Sameer K Bhatnagar presents an investment landscape for Canadian companies to invest in India and outlines the major sectors where opportunities lie.
These are interesting times for infrastructure comÂpanies in India. The involvement of foreign playÂers is increasing in the country with Europeans and Asians leading the race whereas Indian business houses are looking to leverage their domestic experience to attract foreign partners and bridge the capability gaps. The intÂent and direction on actively pursuing projects on public-private partnership (PPP) basis across all sectors is clear and amply signals the Indian government's view on infrastructure and that PPPs are here to stay.
Standard of services, speed of delivery, and spending ability are key to India's growth story. India requires forÂeign involvement not only for financing but also in the form of technology, planning capabilities, introduction of best practices in operations and construction to ensure effiÂciencies and innovation. There is enough reason CanÂaÂdian companies should participate in the India story.
Despite the international turmoil and financial/polÂicy hiccups, India appears to be on the right path of growth with FY 2011. Estimates reveal that reaÂlised investments in the current economic plan period (2007-12) are estimated to be approximately $400 million, 80 per cent of the target set at the start of the period.
This requirement doubles for the forthcoming period (2012-17), of which half of this is expected from the private sector. A comparison of the absolute numbÂÂers of both the plans shows the larger picture, as oppÂortunity for private investment is more than three times in 2012-17 ($500 million) vis-a-vis 2007-12 ($150 million).
The government now envisages a substantial role for PPPs as a means of not only harnÂessing private sector invÂeÂstment to deliver the $1 trillion target but also operaÂtional efficiencies in providing public assets and services. To this end, it is taking measures to make the sector attractive by adopting a stakeholder-centric approach to ensure the interests of all parties are addressed.
PPP Maturity and Regulatory Aspects
Risk sharing between the awarding authority and concessionaires has also seen a shift with the governÂment carefully studying and implementing a risk alloÂcation structure which is more transparent, robust and aligned to market needs than before. For example, Ultra-Mega Power Projects (UMPPs,) plants with capacity of more than 4 GW, are tendered for bidding only after the government has undertaken risk mitigation measures related to potential speed-breakers such as acquisition of land, environmental clearances, receivables etc, and vested them in the project SPVs that are then bid out through an open competitive process for development.
With sector-specific PPP enabling laws passed in the past decade, independent regulatory bodies have been established at central and state levels with defined objectives and scope of activities. Power and airports have established new regulators, and a similar regulator for the ports sector is on the anvil.
Infrastructure has evolved with greater transparency in award of PPP projects. The Planning Commission has prepared Model Concession Agreements (MCAs) for development of national and state highways, their opeÂration and maintenance; development of terminals in major ports; development of greenfield airports and non-metro airports; redevelopment of railway stations, devÂelopment of urban rail systems and procurement-cum-maintenance of locomotives.
Transport: Programmes for the development of natÂional, state and mega highways and expressways envision an investment potential in excess of $100 billion through to 2015-16 with more than 50 per cent of that expected from the private sector. Highways in excess of 34,000 km are to be awarded in the same period. As many as 10 mega highways that are $1 billion plus projects with high traffic and generally more than 200 km long have been put in the pipeline for award and development.
Railways and ports likewise, are also likely to see major investments of $22 billion and $55 billion, resÂpectively, in this decade. High-speed rail projects appear to be the next key area for private sector involvement. The Indian Railways Vision 2020 document envisages implementation of at least four such rail projects to proÂvide high-speed passenger train services operating at 250-300 kmph, based on feasibility. This is an opportunity for international developers as domestic developers will look to collaborate with them in order to leverage their technical skills and expertise. The Ministry of Railways is also looking at redeveloping 22 stations across India for expansion and modernisation within this decade.
The National Maritime Agenda (NMA) envisages trebling of port capacity from 1 billion tonne at present, to 3 billion tonne by 2020. Eighty-five per cent of this investment is expected from the private sector in building container and bulk terminals in major ports and development of non-major ports. Being gateways for exim trade, foreign developers can bring in much needed efficiencies in logiÂstics and port infrastructure to enable rapid trade related growth.
Energy: In the growing Indian oil and gas market, an investment of about $20-22 billion has been envisaged in the next five years on the upstream side, for the devÂelopment of offshore fields and laying pipelines. The govÂernment is planning to offer shale gas blocks, which would create more opportunities for service providers into seismic survey support, drilling support, supply vesÂsels, rigs etc. In the downstream segment, City Gas Distribution (CGD) is set to see a spurt in investment opportunities, as plans have been made to expand the CGD network to 100 Geographical Areas (GA) in the next five years other than the development of a national gas transmission grid.
The power sector has seen considerable investments in the power plant capabilities. However, given high distribution losses, focus is on increasing efficiencies acrÂoss the value chain. Opportunities have arisen through concepts such as distribution franchisee, smart metering and other technologies.
Demand for coal in India is poised to cross 1 billion tonne by 2016. In the most recent bidding process, variÂous available coal blocks have been allocated to private and public sector enterprises; foreign players can either parÂtner with Indian companies in a JV or contractor.
Urban systems: Urban infrastructure in India comes under the tertiary level of governance, ie, the urban local bodies (ULBs). The past decade has seen deveÂlopment of urban rail systems in the country with their execution based on a variety of models. At present, there are approximately 18 projects under expansion, developÂment and planning stages which provide opportunities for players either as developers or as O&M operators.
ULBs are now focused on water infrastructure and management. With reduction in losses and increase in operational efficiencies as key concerns given the increaÂsing awareness of water shorÂtage in the country, involving the private sector seems to be a logical step. Investment potential is estimated to be almost $10 billion through 2016 approximately 15 per cent from the privates.
Likewise, the waste management sector is also expÂected to break-out for private sector participation. With growing populations and rapid urbanisation, growth in generation of municipal solid waste (MSW) is expected to be at 5 per cent (y-o-y) through to 2025. The MSW market is estimated to cross $10 billion by 2015.
Role for Canadian companies
Indian infrastructure is at the point where private and now, foreign investment, have become essential to delivering a sustainable economic growth model. CanadÂian companies and business houses have been known to undertake innovation in their daily businesses. Their capabilities in developing motorways, ports, urban mass transit systems, oil and gas exploration, hydro power plants, etc, are well known globally.
Their accumulated expertise can be brought in the form of project structuring, project financing, technical skills, technology, and mechanism of delivery among other points in the value chain.
The author is Associate Director, Management Consulting, KPMG.
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