Newsletter | June 2017
Infra News
 

Reliance, BP to invest Rs 40,000 crore in KG block over 3 to 5 years

Reliance Industries (RIL) has announced it would invest Rs 40,000 crore ($6 billion) in three projects, over three to five years, for developing discoveries in the KG-D6 block along with its 30 per cent partner BP Plc. These discoveries are in deepwater gas fields and are expected to bring onstream 30-35 million cubic metres (1 billion cubic feet) of gas a day over 2020-22. More

Asian Infrastructure Investment Bank grants USD 150 mn loan for India Infrastructure Fund

Asian Infrastructure Investment Bank has approved USD 150 million equity investment loan to the India Infrastructure Fund, the bank's first such loan to fund private projects. The bank has approved two loans and one equity investment totaling USD 324 million to support infrastructure projects in India, Georgia and Tajikistan. The Infrastructure Fund aims to invest in mid-cap infrastructure companies in India, and to expand the bank's equity and loan deal sourcing pipelines in the private sector through its equity participation in this fund. More

In a first in India, Telangana plans Rs1000 crore life sciences infrastructure fund

The Telangana government has proposed to set up a Life Sciences Infrastructure Fund with a corpus of Rs 1,000 crore. The fund will be used to create a modular plug-and-play specialized infrastructure for pharmaceuticals, biotechnology and medical devices industry. An MoU with Cerestra Advisors, a private equity firm, has been signed towards this end. More

Green panel nod for Rs 2600 crore GMR Hyderabad airport expansion plan

The Expert Appraisal Committee under the Ministry of Environment, Forest and Climate Change has accorded permission for GMR Group's proposal for the Rs 2,629 crore expansion plan of Rajiv Gandhi international airport. GMR Hyderabad International Airport Limited (GHIAL) which manages the airport is in the process of expanding the current design capacity from the existing 12 million passengers per annum to 25 million passengers per annum. More

India, South Korea sign $10 billion funding agreement for infra projects

India and South Korea has signed agreement for $10 billion assistance for infrastructure development projects in India, including smart cities. The two countries signed agreements to establish $9 billion in concessional credit and $1 billion in Official development assistance (ODA) funding for infrastructure development projects in India. More

Centre Okays highways and waterways projects worth Rs 1.5 lakh crore for Uttar Pradesh

The union government approved national highways and waterways projects worth Rs 1.5 lakh crore for Uttar Pradesh. The projects were taken up for approval in a joint review meeting by roads transport and highways minister Nitin Gadkari, Uttar Pradesh chief minister Yogi Adityanath and UP deputy CM Keshav Prasad Maurya. The projects also include creation of infrastructure in Allahabad for the Kumbh festival that will be held in 2019. Seventy-two state highways would be upgraded to national highways. Fifteen Greenfield highway projects would be taken up and the NHAI will also build an expressway connecting Lucknow with Bundelkhand.  The UP Chief Minister said that several big-ticket infrastructure projects would be taken up in the backward regions of Bundelkhand and eastern UP. More

Cabinet nod for four-laning of Rs 2,776-crore road project in Himachal Pradesh

The CCEA has given its "approval for development of four laning from 'end of Pandoh Bypass to Takoli' section of National Highway (NH)-21 in Himachal Pradesh. The cost is estimated to be Rs 2,775.93 crore, including cost of land acquisition, resettlement and rehabilitation and other pre-construction activities. The total length of the road to be developed is approximately 19 km. The project will help in expediting the improvement of infrastructure in Himachal Pradesh and in reducing the time and cost of travel for traffic, particularly heavy traffic, plying from 'end of Pandoh Bypass to Takoli' section. More

India to take up road and highway projects abroad: Minister Nitin Gadkari

The government is planning to launch a dedicated international subsidiary of the National Highways Authority of India (NHAI) to take up roads and highway projects abroad, particularly in South Asia. India is also looking forward to setting up joint ventures (JVs) for road construction in neighboring countries. Such a subsidiary could be in the form of a special purpose vehicle (SPV) which will collaborate with foreign companies to bag international projects. More

Indian smart cities can become lighthouses for world, says London School of Economics

The Centre’s flagship initiative Smart City Mission has got its first international affirmation, as a London School of Economics study has praised the government’s effort stating Indian smart cities could become lighthouses for other cities around the world. The London School of Economics study was conducted after the first set of 20 cities were chosen in January 2016 through a competitive process to initiate the mission. The research examined the proposals of each city and conducted stakeholder interviews to gauge the selection process and the quality of the mission. The Smart Cities Challenge, which was the first time India used an open national competitive framework to distribute funding to local governments for urban development, has been termed as “the most innovative aspect of the Mission”. More

Financing of Solar Rooftop Projects

The State Bank of India (SBI) has financed solar rooftop projects worth Rs 4 billion which would add about 100 MW of capacity to the grid. SBI has availed loan of $ 625 million from the World Bank for on-lending to viable grid-connected rooftop solar photovoltaic (PV) projects undertaken by PV developers/aggregators and end-users, for installation of rooftop solar systems in commercial, institutional and industrial buildings. The implementation of this programme by SBI will support the installation of over 600 MW of rooftop solar capacity. Some developers which have received financing under this initiative include Azure Power, Amplus, and Cleanmax amongst others. The capacity of the projects financed range from 25kWp to 16 MW.

 
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Previous Issues:
May 2017
April Part I 2017
April Part II 2017
March 2017
December 2016
November 2016
October 2016
September 2016
August 2016
April 2016
March 2016
February 2016
January 2016

Investments in Roads: Incentives, Issues and Mitigating Measures

By Durgesh Singh, Partner and Abhishek Sarkar, Associate

India’s 4.87 million km road network is second largest in the world and accounts for almost 80% of the passenger traffic and 60% of the freight traffic. The Government’s intent in developing roads sector is evident from increased budgetary allocation of INR 64, 900 crores in 2017, a 12% increment from last year, and introduction of numerous fiscal incentives and legislative reforms.

Structuring of Public Private Partnership models

Traditionally, the PPP projects in roads were high risk and faced instances of delays and disputes related to land acquisition and environment. To mitigate these, NHAI has remodeled the model concession agreement to introduce the hybrid annuity model (“HAM”). In the earlier build-operate-transfer model, the concessionaire bore major part of project risk. Under HAM, 40% of the project cost is borne by the Government and 60% is funded by the developer. NHAI collects the revenue through toll, thereby absorbing the traffic risk, and the concessionaire gets steady flow of revenue and profit through annuity payments.

The Government recently approved the toll operate transfer (“TOT”) model in toll operation. The TOT model involves 30 year leasing of toll collection and operation duties of highway projects, currently operated by the NHAI for more than 2 years, to investors that include foreign funds, in consideration of an upfront payment paid by the investor to NHAI. The operate-maintain-transfer (OMT) model utilized earlier entailed the selected bidder managing the project for a shorter tenure which resulted in poor maintenance while annual payouts to NHAI increased yearly, without factoring changes in the traffic flow or revenue of the investor.

Mitigating the persistent issues

Lock-in period

In the BOT projects awarded before 2009, the developer had to maintain a minimum 26% stake in the concessionaire for the entire concession period, irrespective of the revenue earned and the financial status. This compounded the debt burden and financial issues of the developers. The Government eventually allowed developers to divest their 100% stake, 2 years after the project commissioning. This has attracted interest from the PEs which prefer holding bigger stakes in a project.

Land Issues

The land issues in roads included public pitted against the land acquisitions, and encroachments causing delays and losses to the developer. While the right to fair compensation and transparency in the Land Acquisition, Rehabilitation and Resettlement Act, 2013 attempted to address the issue by elaborating on the public interest aspect involved in such projects and limiting the role of the government to that of a facilitator in the land acquisition process, land acquisition remains a big challenge for the new projects.

Fiscal Incentives

Government has allowed 100 % FDI through automatic route in the roads and also up to 100% FDI for the support services to road sector; 100% exemption in taxes for 5 years and 30% for another 5 years, duty free imports of high capacity construction equipment and viability gap funding up to 40% of project cost to enhance viability on a case to case basis.

Advent of Infrastructure Investment Trusts

To facilitate investments in infrastructure sector, the Government has allowed registration of infrastructure investment trust (“InvIT”) in India, to raise funds for both lending and investing in infrastructure projects. This will ensure renewed investments in new projects alongwith unburdening the existing developers from their debts. Recently, the SEBI permitted IRB Infrastructure Developers and GMR Infrastructure to procure funding under this scheme, both of which have interests in roads.

Other Mitigates

Other issues for developer remain concerning delays in obtaining approvals and clearances, one sided contractual arrangements favouring the NHAI, inadequate traffic on highways and challenges in raising funds. Certain mitigating measures include States being empowered to clear projects limited to 40 acres of forest land, procedure for clearances related to bridges being simplified by applications being allowed to be made and approved online, contractual issues and traffic risk problems being addressed through the HAM, the debt mechanism being better placed after the advent of methods such as the 5:25 scheme that permits longer duration loans to cover almost 80% of the concession period and the banks classifying rights of developers relating to annuities and collection of toll as tangible securities.

Mergers and Acquisitions in roads

Interest in M&A in roads has been high recently and is likely to increase as more projects become operational. M&As are also on the rise as the valuation of road assets have vastly improved in the past few years due to rise in toll collections and fall in interest rates. The rating agency ICRA recently reported that investors such as Brookfield Asset Management of Canada, Canadian Pension Funds, Macquarie Australia, Abertis Infraestructuras of Spain, IDFC Alternatives and I Squared Capital of the USA (Cube Highways) are evaluating road assets for investments.

Despite the positive sentiment, certain issues concerning the M&As remain in roads. Apart from usual sectoral risks, road projects have a fixed duration concession which results in the low risk appetite of the investors. Heavy reliance is placed on valuations of traffic and maintenance and operation costs of the projects. Also, transactions are aggressively negotiated between the parties on representation, indemnities and liabilities.

Conclusion

Road sector in India is at the brink of realizing its potential which would consequently provide the much needed impetus to Indian economic growth. The initiatives taken by the government are extremely positive and send an unequivocal sign to all investors that the time is right for participating in the development of this sector.

Policy and opportunities

NHAI FORMS TWO PANELS TO FAST-TRACK DISPUTE RESOLUTION

The National Highways Authority of India (NHAI) has developed an alternative dispute resolution mechanism to address nearly 280 pending claims worth Rs 430 billion as well as future cases. It has set up two panels comprising six independent experts, including a former central vigilance commissioner (CVC) and a former Lokayukta, for conciliation and settlement of disputes. The decisions of the panels, one headed by former CVC Pradeep Kumar and the other by former Allahabad High Court Judge Justice I.P. Vasishth, will be binding on the NHAI and contractors. The panels also include experts from the corporate world. Meanwhile, the NHAI has notified the guidelines for the new mechanism, wherein neither the contractor nor the authority would have to engage any advocate. New cases will be referred to the expert panels only after the NHAI chairman and the board of directors have exhausted their scope of conciliation and settlement.

MSRDC RECEIVES 33 BIDS FOR MUMBAI-NAGPUR COMMUNICATION EXPRESSWAY PROJECT

The Maharashtra State Road Development Corporation Limited (MSRDC) has received 33 bids for the Mumbai-Nagpur Communication Expressway Project in response to the requests for qualification issued in March 2017. The project is being implemented in 16 packages which are – Package I (28.4 km, Rs 10 billion), Package II (60.95 km, Rs 21.5 billion), Package III (73.36 km, Rs 26 billion), Package IV (54.35 km, Rs 19 billion), Package V (42.87 km, Rs 15 billion), Package VI (36.1 km, Rs 13 billion), Package VII (51.18 km, Rs 18 billion), Package VIII (42.72 km, Rs 15 billion), Package IX (54.4 km, Rs 18.5 billion), Package X (57.9 km, Rs 20 billion), Package XI (29.39 km, Rs 10.5 billion), Package XII (45.65 km, Rs 15 billion), Package XIII (45.65 km, Rs 15 billion), Package XIV (13.1 km, Rs 20 billion), Package XV (28 km, Rs 15 billion), and Package XVI (37 km, Rs 25 billion). The project involves the construction of a communication expressway from Nagpur to Mumbai, passing through Ghoti, Aurangabad and Amravati, and connecting Vidarbha, Marathwada and North Maharashtra at an estimated cost of Rs 460 billion. It is scheduled to be completed by October 2019.

POWER MINISTRY FIRMS UP RS 17,000 CR PLAN TO REVIVE STRANDED HYDEL PROJECT

The Power Ministry has finalised a policy for reviving 40 hydro power projects of 11,639 MW, provide support of Rs 16,709 crore and declare all large and small hydro projects as renewable energy. Removing the distinction between large and small hydro plants would enable India to achieve clean power capacity of 225 GW by 2022. At present, a hydro power project up to 25 MW is classified under renewable energy and is entitled to various incentives provided by the government.

Under the policy, the government will provide interest subvention of 4 per cent during construction for up to 7 years and three years after starting commercial operation to all hydro power projects above 25 MW. It is proposed that the funding for this policy would come from coal cess or national clean energy fund or non- lapsable central pool of resources for Northeastern states for eight years till 2024-25.

A Hydro Power Fund would be created under the Power Ministry for providing funds to the projects under the policy. The policy also provides for Hydro Purchase Obligation (HPO) for hydro projects of over 25 MW capacity. Under this the discoms would be mandated to buy a proportion of power from these plants. However, this benefit would be available to those hydro power plants, which would be able to begin commercial operations after five years of notification of this policy.

The policy would also mandate Power Ministry to engage with bankers and financial institutions for modifying lending terms and conditions for hydro power projects.

BIDS TO BE ISSUED FOR DREDGING WORK IN TRIBENI-FARAKKA

Inland Waterways Authority of India (IWAI) is expected to issue bids for developing Garden Reach (GR) jetty and undertaking dredging work in Tribeni-Farakka stretch of the Haldia-Allahabad IWT project (NW-1) soon. All the necessary permissions for the same have been obtained. Meanwhile, IWAI has also asked the West Bengal government to provide a list of areas earmarked for the development of GR jetty and roll-on/roll-off facilities.

 
FIRM NEWS
 

DINNER IN MUMBAI

The Firm hosted a dinner in Mumbai on June 9, 2017 to commemorate the merger of Link Legal India Law Services and DH Law Associates and the opening of new office at Nariman Point which was well attended by clients and acquaintances.

LINK LEGAL INDIA LAW SERVICES WELCOMES BACK MR. MILIND JHA AND MS. NIDHI PATHANIA AS ASSOCIATE PARTNERS.

Milind and Nidhi, both have about 10 years of experience. Milind is a part of the Firm’s corporate as well as infrastructure team and is operating out of our Delhi office. Nidhi is a part of Banking & Finance practice and is operating out of our Mumbai office.

ANNOUNCEMENT – PROMOTION

Mr. Durgesh Singh, a key member of the Firm’s Aviation and Infrastructure practice, has been promoted as a Partner from Associate Partner.

Mr. P Ravi Charan, who is a key member from Hyderabad office has been promoted as an Associate Partner from Principal Associate.
 
 

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Best Law Firm under Practice Areas - Aviation and Projects, Energy & Infrastructure for the year 2015 & 2016 by India Business Law  Journal .

Best Law Firm under Practice Areas - Corporate & Commercial for the year 2014 and 2015 by India Business Law Journal.

Acquisition Law Firm of the Year 2016 by Corporate International.

Dispute Resolution Law Firm of the Year 2016 by Acquisition International.

Chambers & Partners - Asia Pacific has consistently ranked as Band 1 Firm in the category “Projects, Infrastructure and Energy” and the Firm is also noted for Banking and Finance and Dispute Resolution Practices.

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