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Road, Railway & Port projects fall short of investment targets in 11th Plan
Road, Railway & Port projects fall short of investment targets in 11th Plan
Road, Railway & Port projects fall short of investment targets in 11th Plan
Road, Railway & Port projects fall short of investment targets in 11th Plan
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Road, Railway & Port projects fall short of investment targets in 11th Plan

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Infrastructure facilities like roads, railways, and ports have under-achieved their investment targets in the Eleventh Plan by -11%, -23%, and -54% respectively. Overall investment targets have only …

Infrastructure facilities like roads, railways, and ports have under-achieved their investment targets in the Eleventh Plan by -11%, -23%, and -54% respectively. Overall investment targets have only been achieved due to the strong performance of the telecom (34%) and oil & gas (655%) sectors.

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  • 1. Road, Railway & Port projects fall short of investment targets in 11 th Plan; Speedy dispute resolution & close monitoring will raise investor confidence: FICCI-E&Y ReportNEW DELHI, August 31, 2012. Dr. C. P. Joshi, Union Minister for Road Transport & Highways,today launched the FICCI- Ernst & Young report on ‘Accelerating implementation ofinfrastructure projects’ at FICCI’s ‘India Infrastructure Summit 2012’.The following are the key highlights of the report: Delayed projects: 78 projects delayed in road & transport sector followed by power with 47 and oil & gas with 31 Reduction in the railways’ share of traffic movement: The share of passenger movement by rail has declined from 74% in the 1950s to present levels of 13%, and for the same period, the share of freight movement by rail has dropped from 86% to 39%. Railways lagging behind in infrastructure development: The Indian Railways has only added 1,750 km of new lines, from 2006 to 2011. While China for the same period has added 4,000 km, excluding a high-speed network of around 10,000 km. Mounting pressure on handling port traffic: India’s 13 major ports and 60 operational non- major ports handle 95% of the country’s external trade by volume and 70% by value. Port traffic has increased at CAGR of 8.1% to reach 884.6 million tones with an average utilization of ~90%, as compared to the international average of 70%. Need for strengthening national highways: The National Highways only constitute around 1.7% of the road network, but carry 40% of the total road traffic. Yet only 24% of the country’s national highways are four-lane and meet the required standards.Infrastructure facilities like roads, railways, and ports have under-achieved their investmenttargets in the Eleventh Plan by -11%, -23%, and -54% respectively. Overall investment targetshave only been achieved due to the strong performance of the telecom (34%) and oil & gas(655%) sectors.According to Mr. Hemant Kanoria, Chairman, FICCI National Committee on Infrastructure andChairman & managing Director, Srei Infrastructure Finance Limited, “Indian infrastructuresector is going through a significant transformation. Investment in infrastructure is envisaged tobe doubled to US$ 1 trillion during the 12th Five Year Plan and about half of this is targeted tobe achieved through private sector investment.”“It has been observed that while PPP based infrastructure projects in some sectors havedisplayed good progress, several others achieved only limited success. Issues relating to projectimplementation, monitoring and dispute resolution are among the key concerns of theinfrastructure developers. The sector has stumbled upon some bottlenecks in the past one-and-a-half years, hence the effort is to remove those obstacles and accelerating implementation ofinfrastructure projects,” added Kanoria.
  • 2. Says Abhaya Agarwal, Partner & PPP Leader, Ernst & Young, “There is a need to change theway we approach infrastructure development. The change required is needed across planning,bidding and execution of infrastructure projects. More thorough and forward-looking projectpreparation and a sound land-acquisition process can go a long way in facilitating successfulimplementation of projects”.“Similarly, enhanced dispute resolution and regular monitoring will increase the confidence ofthe private sector to invest in infrastructure projects in the country. With the Twelfth Planfocusing on attracting private sector to fund about 50% of the total infrastructure investmenttarget, there is need to start both short term actions and long-term measures at the earliest”,feels Abhaya.Typically, infrastructure comprises power, ports, airports, roads, railways, irrigation, oil and gas,telecom and urban infrastructure. Only three key sectors — roads, railways and ports havebeen extensively covered in this report.Most infrastructure projects commissioned during the last two Plan periods witnessed time andcost overruns of around 42% of the total number of 564 infrastructure projects in India, costingmore than INR 1.5 billion. This has resulted in an average escalation of 16.9%, amounting to anincremental cost of INR 1,207 billion.Challenges aplenty for the railwaysDevelopment of railway infrastructure, particularly in the last decade, has been deficient due tomultiple reasons, with insufficient funds, misplaced investment priorities, lack of organizationalreforms and inability to attract private investments being the main ones. Furthermore, theshare of funding to the railways declined from 11% in the Tenth Plan to 9.8% in the EleventhPlan. The surplus in internal revenue, if any, is too small to fund investments. The workinggroup for the Twelfth Plan estimates that the internal resources available during the TwelfthFive Year Plan is around INR 364 billion as against planned investment requirements ofINR2,018 billion. This is a huge gap of INR1,654 billion (or 82%). Funding this gap will be thegreatest challenge likely to be faced by the railways, given that it would also need to arrangefunds in the form of Extra Budgetary Resources worth INR 1,470 billion.Ports: A crucial cog in the infrastructure wheelThe port sector handles 95% of India’s external trade by volume and 70% by value, andtherefore, directly impacts the country’s positioning in global trade, and thereby, its economyas a whole. In the last five years, non-major ports have witnessed faster growth in cargohandling than major ones due to capacity constraints at most of the latter.The main issues faced by ports include the level of containerization, custom procedures andinsufficient connectivity to their hinterlands. The Maritime Agenda proposes an investment ofINR1,280 billion in 424 projects in major ports and INR 1,680 billion in non-major ports by 2020.It is proposed that more than 80% of the investment in major ports will be made by the private
  • 3. sector. This is 96% in the case of non-major ports — a very ambitious target, given theexperience of PPP projects in the ports sector.The Government of India had launched the NMDP as a mega program to boost portinfrastructure including capacity addition, improvement of port operations, promotion ofcompetitiveness and enhancement of private investment. The NMDP envisaged developmentof 387 projects with a total investment of INR1,003 billion. However, this mega program alsohas its share of problems, which has resulted in delays. Out of the 276 projects envisaged forthe major ports, only 50, less than 20% of what was planned, were completed and only 74 wereunder progress by the end of FY10.Roads and Highways sectorThe country has a road network spanning 41.09 million km and ranks among the largest in theworld. Although, India has a large road network, in comparison with other countries (142), itstands at a low rank of 85 in terms of the quality of its roads. Only half the roads are paved, ascompared to more than 100% in the UK and 67% in the US. The share of high-capacity roads isless, as compared to those in other countries. The National Highways only constitute around1.7% of the road network, but carry 40% of the total road traffic. Yet only 24% of the NationalHighways are four-lane and meet international standards.The NHDP has played a major role in improving the quality and capacity of the NationalHighway network, which has grown at CAGR of 5.7% after the launch of the NHDP in 1998. Itwas growing at a mere 1.9% before initiation of the NHDP.Ambitious road development targets facing many challengesThe target of 20 km a day seems an uphill task in the face of the numerous challenges facingthe sector. The challenges range from financial, regulatory, execution, project planning to policychallenges. Some of these need to be resolved immediately, while others requireimplementation of long-term action.Land acquisition is one such issue that requires immediate action for the objectives of theTwelfth Plan being achieved. According to the report, based on an analysis of a sample of BOTroad projects, around 70% are facing inordinate delays in implementation due to issues relatedto acquisition of land from the relevant authorities.Roadblocks to achieving infrastructure goalsTo accelerate implementation of projects, there is an urgent need to address the multipleroadblocks which are adversely affecting the infrastructure projects.1. Land acquisition is the single largest roadblock for infrastructure development.2. Regulatory approvals and environmental clearances are the major hindrance for successful delivery of projects.
  • 4. 3. Another major roadblock is the approach of the sponsoring agency to project planning or pre-tendering activities. The relevant authorities often side-step crucial project milestones such as land acquisition and prepare poorly planned projects in their rush to announce projects.4. Funding is another major roadblock, with an increased reliance on the private sector to develop and maintain infrastructure projects that are capital-intensive and have a long gestation period.5. Another emerging challenge relates to the capacity of the private sector to execute infrastructure projects. The sector has financial and manpower constraints. The total number of such players is low and they have already secured several projects, which limits their capacity to take up new projects.6. Lack of skilled manpower and shortage of construction equipment further compounds the problem. Foreign players can make investments and bring in technical expertise to undertake large and complex projects.Apart from streamlining the land acquisition process through Land Acquisition andRehabilitation & Resettlement Bill (LARR), the Government should also issue clear guidelines forsponsoring agencies on land acquisition,The private sector is finding it difficult to raise funds for infrastructure due to the aggressiveinvestment targets set in the Twelfth Plan. Setting up of Infrastructure Debt Funds (IDFs) andthe reduction in withholding tax is expected to facilitate the flow of long-term debt intoinfrastructure projects. Policies and regulatory reforms in the infrastructure sector as well infinancial markets have a long-term effect on availability of funds, since they create a conduciveenvironment for investors.There is need to prioritize action and reforms under the present conditions to facilitateincreased private sector investments and faster execution of projects across the infrastructuresectors.MEDIA DIVISION

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