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Investment Requirements
In a recent discussion paper Planning Commission has estimated the total GCF in
Infrastructure during the Eleventh Plan to be Rs. 20,01,776 crore (at 2006-07 prices)
or US$ 488 billion (at an exchange rate of Rs.41/$). This amounts to an average of
7.44 per cent of GDP (at market prices) over the Plan period. To supplement the
estimated aggregate capital formation in infrastructure described above, an alternative
has been used taking into account actual sector-wise development patterns. Public and
private investment in each sector during the Eleventh Plan has been projected based
on a detailed review of sector trends, including historic evolution of Plan
expenditures. This ‘bottom-up’ exercise yields total investment in infrastructure
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during the Eleventh Plan of Rs. 23,84,905 crore or US$ 581.68 billion (at Rs.
41/US$).Assuming conservatively that 15 per cent of the investment projected on the
basis of detailed sectoral analysis will spill over to the Twelfth Plan, it is estimated
that total investment in infrastructure during the Eleventh Plan period would amount
to Rs. 20,27,169 crore (or US$ 494.43 billion). Subsequently this figure has been
revised to US$515 billion in the 11th plan document.
Measures by Government:
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been approved by CoI. An IMG looking at issues relating to reducing dwell time in
ports has finalized its Report.
In the railway sector, a number of projects are being funded by public private
partnership, State Government participation, funding of projects of national
importance through the general exchequer and multi-lateral funding. Ministry of
Railways has formed a PSU, the Rail Vikas Nigam Limited (RVNL). RVNL has been
entrusted with the task of promoting public private partnership for railway projects.
Railways have also decided to set up dedicated freight corridors on Delhi-Howrah and
Delhi-Mumbai routes. Decision has been taken to allow private parties to participate
in container services, hitherto the preserve of CONCOR. A model concession
agreement has been finalized by the IMG constituted for this purpose.
Viability-Gap support
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a) In order to be eligible for funding under this scheme, the PPP project must
be implemented, i.e. developed, financed, constructed, maintained and
operated for the project term, by an entity with at least 51 per cent private
equity.
ii) Power;
vi) Any other sector can be added by the Empowered Committee with
the approval of the Finance Ministry.
b) The total Viability Gap Funding under this scheme shall not exceed twenty
per cent of the total project cost. The government or statutory entity that
owns the project may provide an additional 20% grants out of its budget.
e) Viability gap funding under this scheme will normally be in the form of a
capital grant at the stage of project construction. Proposals for any other
form of assistance may be considered by the Empowered Committee and
sanctioned with the approval of Finance Minister on a case-by-case basis.
12. Government have approved the setting up of a SPV for the purpose of
providing long-term debt to infrastructure projects. The SPV will borrow money
against Government Guarantee and on-lend these funds to the infrastructure projects.
This is expected to ease the asset liability mismatch of the financial institutions and
lower the cost of long-term debt:
13. Pursuant to this, a scheme has been drawn up to set up and a Non-Banking
Finance Company (NBFC) called India Infrastructure Finance Company Ltd. (IIFCL)
is being set up. The IIFCL office opened for business on March 13, 2006. It is
presently trying to build a network within the financial community. It started working
with a capital of Rs.10 crores. The equity contribution of Rs.90 crore, as provided in
the Union Budget 2006-07 has been received. With this, the paid up capital of the
company has gone up from Rs.10 crore to Rs.100 crore as against the authorized
Capital of Rs.1000 crore.Approval of the Government guaranteeing the first part of
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the company’s borrowing programme for the year 2006-07, amounting to Rs.5,000
crore, has been received. The guarantee is subject to payment of guarantee fee payable
at the rate of 0.25 percent per annum , in advance. IIFCL proposes an ECB of $1
billion and is seeking Government approval for a domestic bond issuance of Rs.12000
crore in 4 tranches of Rs.3000 crores each. A number of proposals for financing have
been received by IIFCL. The salient features of this scheme are:
a) The IIFCL will borrow money from the markets on the strength of
Government guaranteed bonds. These will be long duration bonds (more
than 10 year maturity). The IIFCL can also raise money from
organizations such as the World Bank, Asian Development Bank etc. and
international debt markets, i.e., External Commercial Borrowing etc.
b) It will then lend this money to viable infrastructure projects. The projects
may be sponsored by any entity, whether in the public or private sector or
by a joint venture. Preference will be given to Public projects and Public
Private Partnership Projects.
c) The IIFCL will fund projects on the strength of appraisal done by the lead
Financial Institution. Disbursements and recoveries will be ‘pari-passu’
with senior debt and will be done through the lead financial institution.
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certain banks / financial intermediaries as a concrete pipeline of projects becomes
visible.
The agreement to establish the fund was signed on February 15, 2007 by Dr.
Rajiv B. Lall from IDFC, Mr. Sanjay Nayar from Citi, Mr. S.S. Kohli from IIFCL,
and Mr. Robert L. Friedman from Blackstone in the presence of the Finance Minister,
Shri P. Chidambaram in North Block, New Delhi.
IDFC has received commitments of US$ 1.225 bn in two funds that are part of
the above initiative and on final closing of both funds would have raised close to $1.7
bn. IDFC has announced a first close of $525 mn for India Infrastructure Fund, an
equity fund which is a part of the initiative. The fund raising is still ongoing and
IDFC expects to raise $ 1 bn in this fund. IDFC has received commitments of $700
mn for another equity fund which is a part of the above initiative but is awaiting FVCI
(Foreign Venture Capital Investment) approval from RBI to announce its closing. The
debt part of the fund is yet to be created.
Utilization of a part of the Forex Reserves: It has been decided that one wholly
owned subsidiary of IIFCL would be set up in London for borrowing of funds from
the RBI and lending to Indian companies implementing infrastructure projects in
India. RBI would provide funds to this subsidiary in the form of 10 year maturity US
dollar denominated bonds with a face value of USD one million, with the maximum
aggregate issuance of USD 5 Billion. The bonds will be fully guaranteed by the
Government of India for both principal and interest. The off-shore subsidiary of
IIFCL was registered in London on February 7, 2008.
Issues
To enable all these initiatives to succeed and put in place quality infrastructure,
many issues need to be addressed. To list a few:
ii) Develop a market for long-term debt which is essential for long-gestation
and high cost infrastructure projects.
vi) Deliver a level playing field for new infrastructure providers to enable
them to effectively compete with the existing ones.
vii) Streamline clearances and have better Centre-State and inter-state co-
ordination.
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Role of PPP:
It has been observed worldwide that it is difficult for the private sector to meet the
financial requirements of infrastructure in isolation at the same time tackling the risks
inherent to building infrastructure. Therefore, the PPP model has come to represent a
logical, viable and necessary option for the Government and the private sector to work
together.
PPP-Characteristics
vi) PPP does not involve outright sale of a public service or facility to the
private sector.
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vii) Private Sector Company in a PPP means a company in which 51% or
more of the subscribed and paid up equity is owned and controlled by a
private entity.
a. Service Contract
b. Management Contract/Lease
d. Concession
e. Joint Ventures
Most contracts take the form of 'concession' and 'Design, Build, Finance and
Operate' contracts. These contracts are usually financed by user fees or tariffs or by
government subsidies.
In India most PPPs have been restricted to the roads sector. The US $ 100
million Delhi-Noida bridge project,implemented on a BOOT framework on the basis
of a 30 year concession, is India's first major PPP initiative. The Jaipur-Kishangarh
highway is a Build Operate Transfer (BOT) success story and it has been decided that
the four laning of 10,000 kms, under NHDP III will be done entirely on BOT basis.
Then there are successful PPPs in water supply. The Tirupur project in Tamil Nadu is
a shining example. It is a BOOT project and an SPV was set up for the purpose. The
project however took more than ten years from concept to financial closure. Many
other PPPs in water supply have been financed through municipal bonds in cities such
as Ahmedabad, Ludhiana and Nagpur. The housing projects coming up on the
outskirts of Kolkata City are a good example of what a PPP model can deliver in
terms of quality housing and living conditions to middle and lower middle class.
Gujarat and Maharashtra have had success especially in ports, roads and urban
infrastructure. Karnataka also has done well in the airport, power and road sector.
Punjab has had PPPs in the road sector. As per a World Bank financed and DEA
commissioned study by Pricewaterhouse Coopers, in the last 10 years a total of 227
PPP infrastructure projects were found to have achieved financial close. Furthermore,
PPP projects in India clearly show a sharp increasing trend in the past 10 years. Out of
the 227 PPP projects, more than 117 projects have achieved financial close in the last
three years. Road sector which forms more than 81% of the total projects by number
accounts for only 54% of the total projects by value. Port and Airport projects which
form 8.4% and 1.8% respectively by number constitute 21% and 17.2% respectively
of the pie by value.Western region followed by Southern region dominates both in
terms of number and value of projects. Though states dominate in terms of the
number of PPP projects awarded (55%), they trail the centre in terms of the total value
of the projects (centre accounting for 72%). This is because most state project sizes
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are less than $50 million but central project sizes; in particular Airport projects are
large being more than $100 million.