CII has been strongly advocating for an Action Agenda towards creating an enabling and integrated policy & regulatory framework, the impact of which could facilitate considerable investments in the Infrastructure sector thus taking India’s Infrastructure story forward. This issue of Policy Watch takes an in-depth look at the sectoral issues and has outlined some specific recommendations to reinvigorate the growth momentum in the sector.

1. 1policy watch
this IssueInside
Message From the
Director General............ 1
Chandrajit Banerjee,
Director General, CII
Policy Barometer........ 14
Industry Voices........... 16
CEO Speak............................................................................................2
July 2015, Volume 4, Issue 2
Policy
I
nfrastructure development
has been the mandate
and focus of the successive
Governments over the years. Over the
last decade, 2002-2012, India has made
significant progress in attracting private
investments in infrastructure sector with
private sector investing approximately USD
250 billion in various infrastructure projects.
Of late, the sector has been reeling under
severe stress suffering from challenges
across the projects due to difficulties in
project financing, projects take-off and
liquidity constraints.
The present Government has taken charge
at a time when investor sentiment was at
an all-time low. In the last one year, the
Government has successfully addressed
the critical bottlenecks with better project
preparation, strengthening the concession
framework with proper risk allocation and
enabling faster clearances of projects which
have somehow helped restore investors’
confidence. The Union Budget this fiscal
also stands testimony to the Government’s
increased emphasis to revive capital
expenditure by increasing incremental
outlay by Rs. 70,000 crore.
As a part of the mega plan of the
Government to develop 100 Smart Cities,
the decision to come up with 12 smart
cities and coastal economic zones under
the ambitious Sagarmala project would
provide greater impetus to sustainable
urbanization in the country and also
contribute significantly to economic growth.
CII is also enthused by the recent ‘Hybrid
Annuity Model’ launched by the Ministry of
Road Transport & Highways which provides
a transparent, time-bound mechanism to
fast-track decision making in highways
development. It is important that such
innovative models be replicated across the
infrastructure verticals. In the critical area
of long-term financing for infrastructure, the
proposed 5/25 scheme is indeed laudable
as it would help banks to extend long-term
loans of 20-25 years while refinancing them
every five or seven years. Further, some
structural changes made in Infrastructure
Investment Trusts (InvITs) would enable the
industry to raise fresh equity and at the
same time attract long-term finance from
foreign and domestic investors.
Simultaneously, a refreshing change
has been brought in Railways with the
Government using the Public Private
Partnership (PPP) route for implementation
of critical projects including high speed rail
and modernization of existing stations.
Also, the Government’s decision to introduce
ordinance to amend some provisions of the
Right to Fair Compensation andTransparency
in Land Acquisition, Resettlement and
Rehabilitation (Amendment) Act, 2013
is indeed laudable keeping in mind time
and cost-related challenges in obtaining
consent.
The amendments to the Electricity Act
proposing a segregation of wires and
supply businesses in the power sector will
further intensify competition in the sector.
This proposed business model will not
only increase private sector participation
and competition in the supply sector,
but will also bring about efficiency and
cost competitiveness while at the same
time arrest huge aggregate technical and
commercial (AT&C) losses. Allocation of
coal blocks is another area which has
undergone a paradigm shift in the past year
with Government putting in a transparent
mechanism for e-auctioning of coal blocks.
Thus far, the Government has allocated
more than 66 blocks both to public and
private sector and has raised over Rs 4
lakh crore in revenue.
CII has always been of the view that
for India’s infrastructure story to evolve
and develop, a concerted effort of all
stakeholders is imperative. Going ahead,
there are challenges but we are hopeful
that the incumbent Government has
the capability to deal with the complex
infrastructural issues.
CII on its part will continue to work
closely with the Government in its role
of a facilitator and stimulator to spur the
growth momentum and consequently help
in building the brick and mortar sector of
the country.
This Policy Watch issue takes an in-depth
look at the sectoral issues and seeks to
outline some specific recommendations that
CII would pursue in its dialogue with various
policy stakeholders in the Government. I
hope that you will find it useful. n
Chandrajit Banerjee
Director General
Confederation of Indian Industry
G V Sanjay Reddy, Chairman, CII National Committee on Infrastructure and
Vice Chairman, GVK Power & Infrastructure Limited
Focus: Infrastructure

2. 2 policy watch
CEOSpeak
I n f r a s t r u c t u r e d e v e l o p m e n t
undoubtedly has been the focus area
of successive Governments. With the
Government completing one year at
the Centre, what do you think have
been the key factors driving the
sector and what more needs to be
done considering the massive capacity
augmentation targets?
Infrastructure development undoubtedly
has enjoyed special focus and emphasis
over the last decade and a half. This can be
well gauged from the fact that investment
in infrastructure as a percentage of GDP
has risen from 4.9 per cent in 2002-03
to about 7.2 per cent in 2012-13 and
is expected to reach 10 per cent of
GDP by 2016-17. A significant aspect of
India’s infrastructure story has been the
contribution of the private sector. From
zero private involvement in the early
nineties to a remarkable 37 per cent in
2012, it is a pointer that reflects new
and emerging India.
In recent times the sector has witnessed a
significant slowdown, both in order book
as well as increase in stalled projects as a
result of systemic challenges faced across
the project life-cycle right from unfavorable
market conditions, fuel linkages, substantial
unsettled claims, financial and equity crunch
to name a few.
We must acknowledge that the Government
has taken several initiatives to revive PPP in
the infrastructure space including reviewing
the concession framework, appropriate
risk sharing mechanism, fast tracking
decision making and increasing public
outlay. Government’s decision to constitute
a National Investment and Infrastructure
Fund (NIIF) could not have come at a more
appropriate time when the sector is plagued
with financing challenges. E-allocation
of coal blocks and amendments to the
Electricity Act are other important initiatives
that would drive the next phase of reforms in
the power sector. Further, the Government’s
decision in amending key provisions of the
Right to Fair Compensation and Transparency
in Land Acquisition, Resettlement and
Rehabilitation (Amendment) Act, 2013 is
indeed noteworthy keeping in view mega
initiatives of the Government including Make
in India and Smart City Mission. Going
forward, it is important that the Government
takes up issues related to stranded projects
on a case to case basis and see that they
are resolved so that projects where capital
is already invested go into operation at
the earliest.
Overall, there is a renewed vigor that a
new set of reforms and enthusiasm in the
market will pave the way for a sustained
era of high growth and momentum. That
being said, the Government’s job is not
yet over. Given the high expectations, it is
imperative for the Government to deliver
in order to achieve and sustain the desired
growth momentum.
With equity tied up and 70 per cent
funding for infrastructure expected
through debt, do you think the steps
taken by the Government to improve
long-term financing (creation of
National Investment & Infrastructure
Fund, 5/25 rule) are sufficient or else
what more could be done?
Equity is still a major constraint for
the infrastructure sector as most of it
A New Set Of Reforms Will Pave The Way For
A Sustained Era Of High Growth
G V Sanjay Reddy
Chairman, CII National Committee on
Infrastructure and Vice Chairman,
GVK Power & Infrastructure Limited
Source: jupeartshutterstock.com

3. 3policy watch
CEOSpeak
comes through FDI. It is critical to revive
international investors’ confidence in the
sector. While the investment requirements
are huge, the current issue of increased NPAs
in the system has further aggravated the
problem. Also, the bottlenecks in the system
are making it difficult for the infrastructure
sector to bridge these massive investment
requirements.
Taking into account the issue of long-term
infrastructure financing, the proposed 5/25
scheme is indeed a step in the right direction
which will plug the asset-liability gap and
would also help banks extend finance to
these long gestation infrastructure projects
for 20-25 years with an option to refinance
every 5 or 7 years. However, the current
scheme of refinancing should be made
available even for projects which have loans
of less than Rs. 500 crore. The decision
to constitute a National Investment and
Infrastructure Fund (NIIF) is apt given the
current environment but further details on
its mandate, composition and functioning
are awaited.
Long-term financing of infrastructure at
affordable cost needs specialized mode and
alternate means like insurance/pension funds,
sovereign funds etc. It is true that the bulk
of infrastructure financing is predominantly
being done by commercial banks but with
Basel-III norms about to be adopted soon,
it may affect infrastructure funding.
A lot has been said about the
increased public outlay this fiscal
to revive capital investments in the
economy. However, the execution of
infrastructure projects on ground still
remains a concern. What are your
views and suggestions?
Investors’ sentiment and confidence at
present are affected due to various reasons.
These include over-leveraged balance sheets
of private sector, increasing reluctance of
banking sector to lend to infrastructure
sector etc. Anticipating high levels of
revenue growth, many developers have
factored in future projections which created
overleveraging of their balance sheets.
Reduced revenue realisations affected debt
servicing by concessionaires as the contracted
debt servicing obligations could not be met.
This caused widespread default in accounts of
the concessionaires. Thus, the private players,
owing to liquidity constraints, are finding it
hard to participate in present projects being
awarded. Increased capital outlay definitely
has the potential to kick-start capital
investments in the economy but finally it is
the quality of execution and time taken for
implementation that holds the key.
While the intent of the Government is clear
and the start seems to be impressive, some
of the initiatives deserve more attention.
Some of the policies in its current avatar
lack the operational details as to how the
ambitious targets will be achieved. It has
been only one year that the new Government
is in place so I expect that a lot of these
issues will be resolved in the coming 12
months and the infrastructure sector will
see good days once again. nSource: Perfect Lazybonesshutterstock.com
Source: pedrosekshutterstock.com

4. 4 policy watch
CEOSpeak
Has the Government’s much publicized
5/25 scheme been able to take off to
the extent envisaged? What do you
think needs to be done to make it
more effective?
The 5/25 scheme of RBI has been beneficial
for existing infrastructure projects which
typically have long asset life/concession
periods but have been financed with
shorter repayment schedules due to the
asset liability mismatch of banks. Lenders to
these projects are currently in the process
of implementing this scheme in order to
align the repayment schedules to match
existing cash flows. This will help relieve
debt servicing stress in these projects.
Going forward, it would help if the threshold
for implementing the 5/25 scheme is lowered
from Rs 500 crore currently to around
Rs 250 crore as this scheme could then
be implemented for smaller projects like
those in the renewable sectors, particularly
wind and solar.
With NPAs rising in the infrastructure
sector & lenders tightening the noose
on financing infrastructure, what are
your expectations?
In the last few years, the torrid pace of
private sector activity has outstripped
the requisite planning, administrative
and regulatory capacity. We are now in a
period of assimilating the implications of
this mismatch. The infrastructure sector has
gone through some tough times due to
lack of availability of fuel, delay in getting
environment and other critical approvals
during the construction stage and lack of
requisite equity funding. Project promoters
have had to deal with overleveraged
balance sheets and have been reluctant/
unable to bid for new projects.
Lenders have now become cautious
and are increasingly refinancing existing
projects which are operational or nearing
completion rather than funding greenfield
projects.
• Exemption from environmental clearance
for expansion of linear projects (for
expansion of RoW upto 40 million)
will help speed up construction of road
projects.
• Allowing easier exit for promoters of
completed road projects will help churn
their capital from completed projects into
greenfield projects.
With Basel-III norms around the corner
and infrastructure players relying
primarily on commercial banks for
funding their long-term needs, what
do you think could be the alternate
funding instruments/structures for
financing long-term infrastructure
needs of the country?
Banks have been the primary source of
financing infrastructure projects in India.
While they are expected to continue playing
a critical role as infrastructure financiers,
other avenues of financing are expected
to increasingly play an important role in
the near future.
Infrastructure Debt Funds (IDFs) have started
getting active in financing infrastructure
projects that have completed one year of
satisfactory operations after RBI’s recent
guidelines which broadens their scope of
investment to projects not having a tripartite
agreement.
Infrastructure Investment Trusts (InvITs) are
another potential route through which long
term investors may be able to invest in the
infrastructure sector in future.
Infrastructure companies are also increasingly
looking at the long term bond market for
funding their requirements. Some relaxation
by the insurance regulator for investment in
lower rated bonds and deepening of the
bond market will help attract funds from
long term investors like insurance companies
and pension funds. n
Lower Threshold For The 5/25 Scheme Will
Benefit Smaller Infrastructure Projects
Dr Rajiv Lall
Chairman, CII National Committee on
Infrastructure Financing and Executive Chairman,
Infrastructure Development Finance
Company Limited
Source: Sergey Nivensshutterstock.com
In the past few months,
the Government has started
taking important steps
towards resolving some of
these pressing problems:
• Bidding for captive coal
mines and allocation of
subsidy for stranded
gas based plants are a
step towards resolving
fuel issues for thermal
power plants.

5. 5policy watch
CEOSpeak
The railways is now clearly being
projected as the growth engine
by the Indian Government, as the
growth strategy of India depends
on the growth of railways. We
saw a brief outline of the same
in the Union Budget where Suresh
Prabhu, Minister for Railways, had
mentioned while announcing it. So
what is your takeaway from this
and what, according to you, is the
way forward?
Even before the Union Budget, in the
economic survey, the Chief Economic Advisor
had said that the economic multiplier of
the investments in Indian railways is 5.7.
If you take that roughly at 6, it is clear
that the economic impact of the investment
and turnaround of the railway system has
a huge impact on the GDP. It is difficult to
quantify but a multiplier of 6 means that
Rs. 1 lakh crore investments in railways has
the potential to galvanize the GDP by Rs.
6 lakh crore.
In his short tenure, Suresh Prabhu, Minister
for Railways has done the following to
improve the Indian railways:
He has quantified the amount of•
capital that is urgently required in the
railways; Rs. 8.5 trillion, out of which
Rs. 1-1.5 trillion is for the current year.
Minister Suresh Prabhu has set aside the
apprehensions of resource mobilization
by signing a MoU of Rs. 1.5 lakh crore
with Life Insurance Corporation (LIC).
His second act was to create a garland•
of special purpose vehicles (SPVs) where
a seed investment from the railways can
capitalize 2-3 times investments by the
interested parties, like Coal India Ltd,
Steel companies, NTPC, ports, State
Governments, urban local bodies for
redevelopment of city centre station/s
and to commercialize the vertical station
space across the nation.
Minister Suresh Prabhu basically said
that the railways capitalization plan
need not be constrained by the extent
of funding available to the railways
within the system, but it also depends
on the ability to capitalize from outside
the system by creating SPVs.
He has outlined a vision of what it
takes to modernize and how resources
are going to be raised to enhance the
passenger experience-through station
development, better quality of food
and service on train, etc. and to remove
choke points. The entire Indian railways
is divided into 1150 sections, out which
450-500 are choke points. Within these,
we can prioritize 20-30 choke points,
like the Mughal Sarai where all goods,
steel, iron ore, etc from east India comes,
including the passengers.
His basic strategy is not to increase
the rolling stock but to decongest
and unclog the choke points either
by providing tracks or by providing
by-passes.
The operational focus involves clear
identification of critical problem of
unclogging choke points and after that
increasing the rolling stock.
Special Purpose Vehicles Critical For
Railways' Capitalisation Plan
Vinayak Chatterjee
Chairman, CII Task Force on Railways and
Chairman, Feedback Infra Private limited
Source: Panimonishutterstock.com

6. 6 policy watch
CEOSpeak
When we come to Indian railways, it
is about the management styles; how
the organization had functioned i.e. it
has been a mono-lid of a power. Do
you think these factors can be a hurdle
and hamper the visions outlined?
Because even if the resources come in,
the actual implementation has to be
done by the officials in the Ministry
of Railways.
The Minister has said that railways is soon
going to have an independent regulator
for the same. It will delineate tariff and
freight structures, create a level playing
field, and at the same time will also be
empowered for taking decisions relating
to arbitration and dispute resolution. This
is one area which he has institutionally
addressed.
If the railway board has to work at par with
Mr. Prabhu’s pace, some of the initiatives
need to come from outside the railway
board, i.e. through high speed corporation
for high speed & bullet trains, separate
corporation for station development
authority, i.e. institutions created outside
today’s framework which will have modern
management practices and thus will not
be held back.
He has a band of experts who individually
advise him to galvanize new methods of
operation.
Drawing from his earlier “raftaar”
as the Power Minister, his aim when
he came up with the Electricity Act
was to see how the private sector’s
role and participation could increase.
Do you see the same trend in the
railways given the current culture
and atmosphere? Second, is there
energy efficiency in railways, which is
a huge area of concern and can help
in cost-cutting as well. What are your
thoughts on that?
He has articulated it well, and after all
these issues are dealt with and are settled
down, we are looking at a huge upsurge
in private sector participation both in terms
of domestic and foreign direct investments
across different sectors. These areas include
leasing of rolling stock, locomotive tenders,
construction of railway infrastructure
for de-choking, station redevelopment
(once the PPP formats are over and the
vertical space and areas around it is
commercialized) and somewhat in the
bullet train segment. It should take around
two quarters for all the positive measures
to fall in place.
What about Energy?
The Minister had said that railways is the
biggest consumer in terms of power, and
he has found that the Power Purchase
Agreements (PPAs) are not particularly
friendly and therefore, by taking a fresh
look at the PPAs that the railways has,
he will be able to bring down the power
consumption as a percentage of total cost.
Over and above that, if he manages to
use the vast station and other lands in
harnessing solar energy, it will also lead
to reduction in power consumption.
What about project awarding? This is
one huge issue with the railways and
there is a huge gap in how tenders are
floated and companies are selected.
Do you think the improvement in
systems and processes are going to be
the key areas which investors would
like to see moving faster?
The fact that Mr. Prabhu has been appointed
the Railway minister, itself removes the
apprehension that this will happen and they
have already made some suitable changes.
They have delegated powers, and have asked
for greater accountability and transparency.
There is a huge history and it will take time,
but the direction is right and fast.
By when do you think we will be
able to start seeing the changes that
railways is trying for?
From 4th
quarter onwards, i.e. from winter
onwards. It is taking some time for most
of the changes to sink down into the
system. So I feel from winter onwards
we should be able to see very exciting
changes. n
Source: SNEHITshutterstock.com

7. 7policy watch
CEOSpeak
Of the 1.4 billion people in the world who
have no access to electricity, India accounts
for over 300 million! This makes it imperative
for independent power producers (IPPs)
to consider India as one of their primary
growth markets. Moreover, in the last
general elections, it was for the first time in
Independent India's 67-year-old history that
providing 24X7 electricity access to all the
citizens became an election issue. The new
Government has announced that it aims at
providing 24X7 electricity access to citizens
by October 2016. However, the irony is
that India’s per capita power consumption,
about 940 kilowatt-hour (kWh), is among
the lowest in the world despite cheaper
electricity tariffs. My intention through this
article is to have a closer look at what is
causing this dichotomy and explore possible
solutions.
Current Scenario And
Existing Challenges
The financial profile of India’s State Power
Utilities (SPUs) including generation,
transmission, distribution and trading
companies owned by State Governments
remains weak with aggregate annual
book losses reaching Rs. 295 billion as per
the latest records of the State Electricity
Boards. What is noteworthy is that 93 per
cent of the SPUs’ losses are concentrated
Power Distribution - In Need For Urgent Revival
Rajiv Ranjan Mishra
Co-Chairman, CII National Committee on Power
and Managing Director, CLP India Private Limited
at the level of distribution
companies. Generation/
transmission/trading
companies contributed only
7 per cent of net aggregate
book losses.What continues
to remain a challenge is that
the average power purchase
cost per unit for discoms
in the States of Rajasthan,
Haryana, TN and UP is much higher than
NTPC Limited’s average selling price. This
reflects the lack of sufficient long-term
power tie-ups by these discoms and their
high reliance on short-term power.
With the financial health of the discoms in
disarray, there has been a cascading effect
on the value chain, with delayed payments
to generators, leading to delayed payments
to coal suppliers and equipment suppliers,
stretching their working-capital cycles and
affecting their leverage profiles.
It’s unfortunate to witness latest reports on
a mounting list of 57 thermal power units
across the country that are shut down due
to lack of demand despite the onset of peak
summer. Of India’s total installed generation
capacity of 2,68,603 MW, the peak demand
met on May 23, 2015 was less than half
at just 1,34,892 MW, according to official
data available from the Central Electricity
Authority (CEA).
Source: More Power To India-The Challenge of Electricity Distribution, A Report by World Bank
Segment-wise Trend of Losses Incurred
Peak Demand vis-à-vis Peak Met - FY 2014-15
Units Peak
Demand
Peak
Met
Surplus/Deficit ()
(in %)
Peak Demand
(in MW)
1,48,166 1,41,160 (4.7)
Peak Demand
(in million
Units)
10,68,923 10,30,785 (3.6)
Source: Load generation balance report 2015-16, CEA Website
The Government in the recent past has
set ambitious capacity addition plans in
renewables space especially for solar power
and for transmission & distribution projects.
The Government’s focus on strengthening
the last mile connectivity and its focus
on green energy is commendable indeed.
However, whenever I hear about these
ambitious targets the question that comes
to my mind is that how will the state
discoms be in a position to pay for these
new capacities, if they are already struggling
to pay for the existing capacities?
The National Tariff Policy 2006 stipulates that
the ‘recovery of Regulatory Asset should be
time-bound and within a period not exceeding
three years at the most’ (and the current
discussion paper on Tariff policy has proposed
recovery period not exceeding seven years).
But lack of adherence by States to use this
selectively and not revising tariffs in a timely
manner to reflect actual cost has resulted
in the value of regulatory assets piling up
to a staggering Rs 70,000 crore and the
interest component alone costs around
Rs. 9,500 crore. The current discussion paper
on proposed tariff policy recommends that

8. 8 policy watch
CEOSpeak
SERC arrive on tariffs that progressively reflect
the cost of supply in the future. SERC are
expected to create a roadmap with a target
that tariffs are within 20 per cent of the
average cost of supply. The road map would
also have intermediate milestones based
on the approach of a gradual reduction in
cross subsidy. However, the challenges that
I foresee in implementing these is that SERC
doesn’t operate as an independent entity and
the tariff regime proposed doesn’t take into
account peak demand.
The Way Forward
With these looming challenges in the sector
I believe it’s time for us to evaluate a few
radical changes.
Focussed Approach Towards Power
Subsidy: Recently we witnessed more than
20,000 consumers in a single district giving
up their claim to subsidized LPG cylinders so
that the Government can utilize the surplus
money to provide clean energy to the poor.
Similarly, the SERC should focus on directing
the power subsidy only to the needy. Special
prepaid meters can be installed directly for
those consumers who are below the poverty
line. It is imperative for State Governments
to rationalize their power subsidies, which
currently exceeds their revenue deficits.
While it has been the prerogative of the
State Governments to provide subsidized/free
power to certain section of consumers, they
need to keep sustainability in view to ensure
that benefits to one section of consumers
don't harm the interests of others in the state.
This is only possible if States empower their
regulator to be independent. An alternative
formulation that can be looked at is having
Regional, rather than State-level regulators,
thereby increasing their independence and
ability to withstand populist pressures.
Mobilize Stranded Capacities: States
should take a stand on stranded capacities
and selectively help mobilize these stranded
assets depending on the potential benefits
they offer in terms of operating efficiencies
and cost savings, as against setting new
capacities.This is a better option than buying
costlier short term power.
Stronger Collaboration Between The
States And The Centre: Enforcing reforms
has always been a challenge as power is a
concurrent subject, which means it won’t be
possible to introduce radical changes without
the State and the Central Governments’
collaboration. At the initial stage one must
start with a focus on enforcing reforms
on those States by the Centre where its
Government exists. Other States can be
brought under its umbrella subsequently.
Currently, discoms are not being paid the
full extent of subsidy committed by State
Governments, due to which discoms have to
borrow at market rates, which increases their
financial losses. It is also seen that there is a
constant gap between the subsidy released
each year in comparison to the subsidy
booked, further weakening the financial
position of the utilities. The need of the hour
is a better monitoring system and compliance
in collaboration with the Centre to eliminate
such inefficiencies in the system.
I believe that the implementation of these
measures will benefit the sector at large.
However, there needs to be concentrated
effort and determination to pursue these
reforms to ensure that the sector is profitable
as a whole on a sustainable basis. nSource: TERI’s Policy Brief Report January 2015
Source: Gritsana Pshutterstock.com
Rs. Crore

9. 9policy watch
CEOSpeak
As the Modi Government enters its second
year at the helm, there is an urgent need
for it to put in place an appropriate legal
framework. Such a framework must address
concerns pertaining to:
Monitoring the performance during•
the project life-cycle of Public Private
Partnerships (PPPs) or infra assets.
Taking timely corrective action to ensure•
that infrastructure assets are optimally
utilized during the life cycle of the
concession while securing viability
of the investment made in a timely
manner.The latter element must address
stranded investments in the infrastructure
sector arising from unforeseen and
unmitigatable developments materially
impacting the project economics.
It is expected that the Kelkar Committee
(constituted for rebalancing and revitalizing
the PPP) will recommend significant changes
on both these counts. It is imperative that
PM Modi ushers in third generation Indian
infrastructure reforms for reviving the
infrastructure market in India.
While the Planning Commission circulated
a draft of the proposed Public Contracts
(Settlement of Disputes) Bill 2013 in May
2013, it was inadequate in most aspects.
The needle has not moved to reduce project
disputes, which have been constricting the
growth of Indian infrastructure.
Need for a holistic solution to fundamental
challenges facing Indian infrastructure:
The primary issue of stranded and sticky
infrastructure investments remains to
be addressed holistically. A significant
component of this issue is the miring
of investments in prolonged disputes
leading to significant delays. This has a
debilitating impact on the lenders and
investors awaiting resolution in either case,
thus besmirching the investment sentiment
in the face of the ambitious investment
objectives of the Modi Government. Many
media reports indicate that 4 out of every
10 Central Government infrastructure
projects are running behind schedule or
have overshot original cost estimates,
evidencing the heavy toll taken on project
execution by delayed regulatory approvals,
financial constraints and stalled land
acquisition. According to data presented by
the Ministry of Statistics and Programme
Implementation (MOSPI) before the Lok
Sabha on 18 March, 2015, the cost of
one such project is expected to increase
20 times and another is set to miss it's
original completion date by 21 years.
In a number of judgements, the Supreme
Court of India has recognized that
infrastructure projects must not be interfered
with or delayed in their implementation
since that would hurt public interest with
time and cost overruns. However, project
disputes continue to stall the successful
delivery of infrastructure services. In most
cases, project development disputes continue
to arise primarily because of ineffective
procurement design, improper risk allocation
and the absence of a robust legal and
contractual framework to address unforeseen
circumstances impacting the project.
To impart greater certainty and restore
investor confidence, settlement of disputes is
an important facet of the overall architecture
of the suitable legal policy framework, which
needs to be evolved/ strengthened focusing
on the following elements:
For each of the select infrastructure•
sectors, dispute resolution by an expert
adjudicatory authority with an expert
appellate body must substitute all existing
dispute resolution mechanisms.
This mechanism must be backed by:•
Effective time bound processes––
put into play through a legislative
framework.
Effective, empowered and suitable––
autonomous yet accountable
institutions staffed with competent
experts qualified in all relevant fields
such as law, economics, finance,
engineering, project management.
Clear objectives for identifying•
infrastructure projects/assets where
intervention is warranted to ensure against
opening the flood-gates in undeserving
cases to tackle the following:
Predatory and negligent bids: a––
possible solution would be to develop
a floor price to eliminate such bids
Claims/interests of losing bidders.––
An Effective Public Dispute Resolution Bill Is
Required
Amit Kapur
Member, CII National Committee on
Infrastructure and Partner,
J. Sagar Associates,Advocates & Solicitors
Vishnu Sudarsan
Partner
J. Sagar Associates,Advocates & Solicitors
Co-authored by

10. 10 policy watch
CEOSpeak
Ensuring against undeserved windfall––
profits.
Not providing incentives for irrational/––
irresponsible bids.
Guidelines on how to design the•
intervention to maintain the balance
between affordability, viability and
pragmatic action in larger public
interest without falling into moral
hazards. This should be enshrined into
a binding document with clear verifiable
outcomes.
Safeguards for balancing conflicting/•
divergent interests including fair dealing
with a set of options available to deal
with such situations with guidelines for
choosing between solutions like specifying
possible modification after award of
contract to ensure no subsequent
litigation by unsuccessful bidders.
Mechanism for monitoring implementation/•
performance to ensure fair outcomes.
The settlement of disputes mechanism
proposed de-hors the above and will not
achieve the purpose envisaged.
It is important to bear in mind that there exists
a universe of institutions for dispute resolution
comprising of the court system, arbitral
tribunals, statutory regulators/tribunals, and
the ADR Mechanism (including Conciliation,
Mediation, LokAdalats, and Dispute Resolution
Boards.) Against this backdrop, any expert
institutional framework for infrastructure PPP
dispute resolution must:
Fit into the overall national dispute•
resolution architecture under the
Constitution of India and existing tribunals
for select infrastructure sectors.
Have a defined and focused jurisdiction•
and legislative framework to ensure
expeditious/time bound adjudication
without multiple alternate interventions
(adapting lessons from the challenges
faced in India regarding timely decisions
in arbitrations as also the regulatory
mechanism like the Electricity Act, 2003).
It is important to:
Limit the jurisdiction of the Tribunal––
to PPP in infrastructure as defined
by the Ministry of Finance.
Secure that the institutions are––
created with adequate capacity in
terms of having the requisite number
of trained and experienced staff drawn
from branches of law, economics,
finance, project management. This
is particularly necessary to ensure
that the proposed tribunal is not
inundated and rendered ineffective
in resolving diverse/complex issues
in a time bound manner.
Since 2002, Supreme Court and various High
Courts usually do not normally interfere
with decisions by such multi-disciplinary
expert bodies (like regulators and appellate
tribunals) due to 2-tier expert adjudicatory
mechanism. It is important that the proposed
framework provides for the 2-tier expert
bodies, with a final appeal of substantial
question of law to the Supreme Court.
Lastly, the decision-making authorities must
be subject to objective criteria for securing
accountability of the decisions. This could
draw from well-established precedents
like:
Regulatory Impact Assessment•
Oversight Committee of the Parliament•
An annual plan based assessment•
of performance of the authority in
question with objective monitoring of
outcomes.
Evaluation of efficacy in decision making•
including factors like timely decisions
based on relevant considerations, etc.
Requirement for a written justification•
by the decision making body/pursuing
agency for change in policy or
dispensation mid-stream wherein they
are obliged to elucidate:
How and why the public interest––
underpinning the change would
outweigh the adverse impact
The mechanism to compensate––
adverse effects on the PPP projects.
Any further delay by PM Modi in arresting this
issue is certainly going to stem the growth
of Indian infrastructure and the economy. For
Modinomics to survive, it is time to accelerate
the pace of infrastructure reforms. n
[Views of the authors are personal and do not reflect
the views of the firm]
Source: Lightspringshutterstock.com

11. 11policy watch
CEOSpeak
With the Government setting up an
ambitious target of 30 km/day in 2 years,
how much do you think has been the
progress on ground in terms of project
preparation, financial closure etc.?
The Government has clearly taken significant
steps to get things going having inherited
a very challenging situation. While I expect
the pace of new project awards to pick up,
resolving the liquidity crisis faced by the sector
due to non settlement of dues and clearing
the backlog of stalled or incomplete projects
will ultimately determine how swift progress
on the ground is. Consequently, contribution to
the 30 km/day target will largely come from
Engineering, Procurement and Construction
(EPC) tenders in the near to medium term.The
creation of a quality Detailed Project Report
(DPR) and bringing a project to market sensibly
is a 6-9 month process – I think we need to
give the Government some more time to see
that exponential pick up in execution.
A lot has been said of the equity
tied up in various highway projects.
With the Government now permitting
concessionaires to divest entire equity
post 2 years of construction, how much
change do you think will it bring in the
sector both in terms of investments
and confidence?
It will certainly help but I think the Government
could have made a much bigger impact by
permitting a full exit at Commercial Operation
Date (COD). The free flow of capital is an
essential ingredient for economic growth.
It will help to reduce risk premiums, which
have soared in the roads sector, and it will
also alleviate the liquidity crunch faced by
most developers who could deploy that much
needed capital to complete stalled projects
and repay debt, thereby creating healthier
supply chains which will ultimately de-stress
our banks.Take for example developers whose
projects are facing years of delay due to tardy
land acquisition – COD is not achieved due
to the fault of the Government authority
and the project requires a large amount
of overrun funding which the developer is
forced to borrow since the NHAI consistently
disputes or delays all payments. Not only
are we required to fund the overrun thereby
stressing our balance sheets (until the claim is
received), but we also have to wait till COD+2
years to exit, which ultimately could turn out
to be 8-10 years after we made our initial
investment. A balanced approach would be
to allow developers who have faced delays
to exit their projects at COD, or have COD+2
years replaced with the Scheduled Four Laning
Date (SFLD)+2 years.The impact on the sector
would be tremendous.
Government this fiscal expects 1500
kms to be awarded on PPP mode and
balance on EPC basis. How much more
time do you anticipate for PPP projects
to recover and flourish?
The completion of stalled projects, the raising
of equity (ideally through flexible, quicker
exits), timely payment of claims including
payment of arbitration awards, will drive the
de-leveraging of balance sheets and take us
on the road to recovery. Strong monitoring
and enforcement and timely resolution of
disputes is key.We should strengthen existing
institutions (Arbitration and Conciliation) and
raise them to global standards rather than look
to create new institutions and committees. It
is also essential that Government authorities
like NHAI start to treat the private sector as
a partner with equitable sharing of risk, rather
than simply a source of finance – recall the
very definition and spirit of PPP. Amendment
of the Prevention of Corruption Act will also
go a long way in achieving this. Ultimately,
we must respect the wisdom of global
capital markets and create institutions and
processes which are at par with the world’s
best. Only then an environment for PPPs will
truly flourish. n
Relaxed Exit Norms To Have Favourable
Impact On The Roads And Highways Sector
Arjun Dhawan
Member, CII National Committee on
Infrastructure and President, HCC Ltd.
Source: Gustavo Frazaoshutterstock.com

12. 12 policy watch
CEOSpeak
What is the current status of port
sector? What do you think have been
the key factors driving the sector
and what more needs to be done
considering the massive capacity
augmentation targets?
Overall growth in the port sector in terms
of cargo throughput over the years has
been 5-7 per cent. However, Non Major
ports administered by the littoral State
Governments have achieved higher growth
rate as compared to the Major ports under
the Ministry of Shipping, Government of India.
In the year 2014-15 the overall growth in
all the ports in India was approx 5.37 per
cent and the total volume was approx 1025
million tonnes. Thus, the country achieved a
major milestone of 1000 million tonnes of
cargo throughput in ports first time.The main
cargo handled is crude oil, petroleum, oil
and lubricants (POL), coal, iron ore, fertilizer
and containers. Container growth in the year
2014-15 was 10.79 per cent and the total
volume was 11.72 million TEUs. The cargo
growth in the past 5 years has been muted
and the reasons are not far to seek. Port
demand is a derived demand and therefore,
it reflects the status and growth of economic
and manufacturing activities. It is generally
accepted that in the last 5 years till the
new Government came to power in 2014,
the Indian economy was paralyzed with lack
of action, policy and administrative support
and therefore, it languished despite huge
potential. In this background a number of
policy initiatives like Make in India, Ease of
Doing Business and other follow-up measures
are expected to boost the economy and
resultantly, we can expect healthy growth
rate of 10-12 per cent in port throughput
going ahead. As far as capacity expansion in
the port sector is concerned, it is an ongoing
programme which needs to be accelerated
with Sagarmala concept so as to prepare the
ports to become smooth mode of transport
interchange and engines of efficiency. Since
implementation of the capacity expansion
and other measures is dependent on the
management in the ports, the delivery
mechanism needs to be professionalised and
well trained in breaking new grounds and
problem solving.
Government has announced several
initiatives in the maritime sector
including Sagarmala project, impetus
to Shipbuilding and Ship repairs etc.
What are your expectations from the
Government?
Undoubtedly, all initiatives to improve
ports' working and efficiency, to encourage
coastal and inland transportation are most
development along with ship building and
ship repair will ensure transport connectivity,
and strong links with the manufacturing
centres. Ports to be developed as smart cities
is a wonderful concept and if translated
into action will not only boost economic
development but also port cargo volumes,
and thus, all round increase in economic
activities. Economic and logistics zones
around ports including smart cities as an
integral part of cluster based approach will
certainly lead to economic development, in
turn boost imports and exports linked to
ports and employment. However, we need
to grow out of incremental improvements
and additions in these areas to engineer big
transformational changes with new ideas
and readiness to break totally new ground to
make up for the lost time. It is expected that
the Government will buttress institutional
mechanism so as to lead execution of the
projects and sort out operational issues.
With the Government announcing
corporatization of Major ports, do
you think that this move could be
an enabler for unlocking the growth
potential of Major ports?
Corporatization of Major ports will indeed be
a very constructive step in the direction of
instilling accountability in port management,
bringing efficiency in operations and speeding
the decision making process so necessary in
any business dealing with round the clock
operations.Trust structure of port management
has outlived its utility long time back and the
British who brought it to India have jettisoned
the system two to three decades back and it
is high time that India too buries it. Many of
the Major ports are running with operating
losses and Return on Capital Employed (RoCE)
of most of the Major ports is woefully low as
compared to Cost of Capital (CoC).
However, corporatization is an enabling reform
which must be followed by professionalization
of management and public listing which alone
will achieve the objectives of brining about
high efficiency, effective management and
necessary investments. n
Cluster Based Approach For Port
Development Will Boost Economic Growth
Rajeeva Sinha
Member, CII National Committee on
Infrastructure and Director,
Adani Ports & SEZ Ltd
welcome in the context of harnessing
efficiency in transportation of cargo across
India and to manufacturing or consumption
centres. Cluster based approach for port
Source: Aleksey Stemmershutterstock.com

13. 13policy watch
CEOSpeak
What is your view of the aviation
sector? Do you think that the present
Government has done enough for
the sector in the last one year and
if not, what more can be done given
the massive capacity augmentation
targets?
The Indian aviation sector is witnessing a
high PAX growth in the range of 10-12 per
cent from the last few years and is expected
to continue the trend. India is slated to
become the third largest aviation market
globally. This is poised to translate into
growth for airport sector too. Infact, because
of high growth and capacity constraints,
India, for the first time is witnessing the
development of dual airports in cities such
as Mumbai and Goa.
Unfortunately, the regulatory framework for
the airport sector is a major deterrent to
the privatization effort which will ultimately
become a major bottleneck on airport
infrastructure development. Today, you
have world class airports in India which
are ranked amongst the best airports in
the world. However, the airport companies
are bleeding and suffering due to regulatory
issues. In the last one year, there has been
some positive signals from the Government
in airport sector. RFQ has been floated for
privatization of 4 Indian airports, speed up
in process of concessioning of Navi Mumbai
and Goa airports and the draft civil aviation
policy. However, I see sorting out regulatory
issues as a necessary pre-requisite for
successful privatizations.
With Government now focusing to
develop 5 airports in Tier II-III cities,
do you think the private sector would
be interested?
It may be premature today to comment
whether private sector will be interested
in these opportunities or not as we do
not even know the names of the cities
where these airports are to be developed.
Private sector would be interested only if
there is a fair return they can get on the
investment.The challenge would be the lack
of traffic necessary to ensure viability. In
such a situation there can be two ways out.
Either look at a grant based privatization or
let AAI take up development of these
airports based on the funds it generates
through privatization of Delhi, Mumbai and
other Tier I airports that it plans to privatize.
In case option one is taken, the key issue
for the policy makers would be to make
these airports viable from a privatization
perspective. It essentially requires to
address some of the policy level concerns
that adversely impact the viability of small
airports both from an airline as well as
airport operators’ perspective.
A lot has been spoken about prospects
of the aviation sector but the intent
to execute and deliver on ground is
missing. What are your view points?
Aviation sector presents a lot of potential
because of high demand from middle
class and a strong GDP growth but to
tap the potential some essential policy
decisions need to be taken especially on
the regulatory philosophy (including decision
on till mechanism) and availability of easy
long term funding. n
Sort Out Regulatory Issues For Successful
Privatization
Sidharath Kapur
Member, CII National Committee on
Infrastructure and CFO- Airports, GMR Group
Source: Maxim Blinkovshutterstock.com

14. 14 policy watch
Policy Barometer
CII Recommendations For Key Issues In
The Infrastructure Sector
Area Issues Recommendations
Infrastructure Model Concession Agreement • Ensure equitable allocation of risks in the Model Concession
Agreement (MCA) with emphasis on:
Addressing project specific risks.––
Provision for market linked compensation for Government’s––
failure to perform its obligations.
Reviving stalled projects It becomes increasingly important to revive stalled projects to•
provide thrust to infrastructure development in the country.
At this crucial time, there is a greater urgency to fast track
projects on case to case basis.
Ineffective Dispute Resolution Mechanism-
Substantial funds of developers locked
in disputes
The existing Dispute Resolution Mechanism process is•
ineffective as it goes through the rigmarole of reconciliatory
meetings (Dispute Resolution Board) followed by Arbitration.
It is important that Arbitral awards be time-bound and made
binding. Moreover, these should be respected by both the
parties.
Regulatory Mechanism It is extremely important that a robust and credible regulatory•
mechanism is created that is autonomous, accountable and
independent in functioning, free from political and bureaucratic
controls.
PPP Scope and mechanism for
re-negotiation
It is extremely difficult to make projections and write contracts•
in a dynamic and changing economic scenario for 15-50 years.
At par with global practices, PPPs should have arrangements for
re-negotiation under an empowered institutional mechanism.
Exit provisions Allow complete exit for the developers immediately after•
project becomes commercially operational which would release
much needed equity to plough back into other infrastructure
projects. Though this has been done recently for the roads
and highways sector, this should be replicated across the
infrastructure sector.
Long-term Financing While the proposed 5/25 scheme is indeed laudable, however,•
it is critical that alternative long-term financing models are
devised.

15. 15policy watch
Policy Barometer
Area Issues Recommendations
Power Infirmities in Standard Bid Documents
for Case II Bidding
It is important to revert to the Build Own Operate (BOO)•
bidding structure framework to ensure lower tariffs and better
efficiency in plant operation. At the same time, allow complete
pass-through of fuel price cost and let fixed cost be the biddable
parameter. Do away with multiple tranches of capacities to
avoid the risk of capacities getting stranded.
Inefficiencies in Standard Bid Documents
for Case I Bidding
It is important that:
States are advised to go ahead with old documents after•
incorporating complete fuel price pass through and let fixed
cost be the biddable parameter.
100 per cent recovery of fixed cost is allowed in case of•
fuel shortage.
Multiple tranches of capacities are done away with to avoid•
the risk of capacities getting stranded.
Land acquisition, environment and
statutory clearance
• Introduce fast track mechanism for land acquisition proposals
related to infrastructure projects.
• Procedural and structural reforms necessary to expedite
environment and forest clearances and make them time-bound
with provisions for deemed permission to avoid stalled
projects.
Urgent need to review forest conservation and environment•
protection and other related Acts to ensure project development
is not impeded.
Stranded assets • Government should deal with stressed assets whose viability
is in peril through Empowered Group of Ministers (EGOM)
or guidance to regulators or a mix of both.
• Change of ownership of stranded assets can help in unlocking
capital.
Ports Connectivity and capacity
augmentation
Government through its recently announced mega ’Sagarmala‘•
initiative has shifted the focus on the three pillars of coastline
development as its deliverables — port modernisation, efficient
evacuation and coastal economic development, supported
by enabling policy and institutional linkages. It is extremely
important that time-bound milestones are adhered to while
implementing this initiative.
Roads & Highways Land acquisition and related
clearances
• 80 per cent of the encumbrance free land must be provided
on or before appointed date and balance to be handed over
within 90 days of the appointed date.
• Change of scope needs to be finalized within 12 months
from the appointed date.
• RO of NHAI should be empowered to sanction the LA
compensation, approval of utility shifting estimates and other
payments related to pre-construction clearance activities.
Approval for borrow areas to be part of MOEF clearance•
process itself by NHAI.

16. 16 policy watch
Industry Voices
Port sector has emerged as the frontrunner for infrastructure development in the country. With PPP evolving
as the preferred mode for implementing projects, India’s maritime sector is poised for revival. The country
this fiscal has already achieved a major milestone of 1000 million tonnes of cargo throughput for the first
time. With the Government’s mega Sagarmala initiative to transform the sector and the recently announced
‘The Tariff Policy 2015’ guidelines in place, the sector is indeed growing steadily but a lot would still depend
on timely execution of the projects along with better project preparation and clearances in place before
awarding projects.
Rajiv Agarwal
Managing Director & CEO, Essar Ports Limited
Infrastructure development thanks to the Government initiatives over a year has been treading on a recovery
path. These measures be it strengthening of PPP mechanism, Plug and Play concept, Smart Cities mission,
Sagarmala project etc indicates the importance well laid out infrastructure holds for the country. However,
the challenges, particularly with respect to ineffective dispute resolution mechanism, project preparation,
and availability of long term finance at affordable costs need to be addressed expeditiously. In short, ‘Build
India’ has to be the enabler for making ‘Make in India’ a success.
Ajit Gulabchand
President, Construction Federation of India and Chairman & Managing Director, Hindustan Construction Company Limited
Public Private Partnerships (PPPs) in India has helped the Government to adopt a long term approach to
infrastructure planning and management. The incentives embedded in a PPP project have derived greater
value for money expected over the project's life cycle. Our approach towards PPPs have demonstrated
and captured the benefits of marketplace and the new initiatives of the Government are definitely
going to enhance the Government's goal for public infrastructure and supplement the economy to
attain double digit growth trajectory in the coming years.
K Ramchand
President & CEO, IL&FS Transportation Networks Ltd
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