Infrastructure sees major policy push

Policy changes aimed at reducing financial distress and increasing investment activity in the infrastructure sector were the central theme in 2016 and the success of these is likely to be put to the test next year.]
 
The year has been one of policy changes for the infrastructure sector with roads, railways and ports seeing significant amount of policy work. The bad news, however, is improvements in the debt position and debt servicing capabilities of companies remain elusive.
 
“There has been a major policy push, it is now for the private sector to use the stage that has been set in terms of fresh investments. The financial and debt position of most infrastructure companies remains unchanged. In the coming year one needs to look for the impact and the execution of the policy push,” said J Padmanabhan, director,  transport, CRISIL Infrastructure Advisory.
 

 
Some of the major policies introduced are the hybrid annuity model for road projects, the Sagarmala project for the port sector, and the merger of the rail budget with the Union Budget.
 
One of the most radical changes has been the decision to merge the railway budget with the Union budget. “The merger  will lead to savings. Other policy measures include the port rail connectivity impetus, better rake availability, and higher awarding activity for the freight corridor projects," Padmanabhan added.  In 2016, Indian Port Rail Corporation awarded eight works and five more are targeted for award in the remaining part of  2016-17.

 
In the roads sector, Shubham Jain, vice- president, ICRA Ratings, said, the hybrid annuity model picking up pace and new rules in arbitration awards were the highlights of 2016. The Centre in August directed state agencies to pay 75 per cent of an arbitral award they wished to dispute into an escrow account. The policy faced initial glitches but has now seen some early disbursements.
 
Also in August, the Cabinet approved the toll-operate-transfer model, which allows for toll collection in public-funded road projects to be auctioned to concessionaires against an upfront payment.  In the last 12 months, the National Highways Authority of India has auctioned  24 projects under this model that was introduced to make funding infrastructure projects easier. With financial closures trickling in, the model is gaining momentum. In the hybrid annuity model  payments are made in a fixed amount for a considerable period and then in a variable amount.  

 
The Sagarmala programme is being viewed as a major policy push for the port sector with the Sagarmala Development Company being cleared in July. As part of the programme, more than 400 projects worth an investment of over Rs 7 lakh crore have been identified for port development, connectivity and modernisation.
 
“Work moving ahead on the Sagarmala project is a good push for the port sector. However, it will be interesting to watch the implementation in the coming days,” said Vishwas Udgirkar, partner and leader of government utilities infrastructure development consulting at  Deloitte Touche Tohmatsu India. As various investment opportunities are likely to open up with these policies, efforts have also been made to assist companies to raise capital. There has been a considerable policy push towards opening up more fund-raising options to infrastructure companies. The long-pending infrastructure investment trusts also saw some traction in 2016, owing to clarified guidelines by the Securities and Exchange Board of India in September.  These trusts allow road developers to partially monetise a bunch of operational assets by listing them.