Infrastructure Finance Update December 2020
The infrastructure sector remains to be the priority area for investment of the current government to undertake the economic recovery in the post-pandemic times. To press ahead with the projects in this sector last month, the Ministry of Finance announced approval of infrastructure projects worth Rs. 12,000 crore. The projects approved are the industrial corridor nodes in Andhra Pradesh and Karnataka along the Chennai-Bengaluru Industrial Corridor and multi-modal logistics and transport hubs at Greater Noida in Uttar Pradesh. Rs.7,725 crore will be spent for the proposed greenfield industrial cities, to build road and rail connectivity to ports and logistic hubs with power and social infrastructure. Rs. 2,139.4 crore will be invested in the Krishnapatnam industrial area in Andhra Pradesh, and projects in Tumakuru industrial area in Karnataka are estimated at cost of Rs. 1,701.8 crore. While, Rs. 3,883.8 crore is approved for the multi-modal logistics and transport hubs at Greater Noida.
The discussions on the formation of a new Development Finance Institution (DFI) also continues with reports stating that there are plans to set up a DFI to meet the needs of the infrastructure sector. However, it is noted the lack of a sustainable source of funds, can prove to be a serious constraint to the proposed DFIs. Subsidised credit from the government and the Reserve Bank of India (RBI) has not proved to be a sustainable source in the past. Moreover, the bond market in India is awaiting reforms before it can become deep and liquid, and prove to be such a source. The intent behind setting up a DFI is that infrastructure requires long-term financing and banks are not suited to finance infrastructure projects.
In addition, the government is also undertaking a comprehensive review of the developmental roles of state-run financing entities, such as PFC, IREDA, NHB and Hudco, to gauge if their functions and objectives need to be tweaked or expanded to better suit the current imperative of fast bridging a yawning infrastructure deficit in India. There appear to be plans to announce in the upcoming budget, a large development finance institution (DFI) with its partial ownership — which will have considerably higher risk appetite than banks — to finance rural infrastructure. It also intending to convert the state-run India Infrastructure Finance Company (IIFCL) from a non-banking finance companies (NBFC) into a DFI, with more ambitious project-funding goals.
Recommendations have been forth coming to scale up infrastructure sector projects in the face of challenges such as the five year low economic growth rates, highly constrained bank credits, falling private investments to decadal lows, public-private partnerships in the infrastructure sector yet to recover from the project failures. The recommendations include – one, injecting private investments through primarily reviving DBFOT or design, build, finance, operate and transfer mode of any project execution, and further through, raising investment resources via aggressive asset monetisation. Two, overhauling credit ecosystem – through a bond guarantee or enhance credit funds for the projects so that the bond market is rejuvenated to fulfil the financing requirements of the sector. Three, use of latest technologies such as augmented reality (AR), UAV and drones, 3D printing, Internet of Things (IoT) and Building Information Modelling (BIM) come in handy when fast-tracking construction projects. Four, streamlining priorities by identifying the key programmes and ventures so that it can direct resources to only those, rather than spreading them all over multiple projects.
The Krishnapatnam Port Co Ltd (KPCL), owned by Adani group has received environmental and coastal regulation zone (CRZ) clearance for the third and final phase expansion of the port, with an investment of Rs. 12,256 crore. The port is in Nellore district of Andhra Pradesh and currently the capacity to handle 64 million tonnes (mt) of cargo and 2 million twenty-foot equivalent units (TEUs) of containers. This third-phase development includes constructing twenty berths and three Single Buoy Moorings (SBMs) to create capacity for handling an additional 154 million tonnes (mt) of dry and liquid bulk cargo plus 2.2 million TEUs of containers. Once the project is completed, it will increase the capacity to handle 250 mt of non-container cargo and 5.5 million TEUs of containers.
In addition, the expansion of the Paradip port in Odisha at an initial cost of ₹3,005 crore was also approved under the public-private partnership (PPP) mode, to enable handling of large cargo. The project entails the development of a new western dock and capital dredging by the selected concessionaire at a cost of Rs. 2,040 crore and Rs. 352.1 crore, respectively; and an investment of Rs. 612. 5 crore by Paradip Port for common supporting project infrastructure.
The government has also proposed to create product specific warehouses at various major and non-major ports across the country. The proposed warehouses will cater to a host of products such as cement, electronic products, pharmaceuticals, auto spares parts and components. They will also be equipped with liquid tanks, chemicals tanks and also provide refrigerated storage facilities.
According to Financial Express, Sterlite Power, the electricity transmission infrastructure company inked a 50:50 partnership with AMP Capital to build four transmission projects in the country. AMP Capital and Sterlite Power will invest $150 million each on the development of 1,800 km of transmission lines.AMP Capital is a global investment firm, owned by Australia’s AMP, and manages $21 billion infrastructure equity and debt assets. While, few months ago Sterlite had announced that 14.7% of its stake in India Grid Trust InvIt, an Infrastructure Investment Trust, was sold off for Rs 840 crore. Sterlite Power had sold eight assets worth about Rs 11,500 crore to IndiGrid with another Rs 6,500 crore likely to be sold very soon.
Last month also saw Larsen & Toubro as the winning bidder for multiple infrastructure projects, for ONGC, Nuclear Power Corporation and Chennai Metro. The projects will be executed by L&T Hydrocarbon Engineering (LTHE), a wholly owned subsidiary of Larsen & Toubro Limited.
The Minister for Road Transport and Highways has announced Rs 85,000 crore for various infrastructure projects in Assam. Initially, 19 projects for a sum of Rs 14,000 crore will be awarded in 2021, while DPR is in pipeline for further twenty projects worth Rs 26,000 crores. Construction of a multi-modal logistic park (MMLP) in Silchar, the second MMLP in Assam will be developed after the one being made in Jogighopa.
The Ministry also inaugurated Rs 13,169 crore worth highway project of 765.66 km in Telangana. In a statement issued, the Union Minister added that there has been a growth of 55.71 per cent NH length in the last six years in Telangana. In 2014-15, construction of 841 km roads worth Rs 4,793 crore was done. And that currently, further construction work of 809 km NH with Rs 13,012 crore costing was carried out.
Further, the Green National Highways Corridors Project of the Ministry which is expected to construct 783 km of highways will receive a loan of US $ 500 million, for the states of Rajasthan, Himachal Pradesh, Uttar Pradesh and Andhra Pradesh. Accordingly, it is also expected that this project will enable analytics to map the freight volume and movement pattern on the National Highway network, identify constraints, and provide innovative logistics solutions.
Union minister for road transport and highways Nitin Gadkari on Friday laid the foundation stones for 14 national highway projects, stretching across 270 kilometres in total and worth over Rs 4127 crores, in Nagaland. The minister also inaugurated the newly improved portion of NH-39 at the commercial city of Dimapur during a virtual launching event.
In updates from the international financing the State of Meghalaya will receive a US $ 133 million loan by entering into agreement with the Asian Development Bank (ADB) to strengthen the power distribution sector as part of its ‘24×7 Power for All’ initiative. ADB’s Japan Fund for Poverty Reduction will provide supplementary loan by a US $ 2 million grant to finance renewable energy projects and for supporting income generation activities for women and other disadvantaged groups, said a finance ministry statement.
Asian Development Bank (ADB) has approved a USD 190 million (over Rs 1,400 crore) loan for modernisation and upgradation of power distribution system in Karnataka’s capital city of Bengaluru. The funding for the Bengaluru Smart Energy Efficient Power Distribution Project by ADB includes a USD 100 million sovereign loan and a USD 90 million without sovereign guarantee loan to Bangalore Electricity Supply Company Limited (BESCOM).
Multi-lateral funding agency Asian Development Bank (ADB) on Tuesday said it will provide loan of USD 562.8 million (about Rs 4,143 crore) for power projects in Uttar Pradesh and Meghalaya. The Asian Development Bank (ADB) has approved a USD 430 million multi-tranche financing facility (MFF) to improve the quality and reliability of electricity supply in Uttar Pradesh in India, it said in a release.
The World Bank’s Board of Executive Directors today approved a $105 million project to improve the inland water transport infrastructure in the capital city of Kolkata in West Bengal, India. The West Bengal Inland Water Transport, Logistics and Spatial Development Project will facilitate passenger and freight movement across the Hooghly river; undertake spatial planning to improve accessibility in the Kolkata Metropolitan Area; enhance the quality of life of its residents; and contribute to the growth of the state’s logistics sector.
Asian Infrastructure Investment Bank (AIIB) has approved a US$100 million investment into the ADM Capital Elkhorn Emerging Asia Renewable Energy Fund targeting small and medium-sized enterprises (SMEs) and projects operating in the renewable energy and energy efficiency sectors across emerging economies in Asia.
In further international agreements, the US International Development Finance Corporation (DFC) has announced to make an equity investment in India’s National Infrastructure Investment Fund (NIIF), to the tune of US $ 54 million. DFC is eyeing NIIF as a key partner in the Indo-Pacific region as well as for easy investments in several infrastructure projects in India. DFC will bring high standards like the Blue Dot Network & commitment to the best practices with regards to the management and transparency of the social and environmental risks. Further investment into its ‘master fund’ from Canada’s PSP Investments and domestic private sector lender Axis Bank has been announced.
After the new commitment from the three investors totalling US $ 107 million, ‘master fund’ has touched US $ 2.34 billion with NIIF declaring the final close of its master fund. A $ 2.1 billion fund is also targeted by NIIF to be raised for an India focused private equity fund, named as NIIF’s Strategic Opportunities Fund. Other NIIF investors include the Government of India, Abu Dhabi Investment Authority (ADIA), AustralianSuper, CPP Investments, Ontario Teachers’ Pension Plan, Temasek, HDFC Group, ICICI Bank and Kotak Mahindra Life Insurance.
In a move to fast track the ongoing smart city projects in the state capital before 2021-22 financial year end, the Karnataka government on Wednesday announced the launch of Bengaluru Mission 2022 to ensure timely progress and completion of 35 ongoing projects in Bengaluru in the next two years. Some of the key projects to be fast tracked under Bengaluru Mission 2022 include improvement of 12 high density corridors (190 km) by Karnataka Road Development Corporation Ltd, faster completion of roads taken up under Smart City works, annual maintenance contract for arterial roads (400 km), enhancing road appearance by undertaking kerbstone painting and lane markings, and installation of synchronous signal lights.
On the private investments front, India Grid Trust (IndiGrid), the KKR-owned first Infrastructure Investment Trust (InvIT) in the Indian power sector, has acquired India portfolio of Fotowatio Renewable Ventures (FRV), the Madrid-based developer, in a deal worth Rs.660 crore.
It has been reported that Private equity major Actis Llp is in talks to acquire highways infrastructure firm Ashoka Concessions Ltd in a potential deal having an enterprise value of around $1.2 billion. The deal having an equity value of around $350 million. Ashoka Concessions’ roads portfolio comprises 15 assets, including six operational build, operate, transfer (BOT) toll projects, one operational BOT annuity project and eight under-construction hybrid annuity projects.