Infrastructure - a growth propeller; enabling thrust needed
Opportunity canvas huge; LNT is the "Top Pick"
The Prime Minister's Office (PMO) called for a review of the FY13 targets for key infrastructure segments - Roads, Power/
Coal, Railways, Aviation, and Ports.
In the past, actual performance has fallen short of targets due to multiple hindrances, many of which are policy-related. In
this context, attention from the highest authority, the PMO, is positive.
However, creation of an effective enabling framework, facilitating clearances and funding, is necessity.
��
Infrastructure investment key to growth, PMO reviews
FY13 targets: Infrastructure investment is a crucial
growth propeller for India. The Planning Commission
had earlier estimated infrastructure investment at USD1t
under the 12th plan (2x the 11th plan target of USD514m).
On Wednesday, 6 June 2012, the Prime Minister's Office
(PMO) called for a review of key infrastructure segments
- Roads, Power/Coal, Railways, Aviation, and Ports, with
specific targets for FY13. Key highlights: (1) Ports sector
project award for 360mtpa v/s existing port capacity
(including minor ports) of 1,160mtpa, (2) Road project
award of 9,500km v/s 7,957km in FY12, (3) Aviation sector
project award for 3 greenfield projects and declaration
of 3-4 new international airports, (4) Power sector
capacity addition of 18GW in FY13 v/s an average of
~11GW per year under the 11th plan, (5) Coal India
dispatches of 470m tons, up 8% (v/s 1% increase in FY12).
Challenges persist on several fronts: In the past, the
actual performance v/s targets has not been very
encouraging, particularly in sectors like Ports and
Railways. While investments in sectors like Power and
Aviation led to project commissioning, the returns have
been impacted due to regulatory/other issues. Lack of
consistency in regulatory framework, impending issues
on environment/security clearances, land acquisition
challenges and lack of center-state coordination for large
projects are the key hindrances. Attention from the
highest authority, the PMO, had helped to ease the
logjam in Power/Coal but only in a limited way. Direct
monitoring/push for the infrastructure sector by the
center is a positive. Timely implementation, however,
holds the key. In the current scenario, the Roads
segment offers much comfort, given clarity on PPP
framework, proactive steps by NHAI in project awards,
land acquisition, etc.
Higher share of PPP projects calls for "enabling
environment": Share of the private sector in the 12th
plan is pegged at 50% or USD500b, up from USD186b in
the 11th plan (36% of total). Investment of this scale
from the private sector would necessitate an "enabling
environment" in the form of proper regulatory/PPP
framework for each segment, "single window"
clearances, a body to liaison on inter-ministerial
agendas, etc. Also, reforms on long-term infrastructure
financing are a must for higher private sector
participation. Infrastructure lending as a percentage of
bank credit has already crossed 15%; hence, LT funding
could be constrained. Efforts on these lines, in our view,
would enhance the visibility on returns for longgestation
infrastructure projects.
Opportunity canvas huge for incumbents: Given large
scale infrastructure building targets, the opportunity
canvas for incumbents is huge. Thus, in our view, the
right balance between growth and returns would be the
key differentiating factor amongst the players, which in
turn would also ensure/demand financial bandwidth.
LNT (Buy) is our top pick to play the theme, while we are
positive on IRB Infrastructure (Not rated). In Utilities
sector, we believe NTPC (Buy) and Coal India (Buy) are
beneficiaries of improved domestic coal supply.
PMO Meeting: Infrastructure sector targets for FY13
A. Ports
1. Total of 42 projects, with a capacity of 244mtpa and project value of INR145b are
targeted for completion in FY13. This is 3x what was achieved in FY12.
2. Two projects for brand new major ports will be taken up during the year.
a) These will be along the East Coast (Andhra Pradesh and West Bengal).
b) The total investment will be INR205b for a capacity of 116mtpa.
3. Total capacity of 360mtpa, requiring investment of INR350b, will be awarded.
B. Roads
1. Total road length to be awarded in FY13 will be 9,500km, an increase of 18.7%
over FY12. The investment will rise by 73.6%.
2. 4,360km of roads will be awarded for maintenance under the OMT (Operate,
Maintain, Transfer) system for the first time.
C. Civil Aviation
1. The Airports Authority of India (AAI) will commence work on Itanagar airport in
FY13. The total investment on AAI projects will be INR21b.
2. Three new greenfield projects - Navi Mumbai, Goa ad Kannur - will be awarded.
3. New international airports will be declared in 3 or 4 of the following locations -
Lucknow, Varanasi, Coimbatore, Trichy and Gaya.
4. An airline hub policy will be finalized and made operational at Delhi and Chennai.
5. By end-July 2012, additional PPP projects will be finalized for 10-12 existing
airports and for 10-12 greenfield airports. These will be awarded during the year.
6. PPP in airport operations will be explored.
D. Railways
Targets are for PPP projects. Regular operational and investment targets are known.
1. Dedicated Freight Corridor: PPP for the Sonnagar-Dankuni stretch will be awarded
in FY13.
2. Elevated Rail Corridor, Mumbai, with a total investment of INR200b to be awarded.
3. The concessions for two locomotive manufacturing units at Madhepura and
Marhowra will be awarded.
4. Redevelopment of 4/ 5 station will be done in PPP mode.
5. Proposal and approach for a High Speed Corridor (Bullet Train) from Mumbai to
Ahmedabad will be finalized.
E. Power
1. The capacity addition target for FY13 will be 18,000MW (17,957MW to be precise),
including 2,000MW to be added by the Kudankulam Atomic Power Project.
2. The power generation target is 930b units, an increase of 6.2%.
3. The Ministry of Power is increasingly laying transmission lines with higher voltage
(765kV in place of 400kV), and consequently, of higher transmission capacity/km.
F. Coal
1. Coal India will dispatch 470m tons of coal, an increase of 8.8%. Of this, dispatch to
the Power sector will be 347m tons in FY13 (an increase of 11.2%).
Opportunity canvas huge; LNT is the "Top Pick"
The Prime Minister's Office (PMO) called for a review of the FY13 targets for key infrastructure segments - Roads, Power/
Coal, Railways, Aviation, and Ports.
In the past, actual performance has fallen short of targets due to multiple hindrances, many of which are policy-related. In
this context, attention from the highest authority, the PMO, is positive.
However, creation of an effective enabling framework, facilitating clearances and funding, is necessity.
Infrastructure investment key to growth, PMO reviews
FY13 targets: Infrastructure investment is a crucial
growth propeller for India. The Planning Commission
had earlier estimated infrastructure investment at USD1t
under the 12th plan (2x the 11th plan target of USD514m).
On Wednesday, 6 June 2012, the Prime Minister's Office
(PMO) called for a review of key infrastructure segments
- Roads, Power/Coal, Railways, Aviation, and Ports, with
specific targets for FY13. Key highlights: (1) Ports sector
project award for 360mtpa v/s existing port capacity
(including minor ports) of 1,160mtpa, (2) Road project
award of 9,500km v/s 7,957km in FY12, (3) Aviation sector
project award for 3 greenfield projects and declaration
of 3-4 new international airports, (4) Power sector
capacity addition of 18GW in FY13 v/s an average of
~11GW per year under the 11th plan, (5) Coal India
dispatches of 470m tons, up 8% (v/s 1% increase in FY12).
Challenges persist on several fronts: In the past, the
actual performance v/s targets has not been very
encouraging, particularly in sectors like Ports and
Railways. While investments in sectors like Power and
Aviation led to project commissioning, the returns have
been impacted due to regulatory/other issues. Lack of
consistency in regulatory framework, impending issues
on environment/security clearances, land acquisition
challenges and lack of center-state coordination for large
projects are the key hindrances. Attention from the
highest authority, the PMO, had helped to ease the
logjam in Power/Coal but only in a limited way. Direct
monitoring/push for the infrastructure sector by the
center is a positive. Timely implementation, however,
holds the key. In the current scenario, the Roads
segment offers much comfort, given clarity on PPP
framework, proactive steps by NHAI in project awards,
land acquisition, etc.
Higher share of PPP projects calls for "enabling
environment": Share of the private sector in the 12th
plan is pegged at 50% or USD500b, up from USD186b in
the 11th plan (36% of total). Investment of this scale
from the private sector would necessitate an "enabling
environment" in the form of proper regulatory/PPP
framework for each segment, "single window"
clearances, a body to liaison on inter-ministerial
agendas, etc. Also, reforms on long-term infrastructure
financing are a must for higher private sector
participation. Infrastructure lending as a percentage of
bank credit has already crossed 15%; hence, LT funding
could be constrained. Efforts on these lines, in our view,
would enhance the visibility on returns for longgestation
infrastructure projects.
Opportunity canvas huge for incumbents: Given large
scale infrastructure building targets, the opportunity
canvas for incumbents is huge. Thus, in our view, the
right balance between growth and returns would be the
key differentiating factor amongst the players, which in
turn would also ensure/demand financial bandwidth.
LNT (Buy) is our top pick to play the theme, while we are
positive on IRB Infrastructure (Not rated). In Utilities
sector, we believe NTPC (Buy) and Coal India (Buy) are
beneficiaries of improved domestic coal supply.
PMO Meeting: Infrastructure sector targets for FY13
A. Ports
1. Total of 42 projects, with a capacity of 244mtpa and project value of INR145b are
targeted for completion in FY13. This is 3x what was achieved in FY12.
2. Two projects for brand new major ports will be taken up during the year.
a) These will be along the East Coast (Andhra Pradesh and West Bengal).
b) The total investment will be INR205b for a capacity of 116mtpa.
3. Total capacity of 360mtpa, requiring investment of INR350b, will be awarded.
B. Roads
1. Total road length to be awarded in FY13 will be 9,500km, an increase of 18.7%
over FY12. The investment will rise by 73.6%.
2. 4,360km of roads will be awarded for maintenance under the OMT (Operate,
Maintain, Transfer) system for the first time.
C. Civil Aviation
1. The Airports Authority of India (AAI) will commence work on Itanagar airport in
FY13. The total investment on AAI projects will be INR21b.
2. Three new greenfield projects - Navi Mumbai, Goa ad Kannur - will be awarded.
3. New international airports will be declared in 3 or 4 of the following locations -
Lucknow, Varanasi, Coimbatore, Trichy and Gaya.
4. An airline hub policy will be finalized and made operational at Delhi and Chennai.
5. By end-July 2012, additional PPP projects will be finalized for 10-12 existing
airports and for 10-12 greenfield airports. These will be awarded during the year.
6. PPP in airport operations will be explored.
D. Railways
Targets are for PPP projects. Regular operational and investment targets are known.
1. Dedicated Freight Corridor: PPP for the Sonnagar-Dankuni stretch will be awarded
in FY13.
2. Elevated Rail Corridor, Mumbai, with a total investment of INR200b to be awarded.
3. The concessions for two locomotive manufacturing units at Madhepura and
Marhowra will be awarded.
4. Redevelopment of 4/ 5 station will be done in PPP mode.
5. Proposal and approach for a High Speed Corridor (Bullet Train) from Mumbai to
Ahmedabad will be finalized.
E. Power
1. The capacity addition target for FY13 will be 18,000MW (17,957MW to be precise),
including 2,000MW to be added by the Kudankulam Atomic Power Project.
2. The power generation target is 930b units, an increase of 6.2%.
3. The Ministry of Power is increasingly laying transmission lines with higher voltage
(765kV in place of 400kV), and consequently, of higher transmission capacity/km.
F. Coal
1. Coal India will dispatch 470m tons of coal, an increase of 8.8%. Of this, dispatch to
the Power sector will be 347m tons in FY13 (an increase of 11.2%).
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