Private Investment in Infrastructure:A Perspective

December 20, 2006 : New Delhi

ByVinayak Vinayak

ChatterjeeChatterjeeChairman

&Chairman

National Council on Infrastructure

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Approach Paper to the 11th Five Year Plan provides a ‘vision’ for the period 2007-08 to 2011-12.On 18th October’06, Chairing a meeting of the Planning Commission, the Prime Minister set a target of 9% average economic growth for the 11th Plan.

Vision For Next 5 Years (2007-2012)

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The Planning Commission suggests that “investments will need to increase from 4.6% of GDP to between 7% and 8% in the 11th Plan period”.

This would entail an outlay of US$ 350 Billion across the 11th Plan Period (2007-2012).

Gross Capital Formation in Infrastructure (GCFI)

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“There is enough private capital jostling around the world. We will have to change our thinking to tap these resources. ………..The government is considering the removal of certain restrictions on the securitisation of debt raised abroad. Private wealth managers in the west who preside over investible funds should be encouraged to finance India’s infrastructure projects by putting in place necessary safeguards.

Mr. P. Chidabaram, Finance Minister

[Speaking at the Infrastructure Seminar, Vigyan Bhawan, New Delhi , 7th October’06]

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…………We will have to think out of the box. We will have to accept that we are part of the global economy. ……….We don’t have any financial instrument for savers who would like to keep their money for five years or more, except insurance policies. We will have to press ahead with pension and new insurance products to encourage long-term savings.”

Mr. P. Chidabaram, Finance Minister (Contd..)

[Speaking at the Infrastructure Seminar, Vigyan Bhawan, New Delhi , 7th October’06]

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World Bank sources tell us that in the 1990s:

70% of infrastructure investment in developing countries came from governments or public utilities22% came from the private sector8% from official development assistance

General Pattern of Funding

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67%234From Public Expenditure

11%39From World Bank, ADB, JBIC and other multilateral/bilateral agencies

22%77From Private Capital (Domestic and FDI)

100%350Resources to be organized for infra investments in 11th Plan Period

%Amount

Perspective on Indian Infra Funding Sources

(US$ Billion)

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Sectoral Requirement of Funds

34120Energy

35076

274119

184967

Amount %Sector

78Envisaged22Others*

100Total

3Ports3Airports5Irrigation

14Nat Highways19Railways

* Telecom, Tourism, SEZs & Townships, Supporting Urban Infrastructure, Water & Sanitation, State & Rural Roads, Logistics etc.

(US$ Billion)PPP Possibilities

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Key Imperative ONE : Private Sector

Create enough attractive investment opportunities to channelise FDI and domestic capital by:• PPP initiatives leading

to a large pool of bankable projects.

• Establishment of really “independent” Economic Regulators.

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Key Imperative ONE : Private Sector(Contd..)

• PPP for the 11th Plan period should be to the tune of US$ 77 Billion.

• In a summary statement circulated in the document pack of the Infrastructure Seminar at Vigyan Bhawan on 7th October’06, the total number of PPP projects listed ‘officially’ was 346 with an estimated cost of US$ 31 Billion.

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Key Imperative ONE : Private Sector(Contd..)

• Who is responsible for creating the required project pipeline ?

• Surely not the private sector.

• Private sector cannot create projects; it can ONLY bid for them.

• The sovereign has to play the role of a ‘visionary entrepreneur’ in the infrastructure sector unlike the ‘product-market economy’.

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Key Imperatives TWO : Overseas Development Assistance (ODA)

Engage aggressively with multilateral agencies like• World Bank• Asian Development Bank and• Japan Bank for International Cooperationto secure commitments totaling not less than US$ 39 Billion for the 11th Plan period.

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Key Imperatives THREE : Public Expenditure

•Structure large-scale projects (like Rail Freight Corridor, NHDP and Bharat Nirman) involving substantive public expenditure

•Implement fresh ‘out-of-the-box’ initiatives to raise savings and resources for this purpose to a level of US$ 234 Billion.

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Create vibrant equity and long-term debt markets for infrastructure financing.

Key Imperatives Four : Long Term Financing

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Project pipe-line creationPublic expenditure & ODA to ‘pull’ private involvement.GCFI as key performance indicatorCreation of ‘independent economic regulators’PPP policies and dedicated PPP cellsLong-term debt marketsPolitical will and public mind-set to implement user-pay charges Sovereign to be ‘visionary entrepreneur’.G-to-G opportunity structuring

Summing Up

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Closing Quote

“You and I come by road or rail, but economists travel on INFRASTRUCTURE”.

Margaret Thatcher