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Construction : Exclusive Report | July 2012 | Source : Construction Update

Govt must bring more private investment into infra sector

Raja Narayanan Iyer

Early last month, the Prime Minister's Office (PMO) set project target for various infrastructure sectors including ports, power, coal etc for 2012-13. For example, the PMO set a target of awarding 42 port projects, 9,500 km of road projects during 2012-13.

Government would be able to attain the target only if private players show interest in investing in infrastructure sectors through public private partnership (PPP) model. In this regard, it is worth analyzing the trend in private investment across different infrastructure sectors in the last two decades.

Private sector has shown less interest in the power sector in the last twenty years owing to lack of payment security as state electricity boards (SEB), that are the sole purchaser of power in the country, are themselves reeling under losses. The fate of two of the ultra mega power projects (UMPPs), that depend on imported coal is uncertain because of the rise in the cost of the fuel in the international market.

PPP model in the road sector has gained traction in the last decade with National Highway Authority of India (NHAI) awarding record number of projects in the sector. However, there are some significant deficiencies that affect PPP projects which include delay in land acquisition and a change in scope subsequent to the award of projects.

Airport sector has an impressive record of attracting private investment with four of India's largest airports – Delhi, Mumbai, Bengaluru, and Hyderabad – operated by private companies in the form of long-term concessions. However, participation of foreign airport companies remained limited with an equity stake of about 10 percent in the respective consortia that developed Delhi and Mumbai airports.

Private investment in port sector remained scanty and is restricted mostly to container terminals. Against a target of 24 port projects, the union shipping ministry could award only 1 project in 2011-12. Between 2005-06 and 2008-09, the shipping ministry could award only seven terminal projects against a target of 44 terminals.

Indian Railways has not shown much interest in attracting private investment to upgrade its infrastructure. The only successful public private partnership initiative undertaken so far in the railways sector is the introduction of competing private players in the ownership and operation of container trains.

Private investment in India's infrastructure sector has been a mixed experience with some sectors attracting more private parties than the other. However, it would be very difficult for government to realize its investment target of $1 trillion in infrastructure over the next five years without bringing substantial portion of investment from private parties.

Therefore, importance being given to PPPs. Achieving targets in key infrastructure sectors is key to success and will inspire confidence about the overall economic growth rate.

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Infrastructure sector targets for FY13
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