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Private Investment in Infrastructure: A Perspective

Private Investment in Infrastructure: A Perspective. By Vinayak Chatterjee. Chairman . &. Chairman National Council on Infrastructure. December 20, 2006 : New Delhi . Vision For Next 5 Years (2007-2012).

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Private Investment in Infrastructure: A Perspective

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  1. Private Investment in Infrastructure:A Perspective By Vinayak Chatterjee Chairman & Chairman National Council on Infrastructure December 20, 2006 : New Delhi

  2. Vision For Next 5 Years (2007-2012) • Approach Paper to the 11th Five Year Plan provides a ‘vision’ for the period 2007-08 to 2011-12. • On 18th October’06, Chairing a meeting of the Planning Commission, the Prime Minister set a target of 9% average economic growth for the 11th Plan. Slide 2

  3. Gross Capital Formation in Infrastructure (GCFI) • The Planning Commission suggests that “investments will need to increase from 4.6% of GDP to between 7% and 8% in the 11th Plan period”. • This would entail an outlay of US$ 350 Billion across the 11th Plan Period (2007-2012). Slide 3

  4. Mr. P. Chidabaram, Finance Minister “There is enough private capital jostling around the world. We will have to change our thinking to tap these resources. ………..The government is considering the removal of certain restrictions on the securitisation of debt raised abroad. Private wealth managers in the west who preside over investible funds should be encouraged to finance India’s infrastructure projects by putting in place necessary safeguards. [Speaking at the Infrastructure Seminar, Vigyan Bhawan, New Delhi , 7th October’06] Slide 4

  5. Mr. P. Chidabaram, Finance Minister (Contd..) …………We will have to think out of the box. We will have to accept that we are part of the global economy. ……….We don’t have any financial instrument for savers who would like to keep their money for five years or more, except insurance policies. We will have to press ahead with pension and new insurance products to encourage long-term savings.” [Speaking at the Infrastructure Seminar, Vigyan Bhawan, New Delhi , 7th October’06] Slide 5

  6. General Pattern of Funding • World Bank sources tell us that in the 1990s: • 70% of infrastructure investment in developing countries came from governments or public utilities • 22% came from the private sector • 8% from official developmentassistance Slide 6

  7. Perspective on Indian Infra Funding Sources (US$ Billion) Amount % Resources to be organized for infra investments in 11th Plan Period 350 100% From Private Capital (Domestic and FDI) 77 22% From World Bank, ADB, JBIC and other multilateral/bilateral agencies 39 11% From Public Expenditure 234 67% Slide 7

  8. Sectoral Requirement of Funds (US$ Billion) Sector Amount % PPP Possibilities Energy 120 34 Railways 67 19 Nat Highways 49 14 Irrigation 18 5 Airports 9 3 Ports 11 3 Envisaged 274 78 Others* 76 22 Total 350 100 * Telecom, Tourism, SEZs & Townships, Supporting Urban Infrastructure, Water & Sanitation, State & Rural Roads, Logistics etc. Slide 8

  9. Key Imperative ONE : Private Sector • Create enough attractive investment opportunities to channelise FDI and domestic capital by: • PPP initiatives leading to a large pool of bankable projects. • Establishment of really “independent” Economic Regulators. Slide 9

  10. Key Imperative ONE : Private Sector(Contd..) • PPP for the 11th Plan period should be to the tune of US$ 77 Billion. • In a summary statement circulated in the document pack of the Infrastructure Seminar at Vigyan Bhawan on 7th October’06, the total number of PPP projects listed ‘officially’ was 346 with an estimated cost of US$ 31 Billion. Slide 10

  11. Key Imperative ONE : Private Sector(Contd..) • Who is responsible for creating the required project pipeline ? • Surely not the private sector. • Private sector cannot create projects; it can ONLY bid for them. • The sovereign has to play the role of a ‘visionary entrepreneur’ in the infrastructure sector unlike the ‘product-market economy’. Slide 11

  12. Key Imperatives TWO : Overseas Development Assistance (ODA) Engage aggressively with multilateral agencies like • World Bank • Asian Development Bank and • Japan Bank for International Cooperation to secure commitments totaling not less than US$ 39 Billion for the 11th Plan period. Slide 12

  13. Key Imperatives THREE : Public Expenditure • Structure large-scale projects (like Rail Freight Corridor, NHDP and Bharat Nirman) involving substantive public expenditure • Implement fresh ‘out-of-the-box’ initiatives to raise savings and resources for this purpose to a level of US$ 234 Billion. Slide 13

  14. Key Imperatives Four : Long Term Financing Create vibrant equity and long-term debt markets for infrastructure financing. Slide 14

  15. Summing Up • Project pipe-line creation • Public expenditure & ODA to ‘pull’ private involvement. • GCFI as key performance indicator • Creation of ‘independent economic regulators’ • PPP policies and dedicated PPP cells • Long-term debt markets • Political will and public mind-set to implement user-pay charges • Sovereign to be ‘visionary entrepreneur’. • G-to-G opportunity structuring Slide 15

  16. Closing Quote “You and I come by road or rail, but economists travel on INFRASTRUCTURE”. Margaret Thatcher Slide 16

  17. Thank You

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