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Policy hurdles hit private play in infrastructure

In the revised projections for infrastructure during the 11th Plan (2007 to 2012), the Planning Commission has halved the investment estimate from the private sector in highway construction.

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Inconsistency in bidding policy and the recent economic slowdown have hit exposure of the private sector to creation of highway infrastructure. Ports and railways have also seen decline
in private exposure.

In the revised projections for infrastructure during the 11th Plan (2007 to 2012), the Planning Commission has halved the investment estimate from the private sector in highway construction. The private sector exposure has been pegged at Rs 45,887 crore, compared with Rs 1,06,792 crore envisaged during the beginning of the Plan period.

Railways will see a decline of 83% in investment from the private sector, at Rs 8,316 crore as against earlier projection of Rs 50,354 crore. Similarly, the ports sector will see a decline of 40% in private sector investment at Rs 32,517 crore as against projections of Rs 54,479 crore.

Experts feel the dent in private participation is largely due to the inconsistent policy scenario, with the road transport and highways ministry trying to implement the new model concession agreement (MCA) that was ratified by the finance ministry in December 2007. The sector saw a spate of litigation over the controversial clauses introduced in the MCA as well as mid-way introduction of clauses in 2008-09.

With the economic slowdown setting in towards the end of the second quarter of the fiscal, the liquidity crunch created more roadblocks, driving away the already disinterested investors. By the end of the previous fiscal, the highways sector was completely marooned, with the NHAI getting response in only 22 of the 63 projects worth Rs 70,000 crore that it had invited bids for in the year.

Amrit Pandurangi, (leader) infrastructure, PricewaterhouseCoopers, said, “The whole of 2008 and some part of 2009 has been really bad for the highways construction sector. Things are now picking up but we cannot make up for the lost time. More than the slowdown effect, this is pertaining to procedural hurdles. In first eight or nine months of 2008, there was no slowdown, but still no highway project was awarded.”

However, telecom, oil & gas pipeline and electricity generation are likely to see more investment from the private sector in the rest of the 11th plan period.

In the telecom sector, the projected investment from the private sector has been revised upwards to Rs 283,631 crore as against the previous projection of Rs 106,792 crore at the beginning of the Plan.

In the oil & gas pipelines, the private sector investments is set to go up by 708% by the end of the 11th plan at Rs 52,761 crore as against the earlier estimates of Rs 6,528 crore. The introduction of ultra mega power projects has attracted huge interest from private players in electricity generation. Investment in the sector from private companies is set to increase by 55% at Rs 287,546 crore as against projected investment of Rs 1,85,512 crore at the beginning of the Plan.

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