Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
Feedback Infra takeaways: Some medium-term positives; hoping for resolution
of power sector woes. Feedback Infra reemphasized key medium-term positives for
infra capex amid current environment of pessimism including (1) doubling of share of
infra spending of GDP, (2) above-expectation share of private sector and (3) XI Plan
spending to be closer to plan projections and (4) largest PPP program in the world with
increasing acceptance. Lots of reliance was placed on recent impetus from PMO
towards resolving power sector woes such as (1) one-time reset for imported fuel
plants, (2) clearances on land for coal and (3) pooling of fuel prices. Key to watch out
for is a shelf of projects, which is lacking.
Positives: Infra spend boosted by private-sector contribution; XI Plan spend to be closer to target
We highlight key takeaways from our interaction with Mr. Vinayak Chatterjee (Chairman,
Feedback Infrastructure) during our annual conference. The company cited the Planning
Commission projection of doubling of share of infra spending in GDP to 10% over XII Plan (US$1
tn) although we note risks to the same (majority contribution from power and telecom both of
which could have downsides). The company cited infra investments to be supported by private
sector (50% share in XII Plan as per the Planning Commission) with contribution in XI Plan
expected to be substantially ahead of plan estimates (37% versus 30%). It also expects XI Plan
infra spending (US$400 bn) closer to plan target as per medium-term review (US$514 bn).
PPP model gaining ground across levels of government politics; largest PPP opportunity in world
The presentation delineated the shift in policy basis to the PPP model from earlier complete
dependence on government funding. Such shift has been accompanied by (1) social needs
transforming to education-health-jobs from the earlier basic needs of food-clothing-shelter,
(2) decentralization of implementation (PPP had moved from centre to state to urban local bodies)
and (3) broad transparency of bid process management (RTI, CAG, media etc.). The Indian PPP
program may be the largest private investment program in public infrastructure currently.
What policy initiatives are power utilities (and possibly investors) banking on?
Our interactions with industry participants pointed towards increased optimism towards the
government resolving the power sector issues (both coal and gas) under the aegis of the newly
set-up committee headed by Mr. Pulok Chatterjee. The committee has so far met with the heads
of private utilities, members of the coal, power and railway ministry and has set up a 30-60-90 day
agenda. Possible solutions for the current fuel conundrum include (1) alignment of fixed price
contracts for imported coal-based projects to current prices of coal, (2) allocation of land to Coal
India on an ‘all-clearances’ basis to facilitate a faster ramp-up, and (3) using Coal India to import
coal and pooling of imported coal prices with notified prices of domestic coal.
On aggressive bidding in roads, the key takeaways were (1) projects are of very long-term nature
(25 years or so) and thus it is not possible to look that far out in terms of evolution of traffic
pattern etc., and (2) entrepreneurs bidding for these projects may be optimizing the entire systems
and it may seem aggressive to the market in the short term, which shares only part of the upside.
Other takeaways: Creating a shelf of projects is the key apart from several other suggestions
Feedback Infrastructure highlighted 12 key action points to support recovery in infrastructure
capex. These covered key domains including (1) ambit (definition of infra), (2) policy and approvals
(land, environment, regulatory authority, infra ministry, UMPP-type SPVs), (3) long-term debt
market, (4) reforming railways and power sector woes and (5) taking PPP to rural India.
Policy shift towards PPP accompanied by transformation in social needs
The presentation delineated the shift in policy basis to PPP model from earlier complete
dependence on govt. funding. Several key changes followed and in some ways propelled the
shift towards PPP model.
Transformation of public needs. The shift in political state of economy has also been
accompanied and in some ways propelled by the change in the social needs of the public
at large. The core needs which were initially focused on food-clothes-home transformed
to electricity-road-water and later to education-health-job
Decentralization of implementation. The past few decades have also witnessed shift
in actual implementation of infrastructure from federal to states to finally to urban local
bodies.
Increased transparency further beneficial for interest and investment. We also note
increased transparency in bid process management through information (Right to
Information), audit agencies (Comptroller and Auditor General of India), media etc.
Immense potential for PPP investment relative to international opportunities
The XII Plan estimate implies annual investment opportunity in infrastructure of US$200 bn.
this compares favorably versus (1) US$47 bn for UK, (2) US$67 bn for Australia and (3) total
of US$132 bn allocated to infrastructure by the US government as part of the US$787 bn
American recovery and re-investment act.
What policy initiatives are power utilities (and possibly investors) banking on
Reset of tariffs for fixed-price imported coal based projects. Based on the
representations made by the generation companies, a re-calibration of fixed price
contracts that allows for al existing imported coal based plants to be indexed to current
prices of coal, thereby ensuring their viability. The positive side is that since the all the
bidders for these projects are going to benefit for some other plant they may have bid for,
litigation on the same will likely be subdued. However, such a policy framework may
require the consultation of the judiciary (as extant contracts and competitive-bids have to
be re-worked) as well as the agreement of the various state distribution utilities which
were beneficiaries of such low-cost power. While we are skeptical of such an
arrangement coming through, the same would be beneficial to listed private generation
companies such as Tata Power (Mundra UMPP), Reliance Power (Krishnapatnam UMPP)
and Adani Power (Mundra) among others.
Fast-track land allocation for Coal India. Allocation of land with ‘all-clearances’ in
place, wherever Coal India is in a position to ramp up production of domestic coal
supplies in the short to medium term. This would help fill in for the shortfall of domestic
coal supplies cutting short the development time (typically 5-7 years for land acquisition
and clearances) of a new block. Besides, Coal India, which would be the immediate
beneficiary of such a move, availability of domestic coal supplies would also help private
power producers such as Lanco, Adani Power and Sterlite Energy who have
commissioned capacities dependent on coal supplies from Coal India, starved for coal
availability.
Pooling of coal prices, GCV-based pricing to allow Coal India to be central
procuring agency. Pooling of coal prices (by importing the coal through a common
channelizing agent—role likely to be played by Coal India) may be the way forward for
the sector, thereby ensuring a common cost of coal—across subsidiaries, irrespective of
the quantum of domestic allocations (or import procurement). The move of Coal India to
a gross calorific value based pricing mechanism appears to be more prompted to facilitate
such a pooling of price (since internationally coal pricing is done on the GCV-based value).
Thus with one procuring agency, pooling will be more easily facilitated, and a one-price
policy will also allow the shift to a cost-plus pricing mechanism instead of fixed-price
contracts entered into through the competitive bid route.
Brief profile of Mr. Pulok Chatterjee as per media reports
Pulok Chatterjee is a 1974 batch Indian Administrative Service officer from Uttar Pradesh
Cadre. He is currently the Principal Secretary in the Prime Ministers Office. Mr. Chatterjee,
perceived as being close to Sonia Gandhi, has joined the Prime Minister's Office. His brief is
to get things moving at the PMO. On January 18, top notch private power producers like
Ratan Tata of Tata Power, Anil Ambani of Reliance Power, L Madhusudan Rao of Lanco
Infratech and Naveen Jindal of Jindal Power met Prime Minister Manmohan Singh at his
office in South Block to tell him their problems.
Creating a shelf of projects is the key apart from several other suggestions
Feedback infrastructure highlighted 12 key action points which would support recovery in
infrastructure capex. The action points were spread across key domains including (1) ambit
(definition of infra), (2) approvals (land, environment, independent regulatory authority,
cutting permissions), (3) long-term debt market, (4) reforming railways and (5) taking PPP to
rural India.
Key developments necessary for improving capex in infrastructure
Domain Action point
Ambit Defining the scope of infrastructure taking out aspects extraneous to the domain
Land acquistion and environment issues
Independent economic regulatory authorities
Cutting permissions logjam - reverse BOT and/or UMPP-type SPV solutions
National infra minitry handling 20+ projects of national importance
Funding Long-term debt market
Evacuation Reforming Indian railways
Creating pipileine of projects
Taking PPP to rural India
Galvanizing urban infra investments (Rs40 tn capex, Rs25 tn O&M for next 20 years)
Solving the power conundrum
Emphasis on O&M and service delivery standards
Shelf of projects
Others
Approvals and
regulation
Source: Feedback Infrastructure, Kotak Institutional Equities
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
Feedback Infra takeaways: Some medium-term positives; hoping for resolution
of power sector woes. Feedback Infra reemphasized key medium-term positives for
infra capex amid current environment of pessimism including (1) doubling of share of
infra spending of GDP, (2) above-expectation share of private sector and (3) XI Plan
spending to be closer to plan projections and (4) largest PPP program in the world with
increasing acceptance. Lots of reliance was placed on recent impetus from PMO
towards resolving power sector woes such as (1) one-time reset for imported fuel
plants, (2) clearances on land for coal and (3) pooling of fuel prices. Key to watch out
for is a shelf of projects, which is lacking.
Positives: Infra spend boosted by private-sector contribution; XI Plan spend to be closer to target
We highlight key takeaways from our interaction with Mr. Vinayak Chatterjee (Chairman,
Feedback Infrastructure) during our annual conference. The company cited the Planning
Commission projection of doubling of share of infra spending in GDP to 10% over XII Plan (US$1
tn) although we note risks to the same (majority contribution from power and telecom both of
which could have downsides). The company cited infra investments to be supported by private
sector (50% share in XII Plan as per the Planning Commission) with contribution in XI Plan
expected to be substantially ahead of plan estimates (37% versus 30%). It also expects XI Plan
infra spending (US$400 bn) closer to plan target as per medium-term review (US$514 bn).
PPP model gaining ground across levels of government politics; largest PPP opportunity in world
The presentation delineated the shift in policy basis to the PPP model from earlier complete
dependence on government funding. Such shift has been accompanied by (1) social needs
transforming to education-health-jobs from the earlier basic needs of food-clothing-shelter,
(2) decentralization of implementation (PPP had moved from centre to state to urban local bodies)
and (3) broad transparency of bid process management (RTI, CAG, media etc.). The Indian PPP
program may be the largest private investment program in public infrastructure currently.
What policy initiatives are power utilities (and possibly investors) banking on?
Our interactions with industry participants pointed towards increased optimism towards the
government resolving the power sector issues (both coal and gas) under the aegis of the newly
set-up committee headed by Mr. Pulok Chatterjee. The committee has so far met with the heads
of private utilities, members of the coal, power and railway ministry and has set up a 30-60-90 day
agenda. Possible solutions for the current fuel conundrum include (1) alignment of fixed price
contracts for imported coal-based projects to current prices of coal, (2) allocation of land to Coal
India on an ‘all-clearances’ basis to facilitate a faster ramp-up, and (3) using Coal India to import
coal and pooling of imported coal prices with notified prices of domestic coal.
On aggressive bidding in roads, the key takeaways were (1) projects are of very long-term nature
(25 years or so) and thus it is not possible to look that far out in terms of evolution of traffic
pattern etc., and (2) entrepreneurs bidding for these projects may be optimizing the entire systems
and it may seem aggressive to the market in the short term, which shares only part of the upside.
Other takeaways: Creating a shelf of projects is the key apart from several other suggestions
Feedback Infrastructure highlighted 12 key action points to support recovery in infrastructure
capex. These covered key domains including (1) ambit (definition of infra), (2) policy and approvals
(land, environment, regulatory authority, infra ministry, UMPP-type SPVs), (3) long-term debt
market, (4) reforming railways and power sector woes and (5) taking PPP to rural India.
Policy shift towards PPP accompanied by transformation in social needs
The presentation delineated the shift in policy basis to PPP model from earlier complete
dependence on govt. funding. Several key changes followed and in some ways propelled the
shift towards PPP model.
Transformation of public needs. The shift in political state of economy has also been
accompanied and in some ways propelled by the change in the social needs of the public
at large. The core needs which were initially focused on food-clothes-home transformed
to electricity-road-water and later to education-health-job
Decentralization of implementation. The past few decades have also witnessed shift
in actual implementation of infrastructure from federal to states to finally to urban local
bodies.
Increased transparency further beneficial for interest and investment. We also note
increased transparency in bid process management through information (Right to
Information), audit agencies (Comptroller and Auditor General of India), media etc.
Immense potential for PPP investment relative to international opportunities
The XII Plan estimate implies annual investment opportunity in infrastructure of US$200 bn.
this compares favorably versus (1) US$47 bn for UK, (2) US$67 bn for Australia and (3) total
of US$132 bn allocated to infrastructure by the US government as part of the US$787 bn
American recovery and re-investment act.
What policy initiatives are power utilities (and possibly investors) banking on
Reset of tariffs for fixed-price imported coal based projects. Based on the
representations made by the generation companies, a re-calibration of fixed price
contracts that allows for al existing imported coal based plants to be indexed to current
prices of coal, thereby ensuring their viability. The positive side is that since the all the
bidders for these projects are going to benefit for some other plant they may have bid for,
litigation on the same will likely be subdued. However, such a policy framework may
require the consultation of the judiciary (as extant contracts and competitive-bids have to
be re-worked) as well as the agreement of the various state distribution utilities which
were beneficiaries of such low-cost power. While we are skeptical of such an
arrangement coming through, the same would be beneficial to listed private generation
companies such as Tata Power (Mundra UMPP), Reliance Power (Krishnapatnam UMPP)
and Adani Power (Mundra) among others.
Fast-track land allocation for Coal India. Allocation of land with ‘all-clearances’ in
place, wherever Coal India is in a position to ramp up production of domestic coal
supplies in the short to medium term. This would help fill in for the shortfall of domestic
coal supplies cutting short the development time (typically 5-7 years for land acquisition
and clearances) of a new block. Besides, Coal India, which would be the immediate
beneficiary of such a move, availability of domestic coal supplies would also help private
power producers such as Lanco, Adani Power and Sterlite Energy who have
commissioned capacities dependent on coal supplies from Coal India, starved for coal
availability.
Pooling of coal prices, GCV-based pricing to allow Coal India to be central
procuring agency. Pooling of coal prices (by importing the coal through a common
channelizing agent—role likely to be played by Coal India) may be the way forward for
the sector, thereby ensuring a common cost of coal—across subsidiaries, irrespective of
the quantum of domestic allocations (or import procurement). The move of Coal India to
a gross calorific value based pricing mechanism appears to be more prompted to facilitate
such a pooling of price (since internationally coal pricing is done on the GCV-based value).
Thus with one procuring agency, pooling will be more easily facilitated, and a one-price
policy will also allow the shift to a cost-plus pricing mechanism instead of fixed-price
contracts entered into through the competitive bid route.
Brief profile of Mr. Pulok Chatterjee as per media reports
Pulok Chatterjee is a 1974 batch Indian Administrative Service officer from Uttar Pradesh
Cadre. He is currently the Principal Secretary in the Prime Ministers Office. Mr. Chatterjee,
perceived as being close to Sonia Gandhi, has joined the Prime Minister's Office. His brief is
to get things moving at the PMO. On January 18, top notch private power producers like
Ratan Tata of Tata Power, Anil Ambani of Reliance Power, L Madhusudan Rao of Lanco
Infratech and Naveen Jindal of Jindal Power met Prime Minister Manmohan Singh at his
office in South Block to tell him their problems.
Creating a shelf of projects is the key apart from several other suggestions
Feedback infrastructure highlighted 12 key action points which would support recovery in
infrastructure capex. The action points were spread across key domains including (1) ambit
(definition of infra), (2) approvals (land, environment, independent regulatory authority,
cutting permissions), (3) long-term debt market, (4) reforming railways and (5) taking PPP to
rural India.
Key developments necessary for improving capex in infrastructure
Domain Action point
Ambit Defining the scope of infrastructure taking out aspects extraneous to the domain
Land acquistion and environment issues
Independent economic regulatory authorities
Cutting permissions logjam - reverse BOT and/or UMPP-type SPV solutions
National infra minitry handling 20+ projects of national importance
Funding Long-term debt market
Evacuation Reforming Indian railways
Creating pipileine of projects
Taking PPP to rural India
Galvanizing urban infra investments (Rs40 tn capex, Rs25 tn O&M for next 20 years)
Solving the power conundrum
Emphasis on O&M and service delivery standards
Shelf of projects
Others
Approvals and
regulation
Source: Feedback Infrastructure, Kotak Institutional Equities
No comments:
Post a Comment