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Case Studies on Transport Infrastructure Industry in India
Transport Infrastructure
Forecast Scenario
India's transport infrastructure needs substantial investment; however,
while some modes of transport are experiencing a boom in investments, others
are falling far short of targets, with high level of bureaucracy and
inefficient planning regulations stalling project approvals. For this reason,
transport infrastructure industry value growth will marginally underperform
compared to its counterpart, with annual average real growth of 11.1% between
2010/11 and 2015/16 (compared to 11.4% for energy & utilities
infrastructure).
The bottlenecks in transport infrastructure funding have meant that
investment has fallen short of targets under the 11th Five Year
Plan, according to the midterm appraisal. Transport investment targets declined
by 20% overall, knocked by substantially lower than anticipated investment in
ports, railways and even roads, in the first half of the five year plan period.
Growth in the subsector slowed to just 6.5% in 2009/10 according to BMI
, as roads, ports and railways all underperformed in terms of investment
potential and expectations. In addition to the obstacles that pervade the
entire infrastructure sector, the transport sector is plagued by land clearance
issues more than any other sector.
Although we are pessimistic for the country's business environment, the
sheer level of demand and number of projects in the planning phase means growth
will be assured. Bearing this in mind, it is inevitable that certain sectors
will outperform others.
Airports will be a clear outperformer in growth terms, with annual average
growth of 11.4% now forecast for the sector over the same time period -- driven
by a strong project pipeline for both regional and international airports, and
investor confidence in India's aviation sector. Airports were one of the few
sectors to have investment targets revised upwards following the mid-term
appraisal of the 11th Five Year Plan (2007/08 - 2010/11), up from INR310bn
(US$6.8bn) to INR361bn (US$7.9bn). This is a clear indication that funding is
flowing into the sector, perhaps due to better planning procedures, but also
because of the willingness of the private sector to invest.
Railways are also expected to outperform, not because of long -distance rail
networks, with the one exception being the Dedicated Freight Rail Corridor
(DFC), but due to urban rail projects. India is planning to develop metro
systems in all of its large cities to tackle high levels of congestion from a
population that is becoming increasingly urban. Plans are moving forward in
Mumbai, Delhi and Hyderabad. This is driving our 12% annual average growth
forecast for the sub sector between 2010/11 and 2015/16.
Transport Infrastructure Overview
India's transport infrastructure must cater for a booming population, a
growing economy and a demanding
import and export sector. India's population is
expected to expand rapidly over BMI's medium-term forecast period from a
predicted 1.17bn in 2010/11 to 1.25bn by 2015/16. The country's economy is also
expanding rapidly, with average real growth of 8.1% y-o-y between 2010/11 and
2014/15 forecast.
Major Road System
India boasts the second largest road network in the world after the US,
with a total of 3,383,344km of roadways, of which 1,603,705km is paved. The
majority of the country's freight is transported by road, with 65% of total
cargo carried by road in 2008. Demand is also rising due to increasing car
ownership. BMI estimates that in 2010, 6.7% of the population owned a
car. By 2015 we expect this to reach 11.1%. To meet this growing demand and
prevent continued congestion in urban areas India will need to invest in
expanding the road network to increase connectivity in the country as well as
maintaining its existing roads.
Although targets are being downgraded, the scale of infrastructure
development is still considerable, relative to other emerging markets. Building
12-13km of roads per day is still a sizeable target, which if achieved will
still drive growth in industry value over our forecast period. Things are
moving forward, Nath notes that in 2008/09 just eight road projects were
awarded compared to 32 road projects in the 2009/10 fiscal year.
Port Sector Flowing
A major element of transport infrastructure within India and one that is
expected to grow considerably is India's ports. The country has 12 major ports
and 140 minor ports along its extensive coastlines.
The most important ports are located at Chennai (Madras), Kochi (Cochin),
Jawaharal Nehru, Kandla, Kolkata (Calcutta), Mumbai (Bombay) and
Vishakhapatnum. The major ports are operated by port trusts set up by central
governments, while the minor ports tend to be operated by state authorities.
Efficiency levels at Indian ports are relatively low. While the total number of
berths appears to be adequate to deal with current cargo turnover, the use of
mechanised equipment for loading and unloading operations is limited, meaning
that turnaround times are quite high and handling costs for general cargo and
for containers are also high.
India's rapidly expanding trade requirements are expected to put immense
strain on the country's existing port infrastructure, with India's Planning Commission
predicting tonnage throughput at the 12 major ports to double to 1bn tonnes by
2012, according to Bloomberg. The commission has said that there is a need for
US$20bn of investment between 2007and 2012.
The private sector is being targeted to provide much of this investment, and
in September 2009 the government announced plans to award contracts for 28
projects across the country worth a total of US$4.11bn.
Despite undeniable opportunities in India's port sector, bureaucratic
inconsistencies and issues with competitiveness are presenting a number of
deep-rooted obstacles in the country's port sector. In late 2009, two container
terminal auctions were dropped, both of which had encountered problems with
companies, which were unsatisfied with the reasons given for their ejection
from tender process and had subsequently taken the respective port trusts to
court. While this is a rare occurrence, it highlights possible issues with
competitiveness.
Another example of this is the exclusion of certain countries from bidding
on projects based on national security concerns. Since 1997, Chinese firms or
groups with Chinese connections have been banned from participating in Indian
port projects, according to Mint. In February 2009, Mint reported that firms
from the UAE had also been banned. However, according to Mint, this regulation
is enforced inconsistently, as some companies are allowed to participate and
others are not.
A further threat to India's port sector comes from bureaucratic
inconsistency. In August 2009, India's Ministry of Environment and Forestry
imposed a three-month moratorium on proposals for new ports and harbours unless
they were expansions of existing projects. The moratorium is in place until the
ministry develops a policy for assessing the impact of new port projects on the
country's coastline. However, at the same time, the Shipping Ministry is
pushing to get clearance for port projects and the finance ministry has
requested that it stick to the original model concession agreement for ports in
order to get them passed, according to the Economic Times.
While these issues do not detract from the opportunities in India's port
sector, what they do highlight is that investors should be aware of the risks
related to India's PPP framework and the inconsistency associated with the
bureaucracy and legal regulations.
Rail and Air
India has a total of 63,221km of railways, of which approximately 71% is
broad gauge (46,807km). About 23% of the total railway system is electrified.
India has the world's fourth largest rail network after the US, Russia and
China and the second largest under single management.
The country has been developing its airport sector, not only for transport
of goods, but also to accommodate the growing numbers of international business
travellers and tourists visiting the country. India currently has 346 airports,
of which 250 have paved runways.
Investment in airports has been a clear outperformer in the transport
sector, with annual average growth of 12.9% now forecast for the sector between
FY2010/11 and FY2014/15 -- driven by a strong project pipeline and investor
confidence. Airports were one of the few sectors to have investment targets
revised upwards following the mid-term appraisal of the 11th Five Year Plan
(2007/08 - 2010/11). While transport investment targets declined by 20%
overall, conversely, investment targets for airports were raised from INR310bn
(US$6.8bn) to INR361bn (US$7.9bn). This is a clear indication that funding is
flowing into the sector, perhaps due to better planning procedures, but also
because of the willingness of the private sector to invest.
Airport infrastructure is being upgraded to support both international air
travel and domestic travel. An expansion in the number of International
Airports in Tier I cities has been seen, including a new airport in Mumbai in
the planning phase, as well as expansions at existing airports. However, as
both Tier II and Tier III cities grow in wealth and population, demand for air
infrastructure has come too, with regional, and in some of the largest cities
international, airports being established across the country.
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