The past 12 months have not belonged to infrastructure flag-offs. As the economy turned south in 2008-09, not as many infra projects as targeted were awarded, especially those in road, rail, port and energy; in most cases, the targets themselves took a heavy beating. As a result, as the typically three-year-long construction period ends this year, infrastructure development during 2010-11 was on slow track in most of the sectors. Janaki Krishnamoorthi picks out the laggards and writes on the surprising and unsurprising factors.
Let's take a look at some of the most important landmark projects that were commissioned in India between July 2010 and June 2011:
- Airport Express Delhi: India's first high-speed airport express (part of Delhi Metro line) running at 120 kmph is the fastest mode to reach Indira Gandhi International Airport (IGIA) Delhi from the city.
- Terminal 3 at IGIA Delhi: State-of-the-art terminal with Common Use Terminal Equipment (CUTE), advanced five-level baggage handling system with explosive detection technology, the terminal also features 78 aerobridges.
- Dhamra Port, Orissa: This totally mechanised and IT enabled port houses one of the fastest rail loading systems and has the highest unloading rate of coal.
- Vallarpadam Terminal, Kochi Port: The much delayed International Container Trans-shipment Terminal that makes Kochi the only container trans-shipment port in India.
The numbers could have been much more but for the various stumbling blocks that slowed down not only the completion but also awarding of projects in the various infrastructure sectors. While the projects are undoubtedly the new showcase of India's infrastructure, successful launch of milestones like Delhi Metro and Delhi Terminal 3 projects assume greater significance as they have been far and few between.
The down-to-a-trickle phenomenon is a direct fallout of the 2008-09 economic downturn, the impact of which still continues to haunt our infrastructure project awards. In the ports sector, Ministry of Shipping, which controls the major Indian ports, could award only nine projects in 2010-11 as against the set target of 21. There has been little progress in the airport sector after modernisation of Delhi and Mumbai airports. Award of many hydroelectric power projects was delayed as they had to be re-evaluated for environmental impact.
Therefore, as many experts agree, the cake must go to the DMRC again. “Establishing a faster metro network, running it successfully, setting up a benchmark in terms of construction time and quality, is indeed a landmark achievement in the infrastructure sector. More so, since most of the Phase II projects have been commissioned well before the scheduled time framework,” commends Adun Saraban, Managing Director ITD Cementation India (ITDC), which in JV with its parent company ITD, has made significant contribution in DMRC Phase II having completed the work of 8.3 km underground tunnel along with three underground stations.
But for these handful of milestones, the infrastructure performance during 2010-11 has been tepid, industry experts say. The National Highway Authority of India (NHAI) awarded 50 projects totalling 5,059 km-ramping up in that year to Rs 9,469.95 crore in a deterÂmined effort to shake itself out of the slowdown (see table “Summary of Awarded Projects”). Yet, as Aniruddha Ganguly, Executive Vice President & Group Head-Business and Integration, GMR Group, points out, some sectors have done well while in some others, such as the roads sector, there has been a marked slowdown. Several tenders in the road sector were delayed.
“The overall infrastructure performance during 2010-11 has shown moderate growth. All sectors except roads recorded a positive growth,” states Arun Karambelkar, President & Whole Time Director on Board, Hindustan Construction Company (HCC), which operates across transportation, power, oil and gas and urban infrastructure sectors.
Airport privatisation has perhaps been at the forefront of the braking-up last year, and while the Airports Authority of India (AAI) has acted with alacrity to showcase its several completed projects, lack of private participation in viable airports means another form of slowdown. GMR's Ganguly says, “After Delhi and Mumbai airports were privatised, we have not seen privatisation of any other airports. In other words, there has been no increase in pace of development in any of the sectors which is the need of the hour.”
UNCLEAR(ANCE) FACTORS THAT GOVERN
Most of the reasons cited behind the slowdown are standard: general recession in the preceding years, delays in decision-making, land acquisition problems, delay in environmental clearances and funding constraints due to the capital-intensive nature of infrastructure projects and long gestation periods. According to a pre-budget independent survey, more than 50 per cent of infra projects are reportedly running behind schedule. The reasons are typical, says Saraban, “Delay in land acquisition and obtaining environment clearances, difficulty in arranging funds from financial institutions, delay in implementation of rehabilitation and resettlement issues, delay in dispute resolution and shortage of engineers and skilled manpower.”
GMR's Ganguly attributes the slow progress to three major factors: complex environment due to involvement of several stakeholders, environmental concerns, and lack of a viable financial model for private players.
“The infra environment has become complex with many stakeholders at play. Apart from the government and the private partners, there are others like the land owners, the society at large which brings in the environmental issues and regulatory framework. Secondly, environmental issues have to be addressed and hence projects clearances get delayed or get cleared with justifiable riders. Thirdly, raising finances for projects has not been easy for the private players. In infrastructure, capex is built upfront and the revenue is back-ended. “The kind of financial model required for this kind of operation-long term finances with constant rate of interest-is not yet available in India,” says Ganguly. Meanwhile, the government has formed a high-powered committee to look into this issue.
There are several such issues that must be tackled soon for better growth. Karambelkar says: “While some of the factors for slowdown can be attributed to administrative issues with the nodal implementation agency, much of it is related to planning and policy, which has to find the right balance between socio-political factors and economic considerations. Serious issues regarding land acquisition, environmental clearances and risk ownership in public-private partnerships (PPPs) continue to plague the industry. These need to be addressed soon, if the Indian growth story has to continue in a sustainable manner.”
CUPS OF WOES
Roads: Despite NHAI's aggressive drive, the investment in road sectors have been quite low last year and it has been so throughout the current Five Year Plan (2007-2012). Even the mid-term appraisal report of the 11th Plan also points this out.
“The projected investment in the road sector is also significantly lower at Rs 278,658 crore compared with Rs 314,152 crore in the original projections. The decline in investment is due to a shortfall in the award of road projects by NHAI during the first three years of the Plan,” the report observes.
While conceding that the projects awarded have been less than the marked target, Dr JN Singh, Member (Finance), NHAI, attributes it to recession. “During the recession period of 2007 to 2009, the projects awarded were less in number, and consequently the projects completed have also been fewer. But many of the projects in the National Highway sector awarded in 2005-06 have been completed. This year we have projects worth Rs 52,797 crore, but our annual outlay is only Rs 12,000 crore. We have to leverage the balance from private participation. We are looking at more private equity and international participation.”
But, private players have their own grouses, with land acquisition being the biggest hurdle in road projects. They also call NHAI's impractical contract awards with rigid timelines without taking site conditions into consideration, and say NHAI's cost estimates are often lower than the market rates. Long-drawn out disputes add to the unattractiveness of the projects for reputed private players.
BH Anil Kumar, Managing Director, Karnataka Road Development Corporation (KRDC), lists out the steps that need to be taken to encourage private participation, “An exclusive PPP cell should be formed in each state to directly interact and get approvals from Department of Economic Affairs (DEA), Government of India. This cell should be vested with exclusive powers to initiate action against authorities for delay in shifting of utilities along the project corridors. In addition, priority should be given for speedy land acquisition of PPP projects and single-window clearance system has to be instituted for all approvals (utility shifting, MOEF clearances, NOC for quarry, and so on.”
Kumar, who is also Chief Project Officer, KSHIP, spearheads a large initiative taken up by the Karnataka Government to improve about 2,414 km of State Highways (SHs). KRDC launched road projects under PPP in 2010 in Karnataka. Three SHs of length 275.60 km at a cost of Rs 722.10 crore have been taken up. In addition, KRDC is processing four more SH projects of length 321 km and has identified five projects of length 343 km, for which feasibility study is being conducted.
Power: In the power sector, supply continues to lag behind demand though its performance has been a little better. During the first eight months of FY2011, the power generation in the country recorded a growth of over four percent against that during the corresponding period in the previous year. Similarly, hydro power generation was above the target, as well as the actual during the corresponding period of the previous year. Nuclear power generation was also over nine per cent higher than the target set for the period.
HCC, which has a good presence in the hydro power and nuclear segments, says both these segments have their own hiccups. “Several hydro power projects had to be re-evaluated for their environmental repercussions. The Tsunami-driven Fukushima nuclear power plant debacle in Japan has raised serious safety concerns regarding nuclear power generation globally.” HCC's Karambelkar says that India has a very ambitious nuclear power programme which may get impacted due to this global safety concerns.
There is no doubt, a huge private participation in the power sector and the market has become competitive. But there are some reservations as there is uncertainty over profitability. GMR's Ganguly says that profitability in this market has become a question mark especially because the electricity boards, which are the primary customers of these private players, are in a very bad financial health, which is a major concern for the power sector and economy. This sickness has been building up over the years and needs to be addressed, he says.
The mid-term appraisal report of the 11th Five Year Plan stresses this concern, “T&D losses are falling, but much more slowly than targeted. The system continues to suffer huge losses, estimated to be over Rs 40,000 crore for 2009-10. The scale of losses in the distribution segment is simply unsustainable and determined action is needed to reverse this trend. However, performance in this area depends entirely on the states.”
Private sector involvement in distribution could help improve efficiencies, but very few states have taken any initiatives in this area.
Ports: Capacity expansion has been much faster in the non-major ports, where many state governments have adopted a strategy of developing new ports entirely through the private sector. The Central Government envisages private sector participation in the development of individual berths/terminals but here, too, progress has been disappointing not only last year but even in the previous years, despite a much touted National Maritime Development Programme and allotment of Rs 5,000 crore tax-free bonds in the last Union Budget.
Commissioning of the International Container Transhipment Terminal at Kochi port and the awarding of container terminal at Ennore Port have been the only two landmark happenings in the major ports sector. Out of the set target of 21, only nine projects were awarded last year. A senior official from the Union Shipping Ministry explains why many projects did not see the light of the day, “Two or three projects were not found viable, while some got embroiled in court cases, such as the JNPT terminal. Two projects in Visakhapatnam did not get adequate response from bidders and few projects were delayed for want of environment/security clearance.”
In fact, the Shipping Ministry is on the verge of making a presentation to the Prime Minister hoping for some major policy decisions such as establishment of a dedicated institution for ports, and, as in the roads sector which included Model Concession reforms through implementation of B K Chaturvedi ComÂmittee's recommendations.
Urban Infrastructure: While two of our landmark projects (T3 and Airport Express) can be categorised under urban infrastructure, they are not representative, considering India's enormous urban infra needs. Recognising the need for accelerating urban infrastructure development, the Government of India has launched in 2005 the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), a reform-based, part-grant driven prograÂmme of Rs 50,000 crore ($11 billion) outlay over a seven-year period. Of the 172 infrastructure projects executed with private sector participation, only two have been in the water supply and sewerage sub-sector. The low water and sewerage tariffs make water supply and sewerage projects non-bankable which require genÂeral revenue support even for operations and maintÂenance. Except for a minority of municipalities, the general financial status of most municipalities is precarious. All put together, the urban infrastructure sector is seen as a very high-risk sector, leading to anaemic inflows of private capital.