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India - Opportunities in Infrastructure for Foreign Investors

Arvind MayaramDepartment of Economic Affairs

Ministry of FinanceGovernment of India

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Investment scenario

GCFI in infrastructure as percentage of GDP 4.6 % during the tenth plan

If growth in GDP to be sustained GCFI in infrastructure must keep pace.

Total estimated investment of USD 320-350 billion in infrastructure up to 2012

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Investment Opportunities in IndiaIndicative

TRANSPORT: Roads ($ 48 bn.): BOT preferred mode; NHDP-40,000

kms Airports ($ 9 bn.): 4 Metro, 35 Non-metro airports Ports ($ 12 bn.): All new berths through BOT Railways ($ 12 billion): Container trains, DFC, Stations

POWER Generation ($ 130 bn.): Transmission, Distribution

OTHER SECTORS Gas Pipelines: Cross Country, Intra-city pipelines Telecom Health and Education Infrastructure Urban Mass Transport Urban Water Supply, Solid Waste Management

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Government is committed to PPP mode- Why?

Maximizing investment Budgetary constraints Development of assets of world class

standards Improved maintenance and management of

assets Provision of efficient services Affordable prices through greater

competition Risk Sharing

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What are Foreign Investors looking for?

Good projects Demand Potential Revenue Potential Stable Policy Environment/Political

Commitment Optimal Risk Allocation Framework Independent Regulation

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Does India have it?

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Good Projects

Large Package sizes are being insisted upon by GoI in the road and other sectors

Design based on superior technology which may not be available domestically

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Demand Potential

Ports: 877 million tonnes of traffic by 2011-2012

15.5% growth expected in containerized trafficAirports: Passenger and cargo traffic slated

to grow at over 20% annuallyRailways: Freight traffic is growing at close to

10% and passenger traffic at close to 8% annually

Power: 13% peaking and 8% average shortage of power annually

Telecom: Rural penetration less than 4%

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Revenue Potential

India scores because of its large untapped markets

Example: India is a telecom success story despite low Average Revenue per User- there is comfort in numbers

Power: High revenue recovery recorded in recent times with 100% recovery in many cases

High economic growth rate has translated into a larger disposable income and larger spending capacity

Willingness to pay exists provided delivery is of good quality

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Stable Policy Environment

Model Concession Agreements for each sector guaranteeing protection against change in law, change in taxation

Clarity in obligations of the authority and provision for penalty for breach of obligation

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Optimal Risk Allocation

Demand Risk is partly mitigated through provisions for change in duration of concession –both upside and downside

Competition from other suppliers limited through a variety of non-compete clauses

Escalation in input costs mitigated through indexation of user charges to inflation

Construction and performance risk to be borne by the investor

Political risk and force majeure risks borne by the Government

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Termination payments and terms protect against arbitrary termination by Government

Land acquisition risk borne by government

Risk relating to permits and approvals especially environment permission borne by government

Provision of other related infrastructure an obligation of the authority

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Independent Regulation

Telecom Regulatory Authority of India Central Electricity Regulatory

Commission/State Electricity Regulatory Commissions

Tariff Authority for Major Ports Airport Economic Regulatory

Authority Robust ‘regulation by contract’

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

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Steps taken by government to ease financing constraints

Viability Gap Funding (VGF) India Infrastructure Finance Company Limited (IIFCL) India Infrastructure Initiative ($ 5 bn. Fund) Enhanced Annual External Commercial Borrowing

ceiling Bonds- reporting platform started and trading

platform slated to start from July 1, 2007 Permission to foreign financial institutions and

multilaterals to raise rupee resources: ADB allowed to raise rupee resources

Encouraging development of new instruments such as grading of PPP projects/SPV rating by the major credit rating companies

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Creating a pipeline

Building capacity within institutions to handle large PPP program, including project preparation

Preparation of project preparation manuals, handbooks on procedures, toolkits, standard bidding and contract documents etc.

Expert support to central ministries/state governments for project preparation

India Infrastructure Project Development fund

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Thank YouThank You

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Sectoral Opportunities

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Power (Estimated investment: USD 60 billion)

Over 67000 MW capacity to be added in the 11th plan period (2007-08 to 2011-2012)

9 UMPPs to be implemented during the 11th and 12th plans

Transmission capacity augmentation through JVs for new generation

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Roads (Estimated investment: USD 49 billion)

NHDP-II: 4569 km, $103800

mn. NHDP-III: 10000 km $155200 mn. NHDP-IV: 20000 km $66100 mn. NHDP-V: 6500 km $98100 mn. NHDP-VI: 1000 km $39700 mn.

NHDP-VII: $38000 mn. State Roads

programme are in addtion

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Railways(Estimated investment USD 67 billion)

Dedicated Freight Corridors with PPP sub-projects envisaging more than USD 7 billion investment for the North South, East West Corridors alone

Container operations Rail side warehousing Logistics Parks Development of Rail links to Ports Dedicated rail links for evacuation of

specific industrial items Modernization of Railway Stations Development of new routes

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Airports (estimated investment USD 9 billion)

Metro Airport development through PPP

Greenfield Airports Concept of Merchant

Airports being examined by Government

City side development in 24 Non-metro Airports

Provision of Services within airports

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Ports:(Estimated investment

USD 11 billion)

National Maritime Development Programme

387 port projects

All new berths on PPP basis

Gradual transition of old berths to PPPCompound Annual Rate of Growth

during different Time span

10.789.979.5

6.745.51

0

2

4

6

8

10

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1951-2004

54 Years

1992-2004

Post Liberalized

Era

2001-2004

Last 3 Years

2003-2004

Prev ious Year

2004-2005

Projected Grow th

Period

Pe

rce

nta

ge

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Telecom

Untapped rural potential with low rural tele-density of 1.9% which must increase to 10% by 2012

Almost a million broadband connections added in 2006-2007. With low penetration scope for further increase

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Urban Infrastructure

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