1 India - Opportunities in Infrastructure for Foreign Investors Arvind Mayaram Department of Economic Affairs Ministry of Finance Government of India

2 Investment scenario  GCFI in infrastructure as percentage of GDP 4.6 % during the tenth plan  If growth in GDP to be sustained GCFI in infrastructure must keep pace.  Total estimated investment of USD billion in infrastructure up to 2012

3 Investment Opportunities in India Indicative  TRANSPORT: Roads ($ 48 bn.): BOT preferred mode; NHDP-40,000 kms Airports ($ 9 bn.): 4 Metro, 35 Non-metro airports Ports ($ 12 bn.): All new berths through BOT Railways ($ 12 billion): Container trains, DFC, Stations  POWER Generation ($ 130 bn.): Transmission, Distribution OTHER SECTORS  Gas Pipelines: Cross Country, Intra-city pipelines  Telecom  Health and Education Infrastructure  Urban Mass Transport  Urban Water Supply, Solid Waste Management

4 Government is committed to PPP mode- Why?  Maximizing investment  Budgetary constraints  Development of assets of world class standards  Improved maintenance and management of assets  Provision of efficient services  Affordable prices through greater competition  Risk Sharing

5 What are Foreign Investors looking for?  Good projects  Demand Potential  Revenue Potential  Stable Policy Environment/Political Commitment  Optimal Risk Allocation Framework  Independent Regulation

6 Does India have it?

7 Good Projects  Large Package sizes are being insisted upon by GoI in the road and other sectors  Design based on superior technology which may not be available domestically

8 Demand Potential Ports: 877 million tonnes of traffic by % growth expected in containerized traffic Airports: Passenger and cargo traffic slated to grow at over 20% annually Railways: Freight traffic is growing at close to 10% and passenger traffic at close to 8% annually Power: 13% peaking and 8% average shortage of power annually Telecom: Rural penetration less than 4%

9 Revenue Potential  India scores because of its large untapped markets  Example: India is a telecom success story despite low Average Revenue per User- there is comfort in numbers  Power: High revenue recovery recorded in recent times with 100% recovery in many cases  High economic growth rate has translated into a larger disposable income and larger spending capacity  Willingness to pay exists provided delivery is of good quality

10 Stable Policy Environment  Model Concession Agreements for each sector guaranteeing protection against change in law, change in taxation  Clarity in obligations of the authority and provision for penalty for breach of obligation

11 Optimal Risk Allocation  Demand Risk is partly mitigated through provisions for change in duration of concession –both upside and downside  Competition from other suppliers limited through a variety of non-compete clauses  Escalation in input costs mitigated through indexation of user charges to inflation  Construction and performance risk to be borne by the investor  Political risk and force majeure risks borne by the Government

12  Termination payments and terms protect against arbitrary termination by Government  Land acquisition risk borne by government  Risk relating to permits and approvals especially environment permission borne by government  Provision of other related infrastructure an obligation of the authority

13 Independent Regulation  Telecom Regulatory Authority of India  Central Electricity Regulatory Commission/State Electricity Regulatory Commissions  Tariff Authority for Major Ports  Airport Economic Regulatory Authority  Robust ‘regulation by contract’

14 Is there a financing constraint or is it the problem of lack of a good project pipeline?

15 Steps taken by government to ease financing constraints  Viability Gap Funding (VGF)  India Infrastructure Finance Company Limited (IIFCL)  India Infrastructure Initiative ($ 5 bn. Fund)  Enhanced Annual External Commercial Borrowing ceiling  Bonds- reporting platform started and trading platform slated to start from July 1, 2007  Permission to foreign financial institutions and multilaterals to raise rupee resources: ADB allowed to raise rupee resources  Encouraging development of new instruments such as grading of PPP projects/SPV rating by the major credit rating companies

16 Creating a pipeline  Building capacity within institutions to handle large PPP program, including project preparation  Preparation of project preparation manuals, handbooks on procedures, toolkits, standard bidding and contract documents etc.  Expert support to central ministries/state governments for project preparation  India Infrastructure Project Development fund

17 Thank You

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19 Sectoral Opportunities

20 Power (Estimated investment: USD 60 billion)  Over MW capacity to be added in the 11 th plan period ( to )  9 UMPPs to be implemented during the 11 th and 12 th plans  Transmission capacity augmentation through JVs for new generation

21 Roads (Estimated investment: USD 49 billion)  NHDP-II: 4569 km, $ mn.  NHDP-III: km $ mn.  NHDP-IV: km $66100 mn.  NHDP-V: 6500 km $98100 mn.  NHDP-VI: 1000 km $39700 mn.  NHDP-VII: $38000 mn.  State Roads programme are in addtion

22 Railways (Estimated investment USD 67 billion)  Dedicated Freight Corridors with PPP sub-projects envisaging more than USD 7 billion investment for the North South, East West Corridors alone  Container operations  Rail side warehousing  Logistics Parks  Development of Rail links to Ports  Dedicated rail links for evacuation of specific industrial items  Modernization of Railway Stations  Development of new routes

23 Airports (estimated investment USD 9 billion)  Metro Airport development through PPP  Greenfield Airports  Concept of Merchant Airports being examined by Government  City side development in 24 Non-metro Airports  Provision of Services within airports

24 Ports: (Estimated investment USD 11 billion)  National Maritime Development Programme  387 port projects  All new berths on PPP basis  Gradual transition of old berths to PPP

25 Telecom  Untapped rural potential with low rural tele-density of 1.9% which must increase to 10% by 2012  Almost a million broadband connections added in With low penetration scope for further increase

26 Urban Infrastructure  Mass Rapid Transit Systems at Mumbai at a capital cost of about USD 2.5 billion, Hyderabad and Kolkata at about USD 1 billion each, Ahmedabad at about USD 950 million and other cities