Infra projects need innovative financing models: Survey

Infra projects need innovative financing models: Survey

Last Updated: Thursday, March 15, 2012, 17:17
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Infra projects need innovative financing models: Survey New Delhi: The Economic Survey 2011-12 said delay in infrastructure projects may affect competitiveness of the economy in long run and called for and "new models of financing" the sector whose funding requirement in the 12th Plan is estimated at around USD 1 billion.

"In view of the massive requirement of funds, all efforts need to be made to attract big-ticket long-term investors such as strategic investors, private equity funds, pension funds, and sovereign funds," the Survey tabled in Parliament Wednesday said.

It added that "there is a need for introducing more innovative schemes to attract large-scale investment into infrastructure...Strengthening domestic financial institutions and development of a long-term bonds market may be critical".

Stating that 50 percent of the projected investment will come from the private sector in the next Five Year Plan, the survey said, "financing infrastructure will, therefore, be a big challenge in the coming years and will require some innovative ideas and new models of financing".

Taking a cue from the realisation of investment targets for infrastructure during the current Plan, the survey expressed hope that financing of the ambitious 12th Five Year Plan investment target would be possible.

According to the survey, the bank credit to the projects in the sector had witnessed a healthy growth of 48.4 percent per annum during 2006-11, increasing from Rs 30,286 crore during 2006-07 to Rs 146,767 crore during 2010-11.

However, the credit growth has turned negative in the current financial year and at Rs 70,155 crore, net credit to the infrastructure sector during April-December 2011 was nearly 61 percent lower than the same period of last fiscal, it noted.

The survey also called for "a conducive environment for private sector participation with a transparent and credible regulatory mechanism" for financing the infrastructure projects, so that to reduce the pressure on public-sector funding.

Emphasising that the performance in core infrastructure sectors is still to a large extent dependent on public sector projects, it said that in the next Five Year Plan, the public sector investment will need to increase to over Rs 22.5 lakh crore, a rise of over 71 percent than the current Plan.

Noting that out of 583 projects in different infrastructure sectors, 235 are delayed as on October, 2011, and have seen cost overrun of 15.3 percent cumulatively, the survey said that the sector has also suffered due to a time lag in the physical capacity creation and time overruns.

"These not only delay availability, but through cost overruns raise pricing and affordability issues. Infrastructure costs, as these are often non-tradeables, may also affect the competitiveness of economy in long run," it further said. The original cost of the 583 projects when sanctioned was Rs 7,12,812 crore but this was subsequently revised to Rs 8,21,665 crore, implying a cost overrun of 15.3 percent, the survey said.

It further said that maximum number of projects delayed relate to road transport and highways (90) followed by power (45), petroleum (29), railways (26), and coal (17).

"Such delays increase project risks and costs and could be minimised," the survey said.

It noted that in the majority of cases, the delays are mainly due to a dismal record of project implementation starting from project identification, designing procurement and ineffective project monitoring.

Stating that the performance of various infrastructure sectors in 2011-12 present a mixed picture, the survey noted that only seven projects are ahead of schedule and 175 projects have been sanctioned without any specific schedule of commissioning.

"A harmonised list of main sectors and sub-sectors of infrastructure approved by the government to serve as a guide for all agencies responsible for supporting infrastructure is a welcome move," it said.

Sectors like power, petroleum refinery, cement, railway freight traffic, passengers handled at domestic terminals and upgradation of highways have been growing in the current fiscal, while coal, natural gas, fertilisers, export cargo at airports, and the number of cellphone connections showed negative growth, the survey said.

It added that roads and highways sector is yet to achieve the target of 20 km roads a day due to delays in land acquisition and environmental and forest clearances, labour issues and local law and order problems.

"Several initiatives have been taken for resolving these issues and it is expected that during the 12th Plan road construction work will pick up," it added.

First Published: Thursday, March 15, 2012, 17:17
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