The year that was.
The government tried to further offset the wind chill of the downturn when it announced second round of fiscal stimulus package in a bid to encourage the slowing economy. It included relaxed external commercial borrowings (ECB) norms and also allows India Infrastructure Finance Company (IIFCL) to access an additional Rs 300 billion by tax-free bonds in order to finance projects worth Rs 75,000 crore over next 18 months. The package announced in coordination with the central bank freed overseas borrowing norms from interest rate caps that were fixed to the London Interbank Offered Rate (Libor).
The government announced plans to invest Rs 100,000 crore in the infrastructure sector over the next two years and asked IIFCL to put together a corpus of over Rs 40,000 crore to fund the investment. This scheme aimed to take up infrastructure projects under public-private partnership (PPP) with minimal private investment by allowing a private sector company to start an infrastructure project with just 15 per cent of the required capital and the balance will be provided by government-owned agencies. The scheme awaits approval from the Central Board of Direct Taxes for tax exemption to the subscribers; it also needs a sovereign guarantee to the bonds from the government. IIFCL will be able to assist infrastructure projects of over Rs 100,000 crore.
Indians only, please
A massive order for supercritical power equipment worth an estimated Rs 21,000 crore was announced to be bid, providing a major stimulus to the domestic power equipment sector. Firms with domestic manufacturing facilities were the only ones eligible for this bid. The order included demand of nine units from NTPC and two units for Damodar Valley Corporation (DVC) of 660 MW each. The bidding would be for the main plant equipment (boiler-turbine generator). The balance plant equipment (coal handling plants and ash handling plants) worth Rs 15,000 crore would need to be ordered separately. The total value of the orders was over Rs 36,000 crore. BHEL, L&T, in a joint venture with MHI, JSW in a venture with Toshiba, Bharat Forge with Alstom and Ansaldo with GB Engineering were some of the firms eligible for this bidding.
Roads chug on!
The Ministry of Statistics and Programme Implementation declared that the infrastructure sector performed better than the previous year, with the exception of fertilizers, crude oil, import cargo handled at major airports, and passengers handled at domestic terminals of international airports. The growth rates in respect of coal and highway upgradation by NH(O) and BRDB were higher than those during 2007-8. The growth rates decreased in the other sectors, however. The National Highways Authority of India (NHAI) built or widened 2,203 km of roads, 37.4 per cent lower than the target.
Infrastructural requirements are likely to be worth $90 billion by 2011-12. Keeping this in view, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) suggested the creation of an Infrastructure Financing Fund through which states and central departments can access projects financing. In a note submitted to the Planning Commission and RBI, DS Rawat, secretary general of ACOCHAM proposed that states and centre together should pool their resources to set up such a fund exclusively to cater the requirement of infrastructure financing. The note said PPP should be strengthened in a manner between state owned financial institutions and those in private sector so that the latter can pump in the projected $30 billion investment towards infrastructure projects.
Speculative sigh of relief?
The economy showed signs of early recovery from the global economic meltdown as recent statistics indicated, thanks to the governments stimulus measures. Indias industrial production increased at the fastest pace in 16 months in June. The Indian government said that the countrys industrial output in April grew 1.4 percent from the same month last year. The figure was also a significant hike from Marchs 0.75 percent. The government issued bonds of 2 billion dollars for infrastructure projects to finance the construction of highways and sea ports, loosened controls over bond investment by overseas companies in the Indian currency of rupee, allowed realty developers to draw money from abroad for urban projects, and facilitated re-financing activities by small and medium-sized enterprises.
The Ministry of Urban Development (MUD) asked the centre for an additional outlay of Rs 50,000 crore for the ministrys most successful mission, Jawaharlal Nehru National Urban Renewal Mission (JNNURM), so that they could cover more 28 cities under their development plan. According to S Jaipal Reddy, Urban Development Minister, out of the enhanced outlay of Rs 50,000 crore the Centre would pitch in Rs 25,000 crore, the states and urban local bodies would need to raise the balance. He further added that though the Centres assistance was linked to reforms, some states were not ready to their reform commitments. He further made an appeal to the states to stick to their commitments.
Despite a woeful monsoon in some of the key parts of the country, the industry continued on its upwards journey, with cement and steel the shining examples. In roads, though, Kamal Nath continued to chug along towards the ambitious target of building 20 km of roads per day on average. This needed much coordination with private players, much explanation on financing, and plenty to do to assuage private sector concerns on model concession agreements (MCAs). The BK Chaturvedi Committee discussed the recommendations on what changes the MCA needed in order to make it more attractive to bidders. The recommendations would prove to be landmark in the ministrys acceptance of them.
China invasion blues
ASSOCHAM recommended to the government that it should enforce import duty on Chinese power equipment, as it believed that these products were hindering the growth of the domestic industry. ASSOCHAM claimed that the domestic manufacturers have lost business opportunities to provide equipment to mega power producers in India upto 50,000 MW in one year. The neighbouring country offers incentives and rebates to its manufacturers for exports and therefore when these goods are imported to India it does not levy customs or other duties, it said. On the other hand Indian equipment, even when offered a deemed export status, attracts duties and taxes of nearly 6 per cent of the equipment cost, it added. The government was inclined to go alonggiven that the largest power equipment maker in India is a PSU.
Sunny side up
A month before Prime Minister Manmohan Singh announced the Jawaharlal Nehru National Solar Mission, the Gujarat government and Clinton Climate Initiative (CCI) announced plans to set up a five-park solar power project in Gujarat with an investment of nearly Rs 50,000 crore. The five parks will be spread over 5,000 hectare to be made available by the government in Banaskantha, Patan, Surendranagar and Kutch districts. The state government would facilitate identification of land and create the infrastructure for setting up the solar power plants in co-ordination with CCI. It would invite national and international developers to set up these plants on chargeable basis for the infrastructure created. The power produced by these plants would be purchased by the state power utilities.
Takeout on the menu
IIFCL announced its take-out financing proposal, and said that it will enter into agreements with banks to take over some of their infrastructure loans on its books. Take-out financing will help banks address the issue of asset-liability mismatch by allowing them to transfer the loans to IIFCL after the stipulated duration. The total duration of an infrastructure loan would be decided on case-by-case basis. IIFCL suggested that banks get into an agreement with the institution at the time of extending such loans.
Infra as we dont know it
Yet another innovative measure could add to infrastructure funding opportunities, if the Insurance Regulatory Development Authority (IRDA) has its way. The regulator would like to include EPC, cement and steel under the definition of infrastructure. If this happens, the insurance industry could generate an annual premium income of Rs 800,000 crore by the end of the next decade. EPC companies and others such as Larsen & Toubro (L&T) and Bharat Heavy Electricals (BHEL), which are involved in development of a project, should be included in the new definition. IRDA aimed at enabling insurers to get access to more papers to invest in and diversify their portfolio. Under the existing guidelines, life insurance companies can invest up to 15 per cent of their investible corpus in papers issued by power, roads, ports, dams, housing and construction companies or projects.
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