Sustainable Financing of Infrastructure Sharmila Chavaly Joint Secretary (Infrastructure) Ministry of Finance Department of Economic Affairs Government of India
BUDGET ALLOCATION-INFRASTRUCTURE IN INDIA • Estimated Annual Infrastructure Requirement in Developing Asia till 2030: USD 1. 7 trillion • Estimated Annual Infrastructure Needs for India for 2016 -2030: USD 343 billion • Centre and State governments which account for 12% of total investment, prioritize capex expenditure over revenue expenditure in FY 18 • Centre allocated USD 54 billion (2. 6% of GDP) on infrastructure expenditure, with roads and railways accounting for ~60% of total allocation. Source: YES BANK Economics Research, ADB Report on Meeting Asia’s Infrastructure Needs S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 2
STANDARDS FOR QUALITY INFRASTRUCTURE • Harmonized List of Infrastructure sub-sectors Ø To resolve the issue of uniform definition of infrastructure, a Harmonized Master list of infrastructure Sub-sectors was published Ø Procedure developed for updating the master list and revisiting the sub-sector outside the master list on the basis of well-defined principles. • Credit Enhancement Fund: To provide credit enhancement to infrastructure project and help in raising the credit rating bonds floated by Infrastructure companies. • India Infrastructure Finance Company Ltd (IIFCL): Funding viable infrastructure projects through a) Long Term Debt; b) Refinancing c) Take out Financing; d) Subordinate Debt; e) Credit enhancement (on pilot basis) etc. • Credit Rating Mechanism Ø New credit rating system based on Expected Loss (EL) approach launched by CRAs on 12 th January, 2017 Ø The approach provides additional risk assessment mechanism for informed decision making by investors, in addition to the existing Probability of Default approach. Project Monitoring Group • Ø Institutional mechanism to track stalled investment for all large projects (public and private). Ø All issues in 491 projects (Investment USD 254 billion) have been resolved. –February, 2017 S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 3
NON-BUDGETARY SOURCES OF INFRASTRUCTURE INVESTMENT Public Private Partnership (PPP) Projects Infrastructure Debt Funds (IDFs) Inv. ITs/REITs Industrial Corridors Municipal Bonds National Investment and Infrastructure Fund (NIIF) S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India June 2017 4
Typical Issues in Airport Concession S. NO PARTICULARS DETAILS 1 Capital Investment to be recovered well before the end of the Concession period 2 Concession Period Long term 3 Traffic Risks Impact on the commercial success 4 User charges Aeronautical and Non-aeronautical 5 Competing Facilities Traffic trigger / Right of first refusal (Ro. FR) 6 Protection employees 7 Regulatory Framework Regulation of User Fee Slot Allocation, Ground Handling 8 Clearances and Approvals Land, Environment, Local Authority, Defence 9 Non-Performance Key Performance Indicators 10 Real Estate Development Cross-subsidize Development for existing Applicable for Brownfield Development S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 5
Thank You
Existing PPP Framework for Airport Development • Design, develop, construct, finance, manage, operate, maintain and transfer • Concession granted by the Mo. CA • Concession Period: [30 + 30] Years • Exclusivity – No new airport development within 150 kms. Radius • Right to collect aero and non-aero revenues. • Tariff determination by AERA [every 5 years or earlier] • Substantial investment by AAI • Operate, Manage, Develop and Transfer (OMDT) • Lease of Airport to the Concessionaire under Section 12(4) of AAI Act • Lease Period: [30 + 30 Years] • ROFR for development of new airport within 150 kms. Radius • Right to collect aero and non-aero revenues • Revenue share to AAI: [36 -46%] • Tariff determination by AERA [every 5 years or earlier] • Hybrid Till approach of tariff determination Greenfield Development Brownfield Development
Major Stakeholders Work Undertaken Ministry of Civil Aviation Nodal Ministry-formulation of national policies and (Mo. CA) programmes, development and regulation of the Civil Aviation sector Airports Authority of Development and Management of Airports India (AAI) Administration of air transport operations Directorate General of Formulation of standards, safety requirements, licensing Civil Aviation (DGCA) authority for Airport, connectivity and Pilots Bureau of Civil Aviation Laying down standards and measures Security (BCAS) International Civil Codifies the principles and techniques of international civil Aviation Organization aviation under standards and recommended practices for (ICAO) airport and air operations to foster uniformity in air operating procedures Airport Regulatory (AERA) Economic Regulate User tariff for the aeronautical services Authority Monitor the Performance Standards relating to quality, continuity and reliability of service S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 8
PUBLIC PRIVATE PARTNERSHIPs (PPPs) • India has approx. 1300 PPP projects at various stages of implementation-the largest globally. • Rated one globally in ‘Operational Maturity in PPPs’ by the Economist Intelligence Unit, 2014 [Inter- American Development Bank (IDB) and the Economist Intelligence Unit (EIU)] • India’s experience of PPPs: Ø Standardised Documents : Model Concession Agreement (Brownfield and Greenfield Airports) Ø Developing capacity building instruments like tool-kits and training programs Ø Developed guidance material for improving post-award management of PPPs, India, today, is in a position to offer help and learnings from its own experiences in PPPs to other countries and engage in planning and in knowledge sharing exercises that will help build such capacities. S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 9
SUCCESS OF PPPs IN INDIA • Strict key performance indicators indicated in MCAs specifying quality infrastructure • Success seen in quality of PPP projects • Airports: New airports at Delhi, Mumbai, Bangalore &Hyderabad • Roads: Quality of highway projects taken up on Build-Operate-Transfer (BOT) improved. Robust pipeline of projects at different stages of implementation i. e. under bidding, construction and operational stages. • Various national and International Workshops, sector workshops have been organized for exchange of best practices and advocacy of PPPs. • Web based Online Toolkits are available through www. pppinindia. com • An online database www. infrastructureindia. gov. in which provides information on infrastructure projects being implemented in India including PPPs. Back Link S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 10
INFRASTRUCTURE DEBT FUNDs (IDFs) • Aimed at sourcing long term debt for infrastructure projects. • Can be set up either as Trusts or as NBFCs regulated by SEBI and RBI respectively. • Income of IDF is exempt from tax. • As on date, three IDFs under the NBFC route (Lead Sponsor: ICICI, L&T and IDFC) and three under MF route (IL&FS, IIFCL and SREI) are functional. Back Link S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 11
Inv. IT/REIT STRUCTURE* *Regulations notified by SEBI in September, 2014. Investors (Resident / Non-Resident) Units Minimum 51% Sponsor REIT/Inv. IT Management services Trustee Direct acquisition Manager Investment Management Agreement Through SPV Back Link S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 12
INDUSTRIAL CORRIDORS Delhi Mumbai Industrial Corridor (DMIC): USD 90 billion Corridor running parallel to a 1483 km long Dedicated Rail Freight Corridor. Other Industrial Corridors: Chennai-Bengaluru Industrial Corridor, the Bengaluru-Mumbai Industrial Corridor and the Amritsar-Delhi-Kolkata Industrial Corridor. Freight & Industrial Corridors of India Back Link S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 13
MUNICIPAL BOND FINANCING IN INDIA • Regulations (legal framework) notified by SEBI in July, 2015 for issue of Municipal Bonds by Municipal Entities. • DEA initiated capacity building for issue of Municipal Bonds for the cities viz. , Chennai, Rajkot, Bhubaneswar, and Indore, and consultancy support for Pune and Vizag. • Pune Municipal Bonds: 21 th June, 2017 for USD 345 million • Other cities to follow • Features: - Financial disclosures - Shelf of projects and large issuance size - Escrowed bond-service mechanism - Ring-fenced projects Back Link S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, Ministry of Finance, Govt of India, June 2017 14
PILOT INITIATIVES • PPP Pilot Projects Program - Process of structuring the PPP Project is hand held by DEA, PPP Cell to develop demonstrable PPP Projects in challenging sectors. • Objective: To develop robust PPP projects and successfully bid them to establish their replication potential in the sectors concerned. • Some of the PPP pilot projects are: - Project Details Solid Waste Management (MSW) and Waste to Energy (WTE) project The Scope of the project is to build a WTE plant and scientific landfill with a combined capacity aimed at treating 1000 tonnes per day. PPP Regional Integrated Development Enterprise (PRIDE) To develop regional integrated manufacturing townships addressing the twin needs of manufacturing and integrated hub thereby increasing the standard of living Food Storage DEA is developing a framework for construction of modern food storage silos through the VGF route where land will be brought in by the private developer. g) Water Supply Project for 24 X 7 Supply PURA (Provision of Urban Amenities in Rural Areas) Cluster Pilot PPP Project for Waste Water Treatment Plants Innovative Scheme in rural infrastructure development where selected Private partners are to develop livelihood opportunities, urban amenities and infrastructure facilities to prescribed service standards and maintenance for a period of 10 years. Developed for Non Revenue Water (NRW) reduction and 24 x 7 water supply Treatment of Industrial Effluents and Municipal Waste Water to prevent pollution of River Ganga Development of Cold Chain Infrastructure Setting up of Controlled Atmosphere Storage for Fruits, Vegetables and Apples S. Chavaly, Jt. Secretary (Infra), Dept of Economic Affairs, 15 Ministry of Finance, Govt of India, June 2017
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