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Impact of Budget 2008 on infrastructure

March 2, 2008

Chennai: The biggest benefit that the latest Budget has conferred on the entire infrastructure sector is the removal of double tax on dividends, says Kuljit Singh, Partner, Ernst & Young.“As infrastructure projects are typically developed through SPVs (special purpose vehicles), removal of double taxation can lead to a saving of at least one level of dividend taxation (in the existing level of 16.995 per cent including surcharge),” he explains in an e-mail interaction with Business Line.“Additionally, at present a large number of developers are looking to set up holding companies for power, highways, ports and so on. The valuation of all of these holding companies would be positively impacted due to this measure,” foresees Kuljit.Another positive from the Budget for infrastructure projects that he mentions is the reduction of duty on project imports from 7.5 per cent to 5.0 per cent. A key negative, however, is the duty structure on cement, which is expected to push up costs, rues Kuljit.While the Union Budget for 2008-09 addressed the needs of various infrastructure requirements including that of social and rural infrastructure, there was not much to offer as tax sops, or for promoting private sector investments, bemoans Vishwas Udgirkar, Executive Director – Government Regulation and Infrastructure Development Practice, PricewaterhouseCoopers.“As evident from various reports and documents, the Government is relying on huge investments from the private sector to create infrastructure that can support the overall economic growth,” he reasons. It was expected, therefore, that the Budget would address various issues relating to financing of infrastructure.“On that ground, the Budget has little to offer except the proposed change in the treatment of dividend distribution tax (DDT).” Vishwas concedes, though, that this could be a significant measure to encourage infrastructure financing, welcome by the industry.Another financial measure that he highlights is the exemption of TDS (tax deduction at source) on listed corporate debt instrument, which is expected to help, over the long term, in the development of the debt market.The Budget, however, has not addressed a number of issues like exempting foreign borrowings by infrastructure companies from withholding tax requirements, providing similar capital gain tax treatments for listed and unlisted equity, treating infrastructure holding companies as a separate class of NBFCs (non-banking financial companies), exempting Section 80IA companies from minimum alternative tax (MAT) and re-introducing Section 10(23G), lists Vishwas.Talking of the power sector, among the infrastructure components, Kuljit also finds it upsetting that the Budget has not mentioned the extension of section 80IA tax benefit for power projects.“Non-extension of this tax benefit will have a negative impact on power projects which are being proposed today, as most of these may not be completed before March 31, 2010, which is the last required date for commissioning under the existing 80IA tax provision of the Income Tax Act, 1961.”The national fund proposed for power transmission and distribution (T&D), if properly structured, can be used to strengthen the T&D network at the state level, suggests Kuljit. “Also, the allocation of Rs 5,500 crores for Rajiv Gandhi Grameen Vidyut Yojana will positively impact the state-level networks.”As regards roads and highways, he sees nothing significant in the current Budget, but for an increase of around Rs 2,000 crore being proposed in the NHDP (National Highways Development Project), and an allocation of additional Rs 4,000 crore for rural roads.In the medium to long term, the cut in excise duty from 16 per cent to 12 per cent for small cars may lead to increase in traffic on roads, thus positively impacting toll roads, he anticipates.Vishwas is of the view that the focus on nationwide monitoring of all important programmes is a welcome step, but cautions that such monitoring systems have to be put in place quickly.What about aviation? Despite the fact that airlines (in particular, low-cost airlines) are now increasingly serving the masses, aviation is still perceived as the preserve of the rich and hence the tax policies are structured accordingly, laments Kuljit.“The industry was keenly expecting reduction in sales tax (from the 20 to 30 per cent levels to around 4 per cent) on ATF (aviation turbine fuel) and changes in tax on lease rentals,” he reminds. “However, none of these expectations has been accepted in the Budget, which means that the airline industry’s rough patch may continue.”**Source: http://InterviewsInsights.blogspot.com

Written by ITW Editor · Filed Under Investment and Finance 

Hit the road: Infrastructure growth is revving up

February 29, 2008

The indian infrastructure story is just waiting to unfold. It is a foregone conclusion that the need for infrastructure to facilitate economic growth in India, both immediate and long-term , is ever more pressing. The growth rates witnessed in the Indian economy today are indicative of the change to follow —infrastructure has been expanding at an accelerated pace to support the economic growth rate of 9%. India’s infrastructure development has so far been predominantly financed publicly. The urgent need of the hour is an enhanced approach that would create a balance between public and private sector roles, complemented by transparent public policies. The Government has already taken many proactive measures such as opening up a number of infrastructure sectors to private players , permitting foreign direct investment (FDI) into various sectors, introducing model concession agreements and taking up projects such as the National Maritime Development Programme and National Highway Development Project, among others. The next four to five years will witness implementation of some key infrastructure projects such as additional power generation capacity of 70,000 MW; development of 16 million hectares through irrigation works; modernisation and redevelopment of four metro and 35 non-metro airports; six-laning 6,500 km of Golden Quadrilateral and selected National Highways. Focus will be on key infrastructure sectors of highways, ports, airports, railways and power. Having been part of the Indian infrastructure history, we at GVK have always believed that the key to developing a sustainable infrastructure in India is to build for the future. India will see an investment to the tune of $500 billion in infrastructure in the next five years. Coupled with government support, this investment will fructify in the form of key infrastructure projects to strengthen India’s cities. The next four years will bring a sea change in infrastructure and as a result, in another ten years, we will see the emergence of a new India. Source: http://economictimes.indiatimes.com

Written by ITW Editor · Filed Under Default, Investment and Finance 

9 infrastructure firms booked for evading import duty

February 20, 2008

Nine infrastructure firms having interests in road building have been booked by the Customs authorities for allegedly evading import duty totalling Rs 20 crore on heavy engineering equipment.

The firms, including Punj Llyod Ltd, Gammon India and Era Constructions, have allegedly imported machinery for purposes other than for which they were allowed to be imported duty free, a Customs official said here.

“Duty exemptions were granted to the firms working on National Highway Authority of Indian projects and other projects funded by international development agencies like those of Asian Development Bank and United Nations,” the officer said.

The companies, however, have been found to have diverted machinery imported under duty exemptions to other private projects and hence were liable to pay necessary duties, he charged.

During initial investigations, the authorities have established alleged duty evasion of Rs 20 crore.

Notices were sent to all the nine firms and Rs 12 crore in duties have already been recovered, he said, claiming the firms have admitted to have diverted the machinery.

“We started investigations into the matter around five months ago. Though many of the firms are based outside the city, the cases have been made in Mumbai as all the machinery had landed at the Mumbai port. It will take some time for us to impose the penalties,” the officer said.

Source: timesofindia.indiatimes.com

Written by ITW Editor · Filed Under Investment and Finance 

A K Bhattacharya: India`s infrastructure puzzle

December 19, 2007

National highways in India have seen a dramatic improvement over the last decade. Improvements are more evident in shorter stretches. For instance, Jaipur, Chandigarh and Agra are now well-connected with Delhi. Similarly, the highway that connects Mumbai with Pune can easily compare with the best anywhere in the world. This is true of many other national highways connecting major cities in southern and eastern India.

Many of these roads can be used only on payment of toll charges. Going by the available statistics on toll collections, these roads have become the preferred option for motorists and even heavy vehicle drivers. In fact, the toll charges are quite low compared to the benefits they offer to the road users. There is a clear case for raising these toll charges so that the maintenance of the roads can be ensured without any funds constraint. Not surprisingly, the National Highway Authority of India is planning to build more such toll roads connecting different cities across the country.

Yet, better highways have not led to a reduction in the total travelling time. This is ironical. If you are travelling from Jaipur to Delhi, you will take at least 45 minutes to an hour to cover a distance of about 10 kilometres within the city before reaching the national highway. Once on the highway, the journey is smooth and fast with about 250 kilometres being covered in about three and a half hours. The problem starts again once you are about to enter the city of Delhi. And depending on your final destination point, this might mean an additional travel time of a couple of hours. It is the same story if you were to travel by road from Chandigarh to Delhi.

So, national highways have made driving easy once you get out of the city. But to reach a destination, you need to travel through the city. And the bottleneck is at the entry point of the city. Nothing much has been done in any of these cities to decongest the arterial access roads. The city of Delhi may have seen more flyovers in the last few years, but the impact has been marginal because the growth in the vehicular population in the city has also been phenomenal.

Airlines should have gained from this increasing vehicular congestion at the entry points of all cities. But pause for a moment to reflect on what is happening to airport congestions in almost all the major cities, you will notice a virtual re-run of what has already happened to Indian highways. The flying time between Delhi and Mumbai is only about an hour and a half. But the wait on the tarmac (in addition to the early check-in requirements because of security reasons) before the aircraft can take off is almost half an hour. There is another 30-45 minutes of hovering in the skies before the aircraft can actually land and you can be taken to the arrival terminal building. In effect, you end up waiting for almost the same time that you take to cover the actual distance. All this is due to airport congestion. Gone are the days when once you were airborne, you could confidently estimate the time by which you would be home. Consequently, there is little to choose between taking a Delhi-Chandigarh flight and travelling this sector by car.

In any other country, the railways should have benefited from this immensely. Since most railway stations are located in the heart of these cities, there is no long wait before one can reach the final point of destination. But the irony is that the Indian Railways has failed to take full advantage of this situation. The Shatabdi trains that run on these sectors could have easily become a preferred option for those who fly or travel by road on such sectors. But the quality of service and an erratic punctuality record are major problems for the Indian Railways.

Things might change though in the next couple of years. Delhi, Mumbai, Hyderabad and Bangalore would get new or completely refurbished airports with a capacity to handle more passengers without causing congestion and delays. There might be more expressways connecting more cities. Even the Indian Railways is planning to launch faster trains to connect different cities in all the regions.

But the worries might still remain. India’s infrastructure problems arise not just from its inability to create facilities with adequate capacity. Equally frustrating is the failure of most managers of these infrastructure projects to identify the last-mile problems and fix them before they become unmanageable. Even the country’s best-managed infrastructure project, Delhi Metro Rail Corporation, is not free from this malaise. And the solution does not lie with these individual project managers. There is an urgent need for the civic authorities in each of these cities to move in tandem with the infrastructure project managers and create necessary facilities within the cities to resolve the last-mile problems and remove other bottlenecks so that the full benefits of these huge projects accrue to the people.

Source: business-standard.com

Written by ITW Editor · Filed Under Investment and Finance 

Reliance Energy Ltd(REL) to hive off infrastructure projects

November 12, 2007

NEW DELHI: In a bid to separate the power and infrastructure projects, Reliance Energy Ltd. (REL) has now decided to transfer all its infrastructure projects to a separate wholly-owned subsidiary.

The REL board had already given its approval to the proposal.

The move comes hot on the heels of REL deciding to hive off its power generation business as a separate company — Reliance Power Limited (RPL).

RPL has filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) for an initial public cffering (IPO) of around Rs. 12,000 crore.

The decision to hive off infrastructure portfolio to a new subsidiary comes in view of the increasing portfolio of the company on this account in recent months.

REL is developing highways for the National Highways Authority of India (NHAI) under the build-own-transfer (BOT) scheme.

It is involved in five National Highway projects in Tamil Nadu, covering a length of 400 km at a cost of Rs. 3,100 crore. In addition, it is pursuing road projects, including the proposed Rs. 5,000 crore Western Freeway sea-link project connecting Worli and Nariman Point in Mumbai and the Rs. 6,000-crore Jaipur Ring Road project.

On the real estate side, the REL-led consortium had emerged as a winner for developing a business city in Hyderabad with an estimated investment of Rs. 6,500 crore. The city will be built in 77 acres, which will include a 100-storey trade tower. It has also bagged the metro rail project in Mumbai that involved the development and operation of a fully-elevated metro rail.

The total cost of the project is around Rs. 2,500 crore. It has also bid for line 2 of the Mumbai metro elevated track between Mankhurd and Charkop with an estimated investment of Rs. 6,500 crore. The company is also bidding for the Rs. 6,000 crore Mumbai trans-harbour link.

Source : The Hindu

Written by ITW Editor · Filed Under Investment and Finance 

India approves offshore container terminal

November 11, 2007

New Delhi: India’s Cabinet approved the development of an offshore container terminal at Mumbai Port as trade expands in line with growth in Asia’s third-biggest economy after Japan and China.

The terminal will be built by a group of companies consisting of Gammon India, Gammon Infrastructure and Dragados of Spain, the government said in a release in New Delhi.

India is bolstering port capacity as economic growth boosts the import of oil and the export of textiles.

The shipping ministry said in December 2005 it expects to spend Rs1 trillion ($25 billion) in six years to improve maritime facilities.

Expansion

The South Asian nation’s economy has expanded at an average 8.6 per cent since 2003, the second-fastest pace among major economies after China.

India’s exports of gems, textiles and other manufactured products rose at the fastest pace in five months in September, the government said November 1.

Mumbai Port Trust, which will provide the supporting infrastructure for the project, will spend Rs3.66 billion ($93 million) on the project, which will cost a total of Rs12.28 billion, the government said.

Funding

The remaining Rs8.62 billion will be invested by the non-state partners.

The project will add capacity of 9.6 million tonnes per annum and will be constructed in three years, Finance Minister Palaniappan Chidambaram told reporters after the Cabinet meeting that approved the plan.

Source: gufnews

Written by ITW Editor · Filed Under Investment and Finance 

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