Bank

SUMMER TRAINING REPORTon

INVESTMENT OPPORTUNITIES IN INDIAN INFRASTRUCTURE SECTOR - 2017

RELIGARE CAPITAL MARKETS LIMITED

Submitted in partial fulfilment of the requirements of the two year Post Graduate Programme (PGP).

Submitted by

Pranay Vashistha

Roll No: PG20095637Batch: 2009-2011

Submitted to

S. Das

IILM Institute for Higher Education

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DECLARATION FORM

I hereby declare that the Project work entitled, INVESTMENT OPPORTUNITIES IN INDIAN

INFRASTRUCTURE SECTOR - 2017 submitted by me for the partial fulfillment of the Post Graduate

Program (PGP) to IILM Institute for Higher Education, is my own original work and has not been

submitted earlier either to IILM or to any other Institution for the fulfilment of the requirement for any

course of study. I also declare that no chapter of this manuscript in whole or in part is lifted and

incorporated in this report from any earlier / other work done by me or others.

Place : GURGAON

Date :

Signature of Student:

Name of Student: PRANAY VASHISTHA

Address: B – 58, Indira Vihar colony, seepat road,

SECL (HQ), Bilaspur (C.G.)

Pin: 495006

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CERTIFICATE

I hereby declare that the project entitled “INVESTMENT OPPORTUNITIES FOR INDIAN INFRASTRUCTURE SECTOR - 2017” is the bonafide work carried out by PRANAY VASHISTHA student of MBA (PGP 09-11), during the year 2010, in partial fulfillment of the requirements for the award of the Diploma of MBA (Finance) and that the project has not formed the basis for the award previously of any degree, diploma, associates ship, fellowship or any other similar title.

Signature of the Guide:

Place:

Date:

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ACKNOWLEDGEMENT

Sometimes words fall short to show gratitude, the same happened with me during thisproject. The immense help and support received from Religare Securities Limitedoverwhelmed me during the project.I owe a great many thanks to a great many people who helped and supported me during this project.I am also thankful to the other staff members of Religare securities for their continuous Motivation throughout this program, which really helped me in completing this project.

My deepest thanks to Lecturer, S. DAS the Guide of the project for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed.

I express my thanks to the Dean of, IILM INSTITUTE FOR HIGHER EDUCATION GURGAON, for extending her support.

My deep sense of gratitude to SUNIL THAKUR (SR. VICE PRESIDENT), INVESTMENT BANKING, RELIGARE CAPITAL MARKETS LIMITED (RCML) support and guidance. Thanks and appreciation to the helpful people at RELIGARE CAPITAL MARKETS LIMITED (RCML), for their support.

I would also like to thank my mentor at the company, VIKAS MALPANI for his continuous guidance throughout the project work and all his valuable inputs and advices being given as and when asked for.

I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

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ABSTRACT

This thesis provides an analysis of the Investment opportunities in the Indian Infrastructure Sector for 2017. It also highlights the shortcomings and challenges India is facing because of lack of legislation, policy failures, Infrastructure limitation, and operational deficiencies and suggests measures for improving efficiency and operation. It gives a brief overview of the country profile and its growth story. The thesis depicts the calibrated globalization process through changing reforms. It also shows the decadal GDP growth pattern and Y – o – Y IIP growth rates. It also shows the macro – economic stability of the country along with the increasing trends of FDI inflows into the country. The presentation also highlights the positive points about India that often attracts huge investments with cost competitiveness, large intellectual capital base and natural factor endowment to name a few. Untapped market potential, an outlook of the Indian economy and the trade scenario are also some of the eye-catching topics discussed in the presentation. A detailed comparison with other nations regarding FDI inflows into the sector is done. Comparison of investment inflows through various five year plans is shown. PPP investments on infrastructure sector are given thrust upon. The demand, supply and the gap between the two regarding infrastructure spending on four major sectors viz. Power, Roads and Highways, Railways, Irrigation and Gas is being clearly depicted. A significant interest from the private sector is clear from the presentation. Major infrastructure projects and active participation of the government in these is also visible. Expected investments in the above mentioned sectors till 2017 have also been covered by the thesis. Vision 2020 for Indian Railways also included. Major Port profiles and their comparison with their counterparts in the developed nations has also been glanced through. Ports traffic forecast, revenues, operating expenses, investment opportunities, competitive position, recommended Organization structure, vision, goals and strategy, Port planning, and SWOT analysis has been analyzed through. Lastly, Indian economy by 2050 has also been discussed.

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TABLE OF CONTENTS

DECLARATION ………………………………………………... 2

CERTIFICATE ………………………………………….............. 3

ACKNOWLEDGEMENT ………………………………………. 4

ABSTRACT ………………………………................................... 5

TABLE OF CONTENTS ………………………………………... 6

1. INTRODUCTION …………………………………….. 7

2. REVIEW OF LITERATURE ………………………... 13

3. OBJECTIVES ……………………………………….. 14

4. RESEARCH DESIGN/ METHODOLOGY ………… 15

5. DATA ANALYSIS & INTERPRETATION ………... 20

6. FINDINGS/ CONCLUSION ………………………... 86

7. REFERENCES ……………………………………… 87

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1. INTRODUCTION

COMPANY PROFILE

ORGANIZATION HISTORY

RCML was incorporated on 9 February 2007 under the Companies Act 1956 of India and received its certificate for the commencement of business on 14 March 2007. RCML engages in the business of investment banking including merchant banking, transaction advisory services and corporate finance, and in addition, REL is in the process of transferring the institutional broking business which is currently carried out by Religare Securities Limited to RCML. RCML is a subsidiary of REL, a company listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited. The acquisition of Hichens is being done through Religare Capital Markets International (UK) Limited which is a 100% subsidiary of Religare Capital Markets International (Mauritius) Limited, which in turn is a 100% subsidiary of Religare Capital Markets Limited.

Religare Capital Markets Limited (RCML), a wholly owned subsidiary of the Company acquired Hichens and Harrisons & Co. Pic, United Kingdom. (Subsequently name changed to Religare Hichens, Harrisons & Co. Pic.) Which was a listed entity on AIM, London, stock exchange. The acquisition was made by way of an open offer by Religare Capital Markets International (UK) Limited (RCML UK) a wholly owned SPV company formed for the purpose by Religare Capital Markets International (Mauritius) Limited (RCML Mauritius) which became a wholly owned subsidiary of RCML on April 9, 2008. The open offer given by RCML UK was declared unconditional on May 23,2008 to all the existing shareholders of Hichens, Harrisons & Co. Pic. Ltd @ GBP 2.85 per share amounting to a total consideration of approximate GBP 55.50 millions, equivalent to Rs 46,828.10 lacs (1 GBP= Rs 85.1422). As on March 31,2009, the Company has acquired/paid for 100% of the issued capital of Religare Hichens, Harrisons & Co. Pic. The name of company has changed to Religare Hichens Harrison, Pic

VISION & MISSION

The vision is to build Religare as a globally trusted brand in the financial services domain and present it as the ‘Investment Gateway of India’. All employees of the group, currently more than 10,000 in number, ceaselessly strive to provide financial care driven by the core values of diligence and transparency.

The mission of the company is to help their clients achieve their goals of maximizing return on their investments.

STRUCTURE

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Religare Capital Markets Limited (RCML), a wholly owned subsidiary of the Company acquired Hichens and Harrisons & Co. Pic, United Kingdom. (Subsequently name changed to Religare Hichens, Harrisons & Co. Pic.) Which was a listed entity on AIM, London, stock exchange. The acquisition was made by way of an open offer by Religare Capital Markets International (UK) Limited (RCML UK) a wholly owned SPV company formed for the purpose by Religare Capital Markets International (Mauritius) Limited (RCML Mauritius) which became a wholly owned subsidiary of RCML on April 9, 2008. The open offer given by RCML UK was declared unconditional on May 23,2008 to all the existing shareholders of Hichens, Harrisons & Co. Pic. Ltd @ GBP 2.85 per share amounting to a total consideration of approximate GBP 55.50 millions, equivalent to Rs 46,828.10 lacs (1 GBP= Rs 85.1422). As on March 31,2009, the Company has acquired/paid for 100% of the issued capital of Religare Hichens, Harrisons & Co. Pic. The name of company has changed to Religare Hichens Harrison, Pic

b. Pursuant to SEBI vide its letter number IMD/MS/145863/08 dated November 26, 2008 approving the acquisition oi controlling interest by Religare Securities Ltd (RSL), a subsidiary of the Company has acquired 100%of the issued share capital of M/S Lotus India Asset Management Company Private Limited and Lotus India Company Private Limited (now known as Religare Asset Management Company Private Limited, "RAMCPL" and Religare Trustee Company Private Limited, "RTCPL" respectively ) during the year. Consequently both the companies have became wholly owned subsidiary of the company as on Dec 4, 2008 of Religare Securities Limited.

c. Religare Arts Investment Management Limited (RAIML) incorporate as April 16, 2008 as a subsidiary of Religare Arts Initiative Limited (RAIL), wholly owned subsidiary of the company, RAIML shall be engaged in the business of organizing, operating and managing collective investment schemes relating to the art, inter alia including paintings, sculptures, antiques, artistic value or any other intrinsic value.

d. Subsequent to the Balance Sheet Date, Religare Venture Capital Limited, wholly owned subsidiary of the company entered into a joint venture agreement with Milestone Fincap Services Private Limited, through formation of a joint Venture company namely "Milestone Religare Investment Advisors Private Limited" with equal equity participation of 50% by each JV partners in the share capital of the JV entity for managing a Rs.600 crore Healthcare and Education Fund to be raised domestically.

e. Subsequent to the Balance Sheet Date, Religare Enterprises Limited vide share purchase agreement dated May 28, 2009 has agreed for acquisition of part holding from an existing share holder and subscription to additional share capital in Maharishi Housing Development Finance Corporation Limited ("MHDFC"), to the effect that total share holding of the company will finally become 87.5 % of expanded equity capital of MHDFC and thereby MHDFC becomes subsidiary of the company.

The Company has subscribed one equity share of VRCAL and also contributed Rs. 2,500,000 upto March 31, 2008 towards share application money (pending allotment) as on that date. Further amount of Rs. 17,499,408 was contributed by the Company on April 10, 2008. For the

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above contribution including share application money, the Company was allotted 96,152 number of equity shares of Rs. 10 each at a premium of Rs. 198 per share on June 11, 2008 as per terms of the agreement. Subsequent to the Balance Sheet Date, the company acquired 46,153 equity shares of Rs.10 each representing 24% of the total paid up share capital of VRCAL from VEPL. Consequently with effect from April 17, 2009, VRCAL became a subsidiary of the company; the Company and VEPL are holding 74% and 26% of total paid up share capital VRCAL, respectively.

i) The company and Aegon International N.V. ("Aegon") entered into a JV agreement on December 28, 2008 to participate in the India Mutual Fund Asset Management Business through a trustee company and an asset management company of a mutual fund. Pursuant to the terms of the Aegon JV agreement, Religare Aegon Asset Management Company (P) Limited ("RAAMCPL") and Religare Aegon Trustee Company (P) Limited ("RATCPL") were established as the asset management company and the trustee company respectively, Religare Aegon Mutual Fund.

The JV agreement between our company and Aegon N.V. in relation to Religare Aegon Asset Management Company was terminated pursuant to a sale and termination agreement (STA) dated February 25, 2009. Pursuant to STA, RSL has agreed to sell, subject to receipt of necessary approvals, its entire stake in RAAMCPL consisting of 25,000,000 equity shares of Rs.10 each, to AEGON India Holding B.V. or its nominee at par value and to Hospitalia Eastern (P) Limited, in an equal ratio. RSL has also agreed to sell its entire stake in RATCPL consisting of 25,000 equity shares of Rs.10 each to AEGON India Holding B.V. or its nominees at par value. At per the STA, the aggregate consideration agreed by RSL for the transfer to Aegon India Holding B.V. or its nominee is Rs.125, 250,000.

ii) Subsequent to the Balance Sheet Date, Religare Enterprises Limited ("Religare") and Swiss Reinsurance Company ("Swiss Re") have signed a non-binding agreement for formation of a Joint Venture health Insurance company in India. Whereby the company will hold 74% stake in JV company.

LEADERSHIP

Religare provides the leadership to drive and build out further on rapidly growing Investment Banking and Institutional Securities businesses in India. The experience and credentials that the executives bring to Religare are in perfect alignment with its goals and ambitions. The addition of top class executives to our team is a significant step in reaffirming our commitment towards creating a market leading emerging markets focused global Investment Banking and Institutional Securities platform.

CONSTITUENT UNITS/ DEPARTMENTS

Religare Capital is an investment bank offering services such as Capital Markets Transactions, Private Equity Syndication, and Debt Syndication to corporate and retail investors. Religare Capital has strong research capabilities and relationships which it leverages to close transactions for its clients in aggressive time frames.With a strong Indian presence and global relationships,

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Religare Capital has been an investment bank of choice both for international investors and companies who are scouting for business opportunities in India and Indian companies looking at strategic initiatives in overseas markets.

ABOUT THE PROJECT

INTRODUCTION

Indian Economy

The best barometer of country’s economic standing is measured by its GDP. India, the second most populated country of more than 1100 million has emerged as one of the fastest growing economies. It is a republic with a federal structure and well-developed independent judiciary with political consensus in reforms and stable democratic environment .In 2008-09 India’s economy-GDP grew by 6.5% due to global recession. In the previous four years, economy grew at 9%.The Indian economy is expected sustain a growth rate of 8% for the next three years up to 2012. With the expected average annual compounded growth rate of 8.5%, India's GDP is expected to be USD 1.4 trillion by 2017 and USD 2.8 trillion by 2027. Service sector contribute to 50% of India‘s GDP and the Industry and agriculture sector 25% each.The robust current growth in GDP has exposed the grave inadequacies in the country’s infrastructure sectors. The strong population growth in India and its booming economy are generating enormous pressures to modernize and expand India’s infrastructure. The creation of world class infrastructure would require large investments in addressing the deficit in quality and quantity. More than USD 475 bn worth of investment is to flow into India’s infrastructure by 2012. No country in the world other than India needs and can absorb so many funds for the infrastructure sector. With the above investments India’s infrastructure would be equal to the best in the world by 2017.In the next five years planned infrastructure investment in India in some key sectors are (at current prices): Modernization of highways -US$ 75 billion, Development of civil aviation US$ 12 billion, Development of Irrigation system- US$ 18 billion, Development of Ports-US$ 26 billion, Development of Railways- US$ 71 billion, Development of Telecom- US$ 32 billion, Development of Power -US$ 232 billion. Thus in the eleventh five year plan ,investment in the above sectors (Aviation infrastructure ,Construction infrastructure, Highway infrastructure ,Power infrastructure, Port infrastructure ,Telecom infrastructure ) will be US$ 384 billions(Rs 17,20,000 Cores) considering the huge infrastructure market potential in India. In addition to the above, investments to the tune of  US$ 91 billions have been planned in other infrastructure sectors like Tourism infrastructure  ,Urban infrastructure ,Rural infrastructure, SEZs ,and water infrastructure and sanitation infrastructure  thus making the total infrastructure investments in the eleventh plan period 2007-08 to 2011-12 as US$475 billions. Domestic and global infrastructure funds have exposure to Indian infrastructure sectors.The creation of world class infrastructure would require large investments in addressing the deficit in quality and quantity. , it is necessary to explore the scope for plugging this deficit through Public Private Partnerships (PPPs) in all areas of infrastructure like roads, ports, energy, etc. Given the risks involved in large projects the government has realized that only public sector involvement with central government development assistance for infrastructure projects is not adequate to meet the challenge. Recognizing the imponderable risks, which infrastructure

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projects entail, with long gestation periods, high costs and budget constraints, the government has proposed a flexible funding scheme, which will find support from budgetary allocation to fund public-private-partnerships (PPPs) for infrastructure projects. The government has proposed India Infrastructure Finance Company and formulated a scheme to support PPPs in infrastructure. As part of this scheme, PPP opportunities are to be awarded through competitive bidding in a transparent manner and for each project, performance is to be assessed against easily measurable standards, based on unambiguously defined criteria, in order to inspire confidence amonginvestors. Recently, legal and regulatory changes have been made to enable PPPs in the infrastructure sector, across power, transport, and urban infrastructure. For example, the Electricity Act allowed for private sector participation in the Distribution of electricity in specified area(s) of the distribution licensees under the role of a “franchisee”. The recognition of the franchisee role is a significant step towards fostering PPP in the distribution of electricity. In some cases, the impact of private sector involvement in terms of end-user benefits has been felt almost immediately. A case in point is the initial Build-Operate-Transfer (BOT) experience at Jawaharlal Nehru Port, where the Minimum Guaranteed Traffic requirement at the end of 15 years, identified as part of the concession agreement, was met in just 2 years. The experiment is being replicated across other major ports as well.The Government of India has announced a pragmatic “SEZ” policy, which offers several innovative fiscal and regulatory incentives to developers of the SEZs, as well as the units within these zones. Each SEZ is treated as a foreign territory and units located in it are not subject to either customs tariffs or domestic duties. Sales to Domestic Tariff Areas are permitted, subject to payment of applicable customs duties and import policies in force. Inputs, whether imported or sourced domestically, are free of any taxes. So are exports made from a SEZ. The only requirement is that the SEZ and the units located within it are positive foreign exchange earners. This offers foreign companies tremendous opportunities for taking full advantage of Indian strengths in doing business in India. This could be either as the developer of the SEZ or as a unit in a SEZ or both. Presently, the board of approvals for the SEZs granted formal approvals for 340 SEZs. These 339 SEZs today have lands for development. It is widely expected that the Special Economic Zones approved for various parts of the country, once implemented, would contribute substantially to India's exports and would help connecting the missing links in manufacturing. These zones aim at providing an internationally competitive and hassle free business environment for promotion of exports.

RATIONALE BEHIND CHOOSING THE PROJECT

The huge investments by the Government of India on development of infrastructure in the country has resulted in a positive spillover effects on the economy by triggering growth in other sectors like manufacturing and service sector and helped in sustaining India’s growth rate in compared to rest of the world. The investment in infrastructure in India has increased from 4.9% of the GDP in 2002 – 03 to 6% last fiscal. The Union Budget 2010 – 11 has allocated USD 37 billion for infrastructure up gradation in both rural and urban areas. This amounts to over 46% of the total plan allocation for infrastructure development in the country. As per the Budget Estimates, disbursements by the Indian Infrastructure Finance Company Ltd (IIFCL), established by the government to extend long – term financial assistance to infrastructure projects, are expected to touch Rs 9, 000 crore by end – March 2010 and Rs 20, 000 crore by March

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2011.India’s Government is planning a US$ 354 billion investment in infrastructure sector by 2012, with another US$ 150 billion expected to come from the private sector, according to the latest report by PwC projected investing under the 11th Five Year Plan (FY07 – 12) should see the electricity (US$ 167 billion), rail (US$ 65 billion), roads & highways (US$ 92 billion), ports (US$ 22 billion) and airports (US$ 8 billion) sectors receive a total of US$ 354 billion. India is expected to expand at 8% in 2010, the fastest among major economies in the world, and 8.5% the year after, matching China’s growth rate, according to the World Bank. An estimated US$ 500 billion is required by 2012 to upgrade India’s infrastructure.With a growing economy and a two digit growth expected over the next four years, infrastructure sector would require a lot of growth and the right amount of incentives. The Budget 2010 – 11 has addressed the infrastructure problems with number of allocations as per the various aspects of the sector.

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2. REVIEW OF LITERATURE

The report basically focuses on the key investment opportunities in the Indian infrastructure sector. This includes the recent data collected from the Indian infrastructure monthly magazine and from the websites on the internet. A detailed analysis of the data collected revealed an enormous investment opportunity in the sector with participation from both the government and private sectors. But, out of the two, the Private sector is found out to be bullish on the sector in the near future. In all the project describes the research methodology used and sources for every data collected is mentioned.

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4. OBJECTIVES

The objective of the report is to explore a new world of investment opportunities in the Indian Infrastructure sector which had been left untouched and unseen for millions of years. Some of the developed nations like USA, Japan, UK etc. identified the great hidden potential in this sector very early and invested intelligently through the infrastructure projects planned. The result of such an exploration is in front of us today. These nations are called as developed nations and we are still with the same tag of developing nation. Hence, the purpose of the project is attracting the hungry investors to such a large, diversified and an unexplored opportunity.

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4. RESEARCH DESIGN/ METHODOLOGY

RESEARCH PROCESS

RESEARCH OBJECTIVES

Rapid economic growth has increased the burden on India’s infrastructure, one of the countries weak spots. An infrastructure deficit is widely considered to be one of the factors that could severely impede India’s economic growth. In the past few years, policy makers have recognized this and have made concreted efforts to accelerate infrastructure development. The main objective of the research is to identify exactly the amount in US$ billion that will be required by each of the mentioned infrastructure sectors covered in the project viz. Power, Railways, Roads & Bridges, Ports & Shipping, Airports and Irrigation by 2017 and exactly depict the sum total of the entire investment amount from addition of the amounts of each of the above sectors.Much progress is evident in sectors like telecommunications, roads, airports & ports. But the power sector continues to lag behind despite the introduction of progressive measures. Shortages, tarrifs and the dependence on imported fuels are on the rise, while the poor health of distribution continues to inhibit the inflow of investments. Unless this changes India’s economic growth will be at risk.The report discusses the challenges in implementing infrastructure projects in India and outlines several steps that government, nodal agencies and infrastructure providers can take to accelerate the delivery of world – class infrastructure.Another objective of the report is to clearly identify inefficiencies in infrastructure that impedes growth ie. If current trends continue over the 11th & 12th plan periods (2008 to 2017), Mckinsey estimates suggest that India could suffer a GDP loss of USD 200 billion (around 10% of its GDP) in fiscal year 2017. In terms of GDP growth rate, this would imply a loss of 1.1% points.In addition, India’s economy could lose up to USD 160 billion in 2017, by forgoing the industrial productivity impact of infrastructure. However there is no conclusive approach for estimating the value of such productivity impact, and hence it is not included in the estimates of GDP loss, which is pegged at USD 200 billion.

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5. DATA ANALYSIS & INTERPRETATION External Trade With Other Countries During 2007 – 08 and 2008 – 09

Region Exports (April - Feb) Imports (April - Feb)

2007 – 08 2008 – 09(P) 2007 – 08(P) 2008 – 09(P)

1.. Europe 1, 33, 151 1, 65, 925 1, 75, 335 2, 23, 813

1.1 EU countries 27 1, 23, 219 1, 55, 266 1, 27, 315 1, 61, 593

1.2 Other WE countries 9, 553 10, 123 47, 881 62, 115

1.3 East Europe 379 536 138 106

2. Africa 38, 062 44, 922 51, 519 60, 151

2.1 Southern Africa 13, 058 12, 393 17, 868 29, 377

2.2 West Africa 12, 851 13, 204 35, 614 48, 514

2.3 Central Africa 934 1, 372 189 632

2.4 East Africa 15, 126 18, 687 1, 158 1, 158

3. America 98, 900 1, 14, 966 79, 780 1, 21, 381

3.1 North America 79, 880 89, 476 56, 281 80, 825

3.2 Latin America 10, 019 45, 490 23, 498 40, 556

4. Asia & Asean 2, 96, 287 3, 57, 982 5, 43, 551 7, 39, 622

4.1 East Asia 5, 070 6, 719 30, 783 40, 230

4.2 ASEAN 56, 663 75, 357 82, 289 1, 06, 418

4.3 WANA 1, 08, 920 1, 44, 039 2, 58, 645 3, 56, 716

4.4 NE Asia 92, 974 96, 848 1, 64, 030 2, 28, 746

4.5 South Asia 32,659

35, 020 7, 805 7, 513

5. CIS & Baltics 6, 101 7, 623 14, 238 28, 793

5.1 CARs Countries 826 1, 047 419 1, 157

5.2 Other CIS Countries 5, 275 6, 577 13, 818 27, 636

6. Unspecified Region 1, 482 4, 346 2, 666 4, 710

Total 5, 77, 889 6, 96, 498 8, 70, 399 11, 98, 360

Source: National Portal Content Management Team, Reviewed on: 21-04-2010

FDI Inflow in India

CUMULATIVE FDI EQUITY INFLOWS (equity capital components only):

PeriodCumulative FDI Inflows

(Rs Crores)Cumulative FDI Inflows (USD million)

April 2009 – Oct 2009 Rs. 85, 273 crore US$ 17, 644 million

April 2000 – Oct 2009 Rs. 4, 78, 399 crore US$ 1, 07, 484 million

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Aug 1991 – Oct 2009 Rs. 5, 39, 004 crore US $ 1, 24, 184 million

From the above figures it is clear that India has become a very attractive destination for FDI inflows from the foreign investors and is continuously rising in their eyes. The year – wise FDI Equity inflows in USD million is highest in 2008 – 09 and falls rapidly to 17, 644 level in the following year because of the global economic slowdown that hit every country in the world badly. India survived through the crisis very smoothly and has emerged out of the same strongly in comparison to many other developed nations because of the intelligent economic policy being implemented by the government.The top investing countries investing heavily in India are Mauritius followed by Singapore then USA, UK, Netherlands, Japan, Cyprus, Germany, France and UAE in decreasing order and the decreasing order in which the sectors of India are attracting highest FDI Equity in USD million are: Services Sector followed by Computer Software & Hardware then Telecommunications, Housing & Real Estate, Construction Activities, Power, Automobile Industry, Metallurgical Industries, Petroleum & Natural Gas and Chemicals.

The percentage contribution of the Petroleum & Natural Gas sector has decreased, Chemicals sector for the same has decreased, Metallurgical Industries sector for the same has decreased, Power sector for the same has increased, Automobile Industry for the same has increased, Computer Software & Hardware sector for the same has decreased, Construction Activities sector for the same has increased, Telecommunications sector for the same has increased, Housing & Real Estate sector for the same has increased, Services sector for the same has reduced and for Other sectors has also increased. This change is again because of the global economic slowdown or recession that hit the world in FY2008. Many people were thrown out of employment and hence the purchasing power of the consumers was reduced due to the fear of recession.During the start of FY97, the introduction of the policy liberalization in the Telecommunications, Infrastructure & Insurance sectors caused the average annual inflows to double to US$ 4 billion between 2000 & 2005.From 2005 onwards, further liberalizations including

(i) The opening up of the Real Estate sector to FDI.(ii) The raising of the Telecom Equity capital to 74%

and a variety of sectoral policy reforms triggered another upward shift in FDI flows. Inflows rocketed to US$ 20 billion in 2006, further doubling to US$ 42 billion in 2008 that transformed India into the world 13th largest host to FDI globally.The contribution of Services sector to the entire pie during FY09 has increased by 44% in comparison to the FY00 whereas the major contributor to the pie which was the manufacturing sector lost its share by 18%, Primary sector (mainly Mining & Petroleum) gained its share in the pie by 8% and the other sectors share also fell drastically by 34% in FY09 in comparison to the same in FY00.

Excluding Mauritius, Singapore is currently India’s largest inward foreign direct investor, accounting for 17% (US$ 9 billion) of the cumulative post FY00 inflows.

The United States of America (USA) follows with 14% (US$ 7.6 billion) and United Kingdom (UK) with 10% (US$ 5.5 billion).

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Other key investors are the Netherlands, Japan, Germany, France and the United Arabian Emirates (UAE). Singapore is also the largest host to the cumulative Indian outward FDI, followed by Netherlands, the United States of America (USA), Mauritius and the United Kingdom (UK).

FDI liberalization in the Real Estate sector expanded the UAE inflows from US$ 0.75 million in FY00 to US$ 239 million in FY08.

Similarly, Malaysian firms are now very active in Highway and Urban water projects. The Bilateral investment treaty projection and economic cooperation agreements have

also played a role. According to the government’s FDI data, Singapore’s investment stock tripled after its

Comprehensive Economic Cooperation Agreement (CECA) with India in 2005. One – third of the post – 2000 inflow is invested around Mumbai, a manufacturing hub,

and 1/5th around Delhi, a services hub. Ahmedabad, Bangalore, Chennai & Hyderabad are other key destinations.

80% of post – 2000 FDI inflows have been in the form of Greenfield investments The average investment size also quadrupled from US$ 9 million US$ 34 million over

this period. While the largest recent Greenfield investments & M&As focus on telecommunications ,

energy and pharmaceutics/healthcare In India, all except four sectors are open to FDI, and most investors no longer need to

seek investment approvals. Furthermore, current A/C transactions are now completely convertible

But, equity caps remain in strategic sectors such as telecommunications, insurance, banking, airlines and media & broadcasting for national security reasons

The CEOs have consistently ranked India as the world’s top 3-5 preferred investment destinations in recent global surveys.

Although the global crisis has slowed the rate of FDI growth into India in 2009, it has reinforced India’s position in global investor perceptions.

Most global firms found that their Indian & Chinese operations considerably outperformed their developed market investments, they now accord even greater strategic value to these two destinations.

FDI is prohibited in multi – brand retailing, it is permitted upto 51% of equity in single – brand retailing.

Similarly, 100% FDI is allowed in horticulture, floriculture, animal husbandry, pisciculture, and seed development, as also in tea plantations, on a case – by – case basis.

In 2009, the 24% cap on FDI in small enterprises (with capital expenditure of up to US$ 1 million) was also raised to 100%.

Clearances are required for projects in which An industrial license is required. The foreign collaborator has an existing local joint venture in the same sector. The local joint venture is defunct, or “sick” as defined by Indian law. The investments are being made by a venture capital fund.

There are still some restrictions on capital A/C transactions.

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FDI Inflows in India – Statistics (source: UNCTAD World Investment Report 2009)

India: Inward FDI Stock, 2000, 2008, 2009 (US$ billion)Economy 2000 2008 2009

India 18 123 169

Memorandum: comparator countries

Brazil 122 288 -

China 193 378 -

Russia 32 214 -

Singapore 111 326 -

India: Inward FDI Flows in Comparison, 2000 – 2009 (US$ billion)

Economy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009India 2.3 3.4 3.5 4.3 5.3 6.7 20.3 25.1 41.6 27.0

Memorandum: comparator countriesBrazil 32.8 22.5 16.6 10.1 18.2 15.1 18.8 34.6 45.1 22.8*

China 40.8 46.9 52.7 53.5 60.6 72.4 72.7 83.5 108.3 90.0*

Russia 2.7 2.5 3.5 8.0 11.7 12.8 29.7 55.1 70.3 41.4*

Singapore 12.5 11.0 5.8 9.3 16.1 15.0 27.7 31.6 22.7 18.3*

India: Inward FDI Flows, 1991 – 1999 (US$ billion)Economy

1991 1992 1993 1994 1995 1996 1997 1998 1999

India 0.2 0.3 0.6 1.0 2.1 2.5 3.6 3.4 2.4

Investment Opportunity in Indian InfrastructureIndian Infrastructure > US$500 billion Opportunity The Indian infrastructure investment has been planned at US$ 500 billion in the 11 th five – year plan which is about 136% increase over the 10th plan and this will continue in the 12th plan with estimated expenditure of US$ 1000 billion.The private sector is also expected to contribute around 41% of the total infrastructure planned. Significant steps are being taken by the government to improve infrastructure with a major thrust given on Power, Roads & Highways, Railways and Irrigation.The factors that have made the need for improved infrastructure more apparent are:

(a.) Economic growth and associated rise in income and personal consumption.

19

(b.) Rising global integration of the Indian economy.The major infrastructure investments (INR in billion) in the past are:

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

1, 230 1, 280 1, 450 1, 450 1, 440 1, 610 2, 040 2, 350 2, 700 3, 215

The segment Wise Infrastructure spending (INR in billion) planned during the 10th and 11th five year plans are:

Electricity

Roads & Bridges

Telecommunication

Railway

Irrigation

Water Supply

Ports Airports

Storage

Gas

10th plan

2, 919 1, 449 1, 034 1, 197 1, 115 648 141 68 48 97

11th plan

6, 665 3, 142 2, 584 2, 618 2, 533 1, 437 880 310 224 169

From the above data it can be found that the infrastructure sector spending has been drastically increased in multiples during the 11th five year plan (2008 – 12) in comparison to the 10th plan (2003 – 07) in all major infrastructure sectors as mentioned above.

Indian Infrastructure > proposed spend on key segments

(a.) Power:

The Lion’s share of planned investment is at INR 6, 665 billion. Approximately 32.4% of the 11th plan expenditure and nearly 2.3 times the 10 th plan amount has been allocated for investment on Power sector during the 11th plan. The Private investment to make upto nearly 28% of the total 11th plan expenditure. Power capacity addition of 78.7 GW is the target for the 11 th plan. The demand – supply gap and government thrust on the sector to drive the growth in the power sector.

(b.) Roads and Highways:

An investment of INR 3, 142 billion is planned for this sector in the 11 th plan. About 15.3% of the total 11th plan spend is targeted for this sector and nearly 2.2 times the 10 th plan amount has been planned for Roads & Highways. Of the above expenditures discussed nearly 66% would be contributed by the Centre and states, 34% would be contributed by the Private Players. Certain targets for the sector are:

20

Targets for the Road & Bridges sector

(a.) 6 – laning of 6, 500 km in Golden Quadrilateral (GQ)

(b.) 4 – laning of 6, 736 km in North South East West (NS – EW) corridor

(c.) 4 – laning of 20, 000 km

(d.) 2 – laning of 20, 000 km

(e.) Building 1, 000 km of Expressways

(c.) Railways:

An investment of INR 2, 618 billion is planned for this sector in the 11th plan. About 12.7% of the total 11th plan spend is targeted for this sector and nearly 2.2 times the 10th plan amount has been planned for the Railways. Of the above expenditures discussed nearly 20% would be contributed by the Private Players as against nil in the 10th plan. Certain targets for the sector are:

Targets for the Railways sector

(a.) Building 8, 132 km of a new railway track

(b.) 7, 148 km of gauge conversion is planned

(c.) Modernization of 22 railway stations is planned

(d.) Construction & Completion of the Dedicated Freight Corridors (DFC)

(d.) Irrigation:

An investment of INR 2, 533 billion is planned for the sector in the 11th plan. Around 12.7% of the total 11th plan spend is targeted for this sector and nearly 2.3 times the 10th plan amount has been planned for Irrigation. Of the above expenditure discussed nearly 90% would be contributed by the Private Players. Government spending to continue in this segment mainly in AP, Gujarat, Maharashtra, Karnataka, UP and MP. Certain targets for this sector are:

Targets for Irrigation sector

(a.) Develop 16 mha major and minor works

(b.) 10.25 mha Command Area Development (CAD)

(c.) 2.18 mha flood control

21

Indian Infrastructure > Significant interest from Private Sector

PPP Model – Significant driver in Infrastructure Investment

Growth in PPP projects in India picked up in recent years with roads and ports leading the way

Sectors (nos.)1-Sep-

071-Feb-

081-Feb-

091-Feb-

10Sectors

(US$mn)1-Sep-

071-Feb-

081-Feb-09 1-Feb-10

Airports 5 5 6 5 Airports 3,949 3,981 4,175 3,981

Energy - - 31 24 Energy - - 3,709 3,565

Ports 27 38 38 43 Ports 6,797 12,601 8,969 13,854

Roads 172 170 187 271 Roads 9,635 9,811 9,949 21,251Urban

development5 5 35 73

Urban development

431 391 1,295 3,185

Railways & Other

3 3 3 34Railways &

Other210 210 210 867

Total 212 221 300 450 Total 21,022 26,995 28,308 46,703

Private Equity Deal in Infrastructure Space

The PE investment is aggregating to US$ 10.6 billion. Looking at the Energy space we find that the PE deals in this sector is highest in FY08, above US$ 1, 000 million and decreases further in FY06, FY09 and lastly, FY07 in the specified order. Looking at the infrastructure segment it’s found that the PE deals in the sector is highest in FY07 and decreases in order for FY06, FY08 and FY09. Throwing light on Telecom part we get that the PE deal in the sector is highest in FY07 and decrease in order for FY08, FY06 and FY09 in the specified order. The PE deals in the Utility sector (US$ in million) is the highest in FY08 and decreases in order for FY07, FY06 and FY09. Looking at the Logistics sector it’s found that the PE deal in US$ million in the sector is highest in FY08 and decreases in order for FY07, FY06 and FY09.

Huge Influx of FDI inflows in Infrastructure SpaceFDI flow into infrastructure

US$ mn FY06 FY07 FY08 FY09Apr-Nov

09Power 87 158 968 985 1,238

Non-conventional energy - 2 43 85 67Air transport 10 92 99 35 14Sea transport 54 73 128 50 274

Ports 1 - 918 493 65Railway related 15 26 12 18 25

Total 167 351 2,168 1,666 1,683

22

FDI inflows aggregating US$ 6 billionThe figures shown in the table above depicts that the FDI inflows into the infrastructure space is Continuously increasing at an increasing rate over the years starting from FY06 to FY09 from Apr – Nov. The FDI inflows into the Power sector are the highest among all other infrastructure sectors viz. Non – conventional energy, Air transport, Sea transport, Ports and Railway related.

Indian Infrastructure > Thrust by Government across Segments

Power and Electricity

• 100% FDI under automatic route for generation of electricity.• Statutory Acts - Electricity Act 2003; Electricity (Amendment) Act 2007; National

Electricity Policy 2006; Tariff Policy 2006; Rural Electrification Policy 2005, New Hydro Policy 2008, Mega Power Projects 2008.

• Power Exchanges – Two power exchanges already operational; in-principle approval already given for third exchange.

• Reorganization of State Electricity Boards – 14 states already reorganized their SEBs under the Electricity Act 2003; remaining are in the process of reorganization.

Roads and Highways

• Public Private Partnership – 117 projects with investment of INR637bn already awarded.

• 81 project of INR763bn have been approved and at different stages of bidding process.• B K Chatruvedi Report - fillip to private sector interest, especially in Roads.• Model Concession Agreements.• Viability Gap Funding (VGF).• Easing financing mechanism.

Railways, Airports and Ports

• PPP in container movement.• Dedicated Freight Corridors (DFC) and Multi-Model Logistics Parks (MMLP).• Model Concession Agreements.• Railway Vision 2020.• Airport Modernisation - 4 Metro airports under PPP mode; 35 non-metro airports

being developed upto world-class standards.• Establishment of Airport Economic Regulatory Authority (AERA).• PPP investment for development of 546 MMT in Ports capacity.• 100% FDI under automatic route for port development.

Other Initiatives

• Committee of Infrastructure.

23

• Cabinet Committee of Infrastructure.• Public Private Partnership Appraisal.

Committee.• Empowered Committee / Institution.• IIFCL.• Tax exemptions for Infrastructure Projects.• Urban Infrastructure - Private Participation in development of water supply, sewerage,

solid waste management, urban transport, metro rail. Major Infrastructure Projects

AIRPORTS

Hyderabad ph – I (EYoC: 2008), where EYoC is Estimated Year of Completion.

Mumbai ph – I (EYoC: 2010). Bangalore ph – I (EYoC: 2008). Delhi ph – I (EYoC: 2010). 35 non – metros (EYoC: 2012).

POWER

Nearly 50% jump (66, 000 MW) in installed base in 5 years (EYoC: 2012).

SEZs

Reliance 2012 – 15. Adani 2015 – 16. DLF 2010 – 15. Unitech 2010 – 15.

ROADS

Rural Roads (EYoC:2008). GQ 6 – laning (EYoC: 2009). NSEW Corridor (EYoC: 2009). NHDP – ph III (EYoC: 2012).

PORTS

Overall capacity to almost double to 800 MT in 6 years (EYoC: 2012).

Further capacity increase planned at Major Ports (EYoC: 2013).

RAIL

24

Freight Corridors planned are Delhi – Mumbai, Delhi – Howrah (EYoC: 2012).

ENERGY

KG Basin Phase – I (EYoC: 2009).

OTHER EVENTS

General Elections (EYoC: 2009). Commonwealth Games (EYoC: 2010). National VAT: Revolutionize Consumer Industry (EYoC: 2010).

Attractive Segments to Invest

Current Status, Growth & Expected Investments – Power Infrastructure in India

Supply and Demand of Power in India during 2004 – 09 is as given below

Power Demand (billion KWh):

2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09

591.4 631.6 690.6 737.1 777

Power Supply (billion KWh):

2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09

518.1 578.8 624.5 664.7 691

An analysis of the above figures show that the demand – supply gap for power is continuously increasing and some serious measures needs to be taken to bridge the gap. For this purpose, a large-scale entry of the private players into the sector is mandatory.The planned capacity addition for 2017 is 80 GW, out of which 12.70 GW to be completed by 2009 and 67.30 GW is to be completed by 2012.The break – up of generation capacity to be added during FY 2007 – 12 is:

Centre Owned State Owned Private

42% 32% 26%

25

Of the total 80 GW capacity addition planned, majority of 42% would be centre owned.The investment expected in Power sector by 2014: Generation – 107 USD billion, Transmission & Distribution – 60 USD billion.

Outlook for power capacity built – up in India

While energy availability in India has increased by 32.7% in the past 5 – years, the increasing demand for energy across all segments has resulted in significant demand – supply mismatch.

Over the last 5 – years, gross power generation has increased by mere 5.8% p.a. as against a GDP growth of ~9% p.a.

The National Electricity Policy, has thereby envisaged a ‘Power for all by 2012’ program, which aims to meet the energy generation requirement of 1, 038 BU and a peak load of 1, 52, 746 MW by end of the XIth Five Year Plan.

As against the actual capacity addition of 21.2 GW during the Xth Five Year Plan, the National Electricity Policy has targeted 78.7 GW of electricity capacity addition in the XIth Five Year Plan (2007 - 2012).

Working group has targeted electricity capacity addition of ~100 GW each in XIIth and XIIIth Five Year Plan.

Capacity addition in the coming period (MW):

Hydro Thermal Nuclear Total

XIth plan 15, 627 59, 693 3, 380 78, 700

XIIth plan 20, 000 76, 500 3, 400 1, 00, 000

XIIIth plan 24, 500 64, 000 11, 500 1, 00, 000 Segment – wise planned expenditure (Rs. Billion):

Generation Transmission Distribution R&M Total Outlay

XIth plan 4, 109 1, 400 2, 870 1, 937 10, 316

XIIth plan 4, 951 2, 400 3, 710 - 11, 000 Key Estimates

Role of Private Players: Expected private sector investment by 2014 is USD 53 billion, Private – owned installed capacity by 2017 is 100 GW.

Investment on T&D by PGCIL (approx USD billion):

Allotment for 11th Invested by March Target for 2009 – 10 Investments during

26

plan 2009 2010 – 12

12.2 3.3 2.6 6.3 Power Generation Mix of India as on Dec 2009:

Coal Gas Oil Hydro Nuclear Renewable Energy Sources (RES)

52% 11% 2% 24% 1% 10%

Renewable Energy Sources (RES) include small Hydro Project, Biomass, Urban & Industrial Water Project, and Wind Energy. Thermal sources (Coal, Gas & Oil) account for about 65% of generation mix.

Power Generation Mix

Addition of Wind Generation Capacity (2004 – 09) [MW]:

2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09

1, 112 1, 716 1, 742 1, 662 1, 405

Addition of Hydro Power Generation Capacity (2004 – 09) [MW]:

2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09

1, 041 1, 736 2, 364 2, 456 1, 000

Planned vis – a – vis achievement for plan VI to plan X (MW):

plan VI plan VII plan VIII plan IX plan X

Target 20, 000 25, 000 35, 000 40, 000 41, 000

Achievement 15, 000 24, 000 15, 000 20, 000 20, 000

The Future of Power Sector in India

Projected Trend

Primary Energy Percent Annual Growth –

2002 - 2022 2022 - 2032 2032 - 2042 2042 - 2052

27

4.6 4.5 4.5 3.9 Electricity Percent Annual Growth –

2002 - 2022 2022 - 2032 2032 - 2042 2042 - 2052

6.3 4.9 4.5 3.9

Funding Trends in the Power Sector

Bank credit Rs. (billion) –

2006 - 07 2007 - 08 2008 - 09 2011 - 12

126.59 219.09 293.8 918

External Commercial Borrowing ($ million) –

2006 - 07 2007 - 08 2008 - 09 2011 - 12

1, 346 865 1, 518 4, 765 Private Placement (only debt) Rs billion –

2006 - 07 2007 - 08 2008 - 09 2011 - 12

52.75 34.68 127.38 410 Public & Rights Issue (Rs billion) –

2006 – 07 2007 - 08 2008 - 09 2011 - 12

0.03 137.09 9.58 265

FDI –

2006 – 07 2007 - 08 2008 - 09 2011 - 12

157.5 968 984.8 1, 200

Total Energy Requirement Billion KWh

GDP Growth @ 8% -

28

2003 – 04 2006 - 07 2011 - 12 2016 - 17 2021 - 22 2026 - 27 2031 - 32

592 712 1, 026 1, 425 1, 980 2, 680 3, 628

GDP Growth @ 9% -

2003 - 04 2006 - 07 2011 - 12 2016 - 17 2021 - 22 2026 - 27 2031 - 32

592 724 1, 091 1, 577 2, 280 3, 201 4, 493

Projected Peak Demand (GW)

GDP Growth @ 8% -

2003 - 04 2006 - 07 2011 - 12 2016 - 17 2021 - 22 2026 - 27 2031 - 32

89 107 158 226 323 437 592

GDP Growth @ 9% -

2003 - 04 2006 - 07 2011 - 12 2016 - 17 2021 - 22 2026 - 27 2031 - 32

89 109 168 250 372 522 733

Installed Capacity Required (GW)

GDP Growth @ 8% -

2003 - 04 2006 - 07 2011 - 12 2016 - 17 2021 - 22 2026 - 27 2031 - 32

131 153 220 306 425 575 778

GDP Growth @ 9% -

2003 - 04 2006 - 07 2011 - 12 2016 - 17 2021 - 22 2026 - 27 2031 - 32

131 155 233 337 488 685 960

Hence, analyzing the data above, we can conclude that if India want to sustain and grow at a high GDP growth rate of 8% or 9% then it is essential to have at least the above mentioned installed capacity (GW) in order to fulfill the total energy requirement (billion KWh) and the projected peak demand (GW).

29

Renewable energy (Wind Energy): Source – Powerline Magazine Sept 2009

Total installed capacity (MW) – Top 10 countries:

US Germany

Spain China

India Italy France

UK Denmark

Portugal

Canada

Rest of the World

Total

20.8 19.8 13.9 10.1 8 3.1 2.8 2.7 2.6 2.4 - 13.8 1, 20, 798

New capacity (MW) – Top 10 countries:

US Germany

Spain China

India Italy France

UK Denmark

Portugal

Canada

Rest of the World

Total

30.9 6.2 5.9 23.3 6.7 3.7 3.5 3.1 - 2.6 1.9 12.2 27, 051

Thus from this data we find that India ranks 6th after China in Total installed capacity (MW) in a ranking of top 10 countries. India ranks 4th after rest of the world in New capacity (MW) in a ranking of top 10 countries. The maximum share of the pie chart drawn for top installed capacity and new capacity for the top 10 countries is of US followed by Germany and then that of Spain.

Tentative shelf of projects for the Twelfth Plan

Coal Lignite Nuclear Hydro Total

Central Sector

16, 470 2, 500 3, 400 7, 034 29, 404

State Sector 14, 057 - - 5, 539 19, 596

Private Sector

81, 873 - - 7, 761 89, 634

Total 1, 24, 400 2, 500 3, 400 20, 334 1, 38, 634

Room for Productivity Improvement:

30

The plant load factor of thermal plants has risen from 72% in 2003 to over 77% in 2009.

Plant Load Factor: All – India:

The Plant Load Factor for the Private Sector is the highest and hence its greater participation would easily allow Indian Power sector to fulfill the desired targets.

Installed Generating Capacity (Utilities) MW

YearElectricity

energyHydro

electricityThermal electricity

Coal based thermal electricity

Oil based thermal

electricity

Gas based thermal

electricity

Nuclear electricity

1970 – 71

14, 709 6, 383 7, 906 7, 508 230 168 420

1975 – 76

20, 117 8, 464 11, 013 10, 579 226 208 640

1980 – 81

30, 214 11, 791 17, 562 17, 122 166 274 860

1985 – 86

46, 769 15, 472 29, 967 28, 809 180 979 1, 330

1990 – 91

66, 086 18, 753 45, 768 43, 004 212 2, 552 1, 565

1995 – 96

83, 294 20, 986 60, 083 53, 479 335 6, 268 2, 225

2000 – 01

1, 01, 626 25, 153 73, 613 61, 011 2, 141 10, 642 2, 860

2005 – 06

1, 24, 287 32, 326 82, 411 68, 519 1, 202* 12, 690 3, 360

2006 – 07

1, 32, 329 34, 654 86, 015 71, 121 1, 202* 13, 692 3, 900

Note: * Renewable energy sources excluded, but it is included in total energy

PROFILE OF INDIAN POWER SECTOR

Transmission network has grown significantly

• Transmission lines have grown from 3,708 circuit kilometers (ckm) in 1950 to more than 220,794 ckm now; it is targeted to increase the network to 293,372 ckm by 2012.• The country is divided into five regions for transmission systems: northern, north- eastern, eastern, southern and western.• Work is ongoing on creating a national grid.• It is targeted to have 200,000 MW grid capacity and 37,000 MW inter-regional transmission capacity by 2012.

31

• Current sub-station capacity is 302,615 mega volt-ampere (MVA); it is planned to be increased by about 41 per cent to 428,000 MVA by 2012.

Per capita consumption has increased • The per capita consumption of power in India has gone up significantly

since the 1990s.• The targeted per capita consumption at the end of the current Five-

Year Plan (2011–12) is 1,000 kWh.

The demand – supply gap is growing

• Energy requirement during the year 2008–09 was 774,324 million units (MU), while energy availability was 689,021 MU.• As a result, an energy shortage of 11 per cent was recorded, as compared to 9.9 per cent in 2007–08.• The peak demand for energy during 2008–09 was 109,809 MW, while peak demand met was 96,685 MW.• The consequent peak shortage was 12 per cent, as compared to 16.6 per cent in 2007– 08.

Trend in per capita consumption (Kwh):

Year 1950 1960 1970 1980 1990 2001 2004 2006 2008 2012(P)

KWh 18 35 84 131 238 408 592 631 704 1, 000

So, it’s clear that per capita consumption of power is increasing at an increasing rate over the years.

Demand, Availability & Gap in billion unit:

Plan VIth VIIth VIIIth IXth Xth XIth

Demand 168.1 266.4 447.3 559.4 620.9 774.3

Availability

156.8 245.4 395.9 517.4 559.4 689

Gap 11.3 21 51.4 42 61.5 85.3

PPP Projects in Central & State Sectors

32

Sl. No.

Sector Completed ProjectsProjects under

ImplementationProjects in Pipeline Total

No. of Projects

Project Cost (Rs. crore)

No. of Projects

Project Cost (Rs.

crore)

No. of Projects

Project Cost (Rs. crore)

No. of Projects

Project Cost (Rs.

crore)(A)

Central Sector

1National Highwa

ys39 13, 698 64 41, 911 81 76, 341 184

1, 31, 950

2Major Ports

23 5, 762 13 10, 509 29 18, 466 65 34, 737

3 Airports 3 5, 883 2 18, 777 5 24, 660

4Railway

s4 4, 717 50 90, 000 54 94, 717

Total (A)

65 25, 343 83 75, 914 160 1, 84, 807 3082, 86, 064

(B) State Sector

1 Roads 96 6, 384 69 60, 865 86 39, 482 2511, 06, 731

2 Ports 20 19, 704 37 51, 549 18 17, 436 75 88, 6893 Airports 1 500 13 4, 120 14 4, 620

4Railway

s1 500 3 312 4 812

5 Power 7 8, 971 8 28, 392 34 62, 032 49 99, 395

6Urban

Infrastructure

51 6, 105 74 19, 738 67 45, 838 192 71, 681

7Other

Sectors2 120 19 3, 653 31 22, 534 52 26, 307

Total (B)

176 41, 284 209 1, 65, 197 252 1, 91, 754 6373, 98, 235

(C) Grand Total

(A+B)241 66, 627 292 2, 41, 111 412 3, 76, 561 945

6, 84, 299

Key issues confronting the sector

• Socio-political influences – Some social and political causes may cause hindrance in the development of the sector in the country.• High level of network losses – Constrained power grid, inefficient power sector reforms, poor metering, spatial development of load in the network and lack of investment in the distribution networks are some of the reasons for the increased losses.• High level of financial losses – Due to power theft, high level of receiveables, large process cycle time, presence of tamperable records, higher levels of corruption, no performance monitoring system and below

33

standard customer service are a few reasons for high level of financial losses.• Demand-supply mismatch – A huge demand – supply mismatch is present in the sector as discussed above.• Poor quality of supply – Some relevant reasons for the same are prevalent uncertainty in inflation and rapidly rising energy prices, Emergence of alternative fuels and technologies. (in energy supply and end – use), changes in lifestyles , institutional changes etc.

Power Market Structure

The stakeholder outlook in the Indian power sector has gradually been improving.For Generation:Central generating stations, Mega power projects, Independent Power Projects (IPP)/ Captive Power Projects (CPP), State Owned, Licensee Owned.For Transmission:Power Grid (Central Transmission Unit (CTU)), State Transmitting Unit (STU), RPC (Regional Power Committees)/ RLDC (Regional Load Dispatch Centre). RPC is a distribution committee which handles the distribution of the power between CTUs and the STUs.

Improved policy and regulation regimes

Recent policy/regulatory actions: Electricity Act, 2003

• Non-discriminatory open access to transmission.• Section 63: SERCs to follow competitive bidding process.• Section 79 (2): CERC to advise Government of India on promoting competition.• Section 60: Controlling abuse of market power.

The Market is evolving with a competitive structure and minimal regulatory micro-management.

The new policy is facilitating open access leading to Section 63/ Section 79 (2)/ Section 60 promoting possible wholesale/ retail competition , supporting competitive bidding guidelines – 2004/05 leading to a contestable price discovery and lastly, introduction of the National Tariff Policy – 2006 facilitating open access, supporting competitive bidding, separating wire businesses and enforcing USO.

Competitive Bidding Guidelines – 2004/05

Competitive acquisition of new generation contestability. Guidelines updated in 2009 to streamline the process. Required route for long-term power supply agreements between generation.

companies and distributors.

National Tariff Policy – 2006

34

Promoting retail competition. Supporting power procurement through competitive bidding. Enabling choice.

Electricity Act, 2003 provides institutional framework

Electricity Act, 2003 intervention

A range of fiscal incentives have been introduced

Mega Power Project Policy

Inter-state projects of 700 MW (thermal) and 350 MW (hydro) in Jammu & Kashmir and in north-eastern states; 1,000 MW (thermal) and 500 MW (hydro) in other states.

Zero customs duty on import of capital equipment. Increased external commercial borrowing (ECB) capital limits. State implementation support. Decreased import duty on fuel, i.e., coal and liquid fuel. Deemed export benefits to domestic bidders. Price preference to public sector unit (PSU) bidders. Tax holiday as per Section 80-IA. Purchasing state must have ERC; Must agree, in principle, to privatise

distribution in cities of >1 million population. 100 per cent foreign direct investment (FDI) allowed in Indian power

sector (except nuclear).

Rapid, large-scale capacity addition through ultra mega power projectsUltra mega power projects (UMPPs)

Nine projects targeted; each project size about 4,000 MW; total estimated investment of Rs 16,000 crore.

35

• Reduction in losses• Regulated cost –

reflective tariff – phasing out cross subsidies

• Competition in generation and retail supply

• Internal resource generation

• Private sector resource mobilisation

Expected

Outcome

Projects to be completed on build-own-operate (BOO) basis. Power Finance Corporation (PFC) is the nodal agency for setting up the

special purpose vehicles (SPV) for the projects. Successful bidder finalised on tariff-based competitive bidding; takes

over SPV from PFC. Projects to use supercritical technology based on pithead (captive

block) or imported coal (coastal). Full exemption of central excise duty on goods procured under

supercritical technology. Five coastal sites identified; of these, Mundra in Gujarat awarded to

Tata Power and Krishnapatnam in Andhra Pradesh awarded to Reliance Power.

Four pithead sites identified; of these, Sasan in Madhya Pradesh and Tilaiya in Jharkhand awarded to Reliance Energy.

Further sites being identified for expanding the number of UMPPs. Power ministry to facilitate coordination with other ministries and state

governments for:-coal block allocation/coal linkage, environment and forest clearances, water linkage, allocating power to different states, facilitating power purchase agreements (PPAs) and securing the payment mechanism at the state level.

PFC responsible for facilitating:-bidding process, land acquisition, clearances and approvals, and securing coal blocks, etc.

First UMPP on course to be commissioned by 2012 in Mundra.

INDIAN POWER INDUSTRY

ULTRA MEGA POWER PROJECTS IN PROGRESS

UMPP Developer Fuel linkage EPC contract

Scheduled date of

commissioning

Mundra, Gujarat

Tata Power Company

Two coal mines of Indonesia's Bumi Resources, in which TPC has acquired

26 per cent stake

Awarded - Doosan Heavy Industries, Toshiba

Corporation

Two units by 2012

Sasan, Madhya Pradesh

Reliance Power Limited

Moher, Moher-Amlohri extension and Chattrasal coal blocks at Singrauli

coalfields. The Chattrasal block is under development

Awarded - Reliance Infrastructure Limited

Two units by December

2011, all six units by April

2013Krishnapatna

m, Andhra Pradesh

Reliance Power Limited

Three Indonesian coal minesTalks on with Doosan

Heavy Industries, Toshiba and Larsen & Toubro

September 2013 -

October 2015Tilaiya,

JharkhandReliance

Power LimitedKirandhari B and C coal blocks, North Karanpura

Talks on with Reliance Infrastructure Limited

By 2015

EPC : Engineering, procurement and construction

UPCOMING ULTRA MEGA POWER PROJECTSProject

State Current status

36

Kudgi

Karnataka Ministry of Power's approval received

Munge

Maharashtra Project site finalised

Cheyyur

Tamil Nadu Project site finalised

Bedabaha

Orissa Land acquisition in process, coal blocks alloted

Nuclear Power Sector

India has a flourishing and largely indigenous nuclear power programme and expects to have 20, 000 MWe nuclear capacity on line by 2020.

Nuclear Power Corporation of India Limited (NPCIL) has a monopoly in the Indian nuclear power market.

At present India has a nuclear capacity of 4, 120 mw from 17 nuclear reactors.

Prime Minister, Dr. Manmohan Singh has referred to the target to provide 20 GWe by 2020, as "modest" and capable of being "doubled with the opening up of international cooperation“.

More recently on 30th September,2009, Dr. Manmohan Singh indicated that using India’s unique three stage programme, our nuclear industry could potentially yield 4,70,000 MW of power by 2050.

Opportunities in the Indian Power Sector

Total electrification of households country-wide targeted by 2010; about 44 per cent yet to be electrified.

Perspective Announced: 2012

Per capita availability of 1,000 units –704 units in 2008. Target installed capacity over 200,000 MW –151,073 MW installed as

on July 31, 2009. Inter-regional transmission capacity of 37,000 MW –17,000 MW at the

end of Tenth Plan. Energy efficiency/conservation savings of about 15 per cent. Improving quality and reliability of power supply.

Sustained GDP growth will require similar growth in the power sector

An annual GDP growth rate of about 8 per cent would necessitate a 9 to 10 per cent growth rate in the Indian power sector.

37

Though the growth rate of the economy was moderate in 2008–09, it is likely to pick up as the global recession fades.

The existing power deficit in the country, as well as increasing demand, will necessitate large-scale addition in generation capacity.

YearTotal energy

required (billion kWh)

Total energy

required (billion kWh

Projected peak demand

(GW)

Projected peak

demand (GW)

Installed capacity required

(GW)

Installed capacity required (GW

At GDP growth rate ofAt GDP growth

rate ofAt GDP growth rate of

8% 9% 8.00% 9% 8% 9%2011-

121, 097 1, 167 158 168 220 233

2016-17

1, 524 1, 687 226 250 306 337

2021-22

2, 118 2, 438 323 372 425 488

2026-27

2, 866 3, 423 437 522 575 685

2031-32

3, 880 4, 806 592 733 778 960

Incentives for ramping up investments Foreign investment:

100 per cent FDI is allowed in all segments of the power sector, including trading.

There is no discrimination between domestic and foreign investors.

Fiscal incentives:

There is zero customs duty on import of capital goods for mega power projects.

There is an income tax holiday for generating plants for10 years.

Required investment scale —ample scope for sector investments

For a capacity addition programme of 100,000 MW, investments worth US$ 100 billion are needed.

An additional US$ 100 billion is needed for the augmentation of the transmission, sub-transmission and distribution networks, and for rural electrification.

Therefore, a total over US$ 200 billion worth of investments are required.

20 per cent of the total requirement is expected to met by private players.

38

Electricity Act, 2003 provides the enabling framework for attracting increased. investments from both the public and private sectors.

Power sector development scenario - Steps implemented are:

Regulatory commissions constituted in 22 states. Tariff orders, performance standards, terms and conditions for supply

and tariff notified. Unbundling of SEBs. Distribution reforms initiated. Mumbai, Orissa and Delhi distribution privatized. Recovery from SEBs regularised after securitization. Principles of multi-year-tariff (MYT) regime proposed for tariff

rationalization. Stability of past contracts (except Dabhol Power). Private franchise model introduced in Maharashtra for power

distribution.

Key policy measures encourage investments Enablers

Generation de-licensed. Clear and transparent tariff setting principles. Competitive bidding for power procurement by licensees. Open access. Captive policy. Incentives for rural electrification. Evolution of power markets. New hydro and relief and rehabilitation(R&R) policies. Captive coal mining blocks. Second priority after fertiliser for gas allocations. Development of other infrastructure such as ports, roads and railways,

etc.

Emerging power sector scenarioExisting and new players increasing investments in the power sector

Large capacity addition plans firmed up by Central PSUs and private sector majors (Tata Power, Reliance, Torrent).

Smaller players also have major expansion plans (GVK, GMR, Adani, Lanco).

Entry of fringe players (captive generators) in the independent power producer (IPP) sector (Jindal, Essar, Sterlite).

Entry of greater number of private players in distribution. System development plans initiated by discoms to meet SERC-

determined loss reduction targets in many states.

39

Opportunities across the power spectrum

Generation Transmission Distribution Equipment & services

• Investment in IPPs, captive power plants

(CPP).

• Across coal, gas, nuclear, hydro and renewable

energy.

• Participate in

transmission bids.

• Work with generation companies to evacuate power from

new projects.

• Participate in distribution franchisee

privatization.

• Operate distribution in

special economic zones

(SEZ) and industrial clusters.

• Generation, transmission, distribution equipment and

infrastructure support.

• Operation and maintenance services.

•Technical consulting, IT systems, loss detection and reduction solutions, etc.

Large generation opportunities exist

15, 000 MW to 20,000 MW need to be added every year, a large step up from the current pace of capacity addition.

Opportunities Target markets• IPP• CPP• Distributed generation

• Distribution licensees• Industrial consumers• Rural areas

Transmission opportunities opening up Independent power transmission companies

Private players can construct, operate and maintain transmission lines. The first transmission line, through a joint venture between M/s Tata

Power and PGCIL, has been executed with the setting up of a transmission system for the Tala hydro electric project (HEP) and East-North inter-connector.

Competitive bidding for multiple transmission projects is an ongoing process.

Inter-regional link operations Private transmission facilities may either take the form of an

independent power transmission company or a joint venture with state-owned transmission utilities.

Key domestic players

Generation

NTPC Ltd Tata Power Reliance Energy Ltd Torrent Power

40

• The company is the sixth-largest thermal power producer in the

world and India’s largest

power producer. The state-owned player operates

across the country

• The Tata Group pioneered power

generation in India nine decades ago. The group has a presence in all segments —

thermal, hydro, solar, wind energy, and transmission and distribution

1. India’s leading integrated power

utility company in the private sector, it

has a significant presence in

generation and transmission and distribution in the

states of Maharashtra, Goa

and Andhra Pradesh. It is executing three

UMPPs of about 4,000 MW each

• Torrent entered the power sector

by acquiring two, old Gujarat

state-owned electricity

companies and turned them into power utilities

comparable with the best. It is

also engaged in power

distribution

Power equipment

Bharat Heavy Electricals Ltd (BHEL)BHEL has 14 manufacturing plants.• It has installed 90,000 MW equivalent power generation units for utilities, captive and industrial plants.• The company has supplied over 225,000 MVA transformer capacity and other equipment for transmission and distribution networks.• Capacity being to augmented to 15,000 MW by end of 2009.• BHEL has started manufacturing 800 MW and 660 MW super-critical boiler and turbines.• It has an outstanding order book of Rs 117,400 crore to be executed in 2009–10 and beyond; 84 per cent of its business is from the power sector.

Select foreign investors in the Indian power sector are AES Corporation, Acciona Energy and CLP Group.

FDI outlook has been improving steadilyFDI inflows into the power sector have increased in the last couple of years

The power sector provides large-scale investment opportunities. However, given the scale of investment requirements, FDI inflows need

to increase multifold.1. Asset-backed investment with reasonable returns is an attractive

proposition for international investors.

Increasing investment opportunities in Indian power companiesGrowing opportunities to invest in Indian power companies

Indian companies such as NHPC Ltd, Adani Power and India Bulls Power are slated to be among the majors initial public offerings (IPOs) on Indian bourses in 2009–10.

41

Many more power companies are expected to raise capital through public issues or private placements.

Power > US$ 1 trillion opportunity India is one of the largest energy consuming countries

- 5th largest generation capacity in the world. - Total installed capacity - 157 GW as at Jan 01, 2010.

• yet per capita consumption is among the lowest in the world at 704 units against world average of ~2700 units.

- Annual demand of 757 billion units; projected to increase @ 8% CAGR till 2017.

- Capacity additions have fallen short of the targets since 1981 leading to acute shortage of power;

• Capacity addition since 1993 have been ~50% of targets- Ownership dominated by govt owned companies; - 32% of the total spend in 11th Plan has been earmarked for Power

Still has low per capita energy consumption

Country USA Japan Germany

Russia Brazil China Egypt India

KWh/year

14, 240 8, 459 7, 442 6, 425 2, 340 1, 684 1, 465 704

The world average is 2, 701 KWh/year. For India per capita energy consumption is targeted to reach 1000 KWh/annum by 2012.

Severe Demand Supply Mismatch

Year 2004 - 05 2005 - 06 2006 - 07 2007 - 08 2008 - 09

Requirement (GW)

88 93 101 109 110

Availability (GW)

78 82 87 91 97

Shortage (%) 12 12 14 17 12

The demand – supply mismatch had increased from 12% in 2005 to 17% in 2008, but declined in the year 2009 due to recession that hit the world in 2008 – end.

Capacity additions have always lagged behind targets

42

Year 1981 -85 1986 - 90 1993 - 97 1998 - 02 2003 - 07 2008 -12(E)

Targeted Addition (GW)

20 22 31 40 41 79

Actual Addition (GW)

14 21 16 20 21 45

% achieved 70 95.45 51.61 50 51.22 56.96

The targeted addition has neared to the actual addition in the year 1986 – 90 nearing to 100% target.

Private Sector investment potential

- Actual capacity addition has been 138GW against a target of 233GW- Projected capacity addition over next five years – 79GW (includes 3

years of 11th plan and 2 years thereafter).• Aggregate investment opportunity – US$169bn over the period

FY10 to FY15. • Potential investment envisaged by private sector - US$47bn

(~28%) of the total spend.

Projected Capacity Additions

2

5 5 5 5

3 2 3 2

3 4 4 4

9 10

1 3 2

3 3

0

2

4

6

8

10

12

FY10E FY11E FY12E FY13E FY14E

Central State Private Captive

High Investment Potential

43

6 7 6 6 5 3 3 3 3 4 5

7 9

12 13

2 3 3 4 4

7 10

12 15 16

0

5

10

15

20

FY10E FY11E FY12E FY13E FY14E

Central State Private Captive T & D

INVESTMENT OPPORTUNITY IN POWER: ~ USD 169billion

Total Power Generation – A Comparison Installed Capacity (MW) –

A Comparison

Share of Installed Capacity Power Sources – A Classification

44

Installed Capacity (%)

Private16%

Central33%

State51%

Private

Central

State

Installed Capacity (MW)

13242

36917

4120

96794

0 20000 40000 60000 80000 100000 120000

Renew able

Hydel

Nuclear

Thermal

Series1

Deficit levels are expected to continue (Source: CEA; ICRA Estimates)

16%

12%11%

6%

0%2%

4%6%8%

10%12%14%

16%18%

2007-12 (Xith Plan Period) 2012-17 (XIIth Plan Period) Target in Capacity AdditionExpected Capacity AdditionPeak Deficit @ and of Plan PeriodEnergy Deficit @ and of Plan Period

Generation type (%)

Thermal

64%Nuclear

3%

Hydel

24%

Renewable

9%

Thermal

Nuclear

Hydel

Renewable

Installed Capacity (Mega watt)

24988

76505

49581

0 20000 40000 60000 80000 100000

Private

State

Central

As on July 2009

Series1

Pow er Generation (billion units)

264.3

499.5

515.3

531.4

558.3

587.4

617.5

662.5

704.5

723.6

0 200 400 600 800

1990-91

2001-02

2003-04

2005-06

2007-08

year

(billion units)

Series1

Renewable energy: Bridging India’s Power GapBrief Overview

Large and growing electricity shortages, as well as favorable natural conditions, make the future of renewable energy in India very bright.

Propelled by accelerating economic growth, India’s demand for power is likely to soar from around 120 GW in 2008, to between 315 and to 335 GW by 2017 – 100 GW higher than most current estimates.

Capacity is likely to more than double. However, will remain insufficient to meet demand.

Shortfall for peak electricity generation, expected to increase from close to 15% in 2007 to almost 20% in 2017.

Most capacity - building initiatives focus on coal plants: More than 80% of the plants commissioned are coal – fired, as are 70% of plants currently under construction.

These power plants will provide much needed new capacity, but will increase concerns about energy security and the environment – a major drawback: making renewable energy an attractive and increasingly economic alternative.

Renewables in India have significant natural potential

Renewables need to be an integral part of efforts to meet India’s power needs

45

Share of Private Sector in Capacity Addition is estimated to increase going forward

1300536874

28600

6245

26783

14400

193015043

57000

0%10%20%30%40%50%60%70%80%90%

100%

X th Plan (Actual;21000MW)

XI th Plan (Target:78000MW)

XIIth Plan (Target:100,000MW)

Central State Private

Trends in power peak deficit in India (Source: CEA)

0%

5%

10%

15%

20%

25%

30%

2005-06(A) 2006-07(A) 2007-08(A) 2008-09(A)

All-India NR WR SR

Estimated potential - Installed capacity, gigawatts (GW)

0

50

100

150

200

250

300

350

400

450

500

Win

d

Sm

all

hydro

Bio

mass

Sola

r*

Tota

l

Tota

l

eff

ective

genera

tion

pote

ntial*

*T

ota

l

capacity

required in

2017

Sources of Power

Insta

lled C

apacity,

gig

aw

att

s (

GW

)

Estimated potential - Installed capacity, gigawatts (GW)

*Assuming a 50 megawatt per square kilometer (MW/km2) installed capacity for photovoltaics (PV) and 2% of Rajasthan's desert area covered (4000 sq km) **Actual electricity generation (adjusting for respective plant load factors. Source: Center for Wind Energy Technology (C - WET); Eleventh five - year plan (2007 - 2012), Ministry of Power; Planning Commission, Government of India; Mckinsey analysis

Significant opportunities for renewable – energy players: To achieve a Renewable Purchase Obligation (RPO) of 10% by 2017, India needs to add 50 gigawatts (GW) renewable capacity.If India enforces a 10% renewable purchase Obligation (RPO) by 2017, terawatt hours (TWh).

46

Senario after India enforces a 10% renewable purchase obligation (RPO) by 2017, terawatt hours (TWh)

200 200

136

5230

Required

renew

able

genera

tion

at 10%

Bio

mass

Required

genera

tion

from

sola

r

Sources of Energy

Tera

watt

ho

urs

(T

Wh

)

Series1

The additional renewable capacity includes 12 GW of biomass and 17 GW of solar capacity.

Roads > US$ 80 billion opportunity

Large Network: 3rd largest in the world with about 3.3 Mn km of road network.

Low penetration: ~ 3 km per 1,000 persons, significantly lower than the world average of ~ 7 km per 1,000 person.

Few Highways: 2% is accounted for by national highways and a very minuscule part is accounted for by express highways.

Poor Quality: ~ 80% of our roads are in a poor condition and majority are single lane.

High Dependence: Roads carry about 65% of the freight and 80% of the passenger traffic.

High Congestion: 300 km is the average daily distance covered by a truck against world average of 600-700 km.

Road Traffic in India growing fast

INVESTMENT OPPORTUNITY IN ROADS: USD 80 Billion; out of which ~ USD 50 Billion to come from Private Sector

NHDP Program – Project detailsPhase-wise requirement of funds - NHAI

assessment

Phase

Length in KMS INR in billion

Total

Complete

Under implementatio

n

Balance

Govt investmen

t

Private sector investment

Total

Phase I7,49

87,310 182 6 109 11 120

Phase II6,64

74,351 1,687 609 331 255 586

Phase III12,109

1,478 3,926 6,705 287 674 961

Phase IV20,000

- -20,00

0332 509 841

Phase V6,50

0163 1,068 5,269 38 606 644

Phase VI 1,00 - - 1,000 101 146 247

47

CAGR –

12%

CAGR

– 14%

0Phase VII 700 - 41 659 63 104 167

Misc 191 142 49 - 96 25 122

Total54,645

13,444

6,95334,24

81,358 2,330 3,688

Roads > Policy Impetus

(a.) DRIVERS:

Indian Growth Story : India has emerged as one of the fastest-growing economies in the world with growth averaging 7.2% p.a. in the last decade.

Political pressure / will : Road construction progress is being monitored at the highest level in the government, since it is the most visible signs of government work, both at the public as well as industry level.Access to Funding: Opening of financial sector for foreign investment has provided access to foreign capital which supplements the funds available in the domestic market.

(b.) MECHANISM:

Changing Polices to attract private participation: Acceptance of Chaturvedi committee following recommendations has given fillip to private sector interest

• Returns: The concession agreement can be extended by 5 years if the concessionaire undertakes capacity augmentation.

• Conflict of interest: The limit for common shareholding between various bidders has been raised from 5% to 25%,

• Entry: The bidders’ technical capacity-related entry threshold with respect to the size of the past has been reduced.

• Funds: The lenders are permitted to create a charge on the escrow account lowering the lenders’ prov and capital ad requirements.

• Exit: Promoters holding the majority shareholding can fully divest two years after the project completion.

• Single bids: The NHAI can accept reasonable single bids.

Easing financing mechanism

• Takeout financing mechanism from IIFCL will increase funding from banks.

48

• Opening of ECB route for newly designated Infrastructure NBFC will increase funding sources and at competitive rates.

• Tax benefit status of Infrastructure bonds will enhance funding sources for infrastructure projects.

Changing management and monitoring mechanism

• Decentralize NHAI by opening regional offices to award projects directly and oversee.

• Setting up about 150 special land acquisition units across the states which will address the problems like land acquisition and environment clearances in cooperation with the states concerned.

(c.) RESULT

• Formulated a 'work plan' for 2009-10 and 2010-11, aiming to award projects for building about 12,000 km roads each year.

• NHAI awarded 45 projects of 4,750 km in last one year against only eight projects in 2008.

• Improved participation from private developers – NHAI receiving 15-20 bids per bid.

• Target to award 50 projects by June 2010.

National Highways > Overcoming Challenges and Opportunities Ahead

NHDP Phase

Length under different modes of delivery (in km)

BOT (Toll

)

BOT (Annui

ty)CC Total

NHDP-I (Balance

Work)20 7 1, 711 1, 738

NHDP-II (Balance

Work)

1, 237 930 4, 569 6, 736

NHDP-III 10, 000

- - 10,000

NHDP-IV 5, 000

15, 000*

- 20, 000

NHDP-V 6, - - 6, 500**

49

500

NHDP-VI 1,000

- - 1,000

NHDP-VII ***

Total 23, 757

15, 937

6, 280 45, 974

Phase-wise status of NHDP (28.02.2010)

Serial No. NHDP Component

Total length (km)

Completed 4 lane / 2 lane + PS

(km)

Under Implementation Balance for award

of civil works (km)Length (Km.)

No. of Projects

1Phase - I : GQ, part of EW-NS corridors, Port conn. & others

7498 7310 182 26 6

2Phase - II : North South – East West

Corridor6647 4351 1687 111 609

3Phase - III : 4/6-laning links from

network to capital etc.12109 1478 3926 59 6707

4Phase - IV : 2 – laning with paved

shoulders20000* - - - 20000*

5Phase – V : 6 – laning of GQ and High

density corridors6500 163 1068 8 5466

6 Phase – VI : Expressways 1000 - - - 1000

7Phase – VII : Ring Roads, Bypasses

and flyovers and other structures700 - 41 2 681

8Miscellaneous Projects: ICTT Cochin

& SARDP-NE191 142 49 4 -

* 5000 km approved under NHDP – IVA, 15, 000 km yet to be approved.

Overall status of NHDP (28.02.2010)

Total length covered under NHDP: 54, 863* km. Length completed: 13, 444 km. Length under implementation: 6, 950 km. Total length yet to be awarded: 34, 469 km

Work Plan I & II formulated accordingly for award of works during current and next FY.

Work Plan I (2009 – 10) - 11, 618 km includes (122 projects)

Work Plan II (2010 – 11) – 11, 854 km includes (86 projects)

• Including common length of 5846 km of GQ in NHDP Phase – V : 6500 km; also including 15, 000 km length yet to be approved by the Government under NHDP Phase – IVB.

380 Kms of Port Connectivity (29% completed) – Target Date – Dec’12.

50

*To be determined based on budgetary resources and the tolling policy for two-lane highways** COI has approved six- laning of 6500 km instead of 5000 km mandated earlier*** Length to be covered under NHDP-VII is not shown because specific sections are yet to be identified

46000 KM Length of Road Development- US $ 27Bn Projectin progress – Completion by Dec’12

Phase – wise Requirement of Funds for Construction – assessed by NHAI

NHDP Phases

Govt. (NHAI) Investment Requirement

Private Sector Investment Requirement

Total

NHDP – I 10, 858 1, 144 12, 002NHDP – II 33, 140 25, 478 58, 618NHDP – III 28, 711 67, 358 96, 070NHDP – IV 33, 225 50, 883 84, 108NHDP – V 3, 817 60, 629 64, 446NHDP – VI 10, 139 14, 560 24, 699

NHDP – VII

6, 302 10, 378 16, 680

SARDP – NE

695 2, 536 3, 231

ICTT – COCHIN

869 - 869

Other Costs 8, 055 - 8, 055TOTAL 1, 35, 811 [30.2 Billion $] 2, 32, 966 [51.8 Billion $] 3, 68, 777 [82 Billion $]

Financing Plan of NHDP [Revised 2010]

Particulars Rs. (in cr.)A. ESTIMATED EXPENDITURE

Project Construction 337, 959Payment of Annuity 207, 579

Interest on Borrowed Funds 78, 285Repayment of Borrowing 188, 838

Total (A) 812, 661B. SOURCES OF FUNDS

Cess funds 360, 631External Assistance (Grant & Loan) 9, 782

Net Surplus from Toll Revenue 117, 418Negative Grant 3, 318

Budgetary Support 1, 398Additional Budgetary Support 39, 329

Share of Private Sector 211, 315Borrowings 191, 148Total (B) 9, 35, 139

Procurement procedure

International competitive bidding. Investor friendly Concession Agreement. Two stage bidding process

51

The total amount of estimated requirement of funds for project construction is Rs. 3, 68, 777 crore. NHAI expenditure as a percentage of total estimated expenditure is 36.83%.

Stage I – RFQ based on Technical and Financial parameter. Stage II – RFP to be issued to short – listed bidders.

All documents i.e. RFQ, RFP and MCA standardized. Toll Policy rationalized.

Major Challenges

Capacity constraints of concessionaires/ contractors/ consultants. Delays in land acquisition. Delay in Forest & Environment clearances. Law & order problems in Naxal affected areas and some parts of North

– eastern states.

Recommendations of Shri B K Chaturvedi Committee Report > Part - I

Further amendments to RFQ and RFP by NHAI with concurrence of MoRT&H.

IMG to consider issues related to MCA. Capping limits fixed for each mode of delivery. < 5, 000 PCUs under NHDP IV – directly on EPC. Single bid to be accepted by NHAI board. Relaxation in termination provisions. Exit policy relaxed – Exit possible after 2 years from COD. Equity VGF 20% and O&M grant 20% merged as equity VGF of 40%. Equity VGF 20% and O&M grant 20% merged as equity VGF of 40%. Forfeiture of bid security for non-responsiveness limited to 5% of bid

security / performance security (100% earlier). Conflict of interest provisions in RFQ/RFP amended – common

shareholding threshold raised from 5% to 25%. Modification in RFQ/ RFP on certification of associate status. Criteria under RFQ- ’Threshold Technical capability’ and ‘Eligible

Projects’ relaxed.

Recommendations of Shri B K Chaturvedi Committee Report > Part-II

Dispute Resolution Mechanism

Setting up of an Independent Expert Group (IEG). One time settlement of pending disputes for Category A cases

i.e. disputes of <Rs 10 Cr.

52

Award of Arbitration Tribunal (AT) to be accepted in category B cases i.e. disputes of Rs. 10- 100 Cr.

Accountability of DRB to be test checked regularly. Time for DRB recommendation raised to 84 days & referring DRB

recommendation to AT 60 days. Cost associated with time extension to be quantified. General Conditions and COPA to be standardized.

Fiscal and Taxation related issues clarified

Grant of tax exemption on further dividend distribution for policy mandated tier in Corporate.

Scope of new infrastructure facilities to be clarified regarding applicability of tax holiday.

Fiscal and Taxation related issues clarified

Grant of tax exemption on further dividend distribution for policy mandated tier in Corporate.

Scope of new infrastructure facilities to be clarified regarding applicability of tax holiday.

Moderation/ reduction in retention period for road construction equipments in custom duty exemptions to be considered.

Financial Issues

Take out financing scheme to be operationalized at the earliest. MoF to take up issue of relaxation in minimum rating and

dividend payment history with IRDA.

Work Plan – I > Award Position

Details No. of ProjectsLength(in km)

Total for Work Plan – I 122 11618Awarded 33 2835

Bids received 5 498Bids invited 44 4145

Carried over to 2010 – 11 40 4143

Work Plan – II > Projects for 2010 – 11

Phases of NHDP No. of Project Length in (km)Phase III 5 385Phase IV 66 9, 401Phase V 11 1, 786

SARDP – NE 4 282

53

Total 86 11, 854

Comparative Achievement

Serial No. ActivitiesAverage during last 3

yearsLast 9 Months (From June,

2009 onwards)

1Award of Feasibility Studies /

DPR (Km)2, 686 10, 000

2Completion of Feasibility

Studies / DPR (Km)1, 694 2, 088

3 PPPAC Approval (Km) 1, 475 3, 0554 Award of Work (Km) 1, 230 2, 8325 Physical Completion (Km) 1, 467 2, 074

Year wise Award & Completion Length

YEAR Completed Length in KmAwarded Length in

KmBefore 2000 959 8092000 – 01 262 8952001 – 02 480 34762002 – 03 391 6712003 – 04 1318 3422004 – 05 2351 13052005 – 06 753 47402006 – 07 635 17342007 – 08 1682 12342008 – 09 2205 643

2009 – 10 (up to Feb’10) 24053166 (498 bids received

+ 4145 bids invited)

Railways > US$63 billion Opportunity

2nd largest network in the world covering ~64,000 km of route length.

7,030 stations accounting for 833mt (35%) of total freight movement and 7bn (13%) of passenger movement.

Planned investment under 11th Plan – US$65bn; Private sector to contribute US$13bn (~19%).

Key targets set for 11th Plan - ~8,132km of new railway track; 7,148km gauge conversion; modernization of stations and development of dedicated freight corridors (DFC).

Traffic handled by Indian Railways2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Freight (mn

tonnes)602 667 728 794 833 8.5%

Passengers (mn) 5,476 5,832 6,334 6,645 7,047 6.5%

54

Indian Railways – Vision 2020

Summary of Broad Goals Short-term target

FY11 - FY12Long-term target

FY13 -FY20Total target

Doubling (incl DFCs) (kms) 1,000 11,000 12,000

Gauge Conversion (kms) 2,500 9,500 12,000

New Line (kms) 1,000 24,000 25,000

Electricfication (kms) 2,000 12,000 14,000

Procurement of Wagons 33,909 255,227 289,136

Procurement of diesel locomotives 690 4,644 5,334

Procurement of electric locomotives 555 3,726 4,281

Procurement of passanger coaches 6,912 43,968 50,880

World-class stations 12 38 50

High Speed Corridors - 2,000 2,000

Indian Railways - Broad Goals for 2020

Total investment envisaged by Indian Railways – INR 14,000 billion over next 10 years upto 2020.

Significant investment by Government. • However, increased participation expected through the PPP mode.

Railways > Role of private sector expected to go up

Areas identified for PPP - Indian Railways – Vision 2020

Construction of Dedicated Freight Corridors (DFCs) – construct 3400 kms at an investment of USD10bn; private participation in construction, along with related activities like logistics parks etcWorld Class Railway Stations – 50 stations have been identified; feasibility studies for New Delhi, Mumbai and Patna already completed; bidding process expected to commence in FY11SPVs for manufacturing of locomotives, coaches and wagons – New units being set up at five places through private participation; plans being made for establishing five state of the art factories via private participationHigh Speed Rail Corridors – Six corridors already identified to be developed under PPP mode; pre-feasibility study under progressContainer trains and special freight trains – Concessions agreements already signed with 16 private operators (incl CONCOR); these private operators have procured 96 rakes and commissioned six new container depotsMulti-model logistics Park (MLP) and Automobile / ancillary Hubs – Discussions in progress with 11 states to set up MLP alongside DFC through joint participation of Railways, State govt and private participantMulti-functional complexes (MFC) and multi-parking complexes (MPC) – Construction of MFC initiated at 67 stations providing a host of services; being extended to include another 93 stations; pilot project for construction of MPC would shortly be undertakenElevated sub-urban rail corridor in Mumbai - Feasibility study underway for construction of 63km long elevated corridor; if found feasible, the project, likely to cost INR 150bn would be executed via PPP modeLiberalized Wagon investment Scheme- has been launched to encourage private investment in high-capacity and special purpose wagonsPort and other connectivity works – Rail Vikas Nigam limited has been set up to undertake capacity augmentation work and port connectivity projects; total investment mobilised ~INR 13,000mn in five projects; projects in pipeline worth INR 22,000mnBottling plant for clean drinking water – Six bottling plant to be set up via PPP

55

modeSuper-speciality hospital, medical and nursing colleges - Establish 18 medical colleges and 7 nursing colleges on railway land via PPP modeCommercial utilization of Land – Rail Land Development Authority already set up to commercially develop ~3700 acres of vacant landOptic Fibre Cables – Plans in progress for laying OFC on 15000 kms viz PPP modeKisan Vision – Pilot project initiated at six location to construct/operate terminal infrastructure for farm produce and perishable food-stuff

Dedicated Freight Corridor Project – Route MapJNPT to Vadodara to Ahmedabad to Dadri to Khurja to Ludhiana and Khurja to Son Nagar to Howarh.

METRO RAIL SYSTEMS

Government Keen On Transport Alternatives

As huge upfront capital investment required for every metro project, government is promoting joint venture and public private partnership (PPP) routes for the metro projects.

Bombardier Transportation estimates that the Investment opportunities for greenfield metro rail projects and related equipment (excluding locomotives) in India will be around USD3.5 billion by 2014.

Further, it expects the annual demand for metro rail coaches in India to reach 1,000 units by 2011.

India > A Favourite Investment DestinationSeveral Factors Make India a Favourite Investment Destination

56

Share of Top Sectors Attracting FDI Inflows from South Korea

Rank Sector% FDI Inflows from South

Korea1. Automobile Industry 18.072. Metallurgical Industries 15.183. Electronics 14.734. Housing & Real Estate 9.965. Industrial Machinery 7.41

Total Investment from Korea 1.6 Billion

Comparison of major Indian Ports vis – a – vis International Ports

Indian Ports International Ports

Evacuation / Aggregation of cargo

Movement of cargo is predominantly done by road and rail only

Most of the international ports are quick in evacuation as connectivity is not an issue

Level of mechanisation

The extent of mechanisation is less in Indian major portsThe level of mechanisation is very high with the latest

technologies applied in all fields

57

Source – KCCI, 12 March 2010 (January 2000 to May 2009)

Location of port – based industries

Most manufacturing firms are located away from portsMost manufacturing units are located within the ports; as a

result, evacuation is very fast

Availability of storage space

Indian ports face major space constraint; hence, availability of space is a prime concern

International ports do not face space crunch and congestion within as well as outside the port

Availability of Resources

Dedicated terminals with less number of berthsThere is no concept of pre – berthing detention as berths are

waiting for ships and the have longer quay lengths

Information Exchange

EDI implementation is partial. Information exchange lacks due to innumerable human interfaces and manual

exchange of documents

EDI networking is complete and total; hence, there is no manual exchange of documents. Human intervention is almost

nil. All payments are done electronically

Custom’s Regulations For Cargo Clearance

All customs formalities and clearances have to be taken place in the respective port itself

Customs clearances need not take place at the port itself; it may be done beyond the port premises

Work Processes

Work flow is manual and partially computerized. ERP has been implemented recently

The entire work process is computerized. ERP was implemented long ago

Current Scenario > Indian Ports

‘on the High Growth Path’

5495 km of coastline . 12 Major & 139 operable Non – Major Ports. Total Cargo Handled in 2009 – 2010

Major Ports: 560.968 million Tonnes. Non – Major Ports:

90% of total cargo transported by sea. Traffic Growth rate (2009 – 2010)

Container - > 19%. Overall – 5.54% increase compared to average

yearly growth of 10 – 12% in the past. Main commodities handled: POL, Iron ore, coal,

containers and general cargo. Major policy initiatives in Port Privatization by GOI

100% FDI. Permission for External Commercial Borrowings.

58

Distribution of Cargo by Type of Cargo

30%

18%

2%1%

8%5%

19%

1%16%

P.O.L. IRON ORE

FERTILIZER (FIN.) FERTILIZER (RAW)

COAL (THERMAL) COAL (COKING)

CONTAINER (TONNAGE) CONTAINER (TEUs)

OTHER CARGO

Distribution of Cargo at Major Ports 2010 (TENTATIVE)

2% 6%10%

12%

2%

11%4%3%6%9%

10%

11%

14%

Kolkata Dock System Haldia Dock Complex PARADIP

VISAKHAPATNAM ENNORE CHENNAI

TUTICORIN COCHIN NEW MANGALORE

MORMUGAO MUMBAI JNPT

KANDLA

10 year, 100% tax holiday.

Capacity constraints

Capacity augmentation necessary to meet future demand: Present container handling of Ports – 7.7 Mil TEU.

Avg. turnaround time 1.67 day for container Vessels.

Investment of US $ 25 billion+ required to meet capacity requirements by 2017.

Containerization

Draft restrictions at most Indian Ports, prevent Mother vessels from being received.

7,500 – 11,000 TEU Vessels can be received at 1 or 2 ports, others being dredged.

Ports of Colombo, Singapore and AI-Salalah transshipment hubs for Indian container cargo.

• High CAGR of 14%.• Projected CAGR of 12% for next 10 years.• Industry thinking – Could be much more.

Project Facilitators > Successful Public Private Partnerships in India

‘Large investments from Private Sector’

Private Container Ports in India: Mundra – P&O Pipavav – PSA, Maersk

Other Private Sector Container Projects in Major Ports: Terminal at Visakhapatanam – Dubai Ports Terminal at JNPT on BOT basis Terminal at Kandla Terminal at Tuticorin & Chennai Terminal at Mumbai Terminal at Cochin (Valarpadam)

Other Ports in India: Dhamra – International Seaports Kakinada – International Seaports, Precious Shipping Ltd, Larsen

& Toubro

59

27.81

22.89

18.31

13.99

10.03

6.23.32

0

5

10

15

20

25

30

MTEU

FY02 FY07 FY12 FY17 FY22 FY27 FY32

Year

Projected Indian Container Trade

Gangavaram – DPA with local Group Bengal Port – P&O Ports (India)

Ports > Development Projects > On Going Projects

Estimated Cost (Rs. In Million) Capacity (MTPA)

Jawaharlal Nehru Port

Container Terminal, NSICT 6,000.00 13.20

BPCL Jetty 2,000.00 5.50

Third Container Terminal 9,000.00 15.60

Mumbai Port

Construction of two new off shore container berths and Development of container terminal on BOT basis in

Mumbai Harbour

14,600.00 9.60

Mormugao Port

Bulk Cargo Berths No. 5A & 6A 2500.00 5.00

Kandla Port

Fifth Oil Jetty (IFFCO) 215.00 2.00

Oil Jetty related facilities at Vadinar (ESSAR)

7500.00 12.00

Oil Jetty awarded to M/s IOCL 207.00 2.00

Container Freight Station 410.70 3.00

Container Terminal (Phase I & II) 4465.40 7.20

Tuticorin Port

Container Terminal (Berth No. 7) 1000.00 5.00

Construction of Coal Berth at NVW for NLC – TNEB

490.00 6.30

Visakhapatnam Port

Container Terminal, Outer Harbour 1080.00 1.60

Multipurpose Berths – EQ-8 & EQ-9 1960.00 6.00

Paradip Port

Captive Fertilizer Berth

261.70 4.00

Mechanisation of Cargo Handling

Project – I373.20 2.00

Mechanisation of Cargo Handling

Project – II251.30 2.00

Construction of 5000.00 15.00

60

Single Point Mooring Captive

BerthChennai Port

Container Terminal

4690.00 8.00

Development of Second

Container Terminal

4950.00 9.60

Ennore PortMarine Liquid

Terminal2490.00 3.00

Coal Terminal 3990.00 8.00Iron Ore Terminal

4800.00 12

Kolkata (HDC)Multipurpose Berth No. 4A

1500.00 3.00

Multipurpose Berth No. 12

300.70 0.45

Mechnisation at HDC berth no. 2

750.00 4.00

Mechnisation at HDC berth no. 8

750.00 4.00

Cochin PortCrude Oil

handling facility7200.00 7.5

International Container

Transshipment Terminal (ICTT)

21,180.00 36.00

LNG Re-gasification Terminal

31950.00 2.50

New Manglaore PortConstruction of Captive Jetty for handling Coal by

M/s NPCL

2300.00 3.00

Ports > Development Projects > Recent & Emerging Opportunities

Estimated Cost (Rs. In Million)

Capacity (MTPA)

KandlaDevelopment of 13th to 16th multipurpose cargo berth (other than liquid & container cargo berth)

7550.00 8.00

Creation of berthing allied facilities of Tekkra near Tuna (outside Kandla creek) – Phase – I

11366.30 12.00

Setting up of Single Point Mooring (SPM) and allied 8300.00 9.00

61

facilities off Veera in Gulf of KutchParadip

Construction of Deep Draft Iron Ore Berth 5910.00 10.00Construction of Deep Draft Coal Berth 4790.00 10.00

Multipurpose Berth Project – I 3873.10 5.00Mechanization of Central Quay – III Berth

* Single stage bidding400.00 4.00

New MangaloreSetting up of Mechanised Iron Ore handling

facilities at Berth - 142771.70 6.62

Development of Container Terminal 2758.20 4.24Mormugao

Development of Berth No. – 7 for Handling Berth Cargo

2520.00 7.00

Construction of two berths of Vasco Bay 1200.00 5.00Development of Bulk Handling Terminal West of

Breakwater WoB7210.00 12.00

VisakhapatnamEstimated Cost (Rs. In

Million)Capacity (MTPA)

KandlaDevelopment of 13th to 16th multipurpose cargo berth (other than liquid & container cargo berth)

7550.00 8.00

Creation of berthing allied facilities of Tekkra near Tuna (outside Kandla creek) – Phase – I

11366.30 12.00

Setting up of Single Point Mooring (SPM) and allied facilities off Veera in Gulf of Kutch

8300.00 9.00

ParadipConstruction of Deep Draft Iron Ore Berth 5910.00 10.00

Construction of Deep Draft Coal Berth 4790.00 10.00Multipurpose Berth Project – I 3873.10 5.00

Mechanization of Central Quay – III Berth* Single stage bidding

400.00 4.00

New MangaloreSetting up of Mechanised Iron Ore handling

facilities at Berth - 142771.70 6.62

Development of Container Terminal 2758.20 4.24Mormugao

Development of Berth No. – 7 for Handling Berth Cargo

2520.00 7.00

Construction of two berths of Vasco Bay 1200.00 5.00Development of Bulk Handling Terminal West of

Breakwater WoB7210.00 12.00

VisakhapatnamDevelopment of Western quay (WQ-6) in the

northern arm of Inner Harbour of

VPT for Handling Dry Bulk Cargo

1143.70 2.00

Development of EQ-10 Berth in

553.80 1.85

62

Inner Harbour for handling Liquid CargoInstallation of Mechanised

handling facilities for

fertilizers at EQ-7 in the inner

Harbour

2175.80 5.21

Installation of Mechanised

Handling Facilities at WQ-

8

2088.70 4.60

Installation of Mechanised

Handling Facilities at WQ-

7

2138.70 4.50

Mechanised Coal Handling

facilities at General cum Cargo Berth (GCB) in the outer Harbour

4441.00 10.18

Development of EQ-I in East

Dock2655.20 5.95

Development of EQ-I-A in East Dock at Vizag

2697.10 6.70

EnnoreDevelopment of

Container Terminal

14070.00 15.00

TuticorinConversion of berth no.-8 as

Container Terminal

3122.30 6.00

Construction of North Cargo Berth No.-II

3321.60 5.00

Construction of shallow draught Berth (3 Nos)

500.00 0.80

Mechanization of Construction

of Berth 9200.00 5.00

ChennaiCreation of Mega

Container Terminal

31250.00 48.00

63

Jawaharlal NehruDevelopment of

standalone container handling

facilitywith a quay length of 330m North of

NSICT Terminal

6000.00 9.60

4th Container Terminal

67000.00 57.60

MumbaiDevelopment & operation of 2 berth at Indira Dock as dry

Dock Terminal

450.00 0.60

Development & operation of a berth at Indira

dock – as conventional

cargo terminal

300.00 0.60

KolkataConstruction of 1

riverine jetty downstream of

2nd oil jetty

470.00 1.50

Construction of 1 riverine jetty

downstream of 3nd oil jetty

990.00 2.50

CochinInternational Bunkering Terminal –

Construction of Multipurpose

Liquid Terminal

1842.00 4.50

International Cruise

Terminal/Public Plaza

550.00 -

Ports > US$ 22 billion Opportunity

12 major ports and 187 minor ports along India’s ~7,500 km of long coastline; ~95% (by volume) and ~70% (by value) of India’s international trade in FY09 was carried out through ports.

100% FDI under automatic route has been allowed in port development projects.

Investment envisaged in 11th Plan on ports - US$22bn; private sector to contribute 61% of the total spending.

64

Total capacity addition expected to be 830 MMT for both major and minor ports.

Targeted Capacity Addition – 11th Plan Growth in merchandise exports projected at over 13% p.a. Cargo Handling at Major Ports is projected to grow at 7.7% p.a. (CAGR)

till 2011-12. Containerized cargo is expected to grow at 15.5% (CAGR) over next

7 years. Required Investment of Rs. 57,452 crores to boost Major Ports

Infrastructure for 276 projects in the next 7 years, out of which 64% is envisaged from private players.

Required Investment Rs. 35,933 crores for improving Minor Ports, out of which 64% is envisaged from private players.

Ports traffic data (Mn Tonnes)

Port-Wise Capacity Addition Planned at Major ports (in Mn Tonnes) in the 11th Five-Year Plan (2008 – 2012)

65

CAGR – 9.5%

CAGR –

8.5%

State Wise Capacity Addition Planned at Non-Major ports (in Mn Tonnes) in the 11th Five-Year Plan

Private sector will be a key player in port development

• All major international players including Maersk, Dubai Ports International and Port of Singapore Authority already have a presence in India.

• The total port capacity is targeted to increase from the current 736mt to 1,574mt by FY2012.

Infrastructure Development at Ports

Up - gradation of major ports through private sector involvement (13 projects are operational & 4 under implementation).

Development of container terminals (in 6 ports of total 15 million TEUs capacity): Target Date: 2013 – 14.

Projects worth US$13.33 billion proposed under National Maritime Development Programme (NMDP): Target Date: 2013 – 14.

Additional port handling capacity of 530 MMTA in major ports: Target Date: 2013 – 14.

Ports > Projects: Investments in Fixed Assets

Investments in fixed assets financed by internal resources of the 12 Major Ports in Rs Crores

2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 122012 -

132013 -

14Total Percentage

Kandla 84 132 167 71 74 30 42 600 4%JNPT 421 1000 832 768 720 511 127 4,379 27%

Mumbai 277 767 673 439 359 223 159 2,897 18%Mormug

ao284 140 90 10 10 10 10 554 3%

New 60 93 88 48 28 25 25 367 2%

66

Proposed financing of the major ports in the 11th five year plan (FY2008-2012)

Mangalore

Cochin 75 201 280 - - - - 556 3%Tuticorin 270 295 572 595 493 75 18 2,318 14%Chennai 197 68 120 68 - - - 453 3%Ennore 96 166 250 209 27 - - 748 5%Visak 170 275 266 180 159 45 1 1,096 7%

Paradip 363 221 98 183 94 68 170 1,197 7%Kolkata 83 365 175 128 104 20 19 894 6%Total 2,380 3,723 3,611 2,699 2,068 1,007 571 16,059 100%

Percentage

15% 23% 22% 17% 13% 6% 4% 100%

The investments in fixed assets for the 12 Major Ports are expected to be financed by the internal reserves of the Ports and amount to Rs 16,059 Crores for the period 2007-08 to 2013-14.

The investments reach the highest level in the years 2008-09 and 2009-10, after these years the investments are declining to Rs 571 Crores in 2013-14.

The highest level of investments for the individual ports was for JNPT, Rs 4.378 Crores (which is 27% of the investments of all 12 Ports) followed by Mumbai and Tuticorin.

In Cochin, New Mangalore, Mormugao and Chennai the level of investments from their own resources was relatively low. For each of these ports it was 3% or less of the total of all 12 Ports.

Investments in fixed assets financed by private sector in Rs Crores

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

2013 - 14

Total Percentage

Kandla 180 404 3,984 - 65 390 - 5,023 19%JNPT 2,678 981 2905 3879 - 279 - 10,722 41%

Mumbai

250 250 734 162 96 142 - 1634 6%

Mormugao

140 - - - - - - 140 1%

NewMangal

ore889 207 224 - - - - 1,320 5%

Cochin 91 55 319 - - - - 465 2%Tuticori

n109 50 30 30 30 30 39 318 1%

Chennai

- - - - - 45 - 45 0%

Ennore 538 1,090 650 - - - 298 2,576 10%Visak 187 940 30 240 - - 270 1,667 6%

Paradip - 581 239 239 551 - 29 1,639 6%Kolkata 158 - 345 105 - - - 608 2%Total - - - - - - - 26,157 -

Ports > Major Forecasts

67

Traffic Forecasts

In 2013 the Major Ports already will handle twice as much cargo as will be the case in Rotterdam.

Traffic forecast in the Major Ports and in Rotterdam in M tons

2006 2013 2026 2006-2026Major Ports India 420 814 1,450 245%Port of Rotterdam 380 430 595 60%

Investments in fixed assets

The enormous growth in cargo volumes is reflected in the investments in fixedAssets.

In the next 7 years, the Major Ports in India will be investing 16.000 Crores. Inthe same period the investments in Rotterdam will add up to 14.000

Crores (85%of the Indian investments).

The focus in India is on the first 3 years. The focus in Rotterdam is somewhatBroader.

Large investments are not only planned in the first 3 years, but also in thelast year of the projected period (and even beyond this period).

Long term planning is important to anticipate on the traffic forecasts.

Revenues (in Rs Crores) Operating expenses (in RsCrores)

Comparison of Revenues Major Ports in India and Rotterdam in Rs Crores

The revenues of the Major ports are at this moment approximately twice as

high as the revenues of the Port of Rotterdam. In the next 7 years the revenues of the Major Ports will almost double

68

2007-08 2013-14 GrowthMajor Ports

India3,700 4,400 19% (3% pa)

Port of Rotterdam

1,300 1,600 23% (4% pa)

2007-08 2013-14 GrowthMajor Ports

India5,400 9,400 74% (12% pa)

Port of Rotterdam

2,800 3,600 29% (5% pa)

while the revenues of the POR only will grow with 30%.

Comparison of Operating expenses Major Ports in India and Rotterdam in Rs Crores

The operating expenses of the Major Ports are approximately 3 times higher than in the Port of Rotterdam. The reason is that the Major Ports are service ports and the Port of Rotterdam is a landlord port.

The growth of the operating expenses at the Major Ports is moderate, 19% in the 7- year period. Most ports are downsizing the number of employees in this period and new terminals are BOT contracts.

The growth of operating expenses in the 7-year period at the Port of Rotterdam is slightly higher, 23%, mainly because of increasing maintenance costs.

Financial performance: Operating margin and PAT

Concentrating on the operating margin, which is revenue less operating expenses, it can be concluded that the operating margin in the year 2007-08 is approximately at the same level for the Major Port and the Port of Rotterdam.

But in 7 years the growth of the revenues of the Major Ports is enormous. In

Rotterdam the growth is much more modest. The PAT in 2007-08 of the Major Ports is already much higher than in

Rotterdam. The growth in the 7 year period for the Indian ports is also much

higher.

Ports > Major Forecasts (Financial position)

Operating margin in Rs Crores

2007 – 08 2013 – 14 GrowthMajor Ports

India1,700 4,900 188% (31% pa)

69

0

1000

2000

3000

4000

5000

in Rs Crores

2007-08(Operating

margin)

2013-14(Operating

margin)

2007-08(PAT)

2013-14(PAT)

Time Period

Operating margin and PAT in Rs Crores

Major Ports India Port of Rotterdam

Port of Rotterdam

1,500 2,100 40% (7% pa)

Profit after tax in Rs Crores

2007 – 08 2013 – 14 GrowthMajor Ports

India1,500 4,000 167% (28% pa)

Port of Rotterdam

300 470 57% (9% pa)

The exact figures show a growth of the operating margin at the Indian ports of 188%, against 40% in Rotterdam.

The PAT in the Major Indian Ports at the moment is 5 times higher than in

Rotterdam. In 7 years time the PAT is 10 times higher than in Rotterdam.

When considering the growth in profit margin and PAT, which is much higher

in India, it is good to take into account that the investments in fixed assets in the projected period don’t differ very much. Investments in India lead to much higher growth in profits than in Rotterdam. Solvency Major Ports and Rotterdam

2008 – 09

2013 – 14

2025 – 26

Major Ports India

65% 75% 90%

Port of Rotterdam

66% 48% 66%

In India and Rotterdam the level of fixed assets is growing, which is caused

by the investments in the 7 year period. The absolute level in Rotterdam in 2013-14 is still slightly higher than

in the Major Ports but the growth in India is much faster. During the period of investments the level of available funds in the

Major Ports is increasing. In Rotterdam there are no available funds. This means that in periods

of high investments the Port of Rotterdam has to raise debt. The solvency ratio in the Major Ports is steadily rising. In Rotterdam the

solvency rate is decreasing from 66% to 48% in the next 7 years.

Port > Financial strategy

70

The 12 Major Ports of India project to invest more then Rs 16.000 Crores from their own resources during the 7-year period.

Over the same period the 12 major Ports expect the private sector to invest some Rs 25.000 Crores via BOT contracts.

At the end of the 7- year period the internal funds available for investments in fixed assets have augmented to Rs 16.000 Crores.

The own equity for the 12 Major Ports at the end of the 7-year period amounted to more than Rs 38.000 Crores. The Advisor assumes a normal debt equity ratio as 1 to 1 (in line with TAMP); which indicates a borrowing capacity of Rs 38.000 Crores.

At the end of the 7-year period the outstanding long term loans amounted to Rs 2.605 Crores. The unused part of the borrowing capacity is more than Rs 35.000 Crores.

The financial strategy used by the Consultants and the Ports for the 7 – year period resulted in an amount of over Rs 55.000 Crores of unused funds. The Advisor concludes that this is not in line with the core function of a public port.

Ports > Port Infrastructure > Worldwide Trends

Port development takes place in deeper water due to the trend of larger vessels applied.

Economy of scale is applied with the focus to decrease the costs per unit, which lead to larger projects.

Industrial clusters are established to obtain synergy and achieve more efficiency.

Logistic clusters are established in or near ports, also to achieve more efficiency.

The role of the private sector is increasing.

Ports > Indian Port Sector > Present Characteristics

The 12 Major Ports form nearly 75% of the market share. Due to scarcity of port facilities, the port sector is a demand market. The Port Trust has limited investments to make mostly dredging – but

in return receives high revenue shares from the private sector.

Performance or efficiency on the berths was not often taken into account, while here the cheapest and fastest port capacity increase could be achieved – decision to construct (an) extra berth(s) was taken.

Minor ports, public ports falling under the States, are sometimes becoming a fierce competitor for the Major Ports.

The biggest threat is the development of private ports, not hampered by old infrastructure, bureaucratic procedures and inefficient cargo handling systems.

71

Fortunately the newest Major Ports like JNPT and Ennore, serve as an example for the other Major Ports with respect to efficient cargo handling operations. JNPT in fact already reached the goal of becoming a world class facility. Ennore, still having much port area, has the potential to become a world class facility, on the condition that careful long term planning is taken into account.

Ports > SWOT Analysis > 12 Major Ports

High growth High market share Financial means available Most ports located at strategic locations

Old infrastructure Limited water depth Old and inefficient cargo handling

systems Poor hinterland connections Rigid institutional framework High tariffs Poor quality of services /

business attitude Over-staffing Lack of capacity Lack of extension possibilities

Introduce competition Huge Indian market, and landlocked countries in

the North Improve organisation: training, IT, downsizing Port reform – more autonomy PPP other than BOT Invest in infrastructure, lower costs for port

users Invest in total transport chain

  Private ports Minor ports Bureaucracy Time

Irrigation > US$ 18 billion Opportunity

India has 2.4% of the world’s total area but 16% of the population and only 4% of the available fresh water.

72

Weaknesses

Opportunities

Strengths

Threats

Financial health of the country as a whole is a serious concern, rapid augmentation of its internal financial resources through rapid actualization of its large hydroelectric potential is the only solution.

Expansion of the present irrigation facilities atleast by 10.61 lakh hectares through conservation, efficient utilization and development of water resources.

Rs. 15, 102.61 crores is targeted for the eleventh plan(2007-12) which constitutes 21.64% of the total planned spending.

Practices of creating protective irrigation and improving water harvesting through micro-minor, improving ground water recharge through water conservation campaign, construction of field ponds and extension reforms through Agricultural Technology Management Agency (ATMA) using institutional & capacity building using PPP model.

Targeted Capacity Addition – 11th Plan

Aimed at doubling the annual growth rate in the sector to 4% in the 11th plan period that ends 2012.

Hope to be able to add about 16 million hectares to the irrigated area during the 11th Five – Year Plan, PM.

Efficiencies of surface water systems to be improved from the present level of 35 to 40%to about 60% and that of ground water systems from 65% to about 75%.

Formulation of a National Water Mission, one of the 8 national missions that are part of National Action Plan on Climate Change.

The Bharat Nirman programme aims at addressing water quality problems in all the quality affected habitations by 2009.

Ports traffic data (Mn Tonnes)

In February, the major ports handled cargo of 45.8 million tonnes , 1.3% higher than the 45.2 million tonnes in the corresponding month in 2009.

For the 11-month ended Feb 2010, ports recorded a cargo growth of 5.5% compared with the same period in the 2009 fiscal, source: Indian Ports Association (IPA).

Paradip saw the highest increase in cargo traffic during the period at 26%, Mormugao rose 15.3%, Tuticorin increased 12.2% while JNPT and Chennai rose by 5% each. In cargo traffic, container tonnage increased 7% over the previous year, with iron-ore increasing 5.8%and coal traffic rising 3.22%.

Cargo growth of 5.5%(Y-o-Y) in April-Feb FY10 indicates that economic activity is back on track.

The government expects infrastructure investment at 7.94% and 8.37% for 2010-11 and 2011-2012, respectively.

73

Infrastructure spending to remain strong even in XIIth plan

Considering the overall slowdown in the economy in the last one year and slippages based on past experience, investment in infrastructure spending is likely to be to the tune of US$361.3 billion against the government target of US$500 billion – Company, ICICIdirect.com Research.

Infrastructure investment expected at US$361 billion against US$500 billion, still 1.7x of the Xth Five Year Plan – Company, ICICIdirect.com Research.

Areas such as power, roads and water & irrigation are likely to be major thrust areas for the government in the Eleventh and Twelfth Five Year Plans.

In the XIIth Plan, investment is likely to be US$667.6 billion indicating sustainable opportunities for strong players – A clear indication for construction companies, expected to sustain their growth trajectory even at the end of the XIIth Five Year Plan.

In terms of verticals, power, roads and water & irrigation are likely to see higher allocation in the XIth Five Year Plan.

Expect the topline to grow at a CAGR of 13.8% during FY09-FY12E on the back of strong execution of the order book – Company, ICICIdirect.com Research.

Different allocation to various segments offers varied investment opportunity which infrastructure funds are expected to capture.

Future Plans & Funds Requirement

India is building 20 km of road a day, which is 7,000 km a year and represents $50 billion worth of work in progress.

The country also has the largest PPP programme in the world, in which it plans to invest $9 billion to improve airports, $12 billion to modernise ports and $130 billion in the power sector including transmission and distribution.

74

Infrastructure spending (top down approach) Source: Planning Commission, ICICIdirect.com Research* Exchange rate has been assumed at Rs 45/USD

FY07XIth plan XIIth plan

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17GDP (Rs trn) 41.5 45.2 48.3 51.7 55.6 60.1 65.2 70.7 76.7 83.2 90.3

GDP growth rate % - 9.1% 6.7% 7.2% 7.5% 8.0% 8.5% 8.5% 8.5% 8.5% 8.5%GCF in Infrastructure as

% of GDP5.0 6.0 7.2 7.0 7.3 7.5 7.8 8.0 8.3 8.5 9.0

GCF in Infrastructure (Rs trn)

2.1 2.7 3.5 3.6 4.0 4.5 5.1 5.7 6.3 7.1 8.1

GCF in Infrastructure

FUNDS REQUIREMENT

POWER SECTOR – FISCAL INCENTIVES

Normative parameters provides for 16% return on equity at 68.5% PLF for thermal and 90% availability for hydro plants. In addition up to 0.7% return on each incremental 1% PLF.

Generating companies operating coal based, gas based and hydro projects can sell power on the basis of a suitably structure two part tariff.

A five year tax holiday and 30% deduction of profits in the following five years has been allowed.

Income tax exemption on all income of any fund dedicated to power sector.

The excise duty on large number of capital goods instruments has been reduced.

Greater flexibility is allowed for power projects for availing external commercial borrowing (ECB).

Domestic savings invested into debentures/shares offered by power sector are eligible for tax rebates.

India to become the second Largest Economy by 2050

75

ENERGY SAVINGS BY DEMAND SIDE MANAGEMENT

PlanCapacity to be installed (MW)

Funds required for generation component (Rs. Millions)

9th Plan 52, 820 2, 250, 000 *10th Plan 45, 370 2, 500, 000 *11th Plan 55, 593 1, 250, 000 @

Plan

Savings in installed capacity requirement (MW)

Peak & energy

decreased by 5%

Peak decreased by 5%

9th Plan 7, 189 5, 955

10th Plan 9, 021 8, 521

11th Plan 24, 350 20, 690

With the expected average annual compounded growth rate of 8.5%, India's GDP is expected to be USD 1.4 trillion by 2017 and USD 2.8 trillion by 2027.

Service sector contribute to 50% of India‘s GDP and the Industry and agriculture sector 25% each.

More than USD 475 bn worth of investment is to flow into India’s infrastructure by 2012.

With the above investments India’s infrastructure would be equal to the best in the world by 2017.

Thus in the eleventh five year plan ,investment in the above sectors (Aviation infrastructure ,Construction infrastructure, Highway infrastructure ,Power infrastructure, Port infrastructure ,Telecom infrastructure ) will be US$ 384 billions(Rs 17,20,000 Crores) considering the huge infrastructure market potential in India. In addition to the above, investments to the tune of  US$ 91 billions have been planned in other infrastructure sectors like Tourism infrastructure  ,Urban infrastructure ,Rural infrastructure, SEZs ,and water infrastructure and sanitation infrastructure thus making the total infrastructure investments in the eleventh plan period 2007-08 to 2011-12 as US$475 billions.

The estimated infrastructure investments in India over USD475 will create demand for Power equipment , Construction equipment ,Material Handling equipment ,Electronic and IT systems ,Environment technologies ,Transport equipment , EPC contracts, Infrastructure companies in India ,Financial services ,Real estate ,Education and training ,Design and Planning services , Infrastructure consultants , Advisory and professional services  and provide opportunities for investors, contractors, o&m contractors, developers of infrastructure projects ,foreign players.

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6. FINDINGS/ CONCLUSION

Key Findings

The government has pegged infrastructure investment for 2009–10 at 7.5% of the gross domestic product (GDP) and at 7.94% and 8.37% for 2010–11 and 2011–12, respectively.

According to the government, the Indian economy is poised to grow at 7.2% in 2009–10, 8.5% in 2010–11 and 9% in 2011–12.

For 2009–10, the total investment in infrastructure is estimated at 7.5% of GDP.

The government aims to increase this to 7.94% and 8.37% in 2010–11 and 2011–12, respectively.

Infrastructure development is expected to garner a total investment of Rs20.5 trillion (revised estimates) over the 11th Five-Year Plan; of this, approximately 36% (Rs7.4 trillion) is likely to come from private participation, especially in the road and power sectors.

This marks a change in composition of projected public-private investment from 70:30 to 64:36. However, the gross investment target remains largely unchanged.

Investment in infrastructure during first three years of the 11th five year plan stood at approximately Rs8,000 billion; of this, 45% was financed through budgetary support and the balance through a combination of debt (41%) and equity (14%), including foreign direct investment.

The targeted infrastructure investment for the 12th Plan is at Rs40,984 billion—assuming infrastructure gross capital formation (GCF) of 9.95% of GDP—is nearly double that of the 11th Plan.

Lehman Brother estimates INR34,385 billion (~USD860 billion) worth of construction opportunity in India for the next five years, representing a CAGR of 20% versus a CAGR of 14% for the past five years.

Execution risk will be the biggest risk in the construction industry, companies with established execution abilities and a more diversified portfolio will be able to manage the risk better than others.

Private sector can issue long-term infra bonds: FM. India will need to spend over USD 1 trillion in infrastructure

development during the 12th Five-Year Plan. 2% to 3% returns expected on developed EQ including US & UK.

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50 – 60 $ billion of yearly investments on Indian infrastructure sector mandatory for maintaining a GDP growth rate of 8 – 8.5 % annually, which is higher than 7 – 8 % growth rate expected during the same fiscal last year because of excellent policies & financial measures adopted by the GOI.With the global venture capital industry showing signs of recovery, investment levels into India are expected to increase the most compared to others in the Asia-Pacific region over next three years, says a survey by Deloitte.

7. REFERENCES

BIBLOGRAPHY WEBSITES:

www.religare.in

www.google.com

www.nseindia.com

www.bseindia.com

www.moneycontrol.comNEWSPAPERS:

HINDUSTAN TIMES

ECONOMIC TIMES

MARKET EXPRESSBOOKS: Indian Infrastructure magazine (September 2009 to June 2010)

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