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Opportunities in Infrastructure-II - Views on News from Equitymaster
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  • May 20, 2008

    Opportunities in Infrastructure-II

    In the previous article, we looked at the broader opportunities India Inc. had in the infrastructure space. For this article, as mentioned earlier, we will take a look at the opportunities available specifically in the power sector.

  • Opportunities in infrastructure-I

    During the eleventh five-year plan (2007-2012), the total investment set to be pumped into the power sector is to the tune of Rs 6,165 bn (assuming the 15% spillover into the next 5-year plan). These are Planning Commission of India's (PCI) estimates. Below, we can see the commission's estimates for the power sector spread over these five years of the plan period.

    Year (Rs bn) 2007-08 2008-09 2009-10 2010-11 2011-12 Total XIth Plan Share %
    Public 544 683 860 1,084 1,369 4,540 74%
    Private 198 245 305 385 491 1,625 26%
    Total 742 928 1,165 1,469 1,860 6,165 100%
    % of total 12% 15% 19% 24% 30% 100%

    Source: Planning Commission of India

    As seen above, the expenditures are expected to grow in absolute terms year-on-year with 12% of the total being invested in FY08, subsequently increasing to 30% in FY12. However, interestingly, the share of private sector is expected to come down to 26% of total investments during the current plan period, from 31% in the Xth Plan (2002-2007). As far as the three segments of power generation, distribution and transmission are concerned, 56% of the total investments are planned towards setting up generation capacities with the remaining shared almost equally by the transmission and distribution segments. PCI's estimates for each of these segments are as follows -

    (Rs bn) Generation Transmission Distribution Total XIth Plan
    States 956 468 933 2,357
    Central 1,231 527 425 2,183
    Private 1,243 298 85 1,625
    Total 3,430 1,293 1,443 6,165

    Source: Planning Commission of India

    With more than half the country's population residing in rural areas, rural electrification is a major concern for the nation. Alternatively, we can say that there lies a huge opportunity in this particular space. The PCI has estimated that the rural electrification initiative will require investments of around Rs 340 bn (5% of total expenditue in this sector) over the next few years. The Government, through initiatives like Bharat Nirman and RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana), plans to reach out to more than 23 m households.

    Target Vs Achievement
    The XIth plan proposes an addition of almost 80,000 MW to country's power generation capacity, an increase of 67% over the installed capacity at beginning of the plan period. However, the actual achievement of this target will be keenly watched, considering the poor track record of the past. As seen from the adjacent chart, the situation has been worsening if one were to take into account the under-achievements of the past three completed plan periods (8th, 9th and 10th). As reported by the Central Electricity Authority (CEA), the major reasons for this under achievement have been time and cost overrun constraints faced by companies, whose order backlogs contained projects from the previous plans. Further, issues like equipment supplies and the overall regulated nature of the electricity sector (which repelled fresh investments, especially from the private sector) also impacted the sector's growth.

  • India: Give me the power!

    Issues besides those in generation, like high levels of transmission and distribution losses, also added to the problems. As a matter of fact, India tops the charts when it comes to T&D losses. While the power ministry promulgated the APDRP Act (Accelerated Power Development and Reforms Programme) in 2001 with a vision to cut down India's T&D losses to levels of 15% by the end of the Xth plan, things have remained where they were. As a matter of fact, the average T&D losses for all states remained at 40% (including uncollected bills) in the beginning of 2007. The same vision has now been shifted as a goal to be achieved during the XIth plan.

    Opportunities in Infrastructure Article Series - Previous article | Next article | All Articles



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