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India Heading for an Infrastructure Boost

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InfrastructureThe link between infrastructure and economic development is not a once and for all affair. It is a continuous process and progress in development has to be preceded, accompanied, and followed by progress in infrastructure. The current government seems keen on lifting this lull in the sector and its only hoped that the results will be soon visible. Bhavani Balakrishna reports.

Funding constraints, land acquisition issues, delays related to identification and award of projects, rehabilitation and resettlement problems, fund constraints, delay in forest and environmental clearances, right of way and right of use issues, delay in supply of material, contractual issue and shortage of skilled manpower are some of the major reasons that are currently causing delays in infrastructure projects. According to reports, as on May 1, 2014, out of the 727 large projects costing over INR 150 crore and monitored by the Ministry of Statistics and Programme implementation, 282 projects were delayed as on May 1, 2014. Of these, two in three projects in the petroleum sector were delayed, while nearly half the projects in power as well as highways were running behind schedule.

The resolution of long-pending issues for big investment projects has started in earnest under the new government and on the process side, a number of initiatives have been taken the current government to expedite completion of projects.

Process & Policy Initiatives

Model Concession Agreements (MCAs)

The government is expected to re-visit model concession agreements (MCAs) for public private partnership (PPP) projects across sectors to assess the possibility of moving from a cost-plus basis to predetermined rates while awarding contracts, so that users do not end up having to pay excessive charges.

Currently, contracts for operational projects in sectors such as power, ports and airports are awarded on a cost-plus basis, leading to high charges for end users if projects are delayed. A rough estimate suggests that the end-user charges on any infrastructure projects could drop by at least 25-30% if the government moves to pre-determined rates against the existing model of awarding contracts based on the cost-plus model.

Financing Infrastructure Projects

The government is expected to re-visit model concession agreements (MCAs) for PPP projectsWith an eye on strengthening infrastructure in the country, Finance Minister Arun Jaitley has proposed setting up of an institution called ‘3P India’ with a corpus of Rs. 500 crore. This will help in main streaming public-private partnerships (PPPs) in the sector.

A modified Real Estate Investment Trusts type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass-through status, for PPP and other infrastructure projects. These structures are expected to reduce the pressure on the banking system while also making available fresh equity.

He also announced enhancing present corpus of pooled municipal debt obligation facility with participation of several banks to finance infra projects in urban areas on shared risk basis to Rs. 50,000 crore. Present corpus of this facility is Rs. 5,000 crores.

The government is working to set up a $4-5 billion dollar infrastructure fund, with Japanese and Korean participation, to finance infrastructure projects, besides hoping to raise Rs. 58,425 crore through disinvestment. The Prime Minister has also secured a commitment from Japanese Prime Minister Shinzo Abe to invest $33.6 billion in infrastructure projects in India over a period of five years.

Web Based Clearances System

Web-based clearance systems by the Project Monitoring Group (PMG) are expected to speed up and ease project approvals. While the web-based forest and environment clearances systems have already been launched, a web system for mining clearances is expected to be introduced on November 1 and for all coal related clearances in the fourth quarter of the current financial year.

There has also been a directive for greater coordination with state governments to speed up the project clearance process, especially by getting all state governments to adopt a similar online portal as set up by the PMG for the central government where the industry can apply for clearances online. Fourteen state governments have already followed suit and others are in the process of setting up portals except Tamil Nadu and West Bengal which have not responded. With the states forming separate portals, clearances for projects under Rs. 1000 crore will also be digitized.

Rigorous Project Monitoring & Appraisals

On-line Computerized Monitoring System (OCMS) for regular integrated monitoring, standing Committees in the Ministries for fixation of responsibility for time and cost overruns, regular review of infrastructure projects by the concerned administrative Ministries and setting up of Central Sector Projects Coordination Committees (CSPCCs) in the states under the Chief Secretaries are some of the major process changes introduced to en-sure timely completion of infrastructure projects.

Sector Wise Initiatives

Investment in Road Networks

Web-based clearance systems by the Project Monitoring Group (PMG) are ex-pected to speed up and ease project app-rovalsThe finance minister has allocated Rs. 37,800 crore for NHAI and state highways apart from an increase in allocation for the Pradhan Mantri Gram SadakYojana (PMGSY). The Ministry of Road Transport and Highways and the National Highways Authority of India (NHAI) have initiated a number of steps for speedy completion of National Highway projects. These steps include streamlining of process of land acquisition and other statutory clearances, harmonious substitution of concessionaire, re-schedulement of premium quoted by concessionaries, securitization of road sector loans, introduction of revamped dispute resolution mechanism, close coordination with other ministries etc.

The Ministry of Environment and Forest ( MoEF) has also delinked the grant of Environmental clearance from the Forest clearance for linear projects and treated the strengthening and widening of National Highways (NH) projects differently from the new projects and allowed the construction of the NH in the non-forest areas. Reserve Bank of India has also advised all scheduled commercial banks to treat road sector debt as secured within the limits of 90% of the debt due, enabling banks to allocate a larger portion of lending to road sector.

Reserve Bank of India has advised all scheduled banks to treat road sector debt as secured within the limits of 90% of the debt due, enabling banks to allocate a larger portion of lending to road sectorA new company National Highways and Infrastructure Development Corporation Limited (NHIDCL) has been created under Ministry of Road Transport and High-ways (MoRT&H) for exclusively dealing with the task of constructing / widening of National Highways in parts of the country sharing international boundaries with neighboring countries. The company would initially focus on highway projects connecting Kathmandu, Dhaka and Myanmar. The long-term objective of NHIDCL is to reduce the list of languishing projects of BRO and develop a 10,000-km border road network. NHIDCL has been formed with a seed capital of Rs. 100 crore by the roads ministry and has got in-principle approvals of investments from the World Bank, JICA and ADB. Rs. 3,000 crore has also been allocated in the Union Budget 2014-15, for improving highways and state roads in the north-east.

Four laning of over 160 Km of National Highway from Kaithal in Haryana to the border of Haryana and Rajasthan and four laning of Pune – Solapur National Highway No. 9 section has been taken up under the National Highways Development Project (NHDP). This is one of the major high-density traffic corridors in India connecting Northern & Western India with Southern India.

The government has set 2019 as the deadline to deliver the first three smart cities, all of which will be built as part of the Delhi-Mumbai Industrial Corridor (DMIC)Urban Development

In the budget, Finance Minister Arun Jaitley set aside Rs. 7060 crore for developing 100 smart cities, which will be developed as satellite towns of larger cities and by modernizing existing mid-sized cities. 22 states where the programme will be implemented have been asked to send detailed project reports so a final blueprint can be outlined. Varanasi is among the six cities identified in Uttar Pradesh for the smart make over.

The government has set 2019 as the deadline to deliver the first three smart cities, all of which will be built as part of the Delhi-Mumbai Industrial Corridor (DMIC). These smart cities are Dholera, Shendra-Bidkin and Global City. Overall, seven smart cities will be set up between Delhi and Mumbai under the DMIC project, which is being built in partnership with the government of Japan. There are at least three more industrial corridors along which new cities are being built: Amritsar-Kolkata, Bangalore-Chennai and Chennai-Visakhapatnam.

The government is also looking at building bylaws and floor area ratio (FAR) norms closely to find a way to optimally utilize existing land in the country

Japan has expressed interest in providing financial, technical and operational support for the Mumbai-Ahmedabad bullet train projectRailways

For the railways, it was proposed that 300 km of new track should be laid in the current fiscal. The Indian Railways laid 450 km of new track in 2013-14, short of the targeted 500 km. The government also announced 100 per cent FDI through the automatic route and hiked passenger fares to raise funds for boosting rail infrastructure.

A bullet train on the Mumbai-Ahmedabad route has also been proposed and Japan has expressed interest in providing financial, technical and operational support for the same.

Civil Aviation

In civil aviation, a blue print has been made already for building no-frills airports across the country costing Rs. 70-80 crore. Several steps have A blue print to construct low const airports across the country has been made readyalso been taken to ensure the online presence of aviation regulator DGCA. The DGCA – the most important body in matters of civil aviation which looks after licensing of pilots and airlines, passenger grievances – has worked largely offline. All important aspects such as licensing, aircraft registration and permit renewal are being put online. For grievance redressal, a “Know Your Rights” portal is being developed within the DGCA. This portal will help passengers post their grievances to the regulator straight away – as of now, there is no clear grievance redressal mechanism and complaints first arrive in the ministry and then get forwarded to the regulator. Talks are also going on about the need to reduce ATF taxes levied by states to rescue operation cost of the airlines and the need to push for open access to aviation turbine fuel (ATF) fuel for airlines. The move would enable airlines to import ATF to airports rather than buy it from states at higher prices.

Big Projects Cleared

The government recently cleared the following big-ticket investment projects worth Rs. 21,000 crore, some of whom have been held up for decades, because of hurdles ranging from environmental issues to financing problems.

The government has announced 100 percent FDI through the automatic route to boost rail infrastructureDalli-Rajhara-Jagdalpur Railway Line

The project is being undertaken in two phases. Phase-I is a 95-km rail link from Dalli-Rajhara to Rowghat whereas Phase-II is 140 km from Rowghat to Jagdalpur. The Rowghat project has been in news for it witnessed threats from Maoists and protests by local tribals over land acquisition, resettlement, rehabilitation and deforestation. The Steel Authority of India (SAIL), which is partly funding the rail project along with NMDC, had first proposed tapping the iron ore riches in Chhattisgarh’s Rowghat area in 1983. This includes a project planned over 30 years back for setting up a 235 kilometer railway line that is critical to tap Chhattisgarh’s second largest iron ore reserves and critical for the continued operations of Bhilai Steel Plant. The railway line will pass through iron ore rich regions of Beladila and Rowghat, which will lead to the increase in the steel production in the country. The new line will also facilitate the bulk transportation of forest products, in addition to transportation of ores and minerals.

Nagpur Metro

The government also gave its approval for the Nagpur Metro Rail Project covering a length of approximately 38.21 kms along two corridorsThe government also gave its approval for the Nagpur Metro Rail Project covering a length of approximately 38.21 kms along two corridors. These corridors are the North-South Corridor covering approximately 19.65 kms from Automotive Square to MIHAN and the East-West Corridor covering approximately 18.55 kms from Prajapati Nagar to Lokmanya Nagar. The total project cost is Rs. 8,680 crore, with Government of India contributing Rs. 1,555 crore in the form of equity and subordinate debt.

The project shall be implemented by the Nagpur Metro Rail Corporation Ltd. which will be set up as a 50:50 jointly owned company of the Government of India and the Government of Maharashtra. The proposed two alignments are expected to provide much needed connectivity to commuters and would traverse through some of the densest and traffic congested areas of Nagpur. The alignments are also expected to bring connectivity to the upcoming MIHAN project with the Special Economic Zone (SEZ), educational institutions and logistic hubs in the city.

Bacheli Beneficiation Plant

State-owned iron ore producer NMDC proposed the installation of iron ore beneficiation plant in Bacheli to produce 4 million tonne a year iron ore concentrate and pipeline of 150 km long and 24 inch diameter from Bacheli to Nagarnar to transport ore concentrate in slurry form. NMDC had moved its application for forest clearance in 2012 but the delay happened be-cause the plant is proposed to come up partly on 33 hectare of forest land in in Dantewada district in Bastar region of Chhattisgarh. The region is also notorious for frequent strikes by Maoist militants.

State-owned iron ore producer NMDC proposed the installation of iron ore beneficiation plant in BacheliPower Projects

Three power projects including KVK Nilachal Power’s proposed 1,050 Mw power station at Athagarh in Cuttack district, Rs.  9,000 crore power project in Chhattisgarh developed by RKM Powergen to generate 1,440 MW of power and another Rs. 1,256 crore project mooted by Essar Power to re-start its 1,015 MW gas-based plants in Gujarat’s Hazira has also been expedited.

Jorethang Loop Hydro Electric Project

The Jorethang Loop Hydroelectric Power Project, a Run-of-River hydro-electric project is the terminal project in the cascade development of five projects (the upstream four projects conceived by CWC are the Rangit Stages I to IV) planned on the Rangit River in Sikkim, which is a tributary of the Teesta River (the main river of the State of Sikkim). The plant will have an installed capacity of 96 MW and a total average annual energy generation (50 % dependable Year) of around 535 GWh (Million Units).

SEZ and desalination unit of Adani Port

Adani Ports and Special Economic Zone has received environment and other nods from the government for its 8,481 hectares special economic zone, a move that will pave way for setting up facilities like desalination and effluent treatment plants besides boosting exports. The clearance will now allow APSEZ, which operates India’s only port-based SEZ, to set up a mega desalination plant, an effluent treatment plant and intake of sea water, all of which constitute primary infrastructure to be provided for companies setting up business units in the special economic zone.

Outlook

It is imperative that infrastructure development occurs in a sustainable manner in the country if India has to further its role in the global economy. Despite the ambitious visionary planning in the past, the infrastructure in India has been marred by regulatory delays and., slow process of reforms. Such large-scale failures have raised sharp debate about how the country’s infrastructure weaknesses will hamper its economic future as it struggles to recover from a slowdown. On the financing side, the growth of PPPs is marred by procedural and policy-related impediments. The link between infrastructure and economic development is not a once and for all affair. It is a continuous process and progress in development has to be preceded, accompanied, and followed by progress in infrastructure. The current government seems keen on lifting this lull in the sector and its only hoped that the results will be soon visible.

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