infra str ature
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INFRASTRUCTURE
Group
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5
SOURCE- PRINCIPLES & PRACTICEOFMANAGEMENT BY P. K. AGARWAL
(A PRAGATI EDITION)
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INDIA GROWTH STORY
Indias economic growth is attracting wide attention
India & China are enjoying high economic growth
In 2006-07 Indias growth was 9.4%
Economic prosperity is placing huge demands oninfrastructure
India is the third largest economy behind USA andChina
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Infrastructure Requirements
World Economic Forum has noted that Indias annualinvestments in infrastructure between 1998 and 2005averaged 4% of GDP compared to 8.2% for China
Government of India is addressing the infrastructurerequirements
11th Five Year Plan (2007-2012) calls for more thandoubling the financial outlay for infrastructure
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Investment requirements
Total financing requirements
$492 billion in the next five years
Of this, $147 billion to come from private investment
Share of private investment in total to rise from 17% to30% by 2012.
Investment to touch $1.48 trillion by 2017
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Interest of international investors
Strong interest evinced by international investors inIndias infrastructure
This includes Private Equity 3i, Blackstone etc
International banks Citigroup, Macquarie Bank (Australia), Mizuho (Japan), Deutche
Bank
Multilateral institutions including ADB, World Bank, IFC,JBIC, KfW
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Challenges before India
India growth story likely to continue
Strong economic growth will fuel further demand oninfrastructure
India should absorb the large investments ininfrastructure sector to sustain growth momentum
Indian rupee has appreciated against the dollar by 5%over the past year and 20% in the past five years
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Development of PPP market in India
PPPs in India are at a nascent stage Slew of measures by government
100% foreign investment allowed in infra sectors Model Concession Agreements evolved Viability Gap Funding (VGF) Setting up of IIFCL Regulatory institutions (Telecom Regulatory Authority,
Port Tariff Authority) PPPs in India are accelerating
118 projects valued at $13.4 billion are progressing inroads, ports, airport sectors
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Transport Sector the potential inIndia
Aviation infrastructure
100% foreign direct investment allowed
$ 9 billion programme to upgrade 25 airports Delhi and Mumbai International airports two
PPP projects with estimated investment of $3.8billion
19 greenfield airport locations identifiedAirport Economic Regulatory Authority being set
up
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Air transportation - growth
Passenger traffic is projected to cross 100 millionpassengers p.a. by 2010
Cargo traffic to grow at over 20% p.a. over the nextfive years- To cross 3.3 million tonnes by 2010
Maintenance, Repair and Overhaul (MRO) growingin a big way MRO market expected to grow by 10%
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Roads and Highways India has the second longest road network in the
world of 3.3 million KMs
Expressways and highways constitute only 2% ofthe above
US $54 billion earmarked for the sector
Cargo traffic expected to grow by 15-18% overthe next 5 years
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Roads - Potential
100% foreign direct investment allowed Incentives:
- 100% income tax exemption for a period of 10
years - Grants/viability gap funding for marginal
projects available - Model Concession Agreement formulated
Opportunities in construction equipment (earthmoving, material handling equipment etc),tolling equipment services and advisory(architecture, structural design, soil investigationetc)
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Railways
India has one of the largest railway networks in theworld (63,000 route KMs network)
Accounts for 30% of total freight traffic Traffic volumes set to double by 2012
Potential for rolling stock, locomotives, passengercoaches, track equipment, signalling equipment
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Ports
India has coastline of 7500 KMs
12 major ports; 187 minor ports
Traffic has grown by a compounded average of8.5% Traffic expected to reach 880 million tonnes by 2011-12
95% of Indias exports & imports moved by sea
India expects to double its exports to $150 billionin the next five years
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Ports
100% FDI under the automatic route is permittedfor port development projects
100% income tax exemption is available for aperiod of 10 years
Tariff Authority for Major Ports (TAMP) regulatesthe ceiling for tariffs charged by Major ports
Investment needed in the next 5 years $18 billion
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Ports - Opportunity Opportunities exist in
Development of greenfield ports
Development of container and bulk terminals
Logistics infrastructure
Dredging services
Port related equipment
Ship building, ship repair, maritime training
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Role of IIFCL
IIFCL is a SPV to provide long term finance toinfrastructure projects
Overriding priority to PPP projects Finance projects in sectors like roads, airports, ports,
power, urban infrastructure etc
Since inception in April 2006
Financed 77 projects to the tune of $4.3 billion with atotal project cost of $31 billion
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Conclusion
Investment requirements of infrastructure sectorhuge
India growth story to continue 50% of the population is below 25 years Huge domestic demand
Need to bridge infrastructure gaps to sustaineconomic growth
Opportunities for international investorssignificant India can leverage on its vast human capital to
successfully adopt the PPP model
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Indias Infrastructure
Challenges
Experimenting with thePublic Private Partnership
Route
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Scope of this interaction Introduce the concept, need and basic terms to
increase familiarity with the subject
Take the case of a road project to discuss theissues relating to PPP
Consider the issue from different stand pointsgovernment, private sector, financiers, projectaffected parties and citizens
Share PPP experiences from your countries
Clarify any doubts if they arise after this session oron the email later on
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Traditional Model -BudgetarySupport Public good - Public Function Highly capital intensive
Long gestation period
Uncertain returns Plan expenditure
Why change the mode ?
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PPP Model More funds will be available for construction
and maintenance
Greaterefficiency through competition
Scope forInnovation
International best practices and knowledgetransfer
Government can focus on merit goods where
there are no private takers
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Fundamental concepts
What is a PPP? Is it the same as subsidy?
What are the types of PPP?
(Management contract/Lease)(BOT/BOO/BOOT/BOLT)
(DBFO)
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What is the role of Governmentexperts in PPP? Determining which projects can be taken up throughPPP- are they bankable? Facilitation at the design stage- project preparation
detailed feasibility report Facilitation in the pre-construction stage
Providing avenues for long term finance Understanding contingent liabilities Ensuring quick and effective dispute resolution
mechanism Ensuring transparency and fair play through adequate
regulation and disclosure Building effective and sustainable partnerships
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Optimum Apportioning of Risk
Project risks Technology/Design risk Construction risk Operating risk
Market risk Foreign exchange riskMacro-economic risks Political or Regulatory Risk Environmental risk Force Majeure risk
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Building Capacity in Public /Private SectorGuardians of Public Money
Viability Gap Funding PPP Cells - PPP Appraisal Committee
Transaction Advisors
Training/Information kits Standard Bidding Procedures
Model Concession Agreement
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Changing Public Opinion Change the command mindset Demonstrate excellent and trouble free delivery
Educate people on getting value for money inpublic expenditure
Re-train Public sector employees
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External Control- RegulatoryBodies Why is independent regulation necessary?
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Venture Capital for pre-operativeexpenses India Infrastructure Project Development Fund Huge upfront transaction cost + high risk
corpus Rs.1000 million, up to 75% project dev cost interest free loan to be recovered from successful
bidders State Govts and local bodies eligible
If no interest by bidders converted to grant
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Facilitating Finance India Infrastructure Finance Company Ltd.
-raises resources under Govt. guarantees
- up to 20% of project cost and then on-
lends to viable projects-Long term tenor (10 + years)
f
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India Infrastructure FinancingInitiative (IIFI) Equity and debt funding for viable state sector
projects
Partners 5 billion corpus
IIFCL Citigroup
IDFC
Blackstone Group Holdings
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PPP in the Road Sector EPC vs item-rate contract BOT (Annuity)/BOT (Toll)
O&M contracts
Toll Policy
Major concernsPoor quality of contractors
Land acquisition and R&R
Capacity of NHAI and State PWDs
Environment/Forest
Traffic vs connectivity
Apathy to paying toll
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Internal Controls Define all terms Conditions precedent (Escrow account,Applicable permits,performance security,Financing Agreements)
Detailed account of obligations ofconcessionnaire
Obligations of Authority
Representations and Warranties
Mandatory Disclosure
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Internal Controls International Competitive Bidding Bid security/performance security
Outcome specification
Completion Certificate
If there is a change of scope?
O&M obligations
Safety requirements
Independent Engineer Dispute Resolution Mechanism
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Accounts and Audits Concessionnaire to appoint a Statutory Auditor
from a list of mutually agreed panel
Articles and schedules provided in the MCA
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The Interpretations Committee (IFRIC) of the
International Accounting Standards Board is
developing financial accounting standards for
PPPs.
The complexity of PPPs and the dependence
of national accountants on government financial
accounting data makes it highly desirable to havea common treatment of PPPs in the SNA and
in the accounting standards.
How should PPPs be accounted for?
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THANK YOU FOR YOUR ATTENTION
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