Infrastructure in India: Challenges and Opportunities - Gajendra Haldea February 14, 2008 New Delhi

2 Infrastructure Deficit §Highways l 66,590 Km of NH (2% of network, 40% of traffic): only 12% Four- lane; 50% Two-lane; and 38% Single-lane §Ports l Inadequate berths, rail / road connectivity and draft are constraints §Airports l Inadequate capacity: Runways, aircraft handling capacity, parking space & terminal buildings §Railways l Old technology; saturated routes: slow average speeds (freight: 22 kmph; passengers: 50 kmph); low payload to Tare ratio (2.5) §Power l 13.8% peaking deficit and 9.6% energy shortage; 40% T&D losses; absence of competition; and inadequate private investment

3 Scale of the Challenge X Plan: Anticipated: US $ bn. XI Plan: Based on Physical Targets: US $ bn. Business as Usual: US $ bn.

4 Projected Investment in Infrastructure X PlanXI Plan Sectors US $ billionShare (%) US $ billionShare (%) Electricity (incl. NCE) Roads and Bridges Telecommunication Railways (incl. MRTS) Irrigation (incl. Watershed) Water Supply and Sanitation Ports Airports Storage Gas Total US $ billion Rs. crore871,4452,060,193

5 Projected Eleventh Plan Sector Share (%)

6 Policy Challenges §Large capacity addition l Time-bound delivery under budgetary constraints l World class yet cost effective l Commercially sustainable yet affordable §Attracting private investment l Policy & regulatory framework for PPPs l Optimal risk allocation l Institutional restructuring and reorientation l Financial support to PPPs

7 Division of Labour Public Sector to continue, and even expand - Especially in segments that can’t be commercialised, such as rural Reliance on PPPs for additionality & improved efficiency - In segments that can be commercialised, eg. roads, ports, airports & rail concessions Independent private investment whenever feasible - Enable competition in power generation, airlines, container trains etc.

8 Stages of PPPs I. Public sector provision of Infrastructure: Command & Control - PPP is an exception II. Introduction of PPPs: The Transition - Largely negotiated, often opaque - Often driven by private beneficiaries III. PPPs gain acceptability: Enhancing welfare & efficiency - Transparent, competitive and fair - Driven by the government; good governance becomes the key issue - Objective is to attract private capital in public projects  Indian PPP projects are in stage III

9 Governance Structure for PPPs Constitution of a Committee on Infrastructure (CoI) - Prime Minister is the Chairperson -Ministers of Infrastructure Ministries; Finance Minister and Deputy Chairman, Planning Commission are members Empowered Sub-Committee of CoI chaired by Dy. Chairman, Planning Commission and represented by Ministries Secretariat for CoI in the Planning Commission Ministries retain their role but work closely with CoI to develop & implement the vision for world-class infrastructure Greater reliance on inter-ministerial & inter-disciplinary dialogue to enrich outcomes & eliminate conflicts of interest.

10 Instruments of Governance PPPs integrated in the planning process Constitution of Inter-Ministerial Committees (IMCs) under chairmanship of Cabinet Secretary/ concerned Secretary Specified tasks are assigned to IMCs with an agreed time frame Involvement of experts in formulation of programmes & processes Consultations with stakeholders, including users & investors Simplification & standardisation of documents & processes

11 Instruments of Governance (contd.) PPP Appraisal Committee: - Appraises & recommends all PPP projects of the Central Government - Chaired by the Finance Secretary - Appraisal Unit in the Planning Commission Empowered Committee/ Institution - Approves proposals for Viability Gap Funding (upto 20% of capital costs) - Chaired by Secretary/ Addl. Secretary, Department of Economic Affairs - Appraisal Unit in the Planning Commission India Infrastructure Finance Company (IIFC) - Raises funds against sovereign guarantees - Provides upto 20% of capital costs as long-term debt

12 Important Reports under Implementation Model Concession Agreements in highways, rail & ports Guidelines for Pre-Qualification of Bidders (RFQ) Guidelines for Invitation of Financial Bids (RFP) Guidelines for formulation, appraisal & approval of PPP Projects Guidelines for financial support to PPP projects Scheme for financing infrastructure projects through the IIFC Financing Plan for National Highway Development Programme

13 Important Reports under Implementation Manual of Specifications and Standards for two lane highways Report on Restructuring of NHAI Financing Plan for Airports Report on the Delhi-Mumbai & Delhi-Howrah Freight Corridors. Report on Road Rail Connectivity of Major Ports. Report on streamlining of Customs procedures at Ports. Report on streamlining of Customs procedures at airports

14 Highways §46,000 km to be developed by 2012: $ 59 bn §PPP programmes approved so far: 21,036 km l 6-laning of 6,500 km of GQ & Other NH l EW & NS Corridors: 4-laning of 6,736 km l 4-laning of 6,800 km in selected sections on BOT l 1,000 km of new expressways §Safety l Setting up of Directorate of Safety & Traffic Management l Setting up of a dedicated road safety fund

15 Highways: Enabling framework §Financing plan firmed up l Cess on motor fuels ($ 1.7 bn per annum) and toll revenues to finance the programme l Viability gap funding upto 40% of capital costs §Model Concession Agreement for PPPs adopted l DBFO approach to be followed l PPP projects to have larger stretches (100 km or more) §Restructuring of NHAI being undertaken

16 Ports §New berths to add capacity of 830 MT by 2012 §Capital dredging for deepening of draft §Estimated investment: $ 22 bn, including state sector ports §Model Concession Agreement finalised §Perspective plan for 20 years and Action Plan for 7 yrs on way §Rail Road connectivity projects in progress §Enhanced powers delegated to Port Trusts §Simplification of Customs procedures in progress

17 Airports §High growth in traffic: about 20% per annum §Likely investments by 2012: $ 8 bn l PPP in Bangalore, Hyderabad, Delhi & Mumbai in progress l 10 Greenfield airports & 35 other airports to be developed l Upgradation of CNS-ATM Equipment §Model Concession Agreement being finalised §Transparent tariff setting: Airport Economic Regulatory Authority to be set up §AAI to be restructured

18 Railways §SPV for Dedicated Freight Corridor being set up l Likely investment: US $ 10bn l JICA feasibility study has been completed §Competition in container train movement introduced: 15 concession agreements signed §Technology upgradation and modernisation for higher operating efficiency §Transformation from bulk transporter to multi-modal transporter §PPP envisaged in new routes, railway stations, logistics parks, cargo aggregation & warehousing etc.

19 Scheme for financial support to PPPs §Leveraging scarce budgetary resources for addressing critical gaps in private sector financing §Economically justified but financially unviable projects l Long gestation periods l Inability to increase user charges to commercial levels §Viability Gap Funding upto 20% of capital costs §Bidding for minimum capital grant based on pre-approved concession agreement and project specifications §Power, roads, ports, airports, railways, water supply and urban transport

20 India Infrastructure Finance Company Ltd. §Lack of long term debt in capital markets §SPV to provide long term debt to viable infrastructure projects l Direct lending to PPP and public sector projects l Refinance for private projects §Funds to be raised from domestic and external markets on strength of government guarantees §Reliance on lead bank for appraisal and lending operations §Guarantee limit of Rs.10,000 cr. ($2.5 bn) per annum

21 Initiatives at State level States are initiating similar programmes State PPP projects can avail of upto 20% of capital costs as VGF grant from Central Government They can also avail of 20% of capital costs as long-term loans from IIFC Technical assistance being provided by Planning Commission Assistance for capacity building being provided by the Finance Ministry

22 Way forward §Reliance on PPPs for infrastructure development; public sector to also continue §Creating an enabling environment and framework for maximising private investment §Standardising documents and processes for reducing transaction costs and accelerating investment flows §Leveraging budgetary resources & multi-lateral assistance for PPPs §Accelerated roll-out of PPP projects §Objective is to create world class infrastructure

23 Thank You