PMPM34 Oil Gas Infrastructure

PROJECT MANAGEMENT II –

OIL & GAS INFRASTRUCTURE

(PGPM – 34)

SUBMITTED

TO

NATIONAL INSTITUTE OF CONTRUCTION MANAGEMENT

AND RESEARCH (NICMAR) PUNE.

SCHOOL OF DISTANCE EDUCATION (SODE)

By

SWAPNIL VIRENDRA SHINDE

(PGDPM)

Reg.no.-211-08-31-9784-2131

Course no: PGPM 34

PROJECT MANAGEMENT II –

OIL & GAS INFRASTRUCTURE

Course title: Project Management II -Oil & Gas Infrastructure2 of21

Course no: PGPM 34

CONTENTS

SR.NO. DESCRIPTION PAGE

NOS.

1 INTRODUCTON 5

2 NEW INSTITUTIONAL MECHANISM

FOR PPP

6

3 INFRASTRUCTURE SECTORS IN

INDIA

9

4 CONCLUSION 18

5 BIBLIOGRAPHY 21


Course no: PGPM 34

Assignment question:

For a country of India’s size, an efficient infrastructure is necessary both for

national integration as well as for socio-economic development. The major

infrastructural sectors include energy and transport sector. Good physical

connectivity in the urban and rural areas is essential for economic growth.

India’s transport sector is large and diverse; it caters to the needs of 1.1 billion

people. However, the sector has not been able to keep pace with rising

demand and is proving to be drag on the economy. Major improvements in

the sector are therefore required to support the country’s continued economic

growth and to reduce poverty.

1. What are the major challenges facing the transport sector of India.

2. What are the major changes required in setting up an effective

regulatory framework for a speedy infrastructural development in India?

3. “Nuclear energy is the best option to meet India’s growing energy

needs noting that the country is dependent on oil and gas imports and

its coal supplies are limited”. Discuss in detail by substantiating the

statement with facts and figures.


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INTRODUCTON

Infrastructure development has a key role to play in both economic

growth and poverty reduction. Investors, policymakers and citizens alike

acutely feel the constraint of physical infrastructure on economic growth.

Many of the ingredients for rapid economic growth and poverty reduction in

India are already in place and the transformation of the lives of millions seems

within reach. Yet there is a long way to go. The challenge of finding the

money to invest in infrastructure projects without jeopardizing fiscal health has

been keeping policymakers on their toes. We will discuss the efforts made by

the government in this area. Many initiatives taken in the infrastructure

Sector, laudable as they are, are coming under the scrutiny of the public and

the investors. The commercialization of infrastructure is not progressing fast

enough to provide decent living conditions to citizens at large. Young India

struggles daily to reach school and workplace and yet remains optimistic. We

describe here, recent developments in different sub-sectors within the

infrastructure sector. Challenges are emerging with changes in technology in

the telecom sector. Development in the power and transport sectors is

slowing down due to a plethora of issues, which we study here. Within the

transport sector we map the growth trajectory of those sub-sectors that are

expanding rapidly. Within urban infrastructure we take note of the important

projects in progress and study the consequences of long-term policy failure.

NEW INSTITUTIONAL MECHANISM FOR PPP

Progress in creating new infrastructure has been slow while demand for

infrastructure services is burgeoning. While it is clear that private sector is

keen to participate in infrastructure projects, organizations are very cautious in

their approach. 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. Unless the government assures availability of funds at rates of

return appropriately adjusted for risks, the private sector is unlikely to venture

into infrastructure in a big way. Recognizing the imponderable risks, which

infrastructure projects entail, with long gestation periods, high costs and


Course no: PGPM 34

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 (IIFC) 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 among investors.

India Infrastructure Finance Company

The Finance Minister announced a special purpose vehicle (SPV) to fund

infrastructure projects in his 2005 budget speech. The SPV, India

Infrastructure Finance Company (IIFC) is proposed to be a wholly owned

government entity under the Companies Act. The authorized capital of the

company is fixed at Rs 1000 crore and the borrowing limit for the current fiscal

has been pegged at Rs 10,000 crore. The company will fund projects in urban

infrastructure, roads, power, railways, ports, airports, and tourism. The

projects could be publicly or privately owned or could be schemes involving

public–private partnerships. In case of projects which need viability gap

funding under a government scheme, IIFC will also fund these provided their

viability is assessed by the Inter-Institutional Group (IIG) of banks and

financial institutions consisting of IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of

Baroda and Punjab National Bank. The company will provide refinance to

banks/financial institutions for loans of five years or more. It is hoped that the

way National Housing Bank helped in the development of the housing market,

the IIFC would be able to help in development of infrastructure in the country.

The borrowings of IIFC are to be guaranteed by the Union government. This

is in marked contrast to a traditional SPV, which raises funds on the strength

of a project’s future receivables. Being a wholly owned government company,

with lower return expectations and lower cost of funds emanating from a

sovereign guarantee, IIFC will have the ability to bear risks at lower rates. The

establishment of IIFC should accelerate the financial closure of many


Course no: PGPM 34

infrastructure projects and consequently, increase considerably, the size of

the infrastructure loan market going forward. Furthermore, since the appraisal

of a proposed project for IIFC will be undertaken by the IIG, consisting of

existing financial institutions, they will be fully involved in the projects

supported by IIFC. This will ensure that the capital of IIFC is leveraged to the

maximum extent possible by extending minimum crucial support to each

individual project while structuring the funding in a manner that is

complementary to the lending by existing financial institutions.

Scheme to Support Public–Private Partnerships in Infrastructure

The government has formulated a scheme to provide viability gap

funds to infrastructure projects. The viability gap funding would make

infrastructure projects commercially viable. It is a plan scheme to be

administered by the Ministry of Finance (MoF). Funding under this scheme

will be disbursed contingent upon agreed milestones (preferably physical) and

performance levels attained, as detailed in a funding agreement. The project

will then be put to bid by the concerned public agency through a transparent

and open competitive process. The result of the bidding will indicate the

extent of viability gap funding required, in other words, how much money is

needed to make the project feasible. In the first two years of the facility,

funding will be allocated to projects on a first-come, first-served basis, subject

to eligibility criteria. In later years, funding will be provided based on an

appropriate formula that balances needs across sectors. A lead financial

institution will be responsible for regular monitoring and periodic evaluation of

project compliance with agreed milestones and performance levels. The lead

financial institution will release the viability gap funds to the project authorities

when due, and obtain reimbursement from the empowered institution (GOI

2005a). The scheme covers roads, railways, seaports, airports, inland

waterways, power, infrastructure projects in SEZs, international convention

centers and other tourism infrastructure projects, urban transport, water

supply, sewerage, solid waste management and other physical infrastructure

projects in urban areas. Salient provisions under the scheme are:

• Infrastructure asset indirectly owned by the government;


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• Project built and maintained by a private sector entity;

• Project designed and an estimate of viability gap given by a government

entity;

• Viability gap fund—one time or deferred grant—provided by the government;

• Viability gap fund not to exceed 20 per cent of the total project cost; but the

entity that owns the project may provide additional grants up to another 20 per

cent of the project cost from its own budget;

• A pre-determined tariff or user charge to be collected from users.


Course no: PGPM 34

INFRASTRUCTURE SECTORS IN INDIA

HIGHWAYS

Initiatives

For a country of India`s size, an efficient road network is necessary both for

national integration as well as for socio-economic development. 65,569 km

National Highways (NH) serves across the country. 5,900 kms Four-laning

Golden Quadrilateral (GQ) connecting Delhi, Mumbai, Chennai and Kolkata is

nearing completion. The ongoing four-laning of the 7,300km North-South

East-West

(NSEW) corridor is to be completed by December 2009. Committee on

Infrastructure adopted an Action Plan for development of the National

Highways. An ambitious National Highway Development Programme

(NHDP), involving a total investment of Rs, 2, 20,000 crore up to 2012, has

been established. The main elements of the programme are as follows:

Four-laning of the Golden Quadrilateral and NS-EW Corridors (NHDP I &

II)

The HPDP Phase I & II comprise of (GQ) link four metropolitan cities in India

ie. Delhi-Mumbai-Chennai-Kolkata, the North-South corridor connecting

Srinagar to Kanyakumari including Kochi-Salem spur and the East-West

Corridor connecting Silchar to Porbandar besides port connectivity and some

other projects on National Highways. The contractors for project forming par

of NS-EW corridors are being awarded for its rapid completion.

Four-laning of 10, 000 kms (NHDP-III)

The Union Cabinet has approved the four-laning of 10,000 km of high density

national highways, through the Build, Operation & Transfer (BOT) mode. The

programme consists of stretches of National Highways carrying high volume

of traffic, connecting state capitals with the NHDP Phases I and II network and

providing connectivity to places of economic, commercial and tourist

importance.

Two laning of 20,000 km (NHDP-IV)


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To provide balanced distribution of improved/widened highways network

throughout the country, NHDP-IV envisages up gradation of 20,000 kms of

such highways into two-lane highways, at an indicative cost of Rs.25,000

crore. This will ensure that their capacity, speed and safety match minimum

benchmarks for national highways.

Six-laning of 6, 500 kms (NHDP-V)

Under NHDP-V, the Committee on infrastructure has approved the six-laning

of the four-lane highways comprising the GQl and other through PPPs on

BOT basis. These corridors have been four-lanes under the 1st phase of

NHDP, and the programme for their six-laning, to be completed by 2012.

Development of 1000 km of expressways (NHDP-VI)

Committee of Infrastructure approved 1000 km expressways on a BOT basis

costing Rs.15, 000 crore.

Other Highway Projects (NHDP-VII)

For full utilization, safety & efficiency of Highway, development of ring road,

bypasses, grade separators and service roads is necessary. Cost of

Rs.15000 crore has been mandated for its development.

Accelerated Road Development Programme for the North East Region.

NEDProject will provide connectivity to all State-Capitals & district

headquarters. NH and state highways are necessary for economic

development of NE region.

Institutional Initiatives

NHAI re-structures and strengthens National Highways. Institutional

mechanism cares land acquisition, environmental clearance etc, through

Directorate of Safety & Traffic Management.

Model Concession Agreement (MCA) is mandated for PPPs in national

highways to balance risk and reward.


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Size

Govt. of India spends Rs.18000 crores annually on road development

Programme for 4-laning of 14000 km of National Highways

NHDP of Govt include

- Golden Quadrilateral (GD-5846 ks of 4 lane highways)

- North-Sout & East-West Corridors 7300 kms of 4 lane

highways

Programme for 4-laning of 14000 km of National Highways

Structure

Govt. body formed National Highway Authority to implement NHDP on

Competitive bidding.

Construction Contracts are awarded to private sector

BOT contracts permit stretches of NHDP

BOT stretches on lowest basis

Policy

100%FDI is permitted

Incentives

- 100% Income Tax exemption for 10yrs

- NHAI provide grant/viability gap fund

- Model Concession Agreement formulated


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RAILWAYS

Initiatives

The rapid rise in international trade and domestic cargo has placed a

great strain on the Delhi-Mumbai and Delhi Kolkata rail track.

Government has, therefore decided to build dedicated freight corridors

in the Western and Eastern high-density routes. The investment is

expected to be about Rs. 22,000 crore. Requisite surveys and project

reports are in progress a work is expected to commence within a year.

With increasing containerization of cargo, the demand for its movement

by rail has grown rapidly. So, far container movement by rail was the

monopoly of a public sector entity, CONCOR. The container movement

has been thrown open to competition and private sector entities have

been made eligible for running container trains.

Tariff rationalization and effective cost allocation mechanism are also

on the anvil. This includes a methodology for indexing the fair structure

to line haul costs. Efforts aimed to introducing commercial accounting

and information technology systems are also underway.

Technology up gradation and modernization for higher operating

efficiency.

PPP envisaged in new routes, railway stations, logistics park, cargo

aggregation an ware houses

PORTS

Initiatives

The experience of operating berths though PPP’s at some of the major

ports in India has been quite successful. It has, therefore been decided

to expand the programme and allocate new berths o be constructed

through PPP’s.

The Government has also decided to empower and enable the 12

major ports to attain world-class standards. To this end, each port is

preparing a perspective plan for 20 years and an action plan for seven

years. Recognising that the shipping industry is moving towards large


Course no: PGPM 34

vessels, a plan for capital dredging of channels in major ports has also

been formulated.

A high level committee has finalized the plan for improving rail-road

connectivity of major ports. The plan is to be implemented within a

period of 3 years.

The national maritime development programme is expected to bring a

total investment of over 50,000 crore.

Size

Indian ports handle cargo of 519 million tones in 20004-2005, a 11.8%

increase over 2003-2004.

70% of the traffic at major ports by volume is dry and liquid bulk,

remaining 30% is general cargo including containers which has grown

at a rate of about 14% p.a over the last five years.

India has 12 major ports and 187 minor ports along 7517 kms long

Indian coastline.

Of the 12 major ports, 11 are run by port trusts while the port at Ennore

is a corporation under the central Govt. These ports handle 383.75

million tones of cargo in 2004-2005.

Structure

Government of India dominated maritime activity in the past. Policy

direction is now oriented to encouraging the private sector to take the

lead in port development.

Many major ports now operate largely as landlord ports.

Significant investment by BOT basis by foreign players including

Maersk (JNPT, Mumbai) and P&O ports (JNPT, Mumbai & Chennai) ,

Dubai ports international (Cochin & Vishakapatnam) and PSA

Singapore (Tuticorin)

Minor Ports are already being developed by Domestic and International

Private Investors.

Policy


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100% FDI under the automatic route is permitted for Port Development

Projects.

100% Income Tax exemption is available for a period of 10 years.

A comprehensive national Meritime policy is being formulated to lay

down the vision and strategy for development of the sector till 2025.

Growth in merchandise exports projected at over 13% P.A underlines

the need for large investments and post infrastructure.

Investment need of Dollars 13.5 billion in the major ports under NMDP

to boost infrastructure at this ports in the next seven years.

The Plan proposes an additional port handling capacity of 530 MMTE

in major ports.

Investment need of Dolors 4.5 billion for improving minor ports.

AIRPORTS

Initiative

The Committee on infrastructure has initiated several policy measures

that would ensure time bound creation of world-class airports in India.

The policy of open skies introduced some time ago has already

provided a powerful spurt in traffic growth that has exceeded 20% P.A.

during the last two years.

International Airports at Bangalore and Hyderabad have been

approved and commissioned in 2008. Modernization and expansion of

Delhi and Mumbai Airports through PPPs has been awarded. Other

major airports such as Chennai and Kolkata are also proposed to be

taken up for modernization through the PPP route.

On the analogy of the Highway sector, a model concession agreement

I also been developed for standardizing and simplifying the PPP

transactions for airports.

Size


Course no: PGPM 34

India has 125 Airports: Of these 11 are designated as International

Airports.

In 2004-05 Indian airports handled 60 million passengers and 1.3

million tons of cargo.

Structure

Currently all 125 Airports are owned and operated by the Airports

Authority of India.

The Govt. aims to attract private investment in aviation infrastructure.

Air India and Indian Airlines are government own international and

domestic flat carriers respectively.

Indian private airlines – Jet – Sahara – Kingfisher – Spice Jet – Indigo

– accounts for around 60% of the domestic passenger traffic. Some

have now started International Flights.

Policy

100% FDI is permissible for existing airports: FIPB approval required

for FDI beyond 74%. 100% FDI under automatic route is permissible

for green field airports.

49% FDI is permissible in domestic airlines under the automatic route.

100% tax exemption for airport projects for 10 years.

“Open Sky” policy of the government and rapid air traffic board have

resulted in the entry of several new privately owned air lines and

increased frequency for international air lines.

Potential

Favorable democratic on rapid economic growth point to a continued

boom in domestic passenger traffic and international outbound traffic.

International in bound traffic will also grow rapidly with increasing

investment and trade activity.

The govt. is taking steps to increase participation by private industry.

Major opportunities lie in modernization/up gradation of metro airports

and new Greenfield airport projects.


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Estimated investment is about 40000 Crores for Airport Development

over the next 5 years.

POWER

Size

Generation capacity of 122 GW, 590billion units produced.

India has the fifth largest electricity generation capacity in the world

T&D network of 5.7 million circuit km – the 3rd largest in the world.

Coal- fired plants constitutes 57% of the installed generation capacity,

followed by 25% from hydel power, 10% gas based, 3% from nuclear

energy and 5% from renewable sources.

Structure

Majority of generation, Transmission and Distribution capacities are

with either public sector companies or with State Electricity Boards.

Private sector participation is increasing especially in Generation and

Distribution.

Policy

100% FDI permitted in Generation, Transmission & Distribution – he

Govt. is keen to draw private investment in the sector.

Policy framework in place: Electricity act 2003 and National Electricity

Policy 2005

Incentives: Income tax holiday for 10 years in the first 15 years of

operation; waiver of capital goods import duties on mega power

projects.

Independent regulations: CERC for Central PSUs and Inter State

issues. Each state has its own ERC.

Opportunity

Over 150000 MW of hydel power is yet to be tapped in India.


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India requires an additional 100000 MW of generation capacity by

2012.

Potential

Large Demand-Supply gap: All India average energy shortfall at 7%

and peak demand shortfall of 12%.

The implementation of key reforms is likely to foster growth in all

segments.

Opportunities in Transmission network ventures – additional 60,000

circuit km of transmission network expected by 2012.

Opportunities in Distribution through by bidding for the privatization of

distribution in thirteen states that have unbundled/ corporatised their

SEBs – expected to take place over the next 2-3years.

Total investment opportunity of about $200 billion over a seven year

horizon.


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CONCLUSION

India’s agenda to promote PPPs for infrastructure development aims at

enhancing the quality and quantum of infrastructure services, releasing the full

potential of public sector assets and ensuring that stakeholders receive a fair

share of benefits from the PPP. These partnerships backed by the IIFC and

the viability gap fund scheme hold the promise of faster financial closure of

infrastructure projects without overburdening the country’s public finances. An

infusion of private capital and management can ease fiscal constraints on

infrastructure investment and boost efficiency. In general, wherever private

sector is participating to finance, build and operate a wide array of

infrastructure projects, either on its own or within the framework of PPP, the

sector is recording growth. In order to manage a complex PPP programme in

the country government is leaning on project appraisal and prioritization skills

of financial institutions that are also partners in lending to infrastructure

projects. The government is keenly aware that it has to facilitate PPP actively.

The proposed IIFC and the scheme to support PPPs in infrastructure would

go a long way in construction of large infrastructure projects in the country.

Expanding telecom network capacity has brought down prices and made the

internet more widely available, fuelling a new round of online innovation. In

metropolitan cities spectrum availability has become an issue before 3G

services can be rolled out. Just as with the growth of mobiles, broadband use

explodes only when it becomes affordable to large sections of people. This

requires both the connectivity and the internet access devices (such as PCs)

to be affordable and programmes which are useful to users which are hitherto

either not available or accessible at prohibitive cost.

Power is indispensable as an infrastructure input for the growth of an

economy and acceleration in the growth of the power sector greatly depends

upon the financial and commercial viability of the sector. The implementation

of APDRP in the last two years shows reduction in aggregate technical and

commercial losses of the SEBs and a step towards commercial viability of the

power sector. The Planning Commission’s evaluation of the power sector,

however, suggests that the sector is still saddled with several shortcomings,

and remains an area of serious concern. The assessment points out that

although power sector reforms in the country have been underway for over a


Course no: PGPM 34

decade, with a few milestones reached in crucial areas, the sector remains

locked in a situation that is fundamentally unsustainable. The enforcement of

Electricity Act 2003 marked a renaissance in the power sector of the country

with its progressive package of policy initiatives, the positive results from it are

yet to manifest in the full. But, large investments are being committed to

develop generation and transmission capacity as power become a tradable

commodity across the states and generators are free to sell power directly to

high paying customers.

To achieve an 8 per cent growth in GDP, the transport sector, mainly

comprising of road, rail and shipping sectors needs to display a 9 per cent

growth. There is acute awareness that lack of transport capacity could be the

stumbling block in realizing the growth potential. Further development of

national highways appears to have slowed down though impetus is being

given to ensure that the national highways network continues to expand its

capacity. The government is keen to link the national highways network and

the rail network with ports. Indian Railways, however, is largely dependent on

budgetary support for capacity expansion. A review of recent investment

decisions would indicate that while road and ports have made quite a few

positive moves in the recent past, the Railways’ action plan is somewhat

hazy.

The port sector is also expanding and there is competition to develop large

container port capacity. A massive national maritime development programme

is set to be launched to rejuvenate the port sector and strengthen it in the face

of increasing traffic. The project will be based on public–private partnership

and will have an estimated investment of more than Rs 60,000 crore. India is

on the verge of an aviation revolution. Only 50,000 people travel by air each

day—a fraction of the number uses the rail network. Existing airport

infrastructure is being augmented and new airports are at various stages of

development to be able to service national and international travelers. New

developments in the civil aviation sector have included many budget airlines

and low-cost, no-frills airlines, which have commenced to offer services in a

big way.

The development of urban infrastructure has been fairly stop-gap in the last

few decades. Barring a few large projects in a handful of cities, paucity of


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urban infrastructure projects is glaring. Whereas city mass transport systems

and airports have found place in developmental plans, essential services such

as roads, drinking water, sewage management, drainage, and primary health

—the under belly of urban infrastructure have not yet come on the

developmental radar. Efforts are being made to develop urban infrastructure

in a sustainable fashion. Government wants ULBs to seriously take up the

planning and development of urban infrastructure. With the economy growing

at 8 per cent plus rate, business confidence in the economy is at a ten year

high and the government is targeting an economic growth rate of 8 per cent

during the Eleventh Plan (2008–12). The picture is one of brimming optimism;

the need of the hour is to ensure that the irrational measures of the polity do

not take a toll on the pace of the acceleration of reforms.


Course no: PGPM 34

BIBLIOGRAPHY:

Mid-Term Appraisal of the Tenth Five Year Plan (2002– 2007),

Planning Commission, New Delhi.

Report on infrastructure sector performance ( 2005 - 2006 ), ministry of

statistics and programme implementation

Indian Infrastructure Report

Planning Commission (2002). Foreign investment, Report of the

Steering Group on Foreign Direct Investment, August, Government of

India, New Delhi.

www.iitk.ac.in/3inetwork/html/reports

www.indiainfrastructure.com

www.renewingindia.org


http://www.renewingindia.org/

http://www.indiainfrastructure.com/

http://www.iitk.ac.in/3inetwork/html/reports

PMPM34 Oil Gas Infrastructure

Documents

model concession

project management

existing financial

lead financial

domestic passenger

viability

gas infrastructure

national highways