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Challenges in Building the 21Challenges in Building the 21stst Century Infrastructure Century Infrastructure

Jugaad to ManagementJugaad to Management

Presented By: Presented By:

Himadri Banerji Himadri Banerji

Infrastructure Development PlansInfrastructure Development Plans

Infrastructure Demand: Continuing power deficit and the revival in need for transportation system

Govt. Objective: The government objective of building 20km of highways per day ‐ entailing an estimated investment of about USD70Bn by 2012

Government has also annopunced the list of 313 projects for creating an aggregate capacity of 300GW

Total Investment envisaged is 496 B Dollars.

Infrastructure Investment ProjectionsInfrastructure Investment Projections

Planned Infrastructure Investments: IndiaPlanned Infrastructure Investments: India

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Continuing mismatch between government Continuing mismatch between government infrastructure development targets and realized infrastructure development targets and realized infrastructure development due to constraints in infrastructure development due to constraints in project approval, lending, delivery and operations. A project approval, lending, delivery and operations. A continuation of some of the excesses of the precontinuation of some of the excesses of the pre‐‐crisis crisis years, e.g. high debt loads and minimum contingencies years, e.g. high debt loads and minimum contingencies for project construction and completion risks is further for project construction and completion risks is further aggravating matters.aggravating matters.

Target vs. Actual A Visible Gap

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““India’s informal system of jugaad allows counterparties India’s informal system of jugaad allows counterparties to a project to recognize the systemic problems affecting to a project to recognize the systemic problems affecting most infrastructure projects and evolve workable most infrastructure projects and evolve workable solutions on a casesolutions on a case‐‐byby‐‐case basis (whereas in other case basis (whereas in other developed markets, such situations may be deemed as developed markets, such situations may be deemed as contractual failures, leading to the collapse of the contractual failures, leading to the collapse of the projects).” projects).”   

The informal System of Jugaad

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Country Outlook India: Delays in Supply of InfrastructureCommon Project Risks

Financing structures and debt levels do not seem to adequately address

Common project risks:

(a)Propensity for execution delays

(b)Cost over run

(c)Demand overestimation

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(d) Lack of a strong regime for contract observance and (d) Lack of a strong regime for contract observance and enforcement.enforcement.

(e) Pricing some of the risk elements of past projects into (e) Pricing some of the risk elements of past projects into their bids and return expectations for new road projectstheir bids and return expectations for new road projects

(f) Traditional Jugaad approach for most of the projects (f) Traditional Jugaad approach for most of the projects executionexecution

Common Project Risks Continued….

Scenario : Road & Logistics Scenario : Road & Logistics

Sector Projects Sector Projects

Current transportation System: IndiaCurrent transportation System: India

Proposed Shift in Logistic Model Mix: IndiaProposed Shift in Logistic Model Mix: India

Investment Challenges in Logistic Growth: Investment Challenges in Logistic Growth: IndiaIndia

Expected Freight Traffic Growth: IndiaExpected Freight Traffic Growth: India

Strategy for Balanced Logistic NetworkStrategy for Balanced Logistic Network

NILP: From Strategy to ImplementationNILP: From Strategy to Implementation

Model Mix for Balanced Strategy: Logistic IndiaModel Mix for Balanced Strategy: Logistic India

Model Mix for Balanced Strategy: Logistic IndiaModel Mix for Balanced Strategy: Logistic India

Budgetary Reallocation for Improved Budgetary Reallocation for Improved StrategyStrategy

Rail Budget ReallocationRail Budget Reallocation

Road Budget ReallocationRoad Budget Reallocation

Balanced Model Approach: LogisticsBalanced Model Approach: Logistics

Scenario : Power Sector Projects Scenario : Power Sector Projects

Five Yr Plan: Power Production Target Vs achievementsFive Yr Plan: Power Production Target Vs achievements

Region Wise: Power Generation and Peak DeficitRegion Wise: Power Generation and Peak Deficit

Eastern Regions Status

Western Regions Status

Region Wise: Power Generation and Peak DeficitRegion Wise: Power Generation and Peak Deficit

North- Eastern Regions Status

Southen Regions Status

Region-wise Installed Generating Capacity: IndiaRegion-wise Installed Generating Capacity: India

Electricity Demand Projections: IndiaElectricity Demand Projections: India

Electricity Demand Vs Achievements: IndiaElectricity Demand Vs Achievements: India

Toll Road Projects

What to Watch

Resolution of regulatory hurdles, including obtaining land/RoW to complete construction on schedule, and securing NHAI approval for tolling partially completed roads.

Extent of cost and schedule overruns.

Banks’ willingness to reschedule loans and sponsors willingness to inject additional equity where cost and schedule overruns occur.

NHAI’s willingness to extend COD to make allowances for delays and, in certain cases, allow partial tolling, based on completion status.

Actual traffic performance during the ramp‐up phase (in relation to overly optimistic traffic forecasts used for financial close).

Efficacy of the dispute resolution mechanism in quickly settling compensation and concession extension issues, usually initiated post‐COD

Power Sector Projects

(EPC) route for construction, companies are choosing to break down the entire activity into packages

Opposite system against the best practices in developed countries

New Merchant power plants by unrelated diversification of their promoters

Many projects continue to depend on Bharat Heavy Electrical Ltd (BHEL) for the supply of the critical boiler‐turbine‐generator (BTG) island, even though it has an overflowing order book

Many projects continue to depend on Bharat Heavy Electrical Ltd (BHEL) for the supply of the critical boiler‐turbine‐generator (BTG) island, even though it has an overflowing order book

What to Watch Financial health of state government‐owned utility off‐take counterparties.

Visible constraints on land availability, equipment vendor capacity, and sustainable fuel supplies for projects under construction

Capacity of domestic commercial bank sector to continue to finance mega power projects, given lending exposure limits.

Impact, if any, of the on‐going Climate Change Summit 2009 discussions for restricting carbon emissions.

The Challenges to Managing Growth of Infrastructure: What is needed?

1. Innovative Approaches to Project Finance Encourage public private partnerships (PPPs) to raise additional financing.

Encourage investment by pension funds and other large institutional investors.

Make greater use of user charges for funding infrastructure.

Diversify and expand traditional revenue-raising sources.

Explore the funding possibilities offered by land value capture.