Infrastructure development, as known, has been a critical precursor for sustaining the growth momentum and at the same time ensuring inclusiveness of the growth process. During the last few years, the country has witnessed significant capacity addition across infrastructure verticals. More importantly, 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 2011 - 12 and is expected to reach 10 per cent of GDP by 2016-17. While infrastructure development has gained significant momentum over the last few years, the deficit is so large and the requirements are growing at such a rapid pace that it continues to pose a challenge. Against, this backdrop, CII has been strongly advocating for an Action Agenda towards creating an enabling and conducive policy & regulatory framework, the impact of which could facilitate greater investments in the Infrastructure sector. This issue of Policy Watch takes an in-depth look at the Infrastructure sector and has outlined some specific recommendations in the short term to reinvigorate the growth momentum in the sector. I am enclosing a soft copy of this publication for your ready reference.

1. 1policy watch
Focus : Action Agenda for the Infrastructure Sector
July 2013, Volume 2, Issue 3
PolicyConfederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
nfrastructure development is
a critical enabler for sustaining
economic growth as well as
ensuring its inclusiveness. It is estimated
that lack of good quality infrastructure
impedes India’s GDP growth rate by 1-2
per cent per annum.
The share of private investment in the
overall investment in infrastructure was
about 37 per cent in the 11th
Plan. Going
forward in the current Plan period (2012
– 17), the Government is expecting USD
453 billion out of the total investment
requirements of USD 970 billion (almost 50
per cent) to come from the private sector.
Realizing the need to create a greater
enabling environment for the PPP
framework in the infrastructure sector,
the Government has recently undertaken
critical policy initiatives to provide a much -
required fillip to the sector.These include:
• Setting up of a Cabinet Committee on
Investments (CCI) to monitor and fast
track big ticket infrastructure projects
over Rs. 1000 crore.
• Draft Public Authority (Settlement of
Disputes) Bill, 2013 recently mooted by
the Planning Commission seeks to set
up an institutional mechanism that can
provide assurance of speedy resolution
of disputes, especially of large public
contracts.
Going ahead, there are some critical sector
specific issues which would need to be
addressed to realize the true potential of
PPP in the country.These include:
• PPP Renegotiation:There is an imminent
need to set up an 'Independent PPP
Commission' with the authority and
jurisdiction to renegotiate the terms of
the contract in the best interests of the
country.
• Sovereign Clearances: The Government
should ensure that all projects are
awarded to the private sector only after
securing key sovereign clearances.
• Enhancing Liquidity for Developers: One of
the specific recommendations is to create
BusinessTrusts (BT) that allow assets to be
handled by professional O&M Operators
while the underlying ownership gets
accumulated in the BT whose units get
subscribed by the investors.
• Effective Regulatory Framework:
Sectoral regulatory authorities need to
be developed into truly independent
bodies that are free from political and
bureaucratic interference.
CII has drawn up a Sustained Agenda for
Policy Advocacy this year and is currently
in dialogue with all the key stakeholders
to discuss the critical issues and come out
with a detailed roadmap for the sector.
This Policy Watch issue takes an in-depth
look at the sectoral issues and seeks to
outlinesomespecificrecommendationsthat
CIIwouldpursueinitsdialoguewithvarious
policy stakeholders in the Government.
I hope that you will find it useful. n
Chandrajit Banerjee
Director General
Confederation of Indian Industry
Message From the
Director General..... 1
Chandrajit Banerjee,
Director General, CII
CEO Speak.......................................................................................................................................................2
Policy Barometer............11
Industry Voices...............15
Factfile...........................16
Dr. Rajiv B Lall
Chairman, CII National Committee on
Infrastructure and Executive Chairman,
Infrastructure Development Finance
Company Limited
Vinayak Chatterjee
Chairman, CII National Task Force on
Infrastructure Projects– Monitoring and
Advocacy and Chairman, Feedback
Infrastructure Services Pvt. Ltd.
Anil Sardana
Chairman, CII National Committee on
Power and Managing Director,Tata
Power Company Ltd.
GV Sanjay Reddy
Chairman, CII National Task Force
on Festival of India and
Vice Chairman, GVK Power &
Infrastructure Ltd.
T.S Venkatesan
Member, CII Core Group on Roads &
Highways and Chief Executive- Roads,
L&T Infrastructure Development
Projects Ltd.
Rajiv Agarwal
Chairman, CII Core Group on Ports
and Managing Director & CEO,
Essar Ports Ltd.
Amit Kapur
Member, CII National Committee on
Infrastructure and Partner, J Sagar
Associates,Advocates & Solicitors
this IssueInside

2. 2 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
CEOSpeak
Of late, infrastructure projects have
taken a back seat. What do you think
are the critical factors affecting the
implementation of projects and how
long do you think it will take to
reinvigorate the growth momentum?
After a period of policy paralysis, the
Government has started making an effort
on the policy front to bring back investors'
confidence. Setting up the Cabinet
Committee on Investments (CCI) to monitor
on-time completion of large projects was an
important signal. It showed the intention
of the Government in clearing some of the
bottlenecks affecting these projects, many
of which were caused by lack of inter-
ministerial coordination.
The Government needs to restore investor
confidence and improve sentiment to bring
back private investment and capital asset
creation.While the private sector has played
an important role in building infrastructure,
the Government’s inability to meet its
obligations in certain areas has affected
the confidence of investors. For example, in
the power sector, Coal India was to provide
the fuel but it is not available in sufficient
quantities. Another example is the road
sector where aggregation of land has not
happened at the pace it should have. There
have also been issues related to obtaining
at plant load factors that are sufficient
to service debt. Coal India needs to be
closely monitored and held accountable
for efficiency improvements. Also, the lack
of availability of gas, especially from the
KG basin has affected the 20,000 MW
of gas based power plants in the country,
which are either stranded or running at very
low plant load factors. We need to find a
solution which perhaps creates a blend of
KG basin and imported gas. In the telecom
sector, decisions on issues such as spectrum
pricing, ‘refarming’ of spectrum etc. need to
be handled expeditiously.
These issues will hopefully see some
resolution over the next few months. In
general, there needs to be a rebound in
greenfieldassetcreationacrossinfrastructure
sectors which brings back investors.
With equity being a constraint and
about 70 per cent of funding expected
through debt, what needs to be
done to encourage investment in the
infrastructure sector and encourage
banks and financial institutions to
step up lending activities?
It is not really an issue of financing being
unavailable. The important hurdle to cross is
bringing back confidence in all stakeholders.
While the investment requirements are huge,
the bottlenecks in the system are making
it difficult for the infrastructure sector
to attract adequate capital and funding
which is required to meet the investment
requirements.
In addition to resolving the sector specific
issues already mentioned, there are issues
related to land acquisition and environment
clearances across sectors which need a
balanced solution. For greenfield projects,
the Government should ensure all requisite
clearances are obtained before the projects
are bid out.
It is only after overcoming these bottlenecks
that the infrastructure sector will attract the
level of investment it requires. n
Imperative to Remove Bottlenecks to
Accelerate Growth in Infrastructure
Dr. Rajiv B Lall
Chairman
CII National Committee on Infrastructure and
Executive Chairman, Infrastructure Development
Finance Company Limited
clearances, in particular environmental
clearances.
If we are to get anywhere near the one
Trillion dollars of infrastructure investment
over the 12th
Five Year Plan, half of which
is supposed to come from the private sector,
it will require bold measures to remove
the pressing bottlenecks across major
infrastructure sectors, which are hampering
the overall investment climate.
With lenders tightening the noose on
financing infrastructure, what are your
expectations in the near term?
Due to the impressive growth of the
infrastructure sector during the 11th
Plan
period, lenders have
a large exposure to
the sector. The recent
slowdown has expectedly
resulted in their holding
back further funding,
especially to greenfield
projects.
Resolving issues
affecting the power
sector continues to be of
immediate importance
to restore confidence.
Power plants coming
onstream do not have
enough fuel to operate

3. 3policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
CEOSpeak
With the 12th
Five Year Plan already
commenced, action on new projects
and monitoring of existing ones is
yet to keep pace. Do you think a
sustained change is needed across
planning, bidding and execution of
infrastructure projects?
Yes, action on new projects is yet to take off.
The first point is really that the 12th
Plan will
see the existence and impact of the Cabinet
Committee on Infrastructure (CCI) which
was absent during the 11th
and 10th
Plan.
So, hopefully, the CCI mechanism should be
able to cut through a lot of policy logjams,
for which there was no effective mechanism
earlier. This becomes even more pertinent in
the wake of the fact that 215 infrastructure
projects worth Rs 7 Lakh crore are stuck and
for another 126 projects, bank loans have
been sanctioned but they are yet to take off.
The other point I want to make is that,
historically, the relationship on infrastructure
development with the private sector has
been on two broad parameters – Build
Operate Transfer (BOT) and Engineering,
Procurement & Construction (EPC). From
CII’s side, we have also been pushing for
the middle ground, which is called Annuity.
This is because the fact remains that despite
good response to its bids in some sectors
like roads and highways on the BOTmodel,
many projects are facing difficulties owing
to issues related to financial closure. In many
cases, financial closure problems arose out
of the issues related to land acquisition and
environment clearance.
With inevitable increase in the number
of PPP projects for renegotiation,don’t
you think an institutional framework
needs to be created to address
concession related resetting issues?
The industry in our sector – which is the
infrastructure sector – has been stridently
asking for a PPP Renegotiation Commission
because of an increasing number of cases
coming up for dispute resolution and
reluctance of the banking system to provide
loans for the infrastructure sector. All these
need to be handled together. Policy and
regulatory reforms in the sector have a
long term impact on investors’ sentiment.
The Government has announced such
positive measures but more measures
such as these need to be fast-tracked and
monitored regularly. The popular perception
is that the worst is behind us, but there is
still apprehension that there may not be
radical positive shifts before the next general
elections. Therefore, the widely held belief is
that the infrastructure sector is going to see
its next upcycle from 2015 onwards.
What do you think needs to be done
on a priority basis to speed up pace
of infrastructure development in the
country?
There is certainly a need to change the way
we approach infrastructure development in
the country. Some of the key interventions
are enumerated here under–
• A far more vibrant CCI that should meet
weekly.
• Facilitate creating a long-term debt
market.
• Enacting a new architecture to make
regulatory authorities truly independent.
• Creatingcapacityamongthebureaucracy
at the Centre and States to conceptualize
and develop more PPP Projects. n
Public Private Partnerships in India:
Changing Paradigm
Vinayak Chatterjee
Chairman, CII National Task Force on
Infrastructure Projects– Monitoring and Advocacy
and Chairman, Feedback Infrastructure
Services Pvt. Ltd.
renegotiation on account of changes
in circumstances that were earlier not
foreseen. This becomes important because
it would be impractical to assume that
PPP documentation is ‘cast in stone’ and
unforeseen developments across 20 – 60
years will not require to be addressed in
public interest, even as international data
on PPP reveals that around 41 per cent
projects underwent renegotiation.Further,at
present, there is no institutional mechanism
to reset terms in a transparent and unbiased
manner. CII, therefore requests setting up
of an ’Independent PPP Commission’ with
authority and jurisdiction to renegotiate
terms of contract in the best interests of the
country.
Do you think that investor sentiment
will improve on the back of recent
policy announcements or will it
continue to take a hit?
Investor sentiment at
present is affected due
to various reasons. These
include over-leveraged
private sector balance
sheets, insufficient order
book to feed all the
infrastructure companies
which has grown over
the years, policy logjams,
contract management
issues and the increasing

4. 4 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
What are the three key issues currently
impeding growth in the power sector?
The power sector is facing several challenges
today. The key amongst them is shortage of
fuel. Despite huge coal reserves in India,
the domestic power sector is facing coal
shortages and has resorted to imports to
meet its requirements. This shortage may
result in increasing non-utilisation of assets
that are already built and also distract
new capacity additions thereby resulting in
targets not being met. At the same time,
recent policy changes in Indonesia and
Australia have significantly escalated the
price of imported coal. Since Independent
Power Producers (IPPs) import coal from
Indonesia and Australia, the sudden spike
in price has caused imported coal-based
power projects to become economically
unviable. However, in this respect, the recent
decision taken by the Cabinet Committee
on Economic Affairs (CCEA) to allow power
companies to pass on the cost of imported
coal to electricity consumers is indeed a
welcome development and will benefit the
78,000-MW of capacity that is envisaged
in the current Plan period. While this may
lead to a very marginal increase (15-17
paise) in the per unit cost of power, this
move will ensure availability of power and
will also prevent the creation of stranded
capacity which currently is estimated at
about 20,000 MW. This move is clearly a
step in the right direction and reiterates the
Government’s commitment to address the
issues impacting the power sector. It is also
hoped that the processes to get this aspect
approved from State Electricity Regulatory
Commission (SERC) will be simple and
transparent. Another major challenge to the
sector is the shortage of natural gas in India.
This shortage has stranded gas-based power
projects with a combined capacity of around
18,903.5 MW, accounting for 9.13 per cent
of the total generation capacity.
In this regard as well, CCEA’s recent decision
to hike the gas prices in accordance with
of 400 GW, comprising one of the largest
customer bases in the world. However, high
financial losses and the debt burdens of
the distribution companies are hampering
not just electricity distribution but is almost
becoming a question mark for the addition
of generation capacity in India.
In addition to fuel, distribution reforms,
the third key impediment to growth is
the commitment of States to support the
developers in obtaining clearances, land
free of encumbrances, etc. Without the
engagement of the States it is seen that
developers have to experience a long wait
before their investment can be deployed on
ground.
In your view, how is the sector likely
to evolve over the next few years?
What is likely to be the roadmap for
renewable energy based generation in
the country?
Energy is the engine that drives the pace
of the economy and it is in the interest of
the country’s economic development that
the sector is given its due importance.
The sector has witnessed steady growth
through private sector participation. There
is a need for concerted effort from all the
stakeholders towards mitigation of some of
the key obstacles hindering the growth of
the sector. Also, the Government would do
well to divest out of power generation and
Need for Integrated Planning to
Address Challenges
Anil Sardana
Chairman
CII National Committee on Power and
Managing Director,Tata Power Company Ltd.
the formula proposed by the Rangarajan
Committee report is expected to incentivize
exploration and hopefully lead to increased
domestic gas production.There is also a need
to evolve a robust energy security policy for
the country so that guidance is given to all
State Regulatory commissions to plan bulk
supply procurement in line with the basket
of fuels that meet Indian's energy security
needs.
Besides fuel, the slow pace of distribution
reforms is another key concern. Power
distribution still remains a segment that
needs significant reform-intervention and a
combination of tariff increases, competition
and open access and enforcement of the
‘obligation to service’ going forward.
The distribution segment caters to 200
million consumers with a connected load
CEOSpeak

5. 5policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
distribution businesses and be the catalyst
to promote investments. It should act as the
custodian of customer's voice and demand
performance from private utilities. One
would want to see the power sector cater
to customer needs in terms of quantitative
and qualitative aspects, benchmarked with
best of class utilities anywhere in the globe.
Fortunately, this exists in pockets and is
required to be replicated elsewhere in India ,
through a strong will of the Government.
In line with the low carbon growth strategy,
the Government of India is pursuing
aggressive targets of generating energy
from renewable sources. This has been
reflected in the 12th
FiveYear plan (2012-17)
that envisaged, renewable capacity addition
of 18,500 MW out of which 3800 MW will
be from solar capacity sources. This presents
significant opportunities for the players in
the energy sector. In our opinion the real
boost for the renewable energy sector would
come by strengthening the Renewable
Purchase Obligations (RPO) mechanism.
Since the renewable resources are not
evenly distributed in the country, the RPO
encourages setting up of large generation
capacities at resource rich locations, and
through a process of certification, it can
be traded on Central Electricity Regulatory
Commission (CERC) approved power
exchanges, to obligated entities or voluntary
buyers. Also, the Government should be
agnostic to which solar technology is used
(CST or PV) and leave it to developers and
market forces to determine the choice of
technology.
Tata Power is also one of the major investors
in generation of power using renewable
energy sources. The Company has a total
installed generation capacity of 852 MW in
the clean and renewable energy sector.
What are the key policy initiatives that
need to be undertaken on an urgent
basis to put the sector on a strong
growth trajectory?
The power sector has gone through a lot of
turbulence in the last year. There were clear
indications of the sector struggling with a
number of factors like fuel supply shortage,
unprecedented hike of coal prices in the
international coal markets and the dismal
financial health of the distribution sector.
The worst blackout in the country’s history,
which occurred in the month of July, was a
good wake up call and highlighted the need
for integrated planning.
Despite grappling with challenges, the level
of determination exhibited by the private
sector to contribute to the growth of the
sector needs appreciation. The private sector
added around a 15000-20000 MW of new
capacity in the past year.Tata Power itself has
fully commissioned the country's first 4000
MW Ultra Mega Power Project (UMPP) at
Mundra which meets about two per cent of
the country's energy needs.
This one year also saw a change of guard
at the Ministry of Power and we have seen
hectic activity in the past few months. The
recently announced Budget by the Central
Government for the financial year 2013-
14 approved a scheme for the financial
restructuring of discoms to restore the health
of the power sector. The State Governments
have been asked to prepare the financial
restructuring plans which can be utilized
at the earliest to the best advantage to
the discoms. It is hoped that the discoms,
which happen to be the weakest link in
the entire value chain, will be restructured
to strengthen the framework of the sector.
Steps taken on fuel price pooling which is
a short term solution only, would provide
some respite to new capacity, which
otherwise has the risk of being stranded.
Also the CERC's order in April 2013, which
called for a variable 'compensatory tariff' till
the fuel situation stabilizes for an imported
coal based plant, is a progressive step for
the sector.This decision of the regulator was
welcomed by the industry as many imported
coal based projects were either stalled or
were running losses due to high imported
fuel costs. Also as mentioned earlier, CCEA’s
decision to allow power companies to pass
on the cost of imported coal to electricity
consumers is also a positive development
and will benefit the 78,000-MW of capacity
that is envisaged in the current Plan period.
A similar policy framework is needed
to address various issues plaguing the
sector for quick resolution, which will spur
investments multifold.
What are the potential opportunities
for the Indian power sector in the
global markets, especially in Africa, in
the renewable energy and coal based
power generation segments?
The Indian power sector has a good chance
in the global markets.The emerging markets,
including Africa, have good potential for
power and infrastructure development and
with the right opportunity can be a value
creator for Indian companies. Case in point
are most big global energy companies
that have also pursued growth by going
international. Also, the type of challenges,
especially in Africa, are similar to that of
India. Indian private players can easily
contribute to the development of Africa's
distribution sector, which would give a
fillip to generation activities, including
renewables. n
CEOSpeak

6. 6 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
CEOSpeak
What is the current status of the
airports sector? Do you think the
sector will achieve the set targets?
The airports sector is unique both in terms of
progress made and the opportunity available.
Though there is still a lot to be achieved,
there have been some breakthroughs in the
right direction in the recent past: a wave of
privatization of major airports came in the
last decade. This has resulted in a change
in outlook for the airports, from being seen
merely as transit points to being seen as
destinations in themselves. In the last five
years, the total non-aeronautical revenue
generated across all airports in the country
has grown by more than 340 per cent and
91 per cent of this has been driven by the
four metro Public Private Partnership (PPP)
airports at Mumbai, Delhi, Bangalore and
Hyderabad. Even the airports modernised
and constructed by the Airports Authority
of India (AAI) are being developed as a
hub of activities rather than being just
functional. India requires $30 billion in
airport infrastructure investments by 2020,
most of which has to come from the private
sector, but the long gestation period of the
projects, high capital intensity, paucity of
high risk capital and involvement of multiple
stakeholders pose significant risk to the
but is closely intertwined with the growth
of India’s economy - e.g. every $100 spent
in the aviation sector contributes $325
for the economy and every 100 additional
jobs created in air transport results in 610
new jobs. I thus feel that it is of utmost
importance to build these airports and
that it can happen in a timely and efficient
manner only through innovative PPP
business models.
What are the specific policy measures
that the Government should take to
address the key issues affecting the
sector?
Though good progress has been made
recently in the airports sector, there is
a feeling of uncertainty over the policy
framework going forward. The regulator
needs to take a clear stand on tariff policy,
be more progressive, and open the doors for
more lucrative private player participation.
This would not only augur well for the
private players but also make the sector
more competitive and bring the best of the
players to the table, improving both the pace
and quality of projects, which is the need
of the hour. Private participation can also
be aided by preferential capital funding at
attractive terms. n
Innovative PPP Models Can Boost
The Growth of the Aviation Sector
GV Sanjay Reddy
Chairman
CII National Task Force on Festival of India and
Vice Chairman, GVK Power & Infrastructure Ltd.
pace of the projects.Whether the targets are
achieved or not would depend on how these
risks are mitigated collectively.
The AAI is planning to develop around
20 airports in tier II-III cities over the
next five years. What are your views?
The per capita air trips recorded in India
stands at 0.05 as against China and Brazil’s
0.3, global average of 0.5 and advanced
economies’ 1.7, which shows immense
potential for the development of aviation
in India.This can happen only when the tier
II and III cities are air connected and flying
becomes inclusive. Development of these
airports is not only good in its own respect,

7. 7policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
CEOSpeak
What is the current status of the roads
and highways sector? Do you think the
sector will witness a surge in investor
participation in the light of recent
policy initiatives?
The award of projects by NHAI in the last
fiscal has been below expectations, with
less than 20 per cent of NHAI’s work plan
materializing.The situation is not expected to
bevastlydifferentthisfiscalgiventheexisting
market sentiments being far from optimistic.
The developer community has been exposed
to the stark realities of the existing macro-
economic situation in the country coupled
with the delay in implementation of the NHAI
plan, which has resulted in consequences
like – awarded projects not taking off
because of LA/Clearance issues, lenders’
increasing pessimistic attitude towards the
roads sector, very few bids receiving interest
from bidders, unavailability of equity for
new investments, etc. The current status of
the sector is therefore not too promising,
but the situation can only get better from
here, given the fact that the Government
in the recent past has shown keenness
towards taking corrective measures for
improving investor sentiments. Recent policy
initiatives like restructuring of premiums,
allowing early exit of developers from
operational projects, setting up of a Cabinet
Committee on Infrastructure to speed up
implementation, delinking of environment
and forest clearances –will definitely help
in sprucing up the sector as and when they
get fully implemented. Also, initiatives like
restructuring of premiums has not been
receiving encouraging response from the
various Ministries which are required to give
approvals for it to become a reality.
The Government has announced the
setting up of the road sector regulator
in the next 4 months. What are your
expectations?
From a developer’s perspective, this is a
welcome move, as the roads regulator
would be expected to take certain key
as well as State Highway Authorities falling
under the ambit of the proposed regulator,
and not the NHs alone as mentioned in the
Budget announcement, so that consistent
implementation of initiatives can be ensured
throughout the country. A regulator, among
other things, would also be expected to take
certain pro-user decisions which will again
be a welcome move as it would ease out
issues like willingness to pay toll.
There has been a shift in focus to
award projects on EPC basis. Do you
think that this trend will continue in
the near term?
The decision to move towards EPC mode was
taken by NHAI on two accounts – lack of
high traffic corridors which will attract BOT
bids, and availability of funds with NHAI to
implement projects through public funding.
The scenario of funds availability with NHAI
could have now undergone an alteration
after the recent backing out by developers
of a few high profile projects. The expected
premiums from these projects, anticipated
to fund the upcoming EPC projects pipeline,
Remedial Measures Required to Boost
Growth of Roads and Highways Sector
T.S. Venkatesan
Member, CII Core Group on Roads & Highways
and Chief Executive- Roads, L&T Infrastructure
Development Projects Ltd.
policy decisions like restructuring of
project premiums, faster dispute resolution
mechanisms, authority to make small but
impactful changes to the existing Model
Concession Agreement, etc. provided the
upcoming roads sector regulator is given the
mandate for the all these things.The idea of
a regulator would be rendered meaningless
if aspects like dispute resolution, authority
to make unilateral policy improvements, etc.
are kept out of its purview. Moreover, as a
developer,we would expect to have National

8. 8 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
What is the current status of the ports
sector? Do you think the sector will
achieve the set targets?
The ports sector has huge growth potential
but the current growth rate of the sector is
much below its potential. Still, we believe
that the sector will be able to achieve the
set targets as cargo through the ports
is expected to increase significantly as
the Indian economy expands and the
manufacturing and trade sector grows.
Recently there has been some acceleration
on the bidding process but more positive
actions are required by the Government
to improve the investment scenario in the
sector. Several projects have been delayed
due to the slow bidding process and also
TheGovernmenthasrecentlyannounced
draftguidelinesforTariffSettinginMajor
Ports, 2013.What are your views?
The new draft tariff guidelines for Tariff
Setting in Major Ports is a step in the right
direction. It will provide more flexibility to
port operators to fix the tariff and will lead
to improvement of operational performance
of the ports.
Tariff fixation at the major ports should
be deregulated as the sector has become
highly competitive and the market can
determine the competitive rate based on
cost and quality of service. The role of Tarrif
Authority for Major Ports (TAMP) should be
of a facilitator who ensures a competitive
environment and also that of an enabler
Streamlining Clearances and Bidding Process:
Crucial for PromotingTrade and Economy
Rajiv Agarwal
Chairman
CII Core Group on Ports and
Managing Director & CEO, Essar Ports Ltd.
may not be a reality any longer. The EPC
trend may hence continue for the short term
but a large scale shift towards EPC is unlikely
to happen given the financial constraints to
support such a programme. Going forward,
the Authority needs to strike a fair balance
between BOT (Toll), BOT (Annuity) and EPC
projects, based on availability of funds,
budget allocation, viability of projects,
developer sentiments and lenders’ interests
in the sector.
Whatarethespecificrecommendations
that CII has been suggesting to the
Government to address the key issues
affecting the sector?
Recommendations such as additional tax-
sops, setting up of a dedicated Infrastructure
Ministry, setting-up a fast-track board to
remove project impediments at a grass-root
level have been suggested.There are a lot of
other issues to be addressed and remedial
measures to be taken. Mentioned below are
a few of them:
a) Non availability of equity capital
b) Delay in environmental and forest
clearance
c) Starting the bid process only after the
necessary clearances are obtained will
prevent delays in land availability and
hence delays in project construction.
d) 80 per cent of the land should be in 3G
stage with cheques disbursed by NHAI
to the land owners.
e) Frequent change of scope due to
demand of additional structures like
Vehicular Under Pass (VUP), Pedestrian
Under Pass (PUP) etc by the locals.
f) Take the local public into confidence
by publishing the scope of work in
local newspapers, seek their comments
upfront to prevent subsequent changes
to the scope.
g) Toll rationalization - Toll viability is a
major issue affecting road users. At
present,toll rates are linked to wholesale
price index (WPI) which affects toll
rates dearly. Moreover, there has been
widespread opposition from locals
and commuters where service level of
the highway stretch is dipping. CII has
recommended to the developers not to
charge toll in case of under construction
highways.
h) As of now, once the Concession
Agreement is signed, no changes in the
agreement can take place - This needs
to be changed as restructuring of the
ConcessionAgreements is a must for the
survival and the revival of the sector.
i) Absence of State Support Agreement
- Solid , effective and implementable
State Support Agreement has to be
made available even before the Request
For Proposal (RFP) stage.
j) Delays in shifting utilities, approvals etc -
This requires certain structural changes
in the Concession Agreement to prevent
executional delays.
k) OpaqueTotal Project Cost number in the
Concession Agreement - This should be
transparent and the breakup has to be
made available to the bidders.
l) Weak Dispute Resolution Mechanism -
A quasi - judicial authority is a must for
speedier resolution of issues. n
CEOSpeak
due to delays in obtaining environment
clearance, security clearance and land
acquisition.

9. 9policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
The recent past has seen frequent instances
of private companies in the infrastructure
space attempting to renegotiate their
contracts for a wide variety of reasons.
Prominent among these instances is the
tariff-revision sought by Adani Power
Ltd. and Tata Power Ltd. on grounds of a
sudden and unanticipated increase in fuel
costs. Similarly, in the highways sector, GMR
Infrastructure Ltd. sought to restructure
the payment of premiums due under the
concession agreement to the National
Highways Authority of India.
The Tatas and Adanis were afforded a
modicum of relief by the Central Electricity
Regulatory Commission, which viewed
their demands favourably in the backdrop
of ensuring the continued viability of the
electricity sector. However, GMR was not so
fortunate, with the proposed restructuring
responded to,both in the interest of the public
and the continued successful development of
infrastructure in the country.
The Concept of Renegotiation
In competitively bid out concessions,
renegotiation is viewed as risky since the
original basis on which the concession
was competitively bid out may be altered,
affecting the competitive fairness of the
concession. However, renegotiation can be
a positive instrument when it addresses the
inherently incomplete nature of concession
contracts. Properly used, renegotiation can
enhance welfare. In Adani Power Ltd. v
Uttar Haryana Bijli Vitaran Nigam Ltd. and
Ors., Petition No: 155/MP/2012, Date of
Order : 02.04.2013, the Central Electricity
Regulatory Commission noted the following
‘relevant and important findings’ with
respect to renegotiation:
Renegotiating Infrastructure Concessions
Amit Kapur
Member
CII National Committee on Infrastructure and
Partner, J Sagar Associates,Advocates & Solicitors
being rejected as being a ‘renegotiation of
the entire agreement’.
In the backdrop of the increasing demand for
renegotiation of infrastructure concessions, it
becomes important to understand the causes
and triggers of renegotiation to ensure that
suchdemandsareeffectivelyandconstructively
CEOSpeak
to ensure performance regulation, dispute
resolution and standardizing efficiencies
and best practices by setting operational
guidelines.
Whatarethespecificrecommendations
which CII has been suggesting to the
Government to address some of the
issues mentioned above?
CII is playing a participative and constructive
role in the formulation of policies conducive
for the growth of the sector by presenting
the views of various stakeholders to the
Government. Some of the important
recommendations of CII to the Government
are:
• Emphasis should also be on port
connectivity projects and it should move
along with port expansion plans.
• Captivejettiesarecrucialforthegrowthof
the ports sector and port based industries.
The Ministry of Shipping has come up
with a draft captive user policy. CII has
urged the Ministry to notify the captive
user policy for allotment of waterfront
and land to port based industries.
• CII has suggested that a comprehensive
new architecture for Port Regulation
maybesynthesized,includingcommon
rules of the game for major (Central)
and minor (State) ports.
• It has been suggested that capital
expenditure and maintenance dredging
of the channel may be taken up as a key
sovereign activity in a far more focused
and professional manner than presently.
• CII has also suggested corporatizing the
major ports by removing the archaic Trust
Structure. n

10. 10 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
CEOSpeak
• All long-term contracts are incomplete
and it is not always possible to
imagine all possible contingencies in
contracts spreading over twenty years.
Prices may need to be varied sharply
in unpredictable ways because of
major commodity price shocks and/or
exchange rate crisis.
• Allowing some room for renegotiation
is appropriate and socially desirable
in the face of new problems, changed
circumstancesandadditionalinformation
and experience.
• Opportunistic renegotiation should be
discouraged – renegotiation should not
be used to correct mistakes in bidding or
overtly risky or aggressive bids.
The Causes and Triggers of
Renegotiation
Renegotiations are common in incomplete
contracts.Incomplete contracts result when
infrastructure concessions and long-term
contracts fail to provide a comprehensive
and unambiguous mechanism for dealing
with unforeseen events and periodic
readjustments. Since human ingenuity can
forecast only a limited set of possibilities,
it needs to be recognised that most
concessions are inevitably incomplete
contracts. An ideal contract for a long-
term transaction is impossible to achieve
because it would require perfect foresight
and limitless resources for negotiating and
drafting the contract.
One of the common triggers of renegotiation
isachangeincircumstancesorfinancial
equilibrium. The renegotiation kicks in
when the original contract and financial
impactofthecontractaresignificantlyaltered
and such changes are not contemplated
in the contract. In infrastructure contracts,
the concessionaire expects returns that
offer reasonable profit. When the expected
returns cannot be earned, concessionaires
seek a change in contract terms.For example,
Reliance Power Transmission Ltd. (through
its subsidiaries) had sought a revision of the
tariff for a transmission project for reasons
of an increase in costs occasioned by a delay
caused by force majeure.
Another accepted trigger for renegotiation
is hardship. Hardship is the occurrence
of an event outside the control of a party
which fundamentally alters the equilibrium
of a contract because the cost of a party’s
performance has increased or because the
value of the performance a party receives
is diminished. Such party should not have
reasonably been able to take the event
into account at the time of execution of
the contract. In National Insurance Co. Ltd.
v Smt. Golana and Anr1
, the Allahabad
High Court held that hardship entitles the
disadvantaged party to request the other
party to renegotiate the original terms of
contract with a view to adapting them to
the changed circumstances.
Macroeconomic variations such as
changes in the exchange rate are a major
factor where equipment or materials are
imported or when a currency is devalued or
suffers from steep depreciation, the parties
may seek renegotiation to offset the effects
of such fluctuations.
Additionally, contracts often provide for
internal triggers for renegotiation.
Common examples include ‘force majeure’
(the occurrence of unforeseen events
outside the control of the parties that impact
the performance of contractual obligations)
and ‘change in law’ (change in the legal
or regulatory framework impacting the
transaction contemplated by the contract)
whereby terms of the contract are either
altered or suspended on account of these
pre-stipulated events.
Conclusion: A Tool to Be Used Wisely
Renegotiation is often preferred to outright
termination where the parties wish to retain
their contractual relationship but, for some
reason, the contract no longer accurately
reflects the provision of service that is
required. The hope is that the process of
renegotiation will result in an agreement
which more accurately reflects the position
and the parties’ respective needs and
ambitions.
Renegotiation can be a positive instrument
when it addresses the inherently incomplete
nature of concession contracts - properly
used, it can enhance welfare. However,
while some renegotiation is desirable,
appropriate, and to be expected, high
incidence or readiness for renegotiation may
result in opportunistic behaviour and should,
therefore, be carefully employed. There is
a felt need to revisit the Indian model of
public-private partnerships for infrastructure
development – to effectively put to use for
the economy the invaluable investments
of Rs.10,00,000 crores or US$ 180 billion
locked into underperforming assets due to
diverse problems like acute fuel shortages,
delays in land acquisition and environmental
clearances, unresolved disputes pending at
various fora et al. Of this US$ 135 billion
constitutes loans given by banks which
incidentally is savings by households and
citizens. A fair and equitable stance on
renegotiation of concessions in the event of
circumstances that render such concessions
financially unviable is absolutely necessary.
Ultimately, a robust legal and regulatory
framework is necessary to address the causes
and treatment of contract renegotiation. n

11. 11policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
2012 (8) ADJ 714
CII Recommendations for Key Issues in
the Infrastructure Sector
Area Issues Recommendations
PPP
Renegotiation
• Inevitable increase in number of PPP projects
coming up for renegotiation.
• ImpracticaltoassumethatPPPdocumentation
is'castinstone'andunforeseendevelopments
across 20 – 60 years will not require to be
addressed in public interest.
• International data on PPP reveals 41.5 per
cent projects underwent renegotiation.
• No institutional mechanism to transparently,
and unbiasedly reset terms.
 Set up 'Independent PPP Commission' with authority
and jurisdiction to renegotiate terms of contract in the
best interests of the country.
PPP - General • A large middle space on Annuity-structured
PPP projects exists between EPC and BOT.
Needs to be exploited for greater involvement
of private sector in current public expenditure
driven-projects.
• Award of PPP projects without ‘sovereign
clearance’ single biggest factor for delays.
 Consider setting up a National Infra Annuity Fund
outside consolidated Fund of India with mirrored
entities at state level.
 Issue Government order that no statal entities to
'award' projects to private sector without FIRST
securing key sovereign clearances.
Construction • Steady decline in credit flow to construction
sector; though construction accounts for over
8 per cent of GDP, it commands only 3 per
cent share of total bank credit to industry.
Urgent need to raise the share of institutional
lending.
 Take forward suggestions from the Working Group on
Construction (Planning Commission) with respect to:
(i) Setting up a Mortgage Refinance Company
which would be a financial institution owned by
the banks with the sole purpose of supporting
banks to do construction mortgage lending by
refinancing banks’ mortgage portfolios; and
(ii) Setting up a Construction Bank in line with
countries like China, Singapore, Ethiopia.
Liquidity for
Developers
• Over the past 10-15 years, several developers
have emerged and made substantial
commitments in the infrastructure space.
Large amounts of Equity are tied up in these
assets and providing liquidity is a prime
concern.
 A bundle of measures to enhance liquidity are:
(i) Creation of Business Trusts (BT). This allows
assets to be handled by professional O&M
Operators while the underlying ownership gets
accumulatedintheBTwhoseunitsgetsubscribed
by the investors. Singapore Laws provide such
an opportunity currently, particularly after the
reduction of withholding tax by Government
of India. Compelling case to create BTs in India
with necessary Tax and Regulatory facilitators
thereby attracting overseas investors also.
Policy Barometer

12. 12 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
Area Issues Recommendations
(ii) Allowing sponsors to exit fully in operational
projects.
(iii) Declaring COD for projects that have been
operating with Provisional COD for a long time.
Dispute
Resolution
Mechanism
• The existing dispute resolution mechanism
goes through the process of reconciliatory
meetings followed by Arbitration. However,
in almost all cases, the award passed by
Arbitration Tribunals leads to the award
being challenged at various courts of law.
Thereafter, even if the courts dismiss the
appeals, the award has to be realized by
executing the same through attachment of
property, a process which is impractical.
 Amendments to the existing laws are necessary
to restrict the appeal against an award or even
if appealed against, the award amount has to be
deposited in the Court such that once the Courts
dismiss the appeal, the amount can be realized by the
award-holder immediately.
Regulatory
Authorities
• Independence of Regulatory Institutions in
infrastructure sectors have still to be credibly
established.
 Sectoral regulatory authorities need to be developed
into truly independent bodies free from political and
bureaucratic 'capture'. Implement draft legislation
(prepared by Planning Commission) to create a new
RegulatoryArchitecture to enable 'true' independence
of functioning of sectoral regulators.
Infra Capital
Goods
• Presently facing 5-30 per cent top-line
shrinkage, severely depleted order books and
negative job creation. Likely to see only 50
per cent capacity utilization in 2013 – 14.
 New investment of Rs. 35,000 crores for setting up
of 8 Urea Fertilizer projects is on hold awaiting final
Department of Fertilizer clearance and firm allocation
of gas by the Ministry of Petroleum & Natural Gas.
The Government of India had notified New Urea
Investment Policy 2012 on 2nd January 2013. Needs
expediting.
 Sharpen economic diplomacy to garner large-sized
overseas projects (a la China) and support liberally
with EXIM financing. Have annual target for Ministry
of External Affairs.
Infra Financing • Asset is classified as 'impaired' when there
is change in Date of Commencement of
Commercial Ops (DCCO).
 Asset should not have to be classified as ‘impaired’
when there is a change in DCCO under the following
circumstances:
• Repayment of the loan is regular and no change
is being sought from the original documented
repayment schedule;
• Change in repayment schedule: If there is a
delay in a project from the original documented
DCCO on account of sovereign reasons like land
acquisition, legal and statutory approvals.
Policy Barometer

13. 13policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
Policy Barometer
Area Issues Recommendations
Road Sector • Electronic Tolling: The current system of
toll collection (by cash) is prone to being
misused.
• NHAI is currently the final arbiter in case of a
disputebetweenitselfandtheconcessionaire.
NHAI is therefore in conflict.
• Lower Total Project Cost (TPC) estimates
by Government hindering funding by
lenders, restricting termination payments
and increasing contingent liabilities on the
balance sheets of sponsors, and leading
generally to most disagreements.
 We need to quickly move to Electronic Tolling to
ensure transparency.
 We need to establish a separate agency to settle
disputes between NHAI and the Concessionaire.
Hopefully, the proposed Road Regulator will discharge
this function. Needs urgent expediting.
 System of finalizing TPC needs revamping by:
(i) Aligning schedule rates with market
(ii) Providing for lead adjustments, where
necessary
(iii) Providing realistic escalations for input prices
(iv) Aligning non-EPC costs with market estimates
Renewable
Energy
• Non-enforceability of Renewables Purchase
Obligation (RPO), since there is no penalty or
deterrence for non-compliance.
• Discontinuity of Tariff Orders and hence lack
of Visibility/Policy for Investment Decisions.
• Inadequate Grid Evacuation.
 In pursuance to stated objectives of achieving 15
per cent power from Renewable Energy, RPO has to
be enforced and there should be penalties for non-
compliance.
 Tariff Orders should be issued with validity of at least
3-5 years, so investors can plan investments.
 Need to urgently improve Grid Evacuation. Power Grid
Corporation of India Ltd. (PGCIL) should create green
corridors to evacuate and transfer.
Electricity
Distribution
Reform
• Non-periodic and inadequate Tariff Revision.
• Huge Liquidity stuck in Regulatory Assets.
[Delhi alone has > Rs. 20,000 crores stuck in
Regulatory Assets.]
• Political Interference in SERC functioning.
 The Electricity Act 2003 (EA03) should be amended to
ensure Regular and Cost-Reflective Tariff, including, if
required suo-moto as function of SERCs.
 Perspective and Operational Plans for Regulatory
Asset Recovery.
 Independence of SERCs: EA03 shall provide for
independence of SERCs both in appointment and
functioning. In this respect the recommendations of
Shunglu Committee must be considered.

14. 14 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
Policy Barometer
Area Issues Recommendations
Independent
Power
Production
• IninterpretingthePowerPurchaseAgreement
(PPA) terms for quantity of coal to be supplied.
Coal companies are giving Annual Contract
Quantity (ACQ) of coal in the FSA close to
50 per cent of what is required to feed the
power demand of PPA.
• In absence of active Case I tenders and also
on account of delayed finalization of Case
I bids, constructed plant capacity would be
idle for want of FSA.
• Historic shortfall of coal and gas.
 As per the discussion in October 2012 the PMO
and subsequent instruction of Secretary Coal, the
suggested basis of calculation of ACQ would have
met the demands of PPA. Coal companies do not have
instructions from CIL / MOC. This needs to be sorted
out.
 Bilateral PPA’s with the States be allowed and these
PPA’s can be regulated tariff (as per CEA norms).
Railways • Rolling Stock
• Dedicated Freight Corridors
 PutouttendersforElectricandDieselHighHorsepower
Locomotives. This matter has been pending since
2009. The magnitude of orders would be such that
over US$ 6 billion of locomotives would be ordered
with new factories to be built, and jobs created.
 Pace of projectization for the Dedicated Freight
Corridors needs to be accelerated.
Urban Water
PPP
• Positive political atmosphere needs to
be created for enabling PPP, as is being
advocated in electricity distribution.
• Urban Local Bodies (ULB) need to be
galvanized into action.
 Next burst of JNURM funding should have clear
linkages to capacity building in ULBs for PPP formats
in urban water, and their purposeful and practical
projectization.
Ports • Most ports facing bottlenecks in cargo
evacuation.
• Captive user policy is essential for the growth
of the port sector and port based industries.
• The role of Tariff Authority for Major Ports
• Regular and impactful dredging can
immediately enhance port capacities
significantly.
• Corporatization
 Port connectivity projects should move along with
port expansion plans.
 Draft of this ‘Captive User’ policy has already been
circulated and the Ministry has received the comments
of various stakeholders. Policy should be notified at
the earliest.
 A comprehensive new architecture for Port Regulation
may be synthesized, including common rules of the
game for major (Central) and minor (State) ports.
 Capital expenditure and maintenance for dredging
may be taken up as a key sovereign activity in a
far more focused and professional manner than
presently.
 The archaic Trust Structure of major ports may be
changed to the more contemporary Corporatized
Structure.

15. 15policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
Industry Voices
For the economy to grow at around 7 per cent there is an urgent need to raise the share of institutional
lending to infrastructure/ construction sectors. At present, while the infrastructure sector is battling a
slowdown, I am hopeful that with the right blend of conducive policies, effective clearance processes and
access to low cost long term funds, the sector will soon tread on a growth trajectory.
K Venkataramanan
Chairman, CII Manufacturing Council and
Chief Executive Officer & Managing Director, Larsen & Toubro Ltd.
Economic slowdown and delays in project implementation have impacted the growth of infrastructure
development. However, a slew of recent policy initiatives announced by the Government are in a positive
direction. I expect the latter half of FY 14 to be better than FY 13 for the capital goods industry, both for
order book as well as revenues.
M S Unnikrishnan
Chairman, CII National Committee on Capital Goods and Engineering
and Managing Director & CEO,Thermax Limited.
Infrastructure is the only asset class that cannot be relocated elsewhere. As such, infrastructure PPPs
are the game changer for India. Clearly, we have an infrastructure gap and the world recognises a great
opportunity therein. All we need to do is to make infrastructure our national, state and local level priority,
put out more (not less) viable projects for bidding and make infrastructure investors true partners in nation
building.
Sanjay Ubale
Member, CII National Committee on Infrastructure and
Managing Director & CEO,Tata Realty & Infrastructure Ltd.

16. 16 policy watch
Confederation of
Indian Industry
Confederation of
Indian Industry
Confederation of
Indian Industry
Factfile
Sector Projected Investment Private Sector Contribution
Electricity (incl. NCE) 329.3 173.2
Roads & Bridges 173.4 55.5
telecommunications 166.6 146.4
Railways (incl. MRtS) 105.13 23
irrigation (incl.watershed) 81 ---
waters Supply & Sanitation 39.13 0.94
ports (incl. inland waterways) 30.25 26.17
airports 13.38 10.64
oil & Gas pipelines 22.65 10.6
Storage 8.98 6.42
Total 970 453
Source: planning commission, Government of india
Sector - wise Investments in Infrastructure
Investment in Infrastructure as percent of GDP
4.60% 5.02%
7.22%
9.95%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
9th Plan Period (1997-2002) 10th Plan Period (2002-2007) 11th Plan Period (2007-2012) 12th Plan period (2012-2017)-
Projected
%ofGDP
Source: planning commission, Government of india
Projected Investment in XII Plan (2012-17)
(US$ billion)
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