Energy and infrastructure: Budget long on plans, short on detail

Entrepreneurs and CEOs in the infrastructure businesses had a lot riding on the Budget this year. Companies in the sector have borne the brunt of the stasis of the past five years. Capex cycles have slowed and debt has mounted. Stretched balance sheets have resulted in losses for most of them.

Probably the biggest measure in the Budget is the setting up of a National Investment and Infrastructure Fund, which has plans for annual inflows of Rs 20,000 crore. The trust will raise debt, invest as equity in infra projects. The finance minister also announced tax-free infrastructure bonds for the projects in the rail, road and irrigation.  Both measures will help bring capital in the sector.

A decade ago, the public-private partnership (PPP) model of infrastructure development was hailed as the next big thing for India. The collaboration did not work as planned and dozens of projects, particularly in the roads and power sectors, lie unfinished because of disputes that are in the courts. Two new proposed legislations—the Public Contracts (Resolution of Disputes) Bill and the Regulatory Reform Bill—are a positive step to help resolve long-standing power tariff disputes with high potential to revive impacted projects. The FM has proposed a bankruptcy code, which will help in restructuring, recovery, and subsequent change of management for stressed projects in the power sector. Both these new bills are positive for the sector.

Much private investment is inhibited by political and other risks. The toll-model for roads is a case in point. `Toll-risk’ now inhibits investment in roads in many states, including Maharashtra. The finance minister has announced that the government will revitalise the PPP model, with the government bearing a bigger part of the risk.  

Another new measure announced by the FM was to allow private investment in major ports. Taking on from the experience with minor ports (many of which are privatised), the government intends to turn large ports into companies, and eventually bring in private participation into them.

Though a lot of macro-support was announced for infrastructure, some analysts tracking the sector say the Budget lacks detailing on measures. Manish Aggarwal, head of energy and natural resources, for KPMG in India says the speech focussed extensively on supporting infrastructure but lagged in substantive reform roadmap for the energy sector in particular over short term. He added that the clean energy cess on coal has again been proposed to be doubled in this budget from Rs 100 to Rs 200 per tonne, which would provide meaningful support to renewable energy investments.

However, the mode of drawdown of these funds is still not clear, even for funds already accumulated in the existing corpus.  On the announcement for five ultra-mega power projects under the ‘plug and play’ model, he said the financial capacity of the sector to invest in new capacity of such scale remains a question mark.