The country’s infrastructure sector, seen as a growth engine for economy, is beset with problems.

The 12th Plan projects an investment of Rs 55 lakh crore ($1 trillion) in infrastructure with private sector contributing about 47 per cent.

While private sector is seen to contribute a major chunk of the potential opportunity, players in the sector are faced with liquidity crunch and funding is hard to come by lately. While several measures have been initiated by the Government to address the sector concerns, it is still some way away in terms of returning to normalcy.

The infrastructure sector woes include tough macro economic conditions, high interest rates, mounting debt, liquidity concerns, tough scenario in the capital markets, making entry and exit difficult. There are also a slew of regulatory issues, including environmental, contributing to slowdown leading to delays in project implementation.

LIVING ON HOPE

Interaction with several leading infrastructure companies shows that they are all living on hope and a changed business environment to help them turn around.

Even the measures announced by the Government and the Reserve Bank of India to lower repo rates, to accelerate growth, have not begun to impact at the ground level. Banks have not yet passed on the benefits.

Prime Minister Manmohan Singh and a core team are looking into concerns of the sector and to help create the necessary feel good factor to accelerate the growth.

Union Finance Minister P. Chidambaram in the Budget for 2013-14 has announced several measures to restart the growth engine to attract more investments — domestic and foreign.

Power sector and construction of roads have been adversely hit due to fuel supply concerns and environmental issues. The Government is now seeking to address this problem by setting up a regulator for roads and a Cabinet Committee on Investment.

GROWTH CORRIDORS

The industrial corridors such as Delhi-Mumbai corridor connecting major cities and industrial hubs in South will be one big unfolding opportunity for infra companies to play a role in their development.

The Department of Industrial Policy and Promotion and the Japan International Cooperation Agency are preparing a plan for Chennai-Bangalore Industrial Corridor to be developed in collaboration with the Governments of Tamil Nadu, Andhra Pradesh and Karnataka. It is also proposed to take up yet another major corridor between Bangalore and Mumbai. While the planning and execution may take a few years, they will open up big opportunity for development of expressways, industrial hubs dotting these corridors and towns and cities along will benefit with improved infrastructure.

With such projects running into thousands of crores, the Government is banking on investments from multilateral agencies. Japanese companies, in particular, are keen to play a big role in these corridors, a recent delegation that visited Hyderabad told Business Line.

The Government hinted at setting up of two large ports in Andhra Pradesh and another one in Tamil Nadu, the latter with an outlay of Rs 7,500 crore.

While some of the initiatives of State Governments, such as the development of petroleum and petrochemical region in Andhra Pradesh, are still struggling to attract investments, industry watchers say that the situation may improve as LNG terminals come up in the South and the gas output improves in the Krishna Godavari basin.

TOUGH TIMES

While new opportunities are opening up for development in infrastructure sector, top companies executing projects are passing through tough times. Their corporate debt has been mounting and profitability dwindling due to high interest rates.

Faced with liquidity crunch, they are in the process of churning portfolio. But with most companies planning to divest stake in matured projects to trim debt and redeploy funds for new projects, the focus has shifted from build, operate and transfer mode projects to EPC contracts, the latter ensures there is low debt.

While there have been couple of deals where GMR has divested stake in a road project in Andhra Pradesh, and power project in Singapore, GVK in its rail and transportation project in Australia, the market conditions are still not conducive for deal making, infra companies say.

The Government move to set up national investment and manufacturing zones and electronic clusters will spur new activity in development of infrastructure associated with such projects. Andhra Pradesh, for instance, has been allocated two such zones. Several projects at advanced stages, including two power projects in AP, have been impacted by agitations by locals. And many other projects are still awaiting clearances adding to hurdles in bridging the demand-supply mismatch.

LAND HURDLE

Land acquisition continues to be a major hurdle for power projects and dozens of road projects, close to completion, have been impacted due to acquisition issues.

All these contribute to delays and lenders are feeling the pinch.

Source-http://www.thehindubusinessline.com