Private Investment in Infrastructure: A Perspective

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Private Investment in InfrastructureA
Perspective
By Vinayak Chatterjee
Chairman

Chairman National Council on Infrastructure
December 20, 2006 New Delhi
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Vision For Next 5 Years (2007-2012)

• Approach Paper to the 11th Five Year Plan
  provides a vision for the period 2007-08 to
  2011-12.
• On 18th October06, Chairing a meeting of the
  Planning Commission, the Prime Minister set a
  target of 9 average economic growth for the 11th
  Plan.

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Gross Capital Formation in Infrastructure (GCFI)

• The Planning Commission suggests that
  investments will need to increase from 4.6 of
  GDP to between 7 and 8 in the 11th Plan
  period.
• This would entail an outlay of US 350 Billion
  across the 11th Plan Period (2007-2012).

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Mr. P. Chidabaram, Finance Minister

• There is enough private capital jostling around
  the world. We will have to change our thinking
  to tap these resources. ..The government is
  considering the removal of certain restrictions
  on the securitisation of debt raised abroad.
  Private wealth managers in the west who preside
  over investible funds should be encouraged to
  finance Indias infrastructure projects by
  putting in place necessary safeguards.

Speaking at the Infrastructure Seminar, Vigyan
Bhawan, New Delhi , 7th October06
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Mr. P. Chidabaram, Finance Minister (Contd..)

• We will have to think out of the box. We
  will have to accept that we are part of the
  global economy. .We dont have any financial
  instrument for savers who would like to keep
  their money for five years or more, except
  insurance policies. We will have to press ahead
  with pension and new insurance products to
  encourage long-term savings.

Speaking at the Infrastructure Seminar, Vigyan
Bhawan, New Delhi , 7th October06
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General Pattern of Funding

• World Bank sources tell us that in the 1990s
• 70 of infrastructure investment in developing
  countries came from governments or public
  utilities
• 22 came from the private sector
• 8 from official development assistance

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Perspective on Indian Infra Funding Sources
(US Billion)

Amount
100
350
Resources to be organized for infra investments
in 11th Plan Period
22
77
From Private Capital (Domestic and FDI)
11
39
From World Bank, ADB, JBIC and other
multilateral/bilateral agencies
67
234
From Public Expenditure
Slide 7
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Sectoral Requirement of Funds
(US Billion)
Amount

Sector
PPP Possibilities
34
120
Energy
67
19
Railways
49
14
Nat Highways
18
5
Irrigation
9
3
Airports
11
3
Ports
274
78
Envisaged
76
22
Others
350
100
Total
Telecom, Tourism, SEZs Townships, Supporting
Urban Infrastructure, Water Sanitation, State
Rural Roads, Logistics etc.
Slide 8
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Key Imperative ONE Private Sector

• Create enough attractive investment opportunities
  to channelise FDI and domestic capital by
• PPP initiatives leading to a large pool of
  bankable projects.
• Establishment of really independent Economic
  Regulators.

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Key Imperative ONE Private Sector(Contd..)

• PPP for the 11th Plan period should be to the
  tune of US 77 Billion.
• In a summary statement circulated in the document
  pack of the Infrastructure Seminar at Vigyan
  Bhawan on 7th October06, the total number of PPP
  projects listed officially was 346 with an
  estimated cost of US 31 Billion.

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Key Imperative ONE Private Sector(Contd..)

• Who is responsible for creating the required
  project pipeline ?
• Surely not the private sector.
• Private sector cannot create projects it can
  ONLY bid for them.
• The sovereign has to play the role of a
  visionary entrepreneur in the infrastructure
  sector unlike the product-market economy.

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Key Imperatives TWO Overseas Development
Assistance (ODA)

• Engage aggressively with multilateral agencies
  like
• World Bank
• Asian Development Bank and
• Japan Bank for International Cooperation
• to secure commitments totaling not less than US
  39 Billion for the 11th Plan period.

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Key Imperatives THREE Public Expenditure

• Structure large-scale projects (like Rail Freight
  Corridor, NHDP and Bharat Nirman) involving
  substantive public expenditure
• Implement fresh out-of-the-box initiatives to
  raise savings and resources for this purpose to a
  level of US 234 Billion.

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Key Imperatives Four Long Term Financing

• Create vibrant equity and long-term debt markets
  for infrastructure financing.

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Summing Up

• Project pipe-line creation
• Public expenditure ODA to pull private
  involvement.
• GCFI as key performance indicator
• Creation of independent economic regulators
• PPP policies and dedicated PPP cells
• Long-term debt markets
• Political will and public mind-set to implement
  user-pay charges
• Sovereign to be visionary entrepreneur.
• G-to-G opportunity structuring

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Closing Quote

• You and I come by road or rail, but economists
  travel on INFRASTRUCTURE.

Margaret Thatcher
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Thank You