The growth in the India’s six core infrastructure industries, which account for 26.7% in the Index of Industrial Production (IIP), has declined to 2.2% in November, 2008 as against 5.1% in November, 2007. During April-November 2008-09, they registered a growth of 3.6% as against 6.4% during the corresponding period of the previous year.
Crude Oil production registered a growth of 0.5% in November 2008 compared to a growth rate of 0.3% in November 2007. During April-November 2008-09, it registered a negative growth of 0.6% compared to 0.6% during the corresponding period of the previous year.
Petroleum refinery production took a nosedive by registering a negative growth of 1.1% in November 2008 compared to a growth of 5.2% in November 2007. During April-November 2008-09, it registered a growth of 3.8% compared to 8.3% during the same period of 2007-08.
However, the coal sector performed well with coal production registering a growth of 9.6% during November 2008 compared to a growth rate of 7.7% in November 2007. During April-November 2008-09, coal production grew by 8.6% compared to an increase of 4.3% during the corresponding period of the previous year.
Electricity generation registered a growth of 2.6% in November 2008 compared to a growth rate of 5.8% in November 2007. During April-November 2008-09, it grew by 2.8% compared to an increase of 7.0% during April-November 2007-08.
Cement production registered a modest growth of 8.7% during November 2008 compared to 5.2% in November 2007. During April-November 2008-09, cement Production grew by 6.4% compared to an increase of 8.1% during the same period of 2007-08.
Production of finished (carbon) steel registered a negative growth of 1.4% in November 2008 compared to 4.8% in November 2007. The growth in this segment during April-November 2008-09 also posed grim picture as it grew by only 3.3% compared to an increase of 7.0% during the same period of 2007-08.

 

CCEA nod for blocks under NELP-VII

The Cabinet Committee on Economic Affairs (CCEA) approved awarding 44 out of 45 oil and gas exploration blocks under the seventh bid round of the New Exploration Licensing Policy (NELP).

NELP-VIII in February 2009

Petroleum Minister Mr. Murli Deora and Petroleum Secretary Mr. R.S Pandey said that NELP-VIII would take place in February, 2009. NELP VIII, with 400,000 sq km in acreage and over 100 blocks, would be the biggest ever auction of oil and gas blocks in the country. However, global financial crisis and low crude oil prices may dampen the participation of foreign companies.

USTDA grant to Indian O&G sector

The US Trade and Development Agency (USTDA) extended grants to the Petroleum and Natural Gas Regulatory Board (P&NGRB) of India and Hindustan Petroleum Corporation Ltd (HPCL), totaling USD 946,221. These grants are meant to support activities in the oil and gas sector and to further the commitment of USTDA to the objectives of the US-India Energy Dialogue.

Additional gas for Dabhol plant

The Empowered Group of Ministers approved additional gas allocation for the Dabhol plant of Ratnagiri Gas and Power Corporation from the Krishna-Godavari (KG) basin.
The 1,900 MW Dabhol plant is expected to become fully operational from the beginning of the next financial year. Additional electricity generation will help to bridge the demand-supply gap in the State of Maharashtra.

BP and RIL signed exploration pact with GOI

BP Plc. and Reliance Industries Ltd signed a contract with GOI on sharing production and revenue from KG-DWN-2005/2 area of India’s off the Krishna-Godavari coast. BP will be the operator and will hold 30% interest in the field that spreads over 1,949 sq. km.

Essar Oil signs MOU with IOC

Essar Oil Ltd and Indian Oil Corporation signed a memorandum of understanding (MOU) allowing both companies to use each other’s facilities to reach regions where they don’t have a presence.

As per the MOU, IOC will be able to feed its domestic markets in the western and eastern regions by accessing Essar Oil’s products and infrastructure on the west coast, and Essar Oil, in turn, will have access to IOC’s supply locations and will benefit by being able to minimize the placement and logistics cost of product to various remote locations.

First oil from Mangala field by mid-2009

Oil from Mangala field in Rajasthan is expected in the second quarter of 2009. A pipeline is being laid from the Barmer district in Rajasthan to the Gujarat coast for transportation of the crude oil to the refineries.

It is reported that the revised Mangala Field Development Plan (FDP) was submitted with a 30% increase in reserves and an increase in peak output to 1.25 lakh barrels a day.

ONGC to invest Rs 5,000 crore

Mr A. K. Hazarika, Director, Oil and Natural Gas Corporation of India (ONGC) said to a business newspaper that ONGC will invest more than INR 5,000 crore over the next four years to revamp its assets at Ankleshwar, Ahmedabad and Mehsana.

GVK to sell stake in SPV for Jaipur-Kishangarh expressway

GVK Power and Infrastructure (GVKPIL) is reported to have set to divest 49% stake in the special purpose vehicle (SPV) for Jaipur-Kishangarh expressway project to Australia-based Macquarie Group, a global provider of banking, financial, advisory, investment and management services.
The SPV is valued at INR 950 crore and the sale is reportedly for INR 465 crore.

Kingfisher and Jet Airways for operational alliance

Kingfisher Airlines and Jet Airways have taken initiatives for an operational alliance covering code-sharing on domestic and international flights, common ground handling, joint fuel management, joint utilization of crew, and sharing of similar frequent flier programmes.
Kingfisher and Jet together have about 60% combined market share. However, reportedly they are hit by losses of up to INR 10 crore per day.

MRTPC orders probe into Jet-Kingfisher alliance

The Monopolies and Restrictive Trade Practices Commission (MRTPC) directed the Director-General of Investigation and Registration to probe the operational alliance between Kingfisher Airlines and Jet Airways.
Reportedly the alliance partners are said that the initiatives being proposed under the alliance will commence only after the approval of the Directorate General of Civil Aviation.

India and EU sign civil aviation pact.

India and the European Union (EU) have signed a civil aviation pact. The pact is expected to work like an “open skies agreement” and to encourage more airlines to offer services between the two continents.

AirAsia flies to India

Kuala Lumpur based AirAsia started flying to South Indian city of Tiruchirapally from 1 December, 2008. AirAsia is the largest low fare, no frills airline in Asia, which operates scheduled domestic and international flights.

Aerospace SEZ to come up in Andhra Pradesh

India’s first exclusive aerospace Special Economic Zone (SEZ), Aerospace Park, would come up in Andhra Pradesh. It would be developed by Samuha Group, an association of about 30 companies in Andhra Pradesh that supply various components to the aerospace industry.
The Aerospace Park is expected to focus on manufacturing defence, aerospace and commercial aircraft components.

Land acquisition for Aerotropolis starts

Land acquisition process for the first Aerotropolis in India, Durgapur Aerotropolis, has commenced. This INR 10,000-crore project will include setting up of a Greenfield Airport, industrial park, logistics hub, and IT park with a supporting infrastructure like housing, tourism, healthcare and social interchange facilities.

Durgapur Aerotropolis will be developed by a Special Purpose vehicle Bengal Aerotropolis Projects Limited (BAPL).

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Mines ministry for rollback of export duty on iron ore

The mines ministry has opposed further curbs on iron ore export and wants the current export duty thereon to be rolled back. According to the Mines Secretary, demand for iron ore in the country is not so high to the extent that exports need to be curbed and therefore, the export of iron ore at present will not be harmful for the country.

Private Agencies to explore captive coal blocks
The Government has reportedly permitted companies in possession of captive coal blocks to get further exploration done by private firms. This would ease out the processes involved in getting the exploration work done by state agencies and would be beneficial for steel and power utilities in possession of captive coal blocks.

Coal Ministry likely to cancel non-performing exploration licences

The Minister of State for Coal Mr. Santosh Bagrodia said that it has been decided to take stringent actions against 166 non-performing coal exploration licences. The Government had earlier allocated 180 licences for captive coal production of which work has started only on 14 of them.

Competitive bidding for coal blocks

Coal Secretary Mr. H C Gupta said that the Government has decided to introduce competitive bidding for allocation of coal blocks. This decision is expected to be beneficial for consuming industries like power and steel.

Coal Ministry to raise target of coal production

Reportedly the coal ministry is considering a proposal to raise the annual coal production target by 15% by the year 2012. This is in view of the increased demand from companies setting up thermal power plants.
Earlier, a feasibility study for increasing coal production conducted by Coal India Ltd (CIL) suggested an increase in domestic production up to 600 million tones as against the present projection of 520 million tonnes by the year 2011-12.

ONGC to explore for uranium
Oil & Natural Gas Corporation (ONGC) has announced that it will explore for uranium in Gujarat in collaboration with the Uranium Corporation of India.

GMR to buy Indonesian coal mine
GMR Infrastructure is reportedly close to acquire PT Barasentosa Lestari coal mine in Indonesia. This USD 100 million deal is expected to be announced shortly. Barasentosa, with estimated reserves of 110 million tones, produces moderate to high quality coal.

 

Mega Power Policy under review
Mr. Sushilkumar Shinde, Minister of Power said in the Upper House of Parliament that the Centre is considering a proposal to amend the Mega Power Policy, deleting the condition of privatisation of electricity distribution in cities. This move comes in the wake of intense pressure from many States on the issue.

Second power bourse gets nod

The Central Electricity Regulatory Commission (CERC) has given all the necessary regulatory clearances to the second Power Exchange in India, promoted by National Stock Exchange (NSE) and National Commodity & Derivatives Exchange (NCDEX).

Power Exchange India is authorized to do trading of 1 mw during a day ahead of transactions. This is expected to pave way for tapping 5,000 mw captive power capacity across the country.

Indo-Japan deal on green energy close to finalizing

India is close to finalising an energy deal with Japan for cooperation in energy sector. The deal is expected to be of a comprehensive nature covering cooperation through exchange of experts, capacity building and participation of Japanese companies in the power sector in India.

ONGC to enter nuclear, solar energy sectors

Oil and Natural Gas Corporation (ONGC) plans to enter into nuclear, solar and gas hydrates sectors. According to Mr. R.S Sharma, Chairman and Managing Director, ONGC is carrying out research in this regard given the fact that known hydrocarbon reserves in India are only 0.5% of the global total and oil and gas would not be able to fulfill the energy needs of the country.

RIL to enter into power business

Reliance Industries (RIL) plans to venture into the power business through an integrated project comprising coal mining, a coal-to liquid (CTL) plant, a 1,000-mw power plant based on coal rejects and a fly-ash utilisation unit.

RIL has said to have entered into pacts with US energy majors Exxon Mobil for conversion of methanol to gasoline and Headwaters for direct coal liquefaction, and German engineering firm Uhde GmbH for coal gasification.

New power plants in Orissa

National Thermal Power Corporation (NTPC) is planning to set up a 3,200-mw coal-fired thermal power project in Orissa’s Dhenkanal district with an investment of INR 19,840 crore. Further, Sahara India Power Corp Ltd, in collaboration with China Guodion Overseas Power Ltd, is setting up a 1,320-mw power project in Bolangir district with an estimated cost of INR 5,604 crore.

 

ECB norms relaxed further

External Commercial Borrowing (ECB) policy has been relaxed a couple of times in October 2008 against the backdrop of somewhat drying up of global liquidity and the consequential slowing down of capital inflows into India. The changes include the following:

1. Mining, exploration and refining sectors have been given core status, enabling companies operating in these areas to bring into India up to USD 500 million of ECB;

2. ECB up to USD 500 million per borrower per financial year would be permitted for Rupee expenditure and / or foreign currency expenditure for permissible end - uses under the Automatic Route.

3. The requirement of minimum average maturity period of seven years for ECB more than USD 100 million for Rupee capital expenditure by the borrowers in the infrastructure sector has been dispensed with.

4. Borrowers, who were hitherto required to park the funds overseas until actual deployment in India, have been permitted to remit the funds to India for credit to their rupee accounts with banks in the country, pending utilisation.

Bio-fuel policy approved

The Government gave its nod to National Policy on Bio-fuels, which calls for scrapping taxes and duties on bio-diesel and conferring the declared goods’ status on bio-diesel and bio-ethanol.

Approval was also given for setting up of National Bio-fuel Coordination Committee and Bio-Fuel Steering Committee under the policy.

Airport Economic Regulatory Authority Bill passed

Parliament passed the Airport Economic Regulatory Authority Bill, which seeks to create a level playing field and to foster healthy competition among major airports in India. The authority to be constituted under the new law will regulate the tariff for aeronautical services at major airports. The authority will also be empowered to protect the reasonable interest of the users.

Cabinet clears aviation agreement with EU.

The Cabinet approved an aviation agreement with European Union, which will work like an ‘open skies’ agreement. This agreement will bring all 26 bilateral air services agreements with EU member nations in conformity with legal requirement and is expected to encourage more airlines to offer services between India and EU.

High-level panel to frame national renewable energy law

The Government has appointed a high-level committee to prepare the national renewable energy law. The proposed law is expected to promote development and utilization of renewable and sustainable sources of energy, stabilize emissions of greenhouse gases, diversify energy supplies, safeguard energy security, ensure ecologically sustainable energy development, protect environment, and to realize the goal of sustainable development. It will cover issues relating to issuance of renewable energy certificates, strict implementation of renewable purchase agreement and imposition of penalty for breach of such agreement.

Proposal for infrastructure tag to shipping

The shipping ministry is reportedly drafting a proposal for granting infrastructure status to ships. This move is with a view to enable the shipping industry to avail tax holidays, access special funds currently available to firms operating in infrastructures sectors such as roads, bridges, railways, seaports, airports, inland waterways, urban transport and infrastructure projects in special economic zones.

Government’s profit share in NELP VIII may be capped

It is reported that the Government is considering to control “over-aggressive” bids in the eighth round of the New Exploration Licensing Policy (NELP VIII) by making its share of profits from oil and gas blocks a non-biddable item. The proposal is to cap government’s share of profits at between 70 and 80 per cent.

Regulators may be barred from core PPP projects

The Planning Commission reportedly proposed that the Government agencies acting as regulators also should stop partnering with private companies for new ports, power and railways projects. This move is with a view to prevent clash of interest between the government and the private sector in public-private partnership projects (PPP).

Cabinet nod for Integrated Energy Policy

Cabinet approved the Integrated Energy Policy, drafted with a view to provide a sustainable economic growth of at least 9% over the next 25 years. The policy proposes to overhaul fiscal policies, strengthen regulatory structure and establish transparent subsidy mechanism.

Entry of foreign companies eased

The Government has removed the requirement of foreign companies/foreign nationals to get consular verification in their country of origin for establishing place of business or setting up a subsidiary in India. This benefit will be available to only those foreign companies incorporated in a country that fall outside the Commonwealth but a party to the Hague Apostille Convention 1961.

Policy to bundle hydro power projects along a river

The Central Government reportedly advised States with hydel potential to follow a policy of bundling hydroelectric projects along a single river to one agency. This is with a view to ensure that development of the resources is done optimally and comprehensively.

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India needs a liberal financial regime for infrastructure

Angshuman

If India has to sustain a GDP growth rate of 9%, investment in infrastructure becomes imperative. According to the Government, India would need about USD 320 billion investment (at 2005/06 prices) in various infrastructure sectors during the Eleventh Five Year Plan (2007-12). Further, the Government itself envisages that the investment in infrastructure would rise gradually from 4.7 % of GDP in 2005/06 to 8 % by 2011/12, the last year of the Eleventh Plan. Hence, financing of infrastructure projects has become critical to achieve a sustainable growth.

The constraints posed by the Fiscal Responsibility and Budget Management Act will make it difficult for the government to raise funds in the future. The Act makes it arduous for the government to raise budgetary resources as well as guarantees. So, it is necessary to encourage Public Sector Undertakings (PSUs) and private players to invest in infrastructure projects. The combination of finances used varies from project to project and have their own inherent advantages as well as disadvantages. One way is to infuse domestic and foreign equity into infrastructure projects. In spite of the fact that India’s equity market is quite well developed, adequate amount of equity is not coming to the market.

One of the main reasons for the equity market witnessing a bearish phase last year was because of the rising crude prices. Higher crude prices resulted in higher fiscal deficit due to subsidy burden. The financial crisis in the US also had an effect on the Indian equity market. The forces of the market also depended on other factors such as monsoons and the performance of other companies. Adequate level of availability of equity is essential to maintain the debt-equity ratio. If the borrower is unable to bring in his portion, the investment is locked up and any delay could result in the project becoming a non-performing asset. So, raising funds by other means such as debt financing has to be relied upon more.

In the case of bank debts, it allows the project sponsors to increase financial flexibility but they tend to be more expensive than bonds and with higher rates and shorter tenors. Off late, the lender profile is also widening albeit at a slow pace with insurance companies and pension funds eager to project finance and they have a long term outlook. But the private insurance players have mostly stayed away from financing infrastructure projects. One of the reasons is that they are finding it difficult to find avenues that match their investment policy. In fact, most of the insurance companies have spent more on government securities than on infrastructure. In order to encourage the insurance companies to spend more on infrastructure projects, the government should make a comprehensive review of the various regulations to make them more modern and unambiguous. The spending by banks and insurance companies on infrastructure projects need to go up considerably.

Another way of infusing capital into projects is to borrow from abroad to finance infrastructure projects. The role of Non-Banking Financial Companies (NBFCs) in infrastructure spending has been growing rapidly over the years. They have focused business models based on their deep knowledge of, and risk appetite for, complex and long gestation projects and are less likely to pose systemic risk and are easier to be created. But one of the major constraints faced by the NBFCs is their limited access to low cost financing options.

The main reason why lenders shy away from financing infrastructure projects is because of the fact that these transactions are more complex than traditional corporate financing. Further, the due diligence process conducted by lenders results in higher development costs and the negotiations on various aspects of the project could be quite contentious. Another area that is of major concern is that a project may represent a good proposition but could be costly to the society and the environment.

Given these, India needs to make infrastructure investment more attractive in sectors that haven’t seen much of an investment by providing liberal regulatory regimes and by giving fiscal incentives. It is also necessary to facilitate access to foreign financial savings.

(The author is Associate, Corporate Law Group)