B S R and Associates
Infrastructure –
Growth and
Opportunities
Jayesh Kariya
17 January 2015
The Institute of Cost and
Management Accountants
Infrastructure a Necessity or Fantasy ?
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
2
Global
Outlook
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
3
The global story around infrastructure…
Economic
Booster
Infrastructure development is a
must for economic
development of the country
Ever Evolving
Needs
Infrastructure is a part of Social
Conscience – its needs are
always evolving and ever
changing
Global Market
Trade Enabler
Infrastructure market is a
truly global market
It is a MUST for enabling global
trade and connectivity
Its is joint responsibility of the
Joint
Government and Private
Responsibility Players
Increased Focus
Increased government focus
and investment in
infrastructure
Funding
Challenge
Financing of infrastructure
requires innovative solution
and global funding
Sustainable
and Green
Sustainable and Green
development is the need of the
day
Developing Specialist Skills and Talent is Imperative – Continuous Skill Development Holds the Key
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
4
…the global status of investment in Infrastructure ….
“Developing countries need new infrastructure, developed countries need rebuilt infrastructure and almost every
country is struggling to finance the infrastructure it needs.”
-Prime Minister Tony Abbott, World Economic Forum, Davos, January 2014




Infrastructure is critical for modern
economies. Businesses rely on roads and
ports to access markets, on power
stations for energy to operate, and on
telecommunications to engage with their
customers and remain competitive.
Accelerating urbanization in developing
countries, particularly China, India, and
Indonesia will require spending growth in
water, power, telecommunications, and
transportation infrastructure.
The OECD estimates that global air
passenger traffic could double in 15
years, air freight could triple in 20 years,
and port handling of maritime containers
could quadruple by 2030.
THE NEED FOR MORE INVESTMENT IN INFRASTRUCTURE
The World Bank indicates that
the private sector accounts
for less than 15%
BY 2030
$1-1.5
trillion
The OECD estimates US$70
trillion is needed to address
the growing infrastructure
gap and build the, ports,
powerand communications
infrastructure necessary in
the coming decades.
The World Bank
estimates that an
additional US$1-1.5
trillion each year will be
required through 2020 to
meet growthtargets in
emerging and developing
economies.
ROADS
For well-planned and delivered public
infrastructure projects, the World
Economic Forum estimates that every
dollar invested will generate an economic
return of between 5 and 25 per cent.
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
The World Bank also
indicate thatinadvanced
economies, total
investmentfromboth public
andprivate sources as a
share ofGDP is the lowestin
50 years.
PORTS
POWER
COMMUNICATION
of total infrastructure
investment inemerging
market economies, putting
signiicant pressure on
already constrained
government budgets.This is
partly due to commercial
banks withdrawing their
investment in an effort to
repair their own balance
sheets since the global
fiinancial crisis.
Sources: OECD, World Bank
Group
…the Pillars of Infrastructure development recognized globally
Government and Private
Partnership
Availability of Natural
Resources
Political System and
Strong Leadership
Pillars for
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Infrastructure
Development
Availability of funds at lower cost
and access to global capital
market
Liberalized Policies and
Regulatory Framework
Specialized Talent and Skilled
work force
Development and maintaining of infrastructure is a continues
process – so as the innovation around these Pillars is a Key
to Success in developing quality and sustainable
infrastructure
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
6
Indian
Infrastructu
re sector
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
The 12th Five Year Plan envisages doubling up of investment as
compared to investment planned during the 11th Five Year Plan…
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
… this is what is expected to happen in upcoming years
$1.1
90 mn
2020
Trillion worth of
investment will be
attracted in India in
next five years
Jobs will be created
across different sectors
in next one decade
Indian Railway Vision
projected by
Government of India
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
2.5
Billion sq. mtrs. of roads will
have to be paved, 20 times
the capacity added in past
decade
8 mn
Square feet of office space
will be required to
correspond the increased
employment generated
9
Different road projects
approved by Indian
government worth $ 2 bn to
be implemented under PPP
model
…however the sector has gone through many challenges
until recently
The vision and rigour of new government is set to address all of the above at earliest and the much required
boost to the sector
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
10
…Government initiatives for boosting infra sector
Recent Initiatives:
100% FDI permitted
under auto route in
the power sector
Set up of Indian
Cabinet Committee
to ease bottlenecks
of Infra sector
Viability gap funding
allowed to sectors like
telecom, oil, gas
storage and irrigation
Government
Initiatives
SEZ Regime
relaxations
Affordable
Housing –
Infrastructure
Status and ECB
100% FDI permitted
under auto route in
setting up new
industrial park
REIT and InvIT
Regime rolled
out
100% FDI permitted
under auto route in
petro products,
natural gas pipeline
and petro refining
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
 Increased focus on
infrastructure spending
and allocation
 Ra-hauling existing
policies and announcing
new policies
 Announcing mega
project in partnership
with other counties
 Focus on Innovation,
Make in India,
connectivity and
urbanization
 Focus on foreign
investment and global
participation
 Public- Private
Partnership
11
Energy sector (1/2)
• India is the fifth largest producer and consumer of electricity in the
world after US, China, Japan and Russia with a production of 1,006
terawatt hours (TWh).*
• In FY14, electricity production stood at 967 TWh. Over FY07–14,
electricity production expanded at a compound annual growth rate
(CAGR) of 5.6%
• The Planning Commission’s 12th Plan projects that total domestic
energy production would reach 669.6 million tonnes of oil
equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22.
• The industry has attracted FDI worth US$ 9,269.45 million during
the period April 2000 to August 2014.
• 100% FDI permitted under automatic route in petroleum products,
natural gas pipeline and petroleum refining
• The new government is working a number of initiatives to increase
the supply of domestic coal, promoting renewables in much larger
scale to put them at the center of the fuel basket and undertaking
distribution reforms.
• Plans to invest Rs 2 trillion (US$ 32.61 billion) in solar and wind
power projects in the deserts to compensate for India’s depleting
fossil fuel reserves.
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
*Source – Indian Brand Equity Foundation (IBEF) sectorial report October 2014
12
Energy sector (2/2)
• Plans to accelerate wind energy generation by adding an
ambitious 10,000 MW every year, or five times the total new
capacity that came up in the last fiscal, in order to reduce
India's dependence on costly energy imports
• The Ministry of Power has sent its proposal for the addition
of 76,000 MW of power capacity in the 12th Five Year plan
(2012-17), to the Planning Commission. The Ministry has set a
target of adding 93,000 MW in the 13th Five Year Plan (20172022).
• It is also revisiting the Electricity Act, which needs changes
to get private sector interest back into this key sector.
• Neyveli Lignite Corporation (NLC), as part of its entry into
green energy generation, has lined up renewable energy
projects worth Rs 500 crore (US$ 81.51 million) to set up wind
and solar energy projects of 80 MW in India.
*Source – Indian Brand Equity Foundation (IBEF) sectorial report October 2014
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
13
Civil Aviation sector
• India has a vision of becoming the third largest aviation market by
2020 and is expected to be the largest by 2030.*
• The Indian civil aviation industry is among the top 10 in the world
with the an estimated value of USD 16 billion.
• The next generation of aviation growth in India will be triggered
by regional airports
• The Government of India has approved the construction of five
budget airports to improve regional connectivity and work on
them will start from FY 2015 -16.
• Plans to start development of the five no-frills airports and award
management contracts of four airports to private operators in FY
2015.
• Plans to upgrade the Jaipur and Jodhpur airports. It plans to
extend the runway of Jaipur airport with Cat-II approach lighting
system and allocate land to the Jodhpur airport for the
upgradation.
• There are going to be interesting PPP opportunities for investors
in the new greenfield airports at Navi Mumbai and Goa (MOPA)
that are going to come to the market shortly.
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
*Source – Indian Brand Equity Foundation (IBEF) sectorial report October 2014
14
Railway sector
• Monopolistic sector with the least private sector participation
• The new Government considers railways as the ‘growth engine’
of the country.*
• Process of transformation of railway sector with increased
private sector participation and more liberal FDI in railway
projects started
• Upto 100% FDI allowed under automatic route in some railway
operations like freight corridor, high speed train, port and
mining connectivity projects.
• Upto 100% FDI allowed under automatic route in most of the rail
projects like gauge conversion, construction and doubling of
new lines and maintenance under PPP project.
• Recently, it signed MoUs with Japan and China, for obtaining
technical know-how, designs, components for high speed
railway lines and bullet trains.
• Indian Railways is currently working on a target to attract Rs
6,050 crore in rail PPP projects in the FY 2014-15.#
• Ambitious rail projects include – High speed rail lines between
Mumbai and Ahmedabad and from Delhi to Patna
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
* KPMG Infrastructure 100 – World Markets Report
# Source – Indian Brand Equity Foundation (IBEF) sectorial report October 2014
15
Roads and highway sector
• The budget has set aside US$ 7 billion for building 8,000
kilometers of new roads.
• NHAI plans to award road project on an EPC basis to start with
and at the same time address issues to kick start the stalled
projects.
• As part of India–Japan Strategic and Global Partnership, the
two sides launched a Special Economic Partnership Initiative
(SEPI), including the Delhi–Mumbai Industrial Corridor (DMIC)
project.
• Plans to set up a finance corporation with an amount of Rs 1
trillion (US$ 16.34 billion), in collaboration with Japanese
investors, to fund projects in the roads segment. The
Japanese partners are expected to have a 26 per cent stake
with assured returns of nine per cent, according to an official
source.
• Government approved road projects worth about Rs 40K crore
(US$ 6.53 billion), including Rs 20K crore (US$ 3.26 billion)
highway projects in J&K
• Plans to develop a total of 66,117 km of roads under different
programmes
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
16
Social Infrastructure sector
Health
• It has become India's one of the largest sector with significant
investment in recent years
• Largely dominated by private sector and its share to grow from
66% in 2005 to 81% by 2015
• Major investments witnessed form overseas private equity and
sovereign funds
• FDI in Insurance sector increased – poised to provide more
boost to private health insurance industry
• National Health Assurance Mission - Provide all citizens with
free drugs and diagnostic treatment, as well as insurance cover
to treat serious ailments
Education
• Identified as the MOST critical area for development
• Education is a “Sun Rise” sector and will witness major growth
by 2020
• Government introduces new education system of “credit
transfer scheme”
• International collaboration for higher education and setting up
new technology institutes
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
17
Smart cities…….
Several definitions of smart cities exist which include:
o “Instrumented, interconnected and intelligent cities”
o Cities using smart computing technologies to make the critical infrastructure components and services which include
city administration, real estate, education, transportation etc.
•
Ministry of Urban Development recently met the World Bank and the National Institute of Urban Affairs to discuss the proposal
regarding development of 100 new towns and smart cities
•
3 smart cities already being developed as model cities through private sector participation - Kochi Smart City, Gujarat International
Finance Tec-City and Lavasa in Maharashtra
•
7 smart cities are under development by states with foreign aid as part of the Delhi-Mumbai Industrial Corridor (DMIC). Work on two
of these is expected to start in soon
•
24 new cities to be developed under the DMIC till 2040
•
3 new smart cities to be developed in the Chennai-Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam
in Andhra Pradesh and Tumkur in Karnataka proposed to be completed (FM’s budget speech)
•
Government keen to seek support from other countries (Singapore, France etc) to achieve this.
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
18
Affordable housing……..
• Affordable housing as defined by (i) Ministry of Housing and Urban Poverty Alleviation, (ii) National Housing Bank (‘NHB’) and under (iii)
Income-Tax Act is mainly dependent on
a) income of dwellers being Economically Weaker Sections (EWS) and Low Income Group (LIG) and
b) carpet area of dwelling unit (upto 300 sq ft for EWS and upto 600 sq ft for LIG).
43.67 million units (2012-2017)
90 per cent affecting Below Poverty
Line categories
Total housing shortage
18.78 million units
95.6 per cent affecting EWS
and LIG
1) Lack of availability of
affordable houses
2 MAIN
REASONS
Total housing shortage
URBAN
HOUSING
RURAL
HOUSING
• Shift of focus on Affordable Housing sector:
2) Lower affordability of the
poor
*Source: NHB Report on Trend & Progress of Housing in India (2012)
• The Finance Bill with the objective of ‘Housing For All by 2022’ has taken several measures to promote affordable housing:
- Relaxations in FDI conditions for investment in projects catering to affordable housing
- Allocations towards Rural Housing Fund INR 8,000 crore administered by NHB
- Mission on Low Cost Affordable Housing to be set-up under anchorage of NHB with an allocation of INR 4,000 crore.
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
19
Industrial corridors…….
Multiple
states coordinated
• Government to set up National Industrial Corridor Authority (NICA) in Pune, Maharashtra with an
allocations of INR 100 crore
• Amongst others, the Delhi-Mumbai Industrial Corridor has been the focus of government since
long with its approval being granted in 2007
• Industrial Corridors will pave way for industrial cities viz “smart cities”
• Expected to create employment for majority of local population directly or indirectly.
Smart
cities
Industrial
Corridors
Delhi-Mumbai
Industrial
set-ups
Transport
systems
AmritsarKolkata
BangaluruMumbai
Objectives of Industrial Corridors
IMPACT OF INDUSTRIAL CORRIDORS
Vizag-Chennai
ChennaiBangaluru
Industrial Corridors in India
Various factors such as new smart cities, growing commercial
complexes, employment, and migration and infrastructure
development around these industrial corridors will result into
improved standard of living.
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
20
Indian REIT/InvIT – a game changer for commercial /Infra
assets….
Investors
units
Sponsor
Investment
Management
agreement
Sponsor
Contribution
Investment
Manager
Trustee
Broad Framework:
•
Sponsor to set-up a Trust and appoint Trustee – 3
co-sponsors permissible
•
Trust to be registered as REIT/InvIT with SEBI
•
Trustee to appoint Manager
•
Manager to appoint Principal Valuer
•
REIT/InvIT to hold assets worth INR 500 crore
•
REIT to undertake IPO within 18 months of
registration with SEBI, and list all its units
•
REIT/InvIT to make investment in real estate
assets/infra assets to the extent of 80% investment in minimum 2 projects – 60% cap per
project
•
Governance, Audit, valuation, disclosures, etc.
prescribed
•
REIT/InvIT to generate and distribute 90% net
distributable cash flow to its unit holders
•
Unit holders can transfer units of REIT/InvIT
•
Provisions relating to delisting of REIT/InvIT
REIT
Principal
Valuer
SPV
Property
valuation
Real Estate
Assets
Real Estate
Assets
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
21
…..with the initiatives of new Government, positive
environment set for Infra sector…..
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
22
…the landscape of opportunities has expanded beyond
imagination….
Overall Impact on the
economy
New Business
Opportunities for
Consulting
professionals






Increased global activities and trade
Inclusive wide spread growth of the economy
Increased infrastructure development
Increase in job opportunities and purchasing power
Increased urbanisation
Impact on social and economic environment
•
Increased employment opportunities
•
Increased certification opportunities
•
Consulting opportunities for newer projects
•
Consultancy Services Opportunities
•
•
Inputs on Project viability
•
Engagement during feasibility
•
Engagement in valuation assignments
•
Engagement in process efficiency
assignments
•
Cost optimisation assignments
Involvement in increased M & A activities
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
23
…the landscape of opportunities has expanded beyond
imagination….
• Governance, Risk and Compliances
• Sustainability Advisory
• Involvement in Project monitoring
• Governance and
New Business
Opportunities for
Consulting
professionals
• Increased involvement at Bidding Stage
• Independent Directors Role
• Involvement in Contractual Litigation and
Arbitration
• Become a global player
• Tie-ups, networking and outsourcing
arrangement
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
24
Time to rejuvenate and act with fresh energy
0
Gauge new
opportunities and
areas requiring
services
5
Expand the
practice by
offerings multiple
services under one
roof
10
Become a trusted
and reputed brand
name in consulting
profession
Contin
uing
the
journey
Developing Fresh Vision
Rejuvenating the Practice
Design the Path Ahead
1
Continuo
us
Evolution
Implement action plans
Act with fresh thinking and
energy
2
© 2014 B S R and Associates, a firm of Chartered Accountants, duly registered under the Indian Partnership Act, 1932. All rights reserved.
3
Continuously evolve strategies
Challenge yourself
Innovate and improve
25
Jayesh Kariya
Partner - Global International Corporate Tax
Tel: +91 22 3090 2080
e-Mail: jayesh@kpmg.com
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