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Infrastructure: A lot needs to be done - Views on News from Equitymaster

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Infrastructure: A lot needs to be done

Jul 2, 2009

Power
Power generation in the country grew by a dismal 2.7% YoY during FY09, a far cry from the target of 9.1% YoY. Though there was a sharp decline in hydro and nuclear based generation during the year, the overall electricity generation in the country showed positive growth on account of two factors - a 5.6% YoY growth in thermal based generation, and a markedly higher growth in power generated by the private sector as compared to the central and state sectors. The main reason for the targets not being met were low rainfall led low inflows into reservoirs adversely affecting hydro power generation, nuclear fuel supply constraints causing lower nuclear power generation. As far as thermal power generation is concerned, shortage of coal & gas (which are the main fuels for thermal generation), shortfall in capacity addition, delay in achieving commercial operation of some newly commissioned units due to non-completion of balance of plant works were some of the factors that played spoilsport.

A lower growth in peak electricity demand during FY09 as compared to growth in peak demand met led to a decline in the country's peak shortage levels. The power sector is extremely coal intensive and uses about 74% of the country's coal production. In light of this, a negative for the country has been that its dependence on imported coal went up by almost 60% during the year. The fuels woes for the power sector also extend to other sources of fuel. For example, the supply of gas to power stations that use gas as the primary fuel remains inadequate.

In light of the constant slippages in power generation addition year after year, the Ministry of Power has now adopted a monitoring system of capacity addition with three broad levels - the Central Electricity Authority (CEA), Ministry of Power (MoP) and Power Project Monitoring Panel (PPMP). Under the coal based Ultra Mega Power Projects (UMPPs) initiative of the government, nine such projects, each with a capacity of 4,000 MW, have been identified. Some of these have already been awarded and development work has already begun, while some are still to be awarded.

What is somewhat startling is the scenario of hydro power projects in the country. There are currently 40 hydro projects with an aggregate capacity of 13,085 MW under construction. The main reasons for the slow development include a myriad of problems like difficult and inaccessible potential sites, difficulties in land acquisition, rehabilitation, environmental and forest-related issues, inter-state issues etc. Still, the bulk of the potential for hydropower in the country is yet to be tapped (which is in the Himalayan region).

In terms of energy conservation, the Bureau of Energy Efficiency (BEE) has taken initiatives to promote energy efficiency, targeting reduction in demand of 5% during the eleventh five year plan. Other than that, the survey has also mentioned the government's continued focus on improving the transmission and distribution (T&D) infrastructure in the country, and rural electricity initiatives like the Rajiv Gandhi Grameen Vidyutikaran Yojna.

Telecom
The Indian telecom industry registered yet another year of strong growth, adding more than 115 m wireless subscribers. As of February 2009, the industry had almost 414 m connections (including fixed lines), making India the third largest telephone market and the second largest wireless market in the world.

The industry has set out a target of 500 m connections by 2010 and touch 600 m subscribers by the end of the eleventh five-year plan (2007-12). Considering the pace at which new connections are being added, this target does not seem out of reach. The government's focus on reaching out to remote and uncovered areas has helped the country increase its tele-density level significantly. Currently, it stands at about 36%. This is a substantial achievement when compared to the rate of 13% in March 2006. As of January 2009, the country is believed to have an urban tele-density 84% and a rural tele-density of about 14%. It may be noted that towards the end of 2007, rural tele-density stood at about 8%, while urban tele-density was at about 60%.

During the current fiscal, a lot of focus will be given to new policy initiatives in the industry. The predominant one is the allocation of spectrum for the 3G and broadband wireless access (BWA) services. In addition, the telecom regulator TRAI recently unveiled a draft to allow mobile number portability (MNP) which allows subscribers to switch networks without changing the number.

Roads
India has one of the largest road networks in the world. It consists of national highways, state highways, major district roads, other district roads and village roads. Out of the total length of national highways, about 30% is single lane, 53% is standard two-lane and balance 17% is four-lane width or more. It may be noted that while national highways comprise only about 2% of the total length of roads, they account for about 40% of the total traffic.

As of March 31, 2009, 11,037 km of national highways under NHDP project were completed, the bulk of which (5,721 km) lies on the Golden Quadrilateral (GQ). A substantial part of the NS-EW (North South- East West) corridor was completed in the past fifteen months. At the end of November 2007, only 1,559 km of the project was complete. About 7,194 km of national highways are under construction. Nearly 98% of the work on the GQ has been completed towards the end of FY09. As for the NS-EW corridors, nearly 41% is still under implementation. The NS-EW corridor is expected to be completed by December 2009.

National highways projects (March 31, 2009)
NHDP Component Total length Already four laned Under implementation Balance for award
GQ 5,846 5,721 125 -
NS-EW 7,142 3,436 2,915 791
Port connectivity 380 206 168 6
Other NHs 962 781 161 20
NHDP-III 12,109 787 1,878 9,444
NHDP Phase-V 6,500 106 928 5,470
NHDP Phase-VII 700 0 19 681
Total 33,639 11,037 6,194 16,412
Source: Economic survey

The implementation of NHDP has been faced with a number of constraints that include delays in land acquisition and removal of structures, shifting of utilities and law and order problem in some states. In addition, it is also believed that the industry is impacted by poor performance of some contractors.

Airports
After a booming air travel industry in the period preceding 2008, the sector showed signs of slowdown due during the year due to a steep rise in the cost of ATF (air turbine fuel) and the global economic slowdown. The number of domestic passengers declined by 5% during 2008 as compared to 2007, although the recent fall in ATF prices brought atleast some relief to the sector.

The international airports at New Delhi and Mumbai have been restructured and modernization and upgradation works are being carried out with the involvement of private sector players. As per the survey, the construction of first phase development work in Delhi is likely to be completed by March 2010. The construction work for the Mumbai airport too is expected to be completed by March 2010. Following this momentum, the government has also approved the plan modernizing and expanding the Kolkata airport and Chennai airport. On completion, passenger handling capacity at Chennai will be increased from 9 m to 23 m.

The economic survey has also highlighted the government's efforts to upgrade the non metro airports in the country. Currently, modernisation work of 35 non-metro airports in the county is going on. Development of airports in the North-eastern region is being taken up on a priority basis. Terminals at places like Ahmedabad, Thiruvananthapuram, Jaipur, Udaipur, Dibrugarh, Trichy, Lucknow, Mangalore, Bhubaneshwar, Indore, Ranchi, Port Blair, Vadodara, Madurai, Bhopal, Raipur, Tirupati and Coimbatore (and many more) are all under purview.

As per the survey, the government continued its overall liberal approach in 2008 with respect to the grant of traffic rights under bilateral agreements with foreign countries. To enable greater connectivity and more commercial opportunities to operating carriers, traffic rights were enhanced with countries like Mexico, Saudi Arabia, Oman, Bahrain, UAE, Pakistan, Bangladesh, Thailand, Belgium, Germany, Qatar, Iran, Japan, Bhutan, Azerbaijan and Turkey in 2008. Further, the government is also trying to actively engage states and Union Territories in India in the development work of airports. We expect this thrust on airports to continue as the government continues to attempt building up the core infrastructure in the country.

Ports
India, which has a generous coastline of 7,517 km, is studded with 12 major ports and 200 non-major ports. Of this, the 12 major ports carry about three-fourths of the total traffic. During FY09, the cargo handled by major ports registered miserable growth of 2.1% YoY compared to the 13.9% YoY growth in FY08. In terms of capacity addition, the annual aggregate cargo handling capacity of major ports in India increased from about 505 metric tonnes per annum (MTPA) in FY07 to 532 MTPA in FY08.

Despite having adequate capacity and modern handling facilities, the average turnaround time in India in FY09 was 3.85 days, compared with 10 hours in Hong Kong, thus taking away from the competitiveness of Indian ports. A major reason for this is that ports are not adequately linked to the hinterland, and thus the evacuation of cargo is exceptionally slow, leading to congestion and bottlenecks. To alleviate this problem, all port trusts have set up groups with representatives from National Highway Authority of India (NHAI), the railways and state governments to prepare comprehensive plans aimed at improving road-rail connectivity of ports. An efficient multi-modal system using the most efficient mode of transport from origin to destination is a prerequisite for the smooth functioning of any port, and involves coordinating rail and road networks to ensure good connectivity between ports and the hinterland.

Though most ports in the world have been traditionally owned by the public sector, privatization of port facilities and services has now gathered momentum. To facilitate this further, the government has put into place policies wherein depending on the nature of the facility or service, private operators can enter into a service contract, a management contract, a concession agreement or a divestiture to operate port services. Areas that have been opened up to the private sector on a BOT basis include construction of cargo handling berths and dry docks, container terminals and warehousing facilities and ship-repair facilities.

Outlook
Given the fact that good infrastructure is a prerequisite for sustainable growth of any economy, a lot of emphasis has been given on the same. The amount to be spent on infrastructure has been estimated to be US$ 500 bn during the eleventh five-year plan. The emphasis on public private partnerships (PPPs) has led to increasing investments from the private sector. But the fact is that timely execution of these projects remains a cause of concern with many projects getting delayed thereby leading to cost overruns. In addition, apart from acquiring financial closures, the sector is also faced with issues like disputes in land acquisition, rehabilitation, contractual issues, shortage of raw materials, capital goods and fuel, environmental disputes and inadequate availability of skilled manpower, amongst others.



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1 Responses to "Infrastructure: A lot needs to be done"

R C Desai

Apr 12, 2010

With highly inefficient ministers in both power and telecom sectors, what can you expect?

Hope the Prime Minister is able to overcome Shallow Political compulsions!!

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Equitymaster requests your view! Post a comment on "Infrastructure: A lot needs to be done". Click here!

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