Challenges in Building the 21st Century Infrastructure Jugaad to Management

Presented By:

Himadri Banerji

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Infrastructure 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 Projections

Planned Infrastructure Investments: India

Target vs. Actual A Visible Gap

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

India s informal system of jugaad allows counterparties to a project to recognize the systemic problems affecting most infrastructure projects and evolve workable solutions on a case-by-case basis (whereas in other case-bydeveloped markets, such situations may be deemed as contractual failures, leading to the collapse of the projects).
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Country Outlook India: Delays in Supply of Infrastructure Common 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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Common Project Risks Continued.

(d) Lack of a strong regime for contract observance and enforcement. (e) Pricing some of the risk elements of past projects into their bids and return expectations for new road projects (f) Traditional Jugaad approach for most of the projects execution

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Scenario : Road & Logistics Sector Projects

Current transportation System: India

Proposed Shift in Logistic Model Mix: India

Investment Challenges in Logistic Growth: India

Expected Freight Traffic Growth: India

Strategy for Balanced Logistic Network

NILP: From Strategy to Implementation

Strategy for Balanced Logistic Network

Model Mix for Balanced Strategy: Logistic India

Model Mix for Balanced Strategy: Logistic India

Model Mix for Balanced Strategy: Logistic India M

Logistic Equipment Improvement for Value Creation

Budgetary Reallocation for Improved Strategy

Rail Budget Reallocation

Road Budget Reallocation

Balanced Model Approach: Logistics

Scenario : Power Sector Projects

Five Yr Plan: Power Production Target Vs achievements

Region Wise: Power Generation and Peak Deficit

Eastern Regions Status

Western Regions Status

Region Wise: Power Generation and Peak Deficit

North- Eastern Regions Status

Southen Regions Status

RegionRegion-wise Installed Generating Capacity: India

Electricity Demand Projections: India

Electricity 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.

NHAIs 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.