acquisition price or the prevailing market price, whichever is greater. Smart Ventures Private Limited, the promoter of Spice Mobility Limited, has proposed voluntarily delisting the company’s equity shares from the National Stock Exchange and the Bombay Stock Exchange. Consequently, the trading window remained closed for the directors and designated employees of Spice Mobility from December 27, 2014 to January 3, 2015. Gurgaon-based Nucleus Research Private Limited has raised $500,000 in seed funding from Arun Khanna, chairman, Olive Telecom, and from Harsh Khanna, test lead, HTC. The company intends to use the investments for expanding the portfolio of its messaging application, Yup. Further, Nucleus Research is considering raising $10 million in Series A round of funding and it has appointed US-based accounting and advisory firm Grant Thornton for the same.

◗ Mergers and acquisitions Tata Power Limited has signed a share purchase agreement with Ideal Energy Project (IEP) for acquiring the latter’s 540 MW thermal power plant near Nagpur, Maharashtra, for an undisclosed amount. This acquisition will take the installed generation capacity to 8,885 MW. The Department of Telecommunications (DoT) has sought the Ministry of Law’s opinion on the proposed merger of Reliance Jio Infocomm Limited and Infotel Telecom Limited. This comes after the Access Service Cell of DoT on December 31, 2014 suggested that the matter requires a legal view over whether the merger is in line with current merger and acquisition (M&A) guidelines. According to the new M&A rules, it is not mandatory to seek DoT’s approval before filing a scheme of amalgamation with the Registrar of Companies, but under the guidelines of unified licences, the scheme of amalgamation requires the written approval of DoT.

◗ Miscllaneous Ramky Infrastructure Limited is planning to monetise operational road assets to facilitate debt reduction as part of a corrective action plan submitted for restructuring. The company also plans to sell land earmarked for a multi-product industrial park near Hyderabad which is owned by a 100 per cent subsidiary of Ramky. The company is currently in talks for potential stake sale/securitisation of the road projects and other assets. However, the discussions are at a preliminary stage. Government agencies in Tamil Nadu, Karnataka, Andhra Pradesh, Rajasthan, Gujarat and Uttar Pradesh have reportedly barred construction firms that have had their debt restructured, or applied to creditors to have their loans recast between 2010 and 2014 from bidding for civil work contracts. ◗

2nd Annual Conference on

URBAN RAIL-BASED TRANSIT SYSTEMS Potential, Progress, Issues & Opportunities March 16-117, 2015, Le Meridien, New Delhi Mission: The mission of this conference is to provide an update on urban rail projects in India, examine the experience so far, discuss key challenges and identify market opportunities. It will also showcase key projects, the most promising technologies and best practices.

Agenda/Structure:

Key Trends and Outlook Keynote Address: Government Perspective Keynote Session: Industry/ Operator Perspective Financing Urban Rail Projects

Spotlight: Role of Private Sector Focus on Monorail/Light Rail Rolling Stock Signalling & Train Control Systems Fare Collection Systems

Civil Construction: Opportunities and Challenges Focus on Tunnelling Integrating Metro with Other Transit Solutions O&M Practices Project and Technology Showcase

Previous participants: The organisations that participated in our previous conferences included Adani, AECOM, Afcons, Ahmedabad Municipal Corporation, Alcoa Fastening Systems, Alcoa India Pvt. Ltd, Allison Transmission, ALSTOM Transport, Amara Raja, Ansaldo, APSRTC, Ashok Leyland, Assignia Infrastructure, Australian Trade Commission, Ayesa India Pvt. Ltd, Beekay Engineering, Bharat Heavy Electricals Ltd, BHEL, BMTC, Bombardier, Calcutta Tramways, Centre for Transportation Systems, CH2M HILL, Chennai Metro Rail, CIDCO, CTI Engineering, Daimler Chrysler, Delhi Metro Rail Corporation, Deloitte Touche Tohmatsu India Pvt. Ltd, DIMTS, DLW, DTC, East Central Railway, EGIS India Consulting Engineers Pvt Ltd, Eicher, EMD Locomotive, Engineering Projects (India) Ltd, Faiveley, Frischmann Prabhu, Hyderabad Metro Rail, Hyderabad Urban Development Authority, IBM India Pvt. Ltd, IDBI Bank Ltd, IIM, IIT, IL&FS Infrastructure Development Corporation Ltd, IL&FS Rail Ltd, India Infrastructure Finance Company, IRCTC, Jindal Stainless Ltd, JSW, KEC, KfW IPEX Bank, KMRC, Knorr Bremse, L&T ECC, Lanco, Larsen & Toubro Ltd, Louis Berger, Masstrans, Mercedes-Benz, Ministry of Urban Development, Mitsubishi Heavy Industries India, North Central Railway, Patil Rail Rail Coach Factory, Raychem RPG, RDSO, RITES, SEMI Group, SENER India Engineering and Systems Pvt. Ltd, Servomax, Siemens, SMEC, Spain Business Overseas, State Bank of India, SUCG Infrastructure India Pvt. Ltd, Tata Motors, Tecnimont ICB, Thales India Pvt. Ltd, The Nippon Signal, TM International Logistics, Touax Texmaco Railcar Leasing, Urban Mass Transit Company, Usha Martin Ltd, VE Commercial Vehicles, Veolia Transport, Vinci Concessions, Volvo, Vossloh Cogifer, Wabtec Corporation, WS Atkins (India) Pvt. Ltd, etc. Organiser:

Co-sponsors so far*:

*Lead and Co-sponsorship slots are still available

For delegate registrations, contact: Megha Apte Tel: +91-111-441688861, 41034615, 9582345887

For sponsorship opportunities, contact: Varun T. Boyle Tel: +91-111-441034610, 9999430521

Conference Cell, India Infrastructure Publishing Pvt. Ltd., B-117, Qutab Institutional Area, New Delhi 110016. Fax: +91-111-226531196, 46038149. E-m mail: conferencecell@indiainfrastructure.com

>>people

K.S. Popli

Aseem Gupta

CMD, Indian Renewable Energy Development Agency

Commissioner, Thane Municipal Corporation

.S. Popli attended an army school and seemed destined to join the army, but he changed his mind and opted to study engineering instead, at the Birla Institute of Technology in Ranchi. After completing his engineering degree, he worked with a multinational company, Mather and Platt, a German manufacturer of pumps and pump systems. He drifted into the power sector since a few of his friends worked with NHPC, and it occurred to him that the company would provide exposure to a much wider projects perspective. He went on to work for NHPC for 11 years and was associated with design, engineering and implementation of hydro projects. Subsequently, Popli moved to the Power Finance Corporation (PFC) in Delhi. “In my 14 years with PFC, I have dealt with the financing of an entire gamut of projects - from coal and gas to transmission and distribution. When PFC shifted to private sector financing, I was involved in that aspect as well. I was immensely satisfied with my stints at both NHPC and PFC,” he says. In 2007, he joined IREDA as director, technical. At the time, renewables were a very small sector. The renewables potential was only 85,000 MW, which converted to the thermal equivalent of just 20,000 MW. It is only in the past seven years, Popli notes, that the sector has grown exponentially. “People are looking at it for energy security or improving access to energy or tackling climate change. It is good to be in an area that has everyone’s attention,” he says. Last March, he became chairman and managing director. As such, he is responsible for the entire range of projects and resource mobilisation. Since IREDA currently has no director, technical, he handles this task too. Work pressures have forced him to give up sports, which used to help him relax when he was younger. But he still enjoys his daily walks. He also enjoys watching television with his family, which includes his wife, a son and daughter. Popli would like to see IREDA achieve a year-on-year growth rate of at least 25 per cent and scale up its operations. “When I joined IREDA, we started with a very small base. The sanctions were around Rs 8 billion and the disbursements were Rs 5.5 billion. From there, we have come to a disbursement level of Rs 25 billion and sanctions of Rs 38 billion. The expectations are much higher. If we can cross sanctions of Rs 100 billion in the next four years, that will be good.” ◗

hrough a career spanning over 20 years in the civil service, Aseem Gupta has developed a deep understanding of the functional responsibilities of government. As the municipal commissioner of Thane, he focused on the development of public transport, affordable housing, and improving social infrastructure. Gupta will be taking over as the chief executive officer of the Slum Rehabilitation Authority in Mumbai soon. In this position, one of the major challenges will be to encourage private players to invest in slum rehabilitation. He is very aware that the scale of the work in Mumbai is massive. He is extremely pleased to be faced with the challenge of developing good housing for Mumbai residents. Gupta describes his working style as one which facilitates the inclusive development of the organisation and aims to act as a cohesive factor for civic officials and citizens. He prioritised the cultivation of a deep management structure so that individuals work in tandem as an organisation. In a civic agency set-up, where the top management is often transferred, he prefers to develop the capabilities of middle-level executives to ensure continuity of operations. “It is better to commit mistakes than to not do any work” is one of his key principles. He also engages actively with citizens to make them understand the issues the corporation faces in implementing projects and policies. According to Gupta, the biggest problem is the growing population. “There is a mismatch between the inability of a major segment of the population to contribute to building resources and the responsibility of a welfare state to provide basic services to all. This has led to the exertion of significant pressure on available resources. To address this, assets should be utilised to facilitate capacity building in the lower strata of the population,” he says. Prior to joining the civil service in 1994, Gupta obtained a B Tech from the Indian Institute of Technology (IIT), Kharagpur and an M Tech from IIT Delhi. He has a passion for physics and is a voracious reader on the subject. He also enjoys playing table tennis and carrom. He describes his family as his support system and admires the many roles that his wife plays. She is a doctor, author and Bharatnatyam dancer. He has two children, a daughter who is studying in the tenth grade and a son who is studying in the fifth grade. Both his children are internationally rated chess players. ◗

92 ❘ Indian Infrastructure ❘ January 2015

people<<

D.K. Sen

Ashok Agarwal

Senior VP and Head, Transportation Infrastructure IC, L&T Limited

CEO and Whole-Time Director, Essel Infra and Utilities

.K. Sen heads the Transportation Infrastructure Independent Company (IC) of Larsen & Toubro’s (L&T) Construction Division in India and overseas. He has over 35 years of extensive experience and he is a board member of the Transportation Infrastructure IC, Chairman of L&T Infra Engineering Company and L&T Oman LLC. He believes in delegation, empowerment and participative style of management by which he guides his team towards achieving business objectives. “In a business segment like construction of mega EPC projects, it is very important to work with a positive bent of mind and to deal with manpower with immense passion, determination and optimism to achieve success,” he says. Prior to joining the Transportation Infrastructure IC , he was the project director of the Mumbai International Airport, regional manager for L&T Construction (Mumbai), sector project manager for B&F (Kolkata) and project manager for the Safal F&V Market Project at Bangalore. Sen is a civil engineer from IIT Kharagpur and holds an MBA degree from XLRI, Jamshedpur. He is also an alumnus of the London Business School. Sen is a part of curriculum advisory committees at IIT Kharagpur and NMIMS, Mumbai. On the current state of transportation in India, Sen says, “For the past two years, the scenario had been tough. PPP project business had been at an all time low as the sector faced issues such as problematic cash flows, delay in policy decisions and difficulty in achieving environmental clearances, lack of state support, etc.” However, with the new government, optimism has undoubtedly increased. Though significant changes are not yet visible on the ground, the government has shown positive intent. The National Highways Authority of India plans to award Rs 150 billion worth of EPC road projects by March 2015. Of these, L&T Transportation has already secured key contracts last month and expects to win a few more by end 2014-15. “However, it is necessary to boost the PPP segment through innovative and long term financing options,” says Sen. He says being project director of Mumbai International Airport was his most memorable assignment. His ambition is to establish L&T as one of the top three EPC players in the Middle East and Gulf. Sen loves to travel. Even though Sen has visited many exotic holiday locations abroad, his favorite destination is still Darjeeling. ◗

hile leading Essel Group’s Infra and Utilities business over the last two years, Ashok Agarwal has been responsible for the rapid growth of new ventures and key business verticals in transport, power transmission and distribution, urban infrastructure, environment, renewable energy and integrated utilities (power, water and city gas distribution, and solid waste management). He has been instrumental in instituting internal processes and compliances through a cohesive programme of management and business excellence initiatives across business-to-business and businessto-consumer segments. For Agarwal, sound organisation is the key to success. He has a very hands-on approach to management and defines his role as that of putting the key building blocks together for seamless delivery. A direct person, he is looked upon as a trusted leader with a passionate drive for corporate governance, quality systems and creating a team ethic. He has been successful in not just building a trusted brand but also in bringing in a spirit of innovation in the company. Talking about what keeps him energised, he says, “I like to work on a challenging assignment. Currently, we are planning to develop two smart cities in West Bengal in association with other players. It will be a challenge for us as a lead integrator and principal contractor to implement the project.” He is a postgraduate in management studies from the Indian Institute of Technology, Kharagpur and a gold medalist in mechanical engineering from MBM Engineering College, Jodhpur. He has over 18 years of experience and knowledge of a wide variety of industry sectors such as power, telecom, FMCG and manufacturing. In the past, he has been involved in companies such as Etisalat DB Telecom Private Limited (senior vice-president), Reliance Communications (general manager, sales and distribution), Bharti Airtel, Coca-Cola, and Hindustan Lever Limited. Agarwal’s vast expertise has helped him in efficiently managing difficult tasks in his current position. An avid reader, Agarwal always keeps himself abreast with the latest management trends. With his strong belief that businesses only exist to create, retain and delight a customer, Essel Infra and Utilities expects to build and sustain its leadership position in India. ◗

January 2015 ❘ Indian Infrastructure ❘ 93

>>people

K.K. Sharma

Sunil Jose

CEO and ED, Coastal Gujarat Power Limited

Managing Director, Teradata India

or K.K. Sharma, joining the power sector was an opportunity he could not resist. His first exposure to a thermal power project was the Santaldih power station in West Bengal. It inspired him to join the country’s premier utility, NTPC Limited, and he went on to develop a strong sense of belonging with the sector. “This has been my humble contribution to nation-building,” says Sharma. A gold medallist in electrical engineering from the G.B. Pant University of Agriculture and Technology, Pantnagar, Sharma also has a master’s in business administration with a specialisation in finance. He started his career as an executive engineer trainee at the control and automation company, Instrumentation Limited, in Kota, Rajasthan. He subsequently joined NTPC Limited at the country’s first superthermal power plant at Singrauli in Uttar Pradesh. At NTPC, he worked in several areas including projects, planning, operations and maintenance, contracts and systems, and was head of two power stations: Talcher in Odisha and Farakka in West Bengal. He was head of the control and instrumentation division, providing policy guidance and improvement frameworks for 102 thermal units. He also worked as the point of contact with the Electric Power Research Institute, USA. Sharma joined Tata Power in 2012 as chief of Coastal Gujarat Power Limited (CGPL), the SPV company set up to implement the 4,000 MW Mundra UMPP in Gujarat. He was later made CEO and executive director (ED) of the company. His responsibilities include strategic planning and execution, besides managing CGPL as a sustainable business that runs profitably (despite the present tariff challenges). The Mundra project, understandably, is his most memorable assignment. “The commissioning of the Mundra UMPP in a time frame of 380 days is a record in India,” he says. Commenting on the power sector, he notes that it is in a state of stagnation. “Past investments in capacity addition are giving low returns. In many cases, the returns are negative and there is no sign of the bottom line improving.” The deallocation of coal mines has further aggravated the situation. “A conducive business environment is needed to help the sector grow,” he says. Sharma has little time to spare as work keeps him very occupied. His ambition is to take CGPL to the level of the world’s best performing plant. ◗

s managing director (MD) at Teradata India, Sunil Jose oversees management and is responsible for charting the strategic direction for its Indian business. His immediate focus is creating awareness about the company's offerings to its potential customer base in India. Teradata is a market leader in the data warehousing and big data areas globally. Jose finds his current job at Teradata very exciting. He recalls one recent assignment to win over a large telecom operator as particularly memorable. "The client was trying to enhance and improve its view of customer behaviour through traditional data management analytics. It was hoping to refine its marketing campaigns (related to retention, upselling, cross-selling and valueadded service) in a bid to enhance revenue, while conforming to corporate reporting norms. Our team engaged continuously with the client's operational teams to assess the status of the migration and with its business teams to offer insights into new opportunities in data analytics and data warehousing," he says. Jose is focused on building a team of committed indivi-duals to drive Teradata's growth plans in the country. "I am a firm believer in the power and strength that people bring to an organisation," he says. "It is important to create an honest environment for people to thrive and perform in. At the same time, they need guidance and clear direction with regard to the organisation's strategy." A postgraduate in business management, Jose has extensive work experience across the telecom and IT domains. Before joining Teradata, he served as vice-president, applications, Oracle India, prior to which he was MD, India and ASEAN, Sybase. He was also associated with other leading technology companies such as IBM, American Power Conversion and HCL, where he started his career. Some of the trends that he foresees in the Indian telecom market include increased 4G deployments, the growing adoption of small cells to address local coverage and capacity issues, and a surge in the uptake of mobile M2M. "Today, all these capabilities are largely ad hoc in nature but will become systematic as we move ahead," he observes. When asked about how he spends his spare time, Jose says, "Spare time is rare. However, I like to play a game of tennis on weekends." He likes taking short breaks and vacations with his family, which consists of his wife and two daughters, aged nine and seven. ◗

94 ❘ Indian Infrastructure ❘ January 2015

Conference and Interactive Workshop on

INFRASTRUCTURE PROJECTS IN INDIA LESSONS LEARNT AND THE ROAD AHEAD â&#x20AC;&#x201C; TAX, LEGAL AND PROJECT MANAGEMENT PERSPECTIVES February 18-119, 2015, The Imperial, New Delhi Speakers/Faculty Include:

Save 20 per cent on delegate registration till February 3, 2015

Sujit Ghosh, Partner KPMG Ashish Gupta, Partner KPMG Amarjeet Singh, Partner KPMG Sudipta Bhattacharjee, Principal, Tax Controversy Management and Contract Documentation Advaita Legal Pratik Jain, Partner, Indirect Tax KPMG Shailendra Kumar Singh, Managing Associate Advaita Legal Nabin Ballodia, Partner, International Tax and Regulatory, India KPMG Vivek Gupta, Partner Simex Siddharth Mehta, Partner KPMG

In association with

For registration, please contact: Aditee Sharma, Conference Cell Tel: +91-111-446560424 | Mob: +91-99910664828 Email: aditee.sharma@indiainfrastructure.com

Shilpi Grewal, Conference Cell Tel: +91-111-446560423 | Mob: +91-99873883385 Email: shilpi.grewal@indiainfrastructure.com

Conference Cell, India Infrastructure Publishing Pvt. Ltd., B-117, Qutab Institutional Area, New Delhi 110016. Fax: +91-111-226531196, 46038149. E-m mail: conferencecell@indiainfrastructure.com