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From a macro and microperspective, the Indian infrastructureis a “bang-on” investmentdestination for any overseascompany seeking high and longterm returns. The key, however, is toidentify and work with the right localpartner.
Hemant KanoriaChairman & Managing DirectorSrei Infrastructure Finance Ltd
The global crisis, as many call it, has
affected industry, trade and investments
across sectors and economies. Yet,
India’s infrastructure sector has
recorded high growth and continues to
show a positive outlook despite some
regulatory challenges. India is definitely
“the new land of opportunity” for
potential investments.
Sunil KanoriaVice Chairman Srei Infrastructure Finance Ltd
www.srei.com
Srei Infrastructure Finance Limited
Registered OfficeVishwakarma 86C Topsia Road (South)
Kolkata 700 046
Opportunities in infrastructure investments in India 2013
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St. Petersburg, Russia
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DDisclaimerThis report has been prepared by Srei InfrastructureFinance Limited (“Srei”) who owns the sole rights of thereport. Srei has taken due care and caution in preparingthis Report which is based on information from variousreliable sources, all of which are cited. However, Srei doesnot guarantee the accuracy, adequacy or completeness ofany information and is not responsible for any errors oromissions or for the results obtained from the use of suchinformation. Srei is not liable for investment decisionswhich may be based on the views expressed in this Report.Srei especially states that it has no financial liabilitywhatsoever to the subscribers/ users/ transmitters/distributors of this Report.
This communication also includes certain forward-looking
information that set out anticipated results based onassumptions. Srei has tried, wherever possible, to identifysuch statements by using words such as ‘anticipate’,‘estimate’, ‘expects’, ‘projects’, ‘intends’, ‘plans’, ‘believes’,and words of similar substance in connection with anydiscussion of future performance. Srei cannot guaranteethat these forward-looking statements will be realised. Theachievement of results is subject to risks, uncertainties andeven inaccurate assumptions. Srei undertakes noobligation to publicly update any forward-lookingstatement, whether as a result of new information, futureevents or otherwise.
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Contents
Opportunities in Roads & Highways 19
Opportunities in the Power Sector 31
Opportunities in Ports 43
Opportunities inRailways 49
Opportunities in the Aviation Sector 59
Opportunities in the Telecom Sector 67
Opportunities in the Mining Sector 73
Evolution ofthe IndianEconomy
Overview ofInfrastructurein India
p03
p11
SREIThe UnseenHand
p81
Executive
SummaryIndia has been on a robust growth
momentum since the onset of the
last decade, and is now positioned
among the largest economies of the
world, ranking ninth in terms of GDP
and third in terms of purchasing
power parity (PPP). The growth of
infrastructure is a critical pre‑
requisite for the sustainable
development of a country, thus the
ongoing economic reforms along
with increased investment allocation
attach high priority to these sectors.
In recent years, various initiatives by
the Government have led to an
average growth of 5.8 percent in
infrastructure during the 11th Five
Year Plan (FY07‑FY12), as well as
significant development in physical
infrastructure such as Electricity,
Railways, Roads, Ports, Airports,
Irrigation, and Urban and Rural Water
Supply and Sanitation. However,
India lags behind its counterparts of
the BRIC countries, such as Brazil and
China, in the quality and efficiency of
infrastructure services provided. In
order to step up development to
optimum standards and sustain this
surging growth, the Government has
introduced structural reforms to
encourage private participation and
competition in infrastructure services
and investments to the tune of USD
1 trillion, which has been envisaged
for infrastructure development as per
the 12th Five Year Plan (FY12‑17).
Based on the initiatives taken by the
Government to promote
investments in Infrastructure, we
would like readers to understand the
various opportunities available
through public private participations
across each of the sectors
highlighted in the sections ahead.
This thematic report also perceives
the constraints of the paradigm of
the Government, as well as reflects
the collaborative efforts of
academics, research and industry.
02
03
1. Evolution of
the Indian EconomyThe robustness of the Indian economy is based on its
strong fundamentals of domestic demand, the rising
middle class, favourable savings rate and its emergence as
an economic powerhouse is something unparalleled in the
world economy. The journey of the country from a debt‑
ridden colonial economy to one of the worldʼs fastest
growing economies is nothing short of a remarkable story
of economic transformation in which infrastructure played
a major role, both as a challenge as well as a growth driver.
The initial years ‑ Setting the stage forreformsIndiaʼs economic policy in the initial years was
determined by its experience in colonial exploitation
and a socialist philosophy. It was guided by the belief
of “import substitution” which means that the
country would rely more on internal markets than on
international trade. These necessities focused on
increased food production and developing basic and
heavy industries in India. The infrastructure
investments in India were too centered on the
guiding principles of its five year plans, which
narrowed its horizon in the overall eye of the global
economy. However, eventually ‑ the thrust on food
production ensured increased investments in
irrigation facilities, whereas to scale‑up the basic and
heavy industries the Government had to rapidly
divert its attention to developing roads, power and
other core infrastructure services.
The result of such passive interest in infrastructure
was imminent. While in the US, UK and other
developed economies, infrastructure was already
owned and managed by private players, in India it
was left at the hands of the public sector. Thus
infrastructure investment remained low and the
economic growth stagnated around 3.5 percent from
the 1950s‑1980s. It was during the same period when
countries like Indonesia, Korea and Thailand achieved
an impressive growth rate of close to 10 percent,
pushing India to the lower end of the spectrum after
Bangladesh. Reform measures in the public sector
and infrastructure investments were few of the key
areas identified as immediate priorities for the
economic development of the country.
04
Indiaʼs Rise in Global Economy The economic liberalization of India in 1990s enabled
the country to break the bureaucratic shackles to a
large extent and presented a completely different
picture while the nation adopted a free market
economy with the following major reforms:
� Eradication of License Raj
� Reducing tariffs and interest rates
� Removing public monopolies, thereby preventing
stagnation and making room for healthy
competition
� Approval of Foreign Direct Investment (FDI) and
Foreign Institutional Investors (FII) in many sectors
� Shifting thrust from import substitution to export
promotion, thereby gradually transforming into an
open economy
By 2000, India had witnessed noticeable reduction in
state control of the economy and increased financial
liberalization. Today India is one of the leading
emerging economies of the world recording one of
the highest growth rates in the mid‑2000s and is one
of the fastest growing economies in the world, with a
highly credible growth of over 200 times in per capita
income from 1947 to 20111.
The major attributes to this remarkable achievement are:
� Increase in consumer base
� Growth in the skilled labor force
� Growth in the manufacturing sector due to rising
education levels and engineering skills
� Massive influx of FDI and FII
Figure 1.1 shows how the economy of India responded
swiftly and positively to the reform measures initiated
by the Government. From being virtually stagnant until
the late 80ʼs, GDP increased exponentially over the last
two decades making India one of the fastest growing
economies in the world. Much of this was attributed to
the liberalization of the Government with respect to
reforms in the Infrastructure sector.
05
1 Reserve Bank of India; Handbook of Statistics on Indian Economy
http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20 Economy
GD
P In
INR
Bill
ion
Po
pu
lati
on
In M
illio
n
90,000
1950-51 1970-71
GDP at Market Prices
Pre-liberalization Era Post Liberalization
Population (Crore)
1990-91 2010-11
1,400
1,200
1,000
800
600
400
200
-
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
Figure 1.1. GDP Growth Rate
Source: Reserve Bank of India; Handbook of Statistics on Indian Economy
06
2 Source: CIA, The World Factbook, https://www.cia.gov/library/publications/the‑world‑factbook/geos/in.html#Econ
The 11th Five Year Plan (2007‑12) saw
Indiaʼs GDP (at factor cost) grow by 48
percent from `35.64 trillion (USD 641
billion) in 2007 to `54.38 trillion (USD
978 billion) in 2012 at an outstanding
average of 8 percent per annum.
Going by this trend, India is expected
to cross the `200 trillion (USD 4 trillion)
mark by 2015.
It is noteworthy that during this
period, all the major components of
GDP such as industry, agriculture and
services increased significantly. A
major part of the increase has been
attributed to the services sector which
is considered as the major driving
force behind Indiaʼs economic growth.
Sectoral Analysis:1) Industry and Manufacturing
sector: Industry accounts for 26
percent of the GDP and employs 14
percent of the total workforce.2
India ranks 12th in the world in
terms of nominal factory output.
The industrial sector underwent
rapid modifications post 1991.
Some of the reforms included the
removal of import restrictions to
encourage foreign competition,
disinvestment in certain PSUs,
schemes to attract Foreign Direct
Investments (FDIs), competitive
prices of products made possible by
curtailing costs etc.
2) Services: This sector provides
employment to around 34 percent
of the work force. It has the largest
share in GDP, accounting for 56
percent in 2007. IT, Telecom and
BPOs are among the fastest
growing sectors, contributing to nearly 25 percent
of the countryʼs exports. The growth of the IT and
BPO sector can be attributed to availability of smart,
educated and highly skilled workers in India, with
wage requirements being much lower than the
western countries.
3) Agriculture: India is the second largest producer
in farm output employing over 52 percent of
workforce. Despite a marked decline in its share in
GDP, agriculture is still the largest economic
sector. India is largely an agrarian economy and
introduction of High Yield Variety (HYV) seeds
through the Green Revolution has resulted in
geometric leaps in per capita food production
over the years. India is the largest producer of milk,
jute and pulses and the second largest producer
of rice, wheat and cotton.
The graph below (Figure 1.2) indicates how each
of the sectors has contributed towards the growth
of the economy during the 11th Five Year Plan.
07
3 Reserve Bank of India, Handbook of Statistics of Indian Economy (http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/00HB130912LF.pdf)
12 109876543210
10
2007-08
1. Agriculture & Allied Activities 2. Industry3. Services 4. Gross Domestic Product at factor cost
2008-09 2009-10 2010-11* 2011-12#
8
6
4
2
0
Figure 1.2 Growth Rates and Sectoral Composition of RealGross Domestic Product
Source: Reserve Bank of India, Handbook of Statistics of Indian Economy3
The Growth DriversA plethora of renewable resources, complemented
by a strong industrial base and abundance in the
supply of skilled labor has given India a big push in its
growth path. Despite being plagued by perceived
threat of inflation and corruption, the Indian growth
curve has experienced a steep upsurge. The
Government has been extremely proactive in
opening up the infrastructure through some of the
initiatives listed below.
1) Encouraging Foreign Investments: The Indian
Government has been determined to encourage
foreign participation to fuel economic growth
with their continuous efforts to imbibe
investments in all major sectors. Being the third
largest economy in terms of purchasing power parity
(PPP), India has been always a preferred investment
destination for FDI. Indiaʼs recently liberalized FDI
policy allowing for 100 percent FDI in major sectors
has given the much needed facelift to the Indian
economy, which has been battling a perceived
negative sentiments on foreign participation.
Foreign Institutional Investors (FII) have been
playing a major role in the Indian capital market
since the implementation of New Economic
Reforms in 1991. Indian stock market currently
imbibes `2, 52,233.10 crores (USD 45 billion)
worth of FII investment each year with the
registration of 1662 FIIs4.
4 “Role of FII in India”, Mishra & Das http://mpra.ub.uni‑muenchen.de/30457/1/Article_1_.pdf
S. No. Financial Year Amount of FDI equity inflows Investment by FIIʼs Foreign(April‑March) institutional investors Fund
In ` Crores In USD million (net) (in terms of USD million)
1. 2008‑09 1,42,829 31,396 (‑) 15,017
2. 2009‑10 1,23,120 25,834 29,048
3. 2010‑11 88,520 19,427 29,422
4. 2011‑12 (April‑Feb. 2012) 1,33,181 28,403 17,365
TOTAL 4,87,650 1,05,060 60,818
Table 1. 1. FDI and FII inflows
Source: Factsheet on Foreign Direct Investment, the Department of Industrial Policy & Promotion
http://dipp.nic.in/English/Publications/FDI_Statistics/2012/india_FDI_September2012.pdf
08
09
An influx of a number of FIIʼs has resulted in the rapid
growth of the Indian equity market (at all the major
stock exchanges). Today, Indiaʼs equity market is one
of the largest in the world with FIIʼs contributing to as
much as 30 percent of the capitalization of BSE and
NSE.
There are also a plethora of reforms that have been
initiated to boost investments across various sectors.
� Allowing FDI in multi‑brand retail of up to
51percent
� Provision of Advance Pricing Agreement to be
introduced
� Relaxing restrictions on FIIs post 2005
� Reducing Tax rates for foreign firms
� Single Window System in most states for granting
approval for setting up industrial units
� Incentives in the form of capital and interest
subsidies, reduced power tariff and relaxation of
stringent rules
2) Topographic Advantage: India is located right at
the centre of South Asia and linked strategically to
the Western world as well as the Middle East and
the South by sea and land routes. This has
provided a massive boost to foreign trade,
PERSIA
PACIFICOCEAN
PHILIPINEISLANDS
BORNEO
CHINA
INDIA
INDIAN OCEAN
AFRICA
Black Sea
ArabianSea
Bay ofBengal
SouthChina Sea
CaspianSea
Africa
Syria
Red Sea
CEYLON
BurmaPersian Gulf Tripura
Machillipatnam
Cochin
Surat
MALURUISLANDS
TIMON
ARABIA
MADAGASCAR
N
Figure 1.3. Indiaʼs location and trade routes
10
facilitating easy exodus of export goods and
import of foreign goods.
3) Demographics: India has a competitive advantage
over most of the emerging economies due to its
large working population and young work force. In
addition, the education system provides highly
skilled and technical education that is highly
infrastructure and engineering focused. This has
resulted in a major boost for the economy, and is
expected to increase in the coming years with
more youth entering the work force.
4) Expansion of consumer Base: There has been a
major change in the overall trend of consumer
spending, resulting in a major change in the
demand or good and services in the country. The
emphasis has now shifted from price
consideration to design, quality, trendiness and
brand recognition. This shift of demand to
moderate and extreme luxury goods has opened
the doors to international brands into India at
reasonable prices. Buoyed by rising household
income, ripening of a new generation and other
socio economic forces, consumer spending in
India is likely to expand to 3.6 times from USD 991
billion in 2010 to USD 3.6 trillion in 2020 according
to The Boston Consulting Group and The
Confederation of Indian Industry (CII)5.
5 http://mycii.in/KmResourceApplication/E000001151.4485.CII%20BCGReportTheTigerRoarsIndia2012.pdf
'Many large international investors want todeploy capital into Indian infrastructure inyield-type cash flow generating infrastructureassets, whether the risk is much lower thanequity, but the return is much higher thanOECD debt. We at Srei are putting togethera bespoke product for such pension andendowment funds, and other patientinvestors.'
Shailesh PathakPresidentSrei Infrastructure Finance Ltd
09
2. Overview of
Infrastructure in India
Indiaʼs infrastructure sector continues to be one of the key
drivers of the nationʼs growth. An extremely large
population coupled with the urgent need for economic
growth are putting infrastructure on pressure for rapid
modernization and enlargement. Therefore, development
of adequate and quality infrastructure is a necessary, if not
compulsory, condition to maintain growth.
”It is said that every Rupee invested in the infrastructure sector creates 10 times its worth inopportunities.”
Welcoming the 12th Five Year Plan, with an
impressive USD 1 trillion dollars of investments, India
is opening a new chapter in infrastructure
development which promises to open more avenues
for innovative planning, projects, policies and
partnerships.
The infrastructure sector is not only the backbone of
an economy, but also plays a vital role in shaping the
countryʼs social and cultural fabric. It contributes
significantly to the growth of the overall gross
domestic product (GDP), while creating opportunities
for employment and investment.
Changes in world economy indicate a global shift in
economic strength towards emerging markets, a trend
that is favorable to India. The advanced economiesʼ
share of global GDP is projected to decrease from 65
percent to 51 percent, while the emerging economies
share is projected to increase from 35 percent to about
49 percent (Table 2.1). India is well poised to become
one of the leaders among these emerging economies,
with the potential to become the third largest GDP in
the world in two decades1 . Infrastructure investment is
critical to capitalizing on the potential and sustaining
rapid growth in the coming decades.
1 Planning Commission Approach Paper for the 12th Five Year Plan, 2011, Page 13
Source: The World Economic Outlook database of the International Monetary Fund. The figures up to 2016 are projections by the IMF. The projections for India
beyond 2016 have been made by the DPPP Division of the Planning Commission.
Table 2.1 ‑ Structure of Global GDP (in current USD Trillion)
2000 2011 2016 2020 2025
World GDP 32.2 68.7 90.5 110.5 140.5
Advanced Economies 25.7 44.4 53.3 61.1 71.7
(79.7%) (64.6%) (58.9%) (55.3%) (51.1%)
Developing and Emerging 6.5 24.3 37.2 49.4 68.8
(20.3%) (35.4%) (41.1%) (44.7%) (48.9%)
of which India 0.5 1.9 3.6 5.8 10.0
(1.5%) (2.8%) (4.0%) (5.2%) (7.1%)
12
India, already highly populated,
with 17.5 percent of the world's
population, is projected to be the
world's most populous country by
2025 2.
As presented on Figure 2.1, New
Delhi will reach 22.2 million citizens
by 2025, followed by Mumbai who
will reach 20 million and Kolkata
15.6 million. This puts even more
pressure on the faster progress of
infrastructure development.
Population Pressures on the Infrastructure
13
2 US Census Bureau, Demographic Internet Staff. "United States Census Bureau ‑ International Data Base (IDB)". Census.gov. Retrieved 2011‑09‑24.
Fastest-growing populations, annual average increase, ‘000 1995-2010
Delhi (India)
Dhaka (Bangladesh)
Kinshasa (Congo)
Mumbai (India)
Karachi (Pakistan)
Lagos (Nigeria)
Kolkata (India)
Shanghai (China)
Manila (Philippines)
Lahore (Pakistan)
Dar es Salaam (Tanzania)
Ho Chi Minh City (Vietnam)
Khartoum (Sudan)
Nairobi (Kenya)
Beijing (China)
0 100 200 300 400 500 600 700
2010 population,m
2010 -25 forecast
22.2
20.0
13.1
10.6
15.6
16.6
11.6
7.1
3.3
6.2
5.2
3.5
12.4
14.6
8.8
Figure 2.1 – Cities in emerging economies
Source: Credit Suisse http://www.economist.com/blogs/graphicdetail/2012/04/focus‑4
Regulatory FrameworkThe Planning Commission has initiated several
policies in order to develop structures that maximize
the role of public‑private partnerships (PPPs) ensuring
the timely creation of world‑class infrastructure.
These policies include3:
� Cabinet Committee on infrastructure (CCI):Instituted in 2009, the CCI focuses on financial,
legal and institutional measures required to
enhance investment across all infrastructure
sectors. In addition, it reviews and approves
policies and projects.
� Public Private Partnership (PPP) Framework: The
Government has drafted a National PPP policy in
order to lessen some of the risks and inefficiencies
in development and implementation of projects. It
addresses principles, process, enabling
frameworks (financing, land, stakeholder
communication), institutional and governance
mechanisms. The policy also includes:
standardization of contractual documents, defines
3 The Secretariat for Infrastructure, Planning Commission “Private Participation in Infrastructure” Page 5 and 6
14
the risks, liabilities and performance standards,
waives charges for foreign and private investment,
establishment of the Public Private Partnership
Appraisal Committee (PPPAC) to streamline
approval at the Central level, launching of an
online database for PPP projects that serves as a
virtual clearinghouse of all PPP projects designed
to be accessible based on location, sector, type
(BOT, BOOST, LDOT etc), domestic/foreign
investment and type of investment instrument.
� Tax Exemption: The Government has incentivized
private sector participation by tax exemption and
duty‑free imports on road‑building equipment
and machinery. Also, eligible infrastructure
projects can avail 100 percent tax exemption for
upto 10 years.
� Viability Gap Funding (VGF): In order to enhance
the financial viability of projects that do not pass
the standard thresholds of financial returns, the
Central Government provides up to 40 percent of
capital costs in grant assistance to PPP projects
thereby expanding access to capital.
� India Infrastructure Finance Company Limited(IIFCL): It is a non banking financial company, a
wholly owned subsidiary of the Government of
India. The company provides upto 20 percent of
long term financial assistance to infrastructure
projects carried out by public sector companies,
private sector companies under public‑private
partnership and private sector company's projects
whose services are to be regulated or setup in
arrangement with State Government, Central
Government or a public sector undertaking. In
addition, the Government has authorized IIFCL to
raise additional capital through tax‑free bonds,
especially for roads, highways and ports.
� Foreign Direct Investment and InfrastructureDevelopment – Indian infrastructure sector is
becoming an attractive investment area for FDI.
Table 2.2 clearly indicates the Foreign Direct
Investment mechanism towards each
infrastructure sector.
15
Table 2.2 – Foreign Direct Investments in India
Source: infrastructure.gov.in
Sector Foreign Direct Investment
Roads 100% FDI allowed in road projects
Ports 100% FDI allowed in port projects
100% FDI allowed for green‑field
airports
Airports For existing airports government
approval needed for FDI beyond 74%
49% FDI by foreign airline operators
allowed in domestic airlines
Up to 74% FDI allowed for telecom
service providersTelecom
100% FDI allowed for telecom
equipment manufacturers
� Infrastructure Debt Funds ‑ The Infrastructure
Debt Fund (IDFs) instrument was proposed by the
Ministry of Finance in the Union Budget of
2011‑12 to facilitate steady inflow of long‑term
debt for funding infrastructure projects. The IDFs
are expected to encourage Insurance and Pension
Funds to invest more as well as provide long‑term
low cost debt for infrastructure projects. In its
initial concept report, the Government proposed
setting up IDFʼs for USD 11 billion through PPP
expecting it to bridge the emerging gap in the
total debt requirement in infrastructure funding4.
So far 3 funds have been already launched and 3
more are awaiting regulatory approval.
4 India Infrastructure Debt Fund: A Concept Paper , Gajendra Haldea http://infrastructure.gov.in/pdf/iidf‑aconcept‑paper190410.pdf, Page 1
16
Key Challenges
Despite favorable macro economic fundamentals,
the execution and policy issues pose serious
challenges to investments in the infrastructure space.
The policy paralysis and lack of transparency in
regulatory mechanisms in the recent past have
adversely affected investor sentiment resulting in a
slowdown in project execution across the various
verticals of infrastructure. Even though this
environment is changing, it will take considerable
efforts from the Government to boost the overall
sector keeping various macroeconomic conditions in
mind, such as the slump in the international financial
sector, inflation and competing economies that are
more price conscious.
Figure 2.2 – Reasons for lingering infrastructureprojects
Since 2010, approximately 140 projects in the
infrastructure space were detained, abandoned or
put off for implementation. About 52 projects in 2011
and 2012 were turned unviable due to the poor
economic growth, in comparison to year 2010 where
only 16 projects were detained or abandoned.
Reason can be found in the economic environment
which has weakened investorʼs confidence as well as
land acquisition issues. Lack of fuel linkages have
impeded at least six major power projects to take off5.
Insufficiency of User Charges ‑ Large part of the
infrastructure sector in India (like irrigation, water
supply, urban sanitation, and state road transport) is
struggling to be commercialized for various reasons,
such as, regulatory, political and legal constraints.
Therefore, the Government is not being able to set
sufficient user charges on these services, which
negatively affect the servicing of infrastructure loans.
Legal and Procedural Issues ‑ Problems related to
infrastructure development range from those related
to land acquisition for various infrastructure projects
to several other issues such as environmental and
other legal clearances, often resulting in increased
procedural delays. The State Governmentsʼ support in
maintenance of law and order, land acquisition and
obtaining environmental clearances are necessary for
the projects undertaken by the Central Government
or the private sector.
Delays in Implementation of projects ‑ Delays in the
Government and regulatory decision‑making have
caused several road, railway, port and other
infrastructure projects to fall behind schedule.
Availability of Financing – According to a Standard &
Poorʼs report, India needs to reform policies
concerning project execution and long‑term funding
to overcome its infrastructure challenges6. Innovative
schemes to attract large scale financing are one of
the most important challenges in infrastructure
development. It is really important to bring big‑ticket
long‑term investors like strategic investors,
17
5 Infrawindow, Reports Statistics, July 2012, Web site: http://www.infrawindow.com/reports‑statistics/three‑major‑reasons‑for‑stalling‑infra‑projects_96/
6 Infrastructure to hit India growth:S&P, "The Financial Express, 2011.
Source: Infrawindow, Reports Statistics, July 2012
Miscreasons,
68
Landacquisition,
40
Fuel,10
Managementdecision, 6
Approval, 6Unviable, 5
Environmentcl, 5
Private Equity Funds, Pension Funds, and Sovereign
Funds as 50 percent of the projected investment is
estimated to come from the private sector as per the
12th Five Year Plan. Hence, financing infrastructure will
pose a big challenge in the coming years and it will
require innovative ideas and new models of financing.
Investment Opportunities12th Five Year Plan ‑ The Planning Commission has
defined infrastructure development as a key priority
in the 12th Five Year Plan (2012‑2017), with projected
investments of USD 1 trillion in the next five years. Of
the total targeted investment, private sector is
expected to invest almost USD 500 billion ‑ with
around USD 350 billion through debt and USD 150
billion of equity7.
Table 2.3 Projected Investment in Infrastructure: 12th Five Year Plan
7 Planning Commission, Government of India
However, as per some estimates, Indiaʼs ambitious target to invest USD 1 trillion to boost its infrastructure over
the next five years may fall short by at least 20 percent, due to slowing economic growth and failure to meet
investment targets in the sector in the 11th Five Year Plan.
(at 2006‑07 prices, exchange 11th Plan 12th Plan rate at ` 40) Sectors ` crore Share ` crore Share
(USD billion) (%) (USD billion) (%)
Electricity (incl. NCE) 6,58,630 (165) 32.1 1,257,604 (314) 30.7
Roads and Bridges 2 78 658 (70) 13.6 490,272 (123) 12
Telecommunication 3,45,134 (86) 16.8 1,011,692 (253) 24.7
Railways (incl. MRTS) 2,00,802 (50) 9.8 296,393 (74) 7.2
Irrigation (incl. Watershed) 2,46,234 (62) 12 398,642 (100) 9.7
Water Supply & Sanitation 1,11,689 (28) 5.4 185,244 (46) 4.5
Ports 40,647 (10) 2 105,034 (26) 2.6
Airports 36,138 (9) 1.8 66,277 (17) 1.6
Storage 8,966 (2), ( ) 0.4 25,736 (6) 0.6
Oil & Gas Pipelines 1,27,306 (32) 6.2 262,345 (66) 6.4
Total 20,54,205 (514) 100 4,099,239 (1025) 100
18
Srei as a conglomerate
is constantly looking at
investment opportunities
across the globe. Our
presence at strategic locations act as centers of
excellence to provide domain knowledge on
specific regions, with an aim to help us achieve
our goals towards becoming a global holistic
infrastructure player
Dhruv BhallaVice PresidentSrei Infrastructure Finance Ltd
3. Opportunities in
Roads & HighwaysOverviewInvestments in transport infrastructure has both short‑term
and long‑term economic benefits. Without a well
functioning transportation system, the economy of a country
cannot progress. Roads and Highways are considered the
most critical component of this transportation system and in
the Asian countries, roads are considered to be more
productive capital investments than other forms of capital1 .
India is no exception to that, so in the past few years,
India has substantially invested in creating its road
network to commensurate the need of its searing
economic growth.
Today, India has the second largest road network in
the world with 4.2 million km of road length that
includes about 72,000 km of National Highways/
expressways. Figure 3.1 shows India's vast road
network including its network of National Highways,
which is often termed as the Golden Quadrilateral.
Even today, roads continue to be the most cost
effective and preferred modes of transportation for
both, passengers as well as freight movement.
Although India has better road coverage i.e. 0.66 km
of highway per square kilometer of land than many
other countries such as United States (0.65) and
much greater than China's (0.16) or Brazil's (0.20)3, key
issues such as safety, road congestion, poor surface
1 Asian Development Bank, Economics working paper series, Infrastructure's role in sustaining Asia's Growth by D. H. Brooks and E. C. Go, Page 16
(http://www.iadb.org/intal/intalcdi/PE/2012/11041.pdf) 2 NHAI.org (http://www.nhai.org/nhdpmain.htm) 3World Bank (http://data.worldbank.org/indicator/IS.ROD.DNST.K2?display=graph)
20
B A Y O F B E N G A L
I N D I A N O C E A N
Silchar
Kolkata
Chennai
Mumbai
Porbandar
Srinagar
Kanyakumari
NAGPUR
Lakhnadon
MP/AH Border
Sagar
Shikohabad Lucknow
Gorakhpur
KanpurAllahabad
Varanasi
Fatehpur
Ayodhya
Daboka
Nagaon
Itanagar
Tuni Vishakhakhapatnam
Rajahmundry
Panaji
Harihar
TumkurChitradurga
Satara
Sarole
JetpurRajkot
Bamanbore
Pune
Pimpalgaon
Gonde
Dhule
Indore
Khalghat
GaramoreAhmadabad
Gagodhar
RadhanpurPalanpur
Uadipur
Jaipur
Jammu
Pathankot
Wagha BorderAmritsar
Chandigarh
Ambala
Dehradun
Agra
Shmila
Dhar
Vadodara
Bhopal
Armur
Hyderabad
Anantpur
Hubli
Belgaum
Ongole
Kavali
Nellore
Madurai
Thrissur
Coimbatore
Krishnagiri
Thiruvananthapuram
SrikakulamKorlam
Bhubaneshwar
ChandikholeBhadrakBaleshwar
CompletedUnder Implementation
To Be Awarded
ORISSA
CHHATTISGARH
KARNATAKA
GOA
KERALA
TAMILNADU
ANDHRAPRADESH
HIMACHALPRADESH
UTTARPRADESH
WESTBENGAL
JHARKHAND
MIZORAM
MANIPUR
TRIPURA
ARUNACHAL PRADESH
NAGALAND
ASSAMSIKKIM
MEGHALAYABIHAR
MAHARASHTRA
MADHYA PRADESH
GUJARAT
RAJASTHAN
PUNJAB
JAMMU & KASHMIR
UTTRAKHAND
DELHI
I N D I A
LAK
SH
AD
WE
EP
An
da
ma
na
nd
Nic
ob
ar
Is lan
d
NOT TO SCALE
EW
N
S
Figure 3.1 : India's NH/Expressway network2
quality, and rural access continue to pose a challenge
for the sector. In the absence of adequate rail and air
transport systems in several parts of India, road
transport remains the only link connecting majority of
people living in remote villages to urban cities.
Moreover, the urban cities in India continue to
dominate economic development in terms of
employment, technology, and healthcare, hence the
road network connecting the rural to urban areas
serves as one of the critical factors to overall
development.
Roads and Highways contribute significantly to the
GDP of India, both directly and indirectly. In 2009‑10,
the sector emerged as the dominant segment in
India with a share of 4.7 percent in Indiaʼs GDP4. The
indirect contribution, though difficult to measure,
also plays a significant role as it provides the basic
framework necessary for other businesses to grow.
Other than the logistic support to distribution
channels for businesses, road connectivity also plays a
great role in terms of penetration to new markets for
business expansion.
The Growth DriversGrowth In Traffic – In the past few years, India has
seen remarkable growth in automobile industry
adding immense pressure to the existing road
network in the country. During the period 2006 to
2011, the number of passenger vehicles grew at a
CAGR of 17.8 percent to 2.5 million vehicles and
commercial vehicles grew at 16.3 percent to 0.6
million vehicles5.
Development of a sophisticated road network for
freight movement is the next big challenge and
growth driver for the Government of India. About 65
percent of freight movement in our country takes
place through a disproportionate usage of the
existing road network. Major changes are being
implemented by the Government and Ministry of
Transportation to ensure maximum usage of the
larger golden quadrilateral ensuring revenue
collection. Figure 3.2 shows the lane distribution of
national highway system.
Policy Initiatives: In order to upgrade the existing
road infrastructure, the Government of India has
taken several policy initiatives and set up agencies to
monitor and implement various road development
schemes. For example, the National Highways
Development Authority has been set up to oversee
highways development in India, while the Pradhan
Mantri Gram Sadak Yojna (PMGSY) is a special road
development scheme to build and upgrade the rural
4 MORTH Annual Report 2011‑12, (http://morth.nic.in/showfile.asp?lid=820), Page 215 IBEF, Roads: November 2011, (http://www.ibef.org/download/Roads50112.pdf), Page 186MORTH Annual Report 2011‑12, (http://morth.nic.in/showfile.asp?lid=820), Page 4
21
25% 21%
54%
Single Lane/
Intermediate
lane
Double Lane
Four Lane/
Six Lane/
Eight Lane
Figure 3.2 Lane distribution in National Highway System
Source: MORTH Annual Report 2011‑126
road network across the country. The role
and objective of such agencies and
schemes have been briefly explained
below.
National Highways Development Project(NHDP): Under the authority of NHAI,
National Highway Development Project
(NHDP) was one of the largest road
projects initiated in India to promote high
quality national highway and expressway
network that connected several tier I and
tier II cities across India. Widening of
national highway network was another
main objective of NHDP. This initiative was
taken up in 1998 and the project is likely to
be completed by the end of 2015 through
a series of phases (I‑VII).
Special Accelerated Road DevelopmentProgram for the North‑Eastern Region(SARDP‑NE): SARDP‑NE was set up to
provide road connectivity in the northeast
region covering a total length of 10,141km.
This program will be implemented under
Phases A & B along with a special package
under Arunachal Pradesh Package of
Roads & Highways (APPRH).
� Phase A consists of improving 4099 km
of roads, consisting of 2041 km of NHs
and 2058 km of state road at an
estimated cost of `21,769 crore (USD
3,915 mn)
� Phase B will be covering 2 laning of
1285 km of NHs and 2 laning
improvement of 2438 km of State
Roads. Phase B has been approved only
for DPR preparation and investment
decision is yet to be taken by the
Government
22
Similarly, Arunachal Pradesh Package of Roads &
Highways (APPRH) covers 1472 km of NHs and
847 km of state roads7.
Pradhan Mantri Gram Sadak Yojna (PMGSY): Despite
majority of Indiaʼs population living in rural areas,
poor rural connectivity has been one of the
weaknesses of the Indian road network. Over the
years, the Government of India has recognized the
importance of rural connectivity and delegated
efforts to improve the situation. In December 2000,
GOI launched the PMGSY scheme with primary
objective to provide all‑weather access to
unconnected habitations. PMGSY is a 100 percent
Centrally Sponsored Scheme and 50 percent of the
Cess on High Speed Diesel (HSD) is earmarked for this
Program8.
Bharat Nirman ‑ Further, in order to facilitate the rural
road development, the GOI included rural road
development as one of the objectives under the
Bharat Nirman programme for providing connectivity
to unconnected habitations and up‑gradation of rural
areas. The scheme aims at constructing 146,185 km of
new roads, connecting 66,802 habitations and up‑
grading 194,132 km of existing inlay routes with a
total projected investment of USD 10 billion
respectively9.
Under this program, about 4.41 lakh km roads to
benefit 1.14 lakh habitations have been cleared up to
January 2012. So far about `88,931 crore (USD 16
billion) has been spent and 3,41,257 km road length
has been completed, connecting over 82,019
habitations. Work on road length of about 98,399 km
is under construction10. In 2012‑13ʼs budget,
allocation for PMGSY has been increased by 20
percent to USD 4.8 billion. 11
7 MORTH Annual Report 2011, (http://morth.nic.in/showfile.asp?lid=820), Page 3 8 Pradhan Mantri Gram Sadak Yojana (http://pmgsy.nic.in/pmg31.asp#1)9Bharat Nirman Programme, (http://www.bharatnirman.gov.in/download.pdf), Page 9 &10 10Economic survey, Page 26511http://www.ibef.org/artdisplay.aspx?cat_id=1153&art_id=31235
23
Key ChallengesIndia's road infrastructure has grown considerably in
last few years. Yet, there remains great scope of
improvement to meet the demands of economic
growth. Although Government has plans to meet
these requirements through Five Year Plans, there
exists a significant difference between the target and
actual construction. In past, several of the awarded
projects were delayed preventing the government to
reach the 20 km per day construction target. In FY
2011‑12 the Indian Road Ministry constructed roads
at an average rate of only 10.39 km per day12. The
delays faced in these projects can be attributed to
following issues:
� Land Acquisitions ‑ These issues vary across
different states and locations within states. The
Government provides remuneration for the
acquired land, however the awarded
remuneration often fails to match the market price
and this difference leads to litigations and
negotiations, leading to delays in acquisition
process. However significant progress can be seen
in this area. The Government has setup special
land acquisition units to accelerate acquisition
process and as a result 9000 Ha of land was
acquired in year 2010 against 3120 Ha of land
acquisition in 200913.
� Environment and Forest Clearance ‑ Considerable
delays have been observed to get the clearance
from forest and environment departments.
However, with several feasibility studies awarded
for future projects, the Government is trying to
streamline the clearance process as much as
possible. Further, the Ministry of Environment and
Forest is in process of streamlining the clearance
process and creating standard procedures with
online support.
� Shifting of utilities ‑ Shifting of utilities hold up
the construction work causing delays. However,
with new detection technology and increasing
assistance between different agencies, industry is
finding ways to reduce the delays.
� Poor performance by some contractors ‑ Several
of the contractors are unable to maintain the
12 MORTH report and Indian Infrastructure Report by Business monitor International
13Annual report to the people on infrastructure by Planning commission govt. of India, New Delhi
24
required performance to complete the projects in
time. However, as several joint ventures between
Indian companies and multi‑national corporations
enter the construction industry, professional
training and advance planning has increased and
as a result, industry is improving its performance.
� Rural road network ‑ sustainability through
unpredictable rains and landslides in hilly areas
continues to be a critical problem for building all
weather roads in rural areas. However, growing
development and population in rural areas is
allowing government justify higher investment in
rural areas to deploy advance techniques to build
all weather roads.
� Bidding strategies ‑ NHAI's e ‑tendering and e‑
procurement has helped create a transparent
project bidding and award system. With pre‑
qualification process in place NHAI bidding was a
big success where for some of the projects more
than 100 firms have been registered for pre‑
qualification. However, as more number of firms
compete for same projects, this sector is leaning
towards hyper competition and that is affecting
the baseline of these firms. Fortunately with time
companies have realized the risks associated with
the “aggressive bidding” and last year NHAI
observed reduction in aggressive bidding
compared to past years.
� Technology ‑ As the sector is growing at alarming
rate, Indian road contractors need to adopt latest
technologies in order to keep up with the growth.
Although, through several JVs with multinational
companies or large Indian contractors, road
construction sector is deploying latest
technologies to achieve high speed construction.
This sector has long way ahead to reach its
maximum potential. Furthermore, with increasing
toll‑ways under BOT projects, this sector is facing
serious traffic congestion issues at toll centers and
need to implement latest technologies to resolve
such congestions. However recently India has
seen some development in this area with the toll
center on NH5 using radio frequency
identification for electronic toll collection.
25
Private Participation in the Roads SectorHistorically, India has been utilizing Government
funding to build the necessary infrastructure. As the
necessity of infrastructure and its direct relation with
the development could not be ignored, India has
undertaken extensive expansion plans in road and
bridge infrastructure through several projects with
the assistance of the private sector to invest in road
infrastructure through PPP models .
Since India started using PPP investment model the
common forms of PPP models that have been widely
used in India for road infrastructure investments are:
� Build, Operate and Transfer (Toll) model on Design
Build Finance Operate Transfer (DBFOT) basis
� Build, Operate and Transfer (Annuity) Mode on
DBFOT basis
� Special Purpose Vehicle (SPV) for Port Connectivity
Projects
Furthermore, in the draft policy released for
comments in 2012 for PPP investments, GOI has
supported following models14:
� User‑Fee Based BOT models
� Annuity Based BOT models
� Performance Based Management/ Maintenance
contracts
� Modified Design‑Build (Turnkey) Contracts
In the year 2011, NHDP awarded projects worth more
than USD 6.4 billion through PPP model. Several of
these projects were worth more than 200 million and
maximum value of the project awarded was around
USD 1 billion15. As GOI plans to attract significant
investment though PPP in road infrastructure, it has
taken concrete steps to ensure transparency and
structured framework to address the concerns of
investors.
14 http://www.pppinindia.com/Defining‑PPP.php
15 Source http://www.pppinindia.com and exchange rate used for USD 1 = ` 50
26
Other than investments through PPP models, GOI
funds several other projects of NHDP through other
resources such as the World Bank, Asian
Development Bank (ADB) and Japan Bank for
International Cooperation (JBIC). Since 2005, ADB had
funded about 1700 km of national highways in NHDP
phase I & II16. Whereas, World Bank has invested in
about 547 km roads in similar projects across rural
India. These organizations not only invest in India but
also monitor the progress of the projects. Their strict
and methodical budgetary and engineering
monitoring helps avoiding unnecessary delays and
consequently improves the utilization of funds. On
the similar lines GOI has plans to set up a two tier
system including project monitoring and
performance review system to ensure timely
completion of road projects17.
National players:
Considering the current and future investment in the
road sector, several of the national players have
already invested heavily in construction, technology
and development of skilled manpower. Some of the
main players, who have already bagged some of the
big projects, in this sector are
� Reliance Energy
� Srei Infrastructure Finance Ltd.
� L&T inter‑state Road Corridor Limited
� Jaiprakash Associates Ltd (JAL)
� Lanco Infratech
� DS Construction
� Madhucon Projects
� IRB Infrastructure Ltd.
� IL&FS Transportation Network Ltd.
International players:Many of the international players have successfully
entered the Indian road infrastructure market through
various forms of partnerships. Some of them bid for
projects through the involvement of donor agencies,
specifically projects that are funded by organizations
such as the World Bank or ADB. The various
international companies to join the league are Berhad
(Malaysia), Deutsche Bank, Emirates Trading Agency
(Dubai), the Isolux Corsan Group (Spain), Italthai
(Thailand), Baelim (Korea), Dyckerhoff (Russia),
Widmann AG (Germany), IJM Corporation, SDN and
Road Builders (Malaysia), Kajima and Taisei (Japan)18.
16 http://www.nhai.org/fundedadb.asp 17 http://www.ibef.org/artdispview.aspx?art_id=32074&cat_id=809&in=64
18http://www.pppinindia.com/sector‑highways.php
27
Regulatory FrameworkOver the past few years, the Government has
introduced various investment policies and
incentives in order to increase private participation
and maintain the attractiveness of road construction
for investments. Some of these are19:
� 100 percent FDI for certain projects such as
support services to road, assistance to services
such as cargo handling related to road transport,
maintenance and operations of roads and bridges,
and construction of BOT projects including tolling
� 10 year tax break under Section 80 IA of IT act
� 100 percent tax exemption for five years and 30
percent relief for next five years, which may be
availed in 20 years
� Land acquisition and ROW responsibility taken up
by the Government agencies
� Creating separate identity of road construction by
declaring it as a industry
� NHAI / GOI to provide capital grant up to 40
percent of project cost to enhance viability on a
case to case basis
19 http://www.ibef.org
28
� Concession period allowed up to 30 years
� Duty free import of specified modern high quality
equipment for highways
� Speedy and transparent process through MCA
and policy framework
� Increased FII limit in infrastructure corporate
bonds from USD 5 billion to USD 25 billion is also a
step in the right direction20
Investment OpportunitiesConsidering the importance of road infrastructure,
the Government has been focused on channeling
investments into the sector to bring India at par with
other emerging economies. During FY11, USD 3.2
billion was spent on highways and USD 2.5 billion on
rural roads21. Under India's 12th Five Year Plan, the
Road Transport Ministry is planning to release USD
120 billion worth of road‑widening projects with a
total length of 55,000 km22. Further, considering
India's current growth, the large pipeline of projects is
expected grow and will require the Ministry of Roads,
Transport and Highways to reach its ambitious target
of constructing more than 20 km of roads per day
throughout the Five Year Plan.
Over next five years the road sector would provide an
opportunity of USD 51 billion for construction of state
and national highways23. In 2012‑13, GOI has made
budgetary provisions for about 8,800 km of national
highway and allocation for Road and Highway
transport Ministry has been increased to about USD 5
billion24. Table 3.1 shows the status of NHDP project's
progress until October 2012. As seen in the table,
about 17,800 km of national highway work, including
phase VI, is yet to be awarded and since NHDP plans
to fund these projects through a public private
partnership, these projects provide a great
opportunity for private sector investment.
20 IBEF presentation, (http://www.ibef.org/download/Roads‑261112.pdf), Page 23 21 IBEF presentation, (http://www.ibef.org/download/Roads50112.pdf), Page 25 22 http://profit.ndtv.com/news/market/article‑road‑ministry‑to‑roll‑out‑120‑billion‑projects‑to‑widen‑national‑highways‑153389 23IBEF presentation on roads,
(http://www.ibef.org/download/Roads‑261112.pdf), Page 31 24 http://indiabudget.nic.in
29
30
Overall, GOI continues to focus on road infrastructure development and plans to award about 12,700 kmof
national highway work though NHAI in the coming years, paving way for greater private sector participation at
a global scale27.
25 http://www.nhai.org/WHATITIS.asp 26Annual report to the people on infrastructure by Planning Commission Government of India, New Delhi
27IBEF presentation on roads (http://www.ibef.org/download/Roads50112.pdf)
Bajrang ChoudharyCEO - Infrastructure Project Development
Srei Infrastructure Finance Ltd
NS ‑ EW NHDP NHDP NHDP NHDP NHDP NHDP NHDP Project Status (In Kms) Ph. I & II Phase III Phase IV Phase V Phase VI Phase VII Total
Total Length (Km.) 7,142 12,109 14,799 6,500 1000 700 47,096
Already 4/6Laned (Km.) 6,041 4,362 18 1,197 ‑ 18 17,480
Under Implementation (Km.) 734 5,974 3,653 2,883 ‑ 23 13,268
Contracts Under Implementation (No.) 61 92 25 28 ‑ 2 216
Balance length for award (Km.) 367 1,773 11,128 2,420 1000 659 16,347
Table 3.1: Status of NHDP projects ‑ Phase I to VII as of October 201225
Table 3.2: Non‑NHDP projects status in 201126
Category 2010‑11 Target Achv.* Remaining
Missing Link (km) 2 0.1 2
Widening to 2‑lanes (km) 1117 1042 75
Strengthening (km) 1213 1016 197
Improvement of Riding Quality (km) 2307 2026 281
Widening to 4‑lanes (km) 137 99 38
Bypasses (No.) 15 3 12
Bridges /ROBs (No.) 187 103 84
The roads sector in India poses an exciting opportunity for Internationalplayers given the large investments envisaged as part of the 12th PlanningCommission. A lot of investment opportunities is available at attractivevaluation in both greenfield and brownfield operating assets. The Indian roadsector today is a culmination of global experts having an array of services atvarious levels.
09
4. Opportunities in the
Power SectorOverviewPower sector in India has witnessed a major
transformation over the last two decades. India is the
worldʼs fifth largest producer of electricity with an
installed generation capacity of approximately 206,456
Mega Watts (MW), almost 200 percent more than its
installed capacity of 69065 MW in March 19921.
Such a remarkable growth in the sector is largely
attributed to the reforms in the early 90ʼs such as the
formulation of Electricity Act 2003 coupled with
increased private sector participation.
However, in spite of such a massive addition in
generation capacity over the last few years, India has
managed to reach merely 21.5 percent of Chinaʼs and
18.5 percent of USAʼs installed capacity.
The growth in the power sector is essential for the
overall economic development of the country. India
has so far struggled to maintain the demand versus
supply during the time we faced an increased pace in
industrial and commercial activities resulting in a high
need for power. The stark demand supply gap is
evident in the charts below, which shows the energy
shortage in the country ranging from 8 percent to 17
percent between years 1997‑98 to year 2011‑12.
1 Central Electricity Authority : http://www.cea.nic.in/reports/monthly/executive_rep/apr12/7.pdf
Brazil
106189 225 284
8781,025
India
1200
1000
800
600
400
200
0Russia Japan China United
States
Figure 4.1 Country wise installed capacity (GW)
Source: The U.S. Energy Information Administration (EIA); http://www.eia.gov/countries/
8.4
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
9.6
9.8
11.1
10.18.8
7.3
12.3
13.8 16.6 11.9
12.7 9.8
10.6
0
5
10
15
20
25
30
Peak Shortage (%) Energy Shortage (%)
32
Source: Annual Report 2011‑12 (Page 12); Ministry of Power, India
Figure. 4.2 Energy shortage and Peak shortage
While the Government made sincere efforts in
making power available to widely distributed
geographical boundaries, the per capita
consumption of electric power still remains very low
compared to the world average as shown in figure
4.3. It is apparent that Indiaʼs per capita consumption
is among the lowest when compared to other
developed and developing economies. It is
approximately 25 percent of China, which has a
comparable population size.
33
18000 16766
1351511309
8220
Can
ada
(kw
h)
Un
ited
Sta
tes
Au
stra
lia
Jap
an
Fran
ce
Ger
man
y
UK
Ru
ssia
Bra
zil
Ch
ina
Ind
ia7585 7175 6192 6122
2066 2040 583
14000
10000
6000
2000
Figure 4.3 Per Capita Consumption of Electricity
Source: IEA, World Energy Statistic, 2008
However, such constraints are not only specific to
India. Infact, most of the developing countries face
the similar crisis in availability of power to boost
economic growth.
GenerationThe Power industry in India is often defined by high
growth, successive reforms and increasing private
sector participation. The generation has grown at
CAGR of 5.38 percent from 1998 to 20122. The all
India installed power generation capacity as on July
30, 2012 is 206456 MW, of which the break is:
Thermal ‑ 137386 MW, Nuclear ‑ 4780 MW,
Hydro – 39291 MW and Renewable – 24998 MW.
About 57 percent of current generation capacity is
coal based and the same is likely to continue for the
foreseeable future.
2 2012 data has been taken from CEA letter # CEA/OPM/PPI/6/1/2011 Dated 13.04.2012 3National Electricity Plan, CEA, January 2012, Page 1
4National Electricity Plan, CEA, January 2012
34
Table 4.1A 18th Electric Power Survey (EPS)
Table 4.1B CAGR for Terminal Year
GDP Growth GDP Energy EnergyRates Electricity require‑ require‑
Elasticity ment ment(Mkwh) (Mkwh)
2016‑17 2016‑17
Actual Energy 0.80 1321972 1877313
requirement 0.90/0.8 in 1403414 1992611
(upto 2009‑10) 12th/13th
with 9% Plans
Growth rate 0.95 1445689 2187300
1.09/0.9 in 1489028 2205577
12th/13th
Plans
Actual Energy requirement 1319069 1858999
(uptp 2009‑10) with actual
Growth rates
18th EPS* 1354874 1904861
Terminal Year Required CAGR forTerminal Year Target
Achievement
Terminal Year 12th Plan‑ 2017 9.10%
Terminal Year 13th Plan‑ 2022 8.07%
Figure 4.4 Generation Mix
Thermal 67%
Nuclear 2%Renewable
Energy Sources 12% Hydro19%
In 2011, per capita consumption of power is 814
kwh, which indicates the apparent failure of the
Governmentʼs ambitious target of 'Power to all by
2012' under the National Electricity Policy3. The
latent/unmet demand exhibited by the low per
capita consumption will further exert pressure for
capacity addition. Accordingly CEA has calculated
energy requirement (MkWh) for 12th & 13th Plan
based on the on draft 18th Electric Power Survey
(EPS) as per the tables below4:
Source: 18th Electric Power Survey (EPS), National Electricity Plan,
CEA, January 2012
35
The high CAGR indicates opportunities for investment in the sector with high growth and moderate returns
with risk protection. The entire value chain of the power sector i.e. Generation, Transmission, Distribution, and
trading will require investment.
The EIA projections for increase in installed capacity, as shown in table below, indicates a growth rate of 3.2
percent till 2035, which endorses the sustainable growth momentum of the sector in the near future.
Table 4.2 EIA Projections for increase in Installed Capacity
History Projections GrowthRate
2008 2015 2020 2025 2030 2035
United States 1,009 1,075 1,085 1,119 1,170 1,221 0.7
Russia 224 227 235 242 258 277 0.8
China 797 1,118 1,313 1,492 1,666 1,817 3.1
India 177 240 290 332 371 411 3.2
Brazil 104 122 144 172 205 242 3.2
Total OECD 2,495 2,684 2,798 2,917 3,047 3,181 0.9
Total Non‑OECD 2,128 2,628 2,998 3,352 3,722 4,091 2.5
Total world 4,623 5,312 5,796 6,269 6,769 7,272 1.7
Renewable EnergyThe country has significant potential of generation
from renewable energy sources. The technology
evolution and fiscal incentives have promoted the
growth in the Indian renewable energy sector. The
key policies are:
� National Action Plan for Climate Change(NAPCC): NAPCC targets to increase the share
of renewable energy in the total generation
capacity of the country. The Plan has set the
minimum renewable energy purchase
obligation (RPO) target at 5 percent of the total
energy procurement in 2009‑10, with a
1 percent year‑on‑year (y‑o‑y) increase for the
next 10 years.
� Renewable Energy Purchase Obligation (RPO):State level RPO regulations have been put in
place by SERCs in most of the states. The RPO
regulations are required to be met by
obligated entities (DISCOMS, group captives
and open access customers) by purchasing
renewable energy either by entering into PPAs
with renewable energy assets and/or by
purchasing renewable energy certificates
(RECs).
The Installed capacity as on 31st December, 2011
from renewable energy sources is 20,162 MW5.The
majority of the capacity is in the private sector. The
Total Renewable Installed capacity comprises
14104.62 MW from Wind, 3120.83 MW from Small
Hydro Plants, 2787.63 MW from Biomass Power &
Biomass Gasifiers and 149.16 MW from Solar
power & Urban & Industrial waste.
India ranks fifth in the world in terms of installed
capacity of wind turbine power with 14104.62 MW
installed capacity, and plans to generate 22,000
MW of solar power by 20226 . The fossil fuel will
have finite life and will always suffer from rising
prices. Solar and wind energy offers great
potential for a sustainable energy solution.
36
5 National Electricity Plan, CEA, January 2012, Page 12
6 http://www.businesseconomics.in/?p=1626
37
Transmission & Distribution (T &D)A strong transmission capability is necessary for
growth of the power sector. A T&D system comprises
transmission lines, substations, switching stations,
transformers and distribution lines.
The thermal capacity is concentrated in the Eastern
region and hydro capacity is concentrated in the
Northern and North‑Eastern regions. On the demand
side, demand is concentrated in the Western region.
An integrated power transmission grid helps to even
out supply‑demand mismatches.
The scope for improvement and the need of
efficiency has led the Government to take serious
steps to meet the emerging demand in the
transmission and distribution area. The Electricity Act
2003 further stressed on the importance of power
transmission and distribution, laying the ground work
for the Central Government in setting up various
schemes for efficient distribution of power.
In the central sector, the Central Transmission Utility
(CTU), known as the Power Grid Corporation of India
Ltd (PGCIL), is responsible for national and regional
transmission planning, while the state sectors have
separate State Transmission Utilities (STU).
The Central Transmission Utility (CTU) is the nodal
agency for providing medium term (3 months to 3
years) and long term (12 to 25 years) access that are
typically required by a generating station or a trader
on its behalf.
Private sector participation is negligible in
transmission and there is only one Public‑Private
Partnership project, the Tata Transmission Project.
Four private companies have been granted licenses
for developing transmission projects. While three
companies have entered in joint ventures with PGCIL,
one company is a private company that has been
awarded independently.
The development in the transmission system was
carried out in coordination with the growth in
generation capacity. HVDC and HVDC bi‑pole
transmission were set up back‑to‑back in 1989 and in
1990 respectively.
The AT&C losses have come down from about 35
percent in 2004 to 27 ‑ 30 percent of supply. The
improving AT&C losses will benefit the entire value
chain and enable better price realization.
TradingThe Electricity Act, 2003 (EA 2003) has laid down the
foundation for power trading recognizing it as an
integral component of the power sector within India.
As on 31st March 2011, CERC (Central Electricity
Regulatory Commission) had awarded trading
licenses to 48 applicants for inter‑state trading in
electricity7. Of these, 10 licensees have surrendered
their license8. There are around 38 companies with
power trading licenses and only about five or six are
active. Besides PTC India, these include NTPC Vidyut
Vyapar Nigam, National Energy Trading and Services,
Tata Power Trading Company and Reliance Energy
Trading
CERC (Central Electricity Regulatory Commission)
regulate and monitor the two exchanges, namely the
IEX and PXIL. The Commission in 2009 has granted in‑
principle approval for National Power Exchange Ltd
(NPEX) for setting up and operating a Power
Exchange.
7 CERC Annual Report 2010‑2011, (http://www.cercind.gov.in/2011/Annual_Report/annual_report_2010_11_ENGLISH_new.pdf), Page 33
8 CERC Annual Report 2010‑2011, (http://www.cercind.gov.in/2011/Annual_Report/annual_report_2010_11_ENGLISH_new.pdf), Page 33
38
Figure 4.5 All India AT & C (percent)
2003-04
34.78 33.02 30.62 29.45 27.74 27.1534.33
40
30
20
10
02004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Source: Central Electricity Authority
Year 2010‑11 Power Traded Volume of Short Term Electricity Trade Total Generation
Billion Units 15.52 81.56 809.45
Percentage 1.92 10.08 100.00
Table 4.3 Power Trading in India
Source: CERC Annual Report 2011
39
9 CERC Annual Report 2010‑2011, (http://www.cercind.gov.in/2011/Annual_Report/annual_report_2010_11_ENGLISH_new.pdf), Page 3410 CERC Annual Report 2010‑2011, (http://www.cercind.gov.in/2011/Annual_Report/annual_report_2010_11_ENGLISH_new.pdf), Page 3411 Annual Report 2011, Ministry of Power
Power trading enables the optimization of
imbalanced disposition of resources. It is also the
fastest growing segment of the power sector. More
than 81 billion units of electricity are traded annually9.
Even though share of the power exchange trading is
1.92 percent of total electricity generation, it shadows
various international trading platforms and has room
for immense growth10.
The effective introduction of mandatory Open Access
for consumers with a load of 1 MW and above will
boost trading volume. The introduction of new
products such as structure derivative on exchanges
will also increase the options for buyers and sellers.
Investment OpportunitiesThe power sector is the main stay of the Indian
sustainable economic growth. The importance of
power sector will continue to increase as the Indian
economy prepares for 8 ‑ 9 percent growth.
a) Generation The 12th Five Year Plan (2012‑17) envisages an
addition of 100,000 MW generation capacity of
which 40 percent is to be allocated to the private
sector. The Ultra Mega Power Projects (UMPP),
each with a capacity of 4000 MW or above, are
being developed with the aim of meeting this
huge demand and reducing the prevailing power
deficit in the country. Each UMPP entails an
investment of USD 3‑4 billion and have a single
window clearance through the Power Finance
Corporation (PFC).
Out of the sixteen UMPPs identified so far, PFC
floated twelve SPVs as its wholly owned
subsidiaries for the development of UMPPs.
During the 11th Five Year Plan, bids were invited
for six UMPPs out of which PFC has already
awarded four UMPPs ‑ Sasan in Madhya Pradesh,
Mundra in Gujrat, Krishnapatnam in Andhra
Pradesh and Tilaiya in Jharkhand to the identifed
developers. The Odisha & Chhattisgarh UMPPs are
currently under active consideration for award
by PFC.
The remaining UMPPs are expected to be
awarded during the 12th Five Year Plan. The site
for the Tamilnadu UMP has been finalised at
Cheyyur with the captive port at Panaiyur whereas
the secong UMPP in Andhra Pradesh will be
coming up at Nayunipalli Village in Prakasham
District. The sites in the States of Jharkhand,
Tamilnadu and Gujarat for their second UMMPPs
are being examined.
b) Transmission & Distribution
The installed inter‑regional power transfer
capacity as on November 30, 2011 was 23,800
MW11. Globally, every dollar invested in generation
requires an equal amount investment in T&D. With
massive investment growth in generation, a
parallel investment in a strong transmission and
distribution network is inevitable. India has added
a massive 97,625 MW/MVA substation transformer
capacity in the 11th Five Year Plan up to 2011.
40
12 Ministry of Power, Annual Report 2011
13 National Electricity Plan, CEA, January 2012
A total of nine High Capacity Power
Transmission Corridors have been
finalized for meeting the requirement
of IPPs coming up in Chhattisgarh,
Odisha, Madhya Pradesh, Sikkim,
Jharkhand, Tamil Nadu and Andhra
Pradesh at an estimated cost of
` 58,000 crore (USD 10 billion)12.
Key Challenges for the IndianPower SectorOne of the major reasons of
continuous power shortages is Indiaʼs
poor record in achieving the planned
generation capacities. The annual
average capacity addition during the
last decade is merely around 7000 MW
per year. Capacity addition of 200 GW
is required during 2012‑2022 i.e. annual
capacity addition of 20 GW as against
the annual capacity addition of 12.4
GW per year during the 11th plan13 .
1. After the Tariff Policy, 2006 Case I
and II bidding has become the
dominant route for long term
Power Purchase Agreements
(PPAs) with State Electricity Board
(SEBs)/Power Utility companies for
the private generators. This has
resulted into competitive prices.
2. Uncertainty on fuel supply security
has hit the sector growth. There
has been no allocation of coal
blocks for the power sector post
2010. The rising coal prices of
imported Indonesian coal due to
transfer pricing issues have hit the
growth of power sector.
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
6th 7th 8th 9th 10th 11th
Transmission Line (ckm)
Transformer Growth (MVA/MW)
46,621 75,322
125,042
181,943
257,639
355,264
52,034
79,455
117,376
150,480
197,927
247,560
Figure 4.6 Growth in Transmission & Distribution
Source: Electricity Planning Report, CEA
3. The inability of Coal India Limited (CIL) to meet the
demand of the power sector is putting pressure
on the cost of power production.
Regulatory Framework100 percent FDI has been permitted in generation,
transmission and distribution for the sector, except
nuclear power, making foreign participation a less
cumbersome process.
Some other key policy initiatives that fuelled the
power sector growth have been summarized below:
� The Electricity Act, 2003 – Open Access allowed in
generation, transmission and distribution paved
the way for greater private sector participation
� The Electricity Act, 2007 – As per the act, captive
units no longer require a license to supply power
to any user and specified strict action against
unauthorised usage of power.
� Reorganization of State Electricity Board (SEBs) –
Government has initiated the process of
reorganization of SEBs and form a large number of
independent entities (generating companies,
transmission licensees and distribution licensees)
in each State, and consequently a very large
number of such intra‑State entities in each region.
The Grid Code provides that the operation of all
entities within the state would be coordinated
by the concerned State Load Despatch Centre
(SLDC), who in turn would coordinate with
Regional Load Despatch Centre (RLDC) on real
time basis. Giving a major fillip to the power sector
in September 2012, the Government approved
the restructuring of `1.9 lakh crore debt of State
Electricity Boards to turnaround the near‑bankrupt
power distribution companies14.
� The budget for 2012 has also provided the
following incentives for power sector.
� The Government has proposed to allow External
Commercial Borrowings (ʻECBʼ) for part financing
of rupee debts in the power sector, and also
reduced tax withholding rates on interest on ECB
from 20 percent to 5 percent.
� Additionally to boost funding, the power sector
has been allowed to raise `10,000 crores (USD 180
million) from Infrastructure Tax Free Bonds.
41
14 http://businesstoday.intoday.in/story/cabinet‑power‑sector‑reforms/1/188371.html
Private Sector ParticipationThe Government has recently stressed on increased
private sector investment in the power sector. As a
result in 2012, the private sector has achieved 27.75
percent share in the installed generation capacity.
The increasing participation has been caused mainly
by the regulatory framework and the need of funds
by the Government for the implementation of
massive capacity addition through large scale
projects. The license free generation and distribution
of power in rural areas and open access up to 1 MW
have been some of the key reforms in the sector.
Power is clearly the focus area of the Government,
projecting an investment of USD 314 billion over the
12th Five Year Plan in Generation, Distribution and
Transmission of the power sector15. Such a massive
capacity expansion plan and overhaul of the
distribution and transmission sector is expected to
encourage global power companies to participate
not only in generation but also investments in power
utility companies. There is also scope for
technological import in developing grid networks in
India following a recent grid collapse in August 2011.
There has been significant demand for SMART Grid
technology in India to improve the efficiency,
reliability, economics, and sustainability of the
production and distribution of electricity across the
country.
Thus, the overall growth momentum in the power
sector is likely to continue in the foreseeable future,
and has a lot to gain from a global investment
perspective.
42
Figure 4.7 Private & Public Share in Generation (MW)
Central30.23%
State
Private
CentralPrivate27.75%
State86275.442.02%
Source: CEA Monthly Capacity Report, June 2012
15 Planning Commission of India
India today offers one of the
highest growth opportunities for
private developers in power sector
as the demand for electricity is still
enormous and continues to grow
steadily. Despite its complexity and
regulatory challenges, the entry of
several global players is expected
to change the dynamics of the
Indian power industry in coming
years.
“
”
5. Opportunities in
PortsOverviewPorts play an integral role in the growth of our
economy with almost 95 percent of the volume and
70 percent of the value of India's international trade
being routed through maritime transport1. The
coastline of India measures over 7500 km in length and
is dotted with more than 200 ports2 . Its strategic
position makes it compulsory for most cargo ships
navigating between East Asia and America, Europe and
Africa, to pass through the Indian territorial waters.
There are two basic categories of ports within the
country‑ namely Major Ports and Non‑ Major Ports.
The Major Ports are a total of 13 in number and
Non‑Major Ports about 200, out of which an
estimated one‑third of the Non‑Major Ports are
currently operational3.
The Department of Shipping holds the portfolio for
taking decisions relevant to shipping and ports,
which include ship building/repair, national
waterways, inland water transport and ports.
With the economic reforms of 1991 and opening of
investments in India, exports and imports have
witnessed remarkable growth. The increase in foreign
trade since 2007 can be ascertained from the chart
below. Ports have played a vital role in this overall
economic development.
The percentage of exports that contributed to GDP
has increased by nearly 4.5 percent since 2007 to
12.85 percent of GDP in 2012. At the same time the
imports have grown YOY.
Cargo Traffic at India's major ports during financial
year 2011 was 570.3 million tonnes (MT), which was
1.59 percent more than the cargo traffic of the same
period last year4 .
1 http://www.oifc.in/sectors/infrastructure/ports. Article‑ Ports in India, Paragraph 1. 2 http://www.ibef.org/download/Ports50112.pdf, Slide 3
3http://www.ibef.org/download/Ports50112.pdf, Slide 5 4 Port wise traffic in India ‑ http://shipping.nic.in/writereaddata/l892s/7yearsTRAFFIC‑79318523.pdf
Table 5.1 Trade Performance: Growth in Value, Volume, Unit Values & Terms of Trade
44
(Annual per cent change)
Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S), KolkataNote: 2011‑12 (April‑January).Volume and unit value index of exports and imports are with new base (1999‑2000=100)
EXPORTS IMPORTS TERMS OF TRADEValue Value
Rupee USD Unit Rupee USD Unit terms terms Volume Value terms terms Volume Value Net Income
2001‑02 2.7 ‑1.6 0.8 1 6.2 1.7 4 2.8 ‑2.1 ‑1.3
2002‑03 22.1 20.3 19 2.9 21.2 19.4 5.8 14.3 ‑9.8 7.4
2003‑04 15 21.1 7.3 7.5 20.8 27.3 17.4 3.1 3.6 11.2
2004‑05 27.9 30.8 11.2 14.9 39.5 42.7 17.2 18.9 ‑3.5 7.3
2005‑06 21.6 23.4 15.1 6.1 31.8 33.8 16 14 ‑6 8.2
2006‑07 25.3 22.6 10.2 13.7 27.3 24.5 9.8 15.1 ‑1.3 8.8
2007‑08 14.7 29 7.9 5.1 20.4 35.5 14.1 1.9 2.6 10.7
2008‑09 28.2 13.6 9 16.9 35.8 20.7 20.2 13.8 2.5 11.7
2009‑10 0.6 ‑3.5 ‑1.1 1 ‑0.8 ‑5 9.9 ‑10 12.3 11.1
2010‑11 35.1 40.5 43.2 ‑5.1 23.4 28.2 10.1 11.2 ‑14.3 22.7
2011‑12* 28.7 23.5 _ _ 34.8 29.4 _ _ _ _
45
5 http://www.pib.nic.in/newsite/erelease.aspx?relid=80156 6 http://www.oifc.in/sectors/infrastructure/ports. Article‑ Ports in India, Paragraph 47http://www.oifc.in/sectors/infrastructure/ports, Article‑ Ports in India, Paragraph 2. 8http://pib.nic.in/newsite/erelease.aspx?relid=690449http://www.constructionupdate.com/CMS/Newsletter/NewsFiles/27512.html 10http://www.ibef.in/artdispview.aspx?in=53&art_id=32158&cat_id=814&page= 2.Government Initiatives, Paragraph 1.
According to Mr. G.K. Vasan, Union Shipping
Minister, it is expected to grow at a CAGR of about
8 percent from 561 million tonnes (MT) in 2009‑10 to
1,215 MT by 2019‑205. At the same time the traffic at
non‑major ports is expected to grow at a growth
rate of 16 per cent from the present level of 289 MT
to 1,270 MT. At present minor ports handle 26
percent of the total traffic. The key cargoʼs that are
expected to drive growth are coal, crude oil,
fertilizers and steel products.
The Growth DriversDuring the year 2011‑12, the total capacity of Indiaʼs
ports stood at 1,247.45 million tonnes (MT)6 . The
cargo traffic in India is growing at a very fast pace,
and in order to fulfill this logistical requirement, the
capacity of the countryʼs ports will have to nearly
double to 2,302 million tonnes (MT) in the next five
years, as per the projections of the Planning
Commission7.
An ambitious target of around 3200 MT port capacity
has been targeted for 20208 . It is expected that more
than 50 percent of this contribution shall be
achieved through non‑major ports. The Ministry of
Shipping (MOS) has launched the perspective 2020,
which shall replace and take forward the existing
maritime development plan , and the clear focus of
the MOS is not just to build ports, but to bring about
ports which are equivalent to the best international
ports in terms of performance and also to promote
coastal shipping9.
The Ports sector has been granted a sum of ` 400
crore (USD 72.33 million) in the Budget year 2012‑13
which will further accelerate the growth in the
sector10. The Annual Budget has also allowed ports to
access low‑cost funds from overseas and benefit from
the cut in interest payable on external commercial
borrowings (ECBs) from 20 percent to 5 percent
from 2012.
46
Key Challenges1) Management of high risk of project execution ‑
Given the size of the capital expenditure outlay
and the gestation period till the build‑up of
adequate cargo volumes, the profitability, return
indicators, and free cash flows of these large
projects are vulnerable to being subdued over the
medium term. As a result, their financial profiles
are exposed to various risks, including
construction risks, risks of time and cost overruns,
as well as market and commercial risks (adequacy
of traffic vis‑à‑vis the incremental capacity).
2) Enduring the impact of temporary overcapacityin container terminals‑ With capacity expansion
being sporadic in nature and the evolution in
traffic volumes time taking, it is likely that the
container handling capacity would face a
temporary surplus in the medium term as new
projects get commissioned.
3) Regulatory risk and systemic issues ‑ Terminal
operators could be compelled to adhere to
specific performance standards, or pay penalty in
case of inadequacy on empowerment of the new
regulations imposed by the Major Port Regulatory
Authority (MPRA), which is expected to replace
Tariff Authority for Major Ports (TAMP).
Regulatory FrameworkIn order to upgrade the Indian ports with state of the
art technology and facilities, the Government has
allowed Foreign Direct Investment (FDI) of up to 100
percent under the automatic route for construction
and maintenance of ports and harbours. On the
taxation front, a 10‑year tax holiday has been granted
to enterprises engaged in the business of developing,
maintaining and operating ports, inland waterways
and inland ports. To improve connectivity, the Special
Economic Zones (SEZs) are being developed in close
proximity to several ports, thereby providing strategic
advantage to industries within these zones.
47
11 Maritime Agenda: 2010 ‑ 2020, (http://shipping.nic.in/showfile.php?lid=261), Page 21
The Maritime Agenda 2010‑2020, projects to develop
the capacity of the Indian Ports to 3,200 MT, the port
sector under the new plan would invest USD 66
billion, of which the majority would be from private
investors. The Ministry of Shipping envisages that the
private sector would handle 50 percent of the
nation's cargo by 2015.
Private Sector Participation The proposed investments in major ports stands at
USD 21.9 billion, of which 67 percent is expected to
come from the private sector, and balance is to be
funded from internal sources and the Government
budget support. The opening up of the PPP mode
not only allows funding to be made easy, but at the
same time helps provide state of the art technology
along with best practices, which help in increasing
efficiency by reducing construction and cargo
handling time (once the facility is in place).
The Government of India has allowed Foreign Direct
Investment upto 100 percent under the automatic
route for construction and maintenance of ports and
harbors. The states have also identified projects for
the development of non‑major ports at an estimated
cost of USD 34 billion for creation of additional
capacity. It is expected that the private sector will
finance most of the projects (approx 95 percent)
through Public Private Participation or Build Own
Transfer or Build Own Operate & Transfer models. The
balance 5 percent requirement shall be contributed
by State Governments through Internal Resources or
Gross budgetary Support.
To encourage private sector participation, the
Department of Shipping11 –
� Has put Request for Qualification (RFQ) & Request
for Proposals (RFPʼs) in place, which ensures
transparent participation and project award.
� A Model Concession Agreement has also been
finalized which attempts to bring in uniformity to
the agreements to be signed by the Major Ports
with the various private operators as
concessionaire.
48
In the financial year 2010‑11, nine Public Private
Partnership (PPP) projects had been awarded at an
estimated cost of USD 671 million which will lead to a
capacity increase of 51.76 MT in the port sector,
comprising of construction of berths and terminals,
as well as the mechanization of existing berths.
The process of bidding allows the project to be
awarded to the bidder which offers the highest
percentage of revenue share out of the operation of
the facility. The tariff fixation is carried out by Tariff
Authority for Major Ports (TAMP) which is an
independent Regulatory Body. At present the tariffs
are fixed upfront, which act as a ceiling before a
project is bid out on a revenue sharing basis as
explained above. The private operators are free to
charge below the ceiling.
Going forward, the following are a few areas for
private participation in the ports sector 12 –
1. Leasing out port assets
2. Construction/operation of facilities as mentioned
below:
a. Container Terminals
b. Cargo Berths
c. Warehouses, container freight stations,
storage facilities
d. Material Handling equipment
e. Setting up captive power plants
f. Ship repair facilities
3. Leasing of equipment for port handling
4. Leasing of floating crafts
5. Captive facilities for port based industries
6. Pilotages
12 Maritime Agenda: 2010 ‑ 2020, (http://shipping.nic.in/showfile.php?lid=261), Page 21
Naveen BansalHead, Special Projects
Srei Infrastructure Finance Ltd
India is blessed by being
surrounded by water
bodies, making ports
essential to the growth of its economy. We
expect tremendous foreign participation in the
coming years, in order to bring this sector to
global standards
09
6. Opportunities in
RailwaysOverviewThe Indian Railways (IR), a state‑owned enterprise, is
operated by the Government of India through the Ministry
of Railways. The Indian Rail network is the third largest in
the world, operating 19,000 trains per day, comprising
12,000 passenger trains and 7,000 freight trains1. It operates
22 million passengers every day and 923 million tons of
freight each year2.
Almost 74 percent of revenue in this sector comes
from the movement of freight, while the remaining
comes from the passenger traffic (Figure 6.1). Growth
in revenues is expected to come from both sectors,
due to demand for price increase. Current state of IR
gives a huge scope for improvement in many areas
such as safety, speed, freight capacity, new
locomotives and modernization of the rolling stock
etc. Modernizing Indian Railways requires a strong
generational change with bold vision, clarity and
various new initiatives.
The Growth DriversGrowth in revenue is expected to come from a
fundamental increase in demand in freight and
passenger traffic. Given the growth in Indiaʼs
population, increased demand for connectivity and
transportation of both resources and passengers, and
the perceived cost advantage of railways, the Ministry
of Railways has concentrated on increasing capacity
in both passenger and freight segments.
Growth of freight traffic ‑ The freight traffic
amounted to 969.78 million tonnes in fiscal year
2011‑12 registering a growth rate of 5.24 percent over
the previous year. Growth is expected to continue in
the medium term based on increased demand
especially due to commodity transportation3.
1 http://www.oifc.in/Sectors/Infrastructure/Railways/Railways‑in‑India 2 Government of India, Planning Commission, An Approach to the 12th Five Year Plan,
Page 41 3 http://pib.nic.in
Mill
ion
To
nn
es
1400
2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E
1200
1000
800
600
400
200
0
CAGR 8.4%Forecast CAGR 6.5%
Figure 6.2 Growth in Freight Traffic (millions tn / CAGR 8.4%)
Source: IBEF industry analysis Railways
50
26%
74%
Freight
Passenger
Figure 6.1 Revenue breakup by segment (FY10)
Source: India Brand Equity Foundation, Railways Report, 2011
Rising demand for urban transport ‑ Several new
projects have been sanctioned and being undertaken
including metro rail projects, construction of
dedicated freight corridors, modernization of metro
stations, manufacturing of new rolling stock, wagons
etc. Nevertheless, faster increase in urban population
compared to rural is leading to increased demand for
urban‑rural connectivity, hence increased demand for
rural services.
The passenger traffic has already grown from 5.7
billion in 2006 to approximately 8 billion in 2011‑12 at
a CAGR of 7.5 percent. This growth is largely attributed
to the increased demand in mass urban transportation
and also Governmentsʼ thrust in improving the
connectivity between urban and rural areas4.
Increasing Private Sector Participation – There has
been an increased private sector participation in
recent years in the development and maintenance of
tracks, fixed assets like wagons, coaches, bridges,
stations and telecommunication. The Railways
Ministry has further proposed development of fifty
world class stations in a PPP mode with a view on
long term enhancement of rail infrastructure.
51
4 India Brand Equity Foundation, Railways Report 2011, Page 9
FY 06
9876543210
FY 07 FY 08 FY 09 FY 10 FY 11
CAGR 7.5%
Figure 6.3 Growth in Passenger Traffic (Billions / CAGR 7.5%)Passengers (billion)
Source: IBEF industry analysis Railways
52
Key Challenges Challenges faced in the 11th Five Year
Plan can be applied to 12th Five Year
Plan, as many of the issues within the
sector have not changed much. Some
of these are as follows:
� To sustain and increase its market
shares in the face of increasing
competition from other modes of
transportation like Roads & Airlines.
� To improve profitability of the
passenger business.
� Expansion of the network and
terminals to keep pace with the
growing demand of traffic.
� Resource mobilization and project
implementation capabilities to
handle the large shelf of sanctioned
projects.
� Implementation of major projects
like Dedicated Freight Traffic (DFC)
project, new rolling stock
manufacturing facilities, world‑class
stations, etc.
� Innovative financing for socially
desirable but economically unviable
projects.
� Resource mobilization and project
implementation through PPP mode.
� Technology up‑gradation.
Investment Opportunities ‑Railways and Vision 2020 By adopting Vision 2020, the Indian
Railways have set themselves
ambitious targets for the expansion
and modernization of the railway
network in India. Vision 2020 sets the roadmap for
Indian Railways to meet quality and capacity targets to
improve the overall profitability of the sector, as well as
enhance the services to benefit the citizens of the
country. The overall objective of the Vision document
is to increase capacity for meeting growth demands in
both, passenger and freight segment and also
enhancing the Indian Railways' contribution to the
national goal of achieving double‑digit GDP growth
rate on a sustainable basis. The Vision document
proposes to add 25,000 km of New Lines by 2020,
supported by government funding and a major
increase in Public Private Partnerships (PPPs)5.
Regulatory Framework The Union Railway Budget for 2012‑13, highlights the
following initiatives by the Government6:
� Highest ever plan outlay of ` 60,100 crore (USD
11.72 billion).
� Setting up the Railway Safety Authority as a
statutory regulatory body.
� Setting up a Dedicated Freight Corridor (DFC):
� DFCCIL, a special purpose vehicle, was set up
for implementing the DFC project, under the
administrative control of the Ministry of
Railways.
� Plan is to construct dedicated freight lines
along the eastern and western parts of India.
� Total length: 3,287 kilometers; total cost: USD
10.3 billion. Construction has started with the
project scheduled for completion in FY17.
� 725 km of new lines, 700 km doubling, 800 km
gauge conversion and 1,100 km of electrification is
targeted in 2012‑13.
� 31 projects covering a length of more than 5,000
km in 10 States, being executed with contribution
from State Governments.
53
5 India Vision 2020 ‑ of Planning Commission
6 The Union Railway Budget for 2012‑13, Highlights of the Railway Budget 2012‑2013
Table 6.1 Vision 2020 Railways Target
Source: Ministry of Railways
Short‑term Long‑termVision 2020 targets (2010‑12) (2012‑20)Doubling (km) 1,000 11,000
Gauge conversion (km) 2,500 9,500
New line (km) 1,000 24,000
Electrification (km) 2,000 12,000
Wagons 33,909 255,227
Diesel locomotives 690 4,644
Electric locomotives 555 3,726
Passenger coaches 6,912 43,968
World‑class stations 12 38
High‑speed corridors (km) 2,000
� Indian Railway Station Development Corporation to
be set up to redevelop stations through PPP mode
– this should give opportunities to the private
sector in development of Stations. Logistics
Corporation to be set up for development &
management of existing railway goods sheds and
multi‑modal logistics parks.
� Private investment schemes for Wagon leasing,
Private Freight Terminals, Container train
operations, Rail connectivity projects being made
more attractive to PPP partners.
� Several new rail based factories and initiatives to
be setup including new wagon and rail coach
factories, manufacturing centers of traction
alternators, propulsion systems etc.
� Several Green Initiatives including new windmill
plants, green energy stations, solar lighting,
bio‑diesel and bio‑toilets initiatives are being
promoted.
54
Public Private Participation (PPP)
Private investments in the railways through the public
private partnership has been recommended at
` 224,029 crores / USD 41 billion (about 28 percent of
Railways five year funding requirement), which will be
spread across capacity augmentation and
modernization. In budget year 2012, PPP investments
are estimated to be to the tune of ` 1050 crores / USD
190 million. In order to achieve this goal, the
Government has taken various initiatives and
introduced some attractive schemes which are as
follows7:
� Metro Schemes:
� Following the success of Delhi Metro, several
similar initiatives are being taken to build a
robust metro network in major cities across the
country. As of 31 March 2010, the total cost
incurred on metro projects in Delhi NCR and
other cities such as Bengaluru, Chennai,
Mumbai and Kolkata was USD 14.7 billion and
the opportunities have been spread for the
private sector through the PPP mode.
Apart from these metropolitan projects, tier 2
cities such as Jaipur, Lucknow, Ludhiana and
Kanpur are also on the agenda for metro
projects, thus leading to immense opportunity
for investment.
� Wagon Investment Scheme
� Indian Railways launched the Wagon
Investment Scheme in 2005 to offer freight
rebates and supply a guaranteed number of
rakes for a period of 7 – 15 years for different
types of wagons.
� The Ministry of Railways has proposed to set
up five wagon factories under the JV/ PPP
mode and plans to procure 18,000 wagons
during FY12.
� Process has been simplified of certifying and
accepting the new wagon designs and
protecting the intellectual property rights of
the companies. Wagon manufacturers will
now also be able to import technology from
abroad to bring modern designs into the
Indian Railways. This policy will facilitate
continuous upgradation in wagon technology.
7 Executive summary, Working Group report for 12th Five Year Plan – Railway sector
55
56
� Dedicated Freight Corridor
� Dedicated Freight Corridor of India (DFCCIL), a
special purpose vehicle, was set up for
implementing the DFC project under the
administrative control of the Ministry of
Railways.
� The plan is to construct dedicated freight lines
along the eastern and western parts of India.
Total length: 3,287 kilometres; total cost:
USD10.3 billion.
� Construction has started with the project
scheduled for completion in FY17.
� Dedicated Freight Corridor Corporation of
India (DFCCIL) has signed an agreement with
the Japan International Cooperation Agency
for its upcoming western corridor project at an
investment of ` 4,23,000 crore (USD 94.03
billion). The project involves building of nine
large industrial zones, high‑speed freight line,
three ports, six airports, a six‑lane intersection‑
free expressway connecting Mumbai with
Delhi and a 4,000‑MW power plant.
� R3i (Railwaysʼ Infrastructure for IndustryInitiative) Policy
� Aimed at attracting private sector participation
in rail connectivity projects in order to create
additional rail transport capacity.
� The policy allows for four models – (a) Cost
Sharing‑Freight Rebate, (b) Full Contribution‑
Apportioned Earnings, (c) Special Purpose
Vehicle (SPV), and (d) Private Line.
� R2CI (Railwaysʼ Policy for Connectivity to Coaland Iron Ore Mines) Policy� New policy initiated to improve rail
connectivity to coal and iron ore mines.
� It offers the developer involved in the
construction of the line to levy a surcharge on
the freight over a period of 10‑25 years.
� The policy has two models – Capital Cost
Model, and the SPV Model. While the Capital
Cost Model is relevant when there are two
players, the SPV Model is tended for a situation
where there are a large number of players.
8 http://www.infrawindow.com/reports‑statistics/potential‑ppp‑projects‑in‑railways_116/
57
Logistics Parks,
Rs 3,000 cr
Loco-coach units,
Rs 3,000 cr Pvt Freight Terminals,
Rs 2,815cr
Hi-speed corridor
Mum-A bad,
Rs 20,000cr
Elevated Rail
Churchgate-virar,
Rs 20,000 cr
Poet connectivity,
Rs 5,000 cr
Energy Projects,
Rs 6,000 cr
Redev of stations,
Rs 10,000 cr
DFC (Sonnagar-
Dankuni,
Rs 10,022 cr
Potential PPPs in Railways
Figure 6.4 PPPs in Railways
The Indian Railways has identified 9 projects which
can attract private investments under PPP mode
during the 12th Five Year Plan. With the estimated
worth of around ` 80,000 crore (USD 14,388
million). 4 projects namely Elevated Rail Corridor
between Churchgate‑Virar in Mumbai, High Speed
Corridors between Mumbai and Ahmedabad),
Redevelopment of stations and Dedicated Freight
Corridor between Sonenagar and Dankuni will
together entail an investment of around ` 60,000
crore (USD 10,791 million)8.
The table below captures some of the major upcoming projects in Railways that would help it become one of
the largest developed rail networks in the world and a catalyst for the socio‑economic growth of the country.
58
Table 6.2 Upcoming Railways PPP Projects
Sl. No. Project Total Cost Time Investmentin ` frame expected in next
Crores (years) 5 years (through Cost to(USD mn) PPP) Goverment
1. High Speed Corridor 50,000 10 20,000 Vialablity Gap‑upto
Mumbai‑Ahmedabad (8,993) (3,597) 20% of cost
2. Elevated Rail Corridor in 20,000 5 20,000 Vialablity Gap‑upto
Mumbai suburban (3,597) (3,597) 20% of cost
3. Redevelopment of station and
Logistic Parks
4. Wagon leasing. Private freight 5,000 5 5,000
terminals and other freight schemes (899) (899)
5. Dedicated freight corridors
6. Loco and coach manufacturing units 6,000 5‑6 5,000 Equity share of
(1,079) (899) about ` 300 crores
(USD 54 mn) &
assured off‑ take of
products for 10 years
7. a) Renewable energy 1,000 5 1,000 assured of‑take
projects (Solar, wind, etc.) (180) (180)
b) Energy saving projects 1,000 (180) 1,000 (180)
c) Captive power generation 4,000 (719) 4,000 (719)
Total 97,000 56,000(17,446) (10,072)
7. Opportunities in the
Aviation SectorOverviewThe growth journey of the Indian Aviation sector started
with the liberalizaion in the mid nineties, resulting in a
growth as private service airlines entered the sector. In
2010, Indian aviation grew around 13.6 percent, among
the highest in the world1. This growth trend is expected to
continue as per the Indian Ministry of Civil Aviationʼs Vision
2020 – estimating an annual growth rate of around 15
percent over the next five years2.
60
Despite such a progressive
outlook, the Indian aviation
sector is likely to face some
challenges going forward,
keeping in mind the environment
of slowing GDP growth, increased
fuel prices, slump in passenger
growth and a highly competetive
market. In the current year, the
passenger growth is estimated to
further slow down to just under
10 percent. At the same time, the
nationʼs full service carriers
continue to suffer under the
burden of approximately USD 16
billion in debt3.
Table 7.1 ‑ ProjectedGlobal Ranking of Indianaviation by airport traffic
1 RNCOS Indian Aerospace Industry Analysis, 2011, Page 2 2 Ministry of Civil Aviation Vision 2020
3 Center for Aviation CAPA, Article: Growth to slow in 2012 but long‑term growth of around 15% expected over next five years
Source: CAPA proprietary model,Airport Council International
Source: Directorate General of Civil Avation (Aug 2011)
Market Flight OccupancyShare (%) Rate (%)
26.3 (combined) 72.1 (Jet)
73.9 (Jet Lite)
18.8 75.9
18.7 73.2
17.4 72.8
13.4 66
5.3 65
2012 2017PASSENGERSIN MILLION
USA 1552 USA 1790
CHINA 497* CHINA 792*
UK 282 INDIA 327
SPAIN 251 UK 324
JAPAN 228 SPAIN 294
GERMANY 218 JAPAN 259
INDIA 176 GERMANY 252
FRANCE 168 BRAZIL 224
BRAZIL 165 FRANCE 192
ITALY 154 ITALY 180
Table 7.2 Market Share of Leading Indian Airlines
61
4 India Airport Market Assessment
5 Planning Commission Work Group, 12th Five Year Plan (2012‑17) for Civil Aviation Sector, Page 19
The Growth DriversGrowing demand ‑ According to the “India Airport
Market Assessment”, rise in per capita income is
making air travel more affordable for Indian travellers.
Indiaʼs fast growing tourism industry will also add fuel
to the market, improving its future outlook4 . As
presented in Table 7.1, it is anticipated that by
FY 17, Indian airports (including domestic and
international) will handle close to 327 million
passengers (in FY 11 passenger traffic stood at
143.4 million).
Increasing Investments – There has been a steady
rise in private sector investment in the aviation
industry driving large scale modernization and
greenfield projects across airports in tier II and tier III
cities. Planning commission has almost doubled the
investment allocation for the aviation sector to USD
17 billion as per the 12th Five Year Plan as compared
to USD 9 billion in the 11th Five Year Plan.
Policy Support – The Government has increased their
focus on infrastructure, creating policies which will
support and increase the liberalization of the sector
such as an Open Sky Policy and FDI encouragement,
which are just some of the actions changing the
outlook of Indian aviation.
Increase in Passenger VolumeAccording to forecasts as per the 12th Five Year Plan
domestic passenger traffic is estimated to grow at an
average annual rate of around 14.5 percent between
2012 and 2017. Domestic passenger volume is
expected to touch 209 million by FY 17 from 106
million in FY 11. Similarly, international passenger
traffic is estimated to grow at an average annual rate
of 9.6 percent during the 12th Five Year Plan period,
to reach 60 million passengers by FY 17 from 38
million in FY 11. Overall, total traffic is expected to
jump to 269 million passengers by FY 17. Passenger
terminal capacity is expected to touch 370 million
across all airports as per the investment plans of the
operators5.
300
250
200
150
10071
106
209
60
3826
144
97
269
50
0Domestic International
FY 07 FY 11 FY 17 (Forecast)
Total
Figure 7.1 ‑ Passenger Traffic at Airports (In Mln)
Source: Planning Commission Working Group Paper, Civil Aviation for the
12th Five Year Plan (2012‑17)
Increase in Cargo VolumeCargo growth will necessitate investment in
specialized cargo terminal and equipments.
Independent investments suggest an additional
requirement of 30 functional airports by 2017 and
about 180 functional airports in the next 10 years6. The
Sub‑Group has projected that the domestic cargo
traffic would grow at an average annual rate of around
14.5 percent in the next five years to touch around
1.68 million tonnes by FY 17 from 0.85 million in FY 11.
Similarly, international cargo is estimated to grow at an
average annual rate of 12.1 percent during the 12th
Plan period to reach 2.65 million tonnes by FY 17 from
1.50 million in FY 11. Overall, total cargo traffic is
expected to jump to 4.33 million tonnes by FY 177 .
Key challenges in the Aviation SectorDespite favorable demographics, the Indian carriers
have failed to translate the demand for air travel into
profits. For the year ended March 2012, 5 out of the 6
major airlines in India were incurring massive losses8.
India still remains significantly underpenetrated in the
civil aviation sector ‑ at present there are only 0.52
departures per 1,000 people in India and less than 2
percent of Indians travel by air each year. However, this
in itself offers a huge opportunity for the sector in a
country with a population of 1.2 billion and a rising
and upwardly mobile middle class9. The city wise
traffic breakup presented in Figure 7.3 shows that the
highest traffic comes from New Delhi Airport, which is
closely followed by Mumbai. With increased economic
activities across other metro cities, it is expected that
the rest of the country would see an equal traffic
throughput in the coming years.
However, India still remains underdeveloped in
aviation infrastructure, as it needs an overhaul to
match the increased traffic demand. The top five
airports account for approximately 65 percent of all
Indian air traffic. The lack of infrastructure has a direct
impact on the ability of the Indian airlines to
implement the success factors of the low cost carriers.
6 Planning Commission Work Group, 12th Five Year Plan (2012‑17) for Civil Aviation Sector, Page 12 7 Planning Commission Work Group, 12th Five Year Plan (2012‑17) for Civil Aviation
Sector, Page 20 8Article: "Kingfisher Air Q3 loss widens, fuel costs mount". February 16, 2012. 9 Bravia Capital Reports, The Current State of Indian Aviation: What Indian airlines need to
do to get back in the black, 2012 http://network.airfinancejournal.com/Post/The‑Current‑State‑of‑Indian‑Aviation‑What‑Indian‑airlines‑need‑to‑do‑to‑get‑back/6669/True
62
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0Domestic
FY 07
530
1,680
1,021
1,496
2,650
4,330
1,551
2,348
852
FY 11 FY 17 (Forecast)
International Total
Figure 7.2 ‑ Cargo Traffic at Airports (ʻ000 tn)
Source: Planning Commission Working Group Paper, Civil Aviation for the
12th Five Year Plan (2012‑17)
The lack of airports is one of the significant factors
leading to intense price competition for the Indian
airlines.
� Growth concerns ‑ If low GDP growth estimates
sustain over a long term, the aviation sector will
face similar growth concerns as well. Further,
macroeconomic factors like rising fuel prices,
lower currency valuation are also adversely
impacting airlines.
� Regulatory uncertainty in PPP investments ‑Policy paralysis, lack of political consensus in taking
the reform measures, lack of transparency in PPP
investments and instances of hostile approach
towards investors have heightened business risks
and adversely impacted investor appetite.
� Cost Drivers ‑ Apart from higher fuel costs, further
factors like higher taxes, higher airport charges
(e.g. at Delhi airport) are likely to impact the
airlines. Owing to rising fuel prices, Kingfisher had
to dissolve Kingfisher Red (its low cost carrier) and
the Indian government had to bail out Air India.
� Cargo industry challenges ‑ Bottlenecks in terms
of inadequate infrastructure and land for cargo
handling with highly concentrated air traffic
leading to tier 2 and tier 3 cities are being ignored.
Blockages with regards to linking road and
railways to the cargo and influencing the
movement of cargo are also inadequate leading
to poor movement of cargo through airports.
Amid such uncertainties surrounding the industry,
the silver lining is the proactive steps being
undertaken by the Government in bailing out the
private and public players who are in troubled waters.
While, Air India and Jet Airways have been the
biggest beneficiaries of the Governmentʼs pro‑
industry stand, recent reform measures in relaxing
FDI norms could be termed as a major confidence
building measure to revive investor appetite.
63
29.9mNEW DELHI
29.1mMUMBAI
12.0mCHENNAI
11.6mBANGALORE
9.6mKOLKATA
7.6mHYDERABAD
4.3mCOCHIN
4.0mAHMEDABAD
3.1mGOA
Figure 7.3 ‑ Total Passenger Number
Source: CAPA
Investment Opportinities Considering the sustained growth in aviation demand and an urgent requirement for aviation infrastructure, there
is a substantial scale of investment required. These investments give rise to different opportunities in many
projects, some of which are captured in Table 7.310:
10 The Secretariat for Infrastructure, PPP Projects Database (as on March 31, 2011 ) http://infrastructure.gov.in/pppprojects/index.php#aa
64
S.No. Projects in Pipeline State Project Cost in`crore (USD mn)
Ministry of Civil Aviation
1 Mopa Airport, Goa Central NI*
2 Navi Mumbai International Airport Central 9,970 (1,793)
3 Sindhudurg Airport, Maharashtra Central 307 (55)
4 Bijapur Airport Karnataka Central 24 (4)
5 Gulbarga Airport, Karnataka Central 14 (3)
6 Hassan Airport, Karnataka Central NI*
7 Simoga Airport, Karnataka Central 39 (7)
8 Kannur International Airport Central 1,130 (203)
9 Durgapur International Airport, West Bengal Central 280 (50)
10 Dabra Airport, Gwalior, Madhya Pradesh Central 193 (35)
11 Pakyong Airport, Sikkim Central 309 (56)
12 Paladi Ramsinghpur Airport, Rajasthan Central 121 (22)
13 Kushinagar International Airport, Uttar Pradesh Central NI*
14 Karaikal Airport, Pudduchery Central NI*
15 Green Airports at Nellore, Ongole,Tadepallygudem, Kurnool, Andhra NI*
Kothagudem, Ramagundam and Nizamabad (7 Airports) Pradesh
16 Ahmedabad ‑ Dholera International Airport Gujarat 2,500 (450)
17 Kannur Air Port Kerala 930 (167)
18 Airstrips at Raichur, Chikkamangalore, Gadag & Bagalkot Karnataka 145 (26)
19 Jharsuguda Airport Orissa 90 (16)
20 Aerospace Park Tamil Nadu NI*
21 Kushinagar International Airport & Budhist Circuit Uttar Pradesh 600 (108)
22 Dr.Bhim Rao Ambedkar International Airport Uttar Pradesh NI*
23 Taj International Aviation Hub Uttar Pradesh NI*
Total (23 Projects) 16,652 (2,995)
Table 7.3 ‑ Projects in Pipeline and Under Implementation
* Not Indicated
Fourteen Greenfield PPP airports have been proposed
in the 12th Five Year Plan . Other than the proposed
Navi Mumbai airport, the rest are in non‑metro
locations, where even though the initial traffic is
expected to be quite low, the long term projections
reveal a high growth trend given the increased
spending of the emerging middle class population11.
Regulatory Framework� Relaxation of rules for External Commercial
Borrowing (ECB) by the Union Ministry of Finance in
Budget 2012‑13 for the aviation sector came as a
life saver to many ailing airlines. The external
borrowing under this provision would have a
ceiling of USD 1 billion for the sector, where the
cap for individual airline companies has been fixed
at USD 300 million.
� Proposal for formation of a Civil Aviation Aerospace
Promotion Advisory Council by the Ministry for Civil
Aviation, will accommodate members from various
regulatory agencies and the aerospace industry to
monitor the sector and its activities.
� 100 percent FDI allowed for greenfield airports; for
existing airports, Government approvals are
required for foreign investments above 74 percent.
11 Ministry of Civil Aviation, Government of India, Approach Paper on Economic Regulation of Airports in India, March 2012, Page 3
65
S.No. Projects Under Implementation State Project Cost in`crore (USD mn)
Ministry of Civil Aviation
1 IGI Airport at New Delhi Central 12,857 (2,312)
2 CSI Airport at Mumbai Central 10,453 (1,880)
3 Greenfield Airport at Mopa Goa 3,000 (540)
4 Dwarka Air port Project Gujarat 500 (90)
5 Gulbarga Minor Airport Karnataka 80 (14)
6 Shimoga Minor Airport Karnataka 80 (14)
7 Construction of Hasan Airport Karnataka 690 (124)
8 Construction of new greenfield Airport at Bellary Karnataka 141 (25)
9 Development of Minor Airport at Bijapur Karnataka 80 (14)
Total (9 Projects) 27,881 (5,015)
� 49 percent FDI by foreign airline operators allowed
in domestic airlines. Therefore, now global airlines
may invest up to 49 percent in the aviation sector.
As per the previous guidelines, only foreign entities
other than airlines were allowed to own, directly or
indirectly, an equity stake of up to 49 percent in
Indian carriers. This move is likely to benefit the
scheduled airline operators such as Jet Airways,
Indigo, Spice Jet, Kingfisher, Jet Lite, Go Air, Air India
etc., to raise much needed capital enabling a
healthy recapitalization.
Public Private PartnershipThe introduction of private participation into the
operations of airports has led to a breakthrough in the
Indian Aviation sector. India is witnessing significant
interest from both domestic as well as foreign
investors following the policy initiatives taken by the
Government of India to promote Public Private
Partnerships (PPPs) in building and operating airports.
While the four metro airports at Delhi, Mumbai,
Hyderabad and Bangalore are already being
developed through PPP, the continued inflow of
investment will depend on a comprehensive policy
and regulatory framework necessary for addressing
the complexities of PPP, balancing the interests of
users and investors. The transformation of rules must
be accompanied by a change in the institutional
mindset.
Opening a new chapter in Indian aviation ‑ the
Ministry of Civil Aviation recently gave clearance to set
up the country's first private airport in Kerala. Such
moves are likely to encourage many more private
companies to follow a similar model for Greenfield
project development.
In addition to PPPs for development and operation of
airports, the government has initiated a programme
for upgrading airport infrastructure in the public
sector. As a part of this initiative, the Airports Authority
of India (AAI) is undertaking the redevelopment and
expansion of metro airports at Kolkata and Chennai,
and at 35 non‑metro airports across the country.
The introduction of privateparticipation into the operations ofairports has led to a breakthrough inthe Indian Aviation sector. India iswitnessing significant interest fromboth domestic as well as foreigninvestors following the policyinitiatives taken by the Governmentof India to promote Public PrivatePartnerships (PPPs) in building andoperating airports.
66
“
”
8. Opportunities in the
Telecom SectorOverviewThe Indian telecom sector goes all the way back to the 1882,
when a 50‑line manual telephone exchange (first
operational land line) was commissioned in Kolkata, just 6
years after the invention of the telephone by Alexander
Grahan Bell. Since then Indian telecom has witnessed
significant transformation. Today, India is the second largest
telecom market in the world in terms of subscribers1. The
telecom subscriber base stood at 944.81 million in July 20122.
The Growth DriversGrowing demand and Tariffs reduction: The growth
in GDP has resulted in increased income, hence
increased consumer spending – a part of which is
attributed to the telecom sector. Also, high level of
competition has lead to price reduction and
increased affordability of mobile and land line calling
as well as other add on services such as GPRS etc. In
order to further expand the growth of the sector, the
government has reduced mobile phone tariffs
significantly in the recent past, bringing the cost
difference between calling through cell phones and
landlines negligible. The mobile service penetration
in the country is currently at 51 percent and is
expected to grow to 72 percent by 20164.
Mobile Value Added Services (MVAS): India's current
MVAS industry has an estimated size of USD 2.7
billion. The industry derives its revenues majorly from
products such as game applications, music
downloads and other add on services, forming close
to 80 percent of VAS revenues. The estimated growth
of Indian MVAS industry is upto USD 10.8 billion by
2015, with the next wave of growth in subscriptions
expected to come from semi‑urban and rural areas5.
Mobile Number Portability (MNP): MNP provides
ease of switching service providers to the subscriber,
while retaining their mobile numbers. Mobile
Number Portability requests increased from 41.88
million subscribers at the end of March 2012 to 45.89
million at the end of April 2012. In the month of April
2012 alone, 4.01 million requests have been made for
MNP6.
Rural Telecom – As of 2012, the rural base is
accounting for nearly half the total subscribers who
will have access to communication services.
According to a report presented by the Comptroller
and Auditor General (CAG), the growth rate of
subscribers in rural areas during the period of 5 years
from 2006 – 2011 was higher at 485 percent
compared to 233 percent in urban areas7.
1 Telecom Regulatory Authority of India, Telecom Sector in India: A Decadal Profil, Year 2012, Page 5 2 Telecom Regulatory Authority of India, Highlights on TelecomSubscription Data as on 30th June 2012, Page 1 3The Telecom Regulatory Authority of India (TRAI) 4Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 45 Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 4 6Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 47Comptroller and Auditor General (CAG) News Report: Rural telecom subscribers posted faster growth rate than urban users, August 31, 2012
JAMMU &KASHMIR
HIMACHALPRADESH
PUNJAB
HARYANA
RAJASTHAN
O R I S S A
MADHYAPRADESH
KARNATAKA
ANDHRAPRADESH
TAMILNADU
KE
RA
LA
MAHARASHTRA
GUJARAT
CH
HAT
RISH
GA
RH
WESTBENGAL
UTTAR PRADESHEAST
UTTARPRADESH
WEST
ASSAM
NORTH
EAST
BIHAR
NEWDELHI
MUMBAI
KOLKATA
AFGHANISTAN
SRILANKA
BAY OF BENGAL
ANDAMAN AND
NICOBAR
ISLANDS (INDIA)LAKSHADWEEP
(INDIA)
INIDIAN OCEAN
N E P A L
N
I N D I AMETRO
A
B
C
Figure 8.1 – Indiaʼs circles
68
The Telecom Regulatory Authority of India (TRAI) has
divided the market into 22 service areas known as
"circles." The circles are divided roughly in line with the
countryʼs 29 provinces, and are divided into four
categories. Service providers require a separate license
for each circle. Metro circles (major cities*): Mumbai, New
Delhi, Kolkata. A ‑ circles (regions that include other large
cities): Andhra Pradesh, Gujarat, Karnataka, Maharashtra,
Tamil Nadu. B ‑ circles (regions with smaller urban areas
and towns): Haryana, Kerala, Madhya Pradesh, Punjab,
Rajasthan, Uttar Pradesh (East), Uttar Pradesh (West),
West Bengal. C ‑ circles (rural areas): Assam, Bihar,
Himachal Pradesh, Jammu & Kashmir, Northeast, Orissa.*
Chennai, in the southeast, was previously a separate
Metro circle, but as of March 31, 2008, it was integrated
into the Tamil Nadu A circle as a single entity. The service
providers and TRAI, however, continue to report monthly
connection numbers for Chennai separately 3.
This will further boost the countryʼs GDP through
consumer spending by a large margin.
Growth of Broadband: The broadband increase in the
ranks in subscriber numbers is expected to be the
driver for the next phase of Telecommunication
growth in India. Broadband subscribers, as a
percentage of total households, are expected to
reach 41 percent by 2022 from 10 percent currently8.
Growth in broadband has a direct impact on our
country's GDP by creating efficiency for society,
businesses and consumers. According to a study by
the Ericsson on effects of an increased broadband
speed on GDP, a 0.3 percent GDP growth in the OECD
region is equivalent to USD 126 billion. The study also
shows that additional doubling of the speed can
produce growth in excess of 0.3 percent9.
Key ChallengesHigh Competitiveness – Telecom service providers
have been under the pressure of intense competition
from global telecom giants. With at least 7
69
8UBS Investment Research, Global Equity research, India Mobile Sector, Year 2012, Page 5
9Ericsson, Study “Need for speed”, Year 2011, Page 2
Subscriptions* - mIn Mobile subscriptions - mIn subscribers1000
800
934.1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 934.1 mIn wireless subscribers as of June 2012
Others142.86
Bharti Airtel187.3
Reliance154.6
Tata Tele80.23
BharatSanchar
98.28
IdeaCellular
117.2
VodafoneIndia153.7
400
200
600
Figure 8.2 – Indiaʼs mobile market overview
telecommunication companies in each segment and
up to 12 telecommunication companies in some
segments competing for market share, the Indian
telecom market is one of the most crowded mobile
markets globally (the average number of
telecommunication companies in most countries is
from 2 to 5). Large number of competitors is resulting
in aggressive pricing, and a decline in the industryʼs
key operating metrics: The Average Revenue per User
(ARPU) and the Average Rate per Minute (RPM). The
average ARPU in India stands at around USD 2 (March
2012) as against the estimated USD 63 for NTT
Docomo, Japan; USD 33 for Vodafone, UK; and USD
12 for China Mobile, China10.
The Regulatory Uncertainty – The past 2G
irregularities and the cancellation of the 2G licenses
by the Supreme Court have led to regulatory
uncertainty in the industry. Clarity is still awaited in
some key areas such as one‑time spectrum charge,
imposition of high spectrum renewal fees, reframing
of spectrum and legality of 3G roaming agreements.
Tower Industry – As of March 2012, it is estimated
that there are 358,996 telecom towers in India, with
an average occupancy ratio of 1.63x, excluding
tenancies from operators who cancelled 2G licenses11.
After a tremendous growth in 2010, the telecom
tower industry is now witnessing a slowdown.
Cancellation of telecom licenses in February 2012 has
once more influenced another telecom sector
segment, and is likely to lead to a loss of tenancies
across the board. Currently, some telecommunication
companies are also exploring the possibility of
divesting their equity stake in tower companies in
order to meet funding requirements.The largest
players in telecom tower industry are presented in
the Table 8.1 below
10Icra Rating Feature, Telecom Sector: Trends&Outlook, Year 2012, Page 211UBS Investment Research, Global Equity research, India Mobile Sector, Year 2012, Page 24
70
Towers QuantityIndus Towers 1,09,000
BSNL/MTNL 69,000
Relaiance Infratel 50,000
Bharti Infratel 33,000
Vion Networks 42,000
GTL Infrastructure 33,000
American Tower Corporation 10,000
Tower Vision 8,000
Others 22,000Source: Industry data as of March, 2012
Table 8.1 ‑ Telecom Towers
Rural India – Even though the rural segment is seen
as the next key growth driver for the telecom sector
in India, there are some challenges in order to
achieve that. For rural subscribers, pricing is going to
be a key driver. Another challenge is access to
extremely remote communities, with no significant
infrastructure.
Investment OpportunitiesThe total investment expected during the 12th Five
Year Plan would be about ` 6,50,000 crores (USD 117
billion), out of which the Central sector investment
would be about ` 1,10,000 crores (USD 20 billion) and
investment from the private sector is estimated at
approximately ` 5,40,000 crores (USD 97 billion).
Investment Key Objectives:� One Nation, One License Policy ‑ Unified Licensing
Regime, Mobile Number Portability and Free
Roaming. It is this unified license regime across
services and telecom circles that would result in
the merging of all the telecom circles and would
enable operators to provide any service including
voice, data, video, broadband etc. Moreover,
country‑wide number portability and free roaming
would benefit the customers immensely.
� Increase rural teledensity ‑ 39 percent to 60
percent by 2017 and 100 percent by 202012.
� To provide broadband on demand by 2015 and to
achieve 175 million and 600 million broadband
connections by 2017 and 2020 respectively at a
minimum 2 Mbps download speed13.
� Promote domestic production oftelecommunication equipment to meet 80
percent of Indian telecom sector demand by 2020,
with a minimum value addition of 45 percent and
65 percent by the year 2017 and 2020
respectively14.
Regulatory FrameworkThe Cabinet has given its approval for the National
Telecom Policy (NTP) 2012. The Policy directs new
71
12 Icra Rating Feature, Telecom Sector: Draft National Telecom Policy 2011, Page 1 13Ministry of Communications&IT, Department of Telecommunication, National Telecom
Policy 2012, Page 5 14Ministry of Communications&IT, Department of Telecommunication, National Telecom Policy 2012, Page 5
initiatives, which includes free roaming, unrestricted
Net telephony and a new unified licensing regime for
operators. The policy also endorses a boost to
broadband expansion and an increase in local
manufacturing of telecom equipment.
The First Public Private Partnership in the TelecomSector ‑ The National Science and Technology
Entrepreneurship Development Board (NSTEDB), the
Department of Science and Technology (DST),
Government of India, Technopark and MobME
Wireless have joined forces to set up the Startup
Village ‑ Indian Telecom Innovation Hub in Kerala. The
telecom business incubator is a step to support new
product initiatives, and further turn them into
successful ventures.
Green Telephony ‑ TRAI is aiming to achieve carbon
emission reduction under which operators are
directed to achieve carbon reduction to the extent of
5 percent by 2012‑13, 12 percent by 2016‑17 and 17
percent by 2018‑19. Furthermore, at least 50 percent
of all rural towers and 20 percent of all urban towers
are to be powered by hybrid power by 2015.
FDI Policy in Telecom ‑ Foreign Direct Investment
(FDI) in the telecom sector during April‑March 2011‑
12 stood at USD 1,997 million. FDI is further limited to
74 percent in telecom services subject to the
following conditions15:
� This is applicable in case of Basic, Cellular, Unified
Access Services, National/ International Long
Distance, V‑Sat, Public Mobile Radio Trunked
Services (PMRTS), Global Mobile Personal
Communications Services (GMPCS) and other
value added services.
� Both direct and indirect foreign investment in the
licensee company shall be counted for FDI ceiling.
Foreign Investment shall include investment by
Foreign Institutional Investors (FIIs), Non‑resident
Indians (NRIs), Foreign Currency Convertible
Bonds (FCCBs), American Depository Receipts
(ADRs), Global Depository Receipts (GDRs) and
convertible preference shares held by foreign
entities. In any case, the 'Indian' shareholding will
not be less than 26 percent.
� FDI up to 49 percent is on the automatic route
and beyond that on the Government route.
� FDI in the licensee company/Indian
promoters/investment companies including their
holding companies shall require approval of the
Foreign Investment Promotion Board (FIPB) if it
has a bearing on the overall ceiling of 74 percent.
While approving the investment proposals, FIPB
shall take note that investment is not coming from
countries of concern and/or unfriendly entities.
� The investment approval by FIPB shall envisage
the conditionality that the Company would
adhere to license agreements.
� FDI shall be subject to laws of India and not the
laws of the foreign country/countries.
15 Corporate Catalyst India, Report on Telecom Sector in India, 2012, Page 6
72
Despite a sense of pessimismsurrounding the industry, Indian telecom is stillgoing strong as it continues to look atinnovative business solutions and explorenew avenues. Coming out of a difficult phaseof tedious regulatory mechanism anduncertainty over the spectrum, the industry isnow all set to transform itself rapidly with thechanging needs and desires of thecustomers.
“
”
9. Opportunities in the
Mining SectorOverviewIndia is known to have the oldest and richest
history in the mining sector, with meteorological
evidence dating back to more than 6000 years
(around the era of the Harappan Civilization).
However it is only in the recent decades, close to
independence that mineral production was
quantified and given national/global recognition.
74
1http://www.investindia.gov.in/?q=mining‑sector, Mining‑Sector Overview, Paragraph 5 2Challenges for the Indian Mining in 21st Century, Page 63 3Link: http://mines.gov.in/ls/USQ‑3917.pdf, Annexure, Table, Page 2 4http://en.wikipedia.org/wiki/Mines_and_Minerals_(Regulation_and_Development)_Act_1957 5Annual Report 2012, Ministry of Mines 6Annual Report 2011, Ministry of Mines 7 Link: www.commodityonline.com, Article: India minerals productiongrows 2.15%Y‑o‑Y in February, Paragraph 2
Over the last six decades, the total value of mineral
production has grown exponentially from a mere
USD 25 million in the 1950ʼs to an estimated USD
41.79 billion in 20111.
At the time of independence, there were 1977
working mines2 (excluding petroleum, atomic and
minor minerals), which has gone up to 3677 working
mines in the year 20113.
Mining in India is regulated under the regulation of
the Mines and Minerals (Regulation and
Development) Act, 1957 which has been redrafted in
20094. Under this Act, all minerals are owned by the
constituent states, but are administered by the
Central Government. Mining royalties and taxes,
although set and revised by the Central Government,
are paid directly to the individual States.
The Mining industry is administered by the Ministry of
Mines, which is responsible for geological surveys,
exploration, and administration of the Mines and
Minerals Act for all minerals except mineral fuels. India
is endowed with huge deposits of minerals which are
non‑renewable and finite in nature such as diamond,
coal, manganese, iron ore, bauxite, lead, copper, zinc,
gold and limestone. These minerals are critical raw
materials for many industries such as steel, power,
aluminum etc. Therefore, it contributes to the countryʼs
export earnings significantly giving the nationʼs
economy a competitive advantage on a global scale.
The ratio of the actualization from the mining industry
to the direct and indirect output in the economy is
measured at 2 : 4, thus making a substantial
contribution to the growth of the economy.
The Indian mineral reserves are flush with 87
valuable kinds of minerals, which include 4 fuel, 10
metallic, 47 non‑metallic, 3 atomic and 23 minor
minerals (including building and other materials)5.
Despite the challenges of realizing the full potential of
these abundant resources, the global position of India
in terms of production of key minerals is seen below
in Table 9.16.
Historically, the mining and quarrying sector in India
has been on an upward trajectory and continues to
do so . The Index has risen 2.15 percent year‑on‑year
in February 2012 and the six minerals listed below in
table 9.2 together contributed about 95 percent of
the total value of `16,566 crore (USD 2,979) of mineral
production in February 20127.
Table 9.1 ‑ Indiaʼs Mineral production ranked globally.
Table 9.2 – Total Value of Mineral Production(excluding atomic & minor minerals)
Source: Strategic Plan for Mines, Ministry of Mines, Goverment of India
Source: Table prepared based on information derived from article ʻIndia
Minerals Production grows 2.15% Y‑o‑Y in February
www.commodityonline.com.
Value of Mineral Production ‑ Feb, 2012
Category Value in ` Cr (USD mn)
Coal 5,480 (986)
Petroleum (Crude) 5,406 (972)
Iron Ore 2,743 (493)
Natural Gas (utilized) 1,320 (237)
Lignite 436 (78)
Limestone 311 (56)
Mineral Global Share of Globalproduction (%) Rank
Chromite 17.1 2nd
Barytes 17.3 2nd
Coal &Lignite 7.9 3rd
Iron Ore 9.8 4th
Manganese Ore 6.7 5th
Steel (Crude/Liquid) 4.3 5th
Bauxite 7.3 6th
Aluminium 3.4 8th
Copper 2.8 11th
75
8 Strategy Paper Ministry of Mines November 2011
It must be noted that the contribution of the Indian
mining industry to Indiaʼs GDP is persistently low as
compared to other resource rich nations such as
Brazil, South Africa, Australia and China. The mining
sectorʼs contribution to GDP in 2010 was at meager
1.2 percent, which is significantly lower than China,
Brazil and Australia.
The Growth DriversThe mining sector on the whole is undergoing a
major transformation over the recent years. A lot of
this is attributed to the growing demand of energy
and power. In order to meet this growing demand,
the Government has liberalized the National Mineral
Policy, thus allowing foreign participants in the
exploration of various minerals such as iron–ore,
copper, manganese, lead, chrome, zinc, sulphur, gold,
diamond, nickel and platinum.
The Government has also made it easier for private
players to own and operate mines through a single
window system, which also acts as a nodal agency for
these companies. These various transformations have
resulted in a steady influx of companies from Canada,
US, Germany, Russia, Australia and the African
continents to explore opportunities in mining,
trading as well as mining equipment.
Key ChallengesLow Exploration Spending8
Given our mineral resources, India has been fairly
reactive in the mining space. As seen in Table 9.3,
which shows the value of exploration per sq km,
Indiaʼs expenditure on exploration is one of the
lowest in the world.
The lower exploration spending has resulted in large
unidentified resources and lower reserves for many
minerals. Indiaʼs spend on exploration projects is
approximately 0.3 percent of the global spend
(compared to 19 percent for Canada and 12 percent
for Australia) leading to a stagnant reserve base for all
mineral categories.
As majority of the Indian reserves are deep and
require advanced underground mining, there is an
urgent need for advanced exploration companies to
study and explore these reserves. This will be a huge
driver for exploration spending in India.
Figure 9.1 Contribution to Mining Sector to GDP in 2010
Source: Strategic Plan 2011, Ministry of Mines
0
1
2
3
4
5
6
7
India Brazil South
Africa
Australia China
Lengthy Process of Land Acquisition
In India, almost 80 percent of the total mineral
reserves lie either in forest land, tribal areas and/or
other sensitive zones. The mining activities in these
areas often affect the environment, social fabric and
livelihood of communities. Therefore, local resistance
and land acquisition has always been a problem for
greenfield projects as well as operating projects in
such areas, and the process often increases the
gestation period (4 ‑ 8 years) thus decreasing their
overall profitability and viability.
In order to address the issue, the Government of India
has taken proactive measures by constituting a 14
member Group of Ministers to discuss and deliberate
on an industry friendly bill to address the concerns
regarding land acquisition. The proposed bill, 'The
Right to Fair Compensation, Resettlement,
Rehabilitation and Transparency in Land Acquisition
is expected to replace the The Land Acquisition Act
of 1894 and encourage industrial development while
ensuring fair prices to the land owners. Furthermore,
the implementation of Sustainable Development
Framework (SDF) is also expected to alleviate some of
the concerns of the Project Affected People (PAP)
and ease the process of land acquisition.
Slow Regulatory Approvals
Even though the Minerals Act has gone through a
transformation, the Indian mining sector is still very
far behind other markets such as Canada, Australia
and the US. The numerous approvals at the state and
national levels for Prospecting Licenses (PL), Mining
Leases (ML), consume a lot of time and valuable
resources of mining companies. It takes 5 to 8 years
(or more) to get a mining lease in India, where as it
takes about a year in Australia. The environmental
restrictions, application of the Comprehensive
Environmental Pollution Index (CEPI), and non‑
availability of forest clearances worsen the delays.
Government of India has taken policy measures such
as the National Mineral Policy 2008, Mines and
Mineral (Regulation and Development) Act 2011, for
a comprehensive overhaul of the current mining
regime in the country. The Mines and Mineral
(Regulation and Development) Act 2011, once
cleared at all levels, will address the structural issues
such as:
a. Empowerment of states for inviting bids or
applications for prospecting
b. Seamless transition from RP to PL and PL to ML
c. Transparency through competitive bidding for
PL or ML
9 Strategy Paper Ministry of Mines November 2011
76
Table 9.3 Value of Exploration Country USD /sq km
India 9
Australia 124
Canada 118
77
10 Ref The Economic Times, Article: Mining row: Chamber displays unhappiness over new MMDR bill over contribution of royalty, Paragraph 4 & 5
High Taxation Rate
Mining in India is one of the most highly taxed
sectors as compared globally. The tax rate levied in
some of the leading mineral producing countries is
39 percent in Australia, 35 percent in Brazil,
28 percent in Chile, 36 percent in the Congo,
35 percent in Russia and 32 percent in China10.
The effective tax rate for iron‑ore in India is
43 percent, as compared to 35‑40 percent for the
major mining countries like Brazil, South Africa,
Australia, Canada etc. and is expected to rise to 55
percent on implementation of the proposed Mines
and Minerals Development and Regulation Act. This
Act will make the country the highest taxed mining
sector worldwide.
Regulatory FrameworkIndia has progressively liberalized the mineral sector
considering the interests of the various stakeholders,
both domestic and international.
Some of the key regulatory initiatives are highlighted
below:
� FDI up to 100 percent allowed under an automatic
route for exploration and mining of minerals,
including diamond and precious stones.
� Introduction of competitive bidding for allocation
of coal instead of allocation through a screening
committee route. The Ministry of Coal has released
the list of coal blocks in May 2012 that would be
available for auction.
The Government approved the new National Mineral
Policy in 2008. This Policy aims at attracting private
investment in the mineral sector, increasing
transparency and developing a sustainable
framework. The Union Cabinet has approved the
proposal to introduce the Mines and Minerals
(Development and Regulation) Bill (MMDR Bill), 2011.
The new MMDR Bill 2011, aims to introduce a better
legislative environment for attracting investment and
technology into the mining sector where State
Governments have been empowered to grant
mineral concessions and call for competitive bidding.
The key features of the Act are as follows:
� States may grant direct mining concessions
through bidding based on a prospecting report
and feasibility study.
� National Mining Regulatory Authority for major
minerals ‑ State Governments may set up similar
Authority at State level for minor minerals.
� Imposition of a Central cess and a State cess, and
setting up of Mineral Funds at National and State
levels for capacity creation.
� Profit sharing equal to royalty amount for non coal
minerals and equal to 26 percent of net profit for
coal mining companies.
� Sustainable and scientific mining through
provision for a Sustainable Development
Framework.
These approvals will help in developing the country's
mining sector to its full potential. The profit sharing
clause is under consideration by the Government as it
may affect certain industries negatively.
78
11 Strategy Paper Ministry of Mines, November 2011
12 http://mines.nic.in/writereaddata/filelinks/12277536_strategic_plan_final%20draft%20v%208.pdf
Investment OpportunitiesMining
The Indian minerals sector holds a huge
potential for all stakeholders, including the
Central Government, State Government,
community and the entire economy as a
whole. With the right kind of support, the
mining sector in India has the potential to be
one of the largest in the world:
� Add USD 210‑250 billion to the overall
GDP by 2025, representing a growth of 10
to 12 percent per annum11.
� Creating 2 million to 2.5 million direct jobs
by 2025, and an additional 11 million to
13 million jobs through indirect
employment opportunities created in
other sectors, thereby contributing 3
percent of Indiaʼs total employment.
� The demand of Steel, Aluminum and
Copper will increase 4 to 5 times over the
next 15 years12.
The high demand will offer opportunities in
iron ore, aluminum and copper mining. The
competitive bidding of coal blocks and large
number of coal blocks allocation to Coal India
Ltd. (CIL) will further accelerate the growth of
the sector. In addition to this the 12th Five
Year Plan envisages capacity addition of
100GW of power, paving a promising path
for the future.
2010 (Mt) 2025(Mt)
Steel 60 275
Aluminum 1.6 8.5
Copper 0.6 2.4
Table 9.4 Demand for Key Minerals
79
13 A Guide to Investment in Indiaʼs Mineral Sector‑ 2010; Federation of Indian Mineral Industries, Page 6
14 Report of the Working Group on Capital Goods & Engineering Sector for the 12th Five Year Plan; Page 36
Mining Equipment
The huge potential of mining equipment in India can
be ascertained from the fact that India has vast
untapped reserves. According to some estimates,
India is reported to have a total mineral potential area
of 5.75 lakh sq km of which only 75,000 sq km have
been explored so far13. The country has coal reserves
of about 260 billion tonnes alongwith significant
reserves of iron‑ore, bauxite, lignite chromite among
others. With such a vast potential available, the
demand for sophisticated mining equipment is
expected to grow exponentially in the coming years.
Further, the progressive reforms across the mining
and quarrying sector is expected to provide much
needed thrust to the mining equipment industry
during the 12th Five Year Plan. As per the report of
the Working Group on Capital Goods & Engineering
Sector for the 12th Five Year Plan, the consumption of
Earthmoving and Mining Machinery is pegged to
grow at a CAGR of 19 percent to ` 45,232 crore (USD
8,135 million) out of which domestic manufacturing
output will be about ` 34,924 crore (USD 6,281
million). The import of earthmoving and mining
equipment is expected to reach ` 11,308 crore (USD
2,034 million), almost 53 percent higher than the total
import of ` 7395 crore in 2010‑1114.
Figure 9.2 shows how the industry has been on the
growth trajectory over the last few years, except in
2008 ‑ 09 when the global recession had a negative
impact on the mining equipment industry as well.
Since then, the industry has found its growth pace,
which is likely to continue in the coming years.
Keeping pace with the searing economic growth in
India, the construction and mining machinery sector
has also grown exponentially over the last few years
in order to support the rapid expansion taking place
in the infrastructure and other core sectors projects.
At present, there are nearly 20 large & global
manufacturers and nearly 200 small & medium
manufacturers of earthmoving & mining machinery
equipment present in India. The industry has
simultaneously witnessed an extensive technical
collaboration between domestic manufacturers and
global majors to bring in international level of
technology to meet the increased demand and scale
of operation. Over the years, many global majors
have entered the market either setting up their
operations locally, or through strategic domestic
partners, both technological and financial. It would
be therefore safe to assume that the mining
equipment industry in India is in a crucial growth
phase with a rapid transformation in technology and
enhancement.
India's emergence as a major economic hub has ensured steady growth across
the BRIC nation's mining industry. As a result of India’s strong economic growth
and rising GDP, the industry is all set to witness a surging demand for minerals
such as coal within an increasingly liberalised economy. Mineral based industries
will be core part of any countries growing GDP in coming years.
Satish SaxenaManaging Director
Swayambhu Natural Resources Private Limited
80
9,0008,0007,0006,0005,0004,0003,0002,0001,000
0
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
1,037 1,2051,654
2,4821,870
2,491 2,6083,327
4,9246,036
6,6827,424
8,135
Figure 9.2 Mining Equipment Market Size (USD million)
Source: Based on the Information available on the Report of the Working
Group on Capital Goods & Engineering Sector for the 12th Five Year Plan
10. SREI
The Unseen HandInfrastructure in the pre‑reform era, was largely under
the purview of the public sector and basic services
such as transportation, telecommunication, and power
were provided by government organizations that
shared a strict monopoly. Due to the lack of low cost
funding, it was extremely difficult for private
organizations to take on projects that were highly
capital intensive. Hence, even though there was
immense opportunity, very few private players could
take advantage of the predicted boom of the sector.
Amid those challenging times, Srei identified the
potential of the infrastructure sector in India, and in
1989, commenced as a leasing and hire purchase
company with a small line of credit from one of the
leading commercial banks in India.
Srei was one of the first NBFCs to respond to the
challenge for the need of large scale capital, and
began focusing on international resources to fuel
this infrastructure growth. The liberalization in early
nineties provided an access to a bevy of international
bankers and also helped garner low cost, long term
funds from foreign development financial institutions
from across the world.
Sreiʼs innovative financing methodologies, coupled
with a strong network of international financial
institutions helped it surge ahead of competition
with relative ease. While maintaining its core business
model, the company made itself more adaptable to
global lending standards to bring many leading
development financial institutions like IFC, DEG and
FMO as their strategic partners opening avenues for
more overseas participation in infrastructure.
In 2005, Srei took the Indian infrastructure story to the
international market and got listed in the London
Stock Exchange. By doing so, Srei became the first
infrastructure focused NBFC to be listed on any major
global stock exchange.
82
In 2008, SREI partnered with BNP Paribas Leasing
Solutions, a wholly owned subsidiary of BNP Paribas ‑
France, in order to further develop its equipment
financing business. Being the largest player in the
financing of infrastructure equipment in India and
considering its local expertise with the specialized
equipment finance skills, Srei was entrusted with the
management control for this 50:50 Joint Venture
entity. This partnership helped Srei in increasing its
market share further, and also expanding the product
line into financing of agriculture, information
technology, medical and other equipment. SREI BNP
Paribas is today a leader in the construction
equipment finance sector in India with a market share
of over 30 percent.
Subsequently, Quippo Telecom, a Srei Infrastructure
innovative initiative in pioneering the telecom tower
business in India entered into a strategic partnership
with Tata Teleservices Limited (TTSL), a Tata Group
company, for its passive telecom infrastructure
business through Viom Networks Limited which is
among the industry leaders in shared telecom tower
business.
The strategic partnership with globally recognized
brands such as BNP Paribas and the Tata Group were
the endorsement of Sreiʼs deep sectoral knowledge,
sector expertise, managerial acumen and leadership
skill within the infrastructure space in India
As a group, Srei eventually diversified its portfolio and
expanded its operations in emerging sectors such as
power, telecom, aviation and ports while keeping its
core interest in infrastructure intact.
Hence, the journey that started with equipment
financing provided a strong foundation to position
itself as a holistic infrastructure institution.
Leveraging its rich experience and infrastructure
acumen, the company gradually expanded its
financial services business into infrastructure project
financing, infrastructure project advisory, venture
capital, investment banking, insurance broking etc.
It has also innovated new concepts in the telecom
tower business, roads, power, ports, SEZs and others.
In 2010, Srei announced the amalgamation with
Quippo Infrastructure Equipment Limited to build up
a much larger institution, better placed to capitalise
on the fast growing infrastructure opportunities on
offer. Following the amalgamation, Srei was able to
expand the spectrum of its services to high growth
verticals of Construction, Oil & Gas, Telecom and
Energy. In the same year, Srei also forayed into the
power sector through the investment in a utility ‑
Dishergarh Power Supply Corporation (DPSC), one
of Indiaʼs oldest power transmission and distribution
company.
Sahaj e‑Village is another unique business model that
attained immense scalability in a very short time
period. Under the National e‑Governance Plan of the
Government of India, this initiative is today the largest
rural IT infrastructure initiative in India with 28,000
Common Service Centres catering to approximately
280 million people and provides various B2B, B2C, G2C
services along with e ‑ learning courses.
By adopting such organic and inorganic growth
strategies, Srei has emerged as one of the largest
holistic infrastructure institutions in India, present
across the entire value chain. Thus, what started off as
a modest initiative in 1989, gradually emerged into a
large conglomerate. Today with its headquarters in
Kolkata, the company enjoys a pan‑India presence
with almost 90 offices, staff strength of over 8000 and
consolidated assets under management of USD
10 billion.
Leveraging its scale, experience, spread, portfolio and
alliances, Srei has been constantly working as an
invisible hand driving the national economy –
financing infrastructure equipment and projects,
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helping entrepreneurs and the Government with
advice and funding, building one of the largest
Telecom tower base, to servicing millions in rural
India.
Srei, an unseen hand, has managed to position itself
as the largest equipment financing company in India,
the largest independent telecom tower company
with industry leadership tenancy of 2.4X, one of the
top five road developers and now one of the oldest
power utility companies in India with a T&D loss of
3.25 against the country average of 25 percent.
Indian infrastructure sector isgoing through a significanttransformation. Investment ininfrastructure is envisaged to bedoubled to USD 1 trillion during the 12thFive Year Plan and about half of this istargeted to be achieved through privatesector investment
“
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From a macro and microperspective, the Indian infrastructureis a “bang-on” investmentdestination for any overseascompany seeking high and longterm returns. The key, however, is toidentify and work with the right localpartner.
Hemant KanoriaChairman & Managing DirectorSrei Infrastructure Finance Ltd
The global crisis, as many call it, has
affected industry, trade and investments
across sectors and economies. Yet,
India’s infrastructure sector has
recorded high growth and continues to
show a positive outlook despite some
regulatory challenges. India is definitely
“the new land of opportunity” for
potential investments.
Sunil KanoriaVice Chairman Srei Infrastructure Finance Ltd
www.srei.com
Srei Infrastructure Finance Limited
Registered OfficeVishwakarma 86C Topsia Road (South)
Kolkata 700 046
Opportunities in infrastructure investments in India 2013
