Session 2: Infrastructure finance and public-private partnerships. Presentation. Infrastructure Finance and Public- Private Partnerships

Transcription

1 MINISTRY OF FINANCE REPUBLIC OF INDONESIA Asia-Pacific Outreach Meeting on Sustainable Development Financing June 2014 Djuanda Hall, Ministry of Finance Complex, Jakarta Session 2: Infrastructure finance and public-private partnerships Presentation Infrastructure Finance and Public- Private Partnerships by Abhaya Krishna Agarwal PPP Practice Leader, Ernst & Young India June 2014 The views expressed in the presentation/paper are those of the author(s) and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. This presentation/paper has been issued without formal editing.

2 Asia-Pacific Outreach Meeting on Sustainable Development Financing Infrastructure Finance and Public- Private Partnerships 10 June 2014 Over the coming years, need for infrastructure is likely to rise further due to certain macro trends Increased urbanization Shift from agrarian to service-led economy with industrial hubs. Increase in demand for housing and urban infrastructure Services to spur commercial real estate growth Increased demand for power leading to ramp up of generation and T&D capacity India s urbanization will be ~45% by Need for connectivity Electricity, roads, telecom Push for rural electrification through grid or off-grid alternatives Focus on last mile connectivity Use of telecom to improve public services delivery and financial connectivity Improvement in quality of state highways 2nd wave of road development Use of renewable energy sources to power villages Improvements in port and ICD connectivity Push to increase rural tele-density Page 2

3 which will also shape the economic, social and demographic picture of India Collaborative federalism Shift in Center-State relations towards efficient disbursement of resources Greater role of states in infrastructure creation Move towards greater self governance Policy hurdles crossed through local initiatives, as evident in leading states Increase in local governance to strengthen municipal bodies and increase focus on urban infrastructure development. Demographic dividend Favorable dependency ratio till Female workforce participation rates to increase Job creation through manufacturing and service growth increased demand for infrastructure Construction sector spurred by housing demand to be a big employment generator Page 3 The policy environment is changing in favor of private participation Key Policy Measures Central Government 100% FDI is permitted in shipping & port projects 100% income tax exemption is available for a period of 10 years GoI can provide a capital grant of up to 40% to enhance the viability of the project IIFC has been established to provide long term funding for projects Concession period of up to 30 years has been allowed New Model Concession Agreement has been prepared to identify and specify conditions of risk sharing State Government State governments are making necessary changes: Infrastructure Development Acts have been constituted in few states and rest are following State maritime boards have been set up in many states Some states have even outlined procedures for swiss challenge for infrastructure concessions Non-Major Ports are free to fix their own tariffs with approval from state governments State government sometimes offer longer concession periods of upto 50 years Page 4

4 Sound governance and institutional framework for an enabling environment Regulatory and Policy Regime Draft National PPP policy under consideration Independent Regulator in most sectors: AERA, TAMP, TRAI, CERC, etc. Planning Commission provides independent appraisal Capacity Building Standards Bidding Docs There are approx. 25 PPP cells at sub-national and national government departments and procuring agencies Standard transaction documents for each sector have been prepared and used by the respective procuring agencies Page 5 Recent developments have brought in change - pre determined tariffs, discussion on a new road regulator Sound governance and institutional framework for an enabling environment Approval Process and Mechanism Auditing and F&C mechanism Ministry of environment & forest for environmental approvals Cabinet Committee on Economic Affairs (CCEA) has set up PPP Appraisal Committee (PPPAC) to appraise projects to be implemented on PPP. Ministry of Finance is involved in examining the concession agreements from the financial perspective, guarantees to be extended, and assesses risk allocation from the investment and banking perspective Ministry of Law scrutinizes concession agreements from legal Powerful perspective and independent public auditor Decision making is slow due to risk averseness of the project proponents Page 6

5 So what are the investors in India saying..provide Long term funds Source: Indian Infrastructure, Volume 16, No. 5, December 2013 Key Issues in PPP Financing High exposure of Indian commercial banks to the Infrastructure sector [Exposure to Infrastructure sector grew at 28% CAGR from 26% in March 2009 to 35% in March 2013] Increasing Asset Liability Mismatch problem Source: Passing rate cut benefits: Banks face ALM hurdle, The Indian Express, 30 March 2013 Other Issues Underdeveloped Bond Market Discouraging Market Conditions resulting in reduced PE and FDI inflows Low capacity for project appraisal of public sector banks Page 7 Tackling the structural issues in infrastructure finance Need for a sustained effort at developing bond market Need to ramp up the capacities of FIs to increase long term infra funding Substantial credit growth to come from public sector banks interventions are required to ramp up their project appraisal capacities. Page 8 Presentation title

6 So what are the investors in India saying.. Create robust shelf of projects Lack of viable and bankable projects Poor project preparation and no consultation with the lenders during project preparation Robust Due diligence Conduct a robust and high quality technical and commercial due diligence Creation of an online data base for PPP projects- sharing of all data: demand and cost assumptions, technical and financial studies Adequate project preparation Secure the required approvals and land for the project before bidding More sector programs There is no sectoral depth road sector dominate the PPPs create a shelf of projects with approval mechanism and bidding documents. Page 9 Presentation title So what are the investors in India saying.. Allocate Risks equitably Lenders do not want to have control over the construction and want the public sector to share construction risk. Balanced risk allocation and regulatory design Balance efficiency incentives, risk mitigation to ensure successful long term partnership between public and private sector There is no scope of rebalancing of risks in concession agreements Enabling environment Enhance a conducive enabling environment for PPPs across sectors Page 10

7 So what are the investors in India saying.. Build more Capacities in the Government Need for a PPP Law or Policy Need to build capacities in the government around PPP Contract Management Single-window approvals for standard project requirements Need for regulatory reforms to simplify approval processes Land acquisition and other statutory approvals should be obtained before bidding process commences The focus of procuring through PPP mode should be to benefit from private sector efficiencies rather than capital Page 11 Presentation title Summing up Provide Long term Financing: bridge the gap Build more capacities in the Government Create a robust shelf of projects Need for sector specific programs & program specific approval mechanism Maximize use of PPPs through long term funded National Infrastructure plans Need to unlock underlying value of existing assets first than creating new assets Page 12

8 Our Global Credential Page 13 Our Global Advisory Credentials EY has created a Global specialised group of 500 professionals focusing on infrastructure projects across the world, particularly in the following sectors: Transport (ports, airports, roads, highways maintenance, rail) Accommodation (education, courts, prisons and social services) Healthcare Real estate (housing and regeneration) Energy (conventional power and renewable energy) Water & waste (water supply & sanitation, waste and recycling) Defence PPP secondary market (e.g., valuation, disposal and refinancing) Accounting (e.g., IFRS issues) We understand the objectives of both the public and private sector and use this insight to tailor our advice ensuring the needs of both parties are met, thus maximising the value for money outcome Financial Adviser of the Year Renewable Energy Financial Adviser of the Year Power Financial Adviser of the Year Social Infrastructure Page 14

9 Ernst & Young Global Infrastructure Advisory A global network of infrastructure advisors EMEIA 1,500 Transaction Professionals Americas 350+ Transaction Professionals Asia-Pacific 500+ Transaction Professionals The Ernst & Young Global Transaction Network includes more than 500 dedicated project finance and infrastructure professionals specialising in procurement and financing of complex large scale infrastructure projects Page 15 THANK YOU Abhaya Krishna Agarwal Partner & Leader Infrastructure & PPP Government & Transaction Advisory Services Ernst & Young LLP Abhaya.Agarwal@in.ey.com Tel: Mob: Fax: