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Good time for a boost

Good time for a boost
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Canada-India infra partnerships: Good time for a boost

Infrastructure Today India Opportunity Conference will be held in Toronto on 11 May, and hopes to generate interest among Canadian investors in India’s vast infrastructure opportunities. Where are the best opportunities? A peek.

It is surprising that trade between India and Canada hasn’t exactly gone through the roof over the years. Although India is Canada’s largest trading partner in South Asia, it is ranked 18th among Canada’s export markets. India’s share in Canada’s imports is not even 0.5 per cent. Business head after Canadian business head will tell you of their success story in this sponge of a market, especially in the sectors of power, energy, equipment & services; oil & gas; environment products & services; telecommunications, information tech­nology; and the financial sector, including insurance.

Canada’s strength lies in its consultancy and engi­neering, and infrastructure might just be the answer. There is talk of upping the business between the two countries over the next five years to $15 billion from a modest $5 billion at present, and this includes nego­tiations on a free trade agreement between the two countries. Export Development Canada (EDC) and the Business Development Bank of Canada are keen to help Canadian companies set shop in India.

Specific infrastructure sectors have struck a chord with policymakers, and investors have been expressing their interest in doing business in India:

Power: Hands down, clean energy is Canada’s forte. Its resources make it a great source of technology and in India, renewable energy (RE) is the thrust area over the next several decades, starting now. The 12th Five Year Plan (2012-17) lays special emphasis on RE, and aims to have 10 per cent of the power generation (about 30,000 MW) from RE sources, effectively building up to 5 per cent of the energy mix. The National Solar Mission has taken off in right earnest—albeit faced with a tough target of 20,000 MW by 2032. Both technology and engineering services will remain in much demand in India in RE.

Indeed, power generation itself offers a plethora of opportunities in a market where the demand-supply gap is officially 11 per cent, but independent experts put the figure closer to 30. The government hopes for investment of $60 billion in nuclear energy, and Power Grid Corporation of India (PGCIL), the state-owned trans­mission company, plans to install about 65,000 circuit km (ckm) of transmission lines. The funding requirement of the Indian power sector is estimated at $230 billion, so opportunities in investment are huge.

The government would like partnerships in gene­ration, but more importantly, the private (and public) sector is seeking resources from countries of abundance like Canada. Canada’s coal reserves may be of particular use to the Indian power producers. That said, with the administered pricing mechanism in India is opening up slowly, and a coal regulator in the offing, pricing problems may diminish over a period of time.

Energy: Canadian companies have been operating in India for decades: Canadian Exploration and Pro­duction companies Niko Resources, Canoro Resources and Geo-Global Resources have been present for more than 15 years, and two more Canadian E&P companies, Bengal Energy Ltd and Primera Energy Resources Ltd., both from Calgary, have had successfully bids at the last New Exploration & Licensing Policy (NLEP).

Drilling Rigs from Stewart & Stevenson have been operating in India for quite some time. Canadian drilling services companies like Newsco and testing and well service companies like Techno-Canada are also present in this market. Some other companies from Canada in India are DeGoyler and MacNaughton, NetSafety Monitoring Inc and Q’Max Solutions Inc.
Most of India’s oil and a large percentage of natural gas is imported, and India’s public sector agencies Oil and Natural Gas Corporation (ONGC) and Gas Authority of India Ltd (GAIL) seek expertise time and again from western countries. Forty oil blocks— com­prising 10 blocks on the west coast and 30 onshore—are expected to be auctioned.

The latest kid on the block is shale gas after its discovery in eastern India last year. India is treading carefully—bidding out has been twice postponed already owing to environ­mental and land use concerns. Although the latest reports have downsized original estimates of the quantum of shale gas, engineers and E&P companies would have a chance to bid next year.

Transport and logistics: India has a poor record in the T&L activity—accounting for one of the slowest moving logistics in the world. But with the National Highways Authority of India’s (NHAI) awarding spree over the past few years, many narrow National Highways have paved way to multiple-lane, faster movement. NHAI may soon invest heavily in expressways on PPP (or P3)—likely on Build-Operate-Transfer (BOT). All these projects will be greenfield and NHAI will take care of the tricky land acquisition.

NHAI’s performance makes roads the best performer among infrastructure sectors, and the government seeks $65 billion for its National Highways Development Programme (NHDP).

Airports, on the other hand, are an emerging phenomenon. With the success of the privatisation of four airports—two of which are greenfield—the gov­ernment now hopes to modernise 35 smaller airports on PPP basis. Montreal and other airports have shown interest in investing (either their energies or their money and energies) in India’s airport segment.

Ports and railways have been attracting a lot of attention but unlike the former, railways have not lived up to the promise of private investment. Ports, on the other hand, have had substantial success in partnerships, and ports from several countries, including Canada, have expressed interest in partnering with Indian ports. Canada’s desire to be a logistics hub in North America (per its National Policy Framework for Strategic Gateways and Trade Corridors) is well-grounded, but will only work well if followed up—like Amsterdam and the UK are doing—by sustained efforts at building partnerships with the trade nations, including India.

Urban infrastructure: Although urban India—growing at an alarming pace—feels the infrastructure pinch, policymakers are still reluctant to commoditise services so as to make them both viable and available. Therefore, in a way, the situation in urban infrastructure—barring Metro rail (subways), which has caught the fancy of about 30 cities—is one of great potential awaiting regulatory or policy decision.

That said, like the subways, there is tremendous opportunity for EPC contractors in the enormous construction activity alone. Water supply is one such activity, and an integrated and sustainable water system still eludes all Indian cities, despite relentless efforts by the government’s Jawaharlal Nehru Urban Renewal Mission (JNNURM) grant scheme, the World Bank and other agencies. Sustainable urban develop­ment is at best in its fledgling stages, and there is scope for standardised solutions across more than 250 sizable cities.

One of the biggest upcoming opportunities is in integrated urban development, including building new cities, and in sports infrastructure. Along the planned Delhi-Mumbai Industrial Corridor (DMIC), along which will run India’s first Dedicated Freight Corridor (DFC), the next five years will see frenetic activity—both around the numerous ports as well as in their northern hinterlands. These include six greenfield cities, whose ground infrastructure will be built by the government and then bid out for the superstructure. Consultancy and training to cities in attracting private participation in urban development is badly lacking.

Recent Canadian presence in India’s infrastructure

  • SNC Lavalin has been active in India since 1960s in various sectors such as chemicals, petroleum, infra­structure, pharmaceutical, power, etc. It has about 150 comp­leted and ongoing projects in India. It has acquired a number of Indian companies in various sectors.
  • Quebec’s Mediagrif Interactive Technologies Inc. acquired a 50 per cent interest in Mumbai-based Centerac DMCC for US$1 million. (Feb. 2006)
  • Bombardier’s Metro rail coaches manufacturing plant in India, at $41 million
  • Export Development Canada (EDC), Canada’s official export credit agency, as part of its programme to encourage investment from Canada in India has encouraged following investments under its India Equity portfolio:
  1. Avigo SME Fund II: US$ 7.5 million, August 2007
  2. IDFC India Infrastructure Fund: US$ 1 billion
  3. Kotak India Private Equity Co. Limited: US$ 250 million
  • Urbana Corporation has taken a C$26.5 million interest in the Bombay
    Stock Exchange (BSE). This purchase was made indirectly by way of an
    invest­ment in shares of Caldwell India Holdings Inc (CIH) and was
    facilitated by Caldwell Asset Management Inc, Urbana’s investment
    manager. The CIH acqui­sition of 308,888 BSE shares cost approximately
    C$43.5 million, with Urbana owning 60.9 per cent of CIH’s equity shares.
    Urbana is a Toronto-based investment company (2007)
  • Calgary-based Canoro Resources Ltd, an internati­onal oil and gas company operating in the Assam/Arakan basin of northeast India, has finalized nego­tiations with Essar Oil Limited and Essar Energy Holdings Limited to obtain a 30 per cent partici­pating int­erest in two exploration production shar­ing cont­racts in northeast India. (2008)
  • Quebec City-based H2O Innovation Inc. signed a joint venture agreement to create H2O Innovation India Limited. The new company will operate out of facilities located in Chembond’s centre in Mumbai, and be dedicated to providing water treatment sys­tems and maintenance services to the Indian indu­strial and commercial markets for the production of boiler feed and process water, for industrial wastewater reclamation and reuse, as well as for wastewater treatment. Chembond will own 51 per cent of the shares of the joint venture and H2O Innovation will own the remaining 49 per cent (2010).

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