Locked promoter equity in financially stressed infra projects are hampering the growth of PPP


Ahmedabad

Infrastructure projects on the PPP mode have been de-growing owing to a shrinking equity resulting in a lack of promoters’ interest. A further slowdown in the infusion of fresh equity have led to over-leveraged balance sheets of key developers of such projects, posing as a severe limitation for domestic players. A large number of delayed projects are also turning bank loans into non-performing assets (NPA) and constraining banks from lending to the infrastructure sector.

The key highlights emerged at a conference on ‘Financing Infrastructure: Thinking Afresh’, organized by the CII-Gujarat NRE Knowledge Application and Facilitation Centre in association with the India Infrastructure Finance Company Ltd. and the Gujarat Infrastructure Development Board.

Addressing the conference, Dr. J. N. Singh (IAS), Additional Chief Secretary, Finance Department, Government of Gujarat said, “As per the Global Competitiveness Report of 2014-15, India ranks 87 in infrastructure. In the first two years of the 12th Plan, several indications suggest that infrastructure investment has slowed down and there is a likely shortfall of 30%. The Economic Survey of 2014-15 states that the leading reason for slowdown in investment is because of stalling of projects and the number of stalled projects is dominated by infrastructure. There were 585 projects in the private sector and 161 projects in the government sector that were analyzed. Fresh equity from foreign funds is required on the equity side.”

To add to this, the volatile market conditions and issues related to delays in securing environmental clearances generate a situation where access to finance is no longer the sole reason behind insufficient infrastructure development.

According to Mr. Ajay Bhadoo (IAS), Secretary to the Chief Minister of Gujarat and CEO of the Gujarat Infrastructure Development Board, infrastructure projects given their long life require long term finance.

“The risk profile of projects make them unattractive to banks and financial institutions. What is required is financial intermediation and new sources like pension and insurance funds. There is an urgent need to bridge the gap by viability gap funding or equity support of by credit enhancement by facilities like IIFCL. There is a need to develop a vibrant bond market,” he said.

One of the initial success stories of PPP in infrastructure arose in the road sector where both the government and private players took huge strides. But the honeymoon lasted only 3—4 years from 2009-12 and soon contradictions surfaced. Aggressive and unsustainable bidding in tenders, problems of land acquisition and a declining GDP growth all added fuel to fire and PPP in the road sector is non-existent now. On the debt side, refinancing is expected to take care of the asset liability mismatch of commercial banks who are major lenders in infrastructure.

Yatindra Sharma, Past Chairman – CII Gujarat stated, “The Government’s decision to constitute a National Investment and Infrastructure Fund (NIIF) could not have come at a more appropriate time when the sector is plagued with financing challenges. Infrastructure Debt Funds (IDFs) are also getting active in financing infrastructure projects – even under the Union Budget discussion, it has been indicated that India would be spending an additional 700 billion rupees or $11 billion, on roads, railways, ports and other projects next year.”

Government has also taken several initiatives to revive PPP in the infrastructure space including reviewing the concession framework, appropriate risk sharing mechanism, fast tracking decision making and increasing public outlay.

Mr. Yaduvendra Mathur (IAS), Chairman & Managing Director, Export-Import Bank of India highlighted that there is an institution design problem India is grappling with when it comes to infrastructure funding. There is a need to allow Indian infrastructure companies to go overseas to tap funds. The future was all about strengthening institutions, he said.

“With so many options available for financing infrastructure in the country, the country needs to simulate a policy-market discussion on finer nuances of each financing option and I am glad to be a part of this initiative today”, he added

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