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Post on 10-Mar-2015
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Challenges in Building the 21Challenges in Building the 21stst Century Infrastructure Century Infrastructure
Jugaad to ManagementJugaad to Management
Presented By: Presented By:
Himadri Banerji Himadri Banerji
Infrastructure Development PlansInfrastructure Development Plans
Infrastructure Demand: Continuing power deficit and the revival in need for transportation system
Govt. Objective: The government objective of building 20km of highways per day ‐ entailing an estimated investment of about USD70Bn by 2012
Government has also annopunced the list of 313 projects for creating an aggregate capacity of 300GW
Total Investment envisaged is 496 B Dollars.
Infrastructure Investment ProjectionsInfrastructure Investment Projections
Planned Infrastructure Investments: IndiaPlanned Infrastructure Investments: India
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Continuing mismatch between government Continuing mismatch between government infrastructure development targets and realized infrastructure development targets and realized infrastructure development due to constraints in infrastructure development due to constraints in project approval, lending, delivery and operations. A project approval, lending, delivery and operations. A continuation of some of the excesses of the precontinuation of some of the excesses of the pre‐‐crisis crisis years, e.g. high debt loads and minimum contingencies years, e.g. high debt loads and minimum contingencies for project construction and completion risks is further for project construction and completion risks is further aggravating matters.aggravating matters.
Target vs. Actual A Visible Gap
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““India’s informal system of jugaad allows counterparties India’s informal system of jugaad allows counterparties to a project to recognize the systemic problems affecting to a project to recognize the systemic problems affecting most infrastructure projects and evolve workable most infrastructure projects and evolve workable solutions on a casesolutions on a case‐‐byby‐‐case basis (whereas in other case basis (whereas in other developed markets, such situations may be deemed as developed markets, such situations may be deemed as contractual failures, leading to the collapse of the contractual failures, leading to the collapse of the projects).” projects).”
The informal System of Jugaad
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Country Outlook India: Delays in Supply of InfrastructureCommon Project Risks
Financing structures and debt levels do not seem to adequately address
Common project risks:
(a)Propensity for execution delays
(b)Cost over run
(c)Demand overestimation
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(d) Lack of a strong regime for contract observance and (d) Lack of a strong regime for contract observance and enforcement.enforcement.
(e) Pricing some of the risk elements of past projects into (e) Pricing some of the risk elements of past projects into their bids and return expectations for new road projectstheir bids and return expectations for new road projects
(f) Traditional Jugaad approach for most of the projects (f) Traditional Jugaad approach for most of the projects executionexecution
Common Project Risks Continued….
Scenario : Road & Logistics Scenario : Road & Logistics
Sector Projects Sector Projects
Current transportation System: IndiaCurrent transportation System: India
Proposed Shift in Logistic Model Mix: IndiaProposed Shift in Logistic Model Mix: India
Investment Challenges in Logistic Growth: Investment Challenges in Logistic Growth: IndiaIndia
Expected Freight Traffic Growth: IndiaExpected Freight Traffic Growth: India
Strategy for Balanced Logistic NetworkStrategy for Balanced Logistic Network
NILP: From Strategy to ImplementationNILP: From Strategy to Implementation
Model Mix for Balanced Strategy: Logistic IndiaModel Mix for Balanced Strategy: Logistic India
Model Mix for Balanced Strategy: Logistic IndiaModel Mix for Balanced Strategy: Logistic India
Budgetary Reallocation for Improved Budgetary Reallocation for Improved StrategyStrategy
Rail Budget ReallocationRail Budget Reallocation
Road Budget ReallocationRoad Budget Reallocation
Balanced Model Approach: LogisticsBalanced Model Approach: Logistics
Scenario : Power Sector Projects Scenario : Power Sector Projects
Five Yr Plan: Power Production Target Vs achievementsFive Yr Plan: Power Production Target Vs achievements
Region Wise: Power Generation and Peak DeficitRegion Wise: Power Generation and Peak Deficit
Eastern Regions Status
Western Regions Status
Region Wise: Power Generation and Peak DeficitRegion Wise: Power Generation and Peak Deficit
North- Eastern Regions Status
Southen Regions Status
Region-wise Installed Generating Capacity: IndiaRegion-wise Installed Generating Capacity: India
Electricity Demand Projections: IndiaElectricity Demand Projections: India
Electricity Demand Vs Achievements: IndiaElectricity Demand Vs Achievements: India
Toll Road Projects
What to Watch
Resolution of regulatory hurdles, including obtaining land/RoW to complete construction on schedule, and securing NHAI approval for tolling partially completed roads.
Extent of cost and schedule overruns.
Banks’ willingness to reschedule loans and sponsors willingness to inject additional equity where cost and schedule overruns occur.
NHAI’s willingness to extend COD to make allowances for delays and, in certain cases, allow partial tolling, based on completion status.
Actual traffic performance during the ramp‐up phase (in relation to overly optimistic traffic forecasts used for financial close).
Efficacy of the dispute resolution mechanism in quickly settling compensation and concession extension issues, usually initiated post‐COD
Power Sector Projects
(EPC) route for construction, companies are choosing to break down the entire activity into packages
Opposite system against the best practices in developed countries
New Merchant power plants by unrelated diversification of their promoters
Many projects continue to depend on Bharat Heavy Electrical Ltd (BHEL) for the supply of the critical boiler‐turbine‐generator (BTG) island, even though it has an overflowing order book
Many projects continue to depend on Bharat Heavy Electrical Ltd (BHEL) for the supply of the critical boiler‐turbine‐generator (BTG) island, even though it has an overflowing order book
What to Watch Financial health of state government‐owned utility off‐take counterparties.
Visible constraints on land availability, equipment vendor capacity, and sustainable fuel supplies for projects under construction
Capacity of domestic commercial bank sector to continue to finance mega power projects, given lending exposure limits.
Impact, if any, of the on‐going Climate Change Summit 2009 discussions for restricting carbon emissions.
The Challenges to Managing Growth of Infrastructure: What is needed?
1. Innovative Approaches to Project Finance Encourage public private partnerships (PPPs) to raise additional financing.
Encourage investment by pension funds and other large institutional investors.
Make greater use of user charges for funding infrastructure.
Diversify and expand traditional revenue-raising sources.
Explore the funding possibilities offered by land value capture.
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