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INFRASTRUCTURE DEVELOPMENT
Paper 402: International Business INFRASTRUCTURE DEVELOPMENT Ajay Biswas (N-2) Brajmohan Panigrahi (N-11) Prem Prakash (N-37) Rajesh Mongia (N-44) Tarun Sejwal (N-60) Kornelius Tirkey (S-28) Priya Jain (S-43) III year Faculty of Management Studies
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FORMAT OF PRESENTATION
● Starting Note : Tarun Sejwal ● Infrastructure Finance : Tarun Sejwal Infrastructure Sectors ● Roadways : Rajesh Mongia ● Railways + Metro : Brajmohan Panigrahi ● Ports (Air + Sea) : Ajay Biswas ● Telecom : Kornelius Tirkey ● Power : Prem Prakash 2
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What is Infrastructure?
‘Infrastructure’ means: The installations that form the basis for any operation or system. Originally used in a military sense. The term typically refers to the technical structures that support a society, such as roads, water supply, sewers, power grids, telecommunications etc. Functionally - facilitates the production of goods and services
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Scale of the Challenge 4 XI Plan: X Plan:
Based on Physical Targets: US $ bn. Business as Usual: US $ bn. X Plan: Anticipated: US $ bn. 4 4
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Projected Eleventh Plan Sector Share (%)
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Further, they have elaborated in their plan to open more sectors to private financing for infrastructure. The $490bn includes about 30% ($145bn over 5 years) PPP and purely private infra projects mainly focused on Telecoms, Roads Ports, airports. Does not include private capex investment of large firms like Reliance and Tata. Average GDP growth in other emerging market nations has ranged from 7%-11% with infrastructure (GCFI) spend of 13-15% of GDP [to check source]
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How can Infrastructure be financed?
Road Map for infrastructure development
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Typical project finance structure
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Infrastructure Finance
INTRODUCTION ● Indian Economy has enormous growth potential. 8.8% average growth during (highest ever) due to large economic stimulus & accommodative monetary policy. ● 11th Five Year Plan ( ) targets 9% economic growth & inclusive growth process. Problems to be addressed: (i) Agriculture Reforms (ii) Governance Reforms (iii) Infrastructure Reforms
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Role of Infrastructure & Traditional constraints w.r.t. Finance
Infrastructure Finance Role of Infrastructure & Traditional constraints w.r.t. Finance ● One of the key drivers to Economic Growth - High growth rate leads to better infrastructure ● Fast pace of eco. growth & urbanization demands adequate facilities as well as upgrade quality of existing infrastructure. ● Infrastructure Development in new townships is a priority to redistribute influx of growing population. ● Attention to be paid to rural infrastructure provision – irrigation, electrification, roads, drinking water, sanitation, housing, community IT service etc. 10
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Role of Infrastructure & Traditional constraints w.r.t. Finance
Infrastructure Finance Role of Infrastructure & Traditional constraints w.r.t. Finance Characteristics of Infrastructure Projects- (a) Non-recourse/limited recourse financing – lender can be repaid from revenues generated by projects requiring high scale of investments (b) High initial capital (c) Low operating costs (d) Financing involves a mix of complex & varied contractual arrangements (e) Major Risks: (i) Wrong Projections (ii) Collection Risks of payables (iii) Reneging of the Contract (f) Uncertain & low returns (in risk adjusted terms) (g) Necessitates additional incentives to attract pvt.investment. 11
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Infrastructure Developments in India
Infrastructure Finance Infrastructure Developments in India Most of local & state govts. not in a position to undertake such investments; depend on central assistance. Its success also depends upon – Project Viability, Realization of User Costs, Avoiding time & cost overrun, Contract Enforcement, Efficient Utilization of Funds ● Traditionally, govt. bore the burden. ● Revisited through economic reforms in 1990s with pvt. Players ● Electricity Supply Act, 1948 amended in ● National Highways Act, 1056 amended in 1995 to attract pvt.investment on road development & operations. ● Telecommunications sector deregulated, TRAI established in 1997. 12
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Infrastructure Developments in India
Infrastructure Finance Infrastructure Developments in India PRIVATE PARTICIPATION ● Notable progress made in attracting private investment. ● High investments where user-cost is defined + recoverable. ● For remaining segment – public investments have to supplement infrastructure projects given their importance. Eg. Irrigation, Water supply, Electricity, Gas ● Financing requirement projected at over 30% in 11th Five Year Plans (up from 20%) ● Bharat Nirman Programme focuses on rural infrastructure like irrigation, roads, drinking water supply, sanitation, affordable housing, community IT services. 13
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Infrastructure Developments in India
Infrastructure Finance Infrastructure Developments in India Key Features of 11th Five Year Plan – ● Increase gross capital in infrastructure from 5% to 9% of GDP. ● Envisages investment req. of Rs.20,11,521 cr. - Traditional sources can only raise about 50% of this only ● ● Enabling Conditions desired for more pvt. participation by – (i) A vibrant debt market (ii) Easy exit route for equity capital (ii) Appropriate instruments for credit institutions to lend infrastructure while hedging associated risks. 14
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Infrastructure Developments in India
Infrastructure Finance Infrastructure Developments in India Estimated investments flows to various sectors (Rs.CR) – (Source: Planning Commission) SECTORS Electricity, Roads & Bridges Telecommunication Railways, Irrigations, Water Supply & Sanitation Ports & Airports Storage & Gas TOTAL 10thPlan (‘02-07) 4,36,742 1,03,365 2,95,964 20,842 14,352 8,71,445 11thPlan (’07-12) 9,80,677 2,58,439 6,58,839 1,18,963 39,233 20,56,150 15
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Infrastructure Developments in India
Infrastructure Finance Infrastructure Developments in India PUBLIC PRIVATE PARTNERSHIPS Initially in India, the response of pvt. sector lukewarm due to – ● Overlapping Regulatory Jurisdiction ● Improper Design & Project Costs ● Appraisal & Risk Allocation Mechanism under PPP ● Bidding transparency issues ● Time overruns considerations ● PPPs rely on commercial banks exposing them to risk concentration & other exposures to rising interest rates & tightening credits. Solution: Centralized PPP mechanisms + Single Window clearance of projects under direct investment routes Gained popularity in recent years as conventional route funding through govt. is becoming difficult. 16
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Financing of Infrastructure Investments in India
Infrastructure Finance Financing of Infrastructure Investments in India Long Term Debt Financing is overstated – longer payback periods of infrastructure projects & delays due to complexities in design, safety & environmental aspects. Solution: ● Mature & vibrant corporate debt market (for long-term risk-averse investors aiming regular returns post lock-in) ● Greater Deepening in non- govt. debt market with sound financial, legal & regulatory framework. ● Enhance benefit of price discovery & risk diversification ● PPP reduces over-reliance on banking system. Indian financial market holds 35% in public sector debt market and less than 2% GDP. Malaysia, Korea & China have higher % of corporate bonds to GDP. 17
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Financing of Infrastructure Investments in India
Infrastructure Finance Financing of Infrastructure Investments in India ● Segmentation in Gilt Securities failed. ● Tendency to adopt lopsided structures and over-reliance on equity. Govt. uses tax revenues & PSUs surplus to fund infrastructure; Pvt. Sector capital requirements still met through equity. ● Credit extended by Commercial Banks restricted through exposure norms & Cash Reserve & Statutory Liquidity Ratio ● Thus, infrastructure finance requirements cannot be filled by banks alone but also from long-term finance agencies like insurance & pension funds. 18
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Financing of Infrastructure Investments in India
Infrastructure Finance Financing of Infrastructure Investments in India FOREIGN SOURCES & BANKS FOREIGN SOURCES are supplementing domestic financial market. External Commercial Borrowings inflows rising. Sizeable amount of foreign investment received through FDIs. Cumulative amount since 2000 is staggering 100B USD with highest share by ICT & Telecom. Continuous investment support also from FII – highly volatile BANKS – developed appraisal skills for long-term lending including infrastructure finance. Credit increased from Rs.7,283 in to Rs.2,69,972 in The share of bank finance to infrastructure gone up from 1.8% in 2001 to 10.2% in Banks’ exposure to infrastructure lending gone over 3.7 times between March 2005 & 2009. 19
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Infrastructure Finance
Measures taken by RBI Regulatory concessions for infrastructure finance – ● Allowing banks to enter into financial arrangements ● Freedom to issue long term bonds by banks ● Relaxation of single & group borrower limit for additional credit exposure ● Flexibility to invest in unrated bonds of companies within overall ceiling of 10 % ● Excluding promoter’s shares in SPV to be pledged to lending bank from bank’s capital market exposure. ● Permitting banks to extend finance for funding promoter’s equity. Setup of an SPV - India Infrastructure Finance Company Ltd. (IIFCL) for providing long-term financial assistance to infrastructure projects ‘Take-out financing’: Refinance 60% of commercial bank loans for PPP projects thus leveraging bank financing Rs.1,00,000 crores. (FAILED as cost of borrowing was high) 20
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Measures/Solutions to bridge the gap
Infrastructure Finance Measures/Solutions to bridge the gap ● Participation of pension funds & insurance companies in funding long-terms infrastructure projects; leaders are Australian, Canadian & Dutch pension funds. ● Development of domestic long-term capital markets for pvt.sector investment. But depth & liquidity of corporate bond market needs major improvement. (Barriers: Limited investor base, limited no. of issuers & preference for bank finance over bonds); Syndication of loans ● Credit enhancement by way of risk transfer & risk reduction; Lenders look for credit enhancement from govt. policy guarantees, refinancing & maturity extension guarantees. Bond Insurance, credit rating provide risk mitigation to lenders. ● Improvement of all infrastructure like power, telecommunications, irrigation, transport, housing, water supply, sanitation etc. ● Additional Flexibility for long term bonds as regards to tenor of bonds issuance or allowing Zero Coupon Bonds with income tax benefits. 21
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ROAD INFRASTRUCTURE 22
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India road network 3.3 million km –second largest in the world
INDIAN SCENARIO India road network 3.3 million km –second largest in the world National Highways - total length 66,590 km Traffic handled - 70 % freight & 85 % passenger Highways/ Expressways - only 2 % of length of all roads but carry 40 % of road traffic leading to strain on road capacity Compounded annual growth rate (CAGR) of vehicles on roads over 8% in the last 5 years 23
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INVESTMENT ENVIRONMENT IN INDIA
100% FDI allowed - Automatic Route Flexible operating environment for investors Double Taxation Avoidance Agreements (DTAA) with large number of countries Stable democratic institutions / independent legal system / Equitable dispute resolution mechanism Robust economy growing at an average of 5-6% of GDP Large pool of trained and skilled work force Assured funding for Highway Projects from Govt Modern financial systems with supporting capital market & sound banking network Advanced (R&D) facilities available at institutes of international repute 24
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Public-Private Partnership- Initiatives taken by government
Declaration of the road sector as an industry FDI up to 100% allowed in road sector Easier external commercial borrowing norms Viability Gap funding (VGF): Provn of capital subsidy up to 40% of the project cost to make commercially viable Duty free import of high capacity and modern const equip 100% tax exemption in any consecutive 10 years out of the first 20 years of a project 25
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Public-Private Partnership- Initiatives taken by government (Contd/-)
Right to collect and retain toll Provn of encumbrance free site for work, i.e. Govt to meet all exp relating to land Acquisition / other pre-construction activities. Equity participation by NHAI to lend credibility to promoters of a project Flexible operating environment to make Projects investor friendly 26
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PRIVATE PARTICIPATION APPROACHES IN FINANCING OF HIGHWAY PROJECTS
BOT (Toll) Scheme BOT (Annuity ) Scheme 27
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BOT (TOLL) SCHEME Concessionaire recovers entire upfront cost, interest and return on investment out of the future toll collection 2. To bridge the gap between investment reqd & gains i.e., to increase viability of projects, capital grant provided (up to max 40% of project cost) 3. Each BOT project awarded through competitive bidding 4. Selection based on the least grant (subsidy) quoted by bidders (concession pd being fixed & toll rates pre-defined) 28
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Each Annuity project awarded through competitive bidding basis
BOT (Annuity ) Scheme Concessionaire (pvt sector) meets entire upfront cost of constn. (no grant is paid by the client) and annual maint. expenditure Concessionaire recovers entire investment and pre-determined cost of return, out of the annuities payable by the client Each Annuity project awarded through competitive bidding basis The selection basis on the least annuity quoted by the bidders (concession period being fixed) The risk wrt traffic (toll) is retained by the Client (Govt / NHAI) since client collects the toll. 29
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The National Highways Development Project (NHDP)
LARGEST HIGHWAY PROJECT EVER IN INDIA Under National Highways Authority of India (NHAI) Widening, upgrading and rehabilitation of about 55,000 km roads Estimated investment INR 3,00,000 Crore (USD 60 billion). 30
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NHDP PHASE-I Four/ six/eight laning of 7,498 km of National Highways
Golden Quadrilateral (5,846 km) connecting four metropolitan cities i.e. Delhi, Mumbai, Chennai and Kolkata North-South (NS) and East-West (EW) corridors (981 km) Port connectivity projects (356 km) & others (315 km) Estimated cost - Rs. 30,300 crore Around 12% through PPP route on BOT (Toll) [6.0%] and BOT (Annuity) [6.0%] mode Largely Completed 31
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Estimated cost Corridor of Rs. 34,339 crore.
NHDP PHASE II Four/ six laning of 6644 km of National Highways (North South & East West Corridor ) Estimated cost Corridor of Rs. 34,339 crore. Around 24% through PPP on BOT (Toll) [11%] and BOT (Annuity) [13%] . Scheduled for completion by Dec NHDP Phase-III Upgradation of 12,109 km of existing National Highways Implementation on BOT basis with a max viability gap funding (VGF) of 40%. Estimated cost of Rs. 80,626 crore Scheduled for completion by Dec 32
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NHDP Phase-IV NHDP Phase –V
Widening of 20,000 km of existing single /intermediate /two lane highways to two lane with paved shoulders Estimated cost of Rs. 27,800 crore Implementation through PPP route on BOT (Toll) /BOT (Annuity) basis NHDP Phase –V Six laning of 6500 km of National Highways Estimated cost of Rs. 41,210 crore Implementation through PPP route on BOT (Toll) mode using Design Build Finance and Operate (DBFO) pattern with a maximum VGF of 10%. Scheduled for completion by Dec 33
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NHDP Phase-VI NHDP Phase-VII
Construction of 1000 km of expressways Estimated cost of Rs. 16,680 crore Implementation through PPP route on BOT (Toll) mode following a DBFO pattern with a maximum VGF of 40%. Action is being taken for preparation of feasibility report Scheduled for completion by Dec NHDP Phase-VII Construction of 700 km of stand alone ring roads/bypasses as well as grade separators, flyovers, elevated road, tunnels road over bridge, under passes etc Implementation through PPP route on BOT (Toll) mode with a maximum VGF of 40% Action is being taken for preparation of feasibility study Scheduled for completion by Dec 34
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Financing Highways Development Programme in India
Government's general budgetary sources Main source is fuel cess on diesel and petrol under the non-lapsable and dedicated Central Road Fund Securitization of cess (leveraged on the strength of future inflow of cess to borrow additional funds from the domestic market) Public private partnership (PPP) Lending by international institutions: World Bank, Asian Development Bank & Japan Bank for International Cooperation (JBIC) 35
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Public-Private Partnership (i)
Public-Private Partnership (i) NHDP-I and NHDP-II mostly funded through Govt share of BOT Highways only 10%. (ii) NHDP-III onwards, the funding mechanism mostly Public-Private Participation (iii) High traffic corridors offered to concessionaire making PPP an attractive and profitable proposition (iv) Public Private Partnership proving successful & future projects envisaged in BOT mode. 36
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Successful Projects Jaipur-Kishangarh BOT (Toll) Project – NH8 ● One of the earliest projects implemented ● 4-laning of 91 km from Jaipur to Kishangarh (NH-8) ● Estimated cost of INR 644 Crore ● Concession period: 20 years ● Completed 5 months ahead of scheduled date (2005) ● Concessionaire earned bonus of INR crore in the form of early tolling during the period before scheduled completion date. Belgaum – Maharashtra Border Section of NH-4 (BOT-Annuity) ● Widening of two lanes to 4-lanes ● Estimated cost of 78 km long road project: INR 332 Crore ● Project awarded to the consortium of M/s ILFS, M/s Punj Lloyd Ltd.& M/s Consolidated Toll Network India Ltd. ● Concession period is 17 years- 6 months. ● Concessionaire completed in Oct.2004, two months ahead of completion date. ● Paid performance bonus of INR Crore on account of early completion. 37
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Projects awarded on negative grant
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Goal under Eleventh Five Year Plan
Preparation of blueprint for 15,600 kms of expressways Completion of Land Acquisition for 6,000 kms. Expeditious construction of at least 1,000 kms of expressways. Constraints in the implementation of NHDP Delays in land acquisition Delays in removal of structures, shifting of utilities, Law and order problem in some States Poor performance of contractors (Recent Kamal Nath’s visit on NH8). 39
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RAILWAYS
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Indian Railways (IR) More than 150 years old.
One of the largest and oldest railway systems in the world. Extensive network. Played an integrating role in the social and economic development of the country. Principal mode of transportation for long haul freight movement in bulk, long distance Passenger traffic, and mass rapid transit in suburban areas. Occupies a unique position in the socio-economic map of the country and is considered as a vehicle and a barometer of growth. Biggest state owned enterprise in India, and contributes about 1% of India’s GNP.
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Policy and regulatory framework
Railways have allowed private entry into container rail transport services with licenses issued to 14 private parties and are commencing the next round of issuing licenses. Railways have announced a revamped Wagon Investment Scheme for private participation in rolling stock Railways have announced intent to pursue PPP framework for expansion of infrastructure and services.
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Key Network Statistics (2008-09)
PLANT & EQUIPMENT: Capital-at-charge Rs. In Cr. 104301 Total investment ” 176726 Route length Kms. 64015 Locomotives Nos. 8153 Passenger service vehicles 45350 Other coaching vehicles 5905 Wagons 207719 Railway stations 6909 OPERATIONS: Passenger: Train kms. Millions 551 Vehicle kms. 15741 Freight: Train kms. 305 Wagon kms. 34414
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Share of Railways in successive plans
Transport Sector Total Plan Outlay Rs crores % of Total Plan Upto VI Plan ( ) 11,308 6.70% 24,079 14.20% 169,271 VII Plan ( ) 16,549 7.60% 29,548 13.50% 218,729 VIII Plan ( ) 32,396 65,173 13.40% 485,457 IX Plan ( ) 45,725 5.60% 117,563 14.40% 813,998 X Plan ( ) 60,600 4.00% 225,977 14.80% 1,525,639
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Thrust Areas of the Eleventh Plan
Freight Business Passenger Business Capacity Enhancement Technology Upgradation Energy Safety Human Resources Resource Mobilisation
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Breakup of plan outlay in Eleventh five year plan
Plan Head X PLAN Expenditure Percent XI PLAN outlay NEW LINES 9202 10.86% 16000 6.37% GAUGE CONVERSION 6240 7.37% 18700 7.45% DOUBLING 3461 4.08% 19000 7.57% TRAFFIC FACILITIES -YARD REMOD 1623 1.92% 7500 2.99% COMPUTERISATION 608 0.72% 5200 2.07% RAILWAY RESEARCH 71 0.08% 425 0.17% ROLLING STOCK 26807** 31.65% 59475 23.70% Road Safety-Level Crossing 641 0.76% 1000 0.40% Road Safety-ROB/RUB 863 1.02% 11000 4.38% TRACK RENEWALS 15363 18.14% 23165 9.59% BRIDGE WORKS 1740 2.05% 2895 1.15%
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Plan Head X PLAN Expenditure Percent XI PLAN outlay SIGNALLING & TELECOM WORKS 4447 5.25% 12000 4.78% ELECTRIFICATION PROJECTS 810 0.96% 3500 1.39% OTHER ELECTRICAL WORKS 787 0.93% 3460 1.38% MACHINERY & PLANT 827 0.98% 2200 0.88% WORKSHOPS inclu. PRODUCTION UN 1262 1.49% 10100 4.02% STAFF QUARTERS 324 0.38% 1085 0.43% AMENITIES FOR STAFF 416 0.49% 1455 0.58% PASSENGER & OTH. USERS' AMENIT 1235 1.46% INVESTMENT IN PSUs 3723 4.39% 41000* 16.34% OTHER SPECIFIED WORKS 766 0.90% 1000 0.40% M.T.P. 1450 1.71% 4750 1.89% INVENTORIES 2041 2.41% 2590 1.02% Total 84708 100.00% 251000
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Sources of Funds for Plan Outlay
Internal revenue generation (Depreciation Reserve Fund (DRF),Railway Capital Fund (CF),Development Fund (DF), Open Line Works Revenue (OLWR) the general exchequer borrowings from the domestic and international markets safety funds from the general exchequer and surcharge state governments and special purpose vehicles
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Extra-Budgetary Resources (EBR)
The various options are listed below: Market borrowing through IRFC Japanese Funding for DFC Debt and Equity participation raised by RVNL/ other SPVs to finance projects Cost sharing by State Governments / Government agencies Viability Gap funding Wagon Investment Scheme (WIS) Rolling Stock leased from manufacturers Public Private Partnership (PPP) – BOT, BOLT etc.
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ANNUAL PLAN Proposed Annual Plan Outlay for the year is – Rs Cr. to be financed from the following: Support of Rs cr from General Revenues. Internal Resources of Rs cr. Diesel Cess of Rs. 877 Cr Extra Budgetary Resources of Rs cr
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Issues facing IR No Market Segmentation Perspective
Need for Growth in Capacity Unsustainable Employee Costs Pricing not based on Economic Rationale Departmental Structure with no Corporate Perspective Lack of Autonomy: Political Control
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Public railway systems can in principle raise finance from a variety of other sources, for example…
Budget sources Direct Borrowing Private participation Asset finance Deficit financing Corporate borrowing Joint-Ventures Export credit Government loans/equity Revenue-backed borrowing Concessions Leasing Government grants Project-specific borrowing Privatization of business units Availability contracts In practice, most publicly railway systems depend heavily on the budget sources, particularly those that have a big passenger role
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Railways and PPP Railways is the only infrastructure sector in India that always recognized PPP since it started developing in the late 1880’s. Railways Act, 1988 continued to recognize PPP through concept of “non-government railway”. However there is no framework stipulated for non-government railways in the Railways Act. No active “encouragement” in the law to PPP, but good enough for a workable PPP frame work
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Approach to PPPs PPPs require a predictable & enforceable framework
– Past experience suggests that PPPs and Concession Agreements are far more complex than anticipated –Sponsors inevitably push for high returns: low level of risks & obligations, ‘cost plus’ tariffs & government guarantees –Expertise & transparent policies are necessary for evolving Concession Agreements that secure value for public money A Model Concession Agreement needs to be evolved (MoR has done this for private container train operations, project specific SPVs of RVNL etc.)
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METRO- A solution for Urban Transport
“Move people- Not Vehicles” National Urban Transport Policy Mission
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Why has public transit usage declined?
Higher disposable incomes National per capita income growth of 55% from Preference for two-wheeler vehicles Two-wheelers have grown by 75% from 2001 to 2006 Decline in bus services by city and state transport agencies Number of buses held by STUs has gone down by about 6% from Vehicle utilization has remained constant at 196 KM/day/bus from
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Need of MRTS From 1981 to 2001, population increased in six major metropolises by 1.9 times but motor vehicles increased by 7.75 times . Energy demand in transport sector projected to grow at 5-8% per annum India’s fuel consumption in 2035 will be over six times that in 2005
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Financing Routes Public sector SPV Central and State Central and state govt. equity Delhi, Bangalore PPP - with viability gap support Mumbai Phase-I PPP - without viability gap support Hyderabad Funding from urban renewal mission Mumbai Phase-II
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Principal Risks The principal risks associated with the financial viability of any urban rail scheme are: • Major unforeseen design changes • Large cost and time over-runs during construction • Lower patronage than expected • Financing and debt repayment
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Conclusions MRTS is an ecologically and economically efficient way of moving large volumes of passengers in big cities. Financial uncertainties of capital intensive projects need careful planning, project management and effective operational management policies. Government support for the capital funding of the project is likely to be essential for the project's successful financial viability, with private participation contributing in both the execution and operation of the scheme. Integration with other transport modes is also essential, careful planning of fares policy, through ticketing arrangements, and feeder-bus services, which may initially have to be developed by the Rail Company.
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AIRPORT INFRASTRUCTURE
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Structure of Presentation
Mapping the Development: Airports Policy Changes in Civil Aviation Evolving Business Model Financing of Airports Current Opportunities
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Major Airports in India
Indian Airports 449 airports/airstrips in the country (126 managed by Airport Authority of India (AAI) 16 international 88 domestic operational
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Airports: Mapping the Development
AAI liberalizes the rules for private sector participation. Airport infrastructure development via the PPP route major metro cities i.e. Delhi, Mumbai, Bangalore & Hyderabad. Identification of 35 non-metro airports where private players will be selected via a bidding process for developing Airports. Greenfield Airports at Bangalore and Hyderabad have been developed with increased passenger capacity and plans for further expansion. Delhi and Mumbai are seeing an expansion in the passenger capacity to be able to better cope with rise in volumes.
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Efforts made to improve the facilities at the airports including:
Services delivery to passengers Beefed up security arrangements Larger numbers of check-in & Immigration counters. Employee communication and training. Requirements for Indian airports to provide services at par with their global counterparts i.e. Dubai & Singapore airport.
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Policy Changes in Civil Aviation
Revised draft of the National Civil Aviation policy, submitted to the cabinet for approval. Draft at its current stage has referred to a Group of Ministers (GoM) for review. “Vision 2020”, a policy framework developed by Ministry of Civil Aviation outlines developmental aspects for India's airports and capacity building initiatives. (Policy is presently at a draft stage)
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Key proposed changes of the policy
FDI (Permissible up to 100 %) Govt. plans to extend a low tax structure. Guidelines and procedures for the Estd. of 'Merchant Airports' . AAI to hive its some services i.e. consultancy division, air cargo handling and set in place efficient subsidiaries either fully owned by the AAI or through JV Setting of an external Air Traffic Management (ATM) company Air traffic controllers shall be given licenses and assessed on the basis of their performance. Establish the Airports Economic Regulatory Authority (AERA) to approve traffic structures for aeronautical services and monitor airport quality standards.
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Key developments in civil aviation policy
(a) Opening of India-Gulf Route: To eligible private schedule carriers from 1 January 2008, which is now in place. (b) Overseas Route: Allowing only those Indian carriers which have five years of domestic flying experience and have a minimum fleet size of 20 aircraft to fly overseas (Kingfisher has become eligible to fly on overseas)
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Greenfield Airports Policy
Important component in the development of infrastructure for the aviation industry. To be set up by AAI would be preferably constructed and substantially financed through the PPP route. Financing gaps can be bridged through the Viability Gap Funding scheme, which provides for a capital grant of up to 20 percent of the project cost. PPP model may not prove feasible in north-eastern areas since these airports do not generate enough revenues to attract private sector participation (For these the AAI could set up Greenfield airports by itself) Proposals to set up a Greenfield airport 150 kms away from existing civilian airport & will not require prior approval of the Central Govt. (DGCA) would grant license for operation of these airports. Exception: In case of a sound business case Govt. may allow an airport within 150 kms of an existing civilian airport.
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Evolving Business Model
Airport development has achieved considerable progress since the sector was first liberalised and private player was allowed. Over the course of time several PPP models have been developed for different airports, each catering to the requirements within the purview of the regulatory framework.
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Airport Type Ownership Involvement
Following table provides an overview of the private sector involvement in the development of different airports. Airport Type Ownership Involvement Cochin International Airport Greenfield Cochin International Airport Limited (CIAL), a public company which is held by a large number of Non Resident Indians, major Indian corporations and has a 13 percent holding by the government of Kerala. The airport is wholly managed and operated by CIAL Hyderabad Airport GMR Group holds 63 percent of the equity, Malaysia Airports Holdings Berhard (MAHB) 11 percent, while the Government of Andhra Pradesh and AAI each hold 13 percent. GMR HIAL has undertaken to build, finance, operate and maintain the new airport under a PPP initiative under (BOOT) agreement Bengaluru Siemens Project Ventures, Germany owns a 40% equity, Zurich Airport, Switzerland and Larsen & Toubro India own 17% and AAI and KSIIDC (an agency owned by the state of Karnataka, India) both hold 13 percent each. Built and operated by Bangalore Int. Airport Ltd for next 30 years with an option to continue for another 30 years. BOOT agreement
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Airport Type Ownership Involvement
Mumbai Airport Brownfield MIAL is a joint venture company owned by the GVK led consortium - comprising of GVK industries – 37%, Airports Company South Africa – 37%, Bidvest - 10 percent and AAI own is 26 percent. MIAL is mandated to finance, design, build, operate and maintain the airport. BOOT agreement. Delhi Airport DIAL is a joint venture company owned by the GMR Group percent, AAI – 26%, Fraport AG – 10%, Eraman Malaysia – 10% and India Development Fund 3.9%. DIAL is mandated to finance, design, build, operate and maintain the IGIA for a period of 30 years till 2036 with an option for extension by another 30 years. BOOT agreement
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Stakeholder's Perspective
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Airports Authority of India (AAI)
Central body incharge of domestic and International airports in India. Involved in both constructing airports on its own and partnering with the private sector for the development of new Airports/ Terminals. Only provider of Air Navigational Services for all operational airports in India. Invest in the up gradation of communications, metrological equipment navigation & surveillance systems for Air Traffic Management (Estimated Invt: INR 27 billion).
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Infrastructure Committee of the Planning Commission
Monitoring role in the development of the sector. Policies and initiatives recommended play an important role in shaping the development of the sector. New initiatives: Model Concession Agreement (MCA) is developed attract private investments for the smooth execution of air transport projects. AERA (Independent Regulator) is established to regulate the functioning of airports and help in operating efficient, economic, and viable airports.
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Airlines Rising ATF costs, increasing airfares and falling passenger traffic contributed to the slowdown Over-capacity in the market is hurting the carriers and has also led to a wave of consolidation and acquisition. Adopting cost-cutting measures i.e. reducing no. of flights, rationalising routes and reducing inventory of spares. Non profitable routes are being restructured. Airlines are surrendering leased planes and are phasing out the old ones.
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Airlines (Contd.) Identifying/develop new routes & focus on emerging traffic destinations to improve profitability and avoid flying with low-occupancy rates. Focus on non-passenger revenues from food and beverages, merchandise etc. Reduction in the tax on ATF and uniform ATF prices will help the airlines rationalize their costs. Slowdown in the airlines growth also impacts growth expectations that airports have. Some airlines abandoned the use of aerobridges at new airports which are charging hefty fee for their usage.
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Passengers Key stakeholder as they are the final users of airport facilities and drivers of growth in revenues. Airport developers focuses on identifying and fulfilling customer expectations e.g.: decreased waiting time Hassle-free boarding procedure safe and reliable facilities Still there is gap between the services delivery and the consumer expectations. lack of consumer representation in the decision making process. Can be done via consumer groups and passenger satisfaction feedback surveys etc.
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Financing of Airports Modernisation and development of airports through the PPP route. Airport sector will continue to see a mix of domestic and foreign currency borrowing. Future airport financing projects: Manage the return expectations from city side development programmes. Current downward movement in real estate prices is limiting the sponsors for raising of funds in the city side development plan. Ancillary Services Industry i.e. passenger traffic, cargo handling services, terminal related & air charter services will see further investment.
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Foreign Direct Investment (FDI)
Vital component to the success of new airport projects. Valuable source of funding across assignments under the new growth strategy. Revisions in the FDI structure: Ground handling: 74 percent on the automatic route, subject to regulations and security clearance Maintenance, Repair and Overhaul operations: 100 percent FDI subject to approval Helicopter/seaplane services: 100 percent FDI subject to approval Cargo airlines: Foreign carriers are allowed to take up 74 percent stake
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Possible Solutions Provision of subsidy by the North East Council to all the airlines operators operating in the North-Eastern Region. Maintenance of balance between the commercial and strategic considerations. Viability Gap Funding (VGF) scheme envisaged to support the financial viability of infrastructure projects that are economically justifiable but not commercially feasible. An alternative for the development of strategically important yet non-viable airports. The scheme offers a funding of 20 percent of the project cost. If required, an additional 20 percent can be made available by the sponsoring Ministry/agency.
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Current Opportunities
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Opening Skies Liberal approach of Govt. in grant of traffic rights under bilateral agreements with foreign countries to attract foreign passengers.. Enhancement of traffic rights with several countries to enable greater connectivity to/from India.
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Non-operational Airports
India has over 454 airfields: 138 are operated military 158 by the state governments 61 owned and maintained by private owner/ estates Rest are managed and operated by AAI. large number of these airfields are not operational and are not being effectively used. Reasons for shutting down include commercial non-viability and lack of utilization of the airstrips. Under-utilization, mismanagement, route rationalization and reduction have all contributed to the non-viability of these airports. These airports have the basic infrastructure in place They lack a strategic plan for their development.
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Cargo Opportunity About 40 percent of the world's cargo business, in terms of value, moves by air. Air Cargo industry in India is in the emerging stages and hold potential for the players in several areas. 74 percent FDI in the cargo industry will provide momentum to the industry. In 11th Five Year Plan, Cargo traffic is forecasted to be TMTs (Thousand Metric Tonnes) Efficient and specialized cargo terminals are essential in view of the rising domestic and international cargo.
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INDIAN PORT SECTOR
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India: Coastline & Ports
7,500 KMs of coastline EXIM Trade: 95% by volume and 70% by value through sea ports 12 Major Ports, 6 each on East and West Coast. 187 Non-Major Ports (Under State Govt.) Traffic at Major Ports increasing at the rate of 10% annually for last 5 years Rapid growth in port sector with private sector participation Target of 150 billion (USD) for exports by 2009 To double India's share in world exports from nearly 0.8 percent to 1.5 percent.`
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Ports Today Nodes in the Supply chain involving complex international production / distribution network. Have become Integrated Transport Centers and Logistics platforms for International trade. Stimulate Trade and Regional development. Developed under Land-lord Port and Private Port Model in India. Opportunities for Private Sector to either act as Port Operator at Major Ports or Port Developer at minor Ports
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PORT-WISE PROJECTED GROWTH OF TRAFFIC AND CAPACITY ESTIMATION
Click
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Present Status of Ports in India
Major Ports – under Government of India 12 Major Ports 259 berths about 75% of total traffic Cargo handled – 423 MT ( ) Non-Major Ports -under State Governments 187 Non Major Ports (61 cargo handling); 97 berths about 25% of total traffic Cargo handled – 150 MT ( ) Total Cargo handled-573 MT ( ) 91
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Ports in India The port sector in India has witnessed significant growth in the recent past, especially in the container terminal segment. Over 95 percent of India's international trade by volume takes place through ports, and hence, ports play an important role in India's Export Import (EXIM) trade. Current growth trends suggest that the Indian port sector would require a significant increase in capacity to meet future cargo demand. Accordingly, Indian ports have developed capacity expansion plans. Many major ports in India have adopted the Build Operate Transfer (BOT) model to facilitate the development of additional capacity. This has resulted in the entry of international players such as DP World, Maersk, PSA, etc. in the Indian ports sector. On the other hand, private sector investments in minor ports have also increased with successful participation in ports like Mundra, Pipavav, Hazira, Gangavaram, Krishnapatnam, Dhamra, Gopalpur, etc. Leading private ports like Mundra and Pipavav have also developed ambitious expansion plans. However, the sector faces constraints on account of hinterland connectivity, inland cargo handling infrastructure, and shortage of skilled manpower for port operations (including marine services, amongst others).
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Problems / Constraints
Limited land area Industries located in hinterland Low channel draft Too many players Inadequate deployment of skill and technology Lack of coordinated approach
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Ports Inadequate by World Standards
Federal Ports Regional Ports Inadequate draught for mainline vessels Ageing equipment Evacuation bottlenecks Only 30 with cargo traffic 14 all weather 17 fair weather 16 with alongside draught > 6M 16 with cranes > 10 T capacity 14 with maintenance dredgers The fact is that most of the federal ports still do not have sufficient draft to attract main line vessels. Connectivity is a problem and evacuation bottlenecks are common Federal Ports RegionalPorts Source: Indian Ports Association
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Where do we go ? 95 Major Ports Present Capacity - 456 MTPA
Capacity Additional Planned upto MTPA Total by MTPA Hence Capacity to be provided by Non-Major Ports by should be at least- 300 MTPA 95
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Investment Policy: Encouraging response in Private participation
The Government has been encouraging private sector participation including foreign direct investment in port development since the early 1990s. The major areas which have been thrown open for private investment, mainly on Build, Operate and Transfer (BOT) basis, include construction of cargo handling berths, container terminals and warehousing facilities, installation of cargo handling equipment, construction of dry-docks and ship-repair facilities, etc. Foreign direct investment up to 100% under automatic route is permitted for construction and maintenance of ports and harbours. Fifteen private sector projects are operational in various major ports. Four more projects are under implementation. The preferred route for private sector participation is through open competitive bidding.
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National Maritime Development Programme: US$ 14 billion investment in Federal Ports by (Investment in regional ports not included) US $ billion The federal government has embarked upon a 14 billion US dollar National Maritime Development Programme to upgrade the 12 federal ports. Funding will be through public private participation with 65% of the investment coming from private sector Source: Ministry of Shipping, Govt.of India
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Sum up …. In the present world scenario, major developments are centered around Sea Ports, and, no doubt, maximum Sea Ports are in the developed countries.
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Better Information Flow Causes
Importance of Telecom Industry Better Information Flow Causes Wide Market Lower Transaction Cost Substitute for Physical Commutation Higher Income On Social front , even Remotely Located People, can easily access : Better Health Care Better Education Financial and Govt. services
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Various services Fixed Telephony Mobile Telephony Internet Services
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Growth of subscriber base
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Basic telephone subscriber
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Wireless and broadband subscriber
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Internet subscriber and growth of Teledensity
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Subscriber growth of wireless service
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Group Company wise % market share - Dec'2009
Sl. No. Name of Company Total Sub Figures % Market Share 1 Bharti Airtel 30.86% 2 Vodafone Essar 23.87% 3 IDEA 15.19% 4 BSNL 15.08% 5 Aircel 8.38% 6 Reliance Telecom 4.00% 8 MTNL 1.17% 9 Loop Mobile 0.69% 10 Uninor 0.64% 11 STel 506179 0.13% All India 100.00%
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Subscriber base of private operator
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Subscriber base of PSU operator
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Subscriber base of mobile
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Revenues of Indian Telecom Industry: 2003–08 (USD billion)
50 43 40 27 30 20 Revenues (USD billion) 20 15 9 10 11 10 2003 2004 2005 2006 2007 2008.. ….
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Mobile Telephony-Tower
Infrastructure Sharing-Need No Additional Spectrum leading to more towers for better services High Potential in Rural India where the population base is widely dispersed geographically, which creates the need for a larger number of towers One of the highest minutes of usage in the world, implying that number of cell sites required would also be very high. The crux of the issue is : “Towers are a basic infrastructure for the mobile industry to grow. Unless you have the towers, you cannot have the desired reach of the services.”
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Mobile Telephony-Tower
Infrastructure Sharing-Status The present status and the projected Requirement is as below. This will need nearly Rs 600 billion investment
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Mobile Telephony-Tower
Infrastructure Sharing-Benefits In addition to reduced to network deployment costs, it gives following advantages: Improved service quality Increased affordability for customers Faster roll out of services in rural and remote areas Significant reduction in initial set up costs Increased environmental aesthetics Lower operating costs for service providers
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Mobile Telephony –3G 3G spectrum is among the major investment opportunities and growth drivers of the telecom industry. The immense potential for 3G is reflected by 30–40 percent annual growth in Value-Added Services. Cell phone manufacturers are striving to develop USD 100 priced 3G handsets for the Indian market.
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Mobile Telephony -VAS The VAS industry was worth USD 942 million in
2007–08. The industry is estimated to grow by 40 percent in 2008–09 In VAS industry currently focus is mainly on the entertainment sector, The scope for growth in other avenues as utility-based services, such as location information mobile transactions. Voice SMS
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Other Avenues & Opportunities
WIMAX: It provides network access in inaccessible locations at a speed of more than 4 Mbps, It is expected to be a major factor in driving telecom services in India, specially wireless BroadBand services. It will lead to the increased use of telecom services,like Internet, Value-added services and Eenterprise services. WiMAX is expected to accelerate economic growth by Providing better education, Healthcare Financial and Govt. Services Entertainment services. It is estimated that India will have 13 million WiMAX subscribers by 2012.
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INVESTMENT ATTRACTIVENESS
Investment Incentives No industrial license for setting up equipment manufacturing units Amortization of license fee Tax Holiday Rebate on subscription to shares/debentures Scope for tax exemption on financing through venture capitalists Full repatriability of dividend income & capital invested in telecom sector
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INVESTMENT ATTRACTIVENESS
Status of PPP Most of the Manufacturing units are by Private Sector mainly by Multinationals The service sector is a glaring example of PPP Handsets are dominated by Multinationals R&D TEC a Govt. Body TCOE at IITs/IIMs is running through PPP
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WAY FORWARD Increase ARPU by (Role of Service Provider)
Emphasis on Value Added services : The present market of approax. $1000m can grow by 60% annually Increase awareness in Rural people: by developing local language applications Better coverage
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OBSERVATIONS & CONCLUSION
Focus must be on Home grown hardware Better coordination Between DOT and TRAI Decrease USO fund contribution Operators pay 6%to 10% as license fee, spectrum charges, service tax, octroi and stamp duty. This needs unification The service tax from customers needs to be reduced.A reduction to 8% will help customers as well as operators.
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Power Sector
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Power Map of India in Five Regions
North-Eastern Region Northern Region Eastern Region Western Region Southern Region
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Indian Power Sector Structure
Policies Regulation Generation Transmission System Operations Distribution Retail Supply Center Ministry of Power Central Electricity Authority Central Electricity Regulatory Commission Central Sector, NTPC, Hydro & Nuclear Power Grid Corp. (I) Ltd. States Most States Reform States Ministry (Department) of Energy / Power State Electricity Regulatory Commissions State Electricity Boards Independent Power Producers Private Generation & Distribution Companies in – Ahmadabad, Kolkata, Mumbai, Surat, Delhi etc. Generation Companies Transmission Utilities (STUs) Separate Distribution Companies (Private or State Owned)
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Power Sector – Regulatory Framework & Policies
As per the Electricity Act 2003 – constitution of State Electricity Regulatory Commission (SERC) by the States SERCs are responsible for fixing tariff for electricity SERCs are to notify regulations for open access of distribution network The main features of the Amendment Act (2007) are Central Government, jointly with State Governments, to provide access to electricity to all areas including villages and hamlets through rural electricity infrastructure and electrification of households No license required for sale from captive units & regarding subsidy reduction Theft made explicitly cognizable and non-bailable.
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Power Sector – Regulatory Framework & Policies
National Electricity Policy (NEP) The policy emphasises on – creation of transmission capacity of 37,000 MW 100% village electrification protection of consumer interests achieving financial turnaround and commercial viability by the state utilities National Tariff Policy (NTP) The objectives of the tariff policy are to ensure – availability of electricity at reasonable and competitive rates financial viability of the sector and attract investments Procurement of future power requirements to be through competitive bidding and two part tariff structure is to be adopted for long term contracts to facilitate merit order dispatch
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Power Sector – Regulatory Framework & Policies
Rural Electrification Policy The policy notified on 23rd August, 2006 aims at – Provision of access to electricity to all households by the year 2009 Quality and reliable power supply at reasonable rates Minimum lifeline consumption of 1 unit per household per day as a merit good by year 2012 Bidding guidelines for competitive procurement of power (Amended as on 27th September, 2007) Guidelines for Encouraging Competition in Development of Transmission Projects Other sectoral developments – Energy Exchanges
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POWER SECTOR GROWTH OVER YEARS
(Jan,2009) 1, MW INDIA
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Indian Power Sector – Size & Statistics
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Indian Power Sector – Size & Statistics
Overall Requirement – Overall Availability – 94435 Deficit – 4374
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Indian Power Sector – Assessment of Funds Required
(Rs. Millions) Particulars State Central Private Total Generation including Nuclear 12,37,920 20,20,670 8,50,370 41,08,960 DDG 2,00,000 R & M 1,58,750 Transmission 6,50,000 7,50,000 14,00,000 Distribution including Rural Electrification 28,70,000 HRD 4,620 R&D Outlay 12,140 DSM 6,530 Total Power Sector 49,16,670 29,93,960 87,61,000 NCES and Captive 2,25,000 9,30,000 11,55,000 Merchant Plants 4,00,000 Total Funds Requirements 51,41,670 21,80,370 1,03,16,000
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17th EPS v/s Actual Peak Electric Demand (MW) 20000 40000 60000 80000
20000 40000 60000 80000 100000 120000 Year MW 17th EPS ACTUAL
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17th EPS v/s Actual Electric Energy Requirement (MU) 100000 200000
100000 200000 300000 400000 500000 600000 700000 800000 Year MU 17th EPS ACTUAL
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10th Plan -2002-07 Capacity Addition
Source: CEA Website Plan – MW, Act – MW
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17th EPS Demand - Summary of All India forecast
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11th Plan tentative targets for grid interactive renewable power
(Figures in MW) Sources / Systems Target for 11th plan Wind Power 10,500 Biomass Power Baggasse Co-generation Biomass Gasifiers 2,100 Small Hydro (up to 25 MW) 1400 Total 14,000
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TALA TRANSMISSION PROJECT
First transmission project with Pvt participation on JV route - Consisted of Transmission Lines associated with Tala Hydroelectric Project, East- North Interconnector and Northern Region Transmission system. 400 kV D/C lines from Siliguri in W.B to Mandaula in UP. ICB floated on Bids received on from M/s. NGIL, UK and Tata Power, India. Tata Power selected as JV partner. Govt. approval for Project & JV partner received on 2/7/2003. 137
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TALA TRANSMISSION PROJECT
Total Route Length = Approx 1171 Kms Shell Co. Tala-Delhi Transmission Ltd. converted to JVC on 3/7/03 by Tata Power acquiring 51% Share and POWERGRID retaining 49% Share. Project agreements signed on 4/7/03 SHA – Shareholders Agreement IA Implementation Agreement TSA – Transmission Service Agreement
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TALA TRANSMISSION PROJECT
Project financing on D:E ratio of 70:30 Revised Estimated Project Cost : Rs crore Loan Agreements signed in Jan with IFC Rs 340 crore ADB - Rs 300 crore SBI Rs 180 crore IDFC - Rs 160 crore Rs 980 crore
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UNIQUE FEATURES OF TALA TRANSMISSION PROJECT
Tariff to be paid on cost plus basis. First and the only transmission project to get incentive in the form of Transmission Majoration transmission tariff which translates into additional ROE of about 6% taking effective ROE to about 20%. Transmission tariff to JVC to be paid by POWERGRID. Buy out of the project by POWERGRID in case of POWERGRID Event of Default. Buy out of the project by POWERGRID in case of JVC Event of Default. 140 Rural Electrification Corporation
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TALA JV PROJECT – A PIONEER
Tala JV Project is a pioneer in Public-Private partnership in Transmission Project in Asia. Applauded by WB & ADB as an excellent model to be replicated in other countries. 141 Rural Electrification Corporation
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Thank You 142 142
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