This month in the Infrastructure Finance update, the finance ministry has reached out to major infrastructure ministries like railways and roads and highways, asking them to step up spending to meet budgeted expenditures. Due to the pandemic, and the consequent lockdown and disruption in economic activity, leading to a sharp growth contraction in the first quarter of 2020-21, the government is keen to revive spending by infrastructure ministries.
In a report by the Ministry of Statistics and Programme Implementation which monitors infrastructure projects worth Rs 150 crore and above. Of the 1,692 such projects, 401 projects reported cost overruns and 552 projects time escalation. 401 infrastructure projects, each worth Rs 150 crore or more, have been hit by cost overruns of over Rs 4.02 trillion owing to delays and other reasons.
In the renewables sector several project related activities have been reported. L&T Infrastructure Finance Company has received a loan of US$ 50 million from AIIB. AIIB’s first loan to a non-banking financial company (NBFC) in India. The loan proceeds will be used to on-lend to large and mid-scale wind and solar power infrastructure projects in India.
Solar Energy Corporation of India (SECI) has tendered 1,070MW of grid-connected solar PV capacity in Rajasthan. Projects would be awarded on a build-own-operate basis and SECI would award a 15-year PPA to each successful bidder, with the energy to be on-sold back-to-back to Rajasthan Urja Vikas Nigam (RUVNL).
NextPower III, a fund managed by UK-based NextEnergy Capital, has acquired an operational 27.4MW solar PV project in Odisha, India.
Indian government controlled utility NHPC has signed a memorandum of understanding (MOU) with a public utility in the state of Odisha to jointly pursue 500MW of floating solar projects. The Odisha public sector utility is Green Energy Development Corporation of Odisha (GEDCOL).
Indian solar developer Azure Power has received the letter of award from Solar Energy Corporation of India (SECI) for 2GW capacity of solar. The award comes as a greenshoe option, after Azure Power won 2GW in December (2019). The PPA for the 2GW of interstate transmission system (ISTS) connected solar is for 25 years, at a price of Rs 2.92 ($0.039) per kWh. The awarded capacity also comes with a 500 MW cell and module manufacturing capacity requirement and Azure Power intends to partner with a domestic manufacturer for this requirement. Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) is majority shareholder in Azure Power, with 50.9%.
In continuation with the recent announcements by the Indian government regarding privatisation of Indian Railways. After deciding to privatise 151 passenger trains, the Centre is planning to auction railway stations to private players after modernising the facilities. Indian Railway Station Development Corporation (IRSDC) has shortlisted bidders for 4 redevelopment projects for railway stations as PPPs. The 4 stations to be redeveloped are: Nagpur, Gwalior, Amritsar and Sabarmati. Under the PPPs, the concessionaires will receive as the main revenue stream pre-determined user charges on passengers and visitors.
Railways is also now fast-tracking private freight trains as well. It is in the process of auctioning routes in the yet-to-be completed dedicated freight corridors (DFCs) to private operators to run freight trains.
Under US$ 490 million Asian Development Bank loan – Promoting Public-Private Partnership in Madhya Pradesh Road Sector Project – to government of Madhya Pradesh, it has tendered 7 roads PPP packages, under the hybrid annuity model. Private sector concessionaires will fund 40% of project costs with equity and commercial debt. During construction government will release 60% of the project cost, paying the concessionaire in tranches linked to completion milestones. Once operational, the concessionaire will receive fixed semi-annual payments over 10 years.
In the Non-Banking Financial Company (NBFC) sector it has been reported that saddled with risky real estate loans, NBFCs and housing finance companies (HFCs) are selling their portfolios to special situation funds. In the last couple of weeks, over Rs 6,000 crore of such loans have been sold or refinanced by the likes of ECL Finance — Edelweiss’ NBFC arm — and Indiabulls Housing Finance. Close to Rs 8,000 crore of such loans could be sold or refinanced in FY21, according to bankers deal in such transactions. Global funds like Oaktree Capital, SSG Capital, and Farallon Capital have bagged most of these loans. Close to US$ 50 billion (Rs 3.5 trillion) in developer loans are still on the books of NBFCs and HFCs.
In an interesting development Queensland’s Treasurer Cameron Dick has announced that the state’s Future Fund will adopt “tough new anti-privatisation protections” to keep strategic assets in public hands. The Treasurer said today (9 July 2020) that certain strategic assets will be held in a unit trust and by law would only be allowed to be sold or traded with other state government entities. He said “strategic assets such as commercial power or water infrastructure will be put into this ‘locked box’ to protect them from being privatised by the LNP (Liberal National Party).”
Infrastructure remains one of the focus sectors of the government to push economic growth, however similar to other sectors infrastructure has also taken a hit due to the ongoing pandemic. Infrastructure projects have seen problems due to delay in construction and drop in revenue streams like in toll highways, airports, power projects, etc. The ongoing crisis has shown that even in this sector the risks exist and the returns cannot be guaranteed. On the other hand the crisis has increased interest and investments in renewables and digital infrastructure.