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India’s pursuit of clean and green energy uptake has spread across all infrastructure sectors including railways, aviation and educational institutions as the country strives to achieve its Intended Nationally Determined Contributions through the installation of 100 GW of solar power capacity by 2022. The government is actively promoting innovative distributed solar generation installations in spaces such as lakes, ponds, canal tops, railway coaches, stations and airports. In this respect, airports hold significant potential for solar power generation due to the availability of large, flat and shadow-free areas such as rooftops of terminals and hangars, car parks and buffer land around runways. The solar power generated on airport premises can complement the massive power requirement of the terminals, leading to reduced electricity bills, especially through net metering. Moreover, the increase in air-conditioning load coincides with the highest generation during peak summer months, thereby compensating for the spurt in power demand. The aviation industry, which is highly carbon intensive and heavily dependent on oil and gas for flight operations, can look to reduce its carbon footprint and contribute to the achievement of the country’s clean energy targets by embracing solar power technology. The low gestation period, limited infrastructure requirement and shorter period for return on investment (four to five years) are some of the other factors that make a strong case for solar power generation at airports.
The aviation sector, which is highly carbon intensive and heavily dependent on oil and gas for flight operations, can look to reduce its carbon footprint and contribute to the achievement of the country’s clean energy targets by embracing solar power technology. The low gestation period, limited
infrastructure requirement and shorter period for return on investment (four to five years) are some of the other factors that make a strong case for solar power generation at airports.
With constrained airport capacity, the country is facing challenges in handling the steadily rising air traffic. As the country’s passenger traffic is projected to cross the 150 million mark in 2018-19, there is a pressing need to create additional capacity at Indian airports. At present, most metro airports are at the risk of saturation and many of the smaller airports are also operating beyond their design capacity. In this regard, the Airports Authority of India (AAI) is taking steps to augment the existing infrastructure and develop greenfield airports.
India Infrastructure Research provides a detailed account of the top airport projects which are either completed, under construction or in the pipeline…
Key completed projects
A total of seven key airport infrastructure projects have been tracked, which were completed in the past one year. Among these is a terminal building at the existing Vijayawada airport in Andhra Pradesh. It was inaugurated on January 12, 2017 and has been built at an estimated cost of Rs 1.62 billion. In March 2017, a new international terminal (T3) was commissioned at the Cochin international airport. This modern terminal has been built at an investment of around Rs 10 billion and has the capacity to handle about 4,000 incoming and outgoing passengers during peak hours. Later, in September 2017, AAI commissioned a terminal building and apron at Belagavi airport in Karnataka at a cost of Rs 1.2 billion.
Two greenfield airports have also been commissioned – one at Shirdi, Maharashtra and the other at Kishangarh, Rajasthan. Shirdi airport (developed at an investment of around Rs 3.5 billion) was inaugurated on October 1, 2017, while the airport at Kishangarh (developed at a cost of Rs 1.35 billion) was inaugurated on October 11, 2017.
The fledgling market for real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) has seen many regulatory changes in recent months. Despite the Securities and Exchange Board of India’s (SEBI) continuous efforts towards making the instruments attractive to investors, InvITs have had a dismal beginning. The failure of the two InvITs launched in 2017 (IRB InvIT Fund and India Grid Trust) to create much excitement on the bourses and the market still awaiting the maiden launch of a REIT is evidence of this. This has also forced other infrastructure developers to defer their plans to launch an InvIT. Pressing issues such as taxation-related anomalies and inadequate education about the product continue to keep investors at bay. In order to unlock the real potential of the investment vehicle, regulators have to bring more clarity on the product for ensuring its viability and success.
Infrastructure investment trusts
The infrastructure sector requires an investment of around Rs 50 trillion over the next five years. With the current state of the banking sector and the huge pile-up of developer debt, there was a need for a financial product which could deleverage the balance sheets of developers. In this regard, InvITs were deemed to provide a robust framework to developers to monetise their operational assets, thereby freeing up capital to be invested in new projects. An InvIT is a unique proposition, in the sense that it is a blend of both equity and debt.
The instrument is capable of breaking the vicious circle of infrastructure development. The vicious circle starts with infrastructure developers, with under-capitalised balance sheets, taking the debt-to-equity route to fund their equity investments. In addition, they borrow from various sources to finance their projects. The interest cost in the debt-equity structure, which starts accruing even while the project is under construction and has no revenue stream, starts hitting the profit and loss account and takes a toll on earnings, further worsening the balance sheet. In this context, InvITs can play an important role in creating a “virtuous cycle” of infrastructure development. The cash flow from the InvIT deleverages the balance sheet and also releases growth capital. This growth capital helps improve the project rating, which in turn, facilitates the securing of cheaper funds. This leads to higher profitability and helps the developer in undertaking new projects, which could further potentially get injected into the InvIT.
An understanding of InvITs has evolved over time, particularly among domestic investors who are gradually getting acquainted with the product. In the current scenario, investors are more cautious as they are waiting for the instrument to develop a track record, so as to assess its historical performance.
The lower-than-offer price trading of the listed InvITs is attributable mainly to three reasons. First, the product is new and is at a nascent stage. Second, the liquidity of the instrument on the exchanges is relatively low, which raises questions about its price discovery. Hence, there should be a market-making mechanism. Third, and most importantly, education and awareness about the investment vehicle are still inadequate. Also, the two listed InvITs were grossly “mis-sold” in the market, with the participation of institutional investors turning out to be lower than desired. SEBI does not allow sponsors to disclose yields from InvITs in the prospectus. Due to this, some investors, particularly retail investors, are facing problems in calculating the yields (adjusted for depreciation, etc.). Thus, the market regulator needs to proactively work on the documentation for InvITs. Further, only sophisticated investors – those that have a good understanding of the product – should be allowed to participate in InvITs.
A far more useful metric for InvITs is the net asset value (NAV), which is assessed every six months. This gives a better picture of the value at which InvITs should be trading. Laying too much emphasis on the unit price of an InvIT on the bourses will render a distorted value.
On the regulatory front, the regulations for InvITs are robust. That said, regulators have been cautious in formulating guidelines for the product given its complex structure. In order to enhance its appeal, some of the guidelines need to be tweaked. First, the high retail lot size for tapping the primary market is hampering public participation in the product. This needs to be ratcheted down for higher volume of trading and, in turn, better price discovery. Second, the leverage in such structures
is capped at 49 per cent, which is too low for operational infrastructure assets. Therefore, raising the leverage to more conventional levels of 70-75 per cent will increase equity returns.
India Infrastructure Research tracked a total of 568 ongoing projects across seven sectors – power, railways, water supply and sanitation, urban rail, airports, roads and ports. These projects are worth at least Rs 17.21 trillion. In terms of project cost, power projects at 31 per cent have the maximum share (Rs 5.4 trillion) which has been allocated for the execution of 73 projects. The railway sector (273 projects) has the second highest share of investment at 30 per cent (Rs 5.1 trillion).
Brownfield versus greenfield projects
With respect to the type of projects across the sectors under consideration, 56 per cent are brownfield expansion projects and the remaining 44 per cent are greenfield projects. In absolute numbers, the railway sector has 112 ongoing greenfield capacity additions, followed by the power sector with 53 ongoing greenfield projects. In the port sector, 36 greenfield projects are being developed. In the airport sector too several greenfield airport projects are being developed due to capacity being saturated at existing airports.
Sector-wise status
According to an analysis of ongoing power projects, about 63,592 MW of generation capacity will be added in the coming years. Of this, 8,866 MW will be added through large hydropower plants, while 54,726 MW of capacity will be added through thermal power projects (TPPs). In railways, 111 projects (worth Rs 1.87 trillion) involve 15,616 km of new line construction,
followed by 108 line doubling projects (Rs 1.54 trillion) for 16,661 km of rail network. Other projects being developed in the sector involve gauge conversion, electrification and station redevelopment. In the port sector, 76 ongoing projects have been tracked. These projects include the development of
cargo berths and container terminals, among other projects, at an investment of Rs 2.16 trillion. The urban rail sector has 57 monorail and metro rail projects. Once completed these are expected to add a length of 635.55 km to the urban rail network at an investment of Rs 1.92 trillion.
In the road sector, about 3,337 km length is being developed under 58 projects with an investment of Rs 1 trillion. In the water supply and sanitation sector, 20 ongoing projects have been tracked, entailing an investment of Rs 1 trillion. Segment-wise, 11 projects pertain to the expansion of water supply capacity, seven projects involve the setting up of additional sewerage treatment capacity and two projects involve the laying of stormwater drains. Overall, these projects are expected to create over 3,500 million litres per day of capacity and around 1,359 km of pipelines.
The aviation sector, another key sector, has about 11 projects under construction. These projects are being developed at an investment of Rs 517 billion.
Further, with respect to the road sector, 26 projects involving 423 km of four-laning works are ongoing, followed by 22 projects for developing 419 km of flyovers.
With the economy expanding at a rapid pace, the demand for energy has shown a significant increase, catapulting India to the position of the third largest energy consumer in the world after China and the US. To meet this massive growth in demand, India has been steadily increasing its oil and gas imports.
The past few years have seen a surge in competition between the major and non-major ports. The port sector is gradually moving away from the monopolistic market model to a more competitive one. The non-major ports currently account for close to 43 per cent of the total cargo traffic handled at Indian ports, a sharp increase from a share of 24 per cent in 2000-01. This increase in cargo share has been primarily led by the growth in private ports. While this scenario has motivated the major ports to initiate performance improvement measures, it has also pushed the non-major ports to create fresh capacity. As a result, maritime states have accelerated their efforts to further develop these ports.
India Infrastructure Research identified 489 major power projects (each with an investment of over Rs 10 billion) in the country, aggregating an investment of almost Rs 32.5 trillion. About 88 per cent of this will be invested in generation projects and the remaining in transmission and distribution (T&D) projects. The generation projects being considered will add over 440 GW to the installed capacity, while the transmission projects will add over 50,000 ckt. km to line length. Of the total investment value, about 42 per cent is accounted for by projects which are proposed for development by private sector players. With respect to the stage of development, 32 per cent of the projects are under construction and about 40 per cent are announced. At present, 18 per cent of the projects are currently stalled due to various issues such as delays in environmental clearances, financial constraints, delay in award of works, etc.
Explore the latest news on power, telecom, roads & bridges, construction,oil & gas, ports & shipping, aviation, railways, urban infrastructure and infrastructure finance from all over India on https://indianinfrastructure.com/ Keep yourself updated on the most recent news on infrastructure development in India through our website.
Expressway development has been a focus area for the government ever since the launch of the National Highways Development Programme. While Phase VI of the programme envisaged the development of 1,000 km of expressways, on-ground progress has been seen only in the past two-three years with the fast-tracked implementation of the Delhi-Meerut and Eastern Peripheral Expressways.
In October 2017, the Cabinet Committee on Economic Affairs approved the Bharatmala Pariyojana, under which expressway projects with an aggregate length of 1,837 km are envisaged to be developed. Of these, 800 km of expressways will be implemented under Phase I of the programme for which an outlay of Rs 400 billion has been approved. As a result, expressway development has gained momentum and there are 10 projects at various stages of implementation. The long-pending Vadodara-Mumbai Expressway project too has finally inched forward.
The Smart Cities Mission (SCM) aims to provide efficient urban mobility and public transport options in the 99 cities that have been selected under the mission. To this end, a number of smart mobility solutions such as public bicycle sharing (PBS), smart parking systems, smart cards, etc. are being developed in these cities.
A PBS system is basically a system that promotes bicycle riding in the city to reduce traffic congestion and provide last-mile connectivity from key locations such as bus rapid transit (BRT) and metro rail stops/stations, as well as other important places in the city centre. A number of cities such as Mysuru, Bhopal, Pune and Jaipur have already launched their PBS systems and those such as the twin cities of Hubballi-Dharwad are planning to launch their systems soon.
Bharti Infratel and Indus Towers, two of the leading telecom sector companies, are planning to merge their businesses to form a single tower company. The merged entity will have 240,000 towers. Earlier, Bharti Infratel was planning to acquire a controlling stake in Indus Towers and make the latter a subsidiary. According to the earlier plan, Bharti Infratel was to acquire the stake that it did not own in Indus Towers in an all-cash transaction and later sell the combined business to external investors. The decision to merge the two tower companies comes in the wake of Bharti Airtel’s announcement that it would list its Africa business to raise money. The new arrangement will also give freedom to each of the stakeholders of the merged tower entity to sell their stakes at their convenience.
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