TABLE OF CONTENT
1. INFRASTRUCTURE FINANCE…………………………………………………….2
2. ROAD INFRASTRUCTURE ………………………………………………………..13
3. RAILWAY……………………………………………………………………………..32
4. AIRPORT……………………………………………………………………………..47
5. PORTS………………………………………………………………………………...80
6. TELECOM…………………………………………………………………………….98
7. POWER………………………………………………………………………………115
1
INFRASTRUCTURE FINANCE
Address by Dr K C Chakrabarty, Deputy Governor of the Reserve Bank of India, at the
13th Financial Services Convention of Bombay Management Association, Mumbai, 5
February 2010.
Introduction
Indian economy has enormous growth potential, a fact that is equally acknowledged by
the analysts in-house as well as abroad. India can be one of the economic
powerhouses in the current millennium following the success of China this decade.
The economic dominance of India along with China looks all the more likely in view of
the expected change in the epicentre of growth to emerging Asia after the crisis. The
8.8 per cent average growth clocked by the Indian economy during 2003–08 is the
highest ever recorded after independence second only to China in the contemporary
world. This has emanated from an upsurge in the domestic savings rate (23.5 per cent
in 2001–02 to 37.7 per cent in 2007–08) supported by the step up in investment rate
(from 22.8 per cent to 39.1 per cent) in an environment of moderate inflation and macroeconomic stability.
Although the contagion from the global economic crisis had brought the growth down to
6.7 per cent in 2008–09, large fiscal stimulus and accommodative monetary policy
ensured that the economy performed better than expected in 2009–10. The Planning
Commission in the Eleventh Five Year Plan Document (2007–12) identified a number of
priorities to hasten an inclusive growth process so that the economy can grow at a rate
of around 9 per cent during the plan period. While the success of the same revolves
around a number of wide ranging issues adequately flagged in the Plan Document,
certain basic problems need to be addressed first. These are agriculture reforms,
governance reforms and infrastructure reforms. In today’s address, I would confine
myself to the third issue – that is infrastructure – finance as well as the beyond.
Role of Infrastructure and the traditional constraints as regards finance
If we have to maintain high growth rate, we require better infrastructure; as simple as
that. Infrastructure is also a key driver of inclusive growth. It is already identified as one
of the serious impediments to high growth in India in the coming years. With fast pace of
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economic growth and urbanisation, availability of adequate facilities as well as
upgrading the quality of existing infrastructure would assume paramount importance.
Infrastructure development in new townships is a priority to redistribute the influx of
growing population. Attention is to be paid to the rural infrastructure provision such as
irrigation, electrification, roads, drinking water, sanitation, housing, community IT
service, etc. Financial issues are often cited as the key constraint to the availability of
provisions in an emerging economy like India.
The infrastructure projects are characterized by non-recourse or limited recourse
financing, i.e., lender can only be repaid from the revenues generated by the projects
requiring to the large scale of investments. The share of high initial capital and low
operating cost in infrastructure projects explains why financing infrastructure involves a
mix of complex and varied contractual arrangements. Wrong projections, collection risks
of the payables and reneging of the contract are commonly cited as the major risks
associated with an infrastructure projects. As returns from the projects are uncertain
and low in the risk adjusted terms, it also necessitated additional incentives to be
created to attract private investment.
Infrastructure Developments in India
Despite its critical role in the development process in India, most of the state and local
governments in India would not be in a position to undertake such investments and
resultantly our various flagship programs had to depend on central assistance. While
funding is understandably a key issue, it is needless to say that much of the success in
creating the provision would depend upon some related non-financial factors like project
viability, realization of user costs, avoiding time and costs overrun, contract enforcement
and efficient utilization of funds. Traditionally the government bore the burden of
building up infrastructure in India. However, the strategy of development has been
revisited with economic reforms in the 1990s. Accordingly, the infrastructure industry
has been opening up to the private players in various sectors. The Electricity (Supply)
Act of 1948 was amended in 1991 to promote the entry of Independent Power
Producers. Similarly, the National Highways Act of 1956 was amended in June 1995 to
allow and attract private investment in road development, maintenance and operation.
The telecommunications sector was deregulated and the Telecom Regulatory Authority
of India (TRAI) was established in 1997 to oversee the industry.
Overall, there has been some notable progress in attracting private investment in the
infrastructure industries. Usually investments from private sources are high in those
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sectors where user cost is well defined and easily recoverable. For the remaining
segment, it is primarily the public investments that have to supplement infrastructure
provisions given their importance in the economy. Irrigation, water supply, electricity and
gas are the specific cases in point where user charges need to be defined and contract
enforcement mechanism need to be strengthened further to ensure an uninterrupted
flow of investments from private sources. Overall, the financing requirement from the
private sectors during Eleventh Five Year Plan is estimated to be over 30 per cent from
a little less than 20 per cent during the Tenth Plan period. The flagship Bharat Nirman
programme of the Government of India focuses on the provision of key rural
infrastructure like irrigation, electrification, roads, drinking water supply and sanitation,
affordable housing, and connectivity via community IT service centers.
At the macro-level, the Eleventh Five Year Plan envisages stepping up of the gross
capital formation in infrastructure from 5 per cent in 2006–07 to 9 per cent of GDP. It
envisaged an investment requirement of over US$ 500 billion (Rs.20,11,521 crore). It is
estimated that traditional sources of infrastructure financing can raise a little more than
half of the requirement (McKinsey, 2009). Financial shortfall is one of the reasons for
the slow pace of transition towards creating world class infrastructure facilities in India
through private initiatives. There is an urgent need to create enabling conditions, e.g., a
vibrant debt market, easy exit rout for equity capital and appropriate instruments for
credit institutions to lend infrastructure while hedging the associated risks, etc.
Estimated investment flow in various infrastructure sectors during the Tenth and
Eleventh Five Year Plan is outlined in Table 1. It can be seen from the table that the
investment requirements in various sectors had gone up substantially in the Eleventh
Plan.
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Table 1
Estimated investment flows to various sectors (Rs.Crore at 2006-07 price)
SECTORS
10th Plan (‘02-07)
11th Plan (’07-12)
Electricity, Roads & Bridges
4,36,742
9,80,677
Telecommunication
1,03,365
2,58,439
Railways, Irrigations, Water Supply & 2,95,964
Sanitation
6,58,839
Ports & Airports
Storage & Gas
TOTAL
20,842
1,18,963
14,352
39,233
8,71,445
20,56,150
Apart from the direct investment route, public private partnerships (PPPs) model have
grown in popularity around the world in recent years, with governments around the
world finding it difficult to finance infrastructure investments through conventional route.
Despite the emphasis placed on PPP in the Plan Documents, the private sector
response to infrastructure development in India has been lukewarm for a number of
reasons, e.g., overlapping regulatory jurisdiction, improper design, appraisal and risk
allocation mechanism under PPP, bidding transparency issues, project costs and time
overruns considerations, etc.
Probably a centralised PPP mechanism and a single window clearance of the project
under direct investment route is called for at this juncture. With inadequate financial
market developments, PPPs in India typically rely on commercial banks for funding
exposing them to risk concentration, maturity mismatches and related exposures to the
rising interest rates and tightening credit conditions over the life of the project.
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Issues relating to the financing of Infrastructure Development in India
The importance of long-term debt financing can hardly be overstated owing to the
longer pay-back period of infrastructure projects and delays due to complexities in the
design, safety and environmental aspects, etc. The development of a mature and
vibrant corporate debt market is eminently suited for long-term committed funding to
match the investment requirements of a long term risk-averse investors seeking regular
returns after a lock-in period. Greater deepening in the non-government debt market
with sound financial, legal, and regulatory framework would enhance the benefit of price
discovery and risk diversification. The PPP model pioneered in Europe in the late 1960s
has benefited immensely from the financial flexibility offered by the debt market by
reducing over-reliance on the banking system. However, the European economy has
also got the advantage of an enabling investment environment before the reliance on
banking system could be lowered.
The current state of financial market in India does not support an optimal capital
structure in financing infrastructure. While the public-sector debt market is fairly liquid,
constituting approximately 35 per cent of GDP, the stock of listed non-public sector debt
is an abysmal 2 per cent of the GDP (Goldman Sachs, 2007). This is far below the
depth of the equity market capitalization placed almost at 100 per cent of GDP. Even
emerging countries such as Malaysia, Korea, and China have a higher percentage of
corporate bonds to GDP.
Further, segmentation in gilt securities failed to create a credible benchmark to price
other long-term securities in India despite an intensive effort by the RBI to consolidate
the issuance of gilt securities. Accordingly, there is a tendency to adopt lopsided
structures in the form of over-reliance on equity. While the government uses tax
revenues and PSUs surplus to fund infrastructure, a large percentage of capital
requirements in the private sector too are met through equity. Of the total expenditure of
the Eleventh Plan, nearly 52 per cent is likely to be financed through internal
accrual/equity primarily appropriating the internal and extra budgetary resources of the
PSUs. For private sector, the share of debt is relatively less at 30 per cent.
Of the total debt requirement at Rs. 9,88,035 crore (USD 247.01 billion), the actual
availability during the Eleventh Plan period is estimated to be around 83.5 per cent.
More than half of the total estimated resource flows are likely to come from bank credit,
while close to 15 per cent is estimated to come from external commercial borrowings.
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The resource flow from pension/insurance companies, which is potentially a high source
of long term debt, is expected to provide resources by less than 7 per cent.
Understandably, these institutions have been restricted by their respective regulatory
authorities from exposing them too highly to the infrastructure sector on prudential
considerations.
The credit extended by commercial banks is also restricted through exposure norms
besides a cash reserve and statutory liquidity ratio requirements. Although often argued
for more flexibility, it needs to be appreciated that for credit institutions, it would be
difficult to assume bulk of the project risk and capital costs indefinitely without a
commensurate development of the corporate debt market. Infrastructure financing
brings additional risks in view of their long term nature and is not good for the banks
from an ALM perspective to increase their exposure excessively. Though prudential
norms have been relaxed by RBI for infrastructure projects, RBI is not in favor of further
relaxations in exposure norms. The infrastructure finance requirements cannot be filled
by banks alone but would have to be met by financing from long term finance agencies
like insurance and pension funds.
The High Level Expert Committee on Corporate Bonds and Securitization (Chairman:
Dr. R H Patil) comprehensively examined the issues concerning corporate bond market
in India and made recommendations to activate the market, some of which have already
been implemented. As per the regulatory jurisdiction, SEBI is responsible for the
primary (public issues and private placement by listed companies) and secondary (OTC
and exchange) markets in corporate bonds. The various pre-conditions for allowing
repos in corporate bonds, e.g., an efficient and safe clearing and settlement system
based on DvP and availability of fair prices is gradually settling in. The draft guidelines
for allowing repos in corporate bonds are also due for finalization.
Foreign sources are supplementing the domestic financial market in financing
infrastructure during recent years. The inflows through External Commercial Borrowing
are rising even though such inflows have end-use restrictions besides having a cap on
borrowing cost in most of the time. Further, India is receiving a sizeable amount of
foreign investment through foreign direct investment (FDI) in the current decade. The
cumulative amount of FDI inflows since 2000 is at a staggering US$100 billion. While
the highest share of FDI has been received by the services sector followed by the ICT,
the telecom sector too received success in attracting foreign capital. Besides a sizeable
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and almost continuous investment support is received from Foreign Institutional Investor
(FII) to the domestic financial market albeit with high volatility.
Further, the banks in India had developed the appraisal skills to enter into long-term
lending including infrastructure finance in a big way. Bank credit to the infrastructure
sector increased steadily from Rs. 7,243 crore in 1999–2000 to Rs. 2,69,972 crore in
2008–09, a compound annual growth of 43.6 per cent during the last ten years. The
share of bank finance to infrastructure in gross bank credit increased from 1.8 per cent
in 2001 to 10.2 per cent in 2009. The banks’ exposure to infrastructure lending has
grown by over 3.7 times between March 2005 and 2009. Still a large part of the gap in
demand over the supply of bank credit is explained by the inadequate
commercialization of projects for regulatory, political and legal constraints and total
absence or insufficiency of user charges in many sectors. Therefore, the current issue
to meet the demand for infrastructure finance by the banks arises from the bankable
and commercially viable projects.
Measures taken by the Reserve Bank of India
Several new initiatives have been initiated by the central government and the Reserve
Bank in the recent years. RBI initiated a number of regulatory concessions for
infrastructure finance, such as –
a) Allowing banks to enter into take out financing arrangement,
b) Freedom to issue long term bonds by banks for financing infrastructure,
c) Relaxation of single and group borrower limit for additional credit exposure in the
infrastructure sector,
d) Flexibility to invest in unrated bonds of companies engaged in infrastructure activities
within the overall ceiling of 10 percent,
e) Excluding the promoters’ shares in the SPV of an infrastructure project to be pledged
to the lending bank from the banks’ capital market exposure and
f) Permitting banks to extend finance for funding promoter’s equity where the proposal
involves acquisition of share in an existing company engaged in implementing or
operating an infrastructure project in India. Let me make some additional remarks on
two of these areas.
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To stimulate public investment in infrastructure, a special purpose vehicle – India
Infrastructure Finance Company Limited (IIFCL) was set up for providing long-term
financial assistance to infrastructure projects. The Union Budget for 2009–10
announced that IIFCL in consultation with banks will evolve “take out financing” scheme
to facilitate lending to the infrastructure sector. To ease the financing constraints for
infrastructure projects under the PPP mode, the Government has decided that IIFCL
would refinance 60 per cent of commercial bank loans for PPP projects in critical areas
over the next fifteen to eighteen months. The IIFCL was authorised to raise Rs.10,000
crore through Government guaranteed tax free bonds by the end of 2008–09 and an
additional Rs.30,000 crore on the same basis as per the requirement in 2009–10. The
refinancing option is expected to leverage bank financing for PPP programmes to the
extent of about Rs.1,00,000 crore. As the experience suggests, the take out financing
failed to become popular as the cost of borrowing turn out to be high. As IIFCL sources
banks substantially for its funding requirement as well as refinances banks for their
infrastructure lending, the cost of finance goes up through the layers of intermediation.
In view of the limited availability of resources, there is a limit to which IIFCL will be able
to deliver a favourable leverage effect by extending equity support and credit
enhancement.
Single and group exposure limits turn out to be binding for lending banks in view of the
huge funds requirement. There is not much scope to increase them from prudential
viewpoints going by the internationally accepted norms. The capital funds of Indian
banks are small in size. The exposure limits of banks are fixed in relation to their capital
funds. Even though we have allowed relaxation of 5 percent in case of single borrower
limit and 10 percent in case of group borrower limits, banks find it difficult to lend to
infrastructure projects set up by big industrial houses as they have already reached the
maximum group exposure limit to such borrowers. Also, there is a tendency among
borrowers to limit their borrowing to a few large banks which compounds the exposure
limit constraints. As not all banks are active in infrastructure financing, the consolidation
of banks could potentially provide higher exposure limits. However, such mergers and
acquisitions may not serve the purpose as risk remains the same for the sector.
Typically a bank may not like to take upon itself the entire financing risks but try to
attract co-financer by syndication of loans, which would entail multiple lenders
discouraging the borrowers.
Some possible measures and solutions to bridge the gap
Some specific measures are being talked about to bridge the gap in financing by
extending the funding base for infrastructure projects.
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a) One such measure is the participation of pension funds and insurance companies in
funding the long term infrastructure projects. Pension funds are increasingly moving into
new asset classes in a search for yield. Infrastructure is one type of investment being
frequently discussed, given its potential to match long-term pension assets and provide
diversification. Some larger funds globally are beginning to invest in infrastructure via
private-equity funds, or, occasionally, even directly. Australian, Canadian and Dutch
pension funds may be considered as leaders in this field.
b) The development of domestic long-term capital markets will be critical for private
sector investment in infrastructure, but these markets must have much better regulation
as well. In India, there is a need to improve the depth and liquidity of the corporate bond
market to provide an additional source of funds for infrastructure companies. Limited
investor base, limited number of issuers and preference for bank finance over bond
finance are the main macro barriers for development of a deep and liquid corporate
bond market. RBI has issued the guidelines on repo in corporate bonds, which would be
effective from March 2010. Further, syndication of loans would diversify the risk in
infrastructure financing, given the fact that a bank would not like to take upon itself the
entire financing given the risks involved and the capital and consequent exposure
constraints.
c) Also credit enhancement to infrastructure by way of risk transfer and risk reduction
could help bridge the gap in the Indian context. Lenders tend to look for credit
enhancement from government like policy guarantees, refinancing and maturity
extension guarantees, grants/viability gap funding, etc. Similarly, non-government
mechanisms like bond insurance, credit rating, etc. provide risk mitigation to the
lenders. Providing credit enhancement by way of insuring the debt payment by
insurance companies to banks for the loans extended by them towards infrastructure
projects is a concept considered in the North American infrastructure market.
d) Comprehensive infrastructure development calls for simultaneous improvement of all
infrastructure sectors, like power, telecommunications, irrigation, transport, housing,
commercial complexes, water supply, sanitation and other urban amenities. In the
current situation, it may no longer be possible for the Governments to develop, upgrade
and maintain infrastructure and provide all civic amenities on their own. It is in this
context that governments are involving the private sector in the area of infrastructure
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development to bridge the gap between demand and supply. The Public-Private
Partnership is being actively pursued in India to meet the gaps in the provision of basic
infrastructure services. The PPP model, where the state shares the risks and
responsibilities with private firms while retaining the control of assets is generally
expected to improve services while avoiding some of the pitfalls of privatization such as
higher prices and corruption.
However, for such partnerships to be successful, the framework of PPP including
pricing has to be transparent. The development finance model has to be characterized
by good planning, strong commitment of the parties, effective monitoring, regulation and
enforcement by the government. A separate Ministry for Infrastructure Development
could help immensely in channelising government’s efforts. The issue of pricing is
crucial in view of the political sensitivities, while also simultaneously ensuring the
viability of the project. If we are looking at world class infrastructure, then we will have to
pay for it. Managing the transition from state subsidized. services to market based
pricing is crucial as a fine balance has to be maintained between allowing companies to
raise prices rapidly on existing, cheap public utility services and suppressing price hikes
by ignoring market forces.
Whenever PPP with proper pricing is not possible, then Government has to chip in.
Rural areas and hinterland infrastructure development could be the responsibility of the
government. So pricing on commercial consideration is a key issue.
e) Additional flexibility for long term bonds issued by banks as regards the tenor of bond
issuance or allowing Zero Coupon Bonds for infrastructure with income tax benefits are
some of the other incentives that can be thought off in the years ahead. Another option
is to treat the advances as unsecured so long as receivables from the project is the only
basis of tangible primary security, as is normally the case for road project, provided
cash flows generated are adequate for repayment of the advance.
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Concluding Remarks
There is no dearth of finance for infrastructure development. Currently, there is
adequate liquidity in the system that can support financial requirements in the next two
to three year for any bankable infrastructure project. From a medium term perspective,
while finance is surely a pertinent issue, it cannot be addressed independently.
Addressing other concerns in infrastructure industries like defining user cost and a
mechanism for their recovery, strengthening the contractual framework to speedup
project implementations, plugging the loopholes behind the current PPP designs, a
simplified project clearance mechanism by a centralized authority, etc. are perhaps of
more importance than financial issues. In the long term, participation of pension funds,
insurance companies and other long term finance institutions would be essential.
Progress in these directions could activate infrastructure provisions at a much faster
pace than is seen now. As growth takes place with the improvement in infrastructure
provisions, a number of funding issues could be self-correcting. High growth will
generate resources for infrastructure investment besides pushing for the necessary
reforms at the longer end of the financial market and products. On the contrary, relying
heavily on the banking system without commensurate reforms in the real economy may
not facilitate finance, while running the risks from prudential viewpoint.
ROAD INFRASTRUCTURE
With an extensive road network of 3.3 million kilometers, India is the second largest in
the world. Indian roads carry about 70% of the freight and 85% of the passenger traffic.
All the highways and expressways together constitute about 66,000 kilometers (only 2%
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of all roads), whereas they carry 40% of the road traffic. To further the existing
infrastructure, Indian Government annually spends about Rs.18000 crore (USD 3.704
billion).
Opportunity
Road development is recognized as essential to sustain India’s economic growth. Road
development is a priority sector and the ongoing focus on the highway infrastructure
development is targeted to projected annual growth of 12-15% for passenger traffic and
15-18% for cargo traffic. The project has been attracting huge Direct Foreign Investment
(FDI).
Outlook

Annual growth projected at 12-15% for passenger traffic, and 15-18% for cargo
traffic

Over $50–60 billion investment is required over the next 5 years to improve road
infrastructure
Potential

Road development is recognised as essential to sustain India’s economic growth
o The Government is planning to increase spends on road development
substantially with funding already in place based on a cess on fuel

A large component of highways is to be developed through public-private
partnerships
o Several high traffic stretches already awarded to private companies on a
BOT basis
o Two successful BOT models are already in place – the annuity model and
the upfront/lumpsum payment model
Investment opportunities exist in a range of projects being tendered by NHAI for
implementing the NHDP – contracts are for construction or BOT basis depending
on the section being tendered.
A Rs.41,200 crores (US $ 5 billion) project plans to lay 6 lane roads over 6,500
kms of National Highways on the Design Build Finance and Operate (DBFO)
basis – in Golden Quadrilateral and other high traffic stretches.
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
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Approach




National Highways Authority of India (NHAI) is the apex Government body for
implementing the NHDP. All contracts whether for construction or BOT are
awarded through competitive bidding
Private sector participation is increasing, and is through construction contracts
and Build-Operate-Transfer (BOT) for some stretches – based on either the
lowest annuity or the lowest lump sum payment from the Government
BOT contracts permit tolling on those stretches of the NHDP
A large component of highways is to be developed through public-private
partnerships and several high traffic stretches already awarded to private
companies on a BOT basis.
National Highway Development Project (NHDP)
The National Highway network of the country spans about 66,590 km. The National
Highway Development Project (NHDP), covering a length of about 55,000 km of
highways, is India's largest road development programme in its history. In many ways,
this ambitious and path-breaking initiative of the Government of India, which began in
the last decade acknowledged the importance of private sector in India's infrastructure
development. The consistent policy and institutional framework, which has been the
backbone of the INR 3,00,0001 Crore (USD 60 billion ) NHDP, also conveys the intent
and commitment of successive governments to encourage increased private sector
participation in developing the arterial road network of the country to world class
standards. More than 60 percent of the estimated investment requirement is expected
to be privately financed.
The early success of Public-Private-Partnerships (PPP) in the NHDP, arguably, set the
tone for similar initiatives in other infrastructure sectors and has provided the single
largest opportunity for private financing and management of infrastructure services.
BOT) concession contracts with an estimated value of USD 9.2 billion (including 2
BOT/DBFOT -Toll and BOT-Annuity contracts) have been awarded under various
packages till date and these projects are expected to be fully operational by 2015-16.
Target




Developing 1000 km of expressways
Developing 8,737 km of roads, including 3,846 km of national highways, in the
North East
Four-laning 20, 000 km of national highways
Four-laning 6,736 km on North-South and East-West corridors
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

Six-laning 6,500 km of the Golden Quadrilateral and selected national highways
Widening 20,000 km of national highways to two lanes
Policy




100% FDI under the automatic route is permitted for all road development
projects
100% income tax exemption for a period of 10 years
Grants / Viability gap Funding for marginal projects by NHAI.
Formulation of Model Concession Agreement
Government Initiatives
For a country of India's size, an efficient road network is necessary both for national
integration as well as for overall socio-economic development. The National Highways
(NH), with a total length of 65,569 km, serve as the arterial network across the country.
The four-laning the 5,900 km long Golden Quadrilateral (GQ) connecting Delhi,
Mumbai, Chennai and Kolkata is on the verge of completion. The ongoing four-laning of
the 7,300 km North-South East-West (NSEW) corridor is scheduled to be completed by
December 2009. The Committee on Infrastructure adopted an Action Plan for
development of the National Highways network. An ambitious National Highway
Development Programme (NHDP), involving a total investment of Rs.2,20,000 crore
(USD 45.276 billion) up to 2012, has been established. The main elements of the
programme are as follows:
Steps Taken
The government has adopted a road development policy setting out the guidelines for
investment in highways. In order to meet the huge investment requirements in the
sector, the government has taken a number of measures to attract private sector
participation.



Declaration of the road sector as an industry.
100 per cent FDI under the automatic route in all road development projects. The
government has permitted 100 per cent foreign equity in construction and
maintenance of roads, highways, tunnels etc.
100 per cent income tax exemption for a period of 10 years. This exemption is
applicable in any 10 consecutive years within a period of 20 years after
completion of the project.
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

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






Grant upto 40% of project cost to make project viable.
Agreements to avoid double taxation with a large number of countries
Concession period upto 30 years
Right to charge tolls on certain (toll) projects. These tolls are indexed to a formula
linked with the wholesale price index.
The government permits duty free import of high capacity equipment required for
highway construction.
Government support for land acquisition, resettlement and rehabilitation with
Simplified procedure for Land Acquisition
Cabinet Committee on Economic Affairs (CCEA) has agreed upon the National
Highways Fee (Determination of Rates and Collection) Rules, 2008 to establish
uniformity in fee rate for public funded and private investments projects.
An increment in the overseas borrowing amount of infrastructure sectors, to US$
500 million from US$ 100 million.
Offering cheaper loans for highway projects that will speed up the projects worth
more than US$ 12. 70 billion under separate phases of the NHDP.
The Ministry of Shipping and Road Transport is considering a ‘green corridor'
highway project solely for farmers with ‘no toll' charges that would link rural roads
with National Highways. This is likely to be developed along with the six-lane
project under the NHDP.
Viability Gap Funding Scheme ( VGF)
The VGF scheme provides financial support in the form of capital grant for PPP projects
in various infrastructure sectors. VGF Scheme is intended to support projects which are
commercially unviable but have high economic benefit.
The Empowered Institution sanctions projects for VGF upto INR100 crore (USD 20
million) for each eligible project subject to the budgetary ceiling indicated by the Finance
Ministry. The Empowered Institution also considers other proposals and places them
before the Empowered Committee. Funding upto 20% of the project cost is provided. If
required, an additional 20% can be made available by the sponsoring Ministry/agency.
Capital grant for all infrastructure projects under the VGF scheme is restricted to a
maximum of 40% of the project cost (for projects upwards of INR 200 Crore).
Grant provided by NHAI for highway projects under the BOT route may be financed
through the VGF route. VGF funding will not be available over and above NHAI's grant
for projects. The Government will carry out all preparatory works for the projects
identified for private investment.
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The FDI regime has been progressively liberalized during the course of the 1990s
(particularly after 1996) with most restrictions on foreign investment being removed and
procedures simplified. With limited exceptions, foreigners can invest directly in India,
either wholly by themselves or as a joint venture.
India welcomes FDI in virtually all sectors, except those of strategic concern such as
defence (opened to a limited extent), railway transport and atomic energy, where the
existing and notified sectoral policy does not permit FDI beyond a certain ceiling.
The major source of FDI in India is through the equity route, which accounted for 81% of
the total FDI inflows in India. Reinvested earnings of FDI companies accounted for 18%
of the total Direct Investment. Acquisitions accounted for 17% of total FDI.
Automatic Route - No prior Government approval is required if the investment to be
made falls within the sectoral caps specified for the listed activities. Only filings have to
be made by the Indian company with the concerned regional office of the Reserve Bank
of India (“RBI”) within 30 days of receipt of remittance and within 30 days of issuance of
shares.
FIPB Route - Investment proposals falling outside the automatic route would require
prior Government approval. Foreign Investment requiring Government approvals are
considered and approved by the Foreign Investment Promotion Board (“FIPB”).
Decision of the FIPB is usually conveyed in 4-6 weeks. Thereafter, filings have to be
made by the Indian company with the RBI.
CCFI Route - Investment proposals falling outside the Automatic Route and having a
project cost of INR 6,000 million (USD 120 million) or more would require prior approval
of Cabinet Committee of Foreign Investment (“CCFI”) after obtaining the FIPB approval.
Decision of CCFI is usually conveyed in 8-10 weeks. Thereafter, filings have to be made
by the Indian company with the RBI. Investment proposals falling within the automatic
route and having a project cost of INR 6,000 million or more do not require to be
approved by CCFI.
100% tax holiday is available for those who are engaged in development of roads and
highways. Such tax holiday can be availed for any consecutive period of 10 years within
a block of 20 years starting from the year when the person starts developing the
roads/highways. The should be a company registered in India & awarded a contract by
the government or its agency to develop the roads/highways;
17
NHDP Plan: At a Glance
NHDP Phase-I
 Four/ six/eight laning of 7,498 km of National Highways

Golden Quadrilateral (5,846 km) connecting four metropolitan cities i.e.
Delhi, Mumbai, Chennai and Kolkata
 North-South (NS) and East-West (EW) corridors (981 km)
 Port connectivity projects (356 km) & others (315 km)
 Estimated cost - Rs. 30,300 crore
 Around 12% through PPP route on BOT (Toll) [6.0%] and BOT (Annuity) [6.0%]
mode
 Largely Completed
NHDP Phase-II
 Four/ six laning of 6644 km of National Highways (North South & East West
Corridor )
 Estimated cost Corridor of Rs. 34,339 crore.
 Around 24% through PPP on BOT (Toll) [11%] and BOT (Annuity) [13%] .
 Scheduled for completion by Dec. 2010.
NHDP Phase-III
 Upgradation of 12,109 km of existing National Highways
 Implementation on BOT basis with a max viability gap funding (VGF) of 40%.
 Estimated cost of Rs. 80,626 crore
 Scheduled for completion by Dec. 2013.
NHDP Phase-IV
 Widening of 20,000 km of existing single /intermediate /two lane highways to two
lane with paved shoulders
 Estimated cost of Rs. 27,800 crore
 Implementation through PPP route on BOT (Toll) /BOT (Annuity) basis
NHDP Phase –V
 Six laning of 6500 km of National Highways
18
 Estimated cost of Rs. 41,210 crore
 Implementation through PPP route on BOT (Toll) mode using Design Build
Finance and Operate (DBFO) pattern with a maximum VGF of 10%.
 Scheduled for completion by Dec. 2012.
NHDP Phase-VI
 Construction of 1000 km of expressways
 Estimated cost of Rs. 16,680 crore
 Implementation through PPP route on BOT (Toll) mode following a DBFO pattern
with a maximum VGF of 40%.
 Action is being taken for preparation of feasibility report
 Scheduled for completion by Dec. 2015.
NHDP Phase-VII
 Construction of 700 km of standalone ring roads/bypasses as well as grade
separators, flyovers, elevated road, tunnels road over bridge, under passes etc
 Estimated cost of Rs. 16,680 crore
 Implementation through PPP route on BOT (Toll) mode with a maximum VGF of
40%
 Action is being taken for preparation of feasibility study
 Scheduled for completion by Dec. 2014.
19
Financing National Highway Projects
Traditionally, financing for development of National Highways in India was from the
budgetary resources of the Government of India. In order to augment the available
resources, loans have also been raised from multilateral agencies like World Bank,
Asian Development Bank (ADB) and Japan Bank of International Cooperation (JBIC).
NHAI has earlier received loans directly from multilateral agencies (highway project).
These loans are expected to be repaid through the toll income from the project. The
interest rate for the project is determined according to ADB's pool based variable
lending rate system for US dollar loans. Around 80 per cent of the external assistance is
provided to NHAI as a grant by the Central government. The balance is made available
as long-term loans to NHAI, with the Centre bearing the foreign exchange risk. Such
loans are usually provided for 15-25 years with a moratorium of 5 years.
20
The Government took very important steps for financing NHDP, which apart from
Government's general budgetary sources include the following:
 Cess on diesel and petrol under the non-lapsable and dedicated Central Road
Fund to provide funds for road sector for financing / leveraging additional
resources.
 Securitization of cess (market borrowings on the strength of future inflow of
cess).
 Involving private sector and encouraging public private partnership (PPP)

Build Operate and Transfer/Design Build Finance Operate and Transfer
(DBFOT) - Investment by private firm and return through levy and
retention of user fee
 Build Operate and Transfer (Annuity) – BOT (Annuity ) - Investment by
private firm and return through semi-annual payments from NHAI as per
bid.
 Special Purpose Vehicle – SPV (with equity participation by NHAI)
 Avail long term external loans from the World Bank and ADB
 The fund allocated from the cess is leveraged by NHAI to borrow additional funds
from the domestic market (Market Borrowings).
 The Government of India has also taken loans for financing the projects under
NHDP:
 World Bank (US$ 1,965 million),
 Asian Development Bank (US$ 1,605 million)
 Japan Bank for International Cooperation (JBIC) (Yen 32,060 million).
 These loans are passed on to NHAI by the Government partly in the form of
grant and partly as loan.
 NHAI has also negotiated a direct loans from the ADB for its projects.
NHAI also has a provision for providing grant upto 40% of the project cost to make
projects commercially viable. However, the quantum of grant is decided on a case to
case basis and typically constitutes the bid parameter in BOT projects generally not
viable based on toll revenues alone. The disbursement of such grant is subject to
provisions of the project concession agreements
21
Private Sector Participation
Public Private Partnerships (PPP) are going to be the main mode of delivery for future
phases of NHDP. While there are a number of forms of PPP, the common forms that
are popular in India and have been used for development of National Highways are:
Build, Operate and Transfer (Toll) Model
Build, Operate and Transfer (Annuity) Model
Special Purpose Vehicle (SPV) for Port Connectivity Projects
NHAI is also proposing to award projects under a long term Operations, Maintenance
and Transfer (OMT)
BOT (Toll)
Private developers/ operators, who invest in toll-able highway projects, are entitled to
collect and retain toll revenues for the tenure of the project concession period. The tolls
are prescribed by NHAI on a per vehicle per km basis for different types of vehicles. The
Government in the year 1995 passed the necessary legislation on collection of toll.




The Concessionaire recovers the entire upfront cost along with the interest and a
return on investment out of the future toll collection.
To bridge the gap between the investment required and the gains arising out of it,
i.e., to increase the viability of the projects, capital grant is also provided (up to a
maximum of 40% of the project cost has been provided under NHDP).
Each BOT project is awarded through competitive bidding basis.
The selection is made based on the least grant (subsidy) quoted by the bidders
(the concession period being fixed, toll rates pre-defined).
A Model Concession Agreement (MCA) has been developed to facilitate speedy award
of contracts. This framework has been successfully used for award of BOT
concessions. The MCA has been revised recently and current projects are being
awarded under the revised MCA
Design, Build, Finance & Operate (DBFO) A variance of BOT Toll model where the
Private Sector meets the upfront cost of design, construction and expenditure on annual
maintenance and recovers the entire cost along with the interest from toll collection
during the concession period.
22
BOT (Annuity)
The concessionaire bids for annuity payments from NHAI that would cover his cost
(construction, operations and maintenance) and an expected return on the investment.
The bidder quoting the lowest annuity is awarded the project. The annuities are paid
semi-annually by NHAI to the concessionaire and linked to performance covenants. The
concessionaire does not bear the traffic/ tolling risk in these contracts.
• In an Annuity project, the Concessionaire (private sector) is required to meet the
entire upfront cost of construction (no grant is paid by the client) and the
expenditure on annual maintenance. The Concessionaire recovers the entire
investment and a pre-determined cost of return, out of the annuities payable by
the client.
• Each Annuity project is awarded through competitive bidding basis. The bidders
are initially pre-qualified based on their experience, financial strength and
capacity.
• The selection is made based on the least annuity quoted by the bidders (the
concession period being fixed).
• The risk with respect to traffic (toll) is retained by the Client (Government/NHAI)
since the client collects the toll.
Operate, Maintain and Transfer (OMT) Concession
NHAI has recently taken up award of select highway projects to private sector players
under an OMT Concession. Till recently, the tasks of toll collection and highway
maintenance were entrusted with tolling agents/ operators and subcontractors,
respectively. These tasks have been integrated under the OMT concession. Under the
concession private operators would be eligible to collect tolls on these stretches for
maintaining highways and providing essential services (such as emergency/ safety
services).
Special Purpose Vehicle for Port Connectivity Projects
NHAI has also taken up development of port connectivity projects by setting up Special
Purpose Vehicles (SPVs) wherein NHAI contributes upto 30% of the project cost as
equity. The SPVs also have equity participation by port trusts, State Governments or
their representative entities. The SPVs also raise loans for financing the projects. SPVs
are authorized to collect user fee on the developed stretches to cover repayment of
debts and for meeting the costs of operations and maintenance.
23
Public-Private Partnership
(i)
The first two phases i.e. NHDP-I and NHDP-II were mostly funded through the
Government where the share of BOT Highways was only 10%.
(ii)
NHDP-III onwards, the funding mechanism is mostly through Public-Private
Participation except some stretches where it may not be viable.
(iii)
High traffic corridors are being offered to the concessionaire there by making the
Public-Private Participation an attractive and profitable proposition.
Public Private Partnership is proving to be a successful mechanism for
developing and maintaining the National Highways. Almost all future projects of NHDP
are envisaged in the BOT mode.
International Competitive Bidding Process
General procedure for selection of concessionaires adopted by NHAI is a two-stage
bidding process. Projects are awarded as per the model documents- Request for
Qualification (RFQ), Request for Proposal (RFP) and Concession Agreement - provided
by the Ministry of Finance. NHAI amends the model documents based on project
specific requirements.
The processes involved in both stages are set out as follows:
Stage 1:
Pre-qualification on the basis of Technical and Financial expertise of the firm and its
track record in similar projects which meets the minimum criteria set out in the RFQ
Document.
Stage 2:
Commercial bids from pre-qualified bidders are invited through issue of RFP.
The Government has put in place appropriate policy, institutional and regulatory
mechanisms including a set of fiscal and financial incentives to encourage increased
private sector participation in road sector.
KPMG report titled 'Opportunities in Infrastructure and Resources in India' reveals that
investments of the order of US$ 500 billion are expected to take place in the coming
years. This development would call for increased resource requirement, consumer
24
responsiveness, and concern for managerial efficiency. The private sector will be largely
involved both at construction contracts and (BOT) levels. Some major private
participation in this initiative includes.
Reliance Energy
Three contracts to four-lane 400 kilometers of highway and four-laning of five national
highway projects in Tamil Nadu that covers 400 kilometers and at an estimated cost of
more than US$ 762.42 million.
L&T inter-state Road Corridor Limited
Four-laning of the 76 kilometers highway between Palanpur and Swaroopgunj on the
East-West Corridor.
Jaiprakash Associates Ltd (JAL)
Implementing the 165 kilometers long Taj Expressway project, which connects Greater
Noida to Agra at a cost of US$ 554.93 million.
Lanco Infratech
four-laning of two highways in Karnataka at an estimated cost of US$ 247.41 million.
DS Construction
Development of the Gwalior-Jhansi section on NH-75 that includes four-laning at a cost
of US$ 159.9 million.
Maytas Infra Private Limited and Nagarjuna Construction Company Ltd (Joint
Venture)
Four-lane the highway from Tindivanam and Pondicherry, at an estimated cost of US$
70.09 million.
Era Constructions India Limited and Karam Chand Thapar & Bros Limited
Construction of a section of the Delhi-Haryana Border to Rohtak and four-laning of
Gwalior by-pass at a cost of US$ 73.8 million.
Madhucon Projects
Executing ongoing BOT projects with four toll-based road projects.
25
International Participation
Many international player have joined the league in the growth and reform of the
highway infrastructure in India. Indian road construction projects have become a
lucrative and emerging investment opportunity for numerous international giants. The
various international companies to join the league are Berhad (Malaysia), Deutsche
Bank, Emirates Trading Agency (Dubai), the Isolux Corsan Group (Spain), Italthai
(Thailand), Baelim (Korea), Dyckerhoff (Russia), Widmann AG (Germany), IJM
Corporation, SDN and Road Builders (Malaysia), Kajima and Taisei (Japan). These
companies acquire equity stakes between 10 to 51 per cent in various highway projects
floated by the National Highway Authority of India (NHAI) and other state governments.
Successful Projects
PPP is gradually proving to be a successful mechanism for developing and maintaining
the National Highways, as is evident from the increased private sector participation in
projects till date.
Toll collection depends on two factors - traffic volume and tolling rate. The toll rates are
pre-specified by NHAI. Estimates of traffic growth for projects are also provided by NHAI
based on detailed feasibility studies. However, bidders are advised to carry out
independent due-diligence of the traffic and growth estimates. The profitability of tolled
National Highways has made the sector extremely competitive and attractive. In light of
the forecasts for traffic growth on important road corridors, the Government has given
first preference to Build-Operate Transfer (BOT/DBFOT) toll projects.
NHAI projects, with higher traffic volumes, have also been bid out on Negative Grant.
However, under the revised MCA, projects under BOT/ DBFOT framework have also
been awarded on a revenue share basis, where the bidder offering the highest revenue
share (subject to technical qualification) is awarded the project.
26
27
Jaipur- Kishangarh –NH 8
(BOT Project )
Jaipur-Kishangarh is one of the earliest projects implemented on BOT framework. The
project involved 4-laning a length of approximately 91 km from Jaipur to Kishangarh
(NH-8), in the state of Rajasthan at an estimated cost of INR 644 Crore (USD 129
million- NHAI estimate). NHAI provided a grant of INR 211 Crore (USD 42 million) to the
project. The concession period of the project is 20 years.
The project was completed 5 months ahead of its scheduled completion date (2005) .
The concessionaire also earned a bonus of INR 42.25 Crore (USD 8.5 million) in the
form of early tolling during the period before scheduled completion date. Even today,
the concessionaire is earning more revenues than those projected at the time of
bidding. However, the excess revenue is being shared between the concessionaire and
NHAI as per the revenue sharing clause in the agreement.
Belgaum – Maharashtra Border Section of NH-4
(Annuity Project)
The project involved widening of existing two lanes to 4-lane divided carriageway facility
including the rehabilitation of existing 2-lanes on annuity basis. The estimated cost of
this 78 km long road project is INR 332 Crore (USD 66.4 million; NHAI Estimate). The
section has two toll plazas. The project was awarded to the consortium of M/S ILFS,
M/S Punj Lloyd Ltd. and M/S Consolidated Toll Network India Ltd. The concession
period is 17 years and 6 months. The concessionaire completed the project in October
2004, two months earlier than the stipulated project completion date, and was paid a
(performance) bonus of INR 42.16 Crore (USD 8.4 million) on account of early
completion.
Second Vivekananda Bridge (now Sister Nivedita Bridge) - in Kolkota
(BOT Project)
This bridge is one of the first BOT projects, undertaken by NHAI in 1995. The
concession agreement was signed in September; 2002. The consortium members are
from USA, U.K, Mauritius and India. Though the financial close was delayed by one
year, the construction thereafter was almost on time and the bridge was commissioned
on 4 July, 2007. This bridge also won the award of excellence for the year 2007 under
28
the Foreign Bridge Project Category from the American Segmental Bridge Institute.
NHAI had provided a grant of INR 120 Crore (USD 24 million) out of the total project
cost of INR 640 Crore (USD 128 million). The concession period of the project is 30
years.
Participation of Foreign Contractors
Foreign contractors started participating in NHDP contracts (and to a limited extent in
state highway projects) from 2000-01. In 2000-01, there were about 20 contracts in the
NHDP, where foreign contractors participated either on their own or in joint ventures;
the number grew to about 32 in 2003. The foreign contractors taking part were from
Malaysia, Korea, China, Russia, Turkey, Indonesia, Iran and some niche contractors
from Europe for specialized jobs. It is presently estimated that about a dozen foreign
road contractors are operating in India.
Foreign companies are executing 12 contracts exclusively and 35 contracts as joint
venture partners with Indian companies. Foreign investors are allowed 100 per cent
foreign direct investment in road sector. The total value of contracts with foreign
participation is estimated to be more than INR 12,000 Crore (USD 2.4 billion)
Controversy on shortlisting of bidders:
Government
had
imposed
curbs
on
bidding
for
road
projects
by issuing an order that “Companies that have been shortlisted for at least eight projects
or won four projects during the same period will not be eligible for prequalification and
shortlisting"
The this new Rule was aimed at limiting the number of bids a firm can place so as to
address cartelization and capacity issues
Petitions were filed by infrastructure companies challenging short listing of bidders by
NHAI
HC quashed Government order which had rejected the candidacy of one of the
petitioner, GMR
29
Constraints in the implementation of NHDP
Delays in land acquisition
 Delays in removal of structures, shifting of utilities,
 Law and order problem in some States
 Poor performance of contractors.
The Golden Quadrilateral and NSEW projects
30
Investment Projected for the Eleventh Five Year Plan:
 The Eleventh Five Year Plan places high priority to the expeditious completion of
works approved under the different phases of the NHDP.
 For the roads and bridges sector, the Eleventh Five Year Plan envisages a total
investment of Rs. 3,668.43 billion over the five year period starting from 2007-08.
 The shares of the Centre, the States and the private sector are expected to be
34.2, 31.8 and 34 per cent, respectively.
 Preparation of a blueprint for 15,600 kms of access-controlled expressways
 Completion of Land Acquisition for 6,000 kms.
 Expeditious construction of at least 1,000 kms of expressways.
31
RAILWAYS
Railways are the main artery of inland transport in an economy. They are an
energy-efficient mode of transportation, ideally suitable for large scale
movement of manpower, bulk commodities and for long distance travel.
They are the lifeline of the country and hold great importance in its socioeconomic development.
A well-established railway system brings together people from the farthest
corners of the country and makes possible the conduct of business,
sightseeing, pilgrimage and education. It improves the quality of life and
thus helps to accelerate the growth of industry and agriculture.
INDIAN RAILWAYS
Indian Railways is the second largest system in the world under a single
management, with an extensive network of 62,725 kilometers, 21.5 percent
of which is electrified. Indian Railways operates an extensive network. It
ranks second in the world (after China) in terms of freight intensity, track to
land ratio, wagons to track ratios, passengers and cargo.
Freight traffic carried in IFY 1997-98 was 430 million tons, up 5.5 percent
over the previous year. The target for IFY 1998-99 is 450 million tons and
an annual growth rate of 7.4 percent has been projected for the next five
years.
Indian Railways has launched a program to reduce terminal delays and turn
around time of its rolling stock. The program aims at increasing freight
carrying capacity by 50 percent through continual usage of wagons. Indian
Railways is also soliciting private sector participation in freight movement
through a Build-Own-Operate-Transfer (BOOT) scheme and a Own-YourWagon-Scheme (OYWS).
32
Founded on 26 April 1853, the Railways in India s the principal mode of
transportation for freight and passengers. The Indian railways have played
an important role in the development of industries and agriculture. Indian
Railways has the distinction of being one of the biggest and busiest rail
networks in the world. It operates 9,000 passenger trains and transports 18
million passengers every day. The Indian Railway employs approximately 1.4
million people.
The Indian Railways has been serving the people of India with utmost pride
for more than two centuries. It was in 1851 when the first train ran in the
country for hauling construction material in Roorkee and by 1853 the first
passenger train service became operational between Bori Bunder, Bombay
and Thane covering a distance of twenty one miles, thus marking the formal
birth of rail network in India.
It plays an important role in not only meeting the infrastructural needs of
the country, but also in binding together the dispersed areas and promoting
national integration. During national emergency, IRs have been in the
forefront in rushing relief material to disaster stricken regions.
The Indian Railways network binds the social, cultural and economical fabric
of the country and covers the whole of country ranging from north to south
and east to west removing the distance barrier for its people. The railway
network of India has brought together the whole of country hence creating a
feeling of unity among Indians.
Indian Railways, a historical legacy, are a vital force in our economy. The
first railway on Indian sub-continent ran from Bombay to Thane on 16th
April 1853. Fourteen railway carriages carried about 400 guests from
Bombay to Thane covering a distance of 21 miles. Since then there has been
no looking back.
It is interesting to note that though the railways were introduced to facilitate
the commercial interest of the British it played an important role in unifying
the country.
Railways are ideally suited for long distance travel and movement of bulk
commodities. Regarded better than road transport in terms of energy
33
efficiency, land use, environment impact and safety it is always in forefront
during national emergency.
Indian railways, the largest rail network in Asia and the world's second
largest under one management are also credited with having a multi gauge
and multi traction system.
The track kilometers in broad gauge (1676 mm) are 86, 526 kms, meter
gauge (1000 mm) are 18, 529 kms and narrow gauge (762/610 mm) are
3,651 kms. Of the total route of 63,028 kms, 16,001 kms are electrified.
The railways have 7566 locomotives, 37, 840 coaching vehicles, 222, 147
freight wagons, 6853 stations, 300 yards, 2300 goodsheds, 700 repair
shops, and 1.54 million work force. Indian Railways runs around 11,000
trains everyday, of which 7,000 are passenger trains.
Interesting Facts about Indian Railways

Shortest station name: Ib near Jharsuguda on the Howrah-Nagpur
main line (South Eastern Railway.

Longest station name: Venkatanarasimharajuvariapeta often prefixed
with Sri. on the Arakkonam-Renigunta section of the Southern Railway.

Longest run (time): The Himsagar Express running between Jammu
Tawi and Kanyakumari, It covers its route of 3751km in 74 hours and
55 minutes.

Longest run for daily train: The Kerala Express has daily service and
covers 3054 km in its run (in 42.5 hours).

Longest non-stop run (distance): The Trivandrum Rajdhani does not
have a technical halt at Ratlam and, therefore, travels non-stop
between Vadodara and Kota (528km), covering the stretch in about 6.5
hours.

Trains with no commercial halts en route: Sampoorna Kranti
Exp,Howrah Rajdhani, Bombay Rajdhani, Pragati Exp and Pune Shatabdi
34

Shortest runs: Nagpur - Ajni has scheduled services that are just 3km
in distance. This is mainly a service for crew to travel from Nagpur
station to the workshop at Ajni.

Highest number of halts: Mail and Express trains [3/99] The HowrahAmritsar Exp. leads in this category with 115 halts.

Busiest Station: Lucknow which caters to as many as 64 trains per
day.

Stations straddling state lines: Navapur is a station that is half in
Maharashtra and half in Gujarat . Bhawani Mandi station, on the
Shamgarh-Kota section of the Bombay-Delhi line is half in Madhya
Pradesh and half in Rajasthan.

Station with all the three gauges: Siliguri station.
ORGANISATION OVERVIEW
In India, the Ministry of Railways is the nodal authority for the
development and maintenance of rail transport. It is actively engaged in
formulation of various policies and looking after the overall functioning of the
railway system. In order to deal with different aspects of operations of IRs, it
has set up several public sector undertakings.
The Ministry of Railways has following nine undertakings:
1. Rail India Technical & Economic Services Limited (RITES)
2. Indian Railway Construction (IRCON) International Limited
3. Indian Railway Finance Corporation Limited (IRFC)
4. Container Corporation of India Limited (CONCOR)
5. Konkan Railway Corporation Limited (KRCL)
6. Indian Railway Catering & Tourism Corporation Ltd (IRCTC)
7. Railtel Corporation of India Ltd. (Rail Tel)
35
8. Mumbai Rail Vikas Nigam Ltd. (MRVNL)
9. Rail Vikas Nigam Ltd. (RVNL)
Indian Railways have their research and development wing in the form of
Research, Designs and Standard Organization (RDSO). RDSO functions as
the technical advisor and consultant to the Ministry, Zonal Railways and
Production Units.
Besides, the 'Research, Design and Standards Organisation (RDSO)' at
Lucknow is the research and development (R&D) wing of the Indian
Railways. It functions as a consultant to the Ministry in technical matters. It
also provides consultancy to other organisations connected with railway
manufacture and design. There is also a 'Centre for Railway Information
System (CRIS)' , which has been set up in order to design and implement
various railway computerisation projects. Along with these, there are six
production units which are engaged in manufacturing rolling stocks, wheels,
axles and other ancillary components of railways, namely, Chittaranjan
Loco Works; Diesel-Loco Modernisation Works; Diesel Locomotive
Works; Integral Coach Factory; Rail Coach Factory; and Rail Wheel
Factory.
The Ministry of Railways under Government of India controls Indian
Railways. The Ministry is headed by Union Minister who is generally
supported by a Minster of State. The Railway Board consisting of six
members and a chairman reports to this top hierarchy. The railway zones
are headed by their respective General Mangers who in turn report to the
Railway Board.
36
For administrative convenience Indian Railways is primarily divided into 16
zones:
Zone
Headquarters
Central Railway
Mumbai CST
Eastern Railway
Kolkata
Northern Railway
New Delhi
North Eastern Railway
Gorakhpur
North East Frontier Railway
Maligaon, Guwahati
Southern Railway
Chennai
South Central Railway
Secunderabad
Western Railway
Church Gate, Mumbai
South East Central Railway
Bilaspur
East Coast Railway
Bhubaneswar
North Central Railway
Allahabad
North Western Railway
Jaipur
South Western Railway
Hubli
West Central Railway
Jabalpur
East Central Railway
Hajipur
37
The above described Zoning can be mapped as follows:
38
KEY STATISTICS
From a very modest beginning in 1853, when the first train steamed off from
Mumbai to Thane (distance of 34 Km), Indian Railways have grown into a
vast network of 6,909 stations spread over a route-length of 63,327 Km.
They own a fleet of 8,153 locomotives; 45,350 passenger service vehicles;
5,905 other coaching vehicles and 2,07,719 wagons (as on 31 March 2007).
IR is a multi-gauge system comprising of:- broad gauge (1.676 mm); metre
gauge (1.000 mm); and narrow gauge (762 mm and 610 mm).
Their track length is 93,386 km; 13,412 km and 3,198 km respectively.
While, the gauge wise route length is 49,820 km; 10,621 km and 2,886 km
respectively. The total running track length is 85,390 km, of which 71,015
km is broad gauge; 11,487 km is metre gauge; and 2,888 km is narrow
gauge. About 28 per cent of route-kilometre, 39 per cent of running track
and 41 per cent of total track have been electrified.
Freight and passenger are the two main segments of the Indian Railways.
The freight segment accounts for about 70 per cent of revenue, while the
rest comes from the passenger traffic. Within the freight segment, bulk
traffic accounts for nearly 84 per cent of revenue earning freight traffic (in
physical terms), of which about 43 per cent is contributed by coal. Moreover,
the rationalization of the fare and freight structure continued during 200708.
There has been a considerate effort for making rail tariff competitive so as to
attract more traffic. Commodities are placed into different classes for the
purpose of fixing tariffs. In the passenger segment, a variable fare scheme
has been launched under which the IRs introduced discounts in fares for the
busy season (i.e. April 16 to July 14 and September 16 to January 14) and
also for the lean season (balance period).
39
Passenger Traffic
The passenger traffic has risen from leaps and bounds from 1284 million in
1950-51 to 5112 million in 2002-2003.
Freight Traffic
The revenue fright traffic has also grown immensely from 73.2 million tones
in 1950-51 to 557.39 million tones. Indian railways carry huge variety of
goods such as mineral ores, fertilizers, petrochemicals, agricultural produce
and others. It has been made possible with measures such as line capacity
augmentation on certain critical sectors and modernization of signaling
system and increase in roller bearing equipped wagons. Indian Railways
make huge revenue and most of its profits are from the freight sector and
uses these profits to augment the loss-making passenger sector.
Here, it is important to note that computerization of freight operations --Freight Operations Information System (FOIS) has been achieved with the
implementation of Rake Management System.
Facilities for Passengers
Computer based unreserved ticketing takes care of the large chunk of
unreserved segment of passengers. This facility allows issuance of
unreserved tickets from locations other than boarding station.
Indian Railway Catering and Tourism Corporation
IRCTC has launched on line ticketing facility with the aid of Center for
Railway Information System, which can be booked on www. irctc.co.in. For
the convenience of customers queries related to accommodation availability,
passenger status, train schedule etc are can all be addressed online.
Computerized reservation facilities have made the life easy of commuters
across India.
National Train Enquiry system is another initiative of Indian Railways which
offers train running position on a current basis through various output
devices such as terminals in the station enquiries and Interactive Voice
Response Systems (IVRS) at important railway stations.
40
Indian Railways are committed to provide improved telecommunication
system to its passengers. For this Optical Fibre Communication (OFC)
system has been embraced, which involves laying optical fibre cable along
the railway tracks.
In recent years Indian Railways have witnessed the marked rise of
collaboration between private and public sectors. Few of the notable
examples here are the broad gauge connectivity to Pipya Port where a joint
venture company is formed with Pipava Port authority. Similarly
Memorandums of Understanding has been signed between Railways and
State governments of Andhra Pradesh, Karnataka, Maharashtra, West
Bengal, Tamil Nadu and Jharkhand,
Rolling Stock
Today, Indian Railways have become self reliant in production of rolling
stock. It supplies rolling stock to other countries and non-railway customers.
The production units are at Diesel Locomotive Works, Varanasi, Chittaranjan
Locomotive Works, Chittaranjan, Diesel-Loco Modernisation Works, Patiala,
Integral Coach Factory, Chennai, Rail Coach Factory, Kapurthala, Wheel &
Axle
Plant,
Bangalore
and
Rail
Spring
Karkhana,
Gwalior.
Special Trains
Indian Railways have several special trains, which are known across the
world such as Darjeeling Himalayan Railway, Nilgiri Mountain Railway, Palace
on Wheels, Samjhauta Express, Lifeline Express, Fairy Queen, Himsagar
Express and others.
Darjeeling Himalayan Railways, running from New Jalpaiguri to Darjeeling, a
hill station at an elevation of 2134 meters has attained the World Heritage
Status from UNESCO. The Nilgiri Mountain Railway is credited with being
only rack railway in India. 'Palace on Wheels' gives you the experience of a
royalty. The train passes through following destinations. Jaipur, Jaisalmer,
Jodhpur, Sawai Madhopur, Chittaurgarh,Udaipur, Bharatpur and Agra. While
Fairy Queen, the oldest functioning steam engine has received Heritage
41
Award at the international Tourist Award apart from finding a place in
Guinness Book of World Records.
Suburban Railway
Cities in India such as Mumbai, Chennai, Kolkata, Delhi, and Lucknow have
dedicated suburban networks while Hyderabad and Pune share the tracks
with long distance trains. The passenger traffic in suburban trains is handled
mostly by electric multiple units.
The Mumbai Suburban Railway spread over 303-route kms carries more than
6.1 million commuters daily. It is one of the most intensively utilized public
transportation in the world.
Kolkata metro is the first underground rapid transit system in India, which
began operations in 1984. The line begins at Dum Dum in the north and
continues till the southern end in Tollygunge.
Delhi metro, started in Dec 2002, is the second underground rapid transit
system in India. Delhi Metro combines elevated, at-grade and underground
lines. The Phase 1 of the network consists of 65.11 kms of route length with
13,01 kms underground called Metro corridor and 52.10 kms surface
elevated called Rail Corridor. Phase II is presently under construction, with a
target completion date of 2010.
National Vikas Yogna
The government of India has initiated a scheme, 'National Vikas Yojna' for
the development of the Indian Railways. The scheme would focus on
completion on strategic projects within a stipulated period of time. The key
projects under this scheme are:

Strengthening of Golden Quadrilateral and Diagonals connecting the 4
metro cities i.e. Delhi, Mumbai, Chennai and Kolkata.

Providing Rail based port-connectivity and development of corridors to
hinterland including multi-modal corridors for movement of containers.
42

Construction of 4 mega bridges at Patna and Munger on river Ganga,
at Bogibeel on river Brahmputra and at Nirmali on river Kosi.
AREAS FOR IMPROVEMENT
Thrust areas identified for improvements and expansion include:

Replacement and renewal of over-aged assets,

Augmentation of terminal and rolling stock capacities,

Gauge conversion and electrification,

Introduction of new routes and long distance special parcel services.
FUTURE OUTLOOK
Rapid progress in industrial and agricultural sectors of the country has
generated a higher level of demand for rail transport, particularly in core
sectors like coal, iron and steel ores, petroleum products and essential
commodities such as food grains, fertilisers, cement, sugar, salt, edible oils,
etc.
Accordingly, Indian Railways has made several attempts to absorb the
advances in railway technology and has become self-sufficient in production
of many rail equipments like rolling stocks. It is in the process of inducting
new designs of fuel-efficient locomotives of higher horse power, high-speed
coaches and modern bogies for freight traffic. Modern signalling like panel
inter-locking; route relay inter-locking; centralised traffic control; automatic
signalling; and multi-aspect colour light signalling are also being introduced.
In order to strengthen, modernise and expand such a network, the
Government of India seeks to attract private capital as well as State funding
in several categories of rail projects, like projects for port connectivity,
gauge conversion, connectivity to remote/backward areas, laying new lines,
electrification, suburban transportation, etc. Besides, the Government has
introduced Rail-based mass rapid transit system (MRTS) projects in the
43
metropolitan cities of Delhi, Mumbai, Chennai, Bangalore, Hyderabad and
Kolkata.
The project aims to provide reliable, safe and pollution-free rail journey for
the commuters of the cities. It ensures fastest means of transportation,
saves time and reduces the incidence of accidents. This project has made
considerable progress, especially the performance of Delhi Metro Rail
project is notable. The phase I of the Delhi metro is fully operational and it
is extending its network outside the capital city.
PPP INITIATED FOR RAILWAYS
The private sector participation in developing rail infrastructure in India is
gradually widening, both in scale and scope. For instance, Pipavav Railway
Corporation Ltd. (PRCL) is the first infrastructure model of public-private
partnership in rail transportation. It is the joint venture company of Indian
Railways and the Gujarat Pipavav Port Ltd (GPPL), set up to construct,
maintain and operate 271 km long broad gauge railway line, connecting Port
of Pipavav to Surendranagar Junction of Western Railway in the State of
Gujarat.
RAILWAY BUDGET
Since 1924-25, railway finances have been separated from General
Revenue. Indian railways have their own funds in the form of Railway
Budget presented to the Parliament annually. This budget is presented to the
Parliament by the Union Railway Minster two days prior to the General
Budget, usually around 26th February. It has to be passed by a simple
majority in the Lok Sabha before it gets final acceptance. Indian Railways
are subject to the same audit control as other government revenues and
expenditure.
44
INDIAN RAILWAYS OBJECTIVES IN 2008
Indian Railways created a history by generating a cash surplus before
dividend of Rs 20,000 cr as against Rs 14,700 cr in the previous year. The
Passenger earnings have increased by 14 percent while coach earnings have
shown a rise of 48 percent. A quantum jump in freight business is another
highlight of the year.
For the year 2007-2008 Construction of High Speed Passenger Corridors
have been proposed. The corridors would have state of the art signaling and
train control systems, for running high speed trains at speeds of 300 to 350
kms per hour; one each in the Northern, Western, Southern and Eastern
regions of the country. The trains will cover distance distances of up to 600
kms in two to three hours. Private Public Partnership would be considered for
High-speed corridors.
Steps would be taken to improve the suburban services in cities such as
Mumbai, Kolkata, and Chennai. Mumbai MUTP-Phase I will be completed and
the work on MUTP Phase II would be started. Suggestions have been made
to introduce air-conditioned class services in suburban trains in Mumbai,
Chennai and Kolkata and escalators at major stations.
The railway minister has proposed to use more IT services in the railways
which would help in increasing passenger and freight earnings, reduce
operating costs, ensure effective utilization of human and physical resources.
ERP packages would be implemented in workshops, production units and
selected zonal railways.
Gauge Conversion, Rolling Stock Modernization and Capacity Augmentation
are the other aspects in the to do list of the Indian Railways.
The year 2007 will be celebrated as cleanliness year where efforts would be
ensured to maintain cleanliness and hygiene at station premises in
passenger trains, railway lines, waiting rooms etc.
45
BUDGET 2009-10
Moreover, the budgetary support to the railways has been increasing from
year to year. As per the interim railway budget of 2009-10, the railways
have shown an excellent performance in freight loading and earnings till the
end of September 2008. During this period, they have registered a growth of
9 per cent and 19 per cent respectively. Similarly, the passenger earnings
increased by 14 per cent. However, by the end of December 2008, the
freight earnings increased to Rs. 38,093 crore registering a growth of 14 per
cent. Accordingly, the Budget Estimates (for 2009-10) for goods earnings,
passenger earnings, sundry other earnings and other coaching earnings
have been kept at Rs. 59,059 crore; 25,000 crore; Rs. 6,000 crore and Rs.
3,000 crore respectively in 2009-10. The Gross Traffic Receipts have been
projected at Rs. 93,159 crore, exceeding the Revised Estimates for the
current year by Rs 10,766 crore.
The Ministry has, thus, undertaken several reform measures and initiatives
to improve traffic condition, safety as well as introduce high technology, that
is, to develop a world-class rail infrastructure in the country.
INDIAN RAILWAYS BOTTLENECKS
Indian Railways require finance for modernization however the required
budgetary support is absent. For example, the provision of automated
signaling system to prevent the crashes is missing. The stiff competition
between private airlines has brought serious threat on upper class
passengers of the railways. Though Rajdhanai and Shatabadi trains are the
fastest and luxurious trains of India their speed and food service is not
competitive as compared to the air travel.
The other key problem faced by the Indian Railways is the high accident
rate, which includes derailment, collisions, many being run over by trains.
The earlier pay commission (in the years 1986 & 1996) recommendations
had badly hit the bottom lines of the Railways and other Government
Departments.
46
Airport
In our journey towards the twenty-first century when the Indian economy is all set to
integrate itself into the global economy, the upgradation and modernisation of
infrastructure and its efficient use have assumed critical importance. It is now
increasingly recognised that aviation, far from being a mere mode of transportation for
an elite group, is crucial for sustainable development of trade and tourism. In this
context, it is vital that airport infrastructure grows in anticipation of the escalating needs
of the air transport industry. As this is a capital-intensive sector, there is an obvious
need for perspective planning with a vision for the next twenty years and to muster the
combined resources of the public and private sectors, both domestic and foreign.
The Indian Civil Aviation Sector is in for a major overhaul over the next few years. In the
wake of major policy changes taking place (due to a shift in the mindset of the
government from considering air travel as elitist to making it available for the common
man) and liberalization of air travel services, a sharp increase (5-10% yoy) in air traffic
is expected. The airports in India are inadequate for handling this increase and with
India hosting the Commonwealth games in 2010, upgrading airport infrastructure
assumes prime importance. The problem is further compounded by the lack of
resources with the government. Hence, the recent thrust on airport privatization.
Role of Airport of Infrastructure in National Economy
Airports being nuclei of economic activity assume a significant role in the national
economy. The quality of airport infrastructure, which is a vital component of the overall
transportation network, contributes directly to a country's international competitiveness
and the flow of foreign investment. While cargo carried by air in India weighs less than
1% of the total cargo exported, it accounts for 35% of the total value of exports. Better
cargo handling facilities lead to enhanced levels of importation, especially of capital
goods and high-value items. Likewise, 97% of the country's foreign tourists arrive by air
and tourism is the nation's second largest foreign exchange earner.
1. Airports also represent a country’s window on the world. Passengers form their first
impressions about a nation from the state of its airports. They can be effectively used as
symbols of national pride, if we pay sufficient attention to their quality and maintenance.
47
2. In many remote, hilly and inaccessible areas of the country, air transport is the
quickest and sometimes the only mode of travel available. This is especially true of
sensitive regions on the borders with our neighbours in the west, north and north-east.
3. Airports need to be integrated with other modes of transport like Railways and
Highways, enabling seamless transportation to all parts of the country.
Existing Position
1. There are 449 airports/airstrips in the country. Among these, the AAI owns and
manages 92 airports and 28 civil enclaves at defence airfields and provides air traffic
services over the entire Indian airspace and adjoining oceanic areas.
2. In 1996-97, these 120 airports/civil enclaves handled 3.96 lakh aircraft movements
involving 243 lakh domestic and 122 lakh international passengers, and 2.0 lakh metric
tonnes of domestic and 4.8 lakh metric tonnes of international cargo. 52% of traffic was
handled at the international airports at Mumbai and Delhi. Presently, the various airlines
are operating only through 61 airports. The remaining are lying unutilized, at best
handling occasional aircraft operations.
3. Historically, air traffic at Indian airports has broadly followed a particular distribution
pattern, except that some airports have changed their inter-se positions vis-à-vis volume
of traffic.
Airports are presently classified in the following manner:
1. International Airports: These are declared as international airports and are available
for scheduled international operations by Indian and foreign carriers. Presently,
Mumbai, Delhi, Chennai, Calcutta and Thiruvananthapuram are in this category.
2. Custom Airports: These have customs and immigration facilities for limited
international operations by national carriers and for foreign tourist and cargo charter
flights. These include Bangalore, Hyderabad, Ahmedabad, Calicut, Goa, Varanasi,
Patna, Agra, Jaipur, Amritsar and Tiruchirapally.
3. Model Airports: These are domestic airports which have minimum runway length of
7500 feet and adequate terminal capacity to handle Airbus 320 type of aircraft. These
48
can cater to limited international traffic, if required. These include Lucknow,
Bhubaneshwar, Guwahati, Nagpur, Vadodara, Coimbatore, Imphal and Indore.
\4. Other Domestic Airports: All other airports are covered in this category.
5. Civil Enclaves in Defence Airport: There are 28 civil enclaves in Defence airfields.
Greenfield Airports In India - A Case Study Of The Bangalore International
Airport.
Introduction and background:
When one looks at the current huzzle and buzzle around privatization of
infrastructure in India, it is difficult to imagine that just about six years back,
privatization was virtually unknown in India. The story started with the Road sector
in the late 1990's but that too initially was not under the BOT Model. The project
was funded by the Government through a 1% cess on diesel. Infrastructure bonds
were floated where the Public Sector Corporations invested. It was only in this
millennium that privatization, as properly understood was adopted as a
Government policy.
Why privatize?
Look at the Airport sector alone. This sector has witnessed a growth of 35% on an
average year upon year for the last six years (global growth is only about 9% per
annum). The growth is fuelled by the robust economy and indeed infrastructure
leads to economic growth thus completing the cycle. It is estimated that had the
infrastructural gap not been there, India's GDP would have been 2% higher per
annum - and indeed would have been at about par with the phenomenal growth
China has achieved.
Currently the airport infrastructure is totally inadequate. It is fairly common for
flights to hover around airports due to congestion, waiting to get landing permission
or waiting at the ground in the queue to take off. To give an idea of infrastructure
gap, the Delhi Airport as of now has a capacity to handle 12 million passengers per
annum but it is actually carrying 16.5 million passengers per annum, which is
expected to grow to 20 million passengers by next year.
Airport modernization is therefore some thing which we could have done with as of
yesterday. The Government cannot cope up with the demand - and hence
privatization is necessary.
49
Snap shot of the future:
We have two "green field" airport projects where the concession agreements have
already been signed. These are for the international airports at Bangalore and
Hyderabad, expected to be completed next year. We have two "brown field" airport
projects for Delhi and Mumbai to be completed by 2010. We are in the process of
inviting bids for 6 more green field airports in metro cities and 35 brown field
airports in the non-metro cities. So one can see what a happening sector this is
currently in India.
The Bangalore International Airport:
Bangalore green field airport which was signed off by India in July 2004 as the
model for our discussion. In fact the next concession agreement for Hyderabad
which was entered into six months later was virtually on the same lines and these
two are the only green field concession agreements signed so far. There is no
"Model Concession Agreement" announced by the Government for future projects
(though it is proposed to come out with one some time in the future).
Structuring:
Though the concessionaire for the Bangalore airport is a private limited company,
the Government through its agencies and instrumentalities holds 26%
shareholding - (the break up being 13% by the Central Government and 13% by
the State Government). This 26% shareholding ensures that the Government is
able to veto certain "fundamental resolutions" which as per the Indian Companies
Act require a minimum of 75% shareholders vote. For instance, issuance of new
shares; change of directors; change of auditors etc. all require at least 75%
shareholders vote. Hence the Government does retain some sort of control in the
venture. Amongst the private players in Bangalore airport, Siemens of Germany
have the majority 40%. Zurich airport holds 17%.
Description of the project:
Let us begin by briefly sketching salient features of the Bangalore Airport. The site
is situated about 29 k.m. from Bangalore and covers about 4300 acres. The airport
design allows a second runway to come up in the near future with a separation
distance of about 2 k.m. between the two run ways. The run way would be
approximately 4000 mtrs. in length with a width of 60 mtrs. The airport would be at
50
par with a world class international airport.A significant part of the project is
permissible for "Non-Airport" activities. The concessionaire can develop up to 300
acres land commercially for any activity not connected with the airport. In this 300
acres the concessionaire is free to set up not only hotels or malls - it can even go
for Special Economic Zones, manufacturing factories, country clubs, golf courses,
power plant etc. Considering that this huge chunk of prime land comes to the
concessionaire on a long term lease, virtually free of cost, it is easy to imagine that
this would be the commercial backbone of the project.
Nature of the concession:
Basically the concession is for Development, Construction, Operation &
Maintenance of the airport. The agreement allows the concessionaire to develop,
construct, operate and maintain the Bangalore International Airport for a period of
30 years, extendable at its sole option for another 30 years (i.e. total 60 years).
The land for the same is leased by the State Government.
The concessionaire has the burden to independently evaluate the scope of the
project and be responsible for all risks which may exist in relation thereto. It is
obliged to follow good industry practices and all applicable laws.
The Government on the other hand, undertakes to support the project. Article 5.4
of the concession agreement states that in so many words: ("GOI acknowledges
and supports the implementation of the project"). It further states that the
Government of India will not take any steps or action in contradiction with the
Concession Agreement which results in or would results in its shareholders or the
lenders being deprived or substantially deprived of their investment or economic
interest in the project. Further all statutory and non-statutory bodies under the
control of the Central Government will act in compliance with the concession
agreement as if they are a party thereto and the Government of India shall ensure
that all statutory compliances as may be required in relation to the project are
granted promptly. This is a unique feature of the Airport concession agreements In
fact the concession agreements in the Port sector or Road sector do not have
similar obligations on the Government. The Concession Agreement also insulates
the concessionaire against competition by stating that no new airport would be
allowed to be set up within 150 k.m. radius for a period of 25 years from the date of
airport opening and further the Government of India will ensure that no other
airport in India gets any unfair competitive advantage as compared to the
Bangalore airport. Again a unique feature to be found in the airport concession
agreements alone.
51
Monitoring of the project:
It is provided that the Government shall not intervene in or interrupt in the design,
construction, completion, commissioning, maintenance, monitoring or developing
of the airport unless it is on account of national emergency or as per any existing
law or for public safety. If intervention is on account of public safety, it shall be
limited in time and for a period to be mutually agreed between the parties. The
parties agree to set up a joint Co-ordination Committee comprising of
representatives of the State and private parties to monitor the implementation of
the
project
at
all
stages
including
post-completion.
The airport performance shall be monitored through passenger survey and as per
the IATA Global Airport Monitoring survey standards.
Charges which can be levied:
As mentioned earlier the concessionaire is free to develop approximately 300
acres for non- airport activities (which indeed is to fund and finance the project).
The charges here are not subject to Government control and will be free market
driven. However Airport Charges i.e. which ultimately fall on the passengers shall
be fixed with the approval of the Ministry of Civil Aviation. This would include
passengers fees, landing charges, user development fees etc. These charges
would be fixed on the basis of the current charges in place for other airports in
India and shall be consistent with the International Civil Aviation Organisation's
policies on charges for airports.
Heads of risks:
Before we get into an evaluation and allocation of risks let's just pause and see
what is the nature of the contract. We are not looking at an ordinary construction
contract. Airports are not mere place for aero-planes to land or take off. They
involve public interest, convenience and safety. Besides construction of airport
building, ATC tower, administrative buildings etc. they can encompasses minitownships, commercial areas, Special Economic Zones (modeled on China's
experience) and indeed manufacturing factories, golf course, country clubs etc.
Therefore the project is both mammoth and diverse. Then we are not only looking
at a mammoth and diverse project - we are looking at it over a period of 60 years!
How large is a period of 60 years in the life of a nation can perhaps be best
illustrated if we consider that India was not even an independent nation 60 years
back and indeed the history of civil aviation is probably not much more than 60
years. Unimaginable changes can and will take place in 60 years. So the public
52
element; complexity and diversity of the project and the length of the concession
agreement are all so vast, that it would be some what naive to try and enumerate
all risks associated with the project or indeed to try and address them through a
contractual process of allocation of risks.
With this note of self - caution, we can briefly deal with allocation of risks in greenfield airport privatization under the following 5 heads: delays and consequences of
delay in the airport opening; change in law and the risks involved therein;
termination of agreement due to default of either party; The role of the regulatory
authority; and dispute resolution.
i. Delays:
The target date for airport opening is stipulated as 33 months from the date of
financial closure and from this date (i.e. date of airport opening) the concession
period is to start running. In other infrastructure sectors like Roads or Ports, the
concession period starts to run from the date of signing of the concession
agreement. This is the greatest incentive and at the same time coercive measure
to ensure timely completion of the project. For example, if the concessionaire is
able to complete the project even before the target date of opening, it gets its
reward automatically in the form of the extra concession period it "earns" for itself
and if he delays it, he eats into the concession period and therefore the profits.
One would have thought this to be a fairly sensible approach of reward and
punishment. However in the airport sector one finds the provision for delays to be
rather soft on the concessionaire. Firstly the 33 months period for completion can
be extended by as much as six months if it can be shown that the delay was on
account of failure by Government of its obligations under the agreement (surely a
very vague ground for extension, which if invoked would probably end up in
dispute). After the six months extension liquidated damages kick in which are
around US$ 2250 per day (once again a fairly nominal amount one would think
considering the public interest involved in expediting the opening). Further, if for
another six months the airport does...
1. The Government will aim at ensuring adequate world class airport infrastructure
capacity in accordance with demand, ensuring maximum utilization of available
capacities and efficiently managing the airport infrastructure by increasing
involvement of private sector.
53
2.
(i)
(ii)
Greenfield airport will be permitted by the Government where
the existing airport is unable to meet the projected requirement of traffic or
a new focal point of traffic emerges with sufficient viability and
(iii) the new location is normally not within an aerial distance of 150 kilometers of
an existing airport
3.
Encouragement will be given to development/ construction in private sector
of small airstrips/ helipads /heliports, which are smaller and cheaper to construct.
These will be particularly suitable in remote hilly or island areas, large business,
city centers, factory locations and at other important nodal points. This will also
facilitate increase in small aircraft operations
4.
(i)
Private sector participation
Private sector will be free to undertake
(a) construction and operation of
new airports/airstrips/ helipads/heliports
including cargo complexes, express cargo terminals, cargo satellite cities and
cargo handling facilities
(b) upgradation and operation of existing airports/airstrips/helipads/heliports in
consultation with the existing operator including cargo complexes, Express cargo
terminals, cargo satellite cities and cargo handling facilities
(ii)
Foreign equity participation will be permitted up to 74 % with automatic
approval and 100 % with special permission of government
(iii) Private sector participation will include participation of state government,
urban local bodies, private companies, individuals and joint ventures on BuildOwn-Operate (BOO) basis or any other pattern of ownership and management
depending on the circumstances.
(iv) Restructuring of major airports of Airports Authority of India will be undertaken
through long-term lease to private investors for efficient management,
improvement of standards of services/ facilities and attracting private investment
54
(v) At privately managed airports, air traffic control (ATC) and aviation security
will continue to be provided by the Airports Authority of India (AAI) and customs
and immigration facilities by respective Government departments.
(vi) The equipment needed for any service would normally be provided by the
agency responsible for the service and an equitable system would be established
for sharing of revenue between different agencies. Keeping in view their
respective investments and responsibilities.
5.
All airports /airstrips /helipads /heliports used for scheduled air-transport
services will be licensed by Civil Aviation Authority.
6.
Airport/ airstrip/ heliport/ helipad operators will follow ICAO guidelines for
levying airport/ airstrip/ heliport/ helipad charges based on cost recovery principle.
The CAA would put in a place a regulatory mechanism to prevent abuse of
monopolistic nature of such infrastructure.
7. An objective and well-defined transparent mechanism for allocation of slots at
airports will be ensued at all times.
8.
CAA will ensure fair play between different airport/ airstrip/ heliport/ helipad
operators and user agencies so that no airport/ airstrip/ heliport/ helipad operator is
accused of discriminating against any particular airline or any other user. Similarly,
Government will ensure that no airport-operator is discriminated against with
regard to allotment as point of call, if there is demand for air services from such
airport.
9. More international gateways shall be provided. It would be ensured that there
is at least one international airport in every region of the country in order to give a
boost to trade and tourism and adequate capacity in all the routes.
10. Major thrust will be given for increasing the share of commercial revenue from
non-aeronautical sources by giving total freedom to airport/ airstrip/ heliport/
helipad operators in the matter of raising non-aeronautical revenue
11. New Ground Handling regulations with following broad particulars envisage :
(i)
At airports managed by AAI, new private investors have been allowed by
AAI to undertake ground handling besides national carriers and self-handling by
carriers which will increase competition resulting in improvement in services and
55
reduction in costs.
(ii)
At private airports, at least limited competition will be mandatory.
12. A rationalized dynamic system for airport charges for AAI airports will be
introduced for
(i)
(ii)
optimum utilization of airport by using peak and off-peak time charges,
increasing revenue of airport operators
(iii) promoting airports in far-flung regions by having varying airport charges from
airport to airport depending upon the facilities available at the airport.
(iv) promoting use of small aircraft
13. A new Directorate of Lands shall be established in AAI and land use
guidelines will be formulated for utilizing vacant land.
(i)
Vacant land at airports will be evaluated for construction of aviation related
activities (e.g. cargo complexes, aircraft maintenance facilities, etc)
(ii)
For optimal exploitation of airport land for civil aviation purposes, privatesector/ State Government participation would be welcome.
(iii) Land at such airports where there is no likelihood of future use for civil
aviation purposes will be utilized for other commercial purposes like gold courses,
tennis, etc. either by AAI itself or in joint venture.
(iv) Effective steps will be taken for removing encroachments from AAI land and if
necessary, comprehensive rehabilitation package will be formulated.
14. Cargo handling
(i)
Infrastructure like satellite freight cities with multi-modal transport, cargo
terminals, cold storage centers, automatic storage and retrieval systems,
mechanized transport of cargo, dedicated express cargo terminals with airside and
city side openings, computerization and automation etc. will be set up on priority
basis.
(ii)
Private sector participation in cargo handling will be encouraged.
56
(iii) Efficient Electronic Data Interchange systems will be developed and linked
amongst all stakeholders in the trade.
(iv)
Air cargo complexes and dedicated express cargo terminals (with airside
and city-side openings) will be integral part of all major airports.
15. Operation of airports would be in accordance with the provisions relating to
prevention of air, water and noise pollution.
16. Guidelines for naming of airports will be formulated to ensure that the airports
are named after the cities they are situated in as per international norms.
Air Traffic services
(i)
Air Traffic controllers will be licensed by CAA.
(ii) AAI will continue to provide Air Traffic Services over the Indian air Space as
per standards set by CAA in accordance with ICAO norms.
(iii) Approach and aerodrome control services may be provided by licensed ATCs
engaged by the airport operators
(iv) New satellite based CNS/ATM systems will be introduced as per ICAO's
Regional Plan
(v) India to have a significant say in the provision of new satellite based
CNS/ATM services in Asia- pacific/ SAARC regional airspace
(vi) Fresh Air traffic Services and Controlling (Departure, holding and approach)
procedures will be evolved for helicopters and small aircraft to exploit their inherent
advantages and to reduce the cost of their operations and efficient use of airspace
without compromising safety. This will also give boost to Flying Clubs.
(vii)
Efforts will be made for Civil-Military co-ordination for
(a)
Greater sharing of civil and military airspace for unidirectional air-corridors
and straightening of air-routes to save fuel and time,
(b)
Uniform air-traffic procedures ,
57
(c)
Additional slots for civilian flights at military airports,
(d)
Sharing of revenues at civil enclaves
PROMOTION OF AVIATION IN NORTH-EAST AND REMOTE AREAS
1.
In the Northeast region and other remote areas, the management of airport
infrastructure as well as air services is not economically viable because of low
utilisation and low fare structures etc. However, given the topography and
inaccessability of the region, the need for such infrastructure and air services is
much greater. But at the same time, forcing commercial airlines and airport
operators to invest in these areas, distort the functioning in other areas also and
affect their efficient functioning commercially. Therefore, there is need to correct
these imbalances.
2. It has been decided to exempt all the currently operated routes in the NorthEast from payment of Inland Air Travel Tax (IATT). The decisions to provide ATF
to turbo prop aircraft operations at par with price for international air services and
capping of sales tax at 4% would also encourage new air services in the NorthEast. Operation of smaller aircraft and helicopters for passenger and cargo flights
will be further encouraged through rationalisation of airport charges and Avgas
prices.
3. Airport Infrastructure will be upgraded wherever necessary keeping in mind the
linkage with the aircraft type and traffic profile.
4.
Adequate funds as grant-in-aid through North East Council (NEC) will be
made available for the infrastructure development work needed to be carried out in
the North-East region.
5.
The air-links between the capitals of the States in the North-East region and
between major stations on both sides of the Brahmaputra river will be encouraged.
6.
Guwahati and Calcutta will be developed as hub station and main base of
turbo-prop aircraft operations by the airlines
7.
Regular airservices will be encouraged at convenient timings to enable onward
58
connections to other parts of the country without involving night stop.
8.
Suitable infrastructure like hotels, organised taxi-services at the airports and
tourist spots in the North-East will be encouraged to help growth in tourism in the
region.
Initiatives
The Committee on Infrastructure has initiated several policy measures that would
ensure time-bound creation of world-class airports in India. A comprehensive civil
aviation policy is on the anvil. An independent Airports Economic Regulatory
Authority Bill for economic regulation is also under consideration. The policy of open
skies introduced some time ago has already provided a powerful spurt in traffic
growth that has exceeded 20% per annum during the past two years.
Greenfield international airports at Bangalore and Hyderabad have been approved
and are currently under construction. These are likely to be commissioned by middle
of 2008. Modernisation and expansion of the Delhi and Mumbai airports through
PPPs has been awarded, based on a rigorous and transparent competitive bidding
and evaluation process. Other major airports such as Chennai and Kolkata are also
proposed to be taken up for modernisation through the PPP route. Similarly, to
ensure balanced airport development around the country, a comprehensive plan for
the development of other 35 non-metro airports is also under preparation. These
measures are expected to bring a total investment of Rs. 40,000 crore for
modernisation of the airport infrastructure.
On the analogy of the highways sector, a Model Concession Agreement is also being
developed for standardising and simplifying the PPP transactions for airports. In
addition, proposals for revamping the Airports Authority of India are to be finalised
soon. This would include upgrading of the ATC services at the airports. Issues
relating to customs, immigration and security are also being resolved in a manner
that enhances the efficiency of airport usage.
59
Size
India has 125 airports; of these 11 are designated as international airports
In 2004-05, Indian airports handled 60 million passengers and 1.3 million tonnes of
cargo
- Passenger traffic grew at over 22% in 2004-05 over 2003-04; Cargo grew at 21.6%
over the previous year
Structure
Currently, all 125 airports are owned and operated by the Airports Authority of India
(AAI)
The Government aims to attract private investment in aviation infrastructure
- Privatisation of the Delhi and Mumbai airports is in progress – concessions have
already been awarded. Expected investment of about Rs.15,700 crores (US $ 3.5
billion)
- New international airports at Bangalore and Hyderabad are being built by private
consortia with a total investment of about Rs.4000 crores (US $ 600 million)
- 25 other city airports are being considered for private investment
Air India and Indian Airlines are Government owned international and domestic flag
carriers respectively.
Indian private airlines – Jet, Sahara, Kingfisher, Deccan, Spicejet - account for
around 60% of the domestic passenger traffic. Some have now started international
flights.
Policy
100% FDI is permissible for existing airports; FIPB approval required for FDI beyond
74%
100% FDI under automatic route is permissible for greenfield airports.
49% FDI is permissible in domestic airlines under the automatic route, but not by
foreign airline companies
60
- 100% equity ownership by Non Resident Indians (NRIs) is permitted
AAI Act amended to provide legal framework for airport privatisation
100% tax exemption for airport projects for a period of 10 years
‘Open Sky’ Policy of the Government and rapid air traffic growth have resulted in the
entry of several new privately owned airlines and increased frequency/flights for
international airlines.
Airport
Statistics
Airport
Passenger
(million, 2003-04)
Bangalore
3.2
Chennai
4.6
Delhi
10.3
Hyderabad
2.2
Kolkata
3.0
Mumbai
13.3
2003-04
traffic
Source: Director General of Civil Aviation, AAI
Outlook
Passenger traffic is projected to grow at a CAGR of over 15% in the next 5 years
- To cross 100 million passengers p.a. by 2010
Cargo traffic to grow at over 20% p.a. over the next five years
- To cross 3.3 million tonnes by 2010
Major investments planned in new airports and upgradation of existing airports
61
Potential
Favourable demographics and rapid economic growth point to a continued boom in
domestic passenger traffic and international outbound traffic
International inbound traffic will also grow rapidly with increasing investment and
trade activity and as India’s rich heritage and natural beauty are marketed to
international leisure travellers.
- Consequent high demand for investments in aviation infrastructure
SME lending, a largely untapped market, presents a significant opportunity - SMEs
account for 40% of the industrial output and 35% of direct exports
The Government is taking steps to increase participation by private industry
Major opportunities lie in:
- Modernisation / upgradation of metro airports – induction of partners for Chennai,
Kolkata expected subsequently
- Greenfield airport projects planned in resort destinations and emerging metros such
as Goa, Pune, Navi Mumbai, Greater Noida and Kannur.
Estimated investment of about Rs.40,000 crores (US $ 9 billion) for airport
development over the next 5 years
Airport Infrastructure
1.
In keeping with the ICAO standards and recommended practices and the
requirements of upgrading airports to the level of international and regional hubs,
detailed master plans for the development of all selected airports will be prepared or
revised by the operating agency. Such master plans should be conceived of and
executed by the best expert advice available and taking futuristic requirements into
account. All future upgradation and modernization will have to be normally done in
accordance with the master plans. If there is a deviation from the master plan, it will
be approved by the Board of Directors of the operating agency and the statutory
Government agency designated for the purpose.
62
2.
Priority will be accorded to safety, passenger facilities, aircraft and cargo handling,
while deciding the allotment of funds among different upgradation and modernization
schemes.
3.
Air transport serves a time-sensitive market. The surface access to airports should
therefore be efficient and city planners should keep the airport-linked requirements
constantly in view while designing surface transport development plans. There is a
special need to emphasize the aspect of rail links with airports, in view of its near
absence in India as contrasted with other countries.
4. The helicopter provides a direct and rapid means of transport over short-haul routes
and is therefore, particularly attractive for businessmen. There is also a great
potential for helicopter operations in off-shore oil exploration and production,
movement of food grains and essential commodities in remote, hilly and inaccessible
areas, traffic management in metropolitan cities and so on. A planned programme
for building of heliports will be taken up to give a boost to the helicopter industry.
Air Traffic Services
1.
The AAI will provide the Air Traffic Services over the Indian airspace and adjoining
oceanic areas in accordance with the ICAO Standards and Recommended
Practices.
2.
New CNS/ATM systems will be introduced on a priority basis in terms of the AAI's
plan as well as the ICAO's Regional Plan. These will ensure a total coverage of the
airspace in India.
3.
There will be greater civil-military liaison for joint surveillance of Indian airspace.
Integration of Civil/Military Air Traffic Services will be developed to ensure uniformity
in air-traffic control services at Civilian and Defence airports. To achieve air safety of
the highest order, unidirectional air corridor concept shall be introduced, wherever
traffic so justifies, in close liaison with the Defence authorities. Maximum use will be
made of radars and other navigational aids available with civil and Defence airport
authorities thus enhancing the overall route navigation and surveillance facilities.
4.
A Central Control Unit will be established in order to monitor all flights in the
country from the security point of view.
5.
In airports now owned or operated by AAI, air traffic control equipment may be
installed either by AAI or the concerned airport operator. Air traffic control services
will normally be provided by AAI, except for approach and aerodrome control
63
services, which may be provided by licensed ATCs engaged by the airport
operators.
Ground Facilities
1.
The AAI will set standards of performance in various areas of passenger and
cargo handling, so that both ICAO standards as well as comparable standards at
similar airports around the world, are achieved. For this purpose, procedures will be
simplified, regulations which delay or restrict movement of traffic reviewed and
efforts made to reduce ground delays to a minimum.
2.
Dwell time of passengers and cargo will be drastically reduced, thus enhancing
capacity at existing airports. The short-term objective will be to clear incoming
international passengers within 45 minutes of arrival and clear departing passengers
in 60 minutes including check-in-time. Similar targets of 30 and 45 minutes
respectively, will be laid down for domestic flights.
3.
Technological and other improvements will be made by introduction of automation
and
computerization,
mobile
check-in
counters,
improvement
in
emigration/immigration and security checks, mechanization of baggage and ground
handling services, provision of aero-bridges, introduction of better systems of
passenger transfer between terminals, improvement in cargo terminals, reduction in
bunching of flights and contracting out of operating and maintenance facilities. New
approaches in airport design will be required to accommodate technological
innovations like the New Large Aircraft. Construction technology and architectural
inputs will also need to be updated to standards applicable globally.
4.
Efforts will be made to upgrade the facilities, manpower, equipment, etc., by
concerned departments and institutions like customs, immigration, meteorology, oil
companies, etc., so that these keep pace with the upgradation of airports, enabling
the users to experience the optimum benefits of airports as 'cohesive' transit points.
5.
Apart from the AAI and the national carriers, private agencies will also be
encouraged for providing ground handling services.
64
Cargo Handling
1. Special attention needs to be given to the speedy handling of cargo to reduce its
dwell time. The objective will be to reduce dwell time of exports from the present
level of 4 days to 12 hours, and of imports for the present level of 4 weeks to 24
hours to bring us in line with internationally achieved norms. Cargo clearance will
be on 24-hour basis.
2. Infrastructure relating to cargo handling like satellite freight cities with multi-modal
transport, cargo terminals, cold storage, automatic storage and retrieval systems,
mechanized transportation of cargo, computerization and automation, etc., will be
set up on top priority basis. Such facilities have to come up at smaller places too.
3. The Electronic Data Interchange Systems will be developed and linked amongst
all stake-holders in the trade.
Commercial Activities
1.
Across the world, the trend is towards a very high percentage, ranging from 6070%, of the total revenue of airport operators being generated from non-aeronautical
sources at major airports. In India, although these services are even now provided
by private agencies, the comparable figure for AAI at international airports is just
22%. There will be a major thrust towards increasing the share of commercial
revenue emerging from non-aeronautical sources. This will help in optimal
exploitation of the full commercial potential of airports and make many airports not
only viable but capable of generating surpluses for further expansion and
development.
2.
In order to maximize the revenue while at the same time maintain transparency,
there will be a master plan for development of commercial activities and facilities, as
part of the overall master plan approved by the management, for the airport as a
whole. The space-use patterns will normally not be deviated from.
3.
In the allocation of space among concessionaires, there will be a strict adherence
to stipulated procedures, while maintaining sufficient flexibility in order to ensure
quality products and services and attract the holders of reputed brand-names. For
this purpose, innovative tendering procedures involving limited tenders, two-bid
system, use of net present value of bids spread over several years, grant of
management contracts, bunching of similar facilities etc. will be devised.
65
4.
Except for user developmental fees, there will be total freedom for airport
operators in the matter of raising revenue through non-aeronautical charges and
there will not be any Government control over the same.
Airport Security
1.
The objective of airport security will be to safeguard the passengers, crew, ground
personnel, the general public and the airport infrastructure against unlawful acts as
per ICAO Standards and Recommended Practices laid down in Annexure-17 to the
Chicago Convention. The level of security will be calibrated by the BCAS according
to the threat perception at any point of time. Security will have to be cost-effective
when compared to internationally accepted norms. New staffing patterns, different
from the normal police stations, will have to be innovated for airports. There will be
greater accent on modern technology and mechanization, so as to reduce the need
for manpower and increase the effectiveness of the force deployed.
2.
Airport security will be looked after by specialized police agencies, state police
and airport security organizations, depending on the internal security conditions
prevalent in a particular area. BCAS will continue to coordinate the working of the
various agencies to ensure that all security norms are followed by them.
3.
Govt. recognizes the urgent need to develop an airport security organization, in
order to have a quietly efficient, specialized, commercially conscious, passengerfriendly force, at the international airports to begin with. Private security agencies will
also be allowed at certain airports, if the threat assessment so permits.
4.
There will be constant training of security personnel posted at airports in order to
improve their effectiveness and passenger-friendliness. The present training centre
at BCAS Headquarters will be upgraded and strengthened for this purpose.
Ownership and Management
1.
The Constitution of India refers to civil aviation as a subject in the Central List and
is therefore within the legislative competence of Parliament. The Aircraft Rules, 1937
permit airports other than Government airports to be owned by citizens of India or
companies or corporations registered and having their principal place of business in
India. Thus the legislative framework for privatization of airports already exists. In
fact, some airports are already owned by State Governments, private companies
and even individuals.
66
2.
What is needed now, in view of the worldwide thrust towards corporatization and
privatization of airports, is a strategy that permits utmost latitude in the patterns of
ownership and management of airports in the country. Thus, airports may be owned
by the Central Government, PSUs, State Governments, Urban local bodies, private
companies and individuals, as also by joint ventures involving one or more of the
above. Similarly, it would be best to keep all the options open in respect of the
management of airports or parts of airports. These could be on Build-Own-Transfer
(BOT), Build-Own-Lease-Transfer (BOLT), Build-Own-Operate (BOO), LeaseDevelop-Operate (LDO), Joint Venture, Management Contract or Wrap-around
Addition basis. In each individual case, the exact pattern could be negotiated,
depending on the circumstances.
3.
In the case of high-cost projects involving international hubs, Government may
seek international or bilateral cooperation with countries having the requisite
expertise and financial strength. The actual implementation of the projects would be
entrusted to consortia interested in turnkey execution on a joint venture basis.
4.
Foreign equity participation in such ventures may be permitted up to 74% with
automatic approvals, and up to 100% with special permission. Such participation
could also be by foreign airport authorities.
5.
It may be clarified that the normal procedures of licensing of airports by the DGCA
would continue to apply in accordance with the laid down regulations.
Private Sector Participation
1.
Both the reasons of bridging the yawning gap in resources as also to bring in
greater efficiency in management of airports, the participation of private parties
(including foreign ones) is a must. Government will take all possible steps to
encourage such participation.
2.
An Airport Restructuring Committee in the Ministry of Civil Aviation will identify
existing airports, in respect of which private sector involvement for development and
upgradation of infrastructure is desired. It will also prepare a shelf of projects in
respect of Greenfield airports. The pre-feasibility reports will be made available to
private investors.
3.
The AAI will create separate profit centers for all individual airports and hive them
off as subsidiary companies on a case to case basis, for the purpose of entering into
commercial arrangements or joint ventures with private parties.
67
4.
Where airport operators desire private participation in their existing airports, all
patterns of ownership and management would be open to them as elucidated in the
preceding section. No Government approval would, however, be required.
5.
In case of Greenfield projects, the Central Government, the AAI, a State
Government private company or a group of individuals can act as the promoter. The
promoter will be required to prepare a pre-feasibility study and submit the formal
proposal to the concerned State Government. The State Government will add its
comments to the proposal in respect of acquisition of land, supply of water and
power, construction of access roads, etc. and forward the proposal to the Central
Government.
6.
The Central Government will set up an independent statutory body called the
Airport Approval Commission, having adequate technical and financial expertise to
examine such proposals quickly and submit its recommendations on three aspects:
a.
Whether there is need for a Greenfield airport at the suggested place, taking into
account the existing airports in the vicinity and projected increase in traffic;
b.
Which is the best site, which is technically feasible and economically viable?
c.
In case there is need for a Greenfield airport and it is found to be prima facie,
feasible and viable, whether it should be executed in the public or private sector or
be taken up as a joint venture.
7.
On the receipt of the report of the Airport Approval Commission, the matter will be
examined by the Central Government at the appropriate level for a decision. A
decision once taken will normally not be subject to modification at a later stage.
8.
Once the Central Government has cleared the project, the promoter, if it is a
Government body, will follow the prescribed procedure for floating global tenders in
order to select the best party capable of executing the project as also to obtain the
best possible terms. The tendering procedure will be transparent. The selected party
would then prepare a detailed feasibility report, which would be sent to the Central
Government for final acceptance. Approvals once accorded would not normally be
revoked.
9.
Fiscal incentives would be provided to those involved in infrastructure projects, as
maybe decided by Government for time-to-time. Currently, the following incentives
are available:
a. Hundred per cent deduction in profits for purposes of Income Tax for the first five
years.
b. Thirty per cent deduction in profits for the same purpose for the next five years.
c. Full deduction to run for continuous ten out of twenty fiscal years of the assessee’s
choice.
d. Forty per cent of the profit from infrastructure is also deductible for financial
institutions providing long-term finance for infrastructure projects.
68
10. Such incentives should be made available not only to new companies investing in
airport infrastructure but also to AAI and the existing agencies investing in upgradation
of existing airport infrastructure.
11. AAI may provide air traffic control services in private airports on terms and
conditions mutually agreed upon. Alternatively, it may provide ATC staff on deputation
and give advice on the specifications of the equipment to be compulsorily installed for
communication, navigation and surveillance.
Role of the Central and State Governments
1. The role and functions of the Central Government as contained in the various
statutes and the preceding sections extend to the following matters;
a. Investment in airport infrastructure
b. Clearance of Greenfield airport projects
c. Airspace management, safety and security of airports
d. Bilateral air services agreements, including those involving international
cooperation for modernization and upgradation of airports
e. Licensing of airports and ATC personnel
f. Environmental aspects and removal of obstructions around airports
g. Approval of aeronautical charges
2. The Ministry of Civil Aviation will try to facilitate the speedy clearance of projects
from different Ministries.
3. The State Governments will deal with the following aspects:
a. Acquisition of private land and allotment of government land
b. Supply of water and power, and provision of sanitation and sewage services
c. Provision of surface access through multi-modal linkages
d. Prevention of environmental pollution
e. Maintenance of law and order
f. Protection of airports from encroachments and vandalism.
4. In case Government land is allotted by a State Government for an airport owned
by a private party, it may be made available at the same rate as is charged from
other industrial ventures in the State.
5. Government will ensure that legislative and administrative mechanisms for
speedy acquisition of land are devised.
6. The Ministry of Civil Aviation will liaise with the State Governments in order to
ensure provision of all these essential services and basic facilities. The State
69
Civil Aviation Secretaries will act as coordinating officers for single-point liaison
with all the State-level departments and authorities.
Civil-Military Cooperation
1. There are numerous areas of interaction between the civilian departments and
the defence authorities. Action is required as under to sort out the various issues:
a. In order to meet the expanding requirements of civil air traffic there is an
urgent need to widen the existing air corridors, provide them uni-directional air
corridors, to provide smooth flow of air traffic and thus enhance air safety.
b. We have to optimize the utilization of restricted air space, by networking of
radar and data systems, which should be acquired on the basis of mutual
compatibility.
c. Additional land is to be provided at civilian enclaves in military airports.
Revenue from aeronautical charges at these airports deserves to be shared with
the AAI, in order to compensate it for the capital investment it has made.
d. Additional slots should be made available for civilian flights at military airports.
2. In order to ensure civil-military cooperation, coordination committee at the level of
respective Ministries as well as at operational level will be energized.
Human Resource Development
1. Airport management, air safety, airport security, navigation & communication and
fire prevention are critical areas of human resource development, especially in
the context of privatization of these functions. Stress needs to be laid on
developing an overall environment of courteous behavior by all associated with
airport operations besides inculcating safety and security as a habit. It is thus of
utmost importance that private institutions are set up for training of airport
managers, air traffic controllers, navigation and communication engineers, airport
security and fire-fighting personnel and they are licensed by the Government.
Appropriate syllabi and course contents should be laid down and there should be
legal provision for licensing of these personnel.
2. Simultaneously, the training facilities in the public sector have to be upgraded
and refurbished so as to cater to the growing demands for trained personnel as
also to counter the phenomenon of technological obsolescence.
3. The National Institute of Aviation Management and Research should be
strengthened so as to act as the lead institution for human resource
development. It should develop academic linkages with ICAO, IIT, IIMs and
Universities. Chairs on Civil Aviation research will be created in the institutions of
learning.
70
4. In certain areas of human resources, there may be need for introduction of
innovative systems of deployment like the flexible complementing scheme
prevalent in the scientific community, so that the benefits of specialization are not
frittered away at the time of promotion.
5. Contingency and back-up plans will be drawn up to meet emergencies arising out
of industrial unrest among airport staff.
6. Airport management needs expertise in diverse fields and cannot survive except
by sub-contracting of specialized activities to a host of private organizations.
Legal hurdles to engagement of contract labor or contractual agencies will have
to be dismantled through legislative intervention.
Environmental Issues
1. The operation of airports has to be in full accord with the provisions relating to
prevention of air, water and noise pollution. All effluents would require to be
treated before these are allowed to leave the airports. There will be close liaison
with state governments and municipal authorities to maintain cleanliness and
remove encroachments in airports and surrounding areas, so as to obviate the
menace of bird hits. Large scale plantations and other eco-friendly activities like
construction of golf courses would be encouraged around airports, both for
environmental purposes as also to provide relaxation to transit passengers. Such
environmental issues would need close interaction with regional planning bodies.
2. The airports would be set up after the requisite environmental clearances and a
time-frame of 90 days would be prescribed by Ministry of Environment and
Forests for completing the processing of applications for such clearances.
3. Improved connectivity between airports and adjacent population centers should
form an integral part of each airport infrastructure development projects and not
be left to evolve by itself.
Regulatory Mechanisms
1. In the context of a multiplicity of operators (including private areas) and the
possibility of oligo-polistic practices, there is a need for an appellate authority
which could look into grievances with regard to fixation of tariff rates, allotment of
slots, working of air traffic controllers, allocation of space in the airports etc. To
this end, Government will create a fair and independent Airport Regulatory Board
comprising representatives of the Ministry of Civil Aviation, DGCA, airport and
71
airline operators, etc. This grievance redressal mechanism would help in speedy
and effective resolution of disputes among the various stakeholders.
2. There will also be a legislation for conversion of the DGCA into a Civil Aviation
Authority with full powers of regulation overall aspects of the aviation industry.
User and Community Participation
1. An airport is a living entity and it should co-exist with all members of the
community, especially the users of its various facilities.
2. The Airport Advisory Committees should be more broad-based and meet
frequently so as to serve as an effective means for grievance redressal to
achieve better facilitation for airport users.
3. Special representation should be given to associations of passengers and cargo
handling agents.
Legal Framework
1. All changes necessitated by this policy in the existing Acts, Rules, Regulations
and other provisions should be carried out expeditiously, so as to facilitate its
implementation.
2. Presently property tax is being levied on the properties of AAI, thus putting a
further strain on the viability of the airports. This anomaly needs to be rectified,
because airport land is owned by the Central Government and AAI is only a
trustee.
Opportunity
The downturn in the aviation industry has not discouraged real estate companies, flying
academies and large industrial houses from India eyeing private airport development.
Real estate and infrastructure firms like Super Airport Infrastructure, General Aviation
Airfield and Infrastructure, Anant Raj Industries, Adarsh Prime Projects and Aero Ports
and Infrastructure Projects Pvt Limited have submitted proposals to the government to
build airports at various remote parts of the country.
These include Karaikal in Puducherry, Paladi Ramsinghpur in Rajasthan, Saswad in
Pune and Pernem in Goa.
Apart from these, a proposal for an airport at Dabra, Gwalior to be built by Gwalior
Agriculture Company is also under the ministry’s consideration. Bengal Aerotropolis
72
Projects Limited (BAPL), which is developing the first private airport at Durgapur, has
also sent a proposal for an airport at Ludhiana.
These are apart from biggies like Reliance Airport Developers, which has submitted a
proposal for an airport in Singhrauli near Sasan in Madhya Pradesh, where it is building
a 4,000 Mw power project, apart from the cargo airport at Jhajjar in Haryana.
Anant Raj Industries for instance, apart from commercial construction, is also involved
in constructing special economic zones (SEZs), hotels and IT parks. The firm has tied
up with Anil Ambani-promoted Reliance ADAG to set up two hotels and an SEZ project
together.
Super Airport, which has conducted a feasibility study, expects to rope in non-resident
Indians for Karaikal, which has a temple as the major attraction. Rajasthan Aero Sports,
which is a flying academy, is also planning to set a private airport in PaladiRamsinghpur.
The civil aviation ministry has received five such airport proposals for captive use.
Another five proposals are for airports that will be put to public use.
LANDING AN OPPORTUNITY
Airport applications for captive use
Location
State
Company
Saswad, Pune
Maharashtra
General Aviation Airfield and
Infrastructure Pvt Limited
Sonepat
Haryana
Anant Raj Industries Ltd.
Pernem
Goa
Aero Ports and Infrastructure
Projects Pvt. Ltd.
Singhrauli
(Sasan)
Madhya
Pradesh
Reliance Airport Developers Pvt
Ltd.
Adarsh
Retreat
Palm Karnataka
Adarsh Prime Projects Pvt Ltd.
73
Bangalore
... and for public use
Karaikal
Puducherry
Super Airport Infrastructure (I)
Pvt. Ltd.
Ludhiana
Punjab
Bengal Aerotropolis Projects Ltd.
PaladiRamsinghpur
Rajasthan
Rajasthan Aero Sports Club Pvt.
Ltd.
The government had recently announced a greenfield airport policy under which all
such proposals would be routed through the steering committee set up by the ministry
of civil aviation to give quicker clearances.
“The private-use airports will be built on a much smaller scale, but the airports for public
use will be mid-sized, which will be able to handle aircraft like the A320s, if not bigger
ones,” said a civil aviation ministry official.
A recent status report on various greenfield airports by the ministry said the proposals
are at various stages of consideration.
Airports Authority of India (AAI), the country’s public sector airport developer, has
already conducted the mandatory site inspection for Karaikal and Dabra.
The Directorate General of Civil Aviation has given in-principal approval to the airport
proposed at Pernem. Other proposals like the ones for private use at PaladiRamsinghpur, Saswad (Pune), Sonepat (Haryana), and one at Adarsh Palm Retreat,
Bangalore, are still under consideration.
Apart from these private airports, there are several state government proposals for
airports at Chakan and Sindhdurg in Maharashtra, which are awaiting in-principal
approval.
Last year, the Karnataka government awarded the Simoga airport to a consortium of
Maytas Infrastructure (promoted by the promoters of IT services group Satyam) and VIE
India Project Development and Holding LLC.
74
The state government had also awarded the work for developing a greenfield airport in
Hassan to Jupiter Aviation and Logistics Ltd.
Future Trends
Considering the forecasts made by different organisation and taking a reasonably
pragmatic view, the expected traffic scenario upto the year 2010-11 has been projected
by the Foundation for Aviation and Sustainable Tourism. These projects have been
extended upto the year 2016-17 by AAI.
Projected Domestic Traffic Upto 2016-2017* :
Passengers Percent
increase
International
Passengers
(In lakhs)
Percent
increase
108.90
*7.0%
Year
Domestic
(In lakhs)
1996-97
(Actual)
120.00
1997-1998
132.60
116.52
1998-1999
146.52
124.68
1999-2000
161.97
133.41
2000-2001
175.67
141.41
2001-2002
190.60
2002-2003
206.80
158.89
2003-2004
224.38
168.42
2004-2005
243.45
178.53
2005-2006
250.50
*10.5%
*8.5%
*7.0%
75
149.90
188.35
*6.0%
*5.5%
2006-2007
278.73
198.71
2007-2008
298.24
209.64
2008-2009
319.12
221.64
2009-2010
341.46
233.33
2010-2011
365.36
246.16
2011-2012
390.93
259.70
2012-2013
414.39
2013-2014
439.25
285.78
2014-2015
465.61
299.78
2015-2016
493.54
314.47
2016-2017
523.16
329.88
*6.0%
272.43
**4.9%
(Forecast upto 2010-11 based on study by "Foundation for Aviation and Sustainable
Tourism - April 1996".)
Forecast from 2012-2017 is taken at the rate of 6% based on a report of AAI.
NB :
Projections have been made on a liberal scale for the purpose of future planning of
aircraft and airport infrastructure capacity in the country.
During the next twenty years, there is a quantum jump in the projected traffic - four
times in passenger and six times in cargo traffic. It will, therefore, be necessary to take
a host of measures so that the ground infrastructure keeps pace with the growth of
traffic.
ICAO forecasts predict worldwide growth in air traffic at 5% a year or doubling in the
volume of traffic once in 14 years. The Asia Pacific region is set for higher than average
growth. According to an AUTC study, it might account for more than 50% of the world
76
air traffic by the year 2010. It is imperative that our procedures improve and facilities
grow to match the increase in volume of traffic.
It is expected that adequate capacity will be deployed by the operators to meet the
growth cargo traffic requirements in the years to come. Capacity induction in this sector
is expected to be determined by market forces. The only aspect which needs to be
planned and developed is the infrastructural facilities at the airports to handle various
types of cargo traffic with efficiency and speed.
Modernisation and Upgradation of Airport Infrastructure
In keeping with the ICAO standards and recommended practices and the requirements
of upgrading airports to the level of international and regional hubs, detailed master
plans for the development of all selected airports will be prepared or revised by the
operating agency. Such master plans should be conceived of and executed by the best
expert advice available and taking futuristic requirements into account. All future
upgradation and modernisation will have to be normally done in accordance with the
master plans. If there is a deviation from the master plan, it will be approved by the
Board of Directors of the operating agency and the statutory Government agency
designated for the purpose.
Priority will be accorded to safety, passenger facilities, aircraft and cargo handling, while
deciding the allotment of funds among different upgradation and modernisation
schemes.
Air transport serves a time-sensitive market. The surface access to airports should,
therefore, be efficient and city planners should keep the airport-linked requirements
constantly in view while designing surface transport development plans. There is a
special need to emphasise the aspect of rail links with airports, in view of its near
absence in India as contrasted with other countries.
The helicopter provides a direct and rapid means of transport over short-haul routes and
is, therefore, particularly attractive for businessmen. There is also a great potential for
helicopter operations in off-shore oil exploration and production, movement of food
grains and essential commodities in remote, hilly and inaccessible areas, traffic
management in metropolitan cities and so on. A planned programme for building of
heliports will be taken up to give a boost to the helicopter industry.
77
Financing of Airport Infrastructure
It has to be appreciated at the outset that financing of airport infrastructure has some
inherent problems. These projects have a large element of sunk cost, a very long
gestation period and highly uncertain returns on investment based on several
assumptions of traffic growth that may fail to materialize.
The current pattern of financing is predominantly based on internally generated
resources of the AAI. Funding through external assistance, external commercial
borrowings, loans and equity has been negligible. The allocation of budgetary grants is
limited to certain airports in remote and inaccessible areas. Considering the
astronomical sums which seem to be required for modernization and upgradation of
existing airports and for the new airports at Mumbai (Rs.10, 000 crores), Bangalore
(Rs.1,600 crores) etc., there has to be a clear privatisation of projects so as to utilize
state resources in the most optimal manner. Further, the financing strategies will have
to be looked at from a thoroughly novel standpoint.
Taking the internal resources first, the following steps will be initiated:





Optimization of revenue from aeronautical charges, through negotiation with
IATA and keeping Government approvals in view.
A revolutionary thrust towards raising of revenue from non-aeronautical
commercial sources.
Rationalisation and optimisation of various charges like passenger service fee,
user development charges, aerobridge charges, etc. and imposition of new levies
like security charges, fuel throughput charges etc.
Massive economy in expenditure by manpower optimization, cost reduction,
elimination of duplication, increased productivity, contracting out of services, etc.
Greater resource to additional sources like external assistance, public bonds,
external commercial borrowings, public issues, loans from Government/financial
institutions etc.
Currently, the revenue from the taxes imposed in the aviation sector in the shape of
IATT and FTT is credited to the Consolidated Fund of India, with only 10% of FTT being
given to the AAI. Even this 10% IS NOW SOUGHT TO BE TAKEN BACK. Taking into
account the vast sums required for infrastructural development, there is a strong case
for conversion of these taxes into a common Civil Aviation Cess, the proceeds of which
should be credited to a National Civil Aviation Fund to be operated by the Ministry of
Civil Aviation.
78
There has to be a general appreciation about the needs of the airport infrastructure
sector and the plan allocations to the AAI need a hefty increase.
There is, at present, some money flowing to the AAI for construction of airports in
remote and inaccessible areas. This money, which was available, till recently as grant,
is now sought to be converted into a loan. It should continue to be given as grant-in-aid.
A general policy decision needs to be taken that the AAI will only invest in projects with
demonstrated economic viability and positive rate of return . Wherever Government
compels AAI to invest in non-viable projects for the fulfillment of social objectives, the
initial capital cost of the project and the recurring annual loss sustained by the AAI on
this account will be reimbursed.
There will also be need for commercialization of marginal or loss-making airports by
transferring them to private companies, State Governments, urban local bodies etc. for
operation and management under negotiated terms and conditions. Some of the
guidelines may need to be modified in order to make the operations cost-effective.
Facilities could be allowed to be commercially exploited even outside operational hours,
meeting minimum security requirements.
In the final analysis, looking at the quantum of investment required, the answer to all the
problems lies in the infusion of private (including foreign), investment in this sector. This
needs to be encouraged by adopting a flexible and positive attitude towards such
proposed ventures. The possibility of international aid and cooperation for building of
new airports or for modernization and upgradation of existing ones will be seriously
explored.
The truth of the matter is that public funds for development of airports are getting more
and more scarce and private sector involvement has, therefore, got to grow. There is a
definite worldwide movement from monopoly state ownership of airports to
corporatization, in the first phase, with the final aim of privatization of ownership and
management. India has to be a apart of this global transition.
79
Ports
Size of the Initiatives
With 12 major ports and 187 minor ports, 7,517 km long Indian coastline plays a
pivotal role in the maritime transport helping in the international trade. Traffic
handled at major ports during April 2008 to January 2009 is recorded to be 436686
units. The ports in India offer tremendous scope for international maritime
transport both for passenger and cargo handling.
Target
The Government of India targets to increasing the cargo handling capacity of
major ports by two folds to reach 1.5 billion metric tonnes (MT) by the year 2012.
This will be achieved at an investment of around USD 25 billion through publicprivate partnerships. A Crisil research on Indian ports and maritime transport
estimates that ports will grow by 160 per cent over the 2011–12 period. Cargo
handling at the major ports is projected to grow at 7.7% per annum (CAGR) till
2011-12 and the cargo traffic is estimated to reach 877 million tonnes by 2011-12,
whereas the containerized cargo is expected to grow at 15.5% (CAGR) over a
period of 7 years. The New Foreign Trade Policy envisages doubling of India’s
share in global exports in next five years to Rs.675000 crores (USD 150 billion). A
large portion of the foreign trade to be through the maritime route: 95% by volume
and 70% by value
Approach
Indian Government plans to bring a new orientation to encourage the private
sector to come forward in developing port activities and operations. The goal is
planned to be achieved through numerous initiatives and policies. Many
international port operators are invited to submit competitive bid for BOT terminals
on a revenue share basis, which has attracted foreign players, such as Dubai
Ports International (Cochin and Vishakhapatnam), Maersk (JNPT, Mumbai) and P
80
& O Ports, (JNPT, Mumbai and Chennai), and PSA Singapore (Tuticorin). The
National Maritime Development Plan (NMDP) has been set up by the Indian
government to improve facilities at all the 12 major ports in India. At an investment
of about US$ 12.4 billion, by November 2009, many projects are expected to be
completed. This includes ambitious projects, such as the first phase of the
international container transshipment terminal (ICTT) at Vallarpadam. Kochi port is
being developed as a transshipment hub for India.
Policy
The government has established firm policies, such as 100% FDI under the
automatic route is permitted for port development projects, 100% income tax
exemption for a period of 10 years. A comprehensive National Maritime Policy is
being formulated that will lay down the vision and strategy for development of the
port sector in India till the year 2025. The ceiling for tariffs charged by Major
ports/port operators will be regulated by Tariff Authority for Major Ports (TAMP).
Initiatives
Government Initiatives
The Government of India has undertaken the the expansion and modernization of
ports on a priority basis as part of its initiatives in the up gradation of India’s
infrastructure achieving the targeted growth rate. The government has initiated
numerous plans, which includes;

Formulation of a National Maritime Development Policy to facilitate private
investment, improve service quality and promote competitiveness, and US$
11.33 billion has been allocated for the same.

An investment of more than US$ 9.07 billion will be made by 2015 for 111
Shipping Sector Projects.

In 2008–09, the Ministry of Shipping is going to launch 10 major expansion
projects at an estimated investment of US$ 1.06 billion, 60% of which is
allocated for the Chennai mega container terminal.
81

Permission for 100 per cent foreign direct investment (FDI) for port
development projects under the automatic route.

100 per cent income tax exemption is provided for a period of 10 years for
port developmental projects.

Opened up of all the areas of port operation for private sector participation.

Increase in the rail connectivity of ports with the domestic market.

The experience of operating berths through PPPs at some of the major
ports in India has been quite successful. It has, therefore, been decided to
expand the programme and allocate new berths to be constructed through
PPPs. A model concession agreement is being formulated for this purpose.

The Government has also decided to empower and enable the 12 major
ports to attain world-class standards. To this end, each port is preparing a
perspective plan for 20 years and an action plan for seven years.

A high level committee has finalized the plan for improving rail-road
connectivity of major ports. The plan is to be implemented within a period of
three years. Further, changes in customs procedures are being carried out
with a view to reducing the dwell time and transaction costs. The
government has also delegated powers to the respective Port Trusts for
facilitating speedier decision-making and implementation. At the same time,
several measures to simplify and streamline procedure related to security
and customs are been initiated.

The National Maritime Development Programme is expected to bring a total
investment of over Rs.50,000 crore in the port infrastructure. Such
improvement in the scale and quality of Indian port infrastructure will
significantly improve India’s competitive advantage in an increasingly
globalized world.
Private Participation

A leading private shipyard, ABG Shipyard has decided to set up a
greenfield shipyard in south Gujarat with an investment of USD 255.58
million. The new shipyard will be set up over 300 acres.

Gujarat-based Adani group is setting up a ship building and repair yard at
82
about USD 212.98 million.

Larsen and Toubro Ltd has chosen Kattupalli port, in Thiruvallur district,
near Chennai, as the location to build the over USD 425.97 million megashipbuilding yard.

Major shipping companies, such as Shipping Corporation of India (SCI),
Great Eastern (GE) and Essar have placed orders worth USD 3.3 billion for
58 ships in Korea and China.

SCI has placed orders for 32 ships worth USD 1.87 billion and will be
further welcoming bids for its USD 3 billion order of 40 ships. GE has placed
an order worth US$ 780 million for 14 ships, while Essar has ordered 12
ships worth US$ 630 million. The ships are to be delivered during 2009–12.
Structure

Government of India dominated maritime activity in the past. Policy direction
is now oriented to encouraging the private sector to take the lead in port
development activities and operations

Many Major ports now operate largely as landlord ports - International port
operators have been invited to submit competitive bid for BOT terminals on
a
revenue
share
basis

Significant investment on BOT basis by foreign players including Maersk
(JNPT, Mumbai) and P & O Ports (JNPT, Mumbai and Chennai), Dubai
Ports International (Cochin and Vishakhapatnam) and PSA Singapore
(Tuticorin)

Minor ports are already being developed by domestic and international
private investors: Pipavav Port by Maersk and Mundra Port by Adani Group
(with a terminal operated by P & O)
Policy
83

100% FDI under the automatic route is permitted for port development
projects

100% income tax exemption is available for a period of 10 years

Tariff Authority for Major Ports (TAMP) regulates the ceiling for tariffs
charged by Major ports/port operators (not applicable to minor ports)

A comprehensive National Maritime Policy is being formulated to lay down
the vision and strategy for development of the sector till 2025.
Cargo handled by Major Ports in India
Major Port
Trade
(04-05, MMT)
Container
Traffic
(04-05)(million TEU*)
Chennai
44
0.62
Cochin
14
0.19
Ennore
9.5
—
Haldia
36
0.13
JNPT
33
2.37
Kandla
42
0.18
Kolkata Dock System
10
0.16
Mormagao
31
0.01
84
Mumbai
35
0.22
New Mangalore
34
0.01
Paradip
30
—
Tuticorin
16
0.31
Vizag
50
0.05
Source:
Indian
* Twenty foot equivalent unit
Ports
Association
Opportunity
The
JNPT
port
over 3 million TEU by 2006
where
The
port
sector
by major global port operators
has
the
seen
capacity
significant
will
be
investment
Outlook

Cargo handling at the major ports is projected to grow at 7.7% p.a. (CAGR)
till 2011-12
o Traffic estimated to reach 877 million tonnes by 2011-12
o Containerized cargo is expected to grow at 15.5% (CAGR) over the
next
7
years

The New Foreign Trade Policy envisages doubling of India’s share in global
exports in next five years to $150 billion (Rs.675000 crores)
o A large portion of the foreign trade to be through the maritime route:
95% by volume and 70% by value
85
Potential

Growth in merchandise exports projected at over 13% p.a. underlines the
need
for
large
investments
in
port
infrastructure

Investment need of $13.5 billion (Rs.60,750 crores) in the major ports under
National Maritime Development Program (NMDP) to boost infrastructure at
these ports in the next 7 years
o Under NMDP, 276 projects have been identified for the development
of Major ports
o Public–Private partnership is seen by the Government as the key to
improve Major and Minor ports
o * 64% of the proposed investment in major ports envisaged from
private
players

The plan proposes an additional port handling capacity of 530 MMTA in
Major Ports through:
o Projects related to port development (construction of jetties, berths
etc.)
o Procurement, replacement and/or up-gradation of port equipment
o Deepening of channels to improve draft
o Projects
related
to
port
connectivity

Investment need of $4.5 billion (Rs.20,250 crores) for improving minor ports
Ports are integral to facilitating international trade and act as fulcrum of economic
activity and overall growth.
Opportunity.
India's coastline of 7,517 kms, spread over 13 States/Union territories, is studded with
12 major ports and 200 (as per latest information from Maritime States) non-major ports.
This would not suffice the anticipated growth, considering the emergence of India, in the
region and the world over, as a hub of business, trade and commerce.
Further, the Government of India has developed a National Maritime Development
programme with a vision to make India a leading player by the year 2025.
Puducherry, (formerly known as Pondicherry), ranked as India's best small state, fast
86
emerging as an industrial and technology destination, is an ideal location for developing
a
Deep
water
Port.
Puducherry currently has a small shallow water port used for the import & export of
general cargo. Ships anchor offshore and cargo is transferred to a small shallow draft
quay by means of barges.
Deep water Port at Puducherry
Pondicherry Port Limited has envisaged a world class Deep water port to augment the
economic demand and meet the opportunities available for such an initiative.
The Government of Puducherry has signed a 30 year Concession Agreement
(extendable for a further 20 years) with Pondicherry Port Limited to develop the existing
port into a deep water port. Upon completion of the development, the port will handle
containers, cars, general cargo, edible oil and passengers
Salient Features
Environment
Container terminal equipment
The Environmental Impact Assessment

Report and Environmental Management
Plan for the Port is being prepared by IIT

Madras. Clearances are expected shortly.
No significant environmental issues have

been found that would restrict the

development & operation of the port.

10 quay side post panamax ship to shore
container cranes.
3 quay side feeder ship to shore
container cranes.
52 rubber tyred gantries 1 over 5.
78 tractor trailer units.
11 empty container handlers.
2 rail mounted gantries

Beach Nourishment
Sand bypassing system will be established
Quay Level
and the beaches of Puducherry shall be
+4.5 m CD
nourished.
Depth at Quay
Design ship size
Container vessels (7000 TEU) with a draft -15.5 m CD
of 14.2 mts and length of 300 mts
Land reclamation
Dredge channel
Raising and filling of sea 1200m long and
87
Length - 2.5 Kms | Depth - 16.4 mts | Width
- 210 mts Volume of capital dredging - 16.3
million cubic meters Dredged material will
be used for land reclamation and beach
formation.
200m to sea from present shoreline and
area on south and north in the basin &
treatment of soft marine clays.
Modal split of traffic
Trans-shipment 20%, Rail 10%, Road
70% for containers.General cargo
Northern & southern breakwaters totaling 3 terminal equipment Ships’ gear will be
Kms in length, oriented to avoid wave utilized.
penetration and sediment intake & designed
Quay structure
for 100 year return period storm.
Breakwaters
Open piled or gravity structures.
Liquid cargo terminal
Utilities
Ships pumps will be used for unloading.
Government is committed to provide
adequate power and water. State-of-the2 Tugs, pilot and survey boats, navigation art waste water and solid waste disposal
buoys and lights, port VTS system.
facilities will be provided.
Port infrastructure equipment
Buildings
Connectivity
Port
administration
building,
accommodation block & gate house plus
individual administration blocks and offices
in each terminal.
Government is committed to provide rail
connectivity
&
dedicated
road
connectivity from port to national highway
and port to the proposed SEZ.
Port Development
The Port facilities will be commissioned by 2012. The following will be the port facilities
upon completion of development by 2017.





Container terminal - 1670 m long with annual throughput capacity of 2.25 million TEU
General cargo / ro-ro berth - 300 m long with annual throughput capacity of 180000
cars
Edible oil berth - One liquid cargo terminal handling 200,000 tonnes per annum
Cruise terminal - 300 m long with annual throughput capacity of 23350 passengers
Sand bypassing and beach nourishment - Bypass the sand from south of the port to
the beach of Puducherry Gangavaram Port
88
Upholding the true spirit of Public Private Partnership the State Government of Andhra
Pradesh, India, with an intention to develop the Port on the Public Private Partnership
model, conducted a global bid process and selected the consortium led by
Mr.D.V.S.Raju, to develop and operate the port.
Gangavaram Port has the unique distinction of being one of the few Greenfield projects
in India which has been implemented on schedule. Construction at the site commenced
in December 2005 and the Port commenced Trial commercial operations at the port in
August 2008.
Gangavaram Port has been developed as all weather, multipurpose, deepest port in
India with a depth up to 21 meters capable of handling Super Cape size vessels of up to
200,000 DWT. Gangavaram Port with its deep draft berths will act as the gateway port
to existing and Greenfield projects planned in the hinterland. It ability to handle larger
vessels efficiently will result in substantial savings to trade and port users. It will be able
to provide efficient cargo handling services for a variety of bulk cargo groups including
Coal, Iron Ore, Fertilizer, Limestone, Food Grains, Steel products, Petrochemicals etc.
The Port, its related facilities and material handling system have been planned to meet
the highest standards in terms of pollution prevention and safety.
The Gangavaram Port, located on East Coast of India, is the most modern, all weather,
deepwater, multipurpose port offering significant cost savings to Importers and
Exporters in the hinterland.
Key advantages of the location include:
Deep waters very close to the shore
National/Regional road and rail connectivity run very close to the site
Around 2800 acres (1133 ha) of uninhibited back up area
Vizag Steel Plant with cargo handling requirement of 7 MTPA located adjacent
port site
Proximity to major industrial and mineral belts of Eastern and Central India
The Port offer's the following advantages with potential cost savings to Port
Users:
89
to
Reduced per ton ocean-freight owing to larger parcel sizes at deep-draft berths
Significantly reduced vessel waiting time owing to highly efficient port
operations
Faster turn-around of vessels owing to modern high-speed cargo
handling equipment
Cost-efficient logistic solution owing to high-speed cargo evacuation and
to national/regional road/rail network
proximity
Environment-friendly material handling system
Competitive tariffs
Keeping in view the future requirements of industry, Gangavaram Port Master Plan has
been designed with facilities to handle up to 300,000 DWT vessels, flexibility for phased
development and room for expansion for a plan period of 50 years.
The Salient Features of the development plan include:
Master Plan has provision for 29 berths with a capacity of 200 MTPA
Plan for entire spectrum of cargos, with berths for handling dry bulk, other dry
break bulk and container cargo with dedicated cargo centric zones
Breakwaters to provide complete protection to berths from waves and swell
to facilitate all weather, round the year port operations
Navigation channel and harbor area providing adequate maneuvering room
for ships
Total land area of 2800 acres for port facilities development
Extensive ancillary facilities and state-of-the-art utilities/services
Adequate backup area for developing stack yards, covered storage
sheds, tankages, container freight station, etc.
Flexibility to quickly ramp up cargo handling facilities as per demand
90
bulk,
Rail and road access up to the stack yards, storage sheds and container yard
Provision to provide value added services like Coal Blending
Provision for Ship building and repair facilities
Marine Oil Terminal consisting of Single Point Mooring system for handling
VLCCs, sub-sea pipeline and Tank farm
Marine Facilities
Berthing Facilities (5 Berths: Iron Ore 1; Coal 1; Multipurpose 3)
Depth in harbor 19.5m below CD
Mechanized Coal and Iron Ore discharge system for vessel size upto 200,000 DWT
Mechanized Wagon Loading and Wagon Tippling System
New generation Mobile Harbor Cranes for other bulk and break bulk cargoes
Coal stackyard and Iron ore stackyard with storage capacity of approximately
1 MMT each
Covered transit storage for bulk and break cargoes
Extensive ancillary facilities and state-of-the-art utilities / services
Flexibility for future expansion of cargo handling facilities as per demand
Round the clock Cargo handling and Marine operations
Environmental friendly operation
Berths
Size
Alongside Depth
1
Coal Cargo
320 x 25 m
19.50 m below CD
2
Iron Ore Cargo
340 x 25 m
19.50 m below CD
3
Other Dry Cargo
275 x 31 m
15.50 m below CD
4
Multipurpose Cargo
281 x 31 m
15.50 m below CD
91
5
General Cargo
242 x 28 m
14.00 m below CD
Berth Configuration in Phase 1
Cargo Handling Facilities
New generation mechanized cargo handling system has being installed at Gangavaram
Port for faster and efficient handling and evacuation of cargo with minimum handling
loss. Cargo handling equipment installed in Phase-I development include, Ship Loader
for bulk exports, Ship Unloaders for bulk imports, Mobile Harbour Cranes for bulk/break
bulk cargo, associated conveyer system for transportation to and from stackyard,
Stackers & Reclaimers for stackyard operations and Wagon loader & Wagon tipplers for
handling Railway rakes.
Railway Connectivity
Railway connectivity has being laid connecting the port to the main broad gauge
national network of "Chennai-Visakhapatnam-Howrah" rail corridor. The Port has its
own independent "Railway Siding" with main salient features as follows:
R&D yard with "Six interchangeable lanes" for receipt and dispatch of rakes
Distance from port R&D yard rail siding will be approximately 2.5 kms
Coal siding for placing two full rakes for mechanized wagon loading
Two in-motion weighbridges for weighment of rakes
Two locomotives for shutting of rakes within the railway siding
Road Connectivity
Road connectivity to the port has been provided by a 4 lane expressway of 3.8 kms
connecting the port with the National Highway No.5 (Chennai - Kolkata)
92
Krishnapatnam port
Considering India’s growing maritime trade and its percentage share in the world
market, and unprecedented growth in bulk commodities and containerized trade in the
international markets, Krishnapatnam Port has been envisioned futuristically as a
modern, deep water & high productivity port with the view to sustain the demands of
growing international trade scenario.
One of the India’s largest and fastest growing seaports, Krishnapatnam Port has
emerged as a world-class port with outstanding services and facilities. It is fast
becoming a port of choice for all international cargo originating from and destined to the
Southern and Central India.
Krishnapatnam Port Company has won the mandate from the Govt. of Andhra
Pradesh to develop the existing minor port into a modern, deep water & high
Productivity port, on BOST basis for 50 years.
The port has a further potential to double up the number of berths upto 42 Nos. and to
augment the cargo handling capacity as required. The road connectivity can also be
increased to 6 lanes for easy access to the port.
For efficient operations Enterprise Port Management System connecting all port
functions and sharing data with port users and minimizing paper work is being planned.
High end software for weather forecasting and tidal predictions for safety of ship
movements is being provided.
Integrated real time control of cargo handling and management information system will
also be available.
On completion of the first phase, the port has four berths in all, two to handle Coal and
one each for Iron Ore and General Cargo. The port has a deep draft of 15.0 Meters
along side.
The berths and stockyards are equipped with state-of-the-art ship unloaders and ship
loaders, which can unload 3,000 Tonnes an hour and load 5,000 Tonnes an
hour. There are also two mobile harbour cranes, stackers, reclaimers and conveyors. It
has a capacity to handle upto 40,000 to 60,000 Tonnes per day.
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Repair facilities, gate complex with dedicated lanes and gates for container traffic and
other cargoes and the latest handling equipment are among the major facilities planned
at the port.
The port has a backup area of more than 6500 acres of land to develop
commensurate open bulk cargo storage yards, covered storage sheds, tank forms and
container parking yards.
The port is being equipped to handle
Containers.
Bulk cargo like Coal, Iron Ore, Fertilizer etc.
Break bulk Cargo like granite etc.
Petrochemicals.
Project Cargos / ODC.
Krishnapatnam Port is connected to the National Highway-5 through a state
highway. The authorities have also constructed a dedicated 25 km road to NH-5 and a
railway line connecting the Chennai-Howrah broad gauge line near Venkatachalam. Six
helipads have also been built.
Initially a single line railway via. Venkatachalam and a four lane road will serve the port
with provisions to augment to double railway line and 2 additional lanes of road in
future. A New Broad Gauge Rail Line between the port and the Ballari-Hospet Iron Ore
Mines has been sanctioned under a Special Purpose Company. A pipeline corridor has
also been proposed for liquid bulk transport. Apart from a dedicated belt conveyer
corridor for transport of coal.
The port has easy access to two major airports at Chennai and Tirupati.
The location of the port offers logistical advantage for trade in domestic as well as AsiaPacific
and
far-eastern
regions.
Phase one allows the handling of:
Iron Ore Handling
14 Million MT Per Year
Coal Handling
7 Million MT Per Year
General Cargo
2 Million MT Per Year
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Maximum Ship Size 1.05,000 DWT(depth -15.00m C.D)
The port has well designed, closed as well as open storage area for efficient and safe
handling of Dry Cargo Commodities.
The closed warehouses will stretch to 50,000 sq.mtrs. by December, 2008 and another
50,000 sq. mtrs. by mid of 2009 for commodities like Wheat, Rice, FRM etc., with well
demarcated transit storage space for commodities like Granite, Steel products etc.,
The port also provides 23,00,000 sq. meters of open storage area for Dry Bulk Cargo,
as well as
3 x 120 MT computerized Weigh bridges. The port shall also provide 4
more
weigh
bridges
in
near
future.
The port has ample transit storage and reefer cargo space. The project includes a
dedicated port users and customs complex with all modern infrastructure. 50 acres area
has been dedicated to container stack yard just behind the berth; mechanical vessel
loading and unloading systems for coal and iron ore; conveyors for bulk cargo
movements; wagon tipplers; dedicated storage yards for bulk cargoes; special
dedicated area for hazardous and ODC cargos.
Mundra Port
Mundra Port and Special Economic Zone Limited (MPSEZ), India’s largest
private port and special economic zone, was incorporated as Gujarat Adani
Port Limited (GAPL) in 1998 to develop a private port at Mundra, on the west
coast of India. The company commenced commercial operations in October
2001. Mundra Special Economic Zone Limited (MSEZ) was incorporated in
November 2003, to set up an SEZ at Mundra. MSEZ was merged with GAPL in
April 2006. The company was renamed as Mundra Port and Special Economic
Zone Limited, to reflect the nature of business.
Advantages: Locational
Mundra Port is strategically located for global trade (Latitude: 22º 43’ 88’ N; Longitude:
69º 42’ 34’ E). Located on the northern coast of the Gulf of Kutch on the west coast of
India, Mundra Port provides a convenient international trade gateway to Europe, Africa,
America and the Middle East.. Mundra has a deep draft (12.5 Meters – 17 Meters) which
enables large vessels like panamax and super post panamax carriers to dock alongside
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its berth. It also has a large land area available for development, part of which is now
the Mundra SEZ which proposes to attract port-led industrial development. Mundra Port
is situated in Gujarat, one of India’s most industrialized, investor friendly and
commercially successful states.
Facilities: Dry Cargo Handling & Storage
The Mundra Port has state-of-the-art facilities for the handling and warehousing of dry cargo.
One 1,000 TPH ship loader
export cargo
2 mobile hoppers for direct discharge into the import conveyors
6 mobile hoppers for direct discharge into dumpers
Wheat cleaning and rice sorting systems
Facilities for Storage
26,000 sq. m of open storage alongside rail siding
Wheat cleaning facility with a capacity of 1,200 MT / day
Rice sorting and grading facilities with a capacity of 500 MT / day
8 weighbridges for dry cargo
2 in-motion rail weighbridges
Coal Terminal at Wandh
Two Mega Thermal Power Plants with total capacity in excess of 8600 MW are
being constructed in Mundra Region. The plants require very high volumes of
imported coal, up to 30 Million Metric Tonnes Per Annum (MMTPA). In addition
other dry volumes such as Iron Ore etc are also to be imported for the
industries planned in the vicinity of power plants.
Proposed Terminal site is about 10 Nautical Miles west of the existing
Terminals of Mundra Port.
Two deep water offshore berths in Phase I Development and one additional
berth will be added in Phase II
Two sets of Stack Yards for Coal, for Iron Ore and for miscellaneous dry bulk.
South Basin Development
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The basin on the southern side of Navinal Island and adjacent to existing MPT-I
will be developed in phased manner. Since Phase II development projects shall
be continuing over a longer period for sake of convenience this phase is further
split into two sub-phases i.e. Phase-IIA and Phase-IIB.
It is envisaged that Phase – II A development will be completed by year 2010,
which shall include construction of Break-waters, Dredging, Reclamation, Basin
container terminal –I; two RO-RO cum service berths, one Port craft berth and
back up facilities for these Terminals, by way of container Yard, Rail Sidings,
Open Paved Area and requisite buildings, Utilities etc.
Other Developments
Pure Car carrier/ Pure Car Truck carrier (PCC / PCTC) berth with appropriate
car parking space.
Addition of two more crossing stations along the 64 KM privately developed
railway line to increase the rakes handling capacity from 32 to 40 rakes a day.
Double lanning of the 64 km railway line in phased manner.
Construction of dedicated LNG berth.
The existing road network is also being upgraded. The existing 10 km long
external two-lane road connecting Mundra road network to Port is being
converted to a 4 lane road of which 1.6 km length is already completed. The
remaining 8.4 km is under advance stage of construction. To ease the everincreasing flow and streamlining of traffic, the company has decided in principle
to construct a fly-over bridging the Mundra Port Railway Crossing.
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TELECOM INFRASTRUCTURE
THE WRITE-UP INCLUDES FOLLOWING TOPICS:
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India is among the fastest growing mobile markets in the world:
Despite the growth, mobile penetration remains moderate
Growth expected to be led by B and C Class circles:
Addition of low usage subscribers and competitive pressures lead to fall in
ARPUs
Conservation of capital - the need of the industry
Competition set to intensify further with market liberalization
Passive infrastructure sharing (tower-sharing) gaining significance
Industry Structure
Economics of the Model—Tower Infrastructure Companies
Industry on the path of consolidation
CASE 1 : Bharti Airtel
CASE 2: Pitroda panel asks BSNL to scrap 93-million GSM line tender:
CASE 3: TATA DOCOMO
The telecom industry is one of the prime contributors to India's GDP. The once
monopolistic market is today, highly competitive. This has necessitated the growth of
India telecom infrastructure. From the time of the British Rule, the Telecom Industry
was under the strict supervision of the government. The trend continued even after
independence until the late 1990s when the following initiatives were taken up by the
government:
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The telecom sector was opened up for private investment as a part of
liberalization-privatization-globalization policies.
On 1st October, 2000 the Government corporatized its operations wing under the
name of Bharat Sanchar Nigam Limited (BSNL).
The criteria for private companies for entering the telecom sector were relaxed.
What followed was a rapid expansion of the market for mobile phones and allied
innovations, hence bringing about a new era in the telecom sector in India. India
Telecom infrastructure – present status the government of India believes that for rapid
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economic development backed by social welfare, the telecom infrastructure in India
needs to be uplifted.
By the beginning of 2007, the telecom network in India consisted of 48 million fixed-line
connections. Nowadays, a vast majority of the population has access to telephone
services. The highly competitive environment has ensured low pricing of goods and
services that caters to the weaker sections of the society.
Moreover, the enhancement of India telecom infrastructure has also widened the scope
of the telecom sector to other allied ventures like mobile services, Internet, cable TV
services, E-Commerce, and other forms of Information Technology (IT).
In terms of long distance calls, India telecom infrastructure has made remarkable
progress.
1.0 India is among the fastest growing mobile markets in the world: India, the
second largest mobile market in the world, is also among the fastest growing mobile
markets globally. The total number of mobile subscribers in India (i.e., the subscriber
base) has increased from 6.4 million in March 2002 to around 430 million in December
2009, at a compounded annual growth rate (CAGR) of 81%, aided by a significant
increase in network coverage and a continual decline in tariffs and handset prices.
India, a relatively late entrant into mobile services, has benefited from a significant
decline in mobile network costs during the last three to four years. As compared with a
capital cost of US$50-90/subscriber to provide mobile service, it costs as much as
US$200-350/subscriber to provide fixed-line services. This and the added benefit of
mobility have led to stagnation in the total fixed line subscriber base, which along with
the significant growth in the mobile base has translated into India having one of the
highest ratios globally of mobile subscribers to total telecom subscribers.
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2.0 Despite the growth, mobile penetration remains moderate: As on end
September 2008, India had a mobile penetration of around 27%, which is relatively
lower as compared to other countries as depicted in Chart 2. Given the moderate
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penetration levels at present, mobile growth in India is expected to continue in the short
to medium term albeit at a lower level because of the larger base effect.
101
3.0 Growth expected to be led by B and C Class circles: The growth in the domestic
telecom industry has largely been concentrated in the Metros and Class A circles in the
past decade, with coverage reaching around 90% and 35%, respectively. However,
coverage in the Class B and Class C cities is still low at 15-25%. Moreover, within these
circles growth has largely been concentrated in the urban areas while penetration in the
rural areas remains lower. Thus future growth is likely to come largely from Class B and
C circles and rural areas. Keeping this in view, larger players like Bharti Airtel Limited,
Reliance Communications Limited, and Bharat Sanchar Nigam Limited (BSNL) are
largely focusing on increasing their geographical coverage in Class B and C circles.
4.0 Addition of low usage subscribers and competitive pressures lead to fall in
ARPUs: With growth coming from the lower economic strata and on account of strong
competition in the mobile industry, average revenues per user (ARPUs) have moved
south over the years. The movements in the ARPUs and minutes of usage (MoUs) for
global system for mobile communications (GSM) and code division multiple access
(CDMA) operators are presented in Charts 5 and 6.
5.0 Conservation of capital - the need of the industry: In the past, with costs being
amortised over a larger base and steps being taken to rationalise costs, most telecom
operators were able to improve their earnings before interest, taxes, depreciation &
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amortisation (EBITDA) margins. However, in the current market conditions, the margins
and return indicators may come under pressure as ARPUs continue to fall. The chart
alongside broadly illustrates the impact of declining ARPUs on the internal rate of return
(IRR) at different EBITDA margins. Thus, for new operators especially whose margins
are low because of the high set-up costs, operations can be unviable at the current level
of incremental ARPUs.
6.0 Competition set to intensify further with market liberalisation: The Indian
mobile sector is an intensely competitive industry, featuring 10 mobile operators, of
which four, namely Bharti Airtel Limited, Reliance Communications Limited, Vodafone
Essar Limited and BSNL, together account for almost three-fourths of the entire mobile
market share. This is also partly on account of the fact that these four operators have
their presence in a larger number of circles as compared with other players.
With licences being granted to some of the existing operators for new circles and also to
new entrants, competition is expected to intensify further.
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Sl. No.
Name of Company Total Sub Figures % Market Share
1
Bharti Airtel
121714243
30.86%
2
Vodafone Essar
94143364
23.87%
3
IDEA
59887404
15.19%
4
BSNL
59454630
15.08%
5
Aircel
33035907
8.38%
6
Reliance Telecom
15757690
4.00%
8
MTNL
4610327
1.17%
9
Loop Mobile
2701583
0.69%
10
Uninor
2538406
0.64%
11
STel
506179
0.13%
All India
394349733
100.00%
7.0 Passive infrastructure sharing (tower-sharing) gaining signficance: Passive
infrastructure being one of the most important components of a mobile network, the
same has been a critical area of operations for telecom companies in the past.
However, with increasing competition posing an urgent need for telecom companies to
expand their coverage and sharpen their focus on core operations so that they can
sustain and improve their market position, passive infrastructure has assumed the
status of an independent industry during the past few years.
Overall, sharing of infrastructure, passive as well as active, is beneficial for all parties
involved as it brings along significant operational as well financial savings, thus enabling
the companies to minimize duplication of efforts and costs and improve profitability.
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7.1 Functioning of a Tower Infrastructure Company: A tower infrastructure company
provides passive infrastructure on a sharing basis to telecom operators.
The role of a tower infrastructure company may be summarized as follows:
- Site planning, keeping in view the network rollout plans of prospective customers.
- Site acquisition, including entering into long-term agreements with land owners.
- Obtaining of necessary regulatory approvals.
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- Erection and commissioning of tower and allied equipment.
- Provision of support services such as back-up power, air-conditioning and security.
- Provision of turnkey solutions to telecom companies such as sourcing of equipment,
testing and maintenance.
7.1.1 Types of Towers Telecom towers are broadly classified on the basis of their
placement as Ground-based and Roof-top.
(i) Ground-Based Tower: Erected on the ground, ground-based towers (GBTs) are
taller (typically 200 to 400 feet) and are mostly used in rural and semi-urban areas
because of the easy availability of real-estate space there. GBTs involve a capital
expenditure in the range of Rs. 2.4 to 2.8 million, depending on the height of the tower.
(ii) Roof-Top Tower (RTT): Roof-top towers (RTTs), which are generally placed on the
roofs of high-rise buildings, are shorter (than GBTs) and more common in urban and
highly populated areas, where there is paucity of real-estate space. Typically, these
involve a capital expenditure of Rs. 1.5 to 2 million.
It is the height of a telecom tower that determines the number of antennas that can be
accommodated, which in turn determines the capacity of the towers, apart from factors
such as location and geographical conditions (wind speeds, type of terrain, etc.). Hence,
typically, while GBTs can accommodate up to six tenants, RTTs can accommodate two
to three tenants.
7.1.2 Master Service Agreements A tower infrastructure company normally enters
into separate Master Service Agreements (MSAs) with its occupants/tenants. MSAs are
signed between tower infrastructure companies and telecom operators (tenants), and
clearly spell out the overall tower requirements of the tenants, the pricing terms, and
other binding terms and conditions between the two parties.
8.0 Industry Structure: At present, there are broadly two kinds of operators in the
domestic tower infrastructure industry:
spun-off tower divisions of the
telecom-operator companies; and
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8.1 Tower Infrastructure Subsidiaries: In India, Bharti Airtel Limited, Reliance
Communications Limited, and Tata Teleservices Limited have hived off their tower
assets into separate tower infrastructure subsidiaries, namely Bharti Infratel Limited,
Reliance Infratel Limited, and Wireless TT Infoservices Limited, respectively. Also Bharti
Infratel Limited together with Vodafone Essar Limited and Idea Cellular Limited in a
joint-venture agreement has created India’s largest tower infrastructure company –
Indus Towers Limited, which has an estimated portfolio of around 85,000 towers.
8.2 Independent Tower Infrastructure Companies: Over the past few years, a
number of ITICs have ventured into the domestic telecom tower industry. These include,
among others, GTL Infrastructure Limited, Quippo Telecom Infrastructure Limited1,
Essar Telecom Infrastructure Limited, Xcel Telecom Private Limited, Tower Vision India
Private Limited, Aster Infrastructure Private Limited and TVS Interconnect Systems
Limited.
These companies have their business model based largely on the following two
approaches:
Contract Approach
Anticipatory Approach
Under the contract approach, tower companies set up tower sites going by the
requirements of the telecom operators, and the terms of the contract are specified
beforehand in the MSAs signed by the two parties. Under the anticipatory approach
however, tower companies set up tower infrastructure at sites with reasonable demand
potential and subsequently invite telecom operators to set up their network on these
towers. The latter model involves higher business risks as the tower company may not
be able to achieve reasonable tenancy for its tower infrastructure and at profitable
terms. 8.3 ITICs versus Tower Companies: ITICs, especially those following the
anticipatory approach, are usually at a disadvantage as compared with tower
subsidiaries as ITICs do not have assured occupancy on their tower portfolios.
Moreover, as most large telecom companies in the country have their own tower
subsidiaries, the market for ITICs consists largely of regional operators and new
entrants, in whose case credit quality can also be a concern. Nevertheless, in certain
cases, ITICs are in a better position to address the needs of growing telecom operators
who have recently received licences and spectrum to launch operations in new circles
because of flexible rollout plans that are more suited to new entrants. Moreover, ITICs
differentiate themselves by offering flexible payment terms to mobile operators (for
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instance, back-ended payment structure), which enables the mobile operators to reduce
their costs in the initial years.
9.0 Economics of the Model—Tower Infrastructure Companies: The key points
relating to the working of tower infrastructure companies are discussed in following
bullet list.
- High initial capital investments: On an average, while a roof-top tower involves a
capital expenditure of Rs. 1.5 to 2 million; a ground-based tower requires a capital
expenditure of Rs. 2.4 to 2.8 million. Given the high capital investments required in the
business, tower companies are generally highly leveraged.
- Stable and predictable cash flow business: Once a tower asset is rented out, it
usually generates a stable and predictable cash flow in the form of tower rentals from
occupants over the term of the MSA between the two parties.
- Low working capital requirement: The tower business is also characterised by low
working capital requirements, as most of the operating expenses (such as electricity
and fuel and other variable operating expenses) are reimbursable by the tenants on
actual basis. Moreover, the larger companies with a bigger and geographically spread
out portfolio of networks may be able to get rentals for the towers in advance and also
obtain better credit terms from their suppliers, thus further improving their working
capital cycle.
- High incremental profitability: The costs of operating a tower, particularly the ones
borne by the tower company such as security and maintenance and ground rent, are
largely fixed in nature. Thus each increment in tenancy is accompanied by a minimal
increase in costs. This leads to a more than proportionate increase in profits for every
increase in occupancy.
9.1 Factors driving growth for passive infrastructure sharing: Apart from favourable
industry prospects, there are several other factors too that drive increase in tower
sharing, as discussed in the following bullet list.
Viability of business at low ARPUs: At present, incremental growth in the
subscriber base is coming mainly from rural/semi-urban areas (also in these areas, the
incremental ARPUs are relatively lower). Further, network design and planning in rural
areas is different from that in urban areas, given that the population in rural areas is
widely dispersed, which increases the tower requirements to cover the same number of
subscribers (vis-à-vis urban areas). But as Chart 12 shows, even at low ARPUs,
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business viability can increase significantly on the strength of infrastructure sharing
(please refer Chart 7 also).
High usage and limited spectrum availability: India has one of the highest MoUs in
the world, which increases the number of base tower stations (BTS) required to handle
the same subscriber base. Thus while on an average, a GSM BTS can handle around
1,100 subscribers, in the case of high usage areas the figure can be as low as 600-700
subscribers, which means a larger number of cell sites would be required for the same
area. Moreover, the country has the problem of spectrum scarcity, which increases the
requirement of towers to maintain a reasonable level of service quality.
Quality of service: In the past, domestic telecom operators competed largely on the
pricing plank. However, as mobile tariffs in India are currently one of the lowest in the
world, the scope for further tariff reduction is low. Given this fact, going forward, quality
of service (QoS) would become the prime distinguishing factor among the competing
companies. Moreover, a rapidly increasing subscriber base and spectrum crunch would
further add to the problem of telecom operators having to maintain the minimum level of
QoS. Besides, with the likely introduction of mobile number portability, QoS will become
more important as customers will then have a broader range of options available with
limited switching costs. Thus to retain existing subscribers by preventing subscriber
churn, operators will require additional infrastructure in their existing areas of operation
to be able to offer better QoS.
Enhancement of profitability: Tower sharing helps operators lower their operating
costs and capital expenditure and thereby earn better margins and higher Return on
Capital Employed (RoCE); the overall impact on Profit and Loss is also positive.
Analysis suggests that there would be net annual cost savings for mobile operators if
they opt to lease towers from a tower company rather than own them.
Entry of new players and expansion plans of existing operators: Recently,
several regional operators such as Vodafone Essar Limited, Idea Cellular Limited, Aircel
Cellular Limited and Shyam Telelink Limited (now Sistema Shyam Teleservices Limited)
have received licences as well spectrum in new circles, which would enable them to
become pan-India operators in the next one-two years. Also, new licences have been
issued to players such as Unitech, Swan Telecom, and S Tel Limited. Given the
significant expansion plans of new entrants over the medium term and the need for
them to optimise investments in order to maintain returns, demand for towers is
expected to report a sharp increase.
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Shorter rollout time, a key necessity: As the domestic telecom industry is highly
competitive, doing business may not be easy for the new entrants. Moreover, given that
the incumbents already have the competitive advantages of widespread distribution
networks, established brand names and strong subscriber base, shorter network-rollout
time would be a critical success factor for the new entrants; a longer rollout time could
mean loss of substantial market share to other operators. Tower companies allow
players to start operations in a particular region just by installing their electronics on the
ready-to-use towers, thereby significantly shortening the rollout time.
new technologies to further stimulate demand: 3G services are expected to be
launched in the country in 2009-10. Moreover, in order to augment their services,
various operators plan to launch Wi-Max services as soon as they receive additional
spectrum from Government. This would further increase the demand for sharing of
passive infrastructure.
10.0 Industry on the path of consolidation: Within the span of the last one to two
years, with several players spinning off their tower portfolios and independent operators
expanding their operations, competition has intensified significantly in the domestic
tower infrastructure industry. With leading GSM players forming a consortium (Indus
Towers) and other larger players such as Tata Teleservices and Reliance
Communications entering into long-term agreements for passive infrastructure sharing
mostly with their tower subsidiaries, the new and smaller third-party infrastructure
providers are likely to get most of their business from smaller players and new entrants,
as the following table shows.
Cases no 1:
Bharti Airtel constitutes nearly 22% of the country's total subscriber base of 55.9 crore.
With more than 27% share in the country's wireless revenue, it also leads the sector's
revenue matrix. Bharti generates nearly 80% of its revenue from mobile services
division. Enterprise and carrier services account for over 18% of revenue.
The company has a pan-India presence with operations in all the 22 telecom circles. It
has been adding over 28 lakh users each month for the past six months. At January
2010, the company had 12.2 crore subscribers, a rise of 38% over its previous year
levels. Apart from these revenue streams, Bharti has a telecom infrastructure subsidiary
called Bharti Infratel. It provides passive infrastructure services through a network of
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over 29,806 towers (at the end of December 2009) in 11 circles. Among new services,
Bharti Airtel offers digital TV services through its direct-to-home (DTH) operations.
In January 2010, Bharti acquired Warid Telecom's Bangladesh operations. It is also in
advanced talks with Kuwait-based Zain to buy its operations in 15 African markets.
While the impact of Warid takeover is not significant due to its comparatively smaller
operations, takeover of Zain Africa will increase Bharti's debt burden. According to
preliminary estimates, Bharti's debt-equity ratio may shot up to 1.1 from the current 0.4
post-acquisition . However, this is not likely to restrict Bharti's accessibility to capital in
future given its cash generating operations. Also, globally telecoms tend to have D/E
ratios above 2. The challenge for Bharti will be to grow Zain's African operations after
the acquisition. The takeover will help Bharti set its footprint in African markets where
Zain is the market leader and mobile penetration is less than 20%. Further, average
revenue per user (ARPU) in Zain's African markets is about $8.2 agaisnt $5 for Bharti,
which can also rationalise Zain's operating costs by deploying its outsourcing strategy.
At the current price of about Rs 290, Bharti is trading at a trailing 12 month P/E of 11.6.
This is lower than P/E of 19.8 for Idea Cellular, the fifth largest telecom operator in the
country. Further, Bharti's enterprise value is less than seven times its profit before
interest, taxes, depreciation and amortization. Though its EBITDA growth is expected to
slow down in the short term due to lower tariffs and increasing number of low usage
users, Bharti's non-wireless operations and overseas businesses would support profits.
Bharti looks more prepared than its peers on this front. It appears to be better placed to
take advantage of new opportunities in the telecom space given its scale and reach.
Investors can hold on to the stock and can even accumulate it on fall given lower
valuation.
Case no 2:
New Delhi, March 5: After dilly dallying for over 20 months, BSNL on Friday decided to
scrap its controversial Rs 35,000-crore tender to procure equipment for expansion of its
mobile services.
The BSNL board, which met here, decided to accept the
recommendations of the Sam Pitroda panel, which had suggested that the PSU should
do away with the 93-million lines GSM tender of Rs 35,000-crore. According to a senior
official, BSNL has forwarded to the government the board’s decision to abide by the
recommendations of the Pitroda panel. “It is now for them (the government) to take a
final call.” He said the panel has given recommendations to the government and it is for
them to decide. The tender had come under scanner as there was only single bidder for
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all three regions. Ericsson had emerged lowest bidder for north and eastern regions
while Chinese company Huawei was the lowest in Southern region. A controversy
erupted after Nokia-Siemens Network was disqualified on technical reasons. The
company then dragged the PSU to court. Asked what impact the scrapping would have
on the growth of BSNL, the official said, “We shall be able to meet the immediate
requirement. Capacity addition will not be an issue. We shall procure through alternate
methods.”
Pitroda panel asks BSNL to scrap 93-million GSM line tender:
A committee head by Mr Sam Pitroda, advisor to the Prime Minister, has told Bharat
Sanchar Nigam Ltd to scrap the controversial 93-million-line GSM equipment contract.
The panel has suggested that the PSU instead of buying the entire network equipment
the traditional way, should adopt the managed services model as was being done by
private telecom players, including Bharti Airtel and Vodafone. In managed services
model, the cellular network is planned, installed and managed by the equipment
vendors leaving the operator to focus on marketing its services. While most of the
private operators have adopted this model, BSNL and MTNL still continue to buy the
network gear and then manage it by themselves.
The entire procurement process was referred to the panel headed by Mr Pitroda, after
BSNL's mega project ran into one controversy after another. It started with BSNL
disqualifying three of the five bidders including Nokia Siemens and Alcatel Lucent. Only
Ericsson and Huawei were shortlisted. Following the disqualification, Nokia Siemens
challenged the process in the High Court.
Even as legal proceedings were going on, the Central Vigilance Commission (CVC)
also stepped in to investigate allegations that BSNL had not followed the right process
in deciding the multi-billion dollar contract. The Government was also not convinced that
BSNL was getting the best price since there was only a single bidder who qualified in
each zone.
Though Ericsson dropped its quoted price by 40 per cent, DoT representatives on BSNL
board objected to giving the contract to the Swedish company. CVC subsequently also
recommended that BSNL should scrap the tender. The matter was then referred by the
PMO to the Sam Pitroda committee. According to sources, BSNL could now give
extension contract to existing vendors who had supplied GSM equipment in the last
tender. There is a proposal to give Ericsson a contract for supplying GSM gear for
supporting 15 million new users under the earlier contract. BSNL can order up to 40
million lines under the previous tender.
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Case no 3:
Tata DOCOMO is Tata Teleservices Limited's (TTSL) telecom service on the GSM
platform-arising out of the Tata Group's strategic alliance with Japanese telecom major
NTT DOCOMO in November 2008. Tata Teleservices has received a pan-India license
to operate GSM telecom services, under the brand Tata DOCOMO and has also been
allotted spectrum in 18 telecom Circles. TTSL and has already rolled out its services in
various circles.
The launch of the Tata DOCOMO brand marks a significant milestone in the Indian
telecom landscape, as it stands to redefine the very face of telecoms in India. Tokyobased NTT DOCOMO is one of the world's leading mobile operators-in the Japanese
market, the company is clearly the preferred mobile phone service provider in Japan
with a 50 per cent market share.
NTT DOCOMO has played a major role in the evolution of mobile telecommunications
through its development of cutting-edge technologies and services. Over the years,
technologists at DOCOMO have defined industry benchmarks like 3G technology, as
also products and services like the i-modeTM, mobile payment and a plethora of
lifestyle-enhancing applications. Today, while most of the rest of the industry is only
beginning to talk of LTE technology and its possible applications, DOCOMO has already
started conducting LTE trials in physical geographies, not just inside laboratories!
DOCOMO is also a global leader in the VAS (Value-Added Services) space, both in
terms of services and handset designs, particularly integrating services at the platform
stage. The Tata Group-NTT DOCOMO partnership will see offerings such as these
being introduced in the Indian market under the Tata DOCOMO brand.
Tata DOCOMO has also set up a 'Business and Technology Cooperation Committee,
comprising of senior personnel from both companies. The committee is responsible for
the identification of key areas where the two companies will work together. DOCOMO,
the world's leading mobile operator, will work closely with the Tata Teleservices Limited
management and provide know-how on helping the company develop its GSM
business.
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Despite being a late entrant, Tata Indicom, TTSL's CDMA brand, has already
established its presence and is the fastest-growing pan-India operator. Incorporated in
1996, Tata Teleservices Limited is the pioneer of the CDMA 1x technology platform in
India. Today, Tata Teleservices Limited, along with Tata Teleservices (Maharashtra)
Ltd, serves over 37 million customers in more than 320,000 towns and villages across
the country offering a wide range of telephony services including Mobile Services,
Wireless Desktop Phones, Public Booth Telephony and Wire-line Services.
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POWER SECTOR
The Central Electricity Authority (CEA) constitutes a committee every 4-5 years that
carries out a comprehensive survey of various consumer segments for estimating the
demand for power. The committee publishes the Electric power surveys (EPS), which
provides state-wise demand forecasts, both in terms of energy and peak power
requirements, for a 15 year period. It also provides a sector-wise estimate of energy
demand for a 5 year period.
The consumer segments taken into account by the EPS are:

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Domestic
Commercial
Agricultural
Industrial (low tension (LT) and high tension (HT), separately.
Railway traction
Public lighting
Public waterworks
Non-industrial bulk consumers.
Elasticity of electricity consumption vs. GDP Growth
Electricity consumption is strongly related to the level of economic activity. However,
over the past 25 years the elasticity of electricity consumption viz-a-viz the Gross
Domestic Product (GDP) has been gradually declining. This decline is likely to
continue, owing to:



An increase in the share of the services sector (about 56 per cent in 2007 – 08,
compared to less than 30 per cent in 1990 – 91).
Efforts by industries to improve energy efficiency (to enhance competitiveness)
through more efficient technologies and energy audits.
Greater reliance on captive power plants by power-intensive industries due to the
high tariffs charged by SEBs and poor quality of grid power.
115
The average annual GDP growth rate (at constant prices) during the Eighth, Ninth and
Tenth Plan periods was 5.9 per cent, 5.5 per cent and around 7.7 per cent respectively.
The annual growth in electricity generation during these periods was 7.2 per cent, and
4.4 per cent respectively.
Elasticity of electricity generation with respect to GDP is the percentage change in
generation corresponding to a 1 per cent change in GDP. The elasticity of electricity
generation (not including captive generation) with respect to GDP has fallen from
around 1.47 during the Sixth Plan period to around 0.60 during the Tenth Plan period.
This implies that energy usage in the economy has declined partially due to a rise in the
share of the services sector (which isles energy-intensive as compared with the
industrial sector) in the GDP and partially due to an improvement in energy efficiency.
Power Transmission
The power from the generating station is wheeled across the transmission net work
before it is consumed at a lower voltage level. The transmission net work comprises of
the grid substations, switching substations, and transmission lines. With the addition of
generation capacities, there has to be corresponding enhancement in the transmission
network. The total length of the transmission lines in the country has increased from
2.50 million circuit kilometers in 1980-81 to 6.94 million circuit kilometers in 2006 –07.
The transmission and distribution net work within the State is managed by the State
Transmission Utilities (STU). Transmission network across different States in the
country is owned and operated by Power Grid Corporation of India Ltd., a Central
Transmission Utilities.
The transmission system in India operates at different voltage levels:

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
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Extra high voltage (EHV) 765kV, 400kV and 220kV
High voltage: 132 kV and 66kV
Medium voltage: 33kV, 11kV, 6.6kV & 3.3kV
Low voltage: 1.1kV, 440V, 220 volts and below
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In order to facilitate the transfer of power among various states in a region, state grids
are inter-connected through high-voltage transmission links to form a regional grid.
There are five regional grids:
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Northern region: Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir,
Punjab, Rajasthan, Uttaranchal and Uttar Pradesh.
Eastern region: Bihar, Jharkhand, Orissa, Sikkim and West Bengal
Western region: Dadra and Nagar Haveli, Daman and Diu Chhattisgarh, Goa,
Gujarat, Madhya Pradesh and Maharashtra.
Southern region: Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil
Nadu.
North-Eastern region: Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland and Tripura.
As peak demand for power does not take place at the same time in all states, it results
in a surplus in one state and deficit in another. Regional or inter-state grids facilitate the
transfer of power from a surplus region to the one facing a deficit. These regional grids
also facilitate the optimal scheduling of power, maintain the power outages and better
coordination between power plants.
These regional grids will be gradually integrated to form a national grid, whereby power
from a surplus region can be transferred to another, resulting in the optimal utilization of
generating capacity. For instance, the Eastern region has some surplus power, which is
transferred to the Northern and North-Eastern regions as the two regions have deficit
scenarios.
National Grid
In order to optimize the utilization of generation capacity through the exchange of power
between the surplus and deficit regions and exploit the uneven distribution of
hydroelectric potential across various regions, the Central government in 1981
approved a plan for setting up a national grid.
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The plan envisaged setting up high-voltage transmission links across various regions in
order to enable the transfer of power from surplus to deficit regions:
The advantages of a national grid system are:

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A flatter demand curve (or a higher system load factor) on account of the
exchange of power between regions, resulting in a better PLF and more
economical operations:
Lower investments required for new generation capacities( a full-scale national
grid is expected to reduce the need for new capacities by up to 10,000 MW in
the next 10 years):
Better scheduling of planned outages of power plants; and
Improved stability of the grid, as the share of an individual generating station in
the total capacity declines with greater integration of the power system.
The process of setting up the national grid was initiated with the formation of the central
sector power generating and transmission companies – National Thermal Power
Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Power Grid
Corporation Limited (PGCIL). PGCIL was given the responsibility for planning,
constructing, operating and maintaining all inter-regional links and taking care of the
integrated operations of the national and regional grids.
A national grid would enable optimal utilization of energy resources by facilitating a
uniform thermal-hydel mix among various regions. From a regional perspective, the
exploitation of thermal and hydroelectric resources may not be economically viable in
some cases, although it may be so from a national perspective. For instance,
Arunachal Pradesh had a hydroelectric potential of around 50,000 MW. (The hydro
potential available in Arunachal Pradesh is the highest in the country). However, of this,
only 400MW has been developed and a further 3,000 MW is under development by
NHPC and NEEPCO. Another 23,000 MW of capacities are being planned by various
central and private sector players. However, in terms of installed capacity, 95 per cent
of the potential is yet to be developed. The hydroelectric potential of the north-eastern
region and eastern region is around 60,000 MW and 10,000 MW respectively. Hence,
with the integration of the eastern and north-eastern regions, the hydroelectric potential
of the north-eastern region can be used to meet the peak demand of the eastern region.
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Setting up a national grid requires the gradual strengthening and improvement of
regional grids, and their progressive integration through extra high voltage (EHV) and
HVDC transmission lines, coordination among the states within a region and among the
various regions is critical for the operation of the national grid. This would require an
efficient and reliable communication system comprising microwave links and dedicated
data/voice transmission lines between the load dispatch centers and generating
stations.
In addition, synchronization of frequencies is required to integrate regional grids. In the
case of a difference in frequencies, HVDC transmission would be effective in integrating
the grids through an asynchronous link. Although some inter-regional links are
operation, these do not have adequate capacity to transmit bulk power, and are often
loaded to capacity. The national grid, when fully operational (likely by around 2012) is
expected to have a total inter-regional transmission capacity of 37,150 MW.
Power Distribution
Distribution is the last and critical leg in the supply of electricity, reaching end
consumers such as residential, commercial, agricultural and industrial segments.
Distribution has several components such as pricing to various customers, cross
subsidization etc. However, as this is a lucrative business, it has been held by the
respective state entities, with private participation being marginal (only 5-7 per cent of
the total). Further, issues is distribution vary from T&D losses to rural electrification etc.
The government has begun a number of initiatives to improve the electricity supply to
villages. As part of its initiatives, the power distribution system has been extended to
reach remote villages. At the end of 2008-09, a total of 488.926 villages were electrified.
However, T&D losses in the country remain high at around 28 per cent, compared to an
average 10-15 per cent in developed countries. This is because of inadequate metering
and theft of electricity. (The difference in the amount of electricity supplied and the
amount actually metered is usually reported as T&D losses) High T&D losses are also
attributed to the T&D of a large amount of power at low voltage-the rise in rural
electrification has resulted in the proliferation of low voltage (less than 11kV)
transmission lines.
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T&D losses rose from 22.27 per cent in 1995-96 to an estimated 26.91 per cent in 200708. The losses peaked at 33.98 per cent in 2001.02, but since have registered a
declining trend.
Government Support
Accelerated Power Development Reform Programme (APDRP)
To improve distribution, the government formulated the APDRP. This programme aims
to improve the financial viability of state power utilities, reduce aggregate technical and
commercial losses to around 10 per cent, improve customer satisfaction, and increase
reliability and quality of power supply.
The APDRP has two components, Investment and Incentive components. Under the
Investment component, the government provides assistance worth 50 per cent of the
project cost, of which 25 per cent is a grant and 25 per cent is a loan. The balance 50
per cent has to be arranged by the utilities either through internal resource generation or
from financial institutions or from other sources of funds (such as state government, the
Rural Electrification Corporation, Life Insurance Corporation, ICICI, SIDBI and market
bonds). Special category states such as Jammu and Kashmir, Himachal Pradesh,
Uttaranchal and Sikkim receive full assistance from the Central government, out of
which 90 per cent is grant and the remaining 10 per cent is loan. Priority is given to
projects from those states that have committed to a time-bound programme of reforms
as elaborated in Memorandum of Understanding (MoU) and Memorandum of
Agreement (MoA), and are progressing on those commitments.
Conditions of the MoU are:
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Setting up State Electricity Regulatory Commission
Filling and implementation of tariff orders
Securitization of dues of Central Power State Utilities
Metering of all consumers
Energy audit at 11kV level
Maintenance of grid discipline
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Conditions of the MoA are:


Constitution of Distribution Reform Committee at the state level
Identification of nodal officer
As part of the incentive component, the utilities are rewarded for actual cash loss
reductions by waiving half of the cash losses reduced by way of free grant. The cash
losses are calculated as the net of subsidy and receivables. Up to March 31, 2008, the
funds released under this component were Rs 28.8 billion. The disbursement for 200607 and 2007-08 was Rs 10.2 billion and Rs 14.0 billion, respectively. (This includes both
the investment and incentive components.)
New Revised -APDRP
Till December 2008, the Government of India had sanctioned 571 projects, amounting
to Rs. 170.33 billion to strengthen and upgrade sub-transmission and distribution
systems of the various states. The states have so far utilized Rs 126.07 billion. An
amount of Rs 28.79 billion has also been released to nine states for achieving reduction
in cash losses under the incentive component of the programme.
As per the new APDRP policy, projects under the scheme shall be taken up in two
parts:
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
Part-A includes the projects for establishing baseline data and IT applications for
energy accounting/auditing and IT bases consumer service centers.
Part-B Includes the regular distribution strengthening projects.
Private Investment in Power Transmission Sector
In 1998, the Central government enacted the Electricity Laws (Amendment) Act, which
recognized transmission as an independent activity (distinct from generation and
distribution), and allowed private investments in the sector.
121
According to the government policy, the STUs, SEBs or their successor entities and the
central transmission utility (CTU) PGCIL, will identify transmission projects for the intrastate and interstate/inter-regional transmission of power, respectively.
The STUs and CTU will invite private companies to implement these projects through
an independent private transmission company (IPTC) or on a JV basis.
The IPTC would be selected through an international competitive bidding process. The
primary criteria for selection would be the quoted transmission service charges (TSC)
and the technical, managerial and financial capabilities of the bidders. In the case of KV
companies, the CTU and STUs could own an equity stake of up to 26 per cent. JV
partners could also be selected on the basis of an international competitive bidding
process. Further, the primary selection criteria would be the technical and financial
strength of the bidders. Transmission service charges would be determined on a cost
plus basis under the supervision of the CERC or SERCs.
The IPTC’s role will be limited to the construction, ownership and maintenance of
transmission lines. Operations of the grid, including load dispatch, scheduling and
monitoring, will be undertaken by the STUs and the CTU at the intra-state and interstate/inter-regional level, respectively. The CTU and STUs will be involved in the
development phase for obtaining project approvals and various regulatory and statutory
clearances (such as environment and forest clearance and securing right-of-way), and
will transfer the same to the selected private companies.
Tariff Based Bidding Guidelines Notification
Ministry of Power notified on 17.04.06, the tariff based competitive bidding guidelines for
encouraging competition in development of Transmission Projects under the provision
of Section 63 of The Electricity Act, 2003 for procurement of transmission services for
transmission of electricity.
The salient features are:
122
 An Empowered Committee will be constituted by MoP.
 Committee will be chaired by a Member of CERC, nominated by Chairman,
CERC.
 Other members will be:
◦ Member(Power System), CEA
◦ Member (E&C), CEA
◦ Representative of MoP, Planning Commission, CTU and two experts.
 The function of the committee will be
 To identify projects for implementation on private route.
 To facilitate preparation of Bid documents and invitation of Bid through a
suitable agency.
 To facilitate evaluation of Bids
 To facilitate finalisation and signing of Transmission Service Agreement
(TSA) between the Developer and concerned utility
 Selection of Developer for identified project would be through tariff based
bidding.
 An SPV may be created for undertaking developmental activities like preparation
of survey report, initiating Right of Way approval, statutory clearances, Land
acquisition activities etc.
 SPV to be handed over to the developer on as is where is basis and further
developmental activities to be undertaken by successful bidder/SPV.
 Development cost to be recovered from the successful bidder.
 Selected Developer to approach appropriate commission for grant of
transmission license.
 TSA will be signed among the SPV and concerned utilities for payment of
Transmission Charges.
 TSA shall include payment security mechanism which will consist of L/C and
Escrow.
 RLDC will assist Developer in case of default in payment by regulating
transmission services.
 CEA shall monitor progress of project. Transmission Service Provider (TSP) shall
establish transmission project on Build, Own Operate and Maintain(BOOM) basis
Transmission tariff shall be reduced in case availability is less than the target
availability
 An Agency called Bid Process Coordinator (BPC) shall invite Bids.
 BPC to be nominated by MoP.
 Expenditure incurred by BPC in selection process will be recovered as
development cost from successful bidder.
 Standard Bid document to be notified by Ministry of Power.
 In case of any deviation, approval of appropriate commission to be obtained.
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 Tariff to be designated in Indian rupees only. Foreign exchange risk if any, to be
borne by the bidder.
 BPC can adopt a two stage process of RFQ or RFP or a single stage process
combining RFQ and RFP process.
 Qualifying Requirements to include parameters like minimum networth, internal
resource generation etc.
 Bids will be evaluated on the basis of the lowest levelised tariff quoted for a
period of contract
 Bidder has to furnish Bid guarantee and CPG.
 LD shall apply in case of delay in achieving COD.
 Empowered Committee will constitute a Bid Evaluation Committee.
 Bid Evaluation Committee to consist a representative from CEA, two
representatives from Regional Power Committee and One independent member.
Time Table for Bid Process:
 In case of two stage process,
NIT to signing of Agreement – 240 days
 In case of Single Stage Process:
NIT to signing of Agreement – 180 days.
 Evaluation of Results shall be made public.
State Governments may adopt these guidelines for intra-State projects.
TALA Transmission Project
This is First transmission project with private participation on JV route. It consisted of
400 kV D/C transmission lines from Siliguri in West Bengal to Mandaula in Uttar
Pradesh associated with Tala Hydroelectric Project, East- North Interconnector and
Northern Region Transmission system. The International Competitive Bids received
from M/s. NGIL, UK and Tata Power, India. Tata Power selected as JV partner.
The total route length is approx 1171 Kms. The shell company Tala-Delhi Transmission
Ltd. converted to Joint Venture Company on 3/7/03 by Tata Power acquiring 51%
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Share and POWERGRID retaining 49% Share. Project agreements including
Shareholders Agreement, Implementation Agreement and Transmission Service
Agreement signed on 4/7/03.
JV Company name changed to Powerlinks Transmission Ltd. It is a Board managed
Co. with 5 Directors from Tata Power and 4 Directors from POWERGRID with
CMD,POWERGRID as Chairman of the Company (Part Time)and Dir(Fin) – Tata Power
nominee as MD (Full Time) and Dir(Proj) - POWERGRID is a nominee as full time
director.
The Project has Debt: Equity ratio of 70:30. The revised estimated project Cost: Rs.
1600 crores constitutes loan component of Rs 980 crore being financed by consortium
of IFC - Rs 340 crores ADB - Rs 300 crores SBI - Rs 180 crores and IDFC - Rs
160 crores.
The project is to build, own, operate and maintain, on a BOOT basis and for 30 years,
five 400kV and one 220 kV double circuit transmission lines of about 1,200 kilometers,
with a capacity of about 3,000 MW. The purpose of the transmission system is to:
expand capacity of the grid connecting the power surplus region of East and Northeast
India with the power deficit region of North India, and to facilitate the evacuation of
power from the 1,020 MW Tala Hydroelectric Project (Tala HEP) in Bhutan which is
being executed by Tala Hydro Power Development Authority (THPA).
Unique features of TALA transmission project
 Tariff to be paid on cost plus basis.
 First and the only transmission project to get incentive in the form of
Transmission Majoration Factor @10%of transmission tariff which translates into
additional ROE of about 6% taking effective ROE to about 20%.
 Transmission tariff to JVC to be paid by POWERGRID.
 Buy out of the project by POWERGRID in case of POWERGRID Event of
Default.
 Buy out of the project by POWERGRID in case of JVC Event of Default.
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The Tala JV Project is a pioneer in Public-Private partnership in Transmission Project in
Asia and is applauded by World Bank & ADB as an excellent model to be replicated in
other countries.
Parbati -Koldam Transmission Project
This project is Second JV Project financed through 26% equity of POWERGRID and
balance by Reliance. It consisted of Transmission Lines associated with Parbati -II (800
MW) & Koldam (800 MW) HEP. Two 400 kV single circuit line from Parbati to Koldam –
149 kms & 400 kV double circuit line from Koldam to Ludhiana
- 153 kms.
Transmission tariff to be collected by JVC from beneficiary states. The agreement
provided that there will be no buy out of the assets by POWERGRID .Estimated
competed Project cost Rs. 665 crores at 2nd Qtr. 2004 price level. ICB floated on
02.02.2004 on single stage bidding basis. Bids received on 28.07.2004 from Reliance
Energy Ltd, Mumbai and ESSAR Power Ltd, Mumbai. Agreements signed in 2007.
Presently the transmission License application under consideration by CERC.
Sugen Transmission Project (TORRENT)
The fourth transmission project with private sector participation. Transmission system
consists of 400 kV D/C line from Sugen to Pirana-222 km & a 22 km S/C LILO of
Gandhar Vapi Transmission line at switchyard.
Torrent Power establishing 1095 MW SUGEN Combined Cycle Power Project near
Surat with LNG as fuel. The project has three power blocks with 365 MW each. The
debt requirement of Rs. 2167 crores out of total investment of Rs. 3096 crores arranged
with a consortium of lenders.
The Estimated cost of transmission project is Rs. 320 crores. Implementation of
transmission project on JV route with 26% equity of POWERGRID and balance 74% by
M/s Torrent Power AEC Ltd. All project Agreements signed with M/s Torrent Power AEC
Ltd. on 15.06.06.Transmission license issued in May 2007 by CERC to Torrent Power
Transmission Power Ltd, which was 2nd transmission license granted by CERC.
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Karcham-Wangtoo Transmission Project (JAIPRAKASH)
This is a fifth transmission project with private sector participation. Karcham Wangtoo
Hydel Project with 1000 MW capacity is coming up at HP. The estimated cost of
transmission project is Rs. 1000 crores. Implementation of transmission Project on JV
route is with 26% equity of POWERGRID and balance 74% by M/s Jaiprakash Hydro
power Ltd. All project Agreements signed with M/s Jaiprakash Hydro on 24.08.06.
The transmission system consists of 230 km long 400kv D/C line from Karcham
Wangtoo to Abdullapur; LILO of 4 km of 400 kV double circuit line Baspa –Nathpa
Jhakri line at Wangtoo & substation at Aabdullapur Transmission License issued in
December, 2007 by CERC to Jaypee Powergrid Ltd., which was the third transmission
license granted by CERC.
Essar Power Transmission Project
Recently, Essar Power Transmission Company Ltd., a subsidiary of Essar Power was
issued the transmission license in April, 2008 for the transmission system associated
with its parent company’s upcoming 2000 MW Mahan thermal project in M.P. This was
4th transmission license granted by CERC.
The estimated cost of transmission project is Re 857 crores.
Independent Private Transmission Model - Western Region System Strengthening
Scheme-II
This is the third Transmission Project with private participation– on IPTC route. First
transmission project on tariff based bidding. It consists of 765 kV lines & 400 kV lines.
Two part Solicitation process consisting of RFQ & RFP stages. Bidding process initiated
in 2006. Reliance Energy Transmission Ltd emerged as the lowest bidder. 100% equity
of Reliance. Project estimated cost-Rs 1800 crores. Transmission tariff is to be collected
by JVC from beneficiary states. Agreements signed in Nov 2007. Presently transmission
License application under consideration by CERC.
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Dedicated Joint Venture Projects

Typically JV projects need to be evaluated by Public Private Partnership
Appraisal
Committee (PPPAC).

However since Torrent Power Transmission Project and Karcham-Wangtoo
Transmission Project of Jaiprakash group were for dedicated use and were not
sponsored by any public Company, they did not come
under the purview of
PPPAC.

Thus all transmission projects associated with generation projects developed
through
JV route can bypass PPPAC scrutiny.

The agreements should not provide that the project becomes public asset during
the
life time of the project.
Future Opportunities

Empowered Committee has initially identified the 14 transmission projects to be
undertaken through tariff based competitive bidding.
Estimated cost of above projects is Rs. 20,000 crores

Private Investment in Distribution
Privatization of distribution is generally accepted as the first phase in the reforms and
restructuring of the power sector. With private participation in power distribution,
significant benefits are expected to accrue, such as:



Reduction in T&D losses.
Improvement in metering and billing practices.
Improvement in revenue collection.
Distribution Franchise model as provided in the Electricity Act 2003 is observed to be
the most potent method of distribution reforms. This model provides an interim solution
on the way to distribution privatization. Under this model obligations of the Franchisee
includes, O&M of the network, capital expenditure, revenue assurance and vigilance,
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day to day business operations, medium to long term contract with performance
benchmark. There is commercial agreement between Franchise and Discom which
include- payment by distribution franchisee ( charges for input energy, arrears collected,
security deposit, electricity duty) and payment by Discom ( incentive on recovery
arrears, subsidy, specified payment upon termination/expiry).
Types of Franchisee models
Allocation of responsibilities
Management
Contract
Franchisee
Licensee
Operation & Maintenance
Private
Private
Private
Capital investment
Public
Private
Private
Commercial risk
Public
Private
Private
Asset ownership
Public
Public
Private
Duration
Small
Medium
Long
A successful Franchisee model for Bhiwandi circle managed by M/s Torrent Power has
brought down the AT&C losses from 58 per cent to 24 per cent in two years and is still
running the show. The Haryana government has proposed to study all these Franchise
models of Bhiwandi, Nagpur, Agra and Kanpur - and use them appropriately for
upcoming cities of Gurgaon and Panipat.
Initiatives like the pilot franchisee project for Gurgaon and Panipat are part of the
comprehensive effort of the government to minimize inefficiencies in the power sector.
Such a transformation adequately protects the interests of consumers, power
companies and the state.
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The area covered under the Franchisee is 721 sq. kms. with population of about 10
lakhs. The consumer base is about 1.6 lakhs with 800MVA power demand. The T&D
loss figure before taken over by Franchisee was 58% and collection efficiency of 68%.
There was vested interest of employees, local politicians and some consumers. There
was mood of resignation all around. Instead of going for complete privatization of
Discom, the Franchisee model considered to be a practical way of introducing the
reforms.
The annual energy input is 2500MUs. As per the agreement entered in to between
Discom and Franchisee charges towards input energy, arrears collected, security
deposit, electricity duty etc. shall paid by distribution franchisee and Discom will pay to
franchisee the incentive on recovery of arrears, subsidy and the specified amount upon
termination/ expiry of the agreement. The agreement is for 20 years.
The agreement also provides that MSEDCL shall supply the required power to
Franchisee at quoted price. Franchisee may procure power from other sources for
demand exceeding the quantity supplied by MSEDCL. MSEDCL is to give ‘Right to
Use’ to its distribution assets in Bhiwandi circle. During the terms of the agreement the
Franchisee can scrap any of these assets and deposit the same to MSEDCL.
Franchisee will have all rights of Distribution licensee in the allocated area as provided
under section 126, 135, 153 of Electricity Act, 2003. The Distribution Licensee will do
the minimum capital investment committed in the tender. The franchisee shall plan and
implement capital expenditure as deemed fit necessary by it and MSEDCL is to
compensate the Franchisee for all capital expenditure on expiry/termination at
depreciated value. Franchise has no liability of the past arrears and Franchisee will
receive incentive on collection of past arrears. Franchisee has the right to select the
willing MSEDCL employees.
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Commercial Terms:
Distribution
Franchisee
Licensee
Payment by DF
Charges for input energy
Arrears collected
Security Deposit for new connections
Electricity Duty etc
Payment by Licensee
Incentive on recovery of arrears
Subsidy
Specified payments upon termination /
expiry
The benefits of the model are:









State of the art distribution system
Reduction of T&D losses and Theft
Improvement in metering
Consumer indexing for better energy accounting and load management
Safe and secure system operation
Billing and revenue collection
Capital investments in up gradation of network
Enhancement in customer service quality
Enhanced vigilance and effective disconnection service of defaulters
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The critical success factors of franchisee model are:







Uninterrupted availability of required quality power to Franchisee
Adequate transmission capacity to supply power to consumers
Long term agreement ( say, for 20 years)
Large Franchisee area
Authorization to Franchisee to carry out capital expenditure
Improved service to consumers, faster new connection/ load extensions, lower
attendance time for faults, convenient bill payment facilities, and a successful
Grievance Redressal mechanism.
Adequate support from Government, State utilities, and public in general.
Strategic Benefits




A successful and proven public-private partnership will lay the foundation for
further reforms in the power sector in the country
Earnings from this project could be deployed for a multitude of development
projects
Increase in competitiveness of the industry in Bhiwandi, thereby increasing the
competitiveness of the country in the global markets
Contribution to growth of the State GDP
So a win-win situation for Customers, Discoms and Franchisee
Case of Delhi
The power sector has been plagued by persistent shortage of power due to lack of
adequate expansion of generation capacity, heavy distribution losses, the huge
investment requirement for creation of adequate distribution and transmission
infrastructure, etc.. Providing efficient, reliable and quality energy supply is the
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responsibility of both the state and central government. The challenge before the sector
in Delhi is to meet the continuously increasing demand for power, supply of reliable and
quality power, curbing the rampant theft of electricity, creation of generation capacity
exclusively for Delhi etc. Inspite of above, the demand and availability the power for
Delhi upto FY 2020-21 is as under, which clearly depicts that from 2011 onwards Delhi
would be surplus in power:
Year
Anticipated peak
availability of Power
(MW)
Anticipated peak
requirement
Short-fall (-)/
Surplus (+)
2008-09
4925
4877
48
2009-10
5253
5253
0
2010-11
7534
5657
1877
2011-12
8014
6092
1922
2012-13
9225
6546
2679
2013-14
9562
7035
2527
2014-15
9562
7560
2002
2015-16
9562
8124
1438
2016-17
9562
8730
832
2017-18
9562
9314
248
2018-19
10062
9937
125
2019-20
10712
10601
110
2020-21
11412
11311
101
of Power (MW)
Note: The above figures has been assessed considering the growth factor of 7.46% for
the period 2012-13 to 2017-18 and 6.69% thereafter as per the 17th EPS report of CEA.
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The projected demand of Delhi sub-region for 11th Plan and 12th Plan is 6092 MW and
8730 MW respectively whereas the availability would be around 8000 MW and 9560
MW respectively and there would be no short fall during the end of 12 th Plan. Delhi
being Capital of India and having high pollution level cannot have coal based
generation, no source for hydro generation, has to plan the generation with gas as a
fuel. Delhi has planned to have additional generation within Delhi as under:
Bawana CCGT (Pragati-III) Gas based
:
1500 MW
Bamnauli (Pragati-II) Gas based
:
1000 MW
Dadri Stage-II -Thermal (outside Delhi) :
980 MW
Joint venture between Haryana & Delhi :
1500 MW
at Jhajjar – Thermal (outside Delhi)
Rithala CCPP ( NDPL) Gas based
(Delhi’s share 750 MW)
:
108 MW
The need of the hour is to promote energy efficiency and renewable energy to ensure
sustainable growth. This area has immense potential which has to be tapped fully and
all efforts should be made in this direction. Delhi Government is committed to promote
Green and renewable energy, Energy Conservation, and efficient use of energy. To
encourage the environmental friendly disposal of Municipal solid waste, two Waste to
Energy power plant has been approved by Government. One project of 10MW is
located at Gazipur and another of 16 MW at Okhla. Though the quantum is very
meager but still every MW counts.
During the last 7 years i.e. after the unbundling of the then Delhi Vidyut Board and
opening of Power Distribution to the private companies, Govt. of Delhi have saved a
substantial amount, running into hundreds of crore every year both under Plan and NonPlan. Govt. of Delhi is now in a position to allocate much more Plan Funds to the social
service sectors and also to the infrastructure sector. The Power position has improved
and power sector reforms have gone well.
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During the 11th Plan it has been considered in view of the fast over all growth of the
capital infrastructure to strengthen the transmission system by implying N-2 criteria at
various grid sub-stations:
Year
Transformation Capacity
Transmission Line Length
(in MVA)
(in Ckt. Kms.)
400kV
220kV
400kV
220kV
2001-02
945
5325
121
465
2006-07
2520
6400
227
575
2011-12
9000
14000
281
837
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Open Access:
The State Regulatory Commission has already issued the guidelines for intra state open
access in Delhi. Two applications have been received for long term open access in intra
state transmission network, one has got the clearance and another one is under
process.
Financing new power projects in Delhi
Govt. of NCT od Delhi has to invest large funds for strengthening the electricity
infrastructure in the context of Commonwealth Games 2010 and modernization of
electricity infrastructure in the old walled city, creation of new distribution infrastructure
in regularized unauthorized colonies etc. most of these projects are not covered under
the regular CAPEX programme of Discoms allowed by DERC. As per Delhi Electricity
Supply Code and Performance Standard Regulations 2007, Government agencies like
PWD, DDA and MCD are, therefore, even now funding the electrification distribution
projects in Delhi even though distribution is privatized in Delhi. As most of these projects
are covered with in the scope of the APDRP, these could be funded under the same
and executed by Delhi Transco Limited, which is 100% Government owned Public
Sector Undertaking of Govt. of NCT of Delhi.
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Area of concern:
For providing reliable and quality power supply to citizens of Delhi in NCR State of Art
Technologies has been used by providing gas insulated sub-stns. (GIS) which are
maintenance free and for ensuring reliability in operation point of view as well as
aesthetic looks being Indoor S/Stn.
In addition to the above, 220kV underground cables are being used in place of
overhead transmission lines which have a better life in comparison to the overhead
transmission lines besides reliability of supply.
Bottlenecks:
Main bottleneck for achieving the target is the availability of the land and `Right of Way’
and other statutory clearances from the various agencies which is very complex nature
and time consuming. Above hercules task can only be achieved by providing follow up
and coordination by well qualified team of engineers of DTL. However, the clearances
from road owning agencies is a matter of concern and requires intervention and
assistance for timely completion of the Project which ultimately improve the quality and
reliability of supply and improve the life standard for the citizens of Delhi. Besides
improvement transmission & distribution are being carried out through the process of
technical audit at various levels which ultimately reduce the losses and cost of the
supply to the respected consumers of Delhi.
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Conclusion
India suffers from widespread shortages of electricity supply. These shortages, among
others, are detrimental to the economic growth. The central sector, which was the
mainstay for funding power projects, reached its saturation point. Efforts in expanding
generation capacity by the state-owned electric utilities were hampered by severe
resource constraints. The only solution seemed to be inviting private sector to pool in
capital. It was also thought that private sector would impart a degree of efficiency
through improved capacity utilisation, better operational and technical
performance. Against this backdrop, to mobilize additional resources to help bridge the
gap in demand and supply, the Government of India formulated a policy in 1991 with the
objective to encourage greater investment by private enterprises in the electricity sector.
Since then, a number of projects were proposed and today, the private sector
constitutes 15.1% (22246 MW) of the total installed capacity of India (146902 MW) and
is expected to increase its share in subsequent plans. While the distribution across the
states varies, the state of Tamil Nadu leads with the highest installed capacity of 5433
MW from the private sector followed by Maharashtra (4216 MW), Gujarat (3443 MW),
Andhra Pradesh (2126 MW), Karnataka (2014 MW), Chhattisgarh (1156 MW) and West
Bengal (1081 MW). Rest of the states has less than 1000 MW of privately owned
installed capacity.
Despite facing a number of problems related to basic infrastructure like acquisition of
land, allocation of water, coal linkages; issues related to financial closure to timely
supply of power equipments, the private sector has aggressive plans of capacity
addition to the Indian Power Sector. In fact during the XI Plan, over 19% (15043 MW) of
the total capacity addition (78700 MW) is envisaged through the private sector. Also
with the award of three Ultra Mega Power Projects to the private companies (rest six yet
to be awarded) and their commitment to commission them on a fast track, the share of
the private sector will only increase in the forthcoming plans.
Power distribution in the country which was pioneered by private entrepreneurs in the
early 1900s and nationalized post 1948 is now poised to return to the private sector via
the Private-Public Partnership (PPP). Delhi privatisation experience shows that this
project can be replicated for the benefit of other cities. The entities which were loss
making organisations now pay dividend to the government. Other states where the
electricity sector is in such critical condition can also adopt the same project for
improving the health of the sector.
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Privatisation is not the only solution to achieve the desired results. Many factors had
been considered while implementing the reforms process in Delhi, such situations may
or may not be applicable in other states while adopting this project. Delhi was a unique
case of abrupt load pattern and enormously high losses. Corporatisation is another
good reforms solution to achieve the desired results. State Electricity Board will first
unbundle into corporate entities and then the unbundled distribution companies were
privatised simultaneously. Perhaps it may be a better idea, in case the privatisation is
carried out after the units are unbundled in government set up so that they are
established as stable corporate entities. Instead of complete privatisation the part of the
distribution activities can be allotted to a private Franchisee which can maintain the
distribution system and collect revenue and earn incentive from Discom. The successful
Franchisee Bhiwandi experience is being replicated in many other cities in state of
Maharastra, Uttar Pradesh and Haryana.
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