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>> FEBRUARY 27, 2007
Infrastructure: Raising the bar
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TelecomTenth plan capacity addition targets and achievements
The growth in the Indian telecom sector has continued to remain robust during the previous year. This is largely due to the efforts of the government, the regulatory authority (TRAI), the industry associations and telecom players. The sector is one of the biggest success stories of the market-oriented reforms, and India is now amongst the fastest growing telecom markets in the world. While 43.7 m telephones were added during the twelve months of 2005-06, about 53.2 m subscribers have already been added in the first 10 months of this fiscal (FY07). This spurt in numbers is largely attributable to the increasing affordability in terms of both the low tariffs as also reduced costs of handsets. Currently, the telecom tariffs in India are amongst the lowest in the world which is quite an achievement considering that they had been amongst the highest less than four years ago. The teledensity has increased from 12.7% in March 2006 to 16.8% in December 2006, with a total of 189.9 m telecom subscribers.
There is a need to put an increased thrust on the growth in the rural sector if the government is to succeed in its universal access objective. There is going to be a shift in the composition of the subscriber base with rural market expected to contribute more to the growth than the urban market going forward. Owing to the lower rural teledensity, the net adds in the rural markets is expected to outnumber those of the urban areas going forward. Even the growth patterns are indicative of the same, as are the telecom service providers who are increasing their rural coverage in a bid to keep up the momentum of net addition of subscribers.
The government has come out with key initiatives to boost the rural teledensity in the form of a USO fund. However there is a large disconnect between the collections and disbursements of the said fund. So far, of the Rs 10,876 m raised (since 2003) only Rs 4,232 m has been disbursed. With the proposal of using the fund for creating infrastructure for mobile and broadband services, it is hoped that the rural teledensity will go up. If the government wants to realise its vision of providing 200 m rural telephone connections by 2012 (i.e., a teledensity of over 25%), there is a need for optimising the use of the USO fund to roll out services in the rural areas.
The rapid spread of telecom services will entail huge capital investments and foreign direct investment (FDI) is an important source towards that end. The FDI policy in India provides for an investor-friendly environment for the growth of the telecom sector. The total FDI approved and the actual inflow up to July 2006 was Rs 389 bn and Rs 118 bn respectively.
"The Tenth Plan (2002-07) capacity addition target of 41,110 MW was scaled down to 36,956 MW at the time of the Mid-Term Appraisal. The likely achievement is expected to be around 23,250 MW, which is 57% of the original target and 63% of the target in the Mid-Term Appraisal." This is what the Economic Survey 2006-07 indicates for the power situation in the country. Plainly speaking, this is concerning considering the huge power requirements of the Indian economy. As a matter of fact, in India's case, the elasticity of power generated to GDP growth should usually be 1.5 times i.e., to achieve economic growth of 8% per annum, power generation should grow at 12% per annum, which is not the case.
|(MW)||Original target||Revised||Overall anticipated||Shortfall from revised|
|Central||22,832 ||19,817 ||13,725 ||-30.7%|
|State||11,157 ||12,240 || 7,595 ||-37.9%|
|Private|| 7,121 || 4,899 || 1,931 ||-60.6%|
|Total|| 41,110 ||36,956 || 23,251 ||-37.1%|
As far as the first nine-month period performance is concerned, electricity generation grew by 7.5% during April-December 2006, against 4.8% growth in the corresponding period of 2005. This growth during 9mFY07 was a result of higher thermal generation while growth in hydro and nuclear generation slowed down. Also, as the survey notes, the higher generation was a consequence of improvement in plant load factor (PLF, or capacity utilisation) to 74.2%, from 71.5% during April-December 2005. This is, however, still lower than the PLF of 74.8% achieved in FY05, and specks volumes of the fuel constraints and stagnant efficiency metrics of Indian power generation units.
Another interesting fact to have emerged from this year's economic survey is the deteriorating performance of the state electricity boards (SEBs), with their rate of return declining to –27.4% in 2006-07 (revised estimates) from –24.8% in 2005-06. What is more, in 2006-07, while the direct transfers from state governments to SEBs was Rs 138 bn, an uncovered subsidy of Rs 212 bn remained with the latter.
As reported by the survey, during FY07, the Ministry of Power, Government of India launched an initiative for development of coal-based Ultra-Mega Power Projects (UMPPs), each with a capacity of 4,000 MW or above. These projects are to be awarded to developers on the basis of tariff-based competitive bidding. Nine sites have been identified by CEA (Central Electricity Authority) in nine states for the proposed UMPPs. These include four pithead sites, one each in Chhattisgarh, Jharkhand, Madhya Pradesh and Orissa, and five coastal sites, one each in Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. On the request of Ministry of Power, Ministry of Coal has already allocated captive coal mining blocks for Sasan UMPP in Madhya Pradesh and earmarked captive coal mining block for Orissa UMPP. For the coastal projects, imported coal shall be used. The projects are to be developed with a view to lower the cost of power to the consumers.
Lanco Infrastructure has bagged the Sasan (Madhya Pradesh) project, quoting a tariff of Rs 1.19 per unit whereas Tata Power has been awarded the Mundra (Gujarat) project at Rs 2.26 per unit. As reported by the survey, developers for Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand) UMPPs are likely to be selected by April 2007 and July 2007 respectively.
The economic survey has also laid out the government's strong focus on improving the transmission and distribution infrastructure in the country. Rural electricity initiatives like the Rajiv Gandhi Grameen Vidyutikaran Yojna has also been emphasised upon by the survey.
India has one of the largest road networks in the world, aggregating to 3.3 m kms (million kilometers). Though national highways comprise only 2% of the total length of roads, they carry about 40% of the total traffic in the country. Out of the total length of National Highways, 32% is single/intermediate lane, 56% is 2-lane and the balance 12% is 4-lane standard or more.
As of November 30 2006, 6,776 kms of the national highway development project (NHDP) has been completed as compared to 6,271 kms a year ago. Nearly 93% of the Golden Quadrilateral (GQ) project has been completed as of November 2006 and the NS and EW corridors are likely to be completed by December 2009. According to the economic survey, the delay in timely completion of NHDP includes delays in land acquisition, removal of structures and shifting of utilities. The progress of various NHAI projects as of November 2006 has been as shown in the table below.Progress of NHAI projects
|(Kilometres)||GQ||NS & EW|
|Already four laned||5,474||853||30||- ||131||287||6,775|
|Contracts under implementation (Nos.)||35||145||17||2||7||16||222|
|Balance length for award|| - ||1,053||2,915||6,352||21|| - ||10,341|
Some of the major approvals during the year under review include:
Approval of six-laning of 6,500 km of national highways comprising 5,700 km of GQ and balance 800 km of other sections under NHDP Phase-V at a cost of Rs 412 bn.
Approval of construction of 1,000 km of expressways with full access control of new alignments at a cost of Rs 167 bn under the NHDP Phase-VI.
Going forward, the government has decided to take-up future phases of NHDP proposal mainly on public-private partnership basis. Implementation of projects on cash contract basis will be only in exceptional cases where private sector participation is not possible at all.
The past few years has witnessed strong growth in airline traffic, thanks to the low-cost carriers and rising income levels that have made air travel affordable. As per the economic survey, during the period between April-September 2006, international and domestic passengers recorded a growth of a 16% and 45% respectively on a YoY basis. On the other hand, international and domestic cargo recorded a growth of 14% and 9% respectively. Though the aviation sector is booming, airport infrastructure has not kept pace with the growing traffic, primarily due to under-investment in airport capacity during 1996 to 2004. This has resulted in congestion, delays, bottlenecks and sometimes chaos at some of the major airports of the country.
FY06 was a significant year as far as airport modernisation and development is concerned. During the year, government handed over the operation, management and development of airports at Delhi and Mumbai to two different private consortiums on the Public-Private-Partnership (PPP) model. Going forward, we expect the government to put more such major airports for modernisation and development. Construction work of the two greenfield international airports at Hyderabad and Bangalore is under progress and the same is expected to be completed by the middle of 2008.
The Airports Authority of India (AAI) has decided to develop 35 non-metro airports over the next few years. The Committee on Infrastructure has approved the report of the task force for the development of these airports. Development of airports in the North Eastern areas will be taken by AAI on a priority basis.
The country has a coastline of 7,517 kms that is studded with 12 major ports and 187 non-major ports with about three fourths of the total traffic being handled by the major ports. Despite having adequate capacity and modern handling facilities, average turnaround time is 3.5 days. This is a fall-out of slow evacuation rather than lack of handling capacity as ports are inadequately connected to the hinterland. To root this problem out, an efficient multi-modal system is required, that uses the most efficient mode of transport to improve connectivity between ports and hinterland. A step has been taken in this direction by all port trusts who have set up groups with representatives from NHAI, the Railways and State governments to prepare a comprehensive plan that aims at improving rail road connectivity.
The total traffic carried by both the major and minor ports during 2005-06 was around 570 million tonnes per annum (MTPA). For the seven months ended October 2006, the traffic handled by major ports stood at 253.5 m tonnes, a growth of 6.6% YoY, which was lower than 10.4% YoY growth registered for the same period last year. About 80% of the total volume of port traffic handled was in the form of dry and liquid bulk with the residual consisting of general and containerised cargo. The container traffic registered a growth of 13.6% for the five years ending 2005-06, with India's largest container port JNPT handling roughly 2.7 m TEUs (twenty feet equivalent units) during FY06.The ports that were traditionally owned by the public sector are now witnessing an increased trend of privatisation and the trend is rapidly catching up in India as well with a policy framework for the same already in place. Depending of the nature of facility/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 already 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.
India is on the verge of witnessing a sustained investment phase in infrastructure buildup. With a slew of announcements in the power sector, road, port and airport development and hydrocarbons, we are seemingly on a path of sustained higher economic growth on the back of improvement in infrastructure in the country. Investment requirements for infrastructure during the Eleventh Five Year Plan (2007-12) are estimated to be around US$ 320 bn.
From a policy perspective, there has been a growing consensus that a private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. A substantial chunk of the abovementioned investment target is likely to come from the private sector. In all areas of infrastructure, namely roads, power, ports, aviation and urban infrastructure, the private sector has to be provided the necessary support by the government on carry on the development process. Not only will this aid the sustenance of rapid growth in GDP as seen in the past two years, it will also be a source of employment to millions of Indians. The picture is one of brimming optimism. The need of the hour is to ensure that the irrational measures of the polity do no take a toll on the pace of the acceleration of reforms.
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