[Ed] Brick by brick

Clearing the path for infrastructure growth

Currently, the infrastructure sector is looking at substantial interventions from the government to seed critical investments in sectors such as railways and other transport, as well as across the board regulatory reforms.

But challenges remain. In the roads sector, of the 239 projects covering 21,747 km awarded by NHAI until November 2013, only 77 are fully complete. It is imperative that the government resolves the challenges facing the existing PPP investors and attracts fresh foreign capital to fund new bids.

Renegotiation of PPP/BOT contracts on existing stressed projects; addressing funding for engineering, procurement and construction (EPC) contracts; and implementation of recommendations of the Rangarajan committee for rescheduling of premium payments and surrendering of concessions are some steps that can help resolve issues.

Make it run

The Railways have set out on an agenda to increase private participation to improve customer service and safety. For this, it could step up purchase of wagons, build high-speed railway corridors and increase speeds on existing key corridors and bring in private participation in building, modernising and maintaining stations.

Infrastructure status for coastal shipping has been a pending demand and this could help in getting easier credit at lower rates, increase private investment and result in faster regulatory clearances.

Given that the process of building out new ports is likely to take longer, the government could consider measures to incentivise debottlenecking and expansion at existing ports.

Considering the new government’s emphasis on tourism and economic development, the Finance Minister needs to address some of the challenges private airport developers are facing. The sector urgently needs a predictable and investor-friendly regulatory regime, which is imperative for development of Tier-1 and Tier-2 city airports.

The government could consider tax holidays for modernisation of airports, incentives for aeronautical and defence manufacturing. From a productivity perspective, the government could provide incentives for sharing resources across airlines.

Continuity and clarity

In the power sector, many projects can become viable if compensatory tariffs are provided. However, implementation of compensation related orders could be delayed by state utilities disputing these rulings in courts. Continuity and clarity over tax benefits, continued push for restructuring of state utilities and regular tariff increases would resolve such issues.

As per National Action Plan on Climate Change guidelines, a return purchase order (RPO) of 15 per cent is targeted to be achieved by 2020, translating to at least 71 gigawatt of additional renewable capacity to be met by FY20. A concern for both the wind and solar developer community is clarity on policy uncertainty on PPAs and RPO frameworks. Current limitations in the evacuation systems for renewable projects also limit their effective utilisation.

Infrastructure finance has been plagued by viability of projects and banks breaching sectoral exposures on some key infrastructure verticals. Except for a few developers, many are not in a financial position to undertake any new large projects.

There have been new policy announcements on Infrastructure Investment Trusts (‘InvIT’) by SEBI, but additional clarity on additional tax and policy announcements are required around InvITs before these are viable for developers and investors.

The writer is partner at KPMG in India. The views are personal