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Infrastructure Finance Update November 2020

National Infrastructure Pipeline (NIP) continues to be the focal point to drive the infrastructure sector in the country. Recently the Central Government has decided to infuse ₹6,000 crore of equity in the National Infrastructure Investment Fund (NIIF) in an anticipation to give a fillip to the struggling infrastructure sector, especially projects with lower returns. This fund infusion is a follow-on of this year’s Budget announcement and announced to help NIIF raise ₹1.1 lakh crore by 2025 for financing infrastructure projects (as a part of the National Infrastructure Pipeline). So far, the actual investments made by 3 NIIF funds is close to ₹20,000 crore. NIIF Strategic Opportunities Fund has set up a Debt Platform comprising an NBFC Infra Debt Fund and an NBFC Infra Finance Company and the Platform has a loan book of ₹8,000 crore and a deal pipeline of ₹10,000 crore.

The Central government task force on NIP had in April firmed up a road map for capital investments of Rs 111 lakh crore in infrastructure up to FY25. As much as 31% or more of the total envisaged investments would have to be raised through debt from the bond market, banks and shadow lenders. Earlier this fiscal, the government had said out of the total expected capital expenditure, projects worth Rs 44 lakh crore (40%) were under implementation, projects worth Rs 33 lakh crore (30%) were at a conceptual stage, projects worth Rs 22 lakh crore (20%) are under development (project identified and DPR prepared, but yet to draw-down funds) and the balance projects worth Rs 11 lakh crore (10%) were unclassified.

Apart from that, Rs 10,200 crore will be given as direct support for infrastructure creation. Another Rs 3,000 crore has been announced for financing projects set up by Indian companies overseas. The Central government would give Rs 3,000 crore to the EXIM Bank to promote project exports under Indian Development and Economic Assistance Scheme (IDEAS Scheme). Performance security on contracts has also been reduced to provide ease of doing business and relief to contractors whose funds would otherwise remain locked up.

Meanwhile, the one-and-a-half-decade-old mechanism of viability gap funding (VGF), which made only modest headway in promoting investments in long-gestation infrastructure projects, is being revamped with a focus on social infrastructure, including education and healthcare. The Cabinet Committee on Economic Affairs (CCEA) approved VGF for public-private partnership (PPP) projects till 2024-25, with a total budgetary outlay of Rs 8,100 crore. Financial support by PPPs in economic projects designed for social infrastructure will cost the central exchequer Rs 6,000 crore in five years through FY25 while a scheme for social infrastructure will cost Rs 2,100 crore during the period. The first scheme is aimed at boosting wastewater treatment, water supply, solid waste management, health and education sectors, all of which face bankability issues and poor revenue streams to cater fully to capital costs. The projects eligible under this category should have at least 100% operational cost recovery.

Further the government is weighing a raft of proposals, including relaxing rules to enable insurance firms and pension funds to put in long-term capital in infrastructure projects, as it seeks to spur job creation and bring the Covid-hit economy back on track fast, IRDAI, EPFO and PFRDA are learnt to have initiated discussions on tweaking regulatory guidelines to draw more investments into infrastructure. The government also will soon set up the proposed Credit Guarantee Enhancement Corporation, which will likely have an authorised capital of Rs 20,000 crore. It will offer guarantee to bonds issued by completed projects and help their rating profile. This, in turn, is expected to enhance the confidence of long-term investors in these projects and enable them to commit funds.

The Prime Minister has held talks with 20 top sovereign wealth funds and pension funds officials, including Saudi Arabia, Kuwait, Qatar and Singapore to attract their investments in sectors including telecom, transport, logistics, energy, and education with tax exemptions. Abu Dhabi’s Sovereign Wealth Fund-MIC Redwood 1 RSC Limited-became the first foreign SWF to be granted 100 per cent income-tax exemption for long-term infrastructure investments. SWFs and Pensions funds are being wooed since they hold trillions of dollars in assets, of which a large slice is usually invested in long term debt or equity.

The Department of Investment and Public Asset Management (DIPAM) has signed an agreement with World Bank for advisory services for asset monetization. DIPAM is mandated to facilitate monetization of non-core assets of government CPSEs under strategic disinvestment or closure and enemy property of value of Rs 100 crore and above and is aimed at analysing public asset monetization in India and bench- marking its institutional and business models against international best practices as well as supporting the development of operational guidelines and capacity building for their implementation. Asset monetization involves the creation of new sources of revenue by unlocking value of hitherto unutilized or underutilized public assets.

The Government of India, the Government of Meghalaya and the World Bank signed a $120 million project this month to improve and modernise the transport sector of state of Meghalaya. The project will improve about 300 km of strategic road segments and stand-alone bridges by using innovative, climate resilient, and nature-based solutions.

The Asian Development Bank (ADB) has approved a US$132.8 million loan to improve power quality and upgrade the power distribution network in India’s northeastern state of Meghalaya. The Government of India and the Government of Meghalaya embarked on a joint initiative in 2015, called 24X7 Power for All Meghalaya. The project will construct 23 substations; renovate and modernize 45 substations, including the provision of control room equipment and protection systems; and install and upgrade 2,214 kilometres of distribution lines and associated facilities covering three out of the six circles in the state. The loan will be supplemented by a US$2 million grant from ADB’s Japan Fund for Poverty Reduction. The project will help develop a distribution sector road map and a financial road map for the Meghalaya Power Distribution Corporation Limited (MePDCL).

The KfW, German development bank, has extended a loan worth 545 million euro to MMRDA for infrastructure projects in Mumbai. The loan is in a bid to expand the mass rapid transit system of the largest metro railway network worldwide. It is KfW’s single largest credit line to an infrastructure project in India. Furthermore, the funds will be disbursed through an agreement with the Finance Ministry of India and will be utilised to support two key mass transit projects in Mumbai.

The Coastal Shipping Bill, 2020, which proposes to do away with the requirement of trading licence for Indian flag vessels for coastal trade besides creating a competitive environment to reduce transportation costs, has been circulated for inter-ministerial consultation. The Inland Waterways Minister said, once the legislation is enacted, it will give a big impetus to coastal cargo movement and reduce logistics costs. Once approved, the coastal infrastructure will be augmented and necessary changes will be done in rules and regulations pertaining to coastal shipping. The ministry has drafted the Coastal Shipping Bill, 2020, in lieu of part XIV of the Merchant Shipping Act, 1958. The Bill also proposes integration of coastal maritime transport with inland waterways.

The Centre has renamed the Shipping Ministry as the Ministry of Ports, Shipping and Waterways, days after the Prime Minister made an announcement to this effect. According to a notification issued, maritime shipping and navigation, provision of education and training for the mercantile marine, lighthouses and lightships, administration of the ports, shipping and navigation — including carriage of passengers, and goods on inland and national waterways — will be under it. Other subjects that will come under the Ministry of Ports, Shipping and Waterways include shipbuilding and ship-repair industry, ship-breaking, fishing vessels industry, floating craft industry among others. Various autonomous bodies like the Port Trusts in Mumbai, Kolkata and others, the Inland Waterways Authority of India and the Shipping Corporation of India will also come under the ministry.

The Gujarat Maritime Board (GMB), a nodal agency of the Gujarat government, has been trying to develop a maritime cluster at GIFT City in the state capital Gandhinagar through its subsidiary Gujarat Ports Infrastructure and Development Company Ltd (GPIDCL). Simply put, a maritime cluster is an agglomeration of firms, institutions, and businesses in the maritime sector that are geographically located close to each other. This cluster will initially consist of Gujarat-based shipping lines, freight forwarders, shipping agents, bunker suppliers, stevedores, and ship brokers with chartering requirements. In the second stage, the cluster would attempt to bring Indian ship owners, ship operators, Indian charterers and technical consultants scattered in cities like Mumbai, Chennai, and Delhi to Gujarat. Thereafter it would target to attract global players in the maritime sphere.

The Mormugao Port Trust (MPT) has written to the Union shipping ministry rejecting four projects under Sagarmala. A survey report was prepared of the proposed projects and MPT has written to the shipping ministry that four projects are not feasible. It has said that in no way the project to deepen the channel and get more vessels can be carried out. Development of two numbers of berth and connecting flyer of Indian Navy and Coast Guard at Vasco Bay has also been dropped giving various reasons. A proposal for central harbour for iron ore and coal terminal also stands rejected including a multiplex terminal at Betul that too has been dropped.

JSW Infrastructure will sign a deal in the next few days to buy Chennai-based Chettinad Builders for about Rs 960 crore, which will give it control over three bulk cargo handling terminals. Of the three bulk cargo handling terminals, two are with Kamarajar Port and one with the New Mangalore Port Trust. The deal is likely to be funded by the IndusInd Bank. The cargo terminals being acquired include a 10 million tonne common user coal handling terminal at Kamarajar Port, a two million tonne multi-cargo terminal also at Kamarajar Port and a 10 million tonne common user coal terminal at the New Mangalore Port Trust.

Transport infrastructure in India has emerged as one of the biggest recipients of loans under the Asian Infrastructure Investment Bank’s (AIIB) Covid-19 Crisis Recovery Facility (CRF). One project currently under preparation is the Chennai Metro Rail Phase 2 Project (Corridor 4), has a US$356 million sovereign loan approved by AIIB to partially support the construction of 16 kilometres of elevated viaduct, 18 elevated stations, and the construction of seven underground stations. The Haryana Orbital Rail Corridor Project involves a 144-kilometre, dual-track, electricity-run railway line with 14 stations. Components to be financed via a US$400 million AIIB loan include tunnels, bridges, embankment, stations, signaling, and land acquisition. AIIB has also approved a US$359 million sovereign loan for the Maharashtra Multi-Modal Corridor Package III Project, which consists of the construction of 24.5 kilometres of toll expressway, including interchanges. AIIB is already supporting the Delhi-Meerut Regional Rapid Transit System via a US$500 million sovereign loan involving development and construction of an 82-kilometre rapid transit system which connects Sarai Kale Khan in Delhi to Modipuram in Meerut, Uttar Pradesh.

Giving a big push to the construction of expressways and to provide faster connectivity to upcoming logistics hubs, the National Highways Authority of India (NHAI) has invited bids for one package of the 263 km Bengaluru-Chennai Expressway. The work on this four-lane expressway project, which will provide high speed and seamless connectivity to two upcoming logistics parks in Bengaluru and Chennai, will start in February or March.

India will aggressively woo sovereign wealth funds (SWFs) and pension funds with tax exemptions to entice them into investing in sectors including telecom, renewables, water, and sewage treatment plants, transport, logistics, energy, industrial parks and education. Talks are ongoing with some of the top pension funds including from the US, Norway and Denmark, as well as with SWFs from Saudi Arabia, Kuwait, Qatar and Singapore to invest in long term projects. The government has identified about two dozen infrastructure projects in the highways, airports, ports and metro rail sector for funding support.

These projects include the second airport in Chennai, the Jewar Airport in Greater Noida, and Navi Mumbai International Airport. Expansion of the JNPT port, the delayed Chardham project, and the Ahmedabad metro rail among the other prominent ones.

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