Infrastructure sector: Twelfth Plan holds promise

The $900-billion outlay a positive, but coal supply and land acquisition issues need to be resolved.

Infrastructure stocks have been brutally hammered over the last 12 months. Since the start of the calendar year, the CNX Infrastructure index has fallen 38 per cent, compared to a 23 per cent fall in the Nifty and Sensex. While the reasons for the fall have been documented extensively, most fund managers are asking if a turnaround is likely in 2012. Over the last couple of months, there have been some positive developments in the sector. For one, the government has a list of 12 projects for fast-track clearances.

Since the start of November, analysts say that the government has started addressing issues facing several large projects. Given that issues pertaining to fuel linkages, land acquisition and environmental clearances have delayed most projects, analysts say the government is reviewing the status of several projects. While fresh coal linkages for power projects may not be feasible, the ministry of environment and forests is said to be working with state governments to expedite other projects.

This apart, the Twelfth Plan, which is slated to be announced early next year, is also expected to make an outlay of $1 trillion for infrastructure. In an interaction with fund managers, Gajendra Haldea, Principal Adviser (Infrastructure) in the Planning Commission, has conveyed that despite the problems facing the sector, the slippages in spending will not be more than $100 billion. This implies a spending of $900 billion during the Twelfth Plan (FY12-17), which is 100 per cent higher than the Eleventh Plan’s outlay. The sectors that would drive growth in this period would remain power generation, roads and ports.

In the near-term, analysts say, all eyes are on the passage of the land acquisition bill. If passed, it would accelerate project implementation by two to three years, even if project costs were to increase by 7-10 per cent. Allocation of coal mines through the bidding route would be another event to watch out for, claim analysts.

Finally, competitive pressures are easing in the roads and transmission and distribution segments. According to a Deutsche Bank report, “Industry leaders have made remarks that competition is easing -- Areva’s CEO notably suggested that there are no longer “suicide bombers” in bids." The participation by Chinese and Korean competitors is far lower than in FY10 and their market share has dropped to single-digits from the FY10 level of 20 per cent, the report adds.