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8/3/2019 S5_110929 PPP Presn_Prasad Gadkari
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Private Investment In
Indian Infrastructure
Prasad S. Gadkari
PRIVATE EQUITY ADB Conference, September 30th, 2011
The views expressed in these presentations are the views of the author and do not necessarily reflect the views or policies of the Asian Development
Bank (ADB), or its Board of Directors or the governments they represent. ADB does not guarantee the source, originality, accuracy, completeness orreliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented, nor does it make any representation concerningthe same.
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Contents
Progress during the past decade
Select sector experiences
Concluding remarks
Snapshot of IDFC PE
2
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Past Decade
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Progress during the decade
4
Private investment in infrastructure
% of GDP
1990 2000 2010
National Highways ('000 lane kms) NA 127* 156
Coastal Ports - volume of freighthandled (million tonnes)
163 334 819
Civil Aviation routes (aircraft millionkms flown)
118 193 713**
Power installed capacity (GW) 64 98 159
*Refers to 2006, **Refers to 2009Source: IDFC
Source: Planning Commission, CSO
> 4x capacity addition byprivate sector versus 1.3x forpublic sector
> 7x container handlingcapacity for private sectorversus degrowth for publicsector between 2002-2010
12,820 kms added from FY05-11
Pax growth 2x from FY05-09Private sector airports shareup 37x in same period
$16 bn*investedby financialinvestors (PE,infra funds, capitalmarkets)
* Excl telecom
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India has used a range of PPP models balancing efficient
risk transfer, fiscal resource allocation and sector criticality
5
Full
Privatization
Works &
Services
Contracts
Management &
Maintenance
Contracts
Operation &
Maintenance
Concessions
Build Operate
Transfer
Concessions
Asset
ownershipPublic Public Public Public & Private Private
Commercial risk Public Public Private Private Private
Typical duration 1-2 years 3-5 years 15-20 years 20-30 years Indefinite
Sectors
Roads EPC,Sewerage,
WaterToll stations Urban infra Highways, Ports
WaterTelecom, Power
Extent of private sector engagement
Low High
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Select Sector Experiences
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PPP in Roads - 1
7
60,000 km of National Highways
National Highway Development Project (NHDP) worlds largest PPP
based programme
NHAIs process for national highway projects:
Toll based model for financially viable projects.
Annuity structure for unviable projects
NHDP provides Viability Gap Funding (VGF) of up to 40% on toll projects. Bidding
criteria - minimum VGF
Typical concession tenures are in the range of 20-30 yrs with 3 yrs construction
Model Concession Agreement in place Toll rates and escalation basis specified
Provides for hand over of 90% of land to developer prior to financial closure
Provision for compensation in case of termination
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PPP in Roads - 2
8
A leading builder and
operator of National
Highway projects in India
Equity financing at multiple levels with participation from investors
with different risk profiles and return expectations
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PPP in Airports - 1
9
Airports owned & managed by Airports Authority of India
16 international airports, 80 domestic and 25 civil enclaves
200+ non operational/military airstrips
Top 6 cities contribute ~ 70% of the total passenger traffic
PPP structure
Projects to be awarded for 30 yrs plus concession through competitive bidding
Two stage bidding process
First stage: Pre-qualify 5-6 bidders based on technical experience
Second stage: Award project to bidder with highest revenue share
Viability Gap Funding (VGF) mechanism also built-in through ADF / UDF in someairports
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PPP in Airports - 2
10
GOI sought private partner to modernize a major infra
asset of national importance, while retaining a degree of
influence (but not control)
In 2006, the airport awarded to a consortium of:- Airport Authority of India (26% stake)- Private sector shareholders (74%)
Project Cost: ~ USD 2.5 bn
Financed By:- Equity from promoters, strategic investors, financial investor- Asset securitization- INR Debt from Indian Banks- ECBs
Combination of funding sources utilized to fund modernization of a
premier airport in the country
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PPP in Ports - 1
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India has about 12 major ports and 180 minor ports.under federal and stategovernment
National Maritime Development Programme (NMDP)
Major Ports
Privatization largely witnessed in Container Terminals / Berths
Projects awarded based on revenue share
Tariffs set by independent regulator (TAMP)
Provision for compensation in case of termination
Minor Ports
Witnessed setting up of greenfield ports (Gujarat, AP, Maharashtra)
No tariff regulation
States having some variations; but overall structure similar
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PPP in Ports - 2
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Non-major Port on West Coast
Concession for 30 years
Developed by Indian entrepreneur
Subsequently sold to international
operator
Project Cost ~ USD 500 mn
Equity investments from financial
investors
Project finance from Indian Banks
IPO
Port project accessing capital through different sources along its life
cycle
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Concluding Remarks
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5 pillars for successful PPPs
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Enabling Framework Legislative, policy & administrative
order
Appropriate risk sharing throughcontracts
Government support financial/non-financial, fiscal incentives
Transparent regulatory (independent)environment Adequate Project preparation
Feasibility, DPR
Clarity in project requirements
Prescription Vs flexibility
Sound Project Economics Adequate revenues to meet costs
(Capital/Operating/Financing)
Adequate cover for debt Risk adjusted return for equity
Strong Sponsors Ability to bring in own equity, provide
comforts to lenders
Ability to bring in third party equity Credit history
Track record of project development andimplementation
Breadth & Depth In
Financial Markets Banking system, project finance,
PE funds
Capital Markets
1 2
3
4
5
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Towards the 12th five year plan.
15
How do we provide steady flow of projects? Financing, not the biggestproblem
Few sector specific issues to focus on:
Roads (timely) land availability, pending dispute resolution, NHAIstaffing
Power Discom health, fuel availability
Airports no action after Delhi / Mumbai??
Urban infra commercial and contractual framework, ULB levelreforms, next JNNURM
Financial sector deepen availability of long term funding, allow
domestic money to flow into PE funds, taxation
With concrete positive steps, strong interest among investors ininfrastructure should definitely continue into the 12th five year plan
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IDFC Private Equity
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IDFC Private Equity brief snapshot
Established in 2002, part of the IDFC Group
IDFC is itself a PPP. set up originally by Govt of India in 1997 to channelise
private investments into infrastructure .now a financial conglomerate (B/S
$11 bn)
IDFCs activities include project & corporate finance, funds management,
investment banking, mutual fund, policy advisory and consulting
IDFC PE manages three private equity funds with corpus of USD 1.3 B
Made 33 investments over last 8 years with 16 exits / liquidity events
17
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IDFC PEs participation in Indian infrastructure
18
3 airports
15 ships
2,500 trucks200,000 students
4,962 hotel rooms
2,180 hospital beds
2 amusement parks35 roads and bridges
11 ports and terminals
7,600 MW power plants
40,000 telecom towers
3 rail container licenses
3,100 km of gas pipelines
29 million sq ft of real estate ment
196 MW of renewable power assets
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Thank you
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Annex
20
Equity Investors Evolution
Over Last Decade