INDIAN ECONOMY-2010 INFRASRUCTURE

The country’s core sector, comprising six key infrastructure industries, accelerated by 5.1 per cent year-on-year in April 2010, compared with 3.7 per cent in April 2009, according to the data released by the Union Ministry of Commerce and Industry. The growth was primarily led by an increase in the production of cement, which stood at 18.87 million tonnes (MT), compared to 17.36 MT during April 2009. Electricity production grew by 6 per cent in April 2010, as against 6.7 per cent in the same month of the previous fiscal. Finished steel production registered a growth of 4.7 per cent during the month, against a decline of 1.3 per cent in the corresponding period of 2009. Among other industries, production of crude petroleum rose by 5.2 per cent, as against minus 3.1 per cent, while production of petro-products registered an increase of 5.3 per cent, as compared to a contraction of 4.5 per cent during April 2009. Infrastructure investment in India is set to grow dramatically. As per Union Minister for Finance, Mr Pranab Mukherjee, India would require to develop a rupee-denominated long-term bond market for funding the infrastructure sector that requires an investment of around US$ 459 to US$ 500 billion by 2012. Further, investment in the infrastructure sector is expected to be around US$ 425.2 billion during the Eleventh Five Year Plan (2007-12), as against US$ 191.3 billion during the Tenth Plan. Meanwhile, private investment into the sector is also projected to increase to US$ 157.3 billion in the Eleventh Plan, as compared to US$ 47.84 billion in the Tenth Plan. This investment is likely to be fulfilled through public-private-partnership (PPP) projects that are based on long-term concessions. Clearance has been given to nine new investment proposals of around US$ 1.05 billion by the State Level Single Window Clearance Authority (SLSWCA). Out of these nine proposals, five were from the cement sector, two for setting up aluminium conductor units, and one each for developing a petroleum coke plant and a maize processing unit. Meanwhile, a committee on infrastructure under Prime Minister Dr Manmohan Singh will conduct quarterly review of development of power, road, ports, civil aviation and railways sectors, announced the Planning Commission of India recently. Further, the cabinet committee on infrastructure (CCI) will handle specific infrastructure cases that may require necessary policy correction or solving issues affecting projects. Notably, truck sales, a key indicator of goods movement, registered a growth of 74 per cent during May 2010, as per the data released by the Indian Foundation for Transport Research and Training (IFTRT). The increase in the demand for cargo transportation from the agricultural and manufacturing sectors was one of the contributing factors in the increase in the truck sales. In order to develop eco-friendly infrastructure for new cities in the Delhi-Mumbai Industrial Corridor (DMIC), Japan-based consultants such as Nikken Sekkei, Mitsubishi and IBM Japan would work along with DMIDC and three state governments. The project, expected to be completed by 2018, as per Mr Anand Sharma, Union Minister for Commerce and Industry is “by far the world’s biggest infrastructure project.” Ports The major ports in India handled 45.8 million tonnes cargo in February 2010, as compared to 45.2 million tonnes in February 2009. The cargo growth during April-February 2010 registered an increase of 5.5 per cent as compared to the corresponding period in the 2009 fiscal, as per data released by the Indian Ports Association (IPA). The annual combined capacity of the major and non-major ports in the country will be 1.5 billion tonnes by 2012, stated by Minister of Shipping, Mr G K Vasan, while speaking at the Logistics Outsourcing Summit organised by the Confederation of Indian Industry (CII). The Union Cabinet has given the approval to the Shipping Ministry for declaring Andaman and Nicobar ports as major port, stated Union Minister of Shipping, Mr G K Vasan. The Cabinet Committee on Infrastructure (CCI) has approved a proposal to develop the fourth container terminal at the Jawaharlal Nehru Port (JNPT), the country's busiest port, at an estimated cost of US$ 1.44 billion. The government also cleared a proposal to build standalone container handling facility at Mumbai port at a cost of US$ 129.6 million. The project would be implemented within two years from the date of the award of the project.

Airports The domestic airlines flew about 4.78 million passengers in May 2010, an increase of almost 22 per cent over the number carried in the same period in the previous year. The Union Minister of State for Civil Aviation, Mr Praful Patel, stated that the country will become the top-five civil aviation markets in the world in the next five years. India is the ninth largest civil aviation market in the world at present. The Airports Authority of India (AAI), the agency responsible for civil aviation infrastructure, is likely to spend over US$ 1.01 billion on the modernisation of non-metro airports in the current year. Aircraft manufacturing companies, Boeing and Airbus, remain upbeat over India's aviation growth potential. Airbus has forecast that India will need 1,032 new aircraft worth US$ 138 billion by 2028, while Boeing has forecast that the country will require 1,000 aircraft worth US$ 100 billion over the next two decades. Mumbai Airport posted its highest ever monthly passenger traffic in its history in December 2009. According to Mumbai International Airport (MIAL), the Chhatrapati Shivaji International Airport (CSIA) saw a record 2.53 million passengers in December 2009. This number is the highest-ever passenger volume handled by the airport in its history, with the previous high standing at 2.38 million passengers in January 2008. The government has mandated MIAL with the task of upgrading and modernising CSIA, which is a joint venture between the Airports Authority of India and the GVK-SA consortium. Railroads During the first month of the 2010-11 fiscal, the Railways reported an increase of 9.69 per cent in its total earnings at US$ 1.62 billion, as compared to US$ 1.5 billion in the same month last fiscal. The Railways garnered US$ 459 million in total passenger earnings in April 2010, compared to US$ 411.6 million in April 2009. According to the Department of Industrial Policy and Promotion (DIPP), the foreign direct investment (FDI) inflow into railways related components has been US$ 109.56 million from April 2000 to March 2010. Roads An in-principal approval for converting 10,000 km of state roads to national highways has been given by the Empowered Group of Ministers (EGoM). It is estimated that around US$ 3.3 billion would be required over the next five years to undertake this project. Further, the Cabinet Committee on Infrastructure (CCI) has approved four highway projects of about US$ 543.8 million on June 10, 2010. These projects would cover states such as Gujarat, West Bengal, Bihar, Uttar Pradesh and Madhya Pradesh. Anil Dhirubhai Ambani Group (ADAG)’s flagship company Reliance Infrastructure Ltd (R-Infra) won a US$ 197.3 million project from the National Highways Authority of India (NHAI). It is the tenth road project it won from the NHAI. Earlier, R-Infra won a US$ 218.3 million road project from the Gujarat government, within a week after winning the US$ 380 million Pune-Satara Road project from the National Highway Authority of India (NHAI). The project is to execute a 71 kilometre four-six lane corridor connecting the ports of Mundra and Kandla in Gujarat. Recently, the elevated expressway between Silk Board junction and Electronic City junction, built for US$ 165.5 million, was opened to public use. A consortium comprising Soma Enterprise Ltd, Nagarjuna Construction Company and Maytas Infra Ltd constructed the 9.985 km long elevated road project. The project, executed through a special purpose vehicle, Bangalore Elevated Tollway Ltd, was built on a build operate transfer basis for the NHAI.

Investments The infrastructure sector seems to have emerged as a favourite for the private equity (PE) in 2010. According to Venture Intelligence data, so far in 2010, there have been 19 deals in this sector at an approximate investment of US$ 1.1 billion, as compared to 14 deals with an investment of US$ 257.5 million during the same period last year. JSW Energy (Bengal) Limited, a special purpose vehicle (SPV) for the Bengal power and coal project, plans to invest around US$ 423.6 million in coal mine development. Sembcorp Utilities, a Singapore-based company, has bought 49 per cent stake in Thermal Powertech Corporation India Ltd, a SPV and subsidiary of Gayatri Projects Ltd, for US$ 235.1 million. An investment of around US$ 425 million has been made by a consortium of investors led by Morgan Stanley Infrastructure Partners along with Goldman Sachs Investment Management, General Atlantic LLC (GA), Everstone Capital, Norwest Venture Partners and others in Asian Genco Pte (AGPL), an infrastructure company. Larsen & Toubro (L&T), the country’s largest engineering company, will invest around US$ 5.46 billion to build its thermal power business in the next five years. L&T Power, the wholly-owned subsidiary of L&T, will have a generation capacity of 5,500 MW, including hydro power, by 2015. Larsen and Toubro Ltd also formed a joint venture with Malaysia-based SapuraCrest Petroleum to install pipelines and construct offshore rigs and platforms in India, the Middle East and South East Asia. Tata Power has lined up investments of US$ 5.19 billion for its upcoming plants in Mundra, Maithon and Jojobera over the next three years. Tata Power and Reliance Power are coming up with UMPPs with a combined generation capacity of close to 16,000 MW. Jindal Steel & Power, which has a production capacity of 1,000 MW, plans to add another 4,380 MW thermal power and 6,100 MW hydro power capacity in the next five years. Government Initiatives The infrastructure finance companies (IFC) are being included in the category of non-banking finance company (NBFC) by the Reserve Bank of India (RBI). The IFCs would require a capital adequacy ratio of 15 per cent and the similar criteria of NBFCs would be applied to IFCs as well. Further, RBI stated that at least 75 per cent of the assets of these institutions should be used in infrastructure and their net owned funds should be US$ 64.6 million or more. While presenting the Union Budget this year, the Finance Minister has announced the allocation of US$ 37.7 billion, around 46 per cent of the total plan outlay of US$ 81 billion for 2010-11 to infrastructure sectors. In the last fiscal, this proportion was about 30 per cent. The Government of India has envisaged capacity addition of 100,000 MW by 2012 to meet its mission of power to all. Recently, a ministerial group discussing large power plants with a capacity to generate 4,000 MW of power has approved, in principle, a proviso requiring such plants that will be awarded in the future to use local power generation equipment. The move is expected to provide a fillip to domestic manufacturing. The decision on so-called ultra mega power plants, or UMPPs, will also benefit domestic power generation equipment manufacturers such as state-owned Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T), which has a joint venture with Mitsubishi Heavy Industries Ltd (MHI) of Japan. At least three joint ventures, between Toshiba Corp. of Japan and JSW Group; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd; and Alstom SA of France and Bharat Forge Ltd are looking to start manufacturing power equipment in India. Further, the government is also implementing the National Solar Mission, aimed at setting up 20,000 MW of solar power capacity by 2020. The Asian Development Bank (ADB) has approved a financial assistance for US$ 200 million under the Assam Power Sector Enhancement Investment Programme. The project has some innovative features like franchisee-based distribution, off-grid electrification with renewable energy, reduction in CHG emissions through efficiency gains. The road transport and highways ministry has proposed priority sector status for road development, allowing private highway developers more funds from banks.