india infrastructure report.pdf

Q1 2012www.businessmonitor.com

infrastructure report

issn 1752-5403published by Business Monitor international Ltd.

inDia INCLUDES BMI'S FORECASTS

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INDIA INFRASTRUCTURE REPORT Q1 2012 INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: November 2011

India Infrastructure Report Q1 2012

© Business Monitor International Ltd Page 2



CONTENTS

Executive Summary ......................................................................................................................................... 5

SWOT Analysis ................................................................................................................................................. 6 India Infrastructure Industry SWOT ...................................................................................................................................................................... 6

Market Overview ............................................................................................................................................... 7 India............................................................................................................................................................................................................................ 7

Building Materials .......................................................................................................................................... 14 Global ....................................................................................................................................................................................................................... 14

Industry Trend Analysis - Building Materials: China To Remain Demand Driver; Developed Markets Offer Little Support .............................. 14 Asia ...................................................................................................................................................................................................................... 20 Industry Trend Analysis - Building Materials: China Still Leading The Charge As Competition Heats Up ........................................................ 20

Industry Forecast Scenario ........................................................................................................................... 26 Table: India Construction And Infrastructure Industry Data ............................................................................................................................... 26 Table: India Construction And Infrastructure Industry Data ............................................................................................................................... 28

Construction and Infrastructure Forecast Scenario .................................................................................................................................................. 30

Transport Infrastructure ................................................................................................................................ 35 Table: India Transport Infrastructure Industry Data ........................................................................................................................................... 35 Table: India Transport Infrastructure Industry Data ........................................................................................................................................... 38 Transport Infrastructure – Forecast Scenario ..................................................................................................................................................... 41 Transport Infrastructure Overview ...................................................................................................................................................................... 43 Table: Competitiveness Of India's Infrastructure ................................................................................................................................................ 43 Major Projects Table – Transport ....................................................................................................................................................................... 55 Table: Major Projects - Transport ....................................................................................................................................................................... 55

Energy and Utilities Infrastructure ............................................................................................................... 72 Table: India Energy and Utilities Infrastructure Industry Data ........................................................................................................................... 72 Table: India Energy and Utilities Infrastructure Industry Data ........................................................................................................................... 74 Energy and Utilities Infrastructure Forecast Scenario ........................................................................................................................................ 78

India Electricity Generation Capacity Mix, 2011e .................................................................................................................................................. 79 Energy and Utilities Infrastructure Overview ...................................................................................................................................................... 79 Major Projects Table – Energy And Utilities ....................................................................................................................................................... 94 Table: Major Projects – Energy And Utilities...................................................................................................................................................... 94 Residential/Non-Residential Construction and Social Infrastructure .................................................................................................................114 Table: India Residential and Non-residential Building Industry Data ................................................................................................................114 Table: India Residential and Non-residential Building Industry Data ................................................................................................................114 Residential/Non-Residential Construction Forecast Scenario ............................................................................................................................116

Residential/Non-Residential Construction and Social Infrastructure Overview.......................................................................................................118 Table: World Bank ‘Doing Business’ Report: Global Rankings 2010 ................................................................................................................122 Major Projects Table – Residential/Non-Residential Construction and Social Infrastructure ............................................................................124 Table: Major Projects – Construction And Social infrastructure .......................................................................................................................124

Business Environment ................................................................................................................................ 128 India Business Environment................................................................................................................................................................................128 Rewards ..............................................................................................................................................................................................................128 Risks ...................................................................................................................................................................................................................128

Regional Overview ...................................................................................................................................................................................................130 Asia Pacific Infrastructure Business Environment Ratings ......................................................................................................................................130



Table: Regional Infrastructure Business Environment Ratings...........................................................................................................................136

Company Monitor ......................................................................................................................................... 137 Gammon India Ltd. .............................................................................................................................................................................................137 Reliance Infrastructure .......................................................................................................................................................................................139 Larsen & Toubro ................................................................................................................................................................................................142

Global Overview ........................................................................................................................................... 145

Methodology ................................................................................................................................................. 152 Industry Forecasts ...................................................................................................................................................................................................152

Construction Industry .........................................................................................................................................................................................153 Data Methodology ..............................................................................................................................................................................................153 New Infrastructure Data Sub-sectors ..................................................................................................................................................................153 Construction .......................................................................................................................................................................................................154 Capital Investment ..............................................................................................................................................................................................155 Construction Sector Employment ........................................................................................................................................................................156

Infrastructure Business Environment Rating ...........................................................................................................................................................157 Table: Infrastructure Business Environment Indicators .....................................................................................................................................158



Executive Summary

BMI View: Construction activity for the first quarter of FY2011/12 (April-June) was weak, with inflation

and interest rates in India remaining at elevated levels. As such, we continue to hold fast our view of a

prolonged soft patch for the Indian construction sector in FY2011/12, with real growth forecast to reach

4.0% during the fiscal year. Looking further ahead, however, the sector's fortunes are likely to pick up in

FY2012/13, as the government is gearing up for the 12th Five-Year Plan, releasing new infrastructure

projects and addressing concerns about access to long-term financing and land acquisition.

Key drivers affecting growth include:

In October 2011, it launched an INR166bn (US$3.35bn) highways building plan under the

National Highways Development Programme, reports News Resources International. The

plan covers the construction of six-lane highways totalling 6,500km, four-lane highways

totalling 24,700km and the expansion of other highways. The programme is to be funded

through public-private partnerships (PPPs). Under the plan, four expressway construction

projects have already been given the go-ahead, while the country's PPP appraisal committee

has approved 10 roadwork projects, worth a total of US$1.1bn.

In July 2011, GMR won the contract to construct the 555.5km Ahmedabad-Udaipur-

Kishangarh expressway-widening project - the single largest highway project in the country,

both in terms of value and length. It is the first of nine similar highway projects.

In September 2011, three state-run financial institutions - the Indian Infrastructure Finance

Company Limited (IIFCL), Life Insurance Corporation of India (LIC) and India

Development Finance Corporation (IDFC) - signed a memorandum of understanding to

boost the application of takeout financing in India. The MOU would allow the three

companies to take out up to 50% of an infrastructure project's debt, potentially unlocking

about INR300bn (US$6.2bn) in bank debts, which could be used to finance other projects

and speed up the pace of India’s infrastructure development. This enhancement in takeout

financing is critical, as it could mitigate the lack of size and sophistication in India's financial

markets by boosting the liquidity and risk transfer opportunities for Indian banks.

We are forecasting Indian construction industry real growth to reach 6.0% in FY2012/13 and 7.5% in

FY2013/14. These relatively high growth figures indicate that there are still significant opportunities for

greenfield projects in India and is reflected in BMI's key projects database, which shows that there are

more than US$400bn in projects either under construction or in the pipeline in the country's infrastructure

sector.



SWOT Analysis

India Infrastructure Industry SWOT

Strengths Proliferating domestic and offshore infrastructure funds target the Indian infrastructure market, driven by strong demand from the transport, power, urban infrastructure and irrigation segments.

India’s government is keen to facilitate private sector participation in infrastructure. Growing private sector investment in infrastructure – 38 infrastructure PE funds are

currently looking at assets in India, with nine more to be launched in 2011, as cited by Livemint.

Application of takeout financing boosted in India, potentially unlocking around INR300bn (US$6.2bn) in bank debts, which could be used to finance infrastructure developments in India.

Weaknesses Lack of a structured regulatory and policy framework, or well-defined operating and financing regulations – PPP framework and regulations are inconsistent and lack transparency.

The country is overly bureaucratic – this delays the absorption of funds and deters investors.

Project delays, caused by issues with land clearance, and a nebulous bureaucratic system, continue to be a significant problem, with roughly half of planned projects running behind schedule in FY2009/10.

There are low levels of domestic expertise, stemming from a shortage of skilled project managers and engineers.

There is low mechanisation and limited use of modern technological equipment. Downgrades to investment targets under the 11th Five-Year Plan, especially in

transport infrastructure, which has been revised down by 20% in value terms. Limited long-term borrowing capability on the domestic banking sector – immature

bond market.

Opportunities Opportunities for greenfield projects across all infrastructure sub-sectors. There is the opportunity for the domestic industry to become more organised, with the

creation of more large firms through organic growth and acquisitions. This would improve overall construction quality.

Strong population growth and a growing economy is fuelling demand for infrastructure. The government is looking to attract private companies to invest in infrastructure

through public-private partnerships (PPPs). 12th Five-Year Investment plan targeting US$1trn in investment, with 50% to come

from the private sector. Significant investment in electricity generating capacity with ambitious targets,

including 470GW of nuclear power by 2050, 20GW of solar power by 2022 and 20GW of wind capacity by 2020.

Threats India may prove unable to cope with its burgeoning population, which has passed the 1bn mark, posing a major threat to the economy and political situation.

Destructive flooding affects productivity. Obstacles such as red tape, lack of transparency and bureaucratic complexities will

threaten five-year plan implementation. Land clearance issues cause major delays to infrastructure and construction projects.

An inadequate system for compensation and environmental approvals is slowing investments and, in some cases, preventing projects from progressing.



Market Overview

India

Five-Year Plans Overview

Following a conference organised by India's Planning Commission, which included presenting the

findings of the Mid-Term Appraisal (MTA) of the 11th Five-Year Plan (2007/08- 20011/12), India's Prime

Minister Manmohan Singh, has revised down growth targets for the period. However, at the same time,

Singh has announced ambitious targets for the 12th Five-Year Plan, which will run from 2012/13 to

2016/17.

The 11th Five-Year Plan

India's 11th Five-Year Plan (2007/08-2011/12) originally targeted investment of INR20,562bn in

infrastructure, including utilities and transport infrastructure, as well as telecoms and irrigation. However,

based on revised estimates announced in the MTA, as detailed by Daily News & Analysis (DNA) India,

investment is likely to reach INR20,542bn (US$453,856mn) – a difference of around US$430mn.

Although this is very close to target, especially taking into account the difficult economic environment,

investments have been bolstered by better-than-expected interest in the telecoms sector, with transport

infrastructure falling far below expectations. Indeed, investment in telecoms is expected to be 1.59 times

the targeted amount, with 82% of this having come from private sector financing.

A

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The 11th Five-Year Plan, Original and Revised Investment Targets, INRbn

Source: Planning Commission



At the same time, Singh has downgraded real GDP growth forecasts for the 11th Five-Year Plan Period,

stating that average growth is expected to come in at around 8% per year between 2007/08 and 2011/12.

This is down from the 9% targeted for the period and has been in response to around 7% year-on-year (y-

o-y) growth seen over the past 18-24 months. Singh attributes this to a difficult economic environment,

exacerbated by lower food production, which has been caused by below-normal rains in the 2009

monsoon. Although BMI's Asia Country Risk analysts are positive about India, especially in the context

of the global economic situation, the fiscal situation is tempering growth expectations at below 8% y-o-y.

With high levels of public debt pushing interest rates up, this will impact the price of loans within the

country. This in turn will affect private sector access to financing within India, impacting potential

investors as they attempt to raise funding for infrastructure projects.

Indeed, levels of private sector financing have fluctuated considerably over the first half of the 11th Five-

Year Plan, according to the MTA. On the whole, investment from the private sector has fallen below

expectations. Projections for private sector investment have been reduced by 50-80% in some sectors,

such as roads and railways, according DNA India.

Ports

There has been high private sector investment in ports, with 80% of the sector's total investment in the

ongoing plan coming from private sources. This is hardly surprising; the port sector has seen some of the

highest levels of private sector participation. A large number of port terminals are operated by the private

sector, meaning expansion plans are supported by private finance. At the same time, a number of

concessions for terminals have been awarded over recent years.

Airports

Airports have also seen a substantial amount of private sector investment, according to the appraisal,

accounting for around 64% of investment. Once again, this is not a shock, as a number of larger airports

in the country are being operated under concessions. Indira Gandhi International Airport in Delhi is being

run by a GMR-led consortium under a 30-year concession, for example.

Roads And Railways

Despite successes in the port and airport sectors, roads and railways have underperformed in terms of

private sector investment. According to the MTA, just 16% of investment in roads has come from the

private sector and a paltry 4% in the railways sector. In terms of railways, the entire Indian railway

network is run by state-owned Indian Railways, meaning private investors will find it very difficult to

make any gains; however, in the recent 2010/11 budget, plans were put in place to incorporate public-

private partnerships (PPPs) into investment plans.



In the roads sector, there has been a drive

to attract private investors. Indeed, Kamal

Nath, India's former Minister for Road

Transport and Highways, had embarked

on an ambitious plan to get US$70bn of

investment into the road sector over three

years, with more than half the amount

(US$40bn) to come from private sources.

However, it appears that actual private

investment is falling very short of targets.

A number of issues have been

highlighted with regard to concessions in

the road sector; this includes issues with

land rights, environmental clearance, rigidity in the risk allocation of the Model Concession Agreement

and the difficulty in acquiring financing. However, the most pertinent concerns are over wastage and

rampant corruption. According to India’s Home Minister P. Chidanbaram, only half of the allocated

government budget for roads was actually invested on intended projects, although Nath had been working

hard to push through alterations in the concession agreements and bypass recurring causes of delays, such

as land clearance. Consequently, BMI expects that this 16% figure will increase by the end of the plan.

12th Five Year Plan

Despite private sector participation falling below expectations and downward revision in real GDP

growth rate and planned investment, the Prime Minister has touted ambitious targets for the 12th Five-

Year Plan, which will run from 2012/13 to 2017/18.

The headline figure, which has grabbed the most attention, is the INR45,000bn (US$1trn) investment

target – double that of the 11th Five-Year Plan. Singh is hoping that through doubling investment targets,

real GDP growth can be sustained at an average rate of 10% per year between 2012/13 and 2017/18; an

ambitious target to say the least. BMI's average real GDP growth forecast for the period comes in only

marginally lower than the 11th Five-Year Plan period, at 7.8% per year.

While this is below the government's targets, the forecast is a good one and highlights India’s

attractiveness. However, BMI believes that growth will not reach double figures due to the country's

strained fiscal situation. India's public debt levels are very high, at around 80% of GDP. This should

constrain the fiscal budget; however, if spending is not reduced, interest rates on government debt will be

pushed higher, and this will constrain access to loans.

In order to unlock the targeted double-digit growth, BMI believes that the private sector will be crucial.

With financing constrained in the domestic project finance market and deep-rooted obstacles damaging

the business environment, the private sector’s ability to push growth this high is limited.

Investment Into Roads And Highways Under 11th Five-Year Plan




During the 12th Five-Year Plan, the government is targeting 50% of investment to come from the private

sector, equal to US$500bn. BMI notes that while India remains an attractive market for infrastructure

investors – driven by the strong fundamentals of economic and population growth – this target is an

ambitious one.

Project Finance Concerns

The biggest concern is access to finance, with local bank capacity not really up to providing the sort of

long-term financing needed to support infrastructure projects. Due to the long-term nature of most

projects, loans need to have a term of more than 10 years. However, local banks are unable to provide this

type of financing due to the underdeveloped nature of Indian capital markets, a lack of precedent for long-

term loans, limited liquidity and the fact that banks' funds mature over the medium-term.

In order to get round this problem, in 2006, the government set up the Indian Infrastructure Finance

Company, a government-owned company which provides long-term financing for infrastructure projects.

The company has been very successful, with disbursements having reached US$2bn by the end of March

2010; these were expected to increase significantly by the end of March 2011, to US$4.4bn.

Other ways of increasing financing options have been pursued. The FY2011/12 union budget saw the

Indian government reaffirm its commitment to financing infrastructure, and outlined plans to release

23.3% more funding to the sector than in FY2010/11 – reaching INR2,140bn (US$48bn) in FY2011/12;

this is equal to 17% of total budgetary expenditure. Meanwhile, government authorities involved in

infrastructure development have been allowed to issue tax free bonds, amounting to a total of INR300bn

(US$6.7bn). This includes: the Indian Railway Finance Corporation – INR100bn (US$2.2bn); the

National Highway Authority of India – INR100bn (US$2.2bn); the Housing and Urban Development

Corporation – INR50bn (US$1.1bn); and Ports – INR50bn (US$1.1bn).

In addition, the FY2011/12 budget will provide the government-owned India Infrastructure Finance

Company Limited (IIFCL) with an additional INR5bn (US$1.1bn) for its takeout financing scheme. In

takeout financing, a long-term financing institution such as IIFCL will agree to take an existing loan

(possibly short- to medium-term) off a bank's balance sheet for a price, thus boosting the liquidity and

risk transfer opportunities for Indian banks. This scheme, along with the refinancing services provided by

IIFCL, are essential for the successful implementation of India's 12th Five-Year Plan (2012/13- 2016/17)

due to the lack of size and sophistication in India's financial markets. In August 2011, it was reported that

the IIFCL will take over the management of more than US$131.1bn in loans from the IDBI Bank.

The Indian government has recognised the effectiveness of takeout financing for infrastructure

development and has boosted the scope of the scheme. In September 2011, three state-run financial

institutions - the Indian Infrastructure Finance Company Limited (IIFCL), Life Insurance Corporation of

India (LIC) and India Development Finance Corporation (IDFC) - signed a memorandum of

understanding to boost the application of takeout financing in India. The MOU would allow the three



companies to take out up to 50% of an infrastructure project's debt, in the ratio of 20:20:10 respectively.

According to Indian Finance Minister Pranab Mukherjee, this takeout financing agreement is expected to

unlock around INR300bn (US$6.2bn) in bank debts, allowing banks to finance other projects and speed

up the pace of infrastructure development in India. Originally, the takeout financing scheme is only

carried out by IIFCL for up to 20% of a project's total cost.

Restrictions on foreign institutions and investors (FIIs), which previously hindered investment in

infrastructure-related bonds, have also been relaxed – another positive move to improve long-term

financing given FIIs' access to deeper and more varied pools of funding. FIIs are now able to invest up to

US$25bn on bonds issued by infrastructure companies, an increase from an original US$5bn. FIIs are also

allowed to invest in unlisted bonds from special purpose vehicles (SPVs) belonging to infrastructure

companies, while new infrastructure debt funds that are exempt from taxes will be created to attract

foreign funds for financing of infrastructure.

In June 2011, the Indian government indicated that the structure for the SPVs for infrastructure financing

– commonly known as infrastructure debt funds (IDFs) – is now in place. The newly-designed IDFs,

which were proposed by Finance Minister Pranab Mukherjee in the Union Budget for 2011/12 (April-

March) and are expected to have a combined value of INR500bn (US$11bn), are aimed at accelerating

and enhancing the flow of long-term debt for infrastructure financing. The government hopes that these

IDFs will entice domestic and overseas institutional investors to commit long-term funding to

infrastructure projects across the country. These investors would most likely include insurance and

pension funds, as their long-term financial obligations make them well suited for financing infrastructure.

As of October 2011, Indian officials are already promoting these IDFs to overseas investors. Economic

Affairs Secretary R Gopalan was in discussion with investors in Singapore and had announced that the

first IDF is set to be launched in the coming two months. The fund is expected to attract US$3bn in

investment, and is currently undergoing the initial process of establishment.

To date, insurance and pension funds have so far played a limited role in India's infrastructure sector. To

boost the investment grade rating of these SPVs and IDFs, the government has launched a new financing

tool known as credit enhancement. According to the Economic Times, the proposal, which was reviewed

by the finance ministry in August 2011, envisages a guarantee by the IIFCL which will subscribe to 25-50

% of the bonds being issued by the infrastructure company. This will be backed by insurance cover from

the Asian Development Bank (ADB) to the tune of 50% of IIFCL's exposure, which in any case enjoys

sovereign guarantee. For example, if a SPV floated by a company for infrastructure development is

raising INR40bn debt through bond issuance, and is approved for credit enhancement, IIFCL will

subscribe to the bonds amounting to INR10bn, with half of these purchased bonds insured by ADB and

the other half enjoying a government guarantee provided by IIFCL. This would boost the SPV’s rating

from BBB to AA, making it investment grade for long-term players such as pension and infrastructure

companies, who are required to invest in bonds with a minimum rating of AA. Credit enhancement will



therefore help long-term lenders to finance infrastructure projects, while freeing up banks to make

investment that will match their liabilities, which are typically short-term deposits.

The initial phase for credit enhancement is expected to provide funding support for around INR150bn and

has since been expected to direct and indirect equity holders. In Sep 20111, it was reported by Reuters

that the Reserve Bank of India further eased external commercial borrowing policy for the infrastructure

sector by allowing direct and indirect equity holders to provide credit enhancement for domestic debt

raised by Indian infrastructure companies and infrastructure finance companies. The direct foreign equity

holder should have a minimum of 25% of paid-up capital in the debt issuing firm while the in direct

foreign equity holder needs to have at 51%%..

These measures are meant to boost foreign investment – particularly from private equity funds – into

India’s infrastructure sector, and they appear to be proving successful. Over recent years, the private

equity (PE) funds focusing on India's infrastructure sector have increased in number. Perhaps the biggest

is the Macquarie-SBI fund, which is currently in the process of raising US$1.5bn following its first close

in April 2009. Other funds include the US$1.2bn 3i India Infrastructure Fund (the international private

equity company plans to launch a second infrastructure fund of US$1.5bn) and ICICI Venture's US$1bn

India Infrastructure Advantage Fund. More recently, in March 2011, Nomura Securities, Japan's leading

securities company and subsidiary of financial conglomerate Nomura Group, announced plans to raise

US$500mn from Japanese investors for an Indian infrastructure fund. These funds have made an impact

on India’s infrastructure development. Between May and September 2011, six notable PE groups - 3i

Infrastructure , Morgan Stanley , Kohlberg Kravis Roberts , Blackstone Group and JP Morgan

Chase - invested a total of US$1.05bn into Indian companies or infrastructure projects.

According to PE research house Preqin, there are 38 infrastructure PE funds currently looking at assets in

India, with nine more to be launched in 2011, according to Livemint. In total, Preqin notes that the funds

have raised US$9.5bn for investment in India's infrastructure sector and are seeking a further US$7.3bn.

During 2010, 28 deals worth a combined US$2bn were made in India's infrastructure sector, compared to

just 18 deals worth US$333mn in 2009, according to VCCircle research, also cited by Livemint.

PE funds have seen some success, typically investing in a company or an established infrastructure asset.

Indeed, brownfield opportunities are the most popular amongst the PE infrastructure funds, as the level of

risk inherent in existing assets is significantly reduced.

Reform Momentum Can Only Improve

Policy reform, while still sluggish, is starting to move forward, following a virtual standstill in the last

two parliamentary sessions. A key reform is the introduction of a new land bill to repeal the obsolete

Land Acquisition Act of 1894 and replace it with a fresh National Land Acquisition and Rehabilitation &

Resettlement Bill 2011. With the 2012 elections looming large, the land reform bill remains a hot political

topic, with the Indian public still very much against the bill. This is in spite of the unfavourable terms for



investors, as the financial cost of land purchases is expected to rise significantly under the current

proposals. Construction companies would need to pay twice the market value for urban land and six times

for rural development. In addition, 80% of the families involved will have to give approval for

acquisitions to take place, and the bill would be implemented retrospectively.

Nevertheless, if approved in FY2011/12, as we believe it will be, the legislation could bring much-needed

speed and clarity in a process that has long been cumbersome and incoherent. Indeed, the savings on

approval/litigation/execution cost factors are likely to make the bill a net positive for investors. Project

delays have been a considerable drawback for India's business climate, and any improvements on this

front will certainly help to re-ignite investor enthusiasm.

In Conclusion...

All of these moves and announcements show that the government is moving in the right direction, and is

looking at innovative ways of increasing access to financing for private investors looking to invest in

India's infrastructure market. In order to capitalise on India’s potential, these plans need to be

implemented in a timely manner. At the same time, the issue of transparency and an over-intrusive

bureaucracy needs to be addressed in order to attract investors into the market. The government appears

serious about addressing these issues, and, in order to achieve its ambitious targets in the 12th Five-Year

Plan, it needs to be.



Building Materials

Global

Industry Trend Analysis - Building Materials: China To Remain Demand Driver; Developed Markets Offer Little Support

BMI View: The recent downturn in investor sentiment sparked by growing uncertainty over the US

economic recovery and the ongoing fiscal situation in the eurozone reinforces our core view that demand

for building materials will remain broadly muted in developed economies s through 2011 and into 2012.

With persistent weakness in developed markets and political headwinds still weighing on growth in the

Middle East and North Africa (MENA), demand in China will remain the key factor in determining the

levels of growth in the global consumption of cement and steel over the coming quarters. Meanwhile,

elevated raw material and energy prices will continue to weigh on producer margins across the globe.

Key views for 2011:

• Asia and Latin America to outperform globally: emerging Markets (EM) demand for building materials

to hit new highs in 2011 driven by robust economic growth.

• Europe/North America: cement production to remain depressed but stable; still below pre-crisis levels -

persistent market weakness driving asset sell-offs and increasing EM focus.

• The impact of the crisis in Middle East and North Africa (MENA) will lead to muted consumption

growth in 2011, but this will rebound in 2012.

• Saudi Arabia and Indonesia to be global outperformers in terms of cement consumption growth.

• Steel prices to trend steadily higher through 2011 and 2012; Chinese overcapacity to alleviate some

upside pressure.

Risks:

• Elevated energy and raw materials costs represent a continued threat to producer margins and

consumers.

• China to remain the key growth driver of cement and steel demand; though monetary tightening

measures present downside risk to the demand outlook.

• Inflationary pressures a key concern for the sector across much of Asia.



Asia Pulling Away

Rising per capita income, demographic growth, urbanisation and industrialisation are the key growth

drivers behind Asia's building materials consumption story. Indeed, while base effects, China's cooling

measures and continued weakness in developed markets will likely see a moderation in cement and steel

consumption in 2011, demand growth will remain robust. Across much of Asia and other key emerging

markets, notably Brazil, the rate of cement and steel consumption will accelerate. Indeed, surging demand

in Asia, particularly China, saw global cement and steel consumption increase by 8% and 13%

respectively in 2010, offsetting an uncertain and broadly muted recovery in Europe and North America.

Asian Outperformance Basket Of Four Largest Global And Asian Cement Firms By Market Capitalisation (Rebased Jan-

10)

Source: Bloomberg.

Having accounted for the lion's share of growth in global cement sales, and two thirds of global steel

production in 2010, we expect key Asian markets such as China, India, Indonesia and the Philippines to

further boost the region's share of the total in 2011. Moreover, Asia will be the key driver behind a steady

shift in global steel consumption over the coming years, away from developed economies and towards

emerging/developing economies. This will see emerging markets account for 72% of global steel

consumption in 2012 (from 61% in 2007); while steel use in the developed world will still be 14% below

the 2007 level, according to World Steel Association (WSA) forecasts.



Of these markets, Indonesia, Asia's third most populous country, alongside the Philippines, Thailand and

Vietnam, continue to drive the rampant consumption of building materials in the region, with residential

construction, in particular, continuing to exert strong upward pressure on cement prices. We expect

Indonesia to be a regional outperformer over the next couple of years, having recorded a 14.8% rise in

cement sales in H111. Given its size and positive demographic and macroeconomic fundamentals, there is

huge growth potential within the market, particularly in the cement sector where sales are soaring and

capacity is still insufficient.

India To Outperform China

Although we expect demand to remain relatively robust in China, the raft of monetary tightening

measures introduced over the last 12 months should see the growth in consumption of cement and steel in

India outpace that of its fellow giant. However, despite the anticipated moderation in construction activity

in China, we expect demand for building materials to be relatively well supported due to China's huge

affordable housing programme, as well as extensive infrastructure projects.

India, Asia's other giant, will see demand for building materials accelerate in 2011. Indeed, according to

the WSA, demand for steel in the country is expected to grow by 13.6% year-on-year (y-o-y) in 2011 and

14.3% in 2012, as the country's insatiable demand for housing and infrastructure projects drives

consumption of the metal.

Demand for cement will also rise, although whether this will exert any upward pressure on prices is

uncertain, as capacity is high and India's cement producers are able to absorb rising costs. However, there

are significant risks to this outlook, notably those arising from the well- publicised shortcomings within

India's business environment.

Rising Input Costs And Inflation To Squeeze Margins

Over the last 12 months inflationary pressures and the high cost of key raw materials (notably fuel and

iron ore) have been, and remain, a key concern for the construction industry. Driven by strong demand in

Asia and perpetuated by the ongoing unrest in the Middle East, rising input costs have put pressure on

companies' operating margins and in many cases served to offset improving sales growth. These effects

have weighed particularly heavily on the building materials industry given its energy and resource-

intensive nature. Moreover, with input costs likely to remain elevated over the coming months, margins

will be squeezed further, as well as the increased likelihood that these costs will be passed on to the

consumer.



Still Eroding Profits Brent Crude, Newcastle Coal And Chinese Iron Import Price Index (Rebased Jan-2010)

Source: Bloomberg.

However, the decidedly negative turn in investor sentiment through recent weeks has seen the price of a

barrel of oil fall significantly. This is broadly in line with BMI's view that there will be a correction in oil

prices in H211 and should help alleviate operating cost pressures for cement and steel producers.

In South East Asia, such issues regarding negative turns in investor sentiment are accentuated by the

constant threat of inflation, which remains a key concern for a number of countries in the region in 2011,

particularly Indonesia and Vietnam. Although local supply-demand dynamics can drive up prices in a

particular market on a short-term basis; factors such as transport and distribution costs, as well as

uncertain electricity supply, also remain notable constraints for the building materials sector in many

emerging markets. These heightened operating costs can serve to substantially erode positive sales

growth.

This latter issue is an especially pertinent one in sub-Saharan Africa (SSA), where the biggest obstacle

facing large cement producers is the huge infrastructure deficit. This often makes the manufacturing and

transport of building materials from country to country - a highly energy-intensive process at the best of

times - often impossible. While encouraging efforts to ramp up capacity in countries such as Nigeria,

Kenya, Angola and Zimbabwe have been seen over recent quarters, the price of key materials such as

cement will remain highly vulnerable to price volatility for the foreseeable future.



Developed Markets Trailing

With weak economic data from the US continuing to erode confidence in the country's fragile recovery

and the ongoing eurozone debt crisis, the outlook for the global cement majors with heavy exposure to

these regions remains a subdued one. Indeed, high debt burdens and economic uncertainty led to a string

of asset sell offs in the first half of 2011 as firms sought to reduce exposure to these struggling markets.

Lafarge is a case in point, having sold off 'non-core' assets in the US and Europe as it bids to reduce its

substantial debt pile. While uncertainty persists, the worst appears to be over for the European building

materials market and we anticipate volumes and prices of building materials to stabilise in 2012. Even in

the US, the latest figures support our view that residential construction has bottomed (adding 0.08% to

overall GDP growth in Q211) which is positive news for the sector as a whole.

Developed Economies With Declining Share Cement Production (thousand tonnes), 2010

Source: USGS.

Steel: Demand To Grow, With Moderate Price Rises

Following a contraction of 6.6% in 2009, apparent steel use (i.e. steel consumption) increased by 13.1%

in 2010 to 1,272 million metric tonnes (mmt), according to WSA estimates. It is forecast by the WSA that

growth will moderate in 2011, but still rise by 5.3% to reach an all time high of 1,340mmt. This

moderation in growth is due to factors such as base effects as well as China's raft of measures aimed at

curbing its rampant property and construction sectors. Moreover, much of the growth seen in developed

markets in H110 reflected inventory restocking and stimulus measures that have now unwound.



Global Steel Growth Outlook Steel Consumption Growth Forecast (%)

Source: WSA.

Although 2011 will likely see a relative slowdown in Chinese demand for the metal, global steel

consumption will continue to be driven by the Asian giant. Indeed, China's construction and automobiles

industries - two major steel consuming sectors - are forecast to expand by 9% and 15.8% respectively.

China Steel The Driving Force Asia And China Steel Production (Thousand Metric Tonnes)

Source: WSA.



Over the next two years we expect steel prices to rise steadily. Three-month LME steel billet prices will

average US$580/tonne in 2011 and US$620/tonne in 2012, according to BMI's commodities team,

though this is still a long way off pre-crisis peak levels. Over the coming quarter we expect the metal to

trade between US$500/tonne and US$600/tonne, with a number of factors combining to prevent any

potential price surge. One notable issue is that of significant overcapacity in China, which, along with the

Chinese government's concerted efforts to cool industrial production,; reduce the likelihood of any

supply-side constraints.

While we believe that overcapacity will play a key role in curbing potential gains in steel prices there are

a number of dynamics that could precipitate upward price pressure over the coming months. Indeed, cost

pressures arising from the high cost of raw materials have continued to mount in recent months, forcing

steel producers to increase prices as margins came under pressure.

Asia

Industry Trend Analysis - Building Materials: China Still Leading The Charge As Competition Heats Up

BMI View: Attractive macroeconomic and demographic fundamentals across key Asian markets continue

to underpin our positive outlook for global building materials consumption in 2011 and 2012, as well as

over the longer-term. While China's belt tightening measures may conceivably see some softening in the

region's cement and steel consumption growth over the coming quarters, heavy investment in

infrastructure and social housing should ensure that demand levels are well-supported. Indeed, across

the region, rising demand is driving robust sales growth which, in turn, is fuelling capacity expansion

and increasing overseas investment.

Key views:

• Inflationary pressures to remain a concern until end-2011, particularly in Indonesia and Vietnam -

high costs to continue to erode profit and drive market consolidation

• Strong domestic sales driving overseas expansion for a number of large regional cement producers -

competition intensifying in Indonesia

• Robust economic growth across region to drive global consumption of building materials in 2011/2012

and beyond - driven by demand for infrastructure and housing

• High cost of energy and raw materials to continue to weigh on the industry over the short-term, at

least - squeezing margins and exerting upward price pressure



• China's cooling measures present demand side risk through 2011 and 2012

• ...but sizeable social housing and infrastructure projects to provide significant respite - steel output

proved to be robust through H111

Robust Fundamentals Drive Growth in 2011 and Beyond

Rising per capita income, demographic growth, urbanisation and industrialisation are the key drivers of

growth behind Asia's building materials consumption story. Indeed, we expect the strong demand for

housing and infrastructure in large dynamic Asian markets, such as India, China, Indonesia and

Philippines, to underpin robust growth in the sector over the medium- to long-term. This trend is

highlighted in the outperformance of Asian cement companies relative to their global, Western-based

competitors.

In contrast to global cement majors such as Lafarge and Holcim who, despite a growing presence in

emerging markets, have faced substantial headwinds over the last 18 months, Asian cement majors, such

as China-based Anhui Conch, Thailand's Siam Cement and Indonesian firm Indocement, have

performed strongly. Indeed, with Asia accounting for an expanding slice of the world's cement output -

China and India are the world's largest and second largest consumers of the building material by some

distance - there is huge potential growth and consolidation within these markets over the coming years.

Strong Sales Growth, But Costs Weigh On Margins

Asian Cement Firms (Rebased As Of 02/08/2010)

Source: Bloomberg



Steel production in the region grew by 11.8% year-on-year (y-o-y) in 2010, increasing its proportion of

the global total from 63.5% to 65.5%, according to the World Steel Association (WSA). Indeed, the

region's insatiable demand for the metal has seen the price of iron ore soar over the last 18 months,

symptomatic of the steady shift in steel consumption away from developed economies and towards

emerging/developing economies. Moreover, despite the Chinese government's efforts to cool the

economy, steel production reached a record high in June 2011, with apparent steel consumption for the

period January to June up by nearly 9% compared to the same period in 2010. Furthermore, with steel

rebar - most commonly used in building construction - the single largest product in the country's steel

mix, the construction sector, remains a key driver behind this resilient growth.

BMI notes that, while our expectation that fixed-asset investment in China will moderate significantly

from 2011 onwards, in line with monetary tightening measures, the sheer size of the planned investments

in social housing and infrastructure should help sustain solid growth levels and capacity utilisation rates.

Meanwhile, over the short-term, we expect elevated input costs to continue to squeeze the margins of

cement and steel producers over the coming months.

Ramping Up Capacity

As China's consumption growth moderates over the next couple of years, India, Asia's other giant, will

see the demand for building materials accelerate in 2011 and beyond. According to the WSA, demand for

steel in the country is expected to grow by 13.6% y-o-y in 2011 and 14.3% in 2012, as the country's

insatiable demand for housing and infrastructure projects drives consumption of the metal. Demand for

cement will also rise, although whether this will exert any upward pressure on prices is uncertain, as

capacity is high and India's cement producers are able to absorb rising costs. There are significant risks to

this outlook; however, it is noted that these arise from the well-publicised shortcomings within India's

business environment.

These shortcomings have manifested themselves in costly delays to major planned steel and mining

projects in the country, inhibiting production levels and leaving investors wary. However, the Indian

building materials industry received a major boost in May 2011, when the Environment Ministry finally

granted final approval for a US$12bn steel mill to be operated by South Korea's POSCO, following years

of delays. While this does little to paper over the major fissures still present within India's business

environment, it is nonetheless a positive development for the sector.

Dynamic and Increasingly Competitive

Indonesia - the continent's third most populous country -, the Philippines, Thailand and Vietnam will be

key growth markets for the consumption of building materials in the region over the coming years.



Vietnam is expected to see a 9-10% rise in cement consumption in 2011 (according to Ministry of

Industry and Trade), while in Thailand, cement consumption is anticipated to increase by nearly 10%,

according to Siam City Cement, in spite of an expected slowdown in residential construction.

Meanwhile, in Indonesia, cement consumption is likely to increase substantially, with the 14.8% rise in

sales in the H111 period putting the country on course to beat the Indonesian Cement Association's

estimates for the year of 6-8%.

Robust Growth Potential

Cement Production (thousand tonnes)

Source: US Geological Survey

Indeed, given its size and positive demographic and macroeconomic fundamentals, there is huge growth

potential within the market, particularly in the cement sector where sales are soaring and capacity is still

insufficient. This has been illustrated by the recent performance of the country's largest cement producer

Indocement Tunggal Prakasa (Indocement), which saw Q211 revenues grow by 27.9% year-on-year (y-o-

y) to reach US$394mn - although net profits continue to be eroded by high costs (a theme across much of

the region). While energy prices look set to remain elevated, cost pressures should still ease, as we expect

inflation in Indonesia to trend downwards over the coming months.



Riding High With The Komodo Dragon

Indocement Q2 Revenues, Net Profits And Operating Margin

Source: Indocement, Bloomberg

This robust growth potential has not gone unnoticed and is attracting the attention of foreign cement

companies from within the region. In July 2011, Thailand cement maker Siam Cement announced plans

to spend US$219mn on developing its ceramic and construction material businesses in Indonesia, while

China's Anhui Conch is also planning to invest US$2.35bn in the construction of four new cement plants

in the country. These investments will bring welcome new capacity online for the country, as well as

stimulating increased competition within a market which holds significant potential for consolidation over

the coming years. Vietnam is another market that looks set for increasing consolidation. Indeed, despite

our positive long-term outlook for the sector, over-supply and high energy and transport costs will put

increasing pressure on less-competitive companies.

China Cools Regional Outlook, But Risks Remain Upside

Apparent steel consumption in China for the period January to June 2011 grew by nearly 9% compared to

2010, despite indicators that the government's monetary tightening measures are beginning to take an

effect on manufacturing and other industries, including residential construction. Indeed, steel production

in the country averaged a record high of approximately 2mn tonnes in June 2011, according to the WSA,

driven by strong demand from China's mass affordable housing programme and infrastructure projects.

The key role of the construction sector in this resilient growth is reflected in the sizeable contribution -

16% - of steel rebar (used primarily in building construction) in the country's steel mix.



China Steel The Driving Force

Asia And China Steel Production (Thousand Metric Tonnes)

Source: WSA

With a greater number of affordable homes due to be built over the second half of 2011, and in the years

to follow, we expect steel and cement output in the country to be well-supported in the face of a wider

softening in demand, as tightening measures take effect.

A breakdown of WSA estimates shows that they expect China's apparent steel use in 2011 to increase by

5.0% to 605mnt, following 5.1% growth in 2010. Moreover, the given the pace of steel production in the

first half of 2011, Chinese steel use could be even higher than expectations. However, given that

utilisation rates remain below pre-crisis levels, we see few immediate risks from supply side constraints.

Overcapacity therefore remains an issue in the country, coupled with high input costs, which are

squeezing the margins of some of the country's main producers.



Industry Forecast Scenario

Table: India Construction And Infrastructure Industry Data

2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Construction Industry Value, INRbn 4,514.1 5,017.1 5,918.6 6,699.4 7,667.9 8,874.7 10,316.3 11,859.8 13,590.3

Construction Industry Value, US$bn 103.7 103.6 129.5 145.6 163.1 194.0 237.2 287.5 339.8

Construction Industry Real Growth, % chg y-o-y 5.4 7.0 8.1 4.0 6.0 7.5 7.7 7.0 6.6

Construction Industry, % of GDP 8.1 7.7 7.5 7.3 7.4 7.5 7.6 7.7 7.8

Total Capital Investment, INRbn 19,735.3 23,441.8 27,383.1 31,143.0 35,338.0 40,904.5 47,145.1 53,731.8 61,039.2

Total Capital Investment, US$bn 428.4 496.3 601.5 673.4 821.8 997.7 1,193.5 1,395.6 1,606.3

Total Capital Investment, % of GDP 35.4 35.8 34.8 34.1 34.0 34.4 34.7 34.9 34.9

Capital Investment Per Capita, US$ 359.8 410.9 491.2 542.4 653.1 782.4 924.0 1,066.8 1,212.8

Real Capital Investment Growth, % y-o-y 1.5 7.3 9.0 6.5 7.5 11.0 10.0 9.0 8.5

Construction Industry Employment, '000 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

Construction Industry Employment, % y-o-y #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

Total Workforce, '000 759,958.6 774,780.9 789,749.6 803,769.7 818,273.7 832,851.9 847,141.0 860,948.4 873,803.4

Construction Industry Employees as % of total labour force #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A




2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Infrastructure Industry Value As % of Total Construction 45.7 46.5 47.0 47.8 48.5 49.7 50.4 51.1 51.6

Infrastructure Industry Value, INRbn 2,063.3 2,332.9 2,781.8 3,200.3 3,722.7 4,413.3 5,204.3 6,059.4 7,016.8

Infrastructure Industry Value, US$bn 47.4 48.2 60.8 69.6 79.2 96.5 119.6 146.9 175.4

Infrastructure Industry Value Real Growth, % chg y-o-y 12.8 11.1 8.7 5.9 7.8 10.3 9.4 8.4 7.8

Infrastructure Industry Value as % of GDP 3.7 3.6 3.5 3.5 3.6 3.7 3.8 3.9 4.0

Residential and Non-Residential Building Industry Value As % of Total Construction 54.3 53.5 53.0 52.2 51.5 50.3 49.6 48.9 48.4

Residential and Non-Residential Building Industry Value, INRbn 2,450.9 2,684.1 3,136.9 3,499.1 3,945.2 4,461.4 5,112.0 5,800.4 6,573.6

Residential and Non-Residential Building Industry Value, US$bn 56.3 55.4 68.6 76.1 83.9 97.5 117.5 140.6 164.3

Residential and Non-Residential Building Industry Value Real Growth, % chg y-o-y -2.5 7.5 6.3 2.4 4.2 4.8 6.1 5.5 5.3

Residential and Non-Residential Building Industry Value as % of GDP 4.4 4.1 4.0 3.8 3.8 3.8 3.8 3.8 3.8

f = BMI forecasts. Sources: Census and Statistics Department/ILO




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Construction Industry Value, INRbn 8,874.7 10,316.3 11,859.8 13,590.3 15,472.0 17,565.5 19,917.4 22,500.2 25,425.3

Construction Industry Value, US$bn 194.0 237.2 287.5 339.8 396.7 462.2 524.1 592.1 669.1

Construction Industry Real Growth, % chg y-o-y 7.5 7.7 7.0 6.6 5.8 5.5 5.4 5.0 5.0

Construction Industry, % of GDP 7.5 7.6 7.7 7.8 7.8 7.8 7.8 7.8 7.8

Total Capital Investment, INRbn 40,904.5 47,145.1 53,731.8 61,039.2 68,884.0 77,519.9 87,128.3 97,559.2 109,270.3

Total Capital Investment, US$bn 997.7 1,193.5 1,395.6 1,606.3 1,812.7 2,040.0 2,292.9 2,567.3 2,875.5

Total Capital Investment, % of GDP 34.4 34.7 34.9 34.9 34.7 34.5 34.2 33.8 33.5

Capital Investment Per Capita, US$ 782.4 924.0 1,066.8 1,212.8 1,352.4 1,504.2 1,671.6 1,851.1 2,051.2

Real Capital Investment Growth, % chg y-o-y 11.0 10.0 9.0 8.5 7.6 7.2 7.0 6.5 6.5

Construction Industry Employment, '000 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

Construction Industry Employment, % y-o-y #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

Total Workforce, '000 832,851.9 847,141.0 860,948.4 873,803.4 886,229.8 898,389.5 910,552.4 922,846.1 934,482.0

Construction Industry Employees as % of total labour force #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

Infrastructure Industry Value As % of Total Construction 49.7 50.4 51.1 51.6 52.1 52.4 52.7 53.0 53.2




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Infrastructure Industry Value, INRbn 4,413.3 5,204.3 6,059.4 7,016.8 8,055.7 9,210.0 10,504.9 11,924.6 13,530.5

Infrastructure Industry Value, US$bn 96.5 119.6 146.9 175.4 206.6 242.4 276.4 313.8 356.1

Infrastructure Industry Value Real Growth, % chg y-o-y 10.3 9.4 8.4 7.8 6.8 6.3 6.1 5.5 5.5

Infrastructure Industry Value as % of GDP 3.7 3.8 3.9 4.0 4.1 4.1 4.1 4.1 4.1




Residential and Non-Residential Building Industry Value Real Growth, % chg y-o-y 4.8 6.1 5.5 5.3 4.8 4.7 4.7 4.4 4.5


f = BMI forecasts. Sources: Census and Statistics Department/ILO



Construction and Infrastructure Forecast Scenario

A slowdown in India's

infrastructure sector continues

to unfold in FY2011/12 (April-

March). The latest statistical

data from India's Ministry of

Statistics and Programme

Implementation (MOSPI)

showed that real growth for the

Indian construction industry

came in at just 1.2% year-on-

year (y-o-y) for the first quarter

of FY2011/12 (April-June),

compared to 7.7% y-o-y in the

same period in FY2010/11.

For the rest of FY11/12, we

remain bearish towards India's

construction sector due to

adverse monetary conditions. Inflation persists at an elevated 9.7% y-o-y in September 2011, despite 11

rate hikes since March 2010. This is placing pressure on the Indian central bank, the Reserve Bank of

India (RBI), to initiate further rate hikes to cut inflation. The RBI raised the policy repo rate by 25 basis

points to 8.50% on October 25 2011.

Meanwhile, global external conditions are turning for the worse in recent months, and we believe this

further sets the stage for weak construction growth throughout the remainder of FY2011/12. The

combination of costly debt levels and high raw material prices will deter or prevent construction

companies operating in India from carrying out large-scale projects, due to a lack of adequate financing.

We do, however, believe that this cyclical downtrend in construction has bottomed out, with inflation

already at its peak. Although rate cuts are unlikely to take place until mid-2012, the RBI has expressed a

clear desire to pause monetary tightening, and this should provide a measure of certainty to infrastructure

investors in search of financing. As such, we believe that construction activity could improve at the tail-

end of FY2011/12, and we have only revised down our real growth forecast for the Indian construction

industry for FY2011/12 to 4.0% (previously 7.3%).

Infrastructure Moving Centre Stage

Construction Industry Value And Infrastructure Share

BMI f=forecast, Source: BMI, BMI Calculation



Activity To Bound Back In 2012/13

Looking further ahead, we are confident that the sector's fortunes will start to improve in FY2012/13. The

Indian government is making serious attempts to kick-start infrastructure development for the 12th Five-

Year Plan (FY2012/13-FY2016/17), approving major infrastructure projects and pushing forward plans to

accelerate and enhance the flow of long-term financing.

In June 2011, India's Ministry of Railways announced that it will conduct the sale of INR100bn

(US$2.2bn) of tax-free bonds in India by September 2011, while other ministries involved in roads, ports

and urban development will also be conducting their bond issuances during FY11/12.

In September 2011, three state-run financial institutions - the Indian Infrastructure Finance Company

Limited (IIFCL), Life Insurance Corporation of India (LIC) and India Development Finance Corporation

(IDFC) - signed a memorandum of understanding to boost the application of takeout financing in India.

The MOU would allow the three companies to take out up to 50% of an infrastructure project's debt,

potentially unlocking around INR300bn (US$6.2bn) in bank debts, which could be used to finance other

projects and speed up the pace of infrastructure development in India. This enhancement in takeout

financing is critical, as it could mitigate the lack of size and sophistication in India's financial markets by

boosting the liquidity and risk transfer opportunities for Indian banks.

Meanwhile, special purpose vehicles developed by India for infrastructure financing - commonly known

as infrastructure debt funds (IDFs) - are being promoted by Indian officials to overseas investors. In

October 2011, India's Economic Affairs Secretary R Gopalan was in discussion with investors in

Singapore and had announced that the first IDF is set to be launched in the coming two months. The fund

is expected to attract US$3bn in investments and is currently undergoing the initial process of

establishment.

Investments from foreign sources also accelerated at the start of FY2011/12, as the high cost of domestic

financing has made Indian infrastructure companies more receptive to capital investments from overseas

companies. Between May and September 2011, six notable private equity groups - 3i Infrastructure ,

Morgan Stanley , Kohlberg Kravis Roberts , Blackstone Group and JP Morgan Chase - invested a

total of US$1.05bn into Indian companies or infrastructure projects.



Boosting The Pipeline

Besides greater access to financing, another indication of a rebound in construction activity is the growing

number of infrastructure projects being implemented and announced by the Indian government. BMI 's

Key Projects Database has once again seen an increase in project backlogs for several infrastructure

sectors over the past quarter, with the value of total projects (particularly power projects) under

construction or in the pipeline in India's infrastructure sector growing from US$400bn as of August 2011

to around US$430bn as of October 2011. This does not include projects that have not provided cost

estimates, which would make the actual value of infrastructure projects available in India even higher.

Value Of Key Infrastructure Projects in India*

Source: WSA

The road sector is a key example of this increase in pipeline projects. In October 2011, the Indian

government launched an INR166bn (US$3.35bn) highways building plan under the National Highways

Development Programme, covering the construction of six-lane highways totalling 6,500km, four-lane

highways totalling 24,700km and the expansion of other highways. Under the plan, the government has

already approved four expressway construction projects, while the country's public-private partnership

appraisal committee has approved 10 roadworks projects, worth a total of US$1.1bn.

Therefore, we expected several infrastructure projects to be awarded at the start of FY2012/13 and begin

construction in late-2012 or 2013. This view is reflected in our forecasts, with real growth for India's

construction sector to reach 6.0% in FY2012/13 and 7.5% in FY2013/14. This also supports our view that



infrastructure (one of the two sub-sectors which form the construction industry value, according to BMI 's

definition) will continue to be the main driver of construction industry value, substantially outperforming

its counterpart - the residential and non-residential building sector.

However, these growth rates are still lower than the double-digit figures seen in the early 2000s, and far

below potential growth levels. Our forecast is motivated by a number of factors:

India's business environment continues to be plagued by a convoluted and incoherent legal

framework, rampant corruption and an environmental ministry that is over-zealous in

prosecuting infringements, but slow in implementing policies. Unclear and ineffective land

clearance regulations are delaying projects, and complex and convoluted bureaucracy is slowing

down planning and tendering processes These issues have led to lengthy delays, with the latest

figures from the Ministry of Statistics and Programme Installation (MOSPI) showing that 284

out of 496 construction projects in India were delayed as of December 2010.

A downgrade of investment targets in the 11th Five-Year Plan (2007/07-2011/12), announced in

March 2010 – due to lower than expected investment in the transport infrastructure sector – was

the first sign that investment targets were not eventuating at the rate anticipated.

Foreign Direct Investment (FDI) is being thwarted by the need to partner with a local player,

meaning only those who are able to form local partnerships can follow through on intentions to

invest.

Risks In Reforms

We believe that the success of the 12th Five-Year Plan is still dependent on the level of regulatory

reforms carried out by the government to facilitate infrastructure development. Structural weaknesses in

India's business environment remain considerable and could still significantly delay projects that have

reached financial closure. At present, it remains to be seen if reforms that are conducive for construction

companies will be carried out.

A key reform is the introduction of a new land bill to repeal the obsolete Land Acquisition Act of 1894

and replace it with a fresh National Land Acquisition and Rehabilitation & Resettlement Bill for 2011.

With the 2012 elections looming large, the land reform bill remains a hot political topic, with the Indian

public still very much against the bill. This is in spite of the unfavourable terms for investors, as the

financial cost of land purchases is expected to rise significantly under current proposals. Construction

companies would need to pay twice the market value for urban land and six times for rural development.

In addition, 80% of the families involved will have to give approval for acquisitions to take place, and the

bill would be implemented retrospectively.



Nevertheless, if approved in FY2011/12 as we believe it will be, the legislation could bring much-needed

speed and clarity in a process that has long been cumbersome and incoherent. Construction companies

continue to face lengthy delays due to hold-ups in land acquisition. Larsen & Toubro , one of the largest

construction companies in India, is currently thinking of re-evaluating the viability of its US$2.8bn

railway project in Hyderabad because it has only been about to acquire 50% of the land for the 71.2km

project. On balance, we believe that the Bill would be a net positive for the industry, and potentially help

galvanise construction sector activity over the medium-term.

(Note: Over Q2 2010 we aligned our data with the Indian standard of using financial year from April 1 to

March 31. Furthermore, in Q111 we extended our forecasts to 2010, as such we are now forecasting from

FY2010/11 to FY2020/21. This brings infrastructure data in line with BMI’s Country Risk team, which

also uses the financial year rather than the calendar year.)



Transport Infrastructure

Table: India Transport Infrastructure Industry Data

2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Transport Infrastructure Industry Value As % Of Total Infrastructure 40.7 40.0 40.0 39.7 39.9 40.4 40.8 40.9 41.0

Transport Infrastructure Industry Value, INRbn 839.8 933.4 1,113.0 1,269.5 1,487.1 1,783.7 2,123.9 2,477.5 2,874.0

Transport Infrastructure Industry Value, US$bn 19.3 19.3 24.3 27.6 31.6 39.0 48.8 60.1 71.8

Transport Infrastructure Industry Value Real Growth, % chg y-o-y 15.0 9.1 8.7 4.9 8.6 11.7 10.6 8.7 8.0

Transport Infrastructure Industry Value As % Of Total Construction 18.6 18.6 18.8 18.9 19.4 20.1 20.6 20.9 21.1

Roads and Bridges Infrastructure Industry Value As % of Transport Infrastructure 35.0 35.1 35.1 36.0 36.3 36.9 37.2 37.6 38.0

Roads and Bridges Infrastructure Industry Value, INRbn 293.9 327.6 390.7 456.4 539.1 657.8 790.2 932.0 1,091.0

Roads and Bridges Infrastructure Industry Value, US$bn 6.8 6.8 8.5 9.9 11.5 14.4 18.2 22.6 27.3

Roads and Bridges Infrastructure Industry Value Real Growth, % chg y-o-y 36.2 9.4 8.7 7.7 9.6 13.8 11.6 9.9 9.1

Roads and Bridges 14.2 14.0 14.0 14.3 14.5 14.9 15.2 15.4 15.5




2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Infrastructure Industry As % of Total Infrastructure

Roads and Bridges Infrastructure Industry As % of Total Construction 6.5 6.5 6.6 6.8 7.0 7.4 7.7 7.9 8.0

Railways Infrastructure Industry Value As % of Transport Infrastructure 16.5 16.1 16.1 16.3 16.1 16.0 15.9 16.0 16.0

Railways Infrastructure Industry Value, INRbn 138.6 150.3 179.2 207.2 239.7 284.5 338.2 395.6 459.9

Railways Infrastructure Industry Value, US$bn 3.2 3.1 3.9 4.5 5.1 6.2 7.8 9.6 11.5

Railways Infrastructure Industry Value Real Growth, % chg y-o-y 27.7 6.4 8.7 6.5 7.2 10.5 10.3 9.0 8.3

Railways Infrastructure Industry As % of Total Infrastructure 6.7 6.4 6.4 6.5 6.4 6.4 6.5 6.5 6.6

Railways Infrastructure Industry As % of Total Construction 3.1 3.0 3.0 3.1 3.1 3.2 3.3 3.3 3.4

Airports Infrastructure Industry Value As % of Transport Infrastructure 20.5 20.8 20.8 19.2 19.5 19.3 19.0 18.5 18.1

Airports Infrastructure Industry Value, INRbn 172.2 194.1 231.5 243.7 289.3 343.9 404.4 458.6 519.3

Airports Infrastructure Industry Value, US$bn 4.0 4.0 5.1 5.3 6.2 7.5 9.3 11.1 13.0

Airports Infrastructure -7.9 10.8 8.7 -3.9 10.2 10.6 9.1 5.4 5.2




2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Industry Value Real Growth, % chg y-o-y

Airports Infrastructure Industry As % of Total Infrastructure 8.3 8.3 8.3 7.6 7.8 7.8 7.8 7.6 7.4

Airports Infrastructure Industry As % of Total Construction 3.8 3.9 3.9 3.6 3.8 3.9 3.9 3.9 3.8

Ports Harbours and Waterways Infrastructure Industry Value As % of Transport Infrastructure 28.0 28.0 28.0 28.5 28.2 27.9 27.8 27.9 28.0

Ports Harbours and Waterways Infrastructure Industry Value, INRbn 235.1 261.4 311.6 362.2 419.0 497.4 591.1 691.4 803.8

Ports Harbours and Waterways Infrastructure Industry Value, US$bn 5.4 5.4 6.8 7.9 8.9 10.9 13.6 16.8 20.1

Ports Harbours and Waterways Infrastructure Industry Value Real Growth, % chg y-o-y 6.5 9.1 8.7 7.1 7.2 10.5 10.3 9.0 8.3

Ports Harbours and Waterways Infrastructure Industry As % of Total Infrastructure 11.4 11.2 11.2 11.3 11.3 11.3 11.4 11.4 11.5

Ports Harbours and Waterways Infrastructure Industry As % of Total Construction 5.2 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9

e/f = BMI estimate/forecast, Source: BMI Research




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Transport Infrastructure Industry Value As % Of Total Infrastructure 40.4 40.8 40.9 41.0 41.0 41.1 41.2 41.2 41.3

Transport Infrastructure Industry Value, INRbn 1,783.7 2,123.9 2,477.5 2,874.0 3,305.1 3,784.8 4,323.7 4,915.4 5,585.6

Transport Infrastructure Industry Value, US$bn 39.0 48.8 60.1 71.8 84.7 99.6 113.8 129.4 147.0

Transport Infrastructure Industry Value Real Growth, % chg y-o-y 11.7 10.6 8.7 8.0 7.0 6.5 6.2 5.7 5.6

Transport Infrastructure Industry Value As % Of Total Construction 20.1 20.6 20.9 21.1 21.4 21.5 21.7 21.8 22.0

Roads and Bridges Infrastructure Industry Value As % of Transport Infrastructure 36.9 37.2 37.6 38.0 38.2 38.5 38.7 38.8 39.0

Roads and Bridges Infrastructure Industry Value, INRbn 657.8 790.2 932.0 1,091.0 1,263.8 1,456.1 1,672.2 1,909.4 2,178.1

Roads and Bridges Infrastructure Industry Value, US$bn 14.4 18.2 22.6 27.3 32.4 38.3 44.0 50.2 57.3

Roads and Bridges Infrastructure Industry Value Real Growth, % chg y-o-y 13.8 11.6 9.9 9.1 7.8 7.2 6.8 6.2 6.1

Roads and Bridges Infrastructure Industry As % of Total Infrastructure 14.9 15.2 15.4 15.5 15.7 15.8 15.9 16.0 16.1

Roads and Bridges Infrastructure 7.4 7.7 7.9 8.0 8.2 8.3 8.4 8.5 8.6




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Industry As % of Total Construction

Railways Infrastructure Industry Value As % of Transport Infrastructure 16.0 15.9 16.0 16.0 16.0 16.1 16.1 16.1 16.1

Railways Infrastructure Industry Value, INRbn 284.5 338.2 395.6 459.9 529.9 607.7 695.2 791.2 900.0

Railways Infrastructure Industry Value, US$bn 6.2 7.8 9.6 11.5 13.6 16.0 18.3 20.8 23.7

Railways Infrastructure Industry Value Real Growth, % chg y-o-y 10.5 10.3 9.0 8.3 7.2 6.7 6.4 5.8 5.7

Railways Infrastructure Industry As % of Total Infrastructure 6.4 6.5 6.5 6.6 6.6 6.6 6.6 6.6 6.7

Railways Infrastructure Industry As % of Total Construction 3.2 3.3 3.3 3.4 3.4 3.5 3.5 3.5 3.5

Airports Infrastructure Industry Value As % of Transport Infrastructure 19.3 19.0 18.5 18.1 17.7 17.4 17.1 16.9 16.7

Airports Infrastructure Industry Value, INRbn 343.9 404.4 458.6 519.3 585.3 658.8 741.4 832.0 934.7

Airports Infrastructure Industry Value, US$bn 7.5 9.3 11.1 13.0 15.0 17.3 19.5 21.9 24.6

Airports Infrastructure Industry Value Real Growth, % chg y-o-y 10.6 9.1 5.4 5.2 4.7 4.6 4.5 4.2 4.3




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Airports Infrastructure Industry As % of Total Infrastructure 7.8 7.8 7.6 7.4 7.3 7.2 7.1 7.0 6.9

Airports Infrastructure Industry As % of Total Construction 3.9 3.9 3.9 3.8 3.8 3.8 3.7 3.7 3.7

Ports Harbours and Waterways Infrastructure Industry Value As % of Transport Infrastructure 27.9 27.8 27.9 28.0 28.0 28.1 28.1 28.1 28.2

Ports Harbours and Waterways Infrastructure Industry Value, HKDbn 497.4 591.1 691.4 803.8 926.1 1,062.1 1,214.9 1,382.7 1,572.7

Ports Harbours and Waterways Infrastructure Industry Value, US$bn 10.9 13.6 16.8 20.1 23.7 27.9 32.0 36.4 41.4

Ports Harbours and Waterways Infrastructure Industry Value Real Growth, % chg y-o-y 10.5 10.3 9.0 8.3 7.2 6.7 6.4 5.8 5.7

Ports Harbours and Waterways Infrastructure Industry As % of Total Infrastructure 11.3 11.4 11.4 11.5 11.5 11.5 11.6 11.6 11.6

Ports Harbours and Waterways Infrastructure Industry As % of Total Construction 5.6 5.7 5.8 5.9 6.0 6.0 6.1 6.1 6.2




Transport Infrastructure – Forecast Scenario

India’s transport infrastructure

needs substantial investment;

however, while some modes of

transport are experiencing a

boom in investments, others

are falling far short of targets,

with high levels of bureaucracy

and inefficient planning

regulations stalling project

approvals. For this reason,

transport infrastructure

industry value growth will

marginally outperform

compared to its counterpart,

with annual average real

growth of 9.5% between

2012/13 and 2016/17

(compared to 8.2% for energy

& utilities infrastructure).

The bottlenecks in transport infrastructure funding have meant that investment has fallen short of targets

under the 11th Five-Year Plan, according to the mid-term appraisal. Transport investment targets declined

by 20% overall, knocked by substantially lower than anticipated investment in ports, railways and even

roads, in the first half of the five-year plan period.

Although we are pessimistic for the country’s business environment, the sheer level of demand and

number of projects in the planning phase means growth will be assured. Bearing this in mind, it is

inevitable that certain sectors will outperform others.

Among the sub-sectors, railways is an outperformer in growth terms, with the sub-sector forecast to

average real growth of 9% between 2012/13 and 2016/17 . While we have previously highlighted that

this outperformance was due to the growth in urban railway projects, the launch of the bidding process

for the 1,800km Eastern and 1,490km Western Dedicated Freight Corridors represents a major upside to

our forecast. Both railway lines are expected to offer up to INR100bn (US$2.3bn) worth of contracts over

the coming years and have already acquired land and financing – a positive signal that the projects will

move forward. As for urban railways, India is planning to develop metro systems in all of its large cities,

as they are facing high levels of congestion due to a rapidly urbanising population. Plans for greenfield

Airports And Railways To Outperform

Transport Infrastructure Breakdown

BMI f=forecast, Source: BMI, Local news sources, industry sources, BMI Research (Key Projects Database)



and brownfield urban railway projects are moving forward in cities like Mumbai, Delhi, Bangalore,

Chennai and Hyderabad.

Roads on the other hand, which account for the largest portion of transport infrastructure industry value

and have received the greatest attention in investment plans, are likely to fall short of targets. The sub-

sector has been most afflicted by poor project execution issue, and in December 2010, only 10 out of 145

road projects in India were on schedule, while around 135 projects were delayed or faced additional

delays, according to MOSPI. Nevertheless, given the sheer pipeline of projects and robust interest from

foreign participation, the roads sector retains significant growth potential. We are forecasting real growth

for the sector to average 10.8% per annum between 2012/13 and 2016/7.

Ports, harbours and waterway infrastructure industry value accounts for the second-largest share of

transport infrastructure value – 28.2% – equal to INR419bn (US$8.9bn) in 2012/13. Despite undeniable

opportunities in India’s port sector, bureaucratic inconsistencies and issues with competitiveness are

presenting a number of deep-rooted obstacles in the country’s port sector. This has meant the sector has

failed to unlock or live-up to potential. Although projects are being delayed, a number of investments are

going ahead and this will eventually translated into industry value, albeit at a slower pace than its

potential would suggest.

While the airports sub-sector is expected to see negative growth in 2011/12, we believe that there is

significant potential for further upside. This is driven by a strong project pipeline for both regional and

international airports, and investor confidence in India’s aviation sector. Airports were one of the few

sectors to have investment targets revised upwards following the mid-term appraisal of the 11th Five-

Year Plan (2007/08 - 2010/11), up from INR310bn (US$6.8bn) to INR361bn (US$7.9bn). This is a clear

indication that funding is flowing into the sector, perhaps due to better planning procedures, but also

because of the private sector’s willingness to invest. We are forecasting real growth for the airport sector

to average 8.1% per annum between 2012/13 and 2016/17.



Transport Infrastructure Overview

India’s transport infrastructure must cater for a booming population, a growing economy and a

demanding import and export sector. India’s population is expected to expand rapidly over BMI’s

medium-term forecast period, from an estimated 1.26bn in 20121/13 to 1.32bn by 2016/17. The country’s

economy is also expanding rapidly, with average real growth of 7.7% y-o-y between 2012/13 and

2016/17 forecast.

Table: Competitiveness Of India's Infrastructure

Rank/133 in 2009/10* Rank/139 in 2010/11** Rank/142 in 2011/12***

Quality of Roads 89 90 85

Quality of Railroad Infrastructure 20 23 24

Quality of Port Infrastructure 90 83 82

Quality of Air Transport Infrastructure 65 71 67

Quality of Overall Infrastructure 89 91 86

*Rank out of 133 countries in 2009/10. ** Rank out of 139 countries in 2010/11. *** Rank out of 142 countries in 2011/12. Source: World Economic Forum, Global Competitiveness Report 2009/10, 2010/11 and 2011/12

Roads

India boasts the third-largest road network in the world after the US and China, with a total of

3,320,410km of roadways, of which 1,517,000km (45%) is paved. The majority of the country’s freight is

transported by road, with around 65% of total cargo carried via this method.

India still has a relatively low vehicle density (2.5 vehicles per km²) compared with other developing

countries (4.06 in Brazil) and with developed economies (46.5 in the US, 101.4 in the UK). However, the

vehicle fleet circulates in tightly defined high-density corridors. Roughly one-quarter of state and national

highways are heavily congested. Partly as a result of this, average truck and bus speeds are only 30-40km

per hour (km/h), in comparison with more developed countries, where they could be expected to be

double that level.

In some respects, India's road network is better than China's, a country of similar population and larger

size; this is due to India having a larger road network. Geographic coverage of India's road network, at

0.66km of highway per km2, is comparable to that of the US (0.65) and four times greater than China's

(0.16). On the other hand, many of China's highways were built in the last 10 years and consist of modern

four- to six-lane expressways linking major cities.



India, in contrast, has few direct links between key cities and most of its highways have two lanes or

fewer. Additionally, there is widespread overloading of older rigid two-axle trucks, which leads to

significant road damage. India also has a poor road safety record, with an average of 75,000 deaths on the

road every year. It can take four to five days for a truck to travel from Delhi to Kolkata, a distance of

1,500km, and about a quarter of the total travel time will be spent at state border checkpoints. A modern

expressway system is clearly needed.

Aware of this deficiency in the highway

system, the government has been

supporting the construction of roads, and

India's road building plan has been one of

the flagship aspects of the country's road

map for infrastructure. The 20km target

has been one of the most oft-cited when

illustrating the potential opportunities in

India's infrastructure sector. In July 2009,

the previous Minister for Road Transport

and Highways, Kamal Nath, aimed to

build 20km of roads per day, but failed to

hit the much-touted target, which had to

be lowered to 12-13km per day, substantiating our earlier fears that the private sector will not participate

to the level required. Issues with land clearance, the complexity of regulations, the high level of

bureaucracy and the collection of toll revenues have deterred potential investors, despite the government

allowing 100% foreign direct investment (FDI) in the sector. Although targets are being downgraded, the

scale of infrastructure development is still considerable, relative to other emerging markets. Building 12-

13km of roads per day is still a sizeable target, which, if achieved, will drive growth in industry value

over our forecast period.

This target looks increasingly unlikely to be met, as the sub-sector continues to be heavily affected by

poor project execution issues. In December 2010, only 10 out of 145 road projects in India were on

schedule, while around 135 projects were delayed or faced additional delays, according to MOSPI. This

problem of projects delays was highlighted by a top official at the National Highways Authority of India,

J.N Singh, where in June 2011, he stated (cited from the Economic Times) that around 20-25% of current

road projects under construction have been delayed by months or years, often due to land acquisition

problems.

The government has, however, made attempts to resolve these execution issues. On May 5 2011, an

empowered group of Indian ministers (EGOM) decided that 95% of roads projects in 2011 should be

awarded through a build-operate-transfer (BOT) model, rather than on an engineering, procurement and

Investment Into Roads And Highways Under 11th Five-Year Plan

0

100

200

300

400

500

600

700

800

900

2007/8 2008/9 2009/10 2010/11 2011/12




construction (EPC) basis (these contracts will now be limited to just 5% of all road projects). They

believe that the BOT model will incentivise companies to complete road projects quickly and efficiently,

and then encourage them to maintain the roads – keeping them in pristine condition – once they are

finished. Furthermore, the move will reduce the expense to the Indian government, as private investors

will be expected to generate their returns through a self-funding toll road system.

The announcement comes after a number of measures have already been implemented to improve the

tendering process in the road sector. On May 3 2011, India's Transport Minister CP Joshi announced that

from January 1 2012, the Ministry would use an e-tendering process to introduce greater transparency. .

The Ministry has also introduced an annual pre-qualification process for project bidders to speed up the

tendering process and reduce delays to road projects, while tweaking the building contract rules to give

more flexibility to companies wishing to sell their project to another developer. The Road Ministry has

also set monthly targets for road construction works to ensure greater accountability.Previously, the

ministry, under Joshi's predecessor Kamal Nath, only reviewed the status of projects using yearly targets

– a strategy that may have potentially contributed to project delays. Projects will now be monitored

through the use of satellite imagery, according to Joshi.

Consequently, we believe improved transparency will send out a positive signal, which will attract private

investors – particularly foreign private equity funds – and encourage investment in road projects, under a

private-public partnership (PPP) framework. The National Highways Authority of India (NHAI) plans to

award 59 road contracts, with a combined length of 7994km and a total cost of INR600bn in 2011/12,

thus reaching its previously unattained goal of constructing 20km of roads per day. We expect the bulk of

these projects to be BOT projects, with 60% of them to be toll-based and 30% to be paid by the

government through annuity payments. Over the 12th Five-Year Plan (2012-17), the Ministry is looking to

invest over INR2.64trn in the highways sector, with INR1.77trn (65%) to come from the private sector.

This will aid India in reaching its target of 35,000 new roads by 2014.This plan to aggressively expand

India’s roads was reiterated by the government, where, in October 2011, it launched an INR166bn

(US$3.35bn) highways building plan under the National Highways Development Programme, reports

News Resources International. The plan covers the construction of six-lane highways totalling 6,500km,

four-lane highways totalling 24,700km and the expansion of other highways. The programme is to be

funded through PPPs. The government has since approved four expressway construction projects in late-

October 2011, reports News Resources International. The construction projects comprise the Vadodara-

Mumbai, Delhi-Meerut, Bangalore-Chennai, and Kolkata-Dhanbad expressways. PPPs are to be used to

raise funding.

The country’s PPP Appraisal Committee (PPPAC) has also approved several road projects. In August

2011, the PPPAC approved 10 roadworks projects, worth a total of US$1.1bn, according to INFRAnews.

The proposals approved include two-laning the road connecting Bikaner to Suratgarh and four-laning the

road between Vijayawada and Machlipatnam, on a BOT basis. In September 2011, the PPPAC approved

five road and highway infrastructure projects, worth a total of INR70bn (US$1.41bn). The road projects,



which have secured approval, encompassed the Agra-Etawah, Rampur-Kathgodam and Raipur-Bilaspur

highway projects. The PPP Approval Committee, chaired by Economic Affairs Secretary R Gopalan, has

also directed the relevant ministries and departments to update status reports on various PPP

infrastructure projects that were approved by the panel in earlier sittings.

A key road project tendered in 2011 is the 555.5km Ahmedabad-Udaipur-Kishangarh expressway-

widening project, a key part of the Golden Quadrilateral, a 5,846km expressway network that links India's

four largest cities – Delhi, Mumbai, Chennai and Kolkata. In July 2011, GMR won the contract to

construct the road-widening project, which will stretch from the city of Kishangarah in Rajasthan to the

city of Ahmedabad in Gujarat via the city of Udaipar. It will be completed through a PPP and is estimated

to cost around INR57bn (US$1.26bn). More than 40,000 vehicles are believed to travel on this section,

making the 26-year concession a lucrative one for the successful bidder, according to the Economic

Times. The Ahmedabad-Udaipur-Kishangarh expressway-widening project is the single-largest highway

project released so far by NHAI, both in terms of value and length, and is the first of nine such planned

highway projects.

This strong project pipeline is positive for the sector, as overseas private funds continue to show a great

appetite for investing in India’s roads. In May 2011, Spanish-based Isolux Corsan and Morgan Stanley

Infrastructure formed a US$400mn joint venture (JV) to target road projects in India. Both parties will

invest US$200mn and Isolux will incorporate three of its previous BOT road concessions, worth a

combined US$1.6bn. The three projects have secured financing and are expected to be completed in

2012/13, with an 18 to 30-year concession period. In June 2011, Indian financial services firm

Infrastructure Development Finance Company (IDFC) and Malaysian state investment company

Khazanah announced that they were set to form an infrastructure development JV, with an emphasis on

road projects in India. The JV's first investment will be in Jetpur Somnath Tollways , a special purpose

vehicle (SPV) that holds the concession to add four lanes to the Jetpur-Somnath section of the National

Highway-8D in Gujarat.

Ports

A major element of transport infrastructure within India – and an area that is expected to grow

considerably – is India’s ports. The country has 13 major ports and 187 minor ports along its extensive

coastlines. The 13 major ports account for about 67% of the country's external sea trade and 569.9mn

tonnes of cargo for the year ending March 2011.

The most important ports are located at Chennai (Madras), Kochi (Cochin), Jawaharal Nehru, Kandla,

Kolkata (Calcutta), Mumbai (Bombay), Sikka and Vishakhapatnam. The major ports are operated by port

trusts set up by central governments, while the minor ports tend to be operated by state authorities.

Efficiency levels at Indian ports are relatively low. While the total number of berths appears to be

adequate to deal with current cargo turnover, the use of mechanised equipment for loading and unloading



operations is limited, meaning that turnaround times are quite high and handling costs for general cargo

and for containers are also high.

India's rapidly expanding trade requirements are expected to put immense strain on the country's existing

port infrastructure, with India's Planning Commission predicting tonnage throughput at 12 major ports to

double to 1bn tonnes by 2012, according to Bloomberg. Meanwhile, India's largest government-

controlled east- and west-coast container ports, Kolkata and Jawarhalal Nehru - which serves Mumbai -

have experienced congestion in recent weeks. This congestion puts India's businesses at a disadvantage

compared with regional competitors in countries such as China. M Unnikrishnan, Managing Director of

Thermax, a power-equipment maker, is quoted by Bloomberg as saying: 'It takes 45 days transportation

for incoming cargo for me and a similar time when I send it to my customers overseas. The Chinese can

possibly do it in seven days.'

The private sector is being targeted to provide much of this investment, and in June 2011, the government

announced plans to award contracts for 24 projects across the country, with a combined capacity of

232mn tonnes per annum. According to Bloomberg, India is aiming to invest US$60bn into its ports by

2020 as part of Prime Minister Manmohan Singh's wider US$1tn investment in the country's choked

transport and power networks. The aim is that the investment will help India's ports' handling capability

grow from 963mn tonnes in 2010 to 3.1bn tonnes in 2020.

Despite undeniable opportunities in India’s port sector, bureaucratic inconsistencies and issues related to

competitiveness are presenting a number of deep-rooted obstacles in the country’s port sector. In late

2009, two container terminal auctions were dropped, both of which had encountered problems with

companies that were dissatisfied with the reasons given for their ejection from the tender process and

subsequently took the respective port trusts to court.

Issues related to competitiveness arose again in 2011, with regard to a 30-year concession to develop the

fourth container terminal at the Jawaharlal Nehru Port, India's largest port in terms of box throughput.

The INR67bn (US$1.5bn) BOT project, which is managed by the Jawaharlal Nehru Port Trust (JNPT),

originally received government go-ahead in January 2010, but has since suffered numerous delays due to

a number of legal hurdles.

The project first faced a legal challenge mounted by the world's third-largest container terminal operator,

APM Terminals (APMT), which sought to be allowed to bid for the project – the company was initially

barred as it already operates a terminal at the port. Although APMT was finally allowed to bid in May

2011, it announced in June that it was pulling out of the process. It has since announced that once it was

qualified to bid and allowed to see the tender documents, it became apparent to the company that the

fourth terminal would be 'financially unviable'.

Following the APMT saga, the project faced another legal challenge, when the Adani Group, the

operator of the port of Mundra, was also excluded from the initial bidding for undisclosed security



reasons. The company, through the Mundra Port Special Economic Zone (MPSEZ) company, is

challenging this in the courts. A petition against the decision could have significantly delayed the project

as the validity of the existing bids from five different parties was due to expire on June 30 2011.

However, not wishing to lose any more time, the JNPT went to the Mumbai High Court, seeking to open

the bids early. As the MPSEZ was not the highest bidder, it is now seeking permission to award the

contract to ABG and PSA.

Another example which highlights the problems in India ports sector is the exclusion of certain countries

from bidding on projects based on national security concerns. Since 1997, Chinese firms, or groups with

Chinese connections, have been banned from participating in Indian port projects, according to Mint. In

February 2009, Mint reported that firms from the UAE had also been banned. However, according to

Mint, this regulation is enforced inconsistently, as some companies are allowed to participate and others

are not. In addition, certain ports such as the proposed Vizhinjam International Seaport and Container

Transhipment Terminal are subjected to India's strict cabotage rules, which only allow domestic shipping

companies to operate along the country's coastline.

A further threat to India's port sector comes from bureaucratic inconsistency. In August 2009, India's

Ministry of Environment and Forestry imposed a three-month moratorium on proposals for new ports and

harbours unless they were expansions of existing projects. The moratorium is in place until the ministry

develops a policy for assessing the impact of new port projects on the country's coastline. However, at the

same time, the Shipping Ministry is pushing to get clearance for port projects, and the Finance Ministry

has requested that it stick to the original model concession agreement for ports, according to the

Economic Times.

Another issue that is dampening investor interest in the sector is the lack of sophistication in its policy

framework. In June 2011, India's Planning Commission and Shipping Ministry started talks to revise the

model concession agreement (MCA) for PPPs in port projects, as the framework, which was originally

based on the MCA for the roads sector, was found to be unfeasible and unattractive to investors. The

dialogue to alter the PPP policy for port projects comes after private investors pulled out of a project to

build a new container terminal at the Mangalore Port. As a result, the New Mangalore Port Trust, the

corporate entity in charge of the project, will have to finance and implement the civil infrastructure for the

terminal through public funds, which is contrary to the government's original plan to use the PPP model

for all new port projects. According to India's Shipping Secretary, K Mohandas, the Mangalore port

project was affected by 'unrealistic tariff structures' fixed by the Tariff Authority for Major Ports. He

latter stated that only 'minor changes' have been proposed to the MCA and it is unlikely to lead to a

complete overhaul of the policy.

The port sector also faces stiff financing practices implemented by the banks due to substantial risks.

According to the joint secretary in India's Shipping Ministry, loans made to port projects typically have a

clause that allow banks to revise interest rates after the first two years, thus creating significant financial



risks for investors as port projects typically take years to be implemented. Port projects or project

developers are also unable to get a credit rating for the first few years of the project, which results in a

penalty of an additional 1% of interest to be paid for loans. Lastly, unlike roads, port projects don't get

any viability gap funding from the government, thus private developers need to raise the initial capital

expenditure for the project on their own.

In October 2011, it was reported by the Economic Times that the union government's proposal to come

out with the Indian Ports Bill for replacing the existent Indian Port Act, 1908 and the Major Port Trusts

Act, 1963 in order to corporatise the port sector, faced opposition from various stakeholders, including

maritime states. The maritime states are concerned that the Bill would not only curtail the state's right

over the ports under their territorial limits, but also adversely affect the port and fishing development

activities.

While these issues do not detract from the opportunities in India’s port sector, they highlight that

investors should be aware of the risks related to India's immature PPP framework and the inconsistencies

associated with bureaucracy and legal regulations.

The Indian government is also looking to attract more cruise ships to Indian ports. In October 2011, it was

reported by the Economic Times that the Ministry of Shipping has set up a steering committee to looking

into this issue. The Ministry has identified five ports – Mumbai, Mangalore, Kochi, Chennai and

Tuticorin – as potential cruise ship destinations, and are working on plans to attract investments to

improve the facilities in these ports. However, one key stumbling block is the high port charges for

passenger ships, where, according to Anand Sharma, Director at Mantrana Maritime Advisory, port

charges for passenger ships are very high because they have a higher tonnage as compared with other

vessels. The India government had set a target of 1mn cruise passenger landings for 2010, but local media

sources state that almost no landings took place, according to PortWorld.

Railways

India has railways totalling a length of 64,015km, of which approximately 82% is broad gauge

(52,808km). About 28% of the total railway system is electrified. India has the world’s fourth-largest rail

network after the US, Russia and China, and the second-largest under single management.

India’s railway sector has suffered from underinvestment (only around 6,500 miles of new track were laid

in over 50 years) and the Ministry has a poor track record of completing projects on time and within

budget. According to figures (December 2010) from India's Ministry of Statistics and Programme

Implementation, 24 railway projects are proceeding on schedule, while 26 projects are delayed. At the

same time, 85 out of 147 railway projects suffer from cost overruns.

There is, however, positive news for the sector, with the Indian Ministry of Railways having announced

in June 2011 that it planned to conduct the sale of INR100bn (US$2.2bn) of tax-free bonds in India. This

was due to occur by September 2011, and it is hoped that the move that could go a long way towards



addressing the perennial problem of financing in the railway sector. The offering will be conducted by the

Ministry's financing arm, Indian Railway Finance Corporation (IRFC), and will be divided between a

private placement and a subsequent tranche for retail investors. The funds raised from the sale will be

used to expand and modernise India's railway network, with some of the expenditure plans including

INR53bn (US$1.2bn) to be spent on new railway lines, INR21bn (US$468mn) on widening tracks and

INR8.5bn (US$189mn) on railway electrification.

Meanwhile, multilateral financial institutions have shown an interest in helping India to develop its

railway network. In September 2011, the Asian Development Bank (ADB) will provide US$500mn to

Indian Railways (IR), the state-run organisation responsible for most of India's rail transport, The loan

will help IR in its aim to add 15,000 miles of new lines to the existing network over the coming decade,

and will be issued in a number of tranches, the first being US$150mn with a 25-year term. According to a

statement from the ADB, the funding will be targeted at routes between the major Indian cities of

Chennai, Kolkata, Mumbai and New Delhi. It will go towards new lines, the installation of new

signalling, and the electrification of existing track.

In June 2011, India's long-delayed national freight railway project, the Dedicated Freight Corridor

(DFC), finally entered the tendering process. The Dedicated Freight Corridor Corporation of India

(DFCCIL), the special purpose vehicle in charge of the US$17bn dedicated freight railway corridor

project, has decided that the project's 1,490km western section will be implemented by a JV between

Indian and Japanese infrastructure companies. Prospective developers for the US$6.7bn project, also

known as the Western Corridor, will be selected through a bidding process, where pre-qualification bids

for the first phase – a 1000km stretch from Rewari in Haryana to Vadodara in Gujarat – were to be

accepted starting in mid-June. The Western Corridor, which is funded by Japan's Overseas Development

Assistance coordinator Japan International Cooperation Agency (JICA), is expected to begin

construction in March 2012 and should be completed by December 2016.

The DFC consists of six freight corridors (railway lines), but only two corridors will be launched initially.

They are the 1,800km Eastern Corridor, which will run from Ludhiana in Punjab to Dankuni in West

Bengal, and the 1,490km Western Corridor, which will run from Tughlakhabad in New Delhi to the Navi

Mumbai port in Maharashtra. The two freight corridors are estimated to be worth INR770.0bn

(US$17.4bn) and would involve the construction of high-speed tracks, which could transport goods at up

to 100km/h. The initial contracts on offer would involve engineering works for 650km of the Western

Corridor and 350km of the Eastern Corridor. The DFCCIL was expected to invite pre-qualification bids

for the Western Corridor in May 2011, while pre-qualification bids for the Eastern Corridor are currently

being evaluated (there are 27 bidders for the Eastern Corridor, according to latest documents from

DFCCIL). Both freight corridors are expected to be completed by December 2016.

The benefits of the DFC are undeniable. The demand for additional rail freight capacity in India has

surged over the past few years, due to the rapid growth in the Indian economy. The country's current



freight transport system is straining under this surge in demand, and the construction of the DFC will

alleviate these demand pressures and provide a fast and efficient means of moving freight between

different states. Furthermore, many of these infrastructure companies such as Tata and Reliance have

steel production and petrochemicals operations throughout India. These operations need an efficient

freight railway system to ensure raw materials and finished goods are delivered within a specified

timeframe.

While there are compelling factors driving the need for the DFC – i.e. India’s rapid economic growth and

the need for a fast and efficient means of moving freight between different states – it has been the

perennial problems associated with raising the necessary funds and acquiring land that have stalled the

project. The land acquisition process for the DFC started in 2008 and the project was originally slated for

completion by 2013. India secured a INR300bn (US$6.8bn) loan from JICA for the Western Corridor in

March 2011, while the World Bank is expected to lend about US$2.4bn for the Eastern Corridor, having

provided US$975mn in June 2011. Meanwhile, the DFCCIL has reported that 90% and 50% of the land

needed for the first phase of the Western and Eastern corridors respectively has been acquired.

Another important railway line is the connection between India and Bangladesh. In September 2011, the

Indian government approved a INR2.6bn (US$53mn) rail link to Bangladesh, reports News Resources

International. The 15km line will link Agartala in India to Akhaurah in Bangladesh, which has links to the

Chittagong international sea port. The line, which could potentially facilitate the transportation of India

exports, is due to be completed by 2014

Urban Railways

Urban railways are also expected to experience significant growth over the long term as India’s

population continues to urbanise and demand for public transportation services grows. According to UN

data, the urban/rural split in India was 28% urban to 72% rural in 2000; by 2011, BMI estimated that the

urban population reached around 30% of the total, meaning that 376mn people now live in India's cities.

This trend is set to continue through 2020 (33.5% of the population) and 2030 (38%), while India’s

finance ministry believes that over 500mn people will be expected to live in urban areas by 2020.

India's rapid economic growth has significantly increased the size of its middle-class and their demand for

car ownership. Delhi in particular is suffering from severe traffic congestion because it has the highest

number of vehicles per square kilometre in India, with more vehicles than Mumbai, Kolkata and Chennai

combined. Therefore, in order to match this urbanisation rate and to keep the economy functioning in

India's cities, we believe that investment in urban transport such as commuter railways and monorails will

be crucial to improving traffic conditions. The appointment of Kamal Nath as Urban Development

Minister is an indication of a change in the government's attitude towards private sector involvement in

this sector. Indeed, Nath was widely credited with harnessing greater private sector involvement in his

previous post at the Road Transport Ministry.



In July 2011, the Finance Ministry was readying a blueprint on financing of urban transport systems,

favouring a new PPP approach as opposed to the existing model of joint development by the Planning

Commission and states, which often lead to cost overruns and projects delays, due to lack of coordination

and oversight. The PPP approach is also favoured because the Planning Commission and Urban

Development Ministry has limited fiscal strength to meet the necessary investment. A recent study by

Wilbur Smith Associates for the Ministry (cited by the Economic Times) estimated that the total funding

required for transport projects in 87 cities in India by 2030 is INR4354bn, approximately INR230bn a

year. India’s fiscal budget for 2011/12 has only allocated INR80bn to the Urban Development Ministry.

There has been significant progress in the development of urban railway systems in several major Indian

cities in the second half of 2011. In August 2011, the Indian government approved the third-phase

expansion of the Delhi Metro, according to Railway-Technology. The latest phase of the project has been

budgeted at US$7.7bn, and will service 67 stations and 15 interchange points across its lines. By 2016,

the Delhi Metro is projected to have capacity for 3.9mn passengers, which will almost double to 6.5mn by

2031.

In September 2011, it was announced that the first phase of construction of the Mumbai Metro rail line

was set to be completed by the end of 2012, reports News Resources International. The Mumbai

Metropolitan Region Development Authority has said that the US$510mn project is 80% complete.

Construction is being led by Indian utilities company Reliance Infrastructure. The entire line will total

146.5km, and is projected to cost US$4.3bn.

In October 2011, the first metro line (6.7km) in Bangalore, known as the Namma Metro, became

operational, reports Yahoo. The project begun in 2006, but suffered delays and budget problems. The

remaining 42.3km network is set for completion by March 2013 and has received several loans for the

project. India's Housing and Urban Development Corporation (HUDCO) has approved an INR7bn

(US$139mn) loan for the project in October 2011, while the Asian Development Bank provided a

US$250mn loan in April. The project has also obtained INR6.83bn (US$138mn) from the Karnataka

government from the 2011-12 budget, while, Bangalore Metro Rail Corporation (BMRCL) has already

invested INR40bn (US$814mn) in the project.

Airports

The country has been developing its airport sub-sector, not only for the transport of goods, but also to

accommodate the growing numbers of international business travellers and tourists. India currently has

352 airports, of which 249 have paved runways.

Investment in airports has been a clear outperformer in the transport sector, and this is driven by a strong

project pipeline and investor confidence. Airports were one of the few sub-sectors to have investment

targets revised upwards following the mid-term appraisal of the 11th Five-Year Plan (2007/08-2010/11).

While transport investment targets declined by 20% overall, conversely, investment targets for airports



were raised from INR310bn (US$6.8bn) to INR361bn (US$7.9bn). This is a clear indication that funding

is flowing into the sub-sector, perhaps due to better planning procedures, but also because of the

willingness of the private sector to invest.

Airport infrastructure is being upgraded to support both international air travel and domestic travel. An

expansion in the number of International Airports in Tier I cities has been seen, including a new airport in

Navi Mumbai, the satellite city of Mumbai, as well as expansions at existing airports. As for Tier II and

Tier III cities, demand for air infrastructure is also on the rise as these cities grow in wealth and

population. However, it remains to be seen if there is sufficient air traffic to support private investment or

create financially viable PPPs.

In May 2011, momentum for the construction of the Navi Mumbai international airport took a big leap

forward, with the project steering committee – comprising civil aviation and state government officials –

granting final approval of the airport's draft master plan. The approval means that the state urban

development authority, the City and Industrial Development Corporation of Maharashtra (CIDCO), can

start the bidding process for the INR87.2bn (US$1.9bn) project. The tendering process was expected to

start in July 2011, but was postponed after delays to land acquisition. Construction of the airport will be

carried over four phases, with the first phase to begin in 2012 and be completed by 2014. The Navi

Mumbai airport is proposed to be developed through public-private participation, in which the CIDCO

and the Airports Authority of India will each hold a 13% stake in the airport and the rest is to be held by

the private developer. The airport is expected to have two runways and will be designed to accommodate

new extra-large aircraft.

The proposed airport is necessary due to the growing size of Mumbai and its satellite cities in the

neighbouring Thane district (the Navi Mumbai city, located just 10km away from Mumbai, is one such

city). The city and suburban districts of Mumbai have a combined population of 12.4mn people and have

one airport, the Chhatrapati Shivaji International Airport (CSIA), to meet its air traffic demands – this

airport is currently able to handle 25mn passengers a year and is expected to reach its saturation mark of

40mn passengers a year by 2016. While the latest data from the Indian government shows that the

Mumbai urban area grew at a moderate rate over the past decade (the Mumbai suburban district grew by

8% in 2001-2011), the Thane district grew by 35.9% to reach a population of 11.0mn over the same

period. This suggests that the Mumbai urban area could be reaching saturation level and the city's

growing population is moving towards the satellite cities in the Thane district. This trend is likely to

continue over the next decade, making the construction of a new airport in Navi Mumbai – the largest of

Mumbai's satellite cites – a logical decision. As Mumbai's population become increasingly affluent, air

transport will gradually become the preferred means of travel and the growth in aviation facilities needs

to keep pace to meet this demand.



The Navi Mumbai airport project is expected to be fiercely contested, as it is the largest greenfield airport

project in India since the privatisation of the airport sector in 2006. Although the existing operators of the

CSIA, a consortium led by India-based GVK, have first right of refusal, this clause does not guarantee

GVK will win the bid, as its offer cannot be less than 10% of the highest bid received. We expect bidders

to not only include established players such as GVK, Reliance and GMR, but also domestic companies

that are not heavily exposed to the industry, but are eager to capitalise on India's booming aviation sector.

These companies include HCC, Gammon and infrastructure financier Infrastructure Leasing &

Financial Services. A number of international airport operators, such as Singapore-based Changi

Airport and France-based Aeroports De Paris, have also expressed interest in the Navi Mumbai airport

project, but we believe that the project will likely go to a domestic player or at least a domestic-led

consortium.



Major Projects Table – Transport

Table: Major Projects - Transport

Project Name Value (US$mn) Capacity/Length Companies Timeframe Status

Airports

Sikkim airport 54 na Punj Lloyd 2011 Contract Awarded

Modernisation of the Kolkata airport 980.4

20 mn passengers na -2010 Work underway

International airport at Navi Mumbai (first phase) 1950

40mn passengers

Airports Authority of India, City and

Industrial Development

Corporation (CIDCO) July 2011-2014

Tendering process to start

in Dec 2011 due to delays in land

acquisition (October 2011)

New International Airport near Ludhiana, Punjab 4200 na na na Approved

Two new airports: Shrawasti and Kushinagar, UP na na na na Plans announced

International Airport, Meerut City, UP na na na na

Gov has allotted funds for land

acquisition

Greenfield Airport Maharashtra 64.8 na

IRB Infrastructure Developers 2009-2011

Concession awarded

Shimoga, Gulbarga Airports na na Maytas

Infrastructure 2009- At planning stage

Indira Gandhi International Airport, New Delhi, modernisation and management of airport 2600

34 mn passengers GMR Group 2007 - 2034

New terminal completed

Thiruvananthapuram International Airport expansion Phase II 53

1.95mn passengers

Consolidated Construction

Consortium Ltd na Project awarded

Chennai airport expansion 50.7 23 mn

passengers

Consolidated Construction

Consortium Ltd 2008-2011 Project awarded

Upgrades to the Tuticorin Airport na na na 2008-

Project announced by

the Indian Chamber of

Commerce and Industry in

Tuticorin

Maharana Pratap runway expansion na na na 2008-

Land has been acquired

Chhatrapata Shivaji International Airport (Mumbai) modernisation 2000

20 mn passengers

MIAL, GVK, ACSA 2008- April 2013

Under construction;

December 2012 completion date

to be delayed by 3-4 months (June

2011)





New airport at Bijapur, Karnataka na

876000 passengers MARG Limited na

Contract awarded

Karnataka regional airports (Bellary, Bijapur, Hassan, Shimoga and Gulbarga) 261 na na na

At planning stage/governmen

t seeking PPP partners

International airport (BOT) concession in Goa 400 na na na Awaiting tender

Bengaluru International Airport terminal 1 expansion 214

17 mn passengers na

Due to begin in September 2010

Plans for transport links

and land approval in

progress

Bangalore and Mumbai airport expansions 1000 na

GVK Power & Infrastructure na

Expansion plans announced

International Aviation Hub, Greater Noida na

3.9 mn passengers na na

Plans under review

Kushinagar international airport na 1mn passengers na na

Project approved for PPP

procurement (October 2010)

Kerala Airport for Guruvayoor Sri Krishna temple na na

Airports Authority of India na

Four construction Sites Identified

Cochin International Airport expansion (includes a railway station and metro extension as well as leisure facilities, a hotel and a hospital) 24.3 5 mn passenger

Cochin International

Airport 2010- At planning stage

Kannur International Airport, Kerala 252

1.3mn passengers na

2010-2014 (first stage)

Under construction (July 2011); Runway to start construction

during 2012

Overhaul of Biju Patnaik Airport, Bhubaneswar 32.2 na

Airport Authority of India

2010-November 2011

Project announced

Cargo facility at the Delhi International Airport (DIAL) 35

37 mn passengers Celebi Holdings 2011-2015 At planning stage

Vijayawada airport expansion, Andhra Pradesh 45 na na 2011-

Land acquisition approval received; Seeking

US$17mn grant for land

acquisition from state government

Harni airport expansion (new terminal) 255 na NA

july 2011 - end 2012

Construction to start July 2011

Airport terminal expansion, Bangalore 221

17mn passengers

Larsen & Toubro (L&T)

June 2011 - December 2012

Contract awarded





Jharsuguda airport, Orissa na na AirPort Authority

of India June 2011 -

Construction to start (June 2011); 191 acres of land

allocated

Air Traffic Control tower complex, part of Delhi International Airport 77.7 na na

July 2011 - November 2013

Inviting bids for contract (July

2011);

Ports

LPG import terminal at Ennore 57 800000 tonnes Punj Lloyd na

Contract awarded

Tuticorin Port expansion project, Tamil Nadu 225 600000TEU

Tuticorin Port Trust

2010- March 2011

Under construction; On

schedule to increase capacity

to 55mn tonnes

Coal berth at Paradip Port 98 16mn tonnes

Essar Shipping Ports and Logisitics 2009-2012

Construction awarded

Jawaharlal Nehru Port 4th container concession 1500 6mn TEU

PSA International,

ABG Shipyard Limited,

Jawaharlal Nehru Port Trust (JNPT) July 2011 -

Concession awarded (July

2011)

Gangavaram port expansion 147 26 mn tonnes na 2009-2011

Plans to secure a loan for the

project

Krishnapatnam port 161 100 mn tonnes 3i 30 year

concession na

Sea port in Bhadrak 322 3 mn tonnes Aditya Birla

Group na MoU signed

Dharam Port in Orissa 505.5 100mn tonnes Tata Steel,

Larsen & Toubro -April 2010 Construction

underway

Mega terminal and Chennai Port 800 4 mn TEU na

2010- (Seven years)

Plans confirmed by Indian

government; 30 year concession

offered

Vizhinjam International Container Terminal, Kerala 1120 4.1mn TEUs

Vizhinjam International

Seaport, Shipping

Corporation of India 2012 - 2015

At the tendering stage; Bidding

deadline extended to Aug

2011; Environmental

study completed by 2012

Hazira Port cargo berthing facilities 400-500 na

Hazira Port Private Ltd. na At planning stage

International Container Transhipment Terminal - Vallarpadam, Kerala 500 5.5mn TEU DP World 2005-2010

Under Construction/

Possibly to open in August 2010





Coal terminal at Mormugao, Goa na 6.5 mn tonnes Mundra Port 2009-2012

Concession Awarded

Paradip port new deep draught na na

Blue Water Iron Ore Terminal na

concession agreement

signed in July 2009

Dredging of Kandla Port na 93 mn tonnes na 2008- Project awarded

Machilipatnam Deep Water Port 343 17 mn Tonnes

Maytas Infra Ltd, Nagarjuna

Consortium Company, SREI

Infrastructure, Sarat Chatterjee 2008-

Construction underway

All Weather Port Project 299.82 54 mn tonnes

Punjab National Bank/ Bank of

India/ State Bank of India/ State

Bank of Travancore/ Dena Bank/

Oriental Bank of Commerce/

Union Bank/ Indian Bank and

UCO Bank 2010 - 2011 Loan secured

Ennore Port Container Terminal 312 1.5 mn TEU

Grup MarAtim TCB, ObrascA3n

Huarte Lain (OHL), Lanco

Infratech, Eredene Capital 2010-2013

BOT contract awarded (June

2010)

Mundra port expansion and SEZ 1200 30 mn tonnes Adani Group 2010-2015

Project announced in August 2010

Kattupalli Container Terminal na 1 mn TEU

Larsen and Toubro (L&T)

Scheduled to be completed by

December 2011/January

2012

Operation and maintenance

contractor to be chosen near end

of 2010/early 2011

New Mangalore Port Trust new container terminal 63 2500 TEU

New Mangalore Port Trust 2011 -

Civil infrastructure

financed by public funds;

Seeking private investors for

handling equipment

Ennore Port dredging na 34 mn tonnes

Dredging Corporation of

India 2010-2012

Contract awarded

(October 2010)

Indian Machilipatnam Port na na na na At land

acquisition stage





Ponnani port expansion 171 na High Valley Infra

Projects na

At the bidding stage (High Valley Infra

Projects sole bidder)

Azhikkal port, Kannur 104 180000 tonnes na 2011-

Mundra Port withdraw bid;

Tender process to be relaunched

Dhamra Port Project na 100 mn tonnes Tata Steel,

Larsen & Toubro - 2011

Completion date delayed till

January 2011

Visakhapatnam port na 63.9 mn tonnes

Coal India, Port of

Visakhapatnam 2010-

Partnership formed to expand

coal import capacity

Six ports in Kerala, Tamil Nadu, Andhra Pradesh and Orissa na 200mn tonnes Adani Group 2011-2015

At planning stage; Holding

negotiations with state

governments

Expansion of four ports (Jawaharlal Nehru port, Kochi port, Chennai port, Visakhapatnam port) 63000 na na 2010-2020

Earmarked by Indian ministry of

shipping

57km Kutch Canal Construction Project 75 na

SardarSarovar Narmada Nigam,

Hindustan Construction January 2013

Construction and five years

maintenance contract awarded

International Container Transhipment Terminal, Vallarpadam Island na 4mn TEU na 2011-

First phase (1mn TEUs per year)

completed

Iron ore export terminal 159.57 46 mn tonnes Mormugao Port

Trust (MPT) August 2011 -

March 2014 14 bids received (February 2011)

Gopalpur Port expansion (0.7mn tonnes to 12mn tonnes) 282 4.3 mn tonnes na 2011-2013

Received government

approval; Have plans to expand to 60mn tonnes

of cargo by 2022

Beypore port, Kerala 36.9 100000 tonnes na 2011-

Tendering process

relaunched

Nargol Port tender 391 na

Adani Group, HCC, GVK, GMR

and ABG Shipping

Gujarat Maritime Board intends to

sign a letter of intent (LoI) by

July 2011

18 qualified bidders

shortlisted

Indian Haldia Dock II construction project 289 16mn tonne

Kolkata Port Trust 2011-

Kolkata Port Trust seeking

private partners; Construction include four berths (4mn





tonne each)

New box terminal, Diamond Harbour, Kolkata Port na 20mn TEU na 2011 -

Set to invite bids (June 2011)

Kuda port project, Gujarat 337.2 na Indian Potash July 2011 -

To seek government

approval and port clearance for port

project (July 2011)

Rail

Delhi Metro Extension 32 na KMB, Era Infra

Engineering 2008-September

2010 Completed

Chennai Metro project 3500 8.6km

Delhi Metro Rail Corporation

(principal advisor) 2009-2015

First phase under construction/

Japan loan agreed for Phase

II

Delhi-Gurgaon Metro 209 6.1km

DLF, IL&FS, ITNL ENSO Rail

Systems 2009-2013

Achieved financial closure

(June 2010)

Indore-Dahod broad-gauge railway line 230.62 na na na

Approval granted by the Planning

Commission

Hyderabad Metro rail PPP 2630 71.16 km

Larsen and Toubro; L&T

Hyderabad Metro Rail June 2011-

Construction to start; Financing

fully secured; Rolling stock

contract awarded in September

2011

Leh to Bilaspur rail project, Himachal Pradesh 520 498 km na 2011-

Feasibility report finalised

Mumbai Metro Line-1 (first phase), Versova (west Andheri) - Ghatkopar 510 11.1km

Anil Ambani Group, Veolia

Transport, Reliance

Infrastructure 2008- end-2012

80% completed (Sep 2011);

Operational by end-2012

Six railway lines and gauge conversion across India 681.03 na na 2013 At planning stage

Mumbai Metro Line-2 (first phase), Charkop-Bandra-Mankhurd 2300 31.8km

Reliance Infrastructure,

SNC Lavalin 2011-2016

Preliminary survey

completed; Construction to start in Q12011

Namma Metro, first phase (involves a 4.9km underground section and a 6.5km viaduct section), Bangalore, Karnataka province 2190 35.6km

Bangalore Metro Rail Corp. (BMRCL)

2006- March 2013

US$250mn loan from ADB,

US$814mn from BMRCL,

US$139mn from HUDCO (Oct

2011)





High-speed freight railway line, Western Dedicated Freight Corridor from Mumbai to Delhi 9390 (6700) 1490km

Japan International Cooperation

Agency (JICA), Dedicated

Freight Corridor Corporation of

India (DFCCIL), Indian Railways

March 2012- December 2016

First phase (1000km)

undergoing tendering

process; JICA to loan US$6.64bn;

90% of land acquired

Freight rail linking Pakistan and Bangladesh via New Delhi na 14km na 2010-

Plans being discussed

Kochi Metro rail extension 654 na Delhi Metro Rail

Corporation na Preliminary

works underway

Rail bridge linking International Container Terminal at Vallarpadam Island with mainland Kochi na 4.62 km na -Nov 2009

Construction underway

Kadapa- Bangalore railway na 174km na 2008- Project

announced

Chennai Egmore- Madurai line electrification na 222 km na 2008-2011

Construction to begin on

Villapuram and Dindigal stretch

Delhi Metro Airport Express Line (Six stations), linking Indira Gandhi International Airport 580 22.7 km


CAS - 2011

Operational with four stations; Due to be inaugurated

in September 2011

Bangalore (Namma) Metro, 2nd Phase, Karnataka province 3960 70km

Bangalore Metro Rail Corp., Delhi Metro Rail Corp. January 2011-

Preliminary work underway; Type

of railway line (underground or

elevated) undecided

Eastern Dedicated Freight Corridor from Ludhiana in Punjab to Dankuni in West Bengal 8000 1800km

Dedicated Freight Corridor

Corporation of India (DFCCIL), Indian Railways

October 2011-2016

343km Khurja-Kanpur first

phase to start tendering process;

US$975mn loan approved from

World Bank (

North Front Railway tunnel 67.3 na

Hindustan Construction,

Coastal Projects na Contract awarded

Delhi Metro Phase II Expansion 4200 100 km na

Completion date was extended to September 2010

Small section of track still not

open; 2.57km Anand Vihar-Vaishali line

operational July 2011

Metro rail connection 666.7 na Cidco, Mumbai 2010- At planning stage





between Mumbai and Navi Mumbai

Metropolitan Region

Development Authority

Delhi Metro link, part of its 65km Phase III extension plans 178.5 3.2km Delhi Metro 2011-2014

Awaiting final clearance

Construction of rail track and upgrading of existing rail facilities from power plants located in Maithon, Rajpura, Korba and Jharsugud 246.8 34km Larsen & Toubro 2011-

Contract awarded

Chennai Metro Rail project (track work on corridors I and II), Tamil Nadu 98 105km

Larsen & Toubro (L&T), Alstom

Transport, Alstom Projects

India 2011-2015

Under construction;

First phase involves 21km of

elevated track due by end-2013

Delhi Metro Phase III Extension

6750 (include taxes and duties) 108km na 2011-2016

Revised plan approved by

India government;

Allocated US$158mn from India's 2011/12

budget

Part of the Chennai metro system (include two stations) 567 5.5km

Afcons, Transtonnelstroy

February 2011-April 2015

Contracted awarded

Rail and road project for Sagar Island port, Kolkata 438 40 km

Indian Railways, Kolkata Port

Trust 2011-

Feasibility study to start in H1

2011

Pune metro expansion 507 70 km na na

Waiting for central

government approval

Kanchrapara rail project, West Bengal 331.7 na na 2011-

At tendering stage; Eight companies shortlisted

Railway link between Tripura state capital Agartala with Gangasagar in Bangladesh 54

15km (10km in Bangladesh) na

October 2012 - 2014

Funding provided by India and Bangladesh;

Plans approved (Sep 2011)

Navi Mumbai Metro (first phase from Belapur to Pendhar) 996 11.5km na

May 2011 to 2016

First phase to start work (May 2011); Phase 2 and 3 to start in

2015-16 and end 2030





Electrification system for east-west metro railway line (First phase, 5.77km with 6 stations; Second phase, 8.9km underground section with 6 stations), Kolkata state na 14.67km Siemens

2011- end 2013 (first phase), end

2014 (second phase)

Contract awarded by

Kolkata Metro Rail Corporation

(KMRC)

Electrification of Shoranur-Kannur line, Malabar 6.6 na KEC International

May 2011 - May 2013

Contract awarded

2 sections (Janpath to Mandi House; Janpath to Central Secretariat) of underground twin tunnels for Metro Phase III project 103 na

Pratibha CRFG JV, Pratibha

Industries, China Rail First Group June 2011 -

Contract awarded (June

2011)

Jammu-Udhampur-Katra-Qazigund-Baramulla railway line project, Kashmir valley 4120 345km Indian Railways

2011 - December 2017

Under construction; Construction include 11km Qazigund to

Banihal tunnel

Railway line from Dhamra Port to Jamshedpur steel plant na 62km na - June 2011

First line completed under

the Railways Infrastructure for Industry Initiative

& funded by private J

Monorail between the Dwarka metro station and Baprola, New Delhi na 4.5km

Delhi State Industrial and Infrastructure Development

Corporation (DSIIDC), Rail

India Technical & Economic

Services (RITES) June 2011 -

Awaiting approval from

state government (June 2011);

RITES to conduct feasibility study

60km-Bangalore monorail project (first phase) 500 16km

ITNL Enso Rail System (IERSL), Scomi-Geodesic June 2011 -

Deal agreed (July 2011); 74% financed by

IERSL, 26% by Scomi-Geodesic

Light railway line extension project (Sikanderpur Metro station to Golf Course Road), Gurgaon 488.5 7km

Rapid MetroRail Gurgaon (RMG),

ITNL Enso Rail Systems (IERS),

DLF Metro July 2011 -

January 2013

Feasibility study concluded (July 2011); Awaiting

government approval (July

2011)

Railway line linking the Hazaribagh railway station with Shivpur in Chatra, Madhya Prades na 49km

Indian Railway Ministry July 2011 -

Preliminary work underway (July

2011)

Ahmedabad-Mumbai-Pune railway PPP project 12720 634km na 2011 - 2021

Feasibility study completed (July

2011)

Monorail system running na 28 Km na na Preparation of a





from Balaramapuram to Kazhakootam in Thiruvananthapuram

feasibility study by National

Transportation Planning and

Research Centre (NATPAC)

Railway line (part of Dedicated Freight Corridor), between Mughalsarai, Uttar Pradesh and Sonnagar, Bihar na 120km


Corporation (DFCCIL)

August 2011 - end-2014

Under construction

Railway line (part of Dedicated Freight Corridor), between Surat, Gujarat and Vasai Road, Maharashtra na 140km


Corporation (DFCCIL)

March 2012 - end-2014

At tendering stage (August

2011)

Railway Sector Investment/Improvement programme 1144 na

Asian Development

Bank September 2011

- December 2018

US$500mn loan from ADB,

US$644mn from Indian

government (Sep 2011)

Mumbei Metro Line-3 (first phase), Colaba-Bandra na 20km na

September 2011 -

At planning stage (September

2011)

Mumbai Metro Line-3 (second phase), Charkop-Dahisar na 7.5km na

September 2011 -


2011)

Mumbai Metro Line-4 (second phase), Ghatkopar-Mulund na 12.5km na

September 2011 -


2011)

Mumbai Metro Line-5 (second phase), BKC-Kanjurmarg via Mumbai Airport sections na 19.5km na

September 2011 -


2011)

Mumbai Metro Line-7 (third phase), east Andheri - east Dahisar na 18km na

September 2011 -


2011)

Mumbai Metro Line-8 (third phase), Ghatkopar - Flora Fountain na 21.80km na

September 2011 -


2011)

Mumbai Metro Line-9 (third phase, undeground), Sewri-Prabhadevi na 4.8km na

September 2011 -

At planning stage, details

being finalised (September

2011)

Mumbai Metro Master Plan (three phases) 4300

146.5km (32.50km

underground) na September 2011

-

Line 1 under construction;

others at various stages of

implementation (Sep 2011)

Railway tunnel, (north-south through the Pir Panjal mountains), below Jawahar road tunnel 201.8 11km

Hindustan Construction

Company, India Rail October 2011 -

Completed (Oct 2011)





Namma Metro first phase (Reach-1), part of the 18.1km east-west metro line, Bangalore, Karnataka province na 6.7km

Bangalore Metro Rail Corporation

2006 - September 2011 Completed

Nerul-Belapur-Seawood-Uran railway line, Mumbai, Maharashtra state 285 27km na

November 2011 - 2015

Under construction, Financed by

MOR and Industrial

Development Corporation of

Maharashtra (Nov 2011)

Roads & Bridges

Upgrading Maharashtra-Goa and Goa-Karnataka road 4.31 122.87km na na Project approved

Road project, Mumbai 10.2 na PBA

Infrastructure na Contract awarded

Roads of the Thane district 60 na na na At planning stage

Elevated road in Kolkata city 67.86 8.14km Hindustan

Construction 2009-2012 Contract awarded

Four lane highway Maharashtra 94.29 336 km

IJM Corporation Berhad 2009-2012

Contract Awarded

Expanding road linking Hyderabad and Yadgiri 106.06 54km

Sadbhav Engineering na

Contract awarded

road project in Rajasthan 128 53km Reliance

Infrastructure 2009-2011 Contract awarded

54 Bridges in Maharashtra and Gujarat 130 200 Km Soma Enterprise na na

Ranchi-Hazaribagh stretch of NH-33 highway 135 71km

IL&FS Transportation,

Punj Lloyd 2009-2012 Contract awarded

Four lane highway from Haridwar to Dehradun 142.56 414.8km

Era Infra Engineering

Limited na Contract awarded

Road construction in Assam, Madhya Pradesh and Chattisgarh 146.21 na

Indian Telecommunicati

on Consultant India na

Contracts secured

Highway NH9 linking Pune and Sholapur 160 104.6km

Mytas Infra and IL&FS

Transportation Network 2009-2011

Contract awarded

Godavari River Bridge 180 2.7 km Rajahmundry

Godavari Bridge na At planning stage

National Highway 47 in Bihar 182.6 63.17km

Gammon Infrastructure 2009-2012

Contract awarded

Muzaffarnagar to Haridwar road 220.17 80 Km

Era Infra Engineering na

Contract awarded





Limited

Chennai Outer Ring Road 227.3 29.65km GMR

Infrastructure 2010- 2013 Under

Construction

Road development project (construction of around 1,000km of new roads, and the strengthening of 5,000km of existing road structures), Jharkhand 1100 1000km na

August 2011 - 2014

US$240mn loan from ADB;

Construction to start (August

2011)

Road linking Indore and Ahmedabad 339.31 155km

IVRCL Infrastructure &

Projects na na

Highway project Maharashtra 340 265km

Sadbhav Engineering,

Hindustan Construction,

Laing -2011 Contract awarded

West Bengal to Gangtok in Sikkim Highway 361 na na 2008-2011

Star Universal Resource Company

interested in the project

Renovation and automation of border check posts in Maharashtra 370 na

Sadbhav-Srei-Srei Sahaj na

Contract awarded

Construction of a six lane highway linking Pune and Satara 373 140 km

Reliance Infrastructure 2009-2012

Contract awarded

Hyderabad - Vijayawada road, Andhra Pradesh 497.05 181 km

GMR Infrastructure 2009 -

BOT contract awarded in June

2009

Road linking India and Nepal (Kathmandu to Birgunj, Terai plains) 900 na na 2009-2012


Landmark Worldwide shortlisted

Three road projects in Rajasthan, Maharashtra and Gujurat 937.9 na na na

Projects approved

Gujarat/Maharashtra Border-Surat-Hazira Port highway expansion na 133 km

Isolux-Soma Consortium na

Contract awarded in May

2009

NH-9 highway, Pune-Solapur section expansion na 110km

Navinya Buildcon and Atlantia na

Contract awarded in May

2009

Bangalore Ring Road na 62 km na 2008-

Tenders launching in

December 2008

Mumbai-Ramji Nagar Road na na na 2008- Tenders invited in October 2008

Chennai inner ring road na 5km na 2008- Project

announced





Surat-Dahisar Road na 239 km IRB Developers, Deutsche Bank 2008- Project awarded

Chilkaluripet-Vijaywada Road na 82.50 km

IJM Corporation Berhad, IDFC Ltd 2008- Project awarded

Chennai-Tada Road na 43.4 km Larsen & Toubro 2008- Project awarded

Gurgaon Kotputli-Jaipur highway na 225.6 km

Emirates Trading Agency LCC,

KMC 2008 Work to start by

2009

Deoli-Kota section of the National Highway No. 12, Rajasthan 182.5 83.04Km

GVK Developmental

Projects na

Contract awarded on BOT

basis

Delhi-Agra highway concession 626 180 km

Reliance Infrastructure

2010-2036 (including

construction period)

Concession awarded

Orissa BOT highway 194 88km Ashoka Buildcon na

Contract awarded in June

2010

NH-4 BOT expansion 102 79.36 km Ashoka Buildcon na Contract Awarded

Bakhtiarpur - Tajpur bridge 322 5.575 km na 2010-2015 Final BOT tender

phase

Bihar State Highways II Project 424 356 km ADB na

ADB loan for US$300mn

awarded

NH-1A road upgrade between Chenani and Nashri in Jammu and Kashmir province 548.9 41km

IL&FS Transportation

Networks 2011-2015 Contract awarded

Improvements on the Mizoram State Roads Projects 13 480km World Bank 2010-

Financing approved

Expansion of the Srinagar-Banihal highway, Jammu and Kashmir 225 67.76km

Ramky Infrastructure,

Jiangsu Provincial

Transportation Engineering 2010-

Contract awarded

highway project, Andhra Pradesh 362 188km

KMC Constructions,

SNC-Lavalin na At planning stage

Highway Project in Tamil Nadu 249.7 29.65 km

National Highways

Authority of India 2010-

Open for international

tender

27 roads along the Chinese border na 804km na 2010- At planning stage

Karnataka Highway Improvement Project 463 615km

Asian Development 2010-2014

US$315mn loan provided by ADB;





Bank

Bagodara-Wataman-Tarapur-Vasad road extension 223.03 101.9km

Gujarat State Road

Development Corporation,

GVK Power & Infrastructure

(GVKPIL) Construction

period 2.5 years GVKPIL named preferred bidder

Road development project, Chhattisgarh 498.9 1500km

Asian Development

Bank (ADB) December 2011-

332.6 loan provided by ADB;

US$166.3mn provided by the

state government

Three road widening projects (122.8km Barwa Adda-Panagarh section on National Highway (NH)-2, Jharkhand; Barasat-Krishnagar Section of the NH-34, West Bengal; Ambala-Kaithal section of the NH-65, Haryana) 800 na na

2010- (30 months)

Received government

approval

highway construction projects 5000 1000km na 2010-

MoU signed with Malaysian

government

Mumbai Trans Harbour Link (MTHL) project (eight-lane bridge), between Sevri and Nhava Sheva, Maharashtra 1670 22km

Mumbai Metropolitan

Region Development

Authority 2012-2017

Construction tender to start in

2012; In discussion with

World Bank about financing

(Nov 2011)

road linking Agartala, India, to Ashuganj river port, Bangladesh 5.52 50km

Oil and Natural Gas Corporation

(ONGC) 2010- At planning stage

expressway between Sanauta Bridge to Purkazi, Upper Ganga Canal, 1800 212km na 2011-2014

Awaiting concession

proposals from six companies

Road Projects 769 na C&C

Constructions na Under

construction

Development of rural roads, West Bengal 34.9 na na 2011-

US$34.9mn aid from Indian

Union Ministry of Rural

Development as part of Phase VII road construction

Eight railway overbridges, Jaipur na na Irfan 2011-

Undergo preliminary

construction; Funded by Jaipur

Development Authority & North Western Railway





Jetpur-Somnath section of the NH-8D, Gujarat na 127.6km

Jetpur Somnath Tollways, PLUS

Expressways 2011-

30-year concession

signed

Improvement of roads, Gujarat state 6600 800-900 km na 2011-

Bidding process to start

highway construction project in Mizoram 120 120km Gayatri Projects 2011-2014

Contract Awarded

NH31 highway expansion project 162 140km Punj Lloyd

Operating timeframe is 17

years Contract awarded

Madhya Pradesh State Roads Project III 375 1000km

Asian Development

Bank (ADB) 2011-2013

US$300mn loan provided by ADB;

US$75mn provided by state

government

road expansion across three states and Gujarat power project 125 906km na 2011-

US$125mn loan, second tranche

of the Second India

Infrastructure Project Financing

Facility

Widening of the National Highway 58 (between Delhi and Dehradun) na 114km

Central Road Research

Institute 2011-

Report to be submitted to the

Uttar Pradesh government

Second Karnataka Highway Improvement Project (K-SHIP-II) 350 1231km World Bank 2011-

US$350mn loan provided by World Bank

four-lane Khalghat highway project, between Madhya Pradesh and Maharashtra 177 83km

SEW Infrastructure na Completed

Expressway connecting Jaipur-Delhi 3000 250km na 2011- At planning stage

Expressway connecting Chandigarh-Delhi 3000 250km na 2011- At planning stage

Road development project, Gujarat 813 na

IRB Infrastructure Developers 2011-

Contract awarded

Yamuna Expressway project, between New Delhi and Agra na 165km

Jaypee Associates -March 2012

Under construction;

Expected to be complete earlier

2,500 miles of roads across India 2200 na

KMC Constructions 2011-

Seeking financing from

PE firms; Borrowed

maximum from banks





Road construction project, Rajasthan 128 53km

Reliance Infrastructure 2011 -

Contract awarded (June

2011)

Six lane Ahmedabad-Udaipur-Kishangarh expressway-widening project (include new bypass in Udaipar), from Gujarat to Rajasthan 1260 555.5km

GMR Infrastructure

September 2011 -

26-year concession

awarded (July 2011)

Concessionary agreement

signed in Sep 2011

4-lane highway widening project between Jabalpur and Lakhanadone, Madhya Pradesh 237 81km na June 2011 -

Gannon Dunkerley & Co

(GDCL) made lowest bid for contract (July

2011)

Adityapur to Jamshedpur PPP toll bridge, Kharkai river na 2.22km

Tata Steel , Adityapur Area

Authority July 2011 Completed

Two road widening projects (four-laning of national highways in Orissa and Madhya Pradesh) 790 na na July 2011 -

Received government

approval (July 2011)

Road widening project (four-laning of Lucknow Sultanpur section in Uttar Pradesh) 219 na Essar-Atlanta

September 2011 -

Contract signed with National

Highways Authority of India

(Sep 2011)

93km Ahmedabad-Vadodara section of the 120km NH-8 816.6 93km

IRB Ahmedabad-Vadodara Super

Express, IRB Infrastructure

Investors July 2011 -2014

Deal signed with Indian National

Highways Authority (July

2011)

North Eastern State Roads Investment Programme - upgrade 433.7km of roads in Assam (137.6km), Manipur (93.2km), Meghalaya (93.4km), Mizoram (55km), Sikkim (34.2km), Tripura (20.3km) 285 433.7km

Asian Development

Bank July 2011 - 2016

US$192mn loan from ADB;

US$94mn from Indian

government (July 2011)

Shivpuri-Dewas national highway project, Madhya Pradesh 633 330km

GVK Power and Infrastructure

(GVKPIL) August 2011 -

30-year BOT concession

awarded (August 2011)

2 state highway PPP projects (Delhi-Saharanapur-Yamunotri road and the Bareilly-Almora-Bagheshwar road), Uttar Pradesh 466.8 na

SEW-Prasad Consortium,

PNC-Infratech August 2011 -

PPP contract awarded (August

2011)

Two-laning the road na na na August 2011 - Received





widening project, Bikaner to Suratgarh

approval from PPP Appraisal

Committee (August 2011)

Four-laning road widening project, between Vijayawada and Machlipatnam na na na August 2011 -

BOT contract received

approval from PPP Appraisal

Committee (August 2011)

NH-7 motorway – four-laning project 434.11 na

Indian Cabinet Committee on Infrastructure na

Approved by Indian Cabinet Committee on Infrastructure

(CCI)

Two-lane road tunnel project between Chennai and Nashri, Udhampur district, Jammu and Kashmir province 809.5 9km

Leighton Welspun

Contractors September 2011

- 2016

Under construction (September

2011)

Eight-lane highway project, between Mumbai and Jawaharlal Nehru port 478 na na

September 2011 -


NHAI (Sep 2011)

Maharashtra-Amravati-Gujarat highway project 1000 na na

September 2011 -


NHAI (Sep 2011)

5 PPP road projects (include Agra-Etawah, Uttar Pradesh; Rampur-Kathgodam, Uttarakhand; Raipur-Bilaspur, Chhattisgarh) 1400 na na

September 2011 -

Projects approved by Indian PPP

approval committee (Sep

2011)

Four-lane National Highway No. 3 (Mumbai-Agra) expansion na 332km

GVK Power & Infrastructure October 2011 -

BOT contract awarded to NHAI

(September 2011)

Jaipur ring road, Rajasthan state 210 47km

Sanjose, Supreme Oct 2011 -

28-year contract awarded (Oct

2011)

Hungund - Hospet road project, Karnataka 365.36 99km

GMR Infrastructure

(GMR), Oriental Structural

Engineers (OSE) February 2010 -

BOT contract awarded (Feb

2010)

Road project between NH-8 at Kotputli (Rajasthan) to NH-1 at Ambala (Haryana) 275 151km

IVRCL Assets & Holding November 2011 -

DBFOT agreement

awarded (Nov 2011)

Source: BMI. na=not available.



Energy and Utilities Infrastructure

Table: India Energy and Utilities Infrastructure Industry Data

2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Energy and Utilities Infrastructure Industry Value As % Of Total Infrastructure 59.3 60.0 60.0 60.3 60.1 59.6 59.2 59.1 59.0

Energy And Utilities Infrastructure Industry Value, INRbn 1,223.5 1,399.5 1,668.8 1,930.8 2,235.6 2,629.6 3,080.4 3,581.9 4,142.8

Energy and Utilities Infrastructure Industry Value, US$bn 28.1 28.9 36.5 42.0 47.6 57.5 70.8 86.8 103.6

Energy and Utilities Infrastructure Industry Value Real Growth, % chg y-o-y 11.4 12.4 8.7 6.6 7.3 9.4 8.6 8.3 7.7

Energy and Utilities Infrastructure Industry Value As Percent Of Total Construction (%) 27.1 27.9 28.2 28.8 29.2 29.6 29.9 30.2 30.5

Power Plants and Transmission Grids Infrastructure Industry Value As % Of Total Energy and Utilities 58.0 60.1 60.1 61.0 62.3 63.7 65.3 66.2 67.0

Power Plants and Transmission Grids Infrastructure Industry Value, INRbn 709.6 841.4 1,003.3 1,177.9 1,393.7 1,674.9 2,010.8 2,370.5 2,773.8

Power Plants and Transmission Grids Infrastructure Industry Value, US$bn 16.3 17.4 21.9 25.6 29.7 36.6 46.2 57.5 69.3




2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Power Plants and Transmission Grids Infrastructure Industry Value Real Growth, % chg y-o-y 28.3 16.6 8.7 8.3 9.8 11.9 11.6 9.9 9.0

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Infrastructure 34.4 36.1 36.1 36.8 37.4 38.0 38.6 39.1 39.5

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Construction 15.7 16.8 17.0 17.6 18.2 18.9 19.5 20.0 20.4

Oil and Gas Pipelines Infrastructure Industry Value As % Of Total Energy and Utilities 36.0 34.9 34.9 34.4 33.4 32.3 30.8 30.1 29.4

Oil and Gas Pipelines Infrastructure Industry Value, INRbn 440.5 487.7 581.6 664.9 746.6 848.2 949.8 1,077.4 1,219.1

Oil and Gas Pipelines Infrastructure Industry Value, US$bn 10.1 10.1 12.7 14.5 15.9 18.5 21.8 26.1 30.5

Oil and Gas Pipelines Infrastructure Industry Value Real Growth, % chg y-o-y -6.3 8.7 8.7 5.2 3.8 5.4 3.5 5.4 5.1

Oil and Gas Pipelines Infrastructure Industry As % of Total Infrastructure 21.3 20.9 20.9 20.8 20.1 19.2 18.3 17.8 17.4

Oil and Gas Pipelines Infrastructure Industry As % of Total Construction 9.8 9.7 9.8 9.9 9.7 9.6 9.2 9.1 9.0




2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f

Water Infrastructure Industry Value As % Of Total Energy and Utilities 6.0 5.0 5.0 4.6 4.3 4.0 3.9 3.7 3.6

Water Infrastructure Industry Value, INRbn 73.4 70.4 83.9 88.0 95.4 106.5 119.8 134.0 149.9

Water Infrastructure Industry Value, US$bn 1.7 1.5 1.8 1.9 2.0 2.3 2.8 3.2 3.7

Water Infrastructure Industry Value Real Growth, % chg y-o-y -6.3 -6.1 8.7 -4.3 -0.2 3.4 4.0 3.9 3.9

Water Infrastructure Industry As % of Total Infrastructure 3.6 3.0 3.0 2.8 2.6 2.4 2.3 2.2 2.1

Water Infrastructure Industry As % of Total Construction 1.6 1.4 1.4 1.3 1.2 1.2 1.2 1.1 1.1



2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Energy and Utilities Infrastructure Industry Value As % Of Total Infrastructure 59.6 59.2 59.1 59.0 59.0 58.9 58.8 58.8 58.7

Energy And Utilities Infrastructure Industry Value, INRbn 2,629.6 3,080.4 3,581.9 4,142.8 4,750.6 5,425.2 6,181.2 7,009.2 7,944.9

Energy and Utilities Infrastructure Industry Value, US$bn 57.5 70.8 86.8 103.6 121.8 142.8 162.7 184.5 209.1




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Energy and Utilities Infrastructure Industry Value Real Growth, % chg y-o-y 9.4 8.6 8.3 7.7 6.7 6.2 5.9 5.4 5.3

Energy and Utilities Infrastructure Industry Value As Percent Of Total Construction (%) 29.6 29.9 30.2 30.5 30.7 30.9 31.0 31.2 31.2

Power Plants and Transmission Grids Infrastructure Industry Value As % Of Total Energy and Utilities 63.7 65.3 66.2 67.0 67.6 68.2 68.7 69.2 69.6

Power Plants and Transmission Grids Infrastructure Industry Value, INRbn 1,674.9 2,010.8 2,370.5 2,773.8 3,212.3 3,700.1 4,248.2 4,850.0 5,531.7

Power Plants and Transmission Grids Infrastructure Industry Value, US$bn 36.6 46.2 57.5 69.3 82.4 97.4 111.8 127.6 145.6

Power Plants and Transmission Grids Infrastructure Industry Value Real Growth, % chg y-o-y 11.9 11.6 9.9 9.0 7.8 7.2 6.8 6.2 6.1

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Infrastructure 38.0 38.6 39.1 39.5 39.9 40.2 40.4 40.7 40.9

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Construction 18.9 19.5 20.0 20.4 20.8 21.1 21.3 21.6 21.8




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Oil and Gas Pipelines Infrastructure Industry Value As % Of Total Energy and Utilities 32.3 30.8 30.1 29.4 28.9 28.4 27.9 27.5 27.1

Oil and Gas Pipelines Infrastructure Industry Value, INRbn 848.2 949.8 1,077.4 1,219.1 1,371.1 1,538.5 1,724.9 1,927.2 2,154.3

Oil and Gas Pipelines Infrastructure Industry Value, US$bn 18.5 21.8 26.1 30.5 35.2 40.5 45.4 50.7 56.7

Oil and Gas Pipelines Infrastructure Industry Value Real Growth, % chg y-o-y 5.4 3.5 5.4 5.1 4.5 4.2 4.1 3.7 3.8

Oil and Gas Pipelines Infrastructure Industry As % of Total Infrastructure 19.2 18.3 17.8 17.4 17.0 16.7 16.4 16.2 15.9

Oil and Gas Pipelines Infrastructure Industry As % of Total Construction 9.6 9.2 9.1 9.0 8.9 8.8 8.7 8.6 8.5

Water Infrastructure Industry Value As % Of Total Energy and Utilities 4.0 3.9 3.7 3.6 3.5 3.4 3.4 3.3 3.3

Water Infrastructure Industry Value, INRbn 106.5 119.8 134.0 149.9 167.2 186.5 208.2 232.0 258.9

Water Infrastructure Industry Value, US$bn 2.3 2.8 3.2 3.7 4.3 4.9 5.5 6.1 6.8

Water Infrastructure Industry Value Real Growth, % chg y-o-y 3.4 4.0 3.9 3.9 3.6 3.5 3.6 3.4 3.6




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Water Infrastructure Industry As % of Total Infrastructure 2.4 2.3 2.2 2.1 2.1 2.0 2.0 1.9 1.9

Water Infrastructure Industry As % of Total Construction 1.2 1.2 1.1 1.1 1.1 1.1 1.0 1.0 1.0




Energy and Utilities Infrastructure Forecast Scenario

In 2009/10 energy and utilities

infrastructure accounted for

60% of total infrastructure

industry value, equal to

INR1.4trn (US$29bn). Over

the forecast period, the sector’s

share is expected to remain

stable as substantial industry

value is created from

investments in power plants,

transmission grids, fuel

pipelines and water

infrastructure. By 2015/16, the

industry is expected to be

worth INR3.6trn (US$87bn)

following a substantial build

up in the provision of utilities

and energy infrastructure.

Expanding electricity

generating capacity will be the main driver of growth in the wider energy and utilities infrastructure

sector. In order to realise economic growth potential and meet demand from an ever-expanding demand

base, a reliable electricity supply is crucial. This has led to ambitious targets for electricity generation,

including 470GW of nuclear power by 2050, 20GW of solar power by 2022 and 20GW of wind capacity

by 2020. While we do not expect all of these targets to be met, achieving even 50% would present

massive opportunities for companies associated with the industry. There is also a substantial build-up of

coal and gas-fired power plants.

According to BMI's Key Projects Database there is in excess of US$212bn worth of projects either under

construction or in the pipeline in the Indian power plants and transmission grids sector. This is guiding

our optimistic forecasts for the sub-sector's industry value, which we believe will grow by an average of

10.3% per annum between FY11/12 and FY15/16 , from INR1.2trn (US$26bn) in FY11/12 to INR2.4trn

(US$57.5bn) in 2015/16.

A total of INR6.7trn (US$150bn) was slated to be invested in the sector in the 11th Five-Year Plan

(2007/08-2011/12), and the government is largely on target to meet this goal, having fallen just 1% short

at the time of the mid-term appraisal. During the 11th Five-Year plan it is hoped that 78GW of additional

capacity will come online, with a further 100GW of capacity planned in the 12th Five-Year Plan period.

Powering Forward

Infrastructure Industry Value And Energy & Utilities Share

BMI f=forecast, Source: BMI, Local news sources, industry sources, BMI Research (Key Projects Database)



Energy and Utilities Infrastructure Overview

India’s electricity sector

is insufficient to cope with

demand, which has been

growing at a

significant pace,

fuelled by rapid

population growth and

continued high levels of

economic growth. This

is set to continue over

coming years and

presents a major

obstacle to the

country's business

environment and

economic

development. It also

cements existing

regional variances in development.

In order to realise the country's economic growth potential and meet demand from an ever-expanding

demand base, a reliable electricity supply is crucial. Massive energy investment is required to achieve

targeted economic expansion and the Indian government has set very ambitious targets for electricity

generation, including 470GW of nuclear power by 2050, 20GW of solar power by 2022 and 20GW of

wind capacity by 2020. In May 2011, the Indian Ministry of Power estimated that about INR11.2trn

(US$252bn) would be required to sustain the power sector during the 12th Five-Year Plan (2012-17).

Nearly half of this funding, INR5.1trn, would be required for the development of 100GW worth of

electricity generation capacity, while another INR2.1trn and INR4.0bn would be required for the

transmission and distribution of electricity. The expansion of coal, hydro and nuclear power forms the

basis of the short-term capacity growth, and the medium-term focus will shift towards gas.

Funding needs, existing regional variances in development as well as bureaucratic red-tape are among the

principal downside risks to this plan. Latest data from the Ministry of Statistics and Programme

Implementation show that 34 power projects in India were on schedule in December 2010, but 43 were

delayed, while a further 12 faced additional delays. Furthermore, India will miss its target of adding

78.6GW of power generation capacity in the five years to March 2012 by almost a quarter, due to a

India Electricity Generation Capacity Mix, 2011e

e/f= BMI estimate/forecast, Source: UN Data, BMI



shortage of fuels such as coal and gas needed to fire electricity plants, according to Power Secretary H.S.

Brahma. Nevertheless, it appears that the country is making strides to address this deficit in electricity,

with a recent announcement from the Indian Power Minister, Sushil Kumar Shinde, stating that the

country suffered from a 6.6% deficit in power supply during the first quarter of FY2011/12 (April -

June), an improvement from a 11.1% power deficit in Q1 FY2008/09.

Private capital forms a significant part of the financing jigsaw for the power generation sector. A

consortium of global investors has acquired a 44% stake in Asian Genco Pte Ltd (AGPL), an

infrastructure company with a focus on the Indian power sector. The deal is the largest equity transaction

to date in the Indian power sector and is an endorsement of the sector’s potential. APGL is domiciled in

Singapore, but its entire power generation portfolio is located in India.

The consortium of global investors is led by Morgan Stanley Infrastructure Partners and also includes

General Atlantic, Goldman Sachs Investment Management, Norwest Venture Partners, Everstone

Capital and PTC India Financial Services. Together the investors have committed US$425mn to AGPL

in order to boost its presence and market share in the Indian power sector. The company has targets to put

1,350MW of capacity into operation, as well as plans to develop a project pipeline exceeding 10,000MW,

by 2012.

Thermal Sources to Fire

According to BMI estimates, thermal sources accounted for around 71% of total electricity generation

capacity in India in 2011, with coal alone contributing the bulk. We expect thermal to remain dominant in

the country over the forecast period, with coal seeing its market share declining as more gas power plants

are introduced. However, although many forecasters suggest that gas will see the greatest percentage rise

in installed electricity generation capacity over the next decade, coal is expected to show a substantial

increase in absolute terms. India has significant coal reserves, and coal projects tend to be much cheaper

than gas or other sources. Oil will remain a relatively insignificant part of the Indian power generation

mix, and its market share is expected to decline during the forecast period, with few new facilities being

built.

This focus on coal is exemplified by the government’s focus on developing ultra-mega power plants

(UMPP), which have a coal-based generation capacity of 4000MW each. In August 2011, the Indian

government had chosen two sites on which to build two new ultra-mega power projects, according to

Yahoo! News India. The locations identified were in the states of Tamil Nadu and Andhra Pradesh.

Following consultations with local regional authorities, a further seven power generation projects are due

to be given the go ahead. Currently, four coal-based ultra-mega power projects are in various stages of

development across the country.

These UMPPs are primarily developed by Indian power producers, but foreign companies remain

interested. In August 2011, South Korean energy company Korea East-West Power had formed a



partnership with India's Sahara India Power, according to The Times of India. Under the deal, the two

firms will establish plants with a total capacity of 6,000MW, and will jointly engage in tariff-based

bidding for UMPPs.

India has significant coal resources. According to the Ministry of Coal, India has total coal resources of

256bnt (billion tonnes), of which 33bnt are coking coal assets. Despite its sizeable coal reserves, India is

facing supply shortages in coal and is still heavy reliant on coal imports to meet its electricity demand,

with Indonesia and Australia accounting for around 55% of India’s coal imports, according to the

Economic Times. This dependence is expected to grow exponentially over the coming years, particularly

from Indonesia. According to the Indonesian Coal Mining Association in May 2011, India will surpass

Japan as the leading buyer of Indonesian coal in 2011, importing up to 60mn tonnes, increasing to 90mn

tonnes by 2013. This dependence is because mining projects in India continue to face delays in project

approvals. The country's bureaucracy remains inefficient in issuing statutory land and environmental

clearances for coal mining, as well as in resolving regulatory disagreements between various ministries,

particularly between the country's Ministry of Environment and Forests and the Department of Mines.

Between 2008 and July 2011, the Indian government received a total of 1,258 applications to mine coal,

but only around 158 applications received approval.

However, this overseas reliance has left India’s power generation sector heavily exposed to regulatory

and political risks from Indonesia and Australia. In mid-2011, Indonesia reaffirmed its commitment to

ban all raw mineral exports (including coal) from the country by 2014 while launching a major plan to

increase its domestic coal power generation capacity. These moves could reduce the supply of coal

available for exports in Indonesia, putting more upside pressure on global coal prices. In addition, new

Indonesian mining laws require the annual alignment of coal prices with international rates, where

previously, Indonesian coal mines had the freedom to bilaterally agree on coal prices with buyers. This

new Indonesian law would see coal costs soar to almost double, from $26 a tonne to $60 at current

international prices.

Meanwhile, Australia's coal mining industry, still reeling from the effects of the Queensland floods, is

facing further taxation – the carbon tax and the Mineral Resource Rent Tax – from the government; this

introduces additional political risks to the industry, potentially raising the cost of coal production in the

country. According to the Ashok Khurana, Director General of the Indian Association of Power

Producers (a group of 13 private companies), these new taxes are expected to push coal prices up by

US$20-25 a tonne.

These regulatory changes in Indonesia and Australia could have serious ramifications with regard to the

financial viability of coal power plants in India, as current contractual framework does not protect power

companies from coal price changes triggered by any change in law in the exporting country.



As a result, some companies are putting their plans for coal plants on hold until there is some clarity on

the issue of imported coal. In August 2011, JSW Energy said it had put its Ratnagiri expansion plans on

hold due to costly imported coal, while Reliance Power’s 4,000MW Krishnapatnam coal-fired power

plant , which relies on coal imported from three Indonesian mines owned by Reliance, is expected to face

viability issues – as the Andhra Pradesh government is likely to refuse the company’s suggestion for a

tariff rise, according to the Business Standard.

Saying that, many Indian independent power producers still hold fast to goals of tripling their existing

capacity within the next five years. In October 2011, Essar Power, part of energy developer Essar

Group, has announced plans to invest US$8bn in the construction of new thermal power plants

throughout India over the next three years. Similarly, in September 2011, GVK Power And

Infrastructure announced plans to reach a 7,500MW thermal power generation capacity by 2016/17 (the

company currently has a gas-based capacity of 901MW), while Reliance Power announced that it

expects to reach a capacity of 5000MW by end-2012, with nearly 30,000MW under various stages of

development. Indian state-owned coal mining and power producer Neyveli Lignite Corporation (NLC)

has announced plans to invest INR402bn in boosting the company's power generation capacity by

7,500MW - the company's existing capacity is currently 2,740MW.

A key trend among Indian independent power producers is the vertical integration of their operations,

where large coal-reliant utilities look to purchasing coal assets in India and in overseas markets, such as

Indonesia and Australia. While it is a necessity for the private sector to diversify into India’s coal mining

sector (coal mined from captive mines in India must be used for an attached power, steel or cement plant),

the purchase of overseas coal assets is to hedge against price volatility and ensure the security of supply.

However, it remains to be seen if this strategy would work given the political and regulatory risks

highlighted earlier in these countries.

In August 2011, Lanco Infratech was successfully selected as the Mine Developer and Operator for the

Gare Pelma II coal block in Raigarh, Chhattishgarh. The company is planning to invest INR130bn

(US$2.9bn) in the project, with the bulk of the funds - INR120bn (US$2.7bn) - allocated for the power

project. This project, along with Lanco's recent acquisition of the Griffin coal mine in Australia, could be

crucial in reducing the company's exposure to price volatilities in coal (the Gare Pelma II coal block

boosts the company's coal reserves to over 2bn tonnes).

In August 2011, GMR Energy announced plans to acquire a 30% stake in PT Golden Energy Mines, a

subsidiary of Indonesian conglomerate Sinar Mas Group. The agreement, which is expected to cost

between US$450-550mn, includes a 25-year off-take agreement to supply GMR's coal-fired power plants

(80% still in construction phase) in India, with GMR eventually receiving 10mn tonnes per annum (tpa)

from the Golden Energy Mines. According to Reuters, Golden Energy mines have recoverable coal

reserves (i.e. recoverable coal at current prices) of 860mn tonnes and resources (i.e. total estimated coal



available at the mine) of 1.9bn tonnes. The agreement is expected to be finalised by the end of 2011,

provided conditions laid out in the definitive agreement are met.

In September 2011, GVK Coal Developers (Singapore), a member of the GVK Group which includes

power plant operator GVK Power & Infrastructure (GVKPIL), had reached an agreement with

Australia-based mining company Hancock Prospecting to pay US$1.26bn for a majority stake in the

company's coal assets in Queensland, Australia. The conclusion of the deal means that GVK will acquire:

A 79% stake in the Alpha and Alpha West coal mining project in the Galilee Basin;

A 100% stake in the Kevin's Corner coal mining project in the Galilee Basin;

And a 100% stake in the 400km rail and port project connecting the above coal mining projects to the port of

Abbot Point and its planned T3 terminal.

GVK will pay an initial sum of US$500mn for the acquisition, followed by another US$200mn a year

from now. The remaining US$560mn will be paid on financial close of the project, which is expected to

be in 2012. The first phase of production for the entire coal development project is scheduled to start in

2014, at a rate of 30mn tonnes of thermal coal per annum.

As part of GVK's plan to pay for the

purchase and project developments costs,

it would raise US$1bn by selling

minority stakes in GVK Coal Developers,

while taking on US$1bn in bank loans

through the assistance of its bankers -

ICICI Bank and Standard Chartered.

GVK was also holding discussions with

Indonesia-based miner Kideco Jaya

Agung, as well as with several parties to

sell a part of its majority stake in

Hancock’s coal assets. Although coal-

based power projects dominate the

thermal generation sector, there are

opportunities for natural gas. In September 2011, Indian energy company Haryana Power Generation

Corporation Ltd was reported by the New Kerala to be close to securing environmental clearance for its

proposed 1,500MW energy generation project. The project will be the company's first gas-fired plant, and

a possible site has been identified in the villages of Arwa and Mothuka in Haryana region. The Union

Ministry of Environment and Forests is in the process of approving the project's Environment

Management Plan and preparing an Environmental Impact Assessment report.

Nuclear Capacity Build-Up

2007-2018

0

5,000

10,000

15,000

20,000

25,000

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

With International Cooperation, MWhWithout International Cooperation, MWh

Source: Nuclear Power Corporation of India Ltd.



Nuclear Waiting to Take Off

India’s nuclear power sector continues to attract the attention of major international players, as it

promises to unlock investments worth hundreds of billions of dollars.

In December 2010, a landmark agreement on nuclear cooperation was signed between France's Areva

and Nuclear Power Corporation of India Limited (NPCIL). The agreement was for the construction of

two 1,650MW EPR reactors at Jaitapur in Maharashtra state, estimated to be worth around US$10bn. The

reactors are part of a series of six and the agreement also includes fuel supply for 25 years. Studies on the

project were due to start in early 2011, with the first reactor expected to come online in eight years.

The Indian government is keen to pursue nuclear as an answer to rapidly growing demand for electricity.

Currently, nuclear power is estimated to account for less than 3% of India’ electricity capacity but the

country hopes to increase the supply of nuclear sources to 25% by 2050.

In late September 2009, India's Prime Minister Manmohan Singh, announced plans for the largest

expansion of nuclear power capacity in the world, stating that by 2050 India could generate up to 470

gigawatts (GW) of nuclear power if the country executes its strategy effectively. India currently has

4,423MW of nuclear power generating capacity from six nuclear power complexes containing 20

reactors; a further 5,300MW are under construction. This strategy would see a more than 11,000%

increase in capacity by 2050.

According to Singh, who made the announcement in a speech at an atomic energy conference in Delhi,

the plans to significantly expand nuclear capacity in the country will increase electricity access, reduce

dependence on fossil fuels and contribute to global efforts to combat climate change. Singh also noted

that the plan would provide numerous opportunities for the global nuclear industry.

No details were mentioned relating to the cost of the plan or how it would be funded. India's nuclear

power sector is not open to foreign direct investment (FDI), with the country's then Atomic Energy Chief,

Anil Kakodkar, ruling that option out in August 2009, according to India's Economic Times. However,

Kakodkar did note that there were still opportunities for private companies to get involved, although

protecting the technological competence of Indian companies was crucial, he said.

Since the lifting of the nuclear trade ban on India in 2008, the sector has seen a rush of activity. All the

major international nuclear companies are keen to get involved in the sector, with France, Russia and the

US all having signed contracts with the country. Companies from these countries have since been

partnering up with Indian firms in order to gain access to the industry, as, according to India's Atomic

Energy Act, technology suppliers can only participate in India's nuclear sector through a JV with a

government-owned company.



The freeing up of India’s nuclear power sector is thought to potentially open up US$150bn of investment,

according to India’s Economic Times. A letter of intent has been written for the construction of

10,000MW of new nuclear power technology, and 60,000MW of planned additional capacity by 2032.

The country was banned from trading in nuclear technology because of its refusal to sign the Treaty on

the Non-Proliferation of Nuclear Weapons (NPT) in 1968, and because of its subsequent testing of an

atomic weapon in 1974. Following the signing of the nuclear power co-operation agreement between the

US and India in October 2008, the country also signed agreements with the other two nuclear power

majors, Russia and France. As a result of this, India’s nuclear power sector is set for a rapid expansion,

and the international competition is lining up to get a slice of India’s nuclear pie.

It should be noted that, despite a huge pipeline of nuclear projects approved in recent years, funding

represents a significant downside risk to this extremely ambitious plan. Furthermore, the Fukushima

nuclear crisis in Japan has led to an adverse public reaction towards nuclear power. We have already seen

local civilian protests against the development of the country's largest nuclear power complex at Jaitapur

escalate violently. In April 2011, clashes between protestors and local police left one protestor dead and

at least 50 people injured. France-based Areva has also concluded in an internal report that the recent

Fukushima nuclear crisis in Japan could lead to a delay in the development of Jaitapur nuclear power

complex, due to a re-assessment of the safety standards at the site. In March 2011, India's Prime Minister

Manmohan Singh said that India's nuclear power programme was on track, with more stringent safety

controls to be implemented following the Fukushima crisis.

India's nuclear power sector also presents a political conundrum for the current incumbent party, the

Indian National Congress. A recent WikiLeaks cable published in March 2011 alleged that the party

bribed lawmakers, offering them US$2.2mn each, to secure their support for a crucial 2008 vote over a

nuclear deal with the United States, which was passed, according to the Economic Times. The nuclear

deal, known as the 123 Agreement, is vital to the growth of India's civil nuclear sector because it allows

the country to take part in international nuclear commerce, while authorising Indian scientists to

participate in international nuclear research activities.

While Prime Minister Singh has said that no government members were involved in vote-buying, it is

possible that the drive for nuclear power in India could take a backseat, as the government seeks to sooth

anti-nuclear sentiment, in the short-term at least. This means a potential delay to existing nuclear power

projects in India, where, according to the latest data from the World Nuclear Association and NPCIL,

there are seven nuclear reactors under construction and 24 nuclear reactors planned or firmly proposed.

However, BMI believes that if policy makers decide to take a cautious stance towards new nuclear new

builds (essentially an indefinite wait and see approach) following the Fukushima accident, it would mean

ignoring crucial factors that differentiate Japan's nuclear power industry – and specifically the Fukushima

reactor – from new generation plants. It should be noted that nuclear industry experts have been pointing



out since the first reactor collapsed that the design for new builds, mainly in Europe, has much more

advanced safety features than the older generation plants commissioned in the 1970s and 1980s.

Consequently, the proposed Jaitapur nuclear power plant should be similarly advanced. It had, prior to

the Fukushima crisis, received clearance from the Indian environmental ministry, imposing 35 conditions

for the clearance.

Growing Increasingly Confident On Renewables

India is increasingly looking towards renewable as an alternative source of electricity. In January 2011,

India's Ministry of New & Renewable Energy announced that it raised the country's renewable energy

targets fourfold to 72,400MW by 2022. We believe this increase in renewable energy targets stems from

high interest in India's solar projects, and the country's growing energy security concerns. We further note

that this ambitious target has a long and uncertain path to realisation.

The revised renewable energy target includes the existing solar power initiative – the Jawaharlal Nehru

National Solar Mission, a three-stage plan to generate 22,000MW of solar power, 2000MW of which will

come from off-grid distributed solar capacity – in addition to the construction of 20mn square metres (m2)

of solar thermal projects by 2022. Besides raising renewable energy targets, India has also stated that it

hopes to reduce emissions intensity (carbon emissions per unit of GDP) by 20%-25% of 2005 levels by

2020. Renewable energy sources recognised by India's renewable ministry include solar, wind and small

hydropower plants, but not large hydropower projects, according to the Wall Street Journal.

We believe that the immediate reason for this latest increase in renewable energy targets is due to the

overwhelming private-sector interest in India's first major solar auction, launched at the end of 2010.

India's plans for the installation of more than 100MW of solar capacity in 2011 was more than 10 times

over-subscribed. This has boosted India's confidence in meeting its renewable energy targets and it is now

fast-tracking its solar plans to capitalise on this strong interest. Contracts for a further 620MW of installed

solar capacity have since been awarded by India and tenders for an additional 300MW were expected to

be launched in January 2011.

Another contributing factor to this increase in renewable energy targets is energy security concerns,

particularly with regard to coal supplies. India currently generates about 65% of its electricity supply

from coal sources. With growing electricity demand due to robust economic growth, we believe that

India's coal consumption and imports are likely to rise rapidly over the medium term. According to BMI's

forecasts, India's coal consumption will grow from 360mn tonnes in 2010 to 411mn tonnes in 2015 (up

14%), while Wood Mackenzie forecasts show that India might overtake China by 2019 as the largest

thermal coal buyer, with purchases of 182m tonnes. This means that India will be increasingly exposed to

coal price hikes and a greater reliance on renewable energy sources for electricity supply could therefore

offset some of this exposure to price fluctuations.



While we are encouraged by the country's commitment to the implementation of renewable energy

sources, there are significant risks that are derailing such an ambitious plan. The fierce competition at

India's first solar auction has resulted in many companies offering deep discounts to secure these

contracts, significantly increasing the risk of project failure and delays. Many of India's renewable energy

policies are also incoherent, with state governments free to determine their own renewable energy

policies. While India's renewable ministry has introduced renewable energy certificates to encourage state

distribution utilities to purchase a specified minimum percentage of renewable power, this trading scheme

has yet to gain favour with utility companies. These factors, combined with India's nebulous bureaucratic

system, means that there are still significant hurdles to overcome before meeting its ambitious target.

Hydropower

Hydropower accounts for a significant proportion of India’s electricity generating capacity. In 2011, it

accounted for around 20% of India's total installed generating capacity, and India aims to develop its

hydro potential even further. There is a large amount of hydroelectric capacity, both large- and small-

scale projects, in the construction and planning stages, according to the Indian government. The

Brahmaputra river basin in eastern India is expected to result in several large power plants, which could

add nearly 30GW to capacity. A major policy initiative in the sector was announced in January 2008, with

hydropower initiated into the ultra-mega power project (UMPP). The average size of hydro projects is

expected to be 500MW.

One of the largest hydropower plants being developed in India is the 9500MW Siang Upper hydropower

project. In August 2011, the India state-owned power producer National Thermal Power Corporation

(NTPC) announced that it would invest about INR1.0trn (US$22bn) to develop the hydropower project in

the state of Arunachal Pradesh. The Siang Upper project would be India's largest hydropower plant if

completed, and one of the largest in the world - the largest operational hydropower plant in India is

currently the 1,500MW Nathpa Jhakri project. NTPC is currently in discussions with the state

government about the project, while conducting field studies in preparation for a detailed report. NTPC

also plans to commission its 800MW Koldam project in Himachal Pradesh in 2012.

While this project, if completed, will have a major impact in meeting electricity demand in the

surrounding region, we note that hydropower plants, particularly large-scale ones, typically face

significant opposition from the local populace, due to perceived lack of compensation for

displacement, as well as environmental concerns due to the large swathes of land which are flooded and

the disruption to the natural ecosystems. A recent example is the stiff public opposition for the INR26bn

Sinodol hydropower project in the state of Orissa. The Sinodol hydropower plant is located at three sites

across the Mahanadi river in the western part of the Orissa state, and is likely to affect farming in the

region. This is the major gripe among the local populace and as a result of this public pressure against the

project, the Orissa government has decided to conduct public hearings before launching the 320MW

Sinodol hydropower project, delaying its implementation. Given that the Siang Upper hydropower project

is much larger, we believe that the project could face similar problems.



Meanwhile, a total of 636 hydro projects, with capacity of less than 25 MW each, are expected to be

commissioned by India during the 12th Five-Year Plan (2012-2017). These projects were allotted by the

state governments and are due to receive environment and forest clearances by Ministry of Environment

and Forests regional offices within a short period of time.

Come Wind......

Wind has being targeted as an important element of the country’s future power mix. By 2022, the

government is planning to have more than 20,000MW of wind generating capacity, according to the

Minister for New and Renewable Energy, Farooq Abdullah, as reported by the Economic Times. Current

wind capacity in India is 13,065MW. It is presently one of the largest sources of renewable electricity in

the country, accounting for 70% of current installed capacity from renewable sources. However, the

country has the potential for 49.1GW of installed capacity. In order to increase the speed of wind power

development, India is in the process of changing the structure of its incentives for wind power.

Previously, subsidies supported investment in turbines, allowing companies to claim 80% depreciation on

equipment costs in the first year, according to Bloomberg. This incentive served to turn India into a hub

for wind turbine manufacture, and helped India's Suzlon Energy to become one of the top five turbine

manufacturers in the world.

In December 2009, India's Ministry of New and Renewable Energy announced that it would move to

generation-based incentives, in order to reduce the cost of purchasing electricity generated by wind,

making it a more affordable (and therefore realistic) source of electricity. The proposal includes an

incentive of INR0.50 (US$0.0107) for electricity generators per unit of wind energy produced, though it

remains unclear at this point what form this incentive will take. The old incentives will be phased out by

the end of the 11th Five-Year Plan, 2012, with the new plans taking over. Under the new system, the

government will spend around INR3.8bn (US$81mn) on subsidies, according to the Wall Street Journal.

This follows on from the decision by the Central Electricity Regulatory Commission to guarantee a 19%

pre-tax return on investment in renewable energy for the first 10 years of operation. These incentives are

targeted at wind-power, solar, biomass and small hydro projects. Critics claim that government support

for renewable energy is so extensive in India that the sector is essentially unviable as a standalone

industry. However, with the government looking to commit to long-term renewable energy incentives by

the time state support is removed, the technological capability of the sector may have improved to the

extent that it can compete with thermal sources of power in terms of price. The Indian market is also

emerging as one of the major manufacturing hubs for wind turbines in Asia, and according to the Global

Wind Energy Council, there are currently seventeen manufacturers with an annual production capacity of

7,500MW.

This potential for growth has captured the interest of international investors. In September 2011, ReNew

Wind Power announced that the private equity (PE) division of Goldman Sachs Group will invest up to

INR10bn (US$204mn) in the Indian wind power producer. The investment means that Goldman Sachs



will likely acquire a majority stake in the company, which was founded by Sumant Sinha, a former Chief

Operating Officer of India's largest wind turbine manufacturer Suzlon Energy. ReNew is expected to use

the funds to meet its generation capacity targets, where the company plans to develop up to 200 to 300

megawatts (MW) of wind power capacity per annum, reaching a total wind power capacity of 1000MW

by 2015. Besides Goldman Sachs, ReNew had signed agreements with Suzlon, Germany-based Kenersys

GmbH and India-based Regen Powertech to implement wind farms throughout India. At present,

ReNew is currently developing a 25MW and 60MW wind farm in the Indian states of Gujarat and

Maharashtra respectively.

In August 2011, Indian power producer Reliance Power (R Power) announced plans to make a INR15bn

(US$333.2mn) investment in a 200MW wind power plant project in Vashpet, Maharashtra. The plant,

which is scheduled to start operations in September 2012, will have 80 wind electric generators supplied

by German wind turbine supplier Fuhrländer. A long-term power purchase agreement (PPA), already

sanctioned by the Maharashtra State Electricity Regulatory Commission, has been signed with Indian

construction company Reliance Infrastructure (RInfra) at a rate of INR5.37 (US$0.12) per unit. The

plant's generation capacity will eventually increase to 400MW. The project will be entitled to receive

3.7mn certified emission reductions (CERs) during the first 10 years, which is likely to generate

additional revenue of INR3bn (US$66.6mn) for the project.

...........Or Shine

India also has vast potential for solar power. The country receives 5,000trn kilowatt-hours (KWh) a year

of solar energy equivalent, compared to its projected total energy consumption in 2010 of only 848bn

KWh, according to India's Ministry of New and Renewable Energy. In light of existing challenges in

meeting India's growing energy needs, the government is looking to harness this solar potential, launching

the Jawaharlal Nehru National Solar Mission in November 2009 and announcing favourable incentives to

attract investors. The plan has been scaled down from the draft proposal, but is still ambitious,

considering the country's current near-zero capacity. The solar plan will be executed in three phases, with

a final target of 20,000MW by 2022. The initial phase, from 2010 to 2013, plans to add 1,100MW of

solar capacity. Initial investment will be US$935mn, and it is estimated that the full proposal will cost

around US$19bn.

The Mission aims to create a conducive environment for solar technology penetration, both at a

centralised and decentralised level. The first phase will focus on:

• Capturing the low-hanging options in solar thermal;

• Promoting off-grid systems to serve populations without access to commercial energy; and

• Favouring modest capacity addition in grid-based systems.



Banking on newly acquired experience, the second phase will focus on an aggressive increase in capacity,

with a view to creating the conditions for up-scaled and competitive solar energy penetration in the

country.

The project is one of 40 schemes that are planned to transform the area of desert land which makes up the

India/Pakistan border, into a solar power hub, with Gujarat at the centre.

This combination of vast growth potential and favourable government policies has attracted a large

number of companies to these projects. In November 2010, the Indian government received bids to

generate 1,740MW of solar photovoltaic (PV) power; however, it only plans to allocate 150MW of solar

PV projects. This fierce competition for the projects has also lead to aggressive cost undercutting. For

example, international solar manufacturer Moser Baer has won a solar project in Maharashtra state at

INR120mn (US$2.63mn) per MW, while government projections for the project were estimated at

INR170mn per MW, according to reports by Forbes India. India's Ministry of New and Renewable

Energy approved 802MW of grid-connected solar projects in 2010 alone.

BMI is concerned about such aggressive undercutting measures, as they heighten the level of risk of

project delays, cost overruns and future profitability. Many of the estimated costs for these projects are

based on projections of future earnings that have no precedent. Furthermore, it is unclear if these earnings

projections have taken into account the difficulties associated with the construction of these specific solar

projects. For instance, many of the projects are located in areas with limited access to water – a necessary

resource in the solar power generation process and in keeping the panels clean – and it is unclear if the

government is able to provide the necessary quantities of water.

Another problem is access to financing. In March 2011, the government stated that it plans to provide

additional funds of up to INR15bn (US$333mn) to banks and finance solar energy projects. These funds

will be provided interest free to the lenders by the Indian Renewable Energy Development Agency

(IREDA), a non-banking financial institution that belongs to the Indian renewable energy ministry and

provides term loans to renewable energy projects. The funds will then be loaned to companies that are

establishing small solar projects – amounting to a total capacity of 200MW – at an interest rate of 5%,

significantly lower than the State Bank of India's prime lending rate of 11.75%. These projects are part of

Phase 1 of the Jawaharlal Nehru National Solar Mission.

The Indian government's ambitious plans and strong support for renewables is creating significant

opportunities for solar power companies, many of whom competed fiercely for projects during India's

first major solar auction in 2010 – As of July 2011, the country had so far issued licences for seven solar-

thermal plants - totalling 770MW (according to data from Bloomberg) - to companies such as Reliance

Power , Lanco and Godawari Power & Ispat. This keen interest from the private sector has encouraged

the Indian government to increase its renewable energy targets fourfold to 72,400MW by 2022 and boost

funding for renewable energy projects. India's New and Renewable Energy Ministry has seen its allocated



budget rise by 20% to INR12.1bn (US$269.5mn) for 2011, from INR1.0bn (US$224mn) in 2010. The

government has also allocated INR6.6bn (US$148mn) for grid-interactive and distributed renewable

energy, while INR1.8bn (US$39mn) has been assigned to develop renewable power for rural applications

in 2011. However, we believe that providing greater access to financing is insufficient if the significant

regulatory and operational risks inherent in India's solar power sector are not tackled. Many of India's

renewable energy policies are still incoherent, with state governments free to determine their own

renewable energy schemes. While India's renewable ministry has introduced renewable energy

certificates to encourage state distribution utilities to purchase a specified minimum percentage of

renewable power, this trading scheme has yet to gain favour with utility companies, the main purchasers

of electricity. Investment in India's grid infrastructure is also lagging the development of power plants,

thus a bulk of the electricity generated from these solar power plants could be wasted.

In October 2011, in an attempt to prevent further delays to project implementation in its power sector,

India had granted developers of large solar-thermal power plants exemptions from having to obtain

environmental clearances. This move was initiated by the government as an attempt to shield Indian

power companies from the obstacles faced by other energy and mining companies, which face the risk of

missing output targets in 2011 and 2012 because of delays in obtaining environmental clearances.

Although developers must still demonstrate that they are not using protected land and have applied for

water permits, broader exemptions should ease construction delays for companies. We believe that this

move is short-sighted, even though the decision might speed-up the commissioning process in the early

stages of project development. India needs to streamline its regulatory procedures; yet the removal of a

priori environmental-permit requirements is hardly a solution. Such a move will simply introduce new

risks to projects during the construction phase and might easily lead to their suspension and/or

cancellation in the later stages of the project life-cycle.

Transmitting Power

The overall length of India’s power grid is almost 6.5mn km. The annual loss of power through the

system is estimated at more than 30%. As of 2006, about three-quarters of India’s villages received an

electricity supply, but only 43% of rural households had been provided with a permanent supply.

According to the Planning Commission of India, 600mn people are not connected to the power grid.

State-owned Power Grid Corporation of India (PGCIL), which transmits 51% of the generated power

across India and has approximately 22.4-gigawatt of interregional capacity, is developing an integrated

national grid, in a phased manner, for strengthening the five regional grids. Inter-regional power transfer

capacity of 9.5GW at the end of 2005 is expected to be enhanced to 30GW by 2012. About US$16bn is

required for the central transmission sector.

The Asian Development Bank is also keen to aid the PGCIL in developing India’s transmission network,

announcing in October 2011 that it will be providing PGCIL with a US$750mn loan for a national grid

upgrading project. The project involves the construction of a 1,300km interregional transmission line,



using 800 kV high-voltage direct-current (HVDC) technology. According to the ADB, the upgrade would

allow the grid system to transfer three gigawatts (GW) of electricity from independent power producers in

the western state of Chhattisgarh to regions of high demand in the north, including the national capital

territory of Delhi. The ADB loan will consist of a US$500mn sovereign-guaranteed loan and a

US$250mn non-sovereign corporate loan.

The project could make a material impact in addressing the electricity demand in India's northern states.

The Chhattisgarh state is one of the three states that hold almost all of India's coal deposits, and it is

attempting to use these resources for electricity generation on a large scale. According to BMI 's Key

Projects Database, there are currently around nine coal-based power plants, with a capacity of more than

1GW under various stages of development in the Chhattisgarh state.

India’s transmission grids sector is showing significant growth potential for private investors in 2011. The

sector is undergoing a process of liberalisation, requiring state-run companies such as PGCIL to compete

with private sector companies for electricity transmission projects. This is opening up significant

opportunities for private sector companies throughout India, with a US$1.1bn high-voltage transmission

contract recently awarded to Isolux Corsan in August 2011 and another two transmission contracts – a

INR13bn (US$293mn) project in the state of Andhra Pradesh and a INR10.3bn (US$231mn) project

connecting the two states of Tamil Nadu and Karnataka – at the tendering stage.

An additional three high-voltage transmission projects have been identified by the Indian government to

be awarded to private companies, with state-owned institutions Power Financing Corporation and

Rural Electrification Corporation conducting the tendering process for these projects.

Several states have also recognised the importance of an efficient transmission grid.

In August 2011, the Haryana state government launched a new investment programme to construct 174

new sub-stations with varying levels of power output. A total of 98 existing stations will also be

refurbished, expanded and augmented so as to further contribute towards the state's ambitious energy

targets. Meanwhile, the government in Andhra Pradesh is considering investing US$3.09bn between 2012

and 2016 to boost the nation's power infrastructure, which includes work to strengthen the transmission

and distribution network.

In October 2011, it was reported by the Economic Times that the central government approved INR17bn

(US$350mn) for the state of Jammu and Kashmir to carry out power reforms aimed at cutting

transmission and distribution losses in 30 cities and towns across the state. The reforms, known

collectively as the Restructured-Accelerated Power Development and Reforms Program (R-APDRP),

would look to carry out system improvements in power distribution in the state, which currently are at

65%.



Water Utilities

Investment into water treatment facilities remains on the backburner in India’s infrastructure sector. In

April 2011, Salman Khurshid, Minister of Water Resources, said the central government will discuss

measures to improve the country's water management and develop a new national water policy in 2012 to

address the issues of water scarcity, management and conservation. The state governments will also form

an individual policy at state level. The current national water policy was adopted in 2002.

In August 2011, the Indian state of Karnataka announced that it would invest US$4.1bn in a series of

irrigation projects, according to Water-Technology. The projects will be focused around the Upper

Krishna basin, and a firm programme of action is to be confirmed by December 2011. The funding will

also be directed towards a project to address irregularities in the supply of fresh drinking water in the

drought-hit Bijapur region.



Major Projects Table – Energy And Utilities

Table: Major Projects – Energy And Utilities


Oil & Gas Pipelines

India-Iran gas pipeline project 7000 1100 km na 2006-2011

Still at early planning stage

Dabhol - Bangalore natural gas pipeline 1100 1570km GAIL India 2010-2012

Early construction phases

Mangala Development Pipeline, Second phase, Gujarat region na 80km Cairn India 2010- Project approved

Power Plants & transmission grids

Transmission line through Jharkhand, Bihar and West Bengal 27.75 1200kV

Power Grid Corp of India, KEC International Ltd 2008-

Contract awarded on turnkey basis

Teesta River hydropower plant 54 96 MW

Alstom Projects India 2009-2013

Contract awarded in July 2009

Steam generators for the Kakrapara atomic power project 80 700MW

Bharat Heavy Electricals Limited na Contract awarded

Power Transmission lines 84 na Larsen Toubro 2008- Project awarded

Kandra Power Plant 106 1000MW Adhunik Thermal and Power Limited na Project announced

Jharkhand power plant,270KW 130 0.27MW

Bharat Heavy Electricals Limited na na

Biomass power plants 148.76 na Oriental Green Power 2009-Dec 2010 plans announced

India -Bangladesh transmission line 193.91 na

Power Grid Corp of India na Details finalised

Coal-based power plant IPP project, Chhattisgarh 1060

1440MW (350MW first phase)

RKM Powergen, Mudajaya Group

January 2009 - May 2012 (first phase)

Delays due to local protests resolved (May 2011)

Grid projects 344.12 na Power Grid Corp of India 2010-2012 Plans announced

Thermal power plant in Chattisgarh 352.4 600 MW

Bharat Heavy Electricals Limited na Contract awarded

Power plant, Andhra Pradesh 415 768MW

L&T, GMR Infrastructure 2009-2012 Contract awarded

Mundra Ultra Mega Power Project (UMPP), Kutch district, Gujarat province na 4000MW Tata Power 2008-2013

Loan granted from ADB; 77% of work completed; First unit commission by Sep 2011

Tripura combined cycle gas turbine power plant 2000 726MW

Oil and Natural Gas Corporation (ONGC), ONGC Tripura Power 2008- March 2012

Under construction; 1st 362MW unit operational by December 2011; Turbines from GE





Company and Bharat Heavy

super critical thermal power plant in Yamuna Nagar 552.86 660MW

Haryana Power Generation Corporation 2009- Plans announced

Undersea transmission line to Sri Lanka 573 500MW na 2008-2011 Project announced

thermal power project at Warora in Chandrapur 586.4 540MW

KSK Energy Ventures, Wardha Power Company 2009 Project launched

Kishanganga hydropower project, Ganga River, Kashmir 650 330 MW

Hindustan Construction, Halcrow Group 2009-2016

Under construction; Stay order by Pakistan not obtained from International Court of Arbitration (Se

Thermal Power Plant, Andhra Pradesh 660 1600MW Tata Projects na Contract Awarded

Nigrie power plant 828 1320MW L&T, Mitsubishi (supply contract) na

Contract for supply of technology awarded

thermal power project at Kamalanga in Orissa 952 1050MW GMR Infrastructure na Funds secured

Coal power plant at Amreli, Gujarat 963.74 2000 MW Torrent Power 2009-2012 Agreement signed

Thermal coal-based power plant, Chhattisgarh 1070 2400MW BHEL, Jindal Power 2007 -

Face legal proceedings due to construction without prior environment clearance (Jul 2010)

Two wind farms in Karnataka and Maharashtra 1200 500MW

National Thermal Power Corporation na At planning stage

power plant in Central India 1200 1000MW

National Thermal Power Corporation na na

Power plant in Mundra in the western Indian state of Gujarat 1220 4000MW

Doosan Heavy Industries and Construction Company -April 2012 Contract awarded

Rosa power plant 1290 1200MW Reliance Power 2010-2012

First unit due December 2009, second unit March 2010

Thermal power plant, Chhattisgarh 1320 1200MW GMR 2010-2014

Construction due to begin March 2010

thermal power plant 1400 1320MW

Bharat Heavy Electricals, Maharashtra State Power Company na JV formed

Two power plants in Gujarat and Kerala 1500 1200MW Pertonet 2009-2013 Plans announced





Hydropower project, Manipur 1890 1500MW

Satluj Jal Vidyut Nigam, NHPC 2009-2021 Project Announced

Talwandi Sabo power plant, Punjab 2160 660MW Sterlite Energy -2012

Financial closure achieved

power plant in Gujarat 2300 2000MW Jindal Group -2012 Awaiting approval

power project in Tamil Nadu 2310 2000MW

Macnamara International na At planning stage

thermal power plant at Gidderbaha 2600 2640MW na na

Expression of interest (EoI) completed

Dadri Power project, UP 3150 3500 MW Reliance Power na

EPC tender released

Hydropower projects India (and Nepal) 3200 236 MW

Tata Power, SN Power 2009-2015 Plans announced

coal-fired power project, Sasan, Madhya Pradesh 4300 3960MW Reliance Power 2011-June 2014

Under construction; First unit completion set for May 2013

Oil refinery and thermal power station on Hare Island 120-580 250MW Tuticorin Port Trust na

Initial outline announced (Oct 08)

solar installations na 1000MW Enfinity, Titan Energy Systems 2010-2015 Plans announced

Two nuclear reactors - Kakrapar na 1400MW NPCIL 2009-2017 Plans announced

wind power in Theni, Tamil Nadu na 99MW

CLP Holdings, Vestas Wind Technology India 2009-Q410 Agreement signed

Thermal power project, Marwa, Chhattisgarh na 1000MW BGR Energy na Contract awarded

Shahpur power plant na 4000MW Reliance Power na EPC tender released

Nuclear power plants, Gujarat, Rajasthan na na na na Plans announced

Expansion of Rosa Thermal Plant , Uttar Pradesh 2660 1200MW Reliance Power 2011-2012

Second Phase under construction; US$1.33bn capital expenditure announced

Dondaiche power plant na 1320MW Mahagenco 2010-2014 Construction due to begin in 2010

13 Hydropower projects in Himachal Pradesh na 1583 MW

Moserbaer, DCM Shriram Infrastructure and Jindal Steel and Power na Approval granted





Solar PV power plant, Mithapur, Gujarat na 25MW Tata Power 2010- end 2011

PPA signed; Under construction

Kirthai power plant na 240 MW na 2009-

Second phase, bidding due to start end 2009

nuclear power plants na 2000MW AP Genco na

Project's location under discussion: Kadapa and Srikakulam mooted.

power project at Cheyyur, south of Chennai na 4000MW na 2008-2017

Land still to be acquired (Dec 08)

thermal power plant units in Rajasthan. na 500MW

Bharat Heavy Electricals 2008- Project awarded

power plant in Bihar na 1980MW NTPC 2008- Project awarded

Coal-fired power plant, Orissa province 2200 1000MW

Neyveli Lignite Corp Ltd 2010-

Seeking government approval

Coal fired power plant in Baithrani na 240 MW

Kerala State Electricity Board, National Thermal Power Corporation 2008- Project announced

IGCC Power Plant in Vijayawada na 125 MW

Bharat Heavy Electricals, APGenco 2008- Project announced

Power Plant at Tuticorin na 2000MW

Coastal Energen Private Ltd 2008- Project announced

Power project, Utter Pradesh na 732MW Lanco Infratech 2008-

Received financing of US$587.2mn

Coal-based Thermal Plant in Nagapatinuam district 1,570 1200MW Chettinad Power 2008-

Construction approved (February 2011)

Two 600MW Power Plants at Meja na 600MW

National Thermal Power Corp 2008- Project announced

Power Plant in Gujarat na 350MW Bharat Heavy Electricals 2008-2010 Project awarded

Rajpura Thermal Power Project, Punjab na 1320MW

Lanco Infrastructure Limited na

Bidding completed (Dec 08)

thermal power project in Punjab na 1980MW Sterlite Energy 2008- Project announced

Ultra Mega Power plant (UMPP), Sarguja, Chhattisgarh na 4000MW na June 2010 - Tender underway

Gautami Power plant, Andhra Pradesh 688.44 800MW

GVK Power and Infrastructure, EPC: Hyundai Engineering, Larsen & Toubro -2013

First unit to come online Q213; Second expansion on hold due to gas supply issues from Reliance

Krishnapatnam coal- 3755 4000MW Reliance Power - 2013 Under construction;





fired power plant (UMPP), Andhra Pradesh

Delays due to land disputes and unsuitable soil condition for boiler foundation;

Chhattisgarh power plant 567 1200MW

Dainik Bhaskar Power/Bharat Heavy Electricals Ltd (EPC) na

EPC contract awarded (July 2010)

Power plant, Uttar Pradesh 1400 1980MW

Jaiprakash Group, L&T 2010-2015

Supply contract awarded

Bajaj Energy, thermal power project, Uttar Pradesh 490 450MW Bajaj Energy 2010-

Financial closure (September 2010)

Krishnapatnam coal fired power plant 1500 (first phase) 1320MW

Sembcorp Utilities, Gayatri Energy Ventures 2010-2014

Reached financial closure (September 2010)

Andhra Pradesh power plant first phase 1500 1320MW

Sembcorp Industries, Gayatri Energy Ventures Private Lim na

Financial closure reached

Coal fired power plant, Raigarh district, Chhattisgarh state 584.1 1200MW

Visa Power, Construction contract: Bharat Heavy Electricals (BHEL) August 2011 -

Construction contract awarded

Rattle hydropower project in Jammu and Kashmir 1100 690MW

GVK Power & Infrastructure (GVKPIL), GVK Developmental Projects 2010-2017

Project awarded under BOOT basis

thermal power plant in Punjab na 2640MW

National Thermal Power Corporation, Punjab State Power Corporation na MOU signed

Gujarat solar power plant na 25MW GMR Infrastructure na

Approval granted (October 2010)

Haryana nuclear power plant na 1600MW

Nuclear Power Corporation of India (NPCI), Haryana Power Generation Corporation (HPGCL) 2010-

HPGCL proposed two new sites for plant; NPCIL purchasing land for project in Fatehabad district

Lakshadweep solar power plant 7.8 1MW

Bharat Heavy Electricals Limited 2010-2011

Contract awarded (October 2010)

Orissa UMPP (Darlipalli and Gajmara) 12400 8000MW NTPC 2010-2017

Delayed due to land acquisition problems (October 2010)

Jammu and Kashmir UMPP na 5000MW

National Hydro Power Corporation, Independent Power Producer na






Thermal/coal-based power plant, Baradarha, Janjgir-Champa district, Chhattisgarh 325.6 1200MW

Larsen and Toubro, DB Power Limited

October 2010 - May 2013


Three solar power plants, Haryana na na

Haryana Power Generation Corporation (HPGCL) 2010-

Shortlisting consultants

Chhindwara dam project, Madya Pradesh 31.5 1320MW

Om Metals Infraprojects, SEW na Contract awarded

Coal-based thermal power plant, Madhya Pradesh 4500 3960MW

National Thermal Power Corporation, MP Power Trading Company 2010-

MOU agreement signed

Solar power plant in Rajasthan na 5MW

Bergamo Harbinsons Energy, Andri Urja 2010-

Contract to sign in November 2010

Vadinar gas-fired power plant, Gujarat na 380MW Essar Energy 2010-

First of two phases commissioned

Four solar power plants 3000 1000MW Areva 2010- At planning stage

power plant in Adra, West Bengal na 1320MW

National Thermal Power Corporation (NTPC), Indian Railways na MOU to be signed

thermal power plant, Chitrakoot district, Bundelkhand na 600MW

Creative Thermo Light, Uttar Pradesh Power Corporation (UPPCL) 2010-2014 MOU signed

Tuppadahalli Wind turbine farm in Karnataka state 80.75 56.1MW Acciona Energy

2010 - October 2011 Completed

Tidal farm, Gujarat state na 50MW Atlantis Resources 2012- Contract awarded

Katwa super thermal power plant, Burdwan district, West Bangal 1800 1600MW

West Bengal Power Development, Bharat Heavy Electricals, NTPC 2010-

Seeking environmental clearance; Acquired 1.97km square out 4.22km square acres of land required for

power plant project, Rajasthan and Madhya Pradesh state 1770 16500MW Adani Power 2010-2014 At planning stage

Two 2MW solar PV power projects, Chandrapur Super Thermal Power Station 10.8 2MW

Megha Engineering and Infrastructure, Instant Energy, Mahagenco 2010- August 2011 Contract awarded

Coal power plant expansion 2000 660MW

Orissa Power Generation 2011 -

Bidding deadline was February 2011





Expansion of coal-fired power plant, Banharpali in Jharsuguda 2000 1320MW

Orissa Power Generation 2010-

Global tender floated /Financial closure loan planned for June 2011

Wind power plants 1100 na Tata Power 2010-2017 At planning stage

Jaitapur nuclear power project, Maharashtra 10000 3300MW

Areva, Nuclear Power Corporation of India

2011-2018 (first reactor)

Agreement signed; Studies to start in 2011; Face potential delays

Thermal power project, Bakreswar, West Bengal na 600MW na 2010-

US$658bn loan from Japan rejected due to concerns of ability to repay loan

renewable energy projects 40 500MW

Asian Development Bank (ADB), NTPC, Kyushu Electric Power 2010-2013

At development stage

100km Power transmission line project to link Jharli to the Bawana project na 400KV Jhajjar KT Transco

2010-2012 (14 Months)

Financial closure reached

lignite-based power plant, Bhavnagar na 150MW

Suryachakra Energy & Infrastructure Private 2010- At planning stage

coal fire unit, Bellary thermal power station 817.6 700MW

Bharat Heavy Electricals (BHEL), Karnataka Power Corporation (KPCL) 2010- Contract awarded

Hindalco thermal power plant, Orissa (structural steel works) 56.4 300MW Larsen & Toubro 2010- Contract awarded

Sepco-I thermal power plant, Punjab 36.1 1420MW Larsen & Toubro 2010- Contract awarded

Pirpainty Power Plant, Bhagalpur na 1320MW

Ganga Power and Natural Resources, Bihar State Electricity Board

2010-December 2014

MOU signed; In the process of obtaining clearance

Tamnar power plant extension project, Ghardhoda 2900 3600MW Jindal Power 2010-

Construction resume for two 600MW units; Awaiting approval for another 2400MW capacity extension

Kudankulam nuclear power plant, Tamil Nadu 2600 2000MW

Nuclear Power Corporation of India (NPCIL), Atomstroyexport

2006 - December 2011 (first reactor); August 2012 (Second reactor)

Commencement delayed for first reactor due ongoing negotiations with local residents, Plans scrapped





Arunachal Pradesh hydropower plant 140 90MW CESC 2012-2016

Project announced (December 2010)/Financial closure expected end-2012

solar thermal power plant, Parewar, Rajasthan 155.92 50MW

Godawari Power & Ispat (GPIL) 2010-

Official approval received

coal-fired power plant, Auraiya district 280 250MW

Uttar Pradesh Power Corporation (UPPCL), Unitech Machines (UMT) 2010-2014 MOU signed

800MW, Mundra; 120MW, Jojobera; 1,050MW, Maithon; 100MW of wind and 25MW of solar, Gujarat na 2095MW Tata Power 2011 At planning stage

solar power plant na 5MW Rithwik Projects 2010-2011 (1 year) Contract awarded

coal-fired power project at Jhajjar, Haryana na 1320MW CLP India

2010- December 2011 (first unit), May 2012 (second unit)

US$288mn financing agreement and US$813mn signed

Power plant investment 2000 630MW Dongfang Electric 2010- At planning stage

Expansion of Patratu Thermal Power Station, Jharkhand 1470 1320MW

National Thermal Power Corporation (NTPC) 2011-

MOU signed with Jharkhand State Electricity Board

Visakhapatnam power plant, Andhra Pradesh 5120 4000MW

National Thermal Power Corporation (NTPC) 2011-

PPA signed; Construction to start

Pitamahul coal-fired power project, Sonepur district, Orissa 1600 1300MW

KU Projects Private Limited (KPPL) 2011- MOU signed

Mahakalapara coal-fired power project, Kendrapara district, Orissa 1600 1300MW

SPI Ports Private Limited(SPIPL) 2011- MOU signed

Tentulipathar coal-fired power project, Angul district, Orissa 1460 1300MW

NSNL Nagapatnam Power Company Private Limited (NNPCPL) 2011- MOU signed

coal-fired plant at Luni, Orissa 1620 1320 MW JSL Stainless 2010-

Signed PPA with Grid Corporation of Orissa

Singaji thermal power project, Khandwa district 1428 1320 MW

Madhya Pradesh Power Generating Company Limited (MPPGCL)

2010-2012 (First phase)

Second phase to start

Kudgi coal-based na 4000MW NTPC 2011- Planning to float





thermal power plant tenders for procurement of equipment

Wind power plants in Karnataka, Maharashtra, Rajasthan and Tamil Nadu 191 150MW

Suzlon Energy, Hindustan Zinc Limited (HZL)

2011-September 2011

First phase (50MW) to be completed by March 2011

5 power generation projects, Orissa, Raigarh, Raipur, Chattisgarh 1180 na

Power Grid Corp of India 2011- At planning stage

Combined cycle gas-based power plant, Western Tripura district 65 100MW

North Eastern Electric Power Corporation (NEEPCO) July 2011 - 2013

First phase (60MW) awaiting construction (July 2011)

Anuppur coal-based plant, Madhya Pradesh 1400 2520MW

Macquarie Group, MB Power Madhya Pradesh (MBPMPL), Moser Baer Projects (MBPPL) 2011-2014

Under construction; Macquarie to invest US$129mn

solar power project, Rajasthan na 100MW

Reliance Power, Rajasthan Sun Technique Energy 2011-2012

PPA signed with NTPC

solar and wind project, Rajasthan 221.5 100MW Konark Group 2011-

Land lease agreements signed

coal-fired power plant, Navalakhi port, Kutch district, Gujarat 2000 2400MW

Vandanaa Power Infratech 2011-2014 MOU signed

Renewable energy park, Dholera Special Investment Region, Ahmedabad, Gujarat state 2640 na

Hindustan Construction (HCC) 2011-

Received government investment of US$2.55bn

coal-fired power plant (ultra-supercritical), Chandigarh 2200 800MW BHEL, NTPC 2011-2017 At planning stage

Development of renewable energy sources 7400 na

Asian Development Bank 2011-2013 At planning stage

Sagardighi thermal power plant, Murshidabad district, West Bengal na 1000MW na April 2011 - 2015

Construction to start





Kholongchhu hydropower plant na 670MW na 2011-

Feasibility study to be completed in December 2011

Second stage of Muzaffarpur thermal power plant project (two 195MW units), Bihar 51 195MW

Hindustan Construction Company (HCC) 2011-2014 Contract awarded

gas-based power plant, Gujarat 242 375MW Larsen & Toubro 2011-2013

EPC contract awarded

power plant, Karnakata 54 50MW Orient Paper and Industries (OPIL) 2011- At planning stage

solar power plant, Meghalaya 33 10MW Azure Power 2011-

Awaiting state government approval

Haryana biomass power plant 150 154MW

Gammon Infrastructure Projects, Barmaco Energy Systems 2011-2013

Agreement signed (February 2011)

HEPL thermal power plant, West Bengal 892 660MW EMTA Power 2011-2015 At planning stage

1200MW expansion to 655MW gas-fired power plant, Gujarat 1300 1200MW

China Light and Power (CLP) 2011-

Approval granted from Central Electricity Authority (CEA)

gas-fired power plant in the district of Jhajja, Haryana na 420MW GMR 2011-2013

In talks with state government; Plant designed for Indira Gandhi International Airport

Mandva coal-based thermal power project, Maharashtra na 1320MW

Lanco Infratech, Lanco Vidarbha Thermal Power 2011-

Received environmental clearance from Ministry of Environment & Forests

Indira Gandhi Super Thermal Power Project, Haryana na 1500MW

National Thermal Power Corporation 2011-

500MW thermal unit completed; Remaining two units under construction

solar plant (Phase 3), Kutch, Gujarat 66.6 20MW

Solairedirect Energy India na

Seeking investment; In talks with government

Samalkot natural gas-fired power plant, Andhra Pradesh 2000 2400MW

Reliance Infrastructure, Reliance Power, Black & Veatch 2011-

Turbine orders placed; Seeking US$625mn loan from US Exim Bank (July 2011)

Sarguja power plant, Chhattisgarh na 1200MW Adani Power 2011-

Awaiting environmental





clearance

Wind power plant, Maharashtra 22 na

Mahanagar Telephone Nigam (MTNL) 2011-

At planning stage; Feasibility study to start

Kovvada nuclear power plant, Andhra Pradesh 22000 1300 MW na na

At planning stage; stage government agreed to provide 1,300 acres of land

Nizampatnam nuclear power plant, Andhra Pradesh 22000 6000 MW na 2011- At planning stage

Raigarh gas-based power plant, Maharashtra na 1300MW

DMIC Development Corporation na

Received clearance from environment ministry

Guna gas-based power plant, Madhya Pradesh na 1300MW

DMIC Development Corporation 2011-


Rajasthan coal-based power plant, Maharashtra na 1320MW Adani Power 2011-


thermal power plant, Jharkhand na 270MW Adani Power 2011-


biomass power plant, Chhattishgarh na 12MW Adani Power 2011-


Amravati coal-based power plant, Maharashtra na 1350MW Indiabulls 2011-


coal based captive power plant, Tamil Nadu na 120MW ARS Metals 2011-


gas-based captive power plant, Gujarat na 7.2MW Raymond 2011-


Bedabahal ultra mega power project (UMPP), Orissa 3810 4000MW

National Thermal Power Corporation (NTPC); Orissa Power Generation Corporation 2011-

Bidding deadlines delayed fifth time to May 31 2011; project 8 months behind schedule

Balagarh thermal power plant expansion (660MW to 1320MW), West Bengal 1500 660MW CESC 2011-2016

At planning stage to double capacity

Transmission lines between Northeast India and Agra 353 1728km

BHEL, ABB, Power Grid Corporation of India 2011- Order received

Koteshwar Hydro Power Project na 400MW

Tehri Hydro Development 2011-

First unit (100MW) commissioned in April 2011





21 new wind, biomass and mini hydro power projects, Karnataka state na 114MW na 2011-

Awaiting central government approval

5 thermal power plants, Bihar na na na 2011-

Proposal from private investors approved

Wind power project, Tamil Nadu 85 100MW

Techno Electric and Engineering Company, Simran Wind Project 2011-

1st phase (37.5MW) by mid-July 2011; US$85mn loans from IFC, Standard Chartered Bank, DBS Bank

Patan solar power plant, Gujarat na 40MW PLG Power

April 2011- end-2012

At planning stage; To be developed in four stages

coal-fired power plant, Ranchi, Jharkhand 1350 1320MW Madhucon Projects 2012-2015

MOU signed with Jharkhand government; US$1bn of financing to be raised by company

power plant, Madhya Pradesh 293.08 (first phase) 1360MW JK Organisation

2011-2013 (first phase) At planning stage

transmission lines, Maharashtra 82.1 400 kV

KEC International, Maharashtra State Electricity Transmission Company 2011-2012 Contract awarded

An integrated power distribution network for countries part of the South Asian Association for Regional Cooperation (SAARC) na 100000MW na 2011- At planning stage

Western Region System Strengthening (WRSS) project, Gujarat 314.33 1500km

Reliance Infrastructure, Reliance Power Transmission (RPTL) 2011-

First Solapur-Karad transmission line commissioned; Second 103km Limdi-Ranchodpura transmission line

Krishnapatnam power plant, Andhra Pradesh na 1,920MW

Simhapura Energy, Madhucon 2011-

First 300MW stage completed by June 2011; Construction has four phases

Jegurupadu III gas-based power plant, Andhra Pradesh na 800MW

GVK, Hyundai Engineering, Larsen & Toubro, Alstom -H2 2014

Phase III on hold due to gas supply uncertainties from Reliance

Madhya Pradesh Power Sector Investment Programme 620 10000MW na 2011-

Final loan instalment of US$69mn received from ADB





(transmission capacity)

Three (3x360MW) gas-based power plants, Nagapattinam 770.9 1080MW

Larsen & Toubro, PPN Power Generating Company na

Contract awarded by PPN to L&T

Thermal power plant project, Patutu na 1980MW

Jharkhand State Electricity Board na

Project in limbo; Proposals originally to be invited in early 2011

Eight wind power projects(25MW each), Karnataka or Tamil Nadu 273 200MW GAIL 2011 At planning stage

Three photovoltaic power plants, between Dhule and Chandrapur districts, Maharashtra 438 155MW Mahagenco 2011

To be constructed by Mahagenco

Solar photovoltaic (PV) plant, Dhule district, Maharashtra province 195 75MW

Lanco Solar, Lanco Infratech, Juwi Holdings, Maharashtra State Power Generation Company

2011 - February 2012 Contract awarded

Coal-based power plant, Jharkhand na 1320MW Adani Power (APL) 2011

Proposal submitted to state government; Coal supplies from Jharkhand Urma Pahari Coal Mines

Wind power project, Gujarat na 50MW

Enercon, Torrent Power

2011 - December 2011

Deal signed with Enercon

Solar power project, Gujarat na 50MW Torrent Power

2011 - December 2011 PPA signed

Solar PV project, Rajasthan na 5MW

Astonfield Renewable Resources, Grupo T-Solar Global, Schneider Electric 2011 -

Schneider Electric as EPC contractor; Debt financing provided by Indian banks

Natural gas-based power plant, Maharashtra state na 250MW GAIL India 2011-

PPA to be signed; Received approval from GAIL's board

Hydropower plant EPC project 67.07 na

Ramky Infrastructure, Ramky Enviro Engineers 2011-2013 Under construction

Laying of two 250km high-capacity transmission lines between Vemagiri and Hyderabad, Andhra 290 250km na July 2011 -

At tendering stage (July 2011)





Pradesh

Solar photovoltaic (PV) power plant, Belakavadi village, Karnataka 13.89 5MW

Bharat Heavy Electricals (BHEL) 2011 -

Contract awarded by Karnataka Power Corporation (KPCL)

Dharapuram wind farm, Tamil Nadu 350 250MW

WinWinD Power Energy, Suryachakra Green Power

June 2011 - Q3 2013

Constructed under 3 phases

Kotlibhel II hydropower plant, Uttarakhand na 530MW

National Hydroelectric Power Corporation (NHPC) June 2011 -

Proposal rejected by MoEF (June 2011)

Alaknanda Badrinath hydropower plant, Nanda Devi Biosphere Reserve, Uttarakhand na 650MW GMR Energy June 2011 -

Proposal rejected by MoEF (June 2011)

Solar power plant, Gujarat na 30MW Moser Baer - July 2011 Under construction

Coal-based thermal power plant, Langrin Coalfield, West Khasi Hills District, Meghalaya state 286.7 240MW NEEPCO June 2011 -

Investment unconfirmed; Construction period to take 32-month

Karcham Wangtoo RoR hydro power project, Kinnaur district, Himachal Pradesh 1569 1000MW

Jaypee Karcham Hydro Corporation, Jaypee Group - August 2011

Under construction; 1st, 2nd turbine completed; 3rd, 4th turbine completed by July and August 2011 r

Pumped-storage hydropower plant, Tehri 156 1000MW

Hindustan Construction Company, Alstom June 2011 - 2015

EPC contract awarded (June 2011)

Coal-based thermal power plant, Kanpur, Bilhaur, Uttar Pradesh na 1320MW NTPC January 2012 -

Awaiting environmental clearance

Coal-based power project, Kanpur 1480 1320MW

National Thermal Power Corporation (NTPC) January 2012 -

Construction to start in January 2012

Vishnugad Pipalkoti hydropower plant, Alaknanda river, Uttarakhand 648 444MW THDC India July 2011 - 2016

US$648mn loan from World Bank (July 2011)

Solar power plant, Pokhran, Rajasthan 304.6 100MW PLG Power July 2011 -

Seeking approval from the Indian Energy Exchange and the Rural Electrification Corporation (July 201





3 solar power projects (Patan, Kutch and Mithapur regions), Gujarat na 30MW

Tata BP Solar India, Tata Power, BP Solar

July 2011 - end-2011

Contracts secured; Projects part of Gujarat Phase-I solar power policy; 25-yr PPA signed

Two 400KV transmission (25-year concession) projects, Rajasthan state 83.5 400km GMR Energy

July 2011 - July 2013

Seeking financing from IDFC (July 2011); Construction to take 2 years

Pressurised heavy-water nuclear reactor, seventh unit of the Rajasthan Atomic Power Station, Rajasthan na 700MW

Nuclear Power Corporation of India (NPCIL)

July 2011 - June 2016 Under construction

3 Hydropower projects (Subarnapur, 100MW, Sambalpur, 100 MW, Boudh, 120 MW), Mahanadi River, Orissa 586 320MW

NHPC, Orissa Hydro Power Corporation July 2011 - 2016

Pact signed with state government (July 2011); To potentially face protest (July 2011)

High-voltage transmission lines (include five transformer substations),Uttar Pradesh 1166 1600km

Isolux Infrastructure, Isolux Corsan Aug 2011 - 2048

37.5-year, BOOT concession awarded (August 2011)

Laying of two 250km high-capacity transmission lines between Tamil Nadu and Karnataka 233 250km na July 2011 -

At tendering stage (July 2011)

Coal fired power plant, Orissa state na 1320MW Visa Power August 2011 - Contract awarded

Lodhva coal-based Ultra Mega Power Plant (UMPP), Junagadh district, Gujarat 5400 4000MW na August 2011 -

Site Selected (August 2011)

Gare Pelma II coal-fired power plant, Raigarh, Chhattishgarh 2700 2000MW Lanco Infratech August 2011 - 2015

Concession awarded (August 2011)

Siang Upper hydropower project, Arunachal Pradesh state 22000 9500MW

National Thermal Power Corporation (NTPC) 2011 -

In discussion with state government (August 2011); Undergoing field studies (August 2011)

Koldam coal-based na 800MW NTPC - 2012 Under construction





power project, Himachal Pradesh

(August 2011)

2 Hydropower plant, Uttarakhand na 400MW NHPC August 2011 -

At planning stage (August 2011)

Ultra-mega power plants in the states of Tamil Nadu and Andhra Pradesh na na na na 2 sites chosen

Solar power plant, Rajasthan state na 40MW Reliance Power August 2011 - 2012

PPA agreement signed with Reliance Infra, US$84mn loan approved from US Exim Bank (August 2011)

Solar power plant, Jaisalmer, Rajasthan na 100MW Reliance Power August 2011 - 2013

PPA agreement signed with NTPC (Aug 2011); Solar modules supplied by First Solar (Sep 2011)

Gas-fired power plant, between villages of Arwa and Mothuka, Haryana region na 1500MW

Haryana Power Generation Corporation September 2011 -

Environment Management Plan awaiting approval, EIA report being prepared (September 2011)

Teesta stage-IV hydropower project 773 520MW NHPC August 2011 -

Garnering all statutory clearances (August 2011)

Ghatampur coal-based power plant, Kanpur Nagar district, Uttar Pradesh state 2100 2000MW

Neyveli Lignite Corporation, Uttar Pradesh Rajya Vidyut Utpadan Nigam (UPRVUNL) September 2011 -

MOU signed with UPRVUNL, Feasibility & Environmental studies underway (Sep 2011)

Neyveli coal-based power plant (replacement of existing 600MW TPS-I), Cuddalore district, Tamil Nadu 1200 1000MW

Neyveli Lignite Corporation

September 2011 - December 2015

Received government approval, At tendering stage (Jun 2011)

Bithnok coal-based power plant (includes linked mine of 2.25mtpa capacity), Bikaner district, Rajasthan 481 250MW

Neyveli Lignite Corporation September 2011 - At planning stage

Solar thermal power plant, Rajasthan 115.1mn 50MW

Lauren Jyoti, Jyoti Structures, Lauren, Godawari Green Energy

September 2011 - May 2013

Contract awarded by Godawari Green Energy (Sep 2011)

Transmission systems, Madhya Pradesh and Chhattisgarh 288.7 na

Power Grid Corporation of India Ltd ( PGCIL)

August 2011 - end-2012

At planning stage, received management





approval (August 2011)

Pooling stations at Champa and Raigarh (near Tamnar), Chhattisgarh 414 na

Power Grid Corporation of India (PGCIL)

June 2011 - June 2014

Plans announced (June 2011)

Monarchak gas-based power plant, West Tripura district na 100MW

North East Electrical Power Corporation (NEEPCO)

July 2011 - January 2013 (first phase)

First phase (60MW) completed by 2013 (Jul 2011)

Wind farm, Gujarat na 25MW ReNew Wind Power September 2011 -

Under development (Sep 2011)

Wind farm, Maharashtra na 60MW

ReNew Wind Power September 2011 -

Under development (Sep 2011)

Gujarat Solar Power Transmission Project, Charanka solar park, Patan district 137 na

Asian Development Bank September 2011 -

US$100mn loan from ADB, US$37mn from state government (Sep 2011)

Solar power plant, Gujarat 68.5 20MW

Zamil Industrial, PLG Photovoltaic Limited September 2011 -

EPC contract awarded (Sep 2011)

Coal-based thermal power project, Godhna, Chhattisgarh na 1600MW

Karnataka Power Corporation Ltd (KPCL), Larsen & Toubro February 2010 -

Clearances obtained, land acquisition in progress (Feb 2010)

Interregional transmission line (800 kV high-voltage direct-current technology) upgrade project, Chhattisgarh state to northern states 750 1,300km

Power Grid Corporation of India (PGCIL), Asian Development Bank October 2011 -

US$750mn loan from ADB (Oct 2011)

Salaya coal-based plant (Part of US$8bn, 3-year investment), Gujarat state na 3120MW Essar Power 2011 - 2014

Under construction (Oct 2011)

Hazira multi fuel plant (part of US$8bn, 3-year investment), Gujarat state na 270MW Essar Power 2011 - 2014


510MW expansion to the 500MW Vadinar thermal plant (part of US$8bn, 3-year investment), Gujarat state na na Essar Power 2011 - 2014


Mahan coal-based na 1200MW Essar Power 2011 - 2014 Under construction





plant (part of US$8bn, 3-year investment), Madhya

(Oct 2011)

Tori coal-based plant (part of US$8bn, 3-year investment), Jharkhand state na 1800MW Essar Power 2011 - 2014


Paradip coal-based plant (part of US$8bn, 3-year investment), Orissa state na 120MW Essar Power 2011 - 2014


Navabharat coal-based plant (part of US$8bn, 3-year investment), Orissa state na 1050MW Essar Power 2011 - 2014


Tilaiya ultra mega power (coal-based) project (UMPP), Jharkhand na 3,960MW

Reliance Power, Jharkhand Integrated Power

October 2011 - 2015

Under construction, received approval to start carbon credits trading (Oct 2011)

Solar power plants (including manufacturing plant in Bangalore) na 40MW

Electrotherm India, AEG Power

October 2010 - October 2011

Projects cancelled due delays in funding and subsequent cost rises (Oct 2011)

North Karanpura power plant, Jharkhand 1600 1980MW

National Thermal Power Corporation (NTPC) October 2011 -

Committee established to resolve location dispute between power and coal ministries (Oct 2011)

Lucknow-Sultanpur highway four-lane widening project, part of Phase IVA of the National Highways Development Programme 206 na

Essar Projects, Atlanta October 2011 -

Contract awarded Indian National Highways Authority (NHAI) (Oct 2011)

Nuclear power plant, Haripur, West Bengal na 6000MW Atomexportstroy August 2011 -

Plans scrapped by state government (Aug 2011)

Water

Water pipeline system in Delhi 0.3 na na 2008- Tender announced

Sewer rehabilitation in Delhi 21 na

Insituform Technologies Inc 2008- Project awarded

Andhra Pradesh irrigation work 102 na

IVRCL Infrastructures & Projects 2008-2012 Project awarded

Water management contract for Mysore city na na Tata na na

Mundra UMPP na 9.198mn m3/year Aquatech International na

DBO contract awarded in May





desalination plant Corporation 2009

Water supply scheme to Kurugodu, Bellary na na na 2008- Tender launched

Water treatment plant in Tamilnadu na na na 2008- Tender announced

Chennai Pumping Station expansion na na na 2008- Tender launched

Street drinking water taps for slums of Kadapa na na na 2008- Project announced

Sewage system for 9 towns in Rajasthan na na na 2008- Project announced

Two desalination Plants, Mumbai 260 36.5 mn m3/year na na

First phase to be completed 2014

Underground drains in Jabalpur city, Madhya Pradesh (210km) 118 na

Larsen and Toubro (L&T) 2010-2013 Contract awarded

Haryana project (stormwater drainage, wastewater collection, water supplies and associated works in industrial units situated in Panipat and Rai) 36 na

Larsen and Toubro (L&T) 2010-2012 Contract awarded

Water supply and mitigation project, Tamil Nadu 86 na

Nagarjuna Construction 2010- contract awarded

Chhattisgarh Canal Project, 60km 56 na na 2010-2014

Received government approval

Power, water and sewerage development projects 1200 na

Mitsubishi Heavy Industries, Tata Motors 2010- At planning stage

Water treatment plant, Bihar state na 2.271mn m3/year Punj Lloyd 2011- Contract awarded

Expansion of water treatment plants, Ganges river 109 na na 2011-

At planning stage; funded by state and federal governments





Rajasthan Urban Sector Development Investment Program (New treatment plants, renovating distribution networks and installing new connections in slums and low-income areas) 63 na

Asian Development Bank (ADB) 2011-

US$63mn loan agreement signed between ADB and Rajasthan state government

Water supply projects (treatment plant, pipes and pumping stations, Guwahati;flood relief culverts, bridges and sluice gates, Dibrugarh), Assam 200 na

Asian Development Bank (ADB)

October 2011 - December 2017

US$200mn loan from ADB (Oct 2011)




Residential/Non-Residential Construction and Social Infrastructure

Table: India Residential and Non-residential Building Industry Data

2008/09 2009/10 2010/11 2011/12f 2012/13f 2013/14f 2014/15f 2015/16f 2016/17f




Residential and Non-Residential Building Industry Value Real Growth, % chg y-o-y -2.5 7.5 6.3 2.4 4.2 4.8 6.1 5.5 5.3




2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f







2013/14f 2014/15f 2015/16f 2016/17f 2017/18f 2018/19f 2019/20f 2020/21f 2021/22f

Residential and Non-Residential Building Industry Value Real Growth, % chg y-o-y 4.8 6.1 5.5 5.3 4.8 4.7 4.7 4.4 4.5





Residential/Non-Residential Construction Forecast Scenario

Over the next few years we

expect India's residential and

non-residential building sector

to continue to underperform

the wider construction sector

and overall economic growth.

While favourable macro

economic and demographic

fundamentals should continue

to drive growth - we forecast

the sub-sector will grow at an

average of 4.7% year-on-year

(y-o-y) in real terms between

2011 and 2016 – this is

significantly below the rate

required to meet the demands

of India's rapidly urbanising

population.

Over the short-term, an 18-month-long aggressive rate hiking cycle will see demand for housing and

commercial projects continue to soften as credit growth falls; while over the medium-term at least, major

barriers to affordable housing provision and a weak business environment, among other factors, will

continue to limit growth.

Short-term headwinds add to long-term obstacles

We expect India's residential and non-residential building industry to grow by a very modest 2.4%% in

real terms in 2011/12, compared to our forecast of 5.9% for the infrastructure sector and 7.4% for real

GDP. Indeed, BMI notes that with residential and non-residential building already an underperforming

sector, we expect the effects of an 18-month-long aggressive rate hiking cycle to add to the headwinds

facing the sector. With inflation still on the rise and elevated interest rates to remain in place until late

FY2011/12 (April 1 2011 to March 31 2012), a softening in the domestic demand is likely to have a

greater impact on residential and non-residential construction activity than on infrastructure.

The multiple headwinds facing developers in India’s residential construction sector point to a deflationary

outlook over the coming 6-12 months. Indeed, evidence suggests that demand for property has started to

flag. Real estate sales deed registrations in Mumbai slumped by 31% y-o-y in July 2010, the 12th

consecutive month of year-on-year contraction. Sales have fared even worse in industrial development

areas such as Noida, where registrations are down by as much as 50% y-o-y. Furthermore, inventory

Residential and Non-residential Building

Residential And Non-residential Building Industry Data

f=forecast. Source: Reserve Bank of India, BMI



levels are ticking up. Unsold inventory in Mumbai increased to 12 months in July (from a low of nine in

March 2011), and similar trends have been witnessed across other major cities such as Bangalore (18

months) and Chennai (10).

These figures illustrate that elevated property prices and the rising cost of mortgage financing have started

to hurt consumer appetite for new homes. Mortgage rates at the Housing Development Finance

Corporation (HDFC), India's largest mortgage lender, have risen to a 2½-year high of 10.75% in line,

with the Reserve Bank of India's 350bps tightening cycle since March 2010, and the low spread suggests

previous rate increases may yet have to be passed on. Given BMI’s Country Risks analysts’ subdued

outlook on the Indian consumer, we would not expect to see households embark on a major buying spree

anytime soon.

A More Expensive PropositionIndia - RBI Repo Rate & HDFC Mortgage Rate, %

Source: BMI, RBI, HDFC

A build-up of unsold inventory, higher financing costs and huge debt levels have also severely dented the

liquidity position of real estate developers. Indeed, the sector's total debt burden was estimated to be

worth US$24.6bn in July 2011, up from just US$3.8bn in September 2005, and rolling over this debt has

become extremely expensive in a high-rate environment. Builders such as Real Estate Holdings and

Akarsh Residence were forced to sell debt at yields between 16-24% in Q111.

Indeed, the tough operating environment, weakening earnings prospects and the fall-out from a number of

housing loan scandals last year has seen the BSE Realty Index majorly underperform the broader index in



the last few years (see chart). Indeed, since its October 2010 cyclical peak, the index is down by 55%,

making it the worst performing sub-sector on the BSE.

Underdeveloped Mortgage Market While elevated interest rates will dampen demand for mortgages –

and by extension new homes – over the short-term; of greater concern to the long-term development of

India's housing sector is the fact that mortgages remain accessible to very few. The mortgage market in

India accounts for less than 5% of GDP and although it holds vast growth potential, we believe the

inaccessibility of home loans remains one of the key barriers to the long-term development of India's

residential construction sector. BMI notes this issue is one of the keys to unlocking the private investment

needed to meet the vast underlying demand for housing in the country.

That said, we believe that residential construction projects will continue to provide a key source of value

for the sector, although growth will not come at the rate needed to keep pace with the huge demand for

affordable homes generated by a rapidly urbanising population. Social housing provision will remain a

pressing issue as the government struggles to address the country’s urban housing deficit of 25mn. BMI

notes that confusion over the roles of central, state and local government actors, coupled with bureaucracy

and widespread corruption, has hampered the country's efforts to implement a coherent and effective

urban development strategy.

BMI notes that manifold obstacles continue to undermine India’s business environment – particularly

those facing construction companies – and we believe that over the short- to medium-term, growth will

continue to be curbed by these weaknesses.

However, there are increasing signs that the government is taking a more pro-active approach to tackling

the country's long-term development needs. In particular, the appointments of Kamal Nath and Jairam

Ramesh as ministers for urban development and the environment respectively appear to be positive and

could offer some upside potential to our forecasts.

Residential/Non-Residential Construction and Social Infrastructure Overview

India's urban population will grow by 215mn by 2025 and by 2030 the country is projected to have 68

cities with a population of over one million – compared to 42 today. This poses a stern test for India,

which is already home to Asia’s largest slum population. The pressure on affordable housing in particular

will become increasingly acute over the next decade as housing and land supply constraints drive up

property prices.

This will expand the growing proportion of the urban population unable to buy a home at market rate, and

further perpetuate India's chronic urban slum problem that threatens to derail its urban transformation.

While significant obstacles will need to be overcome if India is to come close to addressing these

challenges, we believe the sheer level of demand for physical and social infrastructure will ensure large



levels of private investment continue to pour into the country. We expect this to continue over the next

few years, with both upside and downside risks present.

While elevated interest rates will dampen demand for mortgages – and by extension new homes – over

the short-term; of greater concern to the long-term development of India's housing sector is the fact that

mortgages remain accessible to very few. The mortgage market in India accounts for less than 5% of

GDP and although it holds vast growth potential, we believe the inaccessibility of home loans remains

one of the key barriers to the long-term development of India's residential construction sector. BMI notes

this issue is one of the keys to unlocking the private investment needed to meet the vast underlying

demand for housing in the country.

Central to this problem is finding a sustainable housing financing solution for those within India's low- to

middle-income bracket, as banks, unsurprisingly, prefer to lend to those within the mid- to higher-income

levels. The government will need a housing model that is both attractive to private developers and flexible

enough to be accessible to those within India's vast low income bracket. Such a solution has so far been

beyond the capabilities of the Indian government and its realisation over the short- to medium-term

remains unlikely.

Steps In The Right Direction

However, over the last 12 months there have been encouraging signs that the government is seeking to

tackle the issue of mass affordable housing provision. In June 2011, the government launched the

ambitious Rajiv Awas Yojana (RAY) scheme, targeting 32mn people across 250 cities. The scheme

includes welcome elements such as the establishment of a low-income mortgage fund and the assigning

of property rights to slum dwellers. However, BMI notes that while the government's establishment of a

US$137mn mortgage guarantee fund to facilitate greater lending to low income groups is a positive step,

it falls way short of what is required.

Indeed, we have long stressed that the level of investment required to meet India's slum housing demands

is at a far higher level than the government alone will be able to sustain in the long-term. While moderate

success has been achieved in harnessing the private sector for economic infrastructure projects, social

infrastructure remains a largely untapped area.



Tourism Ticking Up

A planned US$2.1bn theme park project

in Gujarat, announced in July 2011, is the

latest illustration of a growing trend

across Asia as countries seek to capitalise

on rising consumer-spending and a

burgeoning mass tourism market. BMI

notes that while visitors from developed

markets such as the UK and US are still

the biggest contributors by number to

India's tourism market, the balance is

shifting, with arrivals from Asia and

within India itself likely to be the major

growth driver over the coming years.

With a population of over one billion and an expanding middle-class, we believe India's domestic tourism

industry will increasingly become a key driver of demand within the commercial construction sector in

particular, as hotels and resort development create growing value for the industry. Indeed, in April 2011,

International hotel chain Starwood hotels announced plans to ramp up its presence in India. With 31

hotels in the country, the firm plans to add a further seven by the end of 2011 and also plans to open its

first W brand hotel in Mumbai in 2015.

Cabinet Reshuffle A Positive Move

The appointment of Kamal Nath as India's new Minister for Urban Development following a cabinet

reshuffle in January 2011 can be interpreted as an attempt by the government to inject some much-needed

momentum into the sector. Moreover, having had success in harnessing private sector support for public

projects in his previous role at the road transport ministry, Mr Nath's appointment is an encouraging sign

that India's central government is seeking a more active role in tackling its long-term development needs.

While the role of urban development minister is not traditionally regarded as a high profile one, this could

well change with Nath's appointment. BMI notes that his appointment is part of a wider drive by the

Congress-led government to alert investors to the opportunities within the sector. However, his

appointment is the easy part, as the government must now attempt to find a solution which will allow it to

meet the housing and educational needs (among other requirements) of the millions who will move to the

cities over the next 20 years. In the case of affordable housing, BMI notes that the government will need

a model that is attractive to private developers and flexible enough to be accessible to the vast range of

people within India's expanding urban low-income bracket.

A Growing Attraction

India – Foreign Tourist Arrivals (Monthly)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Aug

-02

Feb

-03

Aug

-03

Feb

-04

Aug

-04

Feb

-05

Aug

-05

Feb

-06

Aug

-06

Feb

-07

Aug

-07

Feb

-08

Aug

-08

Feb

-09

Aug

-09

Feb

-10

Aug

-10

Feb

-11

Source: Bloomberg.



The level of investment required to meet these demands is at a far higher level than the Indian

government alone will be able to sustain in the long-term. Furthermore, while moderate success has been

achieved in harnessing the private sector for economic infrastructure projects, social infrastructure

remains largely untapped. This trend is likely to continue over the foreseeable future, reflected in our

forecasts for India's residential and non-residential building sector. Between 2011 and 2020, we expect

real growth in the sector to average 4.2% y-o-y. In contrast we expect to see 7% average growth for the

overall construction sector and over 7.5% for the booming Indian economy as a whole. Fostering greater

investment into its urban building sector

must therefore be a priority for the

government.

BMI believes that PPPs represent a major

potential source of funding for a social

infrastructure sector that as yet remains

largely untapped. Of the 450 PPP

projects at various stages of progress,

over 60% are road projects, with the

remainder mostly economic infrastructure

projects, notably ports, power projects

and airports. Having worked in the only

sector where PPPs have really flourished,

there is growing evidence that Kamal

Nath plans to implement a more investor-friendly approach, with a greater focus on private procurement.

Between 700 to 900mn square metres (m2) of commercial and residential space needs to be built in the

country every year, according to a Mckinsey Global Institute (MGI) report. In order to meet such

demand, significant private sector participation will be needed, both in terms of financing and expertise,

over the long term. However, while India has had some success increasing private sector participation

through the creation of a more conducive project financing environment, the limited long-term borrowing

capability of domestic banks and a lack of transparency still present challenges and pose risks.

In the affordable housing sector in particular, such risks have deterred investment, despite the huge

growth potential. Inadequate business models and developers' preferences for building more profitable

mid to high-end residential housing have traditionally inhibited growth within the sector and limited

mortgage lending options for lower-income groups.

Companies such as Bangalore-based developer Provident Housing, the affordable housing arm of

Puravankara Group, have sought to overcome such obstacles by using funding from new bookings to

finance operational costs, thereby reducing the financing risks associated with such projects. Indeed, its

successful business model means the firm is now targeting new projects across 33 cities over the next five

Roads Ahead

India PPP Projects By Sector

Source: Ministry of Finance



years. Provident Housing is one of a growing number of developers seeking to capitalise on the insatiable

demand for affordable housing in India.

Provident’s latest proposal, announced in November 2010, involves the development of four housing

projects in Karnataka and Tamil Nadu, with the first of the projects, on Mysore road in Bangalore, due to

be completed by end-2010. Construction on the latter three projects will start in 2011 and will add to the

firm's growing portfolio of affordable housing projects. One ongoing project is the 'Provident Welworth

City' in North Bangalore, which is specifically providing for those within the INR1.5mn (US$33,000) to

INR2mn (US$44,000) per apartment income bracket.

Clearer Stance On Environmental Planning Should See Benefits

We believe a firmer stance on environmental planning and regulations – despite some high profile

disputes and project delays – is what is needed if a coherent and trusted framework is to emerge over the

medium-to-long term.

Table: World Bank ‘Doing Business’ Report: Global Rankings 2010

Ease of doing business (rank) Dealing with construction permits (rank)

Zimbabwe 157 172

Kosovo 119 173

Malawi 133 174

Burundi 181 175

Serbia 89 176

India 134 177

Source: BMI, World Bank

In light of this, the Indian environment ministry’s approval – in May 2010 – of South Korean steel maker

POSCO's long-delayed US$12bn plant in Orissa is a welcome decision for the industry and a relief to

investors. Given the size of the investment, the deal – first announced in 2005 – had come to typify the

inherent obstacles facing project execution in the country. Although not the only steel project facing

delays in the country, the approval of such a high-profile venture will be received with cautious optimism

by the industry. Moreover we maintain our view that the country's insatiable long-term demand for key

materials, such as steel, should convince global investors to absorb such cost and time overruns.

One of the major obstacles facing the project had been the issue of land clearance, which continues to be

one of the major obstacles facing the construction industry in India. Indeed, it was announced on October

18 2010, by India's Environment Minister, that the project's environmental clearances would be

withdrawn, with no fixed timeframe for a decision on the future of the project. BMI notes that the



opposition of local farmers and families who would lose their land under the proposed project was cited

as a key reason; the decision also reflected Delhi and its new environment minister Jairam Ramesh's

firmer stance on environmental impact and social protection.

However, claims by local people that they are being forced off their land have now been dismissed –

despite ongoing protests – by Ramesh, and approval has been granted, raising hopes that future projects

may be dealt with more swiftly as greater clarity in the implementation of planning procedures is

gradually achieved. The project was billed as the single largest investment in the country when

announced and has therefore been regarded by foreign investors as a test case for the country's

environmental vetting procedures.



Major Projects Table – Residential/Non-Residential Construction and Social Infrastructure

Table: Major Projects – Construction And Social infrastructure


Commercial Construction

Five theme parks, Gujarat 2100 13mn sq m

Atlanta, Disney World, Wonderland, Sentosa, Genting July 2011 -

Received approval from Gujarat Tourism Department; In talks with five foreign operators (July 2011)

dwelling units at three new resorts in Gir, Ranthambore and Sariska 60 500 units

Mahindra Holidays & Resorts 2011- At planning stage

Four hotels in Juhu, Mumbai na na HDIL 2013- At planning stage

One hotel in Kakinada, Andhra Pradesh na na HDIL 2013- At planning stage

housing units, a five-star hotel and a shopping mall 437 3000 units ATS Group 2010-2015


Hyatt Regency, Ahmedabad 88.5 27870 sq m

Juniper Hotels, Hyatt 2011-2013

Project announced (December 2010)

Three commercial construction projects in Pune and Orissa 44 na Unity Infraprojects 2010-2012 Contracts awarded

20 to 30 hotels na na Choice Hotels 2011- At planning stage

117 storeys 'World One' tower, Mumbai 99 na

ACC, Simplex Infrastructures, Lodha Developers 2011-2015 Contract awarded

Tourist development project, Konkan, Maharashtra province 51 na na 2011-

Received state approval

Orissa steel plant 1120 1.8mn tonne Bhushan Steel 2011- At planning stage

Office complex for Insurance Regulatory and Development Authority, Nanakramguda, Hyderabad 12.9 na Unity Infraprojects

April 2011 - October 2012

Construction orders awarded

New government buildings for the Ministry of Earth Sciences 7.26 na Unity Infraprojects

April 2011- July 2012

Construction orders awarded

Theme Park (Kerala) na na

Horizon Infrastructure Limited, Paramount Licensing, Paramount Pictures na

Agreement reached between different parties





Corporation

Delhi-Mumbai Industrial Corridor (DMIC) project (include construction of a 4,000MW power plant, a high-speed freight line, a six-lane intersection-free expressway, three ports, six airports, seven cities, nine large industrial zones) 90000 1483km

Delhi Mumbai Industrial Corridor Development Corporation (DMICDC)

September 2011 - 2018

US$3.7bn revolving fund set up for trunk infrastructure, tendering process to start in 2011

Mix-used developments ( Raheja Revanta, Raheja Phoenix, and Raheja Shristi), New Delhi and Guargaon 204 na

Arabtec Holding, Raheja

October 2011 - 2014

Contract awarded (Oct 2011)

Healthcare

MedCity (500-bed hospital, six centres of excellence, a resort hotel, a convention centre) 223 500 beds DM Healthcare 2011-2013

Funding to come from bank financing, internal accruals and a proposed IPO

Housing

residential and office units in two developments, Haryana 44 550 units

Vigneshwara Developers 2010-2014 At planning stage

Industrial Construction

Contract work includes building, repairing or altering steel buildings for the Aditya Aluminium project at Sambalpur, Orissa 11.6 na

Hindustan Construction Company (HCC) Contract awarded 2010-2012

Orissa steel plant 12000 na POSCO na

Received final approval (May 2011) by Ministry of Environment. Project delayed since 2005

Two polyester plants(1.5mn tonnes each) 1200 3mn tonnes Indorama Ventures 2010-2014 At planning stage

Piping work for its Paradip refinery 37.5 na

Indian Oil, Punj Lloyd 2010- Contract awarded

Cement plant near Bandi wildlife sanctuary na na

Harish Cement India na

Government approval withdrawn on environmental grounds; Land acquisition





proceedings suspended

Cement plant, Karnakata 322 3 mn tonnes

Orient Paper and Industries (OPIL) 2011- At planning stage

Concentrated solar power (CSP) plants na na

Bharat Heavy Electricals (BHEL), Abengo 2011- Agreement signed

Three wind equipment manufacturing plants in Gujarat and Tamil Nadu 111 na Gamesa 2012-

At planning stage; Location of plants at Gujarat and Tamil Nadu

Durgapur steel plant expansion, West Bangal 646 na

Steel Authority of India 2011- At planning stage

Kalinganagar steel plant, Jaipur na 1.1mn tonnes

Neelachal Ispat Nigam (NINL) -October 2011

Under construction (second phase)

Kutra cement plant expansion, Orissa 1800 1mn tonnes Shiva Cement 2011- MoU signed

Power equipment manufacturing plant, Tamil Nadu na 3000MW Doosan July 2011 -

At planning stage (July 2011)

Residential Construction

Gurgaon luxury residential development 107 na Sobha Developers 2010-2011 At planning stage

Four residential projects (Mumbai, Chennai, Hyderabad, Nagpur) na na

Mahindra Lifespace Developers 2010-2014 Projects announced

Housing projects, Bengaluru na na

Pruksa Global, Pruksa India Housing 2010-

First project launched

Township in Alibaug near Mumbai 45 na

Samira Habitats, Peninsula Land 2010- At planning stage

Four housing projects in Karnataka and Tamil Nadu 750 na

Provident Housing, Puravankara Group 2010- At planning stage

Luxury apartment project, Pune city (two towers approx. 90 apartments) 144.4 na Vascon Engineers 2010-2013


Mohali housing project, Punjab 99.8 na

Godrej Properties (GPL) 2010- At planning stage

Chennai residential development 99.7 na

Phoenix Hodu Developers 2010-2013 Under construction

Chintels Serenity project (555 apartments), National Capital Region 68.7 na Chintels India 2010-

45.43 investment planned





An exclusive villa project, Goa 66 na Nitesh Estates 2010-2013 Project launched

35 storey residential project, Mangalore 33 na SKS Netgate 2010-2012 Project launched

Bihar Kosi Flood Recovery Project 220 na na 2011-

Agreement signed with World Bank and Indian government

Lavasa township project first phase, Pune 611 (first phase) 300000 persons

Hindustan Construction Company, Lavasa October 2011 -

Suspended, Environmental clearance refused by MOEF, Undergoing legal proceedings (Oct 2011)

One Avighna Park, Mumbai 400 na

Elemec Electrical Contracting 2011-

Contract awarded (March 2011)

58 buildings for urban poor 46.7 na Neev Infra 2011-2012

Contract won from central government

Housing units, Delhi na 20850 units Delhi Development Authority 2011- At planning stage

2,688-unit luxury residential project, Pallikaranai, Chennai 380.5 na Puravankara 2011-2015 At planning stage

25 luxury and affordable housing projects and five townships, Maharashtra 226 na Soham Group 2011-2014 At planning stage

Indiramma (affordable housing programme) 586 4.7mn units na 2011-2012 At planning stage

1,250 acre township, Panvel na na

Wadhwa Group, Gulf Finance House June 2011 -

At planning stage; Able to house 1.4mn people once completed

Karvenagar apartment complex (2800 residential units), Pune 177.6 2800 units Acron Infra Projects June 2011 -2012

Construction works started (June 2011)




Business Environment

India Business Environment

India comes fourth in BMI’s Asia Pacific Business Environment Ratings in Q411 with a score of 63.4 out

of 100. BMI's Infrastructure Business Environment Ratings quantify the gap between scope for growth

and the structural weaknesses holding back the market. For its Industry Rewards, India scores 77.5 out of

100, one of the highest scores globally, due to the combination of expected high growth and large

industry value in the construction sector. However, in all three of the other categories (Country Rewards,

Industry Risks and Country Risks), which make up the total infrastructure BE score, India performs

poorly receiving scores of 45.4, 55 and 57.8 respectively. Labour market, access to electricity, institutions

and corruption are the worst performing indicators for India.

Rewards

Industry Rewards

India’s infrastructure industry is set to expand impressively over the long term, given the government’s

efforts to attract capital for multibillion-dollar investments in transport, energy, utilities and urban

infrastructure. According to our forecasts, India will witness robust growth in terms of construction

industry value, giving the country high scores for growth levels and value of the industry over the next

five years. While all of this has given India the highest infrastructure market score in the region, the score

has fallen from scores of 80 and above to 77.5. Concerns regarding the level of investment filtering

through to projects on the ground are steadily becoming a major risk to India realising its unmatched

growth potential in the construction sector and our current score reflects this concern.

Country Rewards

The country’s labour market posts a modest performance. With more than half the population younger

than 25, labour supply does not seem to be a hurdle. However, the Associated Chambers of Commerce

and Industry of India (ASSOCHAM) has reported a large shortage of skilled labour in the construction

industry, with a shortage of skilled civil engineers posing a real concern. Also, in spite of a well-

established financial system, institutions have been wary of lending to contractors, because of the high

risk of default. Many firms have been forced to borrow at high rates of interest to meet working-capital

requirements. Access to an uninterrupted supply of power is another hurdle for the industry.

Risks

Industry Risks

The Indian construction industry is relatively large in comparison to its peers; however, the sector is

dominated by a handful of large players who alone posses the expertise to execute several mega-projects

that are required. The sector is seeing an increasing number of international players enter; however, most

have chosen to do so via a tie-in with a local company in order to help navigate the complex regulatory



and operating environment. Construction companies have tended to seek joint ventures (JVs) with local

construction players, whereas private equity and other funds have chosen to take stakes in existing

companies active in the infrastructure, especially power, sectors. Local expertise is crucial to executing

infrastructure projects in India and therefore local players – of which there are a number of substantial

size – are best placed to win contracts.

Country Risks

India’s convoluted political and economic profile means that there are numerous country-wide risks that

affect potential returns in the infrastructure sector. Among them, two key risks are India’s over-burdened

legal system and rampant corruption. India's legal framework is complex and archaic, with a variety of

often conflicting regulations still in place. The court system is prone to lengthy delays, where even the

liquidation of a bankrupt company can take up to 20 years. Meanwhile, foreign businesses have to

manoeuvre through a panoply of rules and certifications to obtain the estimated 70 separate approvals

needed to set up shop in India (unless they are operating within a special economic zone).

Corruption is another major issue of concern for investors in India, and the country has fallen from 84th in

2009 to 87th in 2010 (out of 178 countries) in Transparency International's Corruption Perceptions Index.

Wide-ranging administrative discretion provided by India's legendary bureaucracy provides numerous

opportunities for officials to extort bribes. The lack of transparency in governance rules and excessive

bureaucratic procedures provide the context for graft to prosper.

In particular, the government’s procurement system has been identified as being riddled with corruption

and malpractice. However, some progress has been made in combating corruption in recent years, with

several public officials indicted or convicted under anti-corruption laws. According to the World Bank's

2010 Doing Business survey, India ranks a relatively lowly 133 in the overall ease of doing business

category, out of 183 countries. With corruption in the headlines, however, the authorities are being forced

into action. The government is looking to pass the Jan Lokpal bill – which would essentially put in place

an independent anti-corruption body – in the 2011 monsoon session of parliament.



Regional Overview

Asia Pacific Infrastructure Business Environment Ratings

BMI View: The rising cost of construction inputs and capital continues to be a problem in 2011, but the

mounting headwinds throughout the global economy suggest that external risks, not adverse monetary

conditions, are the key issues plaguing the Asian infrastructure sector going into 2012. Over the long-

term, we continue to see upside potential for rewards throughout the Asia Pacific region, with many

countries still launching massive infrastructure programmes. This reaffirms the region's status as the

world's largest concentration of infrastructure and construction markets.

There is still substantial disparity in the demand for infrastructure throughout Asia, and this translates into

a significant divergence in rewards and risks among the Asia Pacific infrastructure markets. A 40-point

differential exists between the top and bottom countries in BMI 's Risk/Reward Infrastructure regional

ratings table. Such a wide dispersion presents investors with a range of rewards at different levels of risk.

Asia The Melting Pot Asian Countries (LHS) And Regional (RHS) - Infrastructure BE Risk/Reward Ratings, Scores out of

100

* Higher Score = Lower Risks, CEE = Central/Eastern Europe. Source: BMI

The key findings from this quarter's update on the Asia Pacific Infrastructure Business Environment (BE)

Ratings can be summarised as follows:

Although the elevated levels in inflation and the aggressive rate hikes to curb these pressures for

much of 2011 have created a tough business climate for construction companies, we expected

these monetary difficulties to lessen in 2012 due to growing headwinds throughout the global

economy.



The most populous countries in the region present sufficient scope in rewards to overcome risks,

but it must be reiterated that risks at grass-roots level are considerable, with current monetary

conditions not conducive to construction activity.

Emerging South East Asian (SEA) countries such as the Philippines continue to offer greater

rewards for their level of risk, but there are growing country risks for these export-oriented

economies due to weakening external demand.

The more developed countries in the region present the most attractive business environment but

have limited greenfield opportunities. This deficit is highlighted in the revision of Singapore's

Rewards scores, where most of the country's greenfield railway contracts have been awarded.

China, India and Indonesia Offer Significant Rewards And Risks

China, India and Indonesia head the group in terms of industry rewards. The combination of large

industry values, positive long-term macro fundamentals, large fiscal expenditure on infrastructure and

expectations of high growth in construction and infrastructure industry value underpin their scores in this

category, while reflecting their attractiveness.

Larger Size, Large Rewards, Large Risks China, India And Indonesia - Infrastructure Rewards (LHS) And Risks (RHS) BER, Scores out of 100

* Higher Score = Lower Risks. Source: BMI

The high Reward scores in their business environments are accompanied with high levels of risks, both on

an industry and country level. In China, India and, to a lesser extent, Indonesia, stubborn inflationary

pressures and tight monetary policies continued to make headlines during the third quarter of 2011,

squeezing profit margins for construction companies while inflating the cost of debt for investment in this



capital-intensive industry. As a result, we have seen a decline in construction activity in these countries

throughout the better part of 2011, as companies become cautious in taking on large-scale projects.

However, going into 2012, we expect these tough monetary conditions to lessen and create a more

conducive environment for infrastructure development, prompting us to maintain our Country Risks

scores (which are already elevated) for these three countries. Besides monetary conditions, there are other

idiosyncratic risks that continue to plague the respective business environments in China, India and

Indonesia.

China continues to channel vast amounts of public funds into its already-sizeable construction industry,

dwarfing allocations in all other emerging markets. Nevertheless, concerns such as the transparency of the

tendering process and biases towards foreign companies continue to have an adverse impact on China's

business environment. Meanwhile, issues related to inefficiencies and wastages are growing following the

infrastructure boom during the last Five-Year plan. Recent examples include the boom and bust of high-

speed rail, where the approvals for new high-speed railway projects are suspended and safety checks

conducted on existing lines, and the liquidity problems facing local governments due to large-scale

lending to economically unviable infrastructure projects.

Although these factors are expected to dampen the overall growth in rewards for China's construction

sector, there are potential bright spots in certain sub-sectors. China has plans to launch a raft of measures

to bolster funding the country's mass social housing programme. China has also completed its mandatory

safety inspections on nuclear plants without incident, suggesting that it is likely to continue its massive

nuclear-building programme.

India also has plans to spend significant amounts on plugging its infrastructure deficit, with the country's

12th Five-Year Plan (2012/13- 2016/17) to push out US$1trn worth of infrastructure investment.

However, project execution continues to suffer due to weighty bureaucratic problems and an incoherent

legal framework. This fosters corruption and inefficiencies, which culminate in delays and project cost

inflation for sponsors. Sectors ranging from energy infrastructure to road and rail continue to face serious

challenges over the time needed to secure property rights, navigate planning regulation and deal with

localised protests. One area of particular concern is that of land acquisition. A land acquisition bill and

legislation on resettlement are expected to be completed in December 2011, with the proposals likely to

include farmer-friendly provisions in terms of compensation and government-centric handling of virtually

all land acquisition deals (even on behalf of private players). Although the new laws are expected to bring

much-needed clarity to the land acquisition process, the issue has become increasingly politicised, with

proposed reforms likely to see investors pay well above market rates for property.

Therefore, even though the government has been making serious attempts to address the problem

regarding access to financing (the country has launched measures to boost the size and sophistication of



the domestic debt market), concerns over the level of investment filtering through to projects on the

ground remain pertinent.

Indonesia continues to present significant opportunities, with the government's latest plan in June 2011

expected to launch a slew of industrial construction projects worth a combined US$22.3bn (IDR190trn).

Combined with the launch of core infrastructure projects under a private-public partnership framework,

Indonesia's infrastructure sector is sending the right signals to investors about its vast growth potential.

However, we have yet to see a decisive change in Indonesia's regulatory environment, as the industry

continues to be fraught with intrinsic risks. A new land acquisition bill was supposed to be implemented

in 2011 but is still stuck in parliamentary discussions. High levels of corruption and an unsophisticated

regulatory environment (particularly in legal rights that facilitate lending) mean there are substantial

country risks. Industry risks are also on the downside, with significant concerns regarding the

transparency of the tendering process. The government is looking to provide incentives and guarantees to

limit the downside risks to investors, but it remains to be seen if the Indonesian government is able to

effectively implement them. Lastly, the infrastructure sector remains dominated by quasi- state-owned

entities, and there is no precedent to gauge how the long-term returns from infrastructure could play out.

South East Asia Offering Greater Rewards, But Face Greater External Risks

For emerging SEA countries, inflationary pressures remain stubborn and are starting to have a growing

impact on construction activity in 2011. Nevertheless, we continue to expect these emerging SEA

countries to offer greater rewards relative to their level of risk, with the Philippines achieving an

appreciation in their Industry Rewards scores this quarter. These countries continue to exhibit varying

levels of infrastructure deficits and have launched multi-billion dollar infrastructure programmes to

address such shortfalls. Therefore, we expect them to continue to present numerous opportunities in their

respective infrastructure sectors over the long-term.

Vietnam Leads In Rewards, Trails In Risks Emerging South East Asia (ex-Indonesia) - Infrastructure Rewards (LHS) And Risks (RHS) BER,

Scores out of 100




Risks in these SEA countries are also relatively stable, but evidence of a stalling economic recovery in the

US suggests that there could be a worse-than-expected slowdown in external demand. This could increase

risks on a country level for the infrastructure sectors in these emerging SEA countries as their economies

(or tax revenues) are dependent on a vibrant export sector to finance infrastructure expenditure. This

potential risk has yet to be reflected in our ratings. Malaysia, in fact, saw an improvement in its country

ratings due to a resilient domestic market, but we expect them to make an impact in the following

quarters. Thailand, for example, has shown signs of these growing external risks, but the downward

revision in its Country Risk score is also due to the prospect of further political instability within the

country. Although the July parliamentary elections saw the Pheu Thai Party win an overwhelming

majority, the party's adamant stance on amending the constitution is increasing the risks of renewed

political protests by supporters of the opposition party, the People's Alliance for Democracy. This is

clouding the political situation in Thailand, which is not positive for investor confidence.

Nearly Developed Markets Offer Best Risks/Rewards Mix

Inflationary pressures have also remained elevated in Asian countries that are nearing developed market

status in terms of their infrastructure market maturity. However, with the exception of Hong Kong, they

have not reached levels that are detrimental to construction growth and, instead, we expect the weakening

external demand to be the main concern affecting demand for infrastructure.

Singapore Moderates On Rewards Nearly Developed Countries In Asia - Infrastructure Rewards (LHS) And Risks (RHS) BER, Scores

out of 100




Nevertheless, these countries continue to offer the best business environments for realising investment

returns. Countries such as Singapore, Hong Kong, Taiwan and South Korea are highly developed in terms

of their legislative and regulatory environments and present very little in the way of risk to sponsors and

financiers. The average score for Risks in these developed markets is 79.4 out of 100, significantly higher

than the remaining nine Asian markets at 50.3. Furthermore, these countries offer significant

opportunities for brownfield projects and remain committed to improving their infrastructure to support

economic development.

This quarter, Singapore's Rewards scores have seen a major downward revision, pushing its ranking in

the overall BE ratings table from second to third place. This decline is because most of the country's

greenfield contracts for the next decade, centred on the US$48.6bn urban railway expansion project, have

been awarded.

South Korea continues to hold top spot in our Asia BE Ratings table as it offers the best combination of

risks and rewards. The recent successful bid by South Korea to host the 2018 Winter Olympics and the

ongoing plans by the government to expand and diversify the country's transport networks and electricity

generation capacity are expected to provide a steady stream of greenfield projects. However, the sector

has been saturated since the construction boom in the 1990s, and places high entry barriers for foreign

companies.



Table: Regional Infrastructure Business Environment Ratings

Reward

s Risks

Industry Reward

s

Country Reward

s Reward

s Industry

Risks Country

Risk Risks

Infrastructure BE

Rating

Regional

Ranking

South Korea 52.5 88.9 65.2 75.0 77.1 76.3 68.5 1

China 75.0 60.9 70.1 40.0 66.5 55.9 65.8 2

Singapore 37.5 86.2 54.6 90.0 86.2 87.7 64.5 3

India 77.5 45.4 66.3 55.0 57.8 56.7 63.4 4

Hong Kong 35.0 90.1 54.3 85.0 77.8 80.7 62.2 5

Taiwan 42.5 74.0 53.5 75.0 71.6 73.0 59.4 6

Indonesia 67.5 48.2 60.8 25.0 62.2 47.3 56.7 7

Malaysia 42.5 72.2 52.9 55.0 69.8 63.9 56.2 8

Vietnam 55.0 60.4 56.9 35.0 53.9 46.3 53.7 9

Thailand 37.5 72.3 49.7 50.0 60.5 56.3 51.7 10

Philippines 45.0 55.1 48.5 35.0 57.1 48.3 48.5 11

Cambodia 47.5 25.9 39.9 20.0 37.6 30.6 37.1 12

Pakistan 15.0 43.6 25.0 35.0 41.7 39.0 29.2 13

Regional Average 48.5 63.3 53.7 51.9 63.1 58.6 55.2

Source: BMI. Scores out of 100, with 100 highest. The Infrastructure BE Rating is the principal rating. It is comprised of two sub-ratings 'Rewards' and 'Risks', which have a 70% and 30% weighting respectively. In turn, the 'Rewards' Rating is comprised of Industry Rewards and Country Rewards, which have a 65% and 35% weighting respectively and are based upon growth/size of the Infrastructure industry (Industry) and the broader economic/socio-demographic environment (Country). The 'Risks' rating is comprised of Industry Risks and Country Risks which have a 40% and 60% weighting respectively and are based on a subjective evaluation of industry regulatory and competitive issues (Industry) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for which BMI provides Business Environment Ratings methodology, and is designed to enable clients to consider each rating individually or as a composite, which the choice depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please consult the appendix at the back of the report.



Company Monitor

Gammon India Ltd.

Strengths Gammon is well placed within the Indian infrastructure sector, meaning it can take

advantage of opportunities as they arise.

Gammon has a presence in the infrastructure sectors in Asia, the Middle East and Africa.

Weaknesses It was hit by higher finance costs and currency fluctuations, dampening Q109/10 results.

Opportunities India’s strong population growth and a growing economy is fuelling demand for

infrastructure.

India’s government is looking to improve the regulatory regime to make the business

environment more attractive for private sector companies looking to invest in

infrastructure. It is also opening up the sector to private companies through PPPs.

Threats Lack of widely available domestic expertise to take on large infrastructure and civil

engineering projects.

Company Overview Gammon India Limited is an India-based civil engineering company. Over the past 70 years, the

company has expanded its operations both in India and abroad. Gammon has taken on the

design and construction of bridges, ports, harbours, thermal and nuclear power stations, dams,

high-rise structures, chemical and fertiliser complexes, environmental structures, cross country

water, and oil and gas pipelines.

Recent Activity Gammon is currently involved in a number of projects: the improvement, operation and

maintenance of the Vadape-Gonde Road; the Parbati Hydroelectric Project; the Rampur

Hydroelectric Project; the West Bengal Corridor Project; the construction of the Bramhaputra

Bridge; the part design and construction of viaduct and structural work on three elevated stations

for phase two of the Delhi MRTS Project; the Gorakhpur By-Pass; the Kosi Bridge; the Dahej

Uran Pipeline Project; the Gandikota Package two, Andhra Pradesh Irrigation Works; and the

Kalwakurthy Lift Irrigation Scheme.

In August 2011, Gammon Infrastructure Projects announced that the Company has sold its 50%

stake in the 12MW operational biomass power plant of Punjab Biomass Power Ltd. at Ghanour to

its joint venture partner for a cash consideration. Further, the Company has sold its 50% stake in

seven other biomass power projects in Punjab to its joint venture partner and has in turn bought

an additional 50% stake in six biomass power projects in Haryana and one in Punjab from the

joint venture partner. The Company, as a result of the transaction, will have 100% stake in

biomass projects to generate 66 MW power. The transaction, however, is subject to the approval

of the concerned authorities and lenders. Terms were not disclosed.

In February 2011, Gammon India’s Gammon-OJSC Mosmetrostroy announced that it had been

awarded two contracts to design and construct underground stations and associated tunnels for

the Chennai Metro Rail Limited amounting to INR19.47bn. The project involves the construction of



seven underground stations along with twin-bored tunnels covering a total length of 6.4km.

In September 2010, Gammon India announced it had bagged an order to supply a 150MW steam

turbine and boiler for Nagai power plant valued at approgammonximately INR3.1bn (US$67mn).

In February 2010, Gammon India announced it had been awarded a contract by ISKCON

(International Society for Krishna Consciousness), aggregating to INR1.37bn (US$29.8mn) for

Construction of the ‘Sri Chaitanya Chandrodaya Mandir and Indian Educational & Cultural Centre’

at Sri Mayapur, West Bengal.

In January 2010, Gammon India announced that it had been awarded a project by Jindal Power,

aggregating to INR3.08bn (US$67mn) for civil works.

Strategy And

Evaluation

Gammon India is currently engaged in the business of investing in, developing, operating and

maintaining infrastructure projects under the public-private partnership (PPP) model.

The company has a strong presence in diverse sectors such as roads, bridges, ports,

hydroelectric power, biomass power and SEZs. Going forward, the company intends to extend its

operations in more major segments such as mass rapid transit systems, power transmission lines,

airports and SEZs.

Gammon regularly enters into strategic alliances and partnerships with leading domestic and

international players to jointly apply and bid for projects, aiming to further expand its presence and

remit.

The company has been hit by the global downturn, with results for the three months to June 30

2009 (or Q1 2009/10) showing a 52% drop in net profits. The company did post a strong increase

in net sales, growing by 45% to reach INR8.5bn from INR5.8bn in Q108/09. Despite this, the

company was hit by higher finance costs and currency fluctuations which led to a 37% drop in

profit before tax to INR398mn.

Company Data Net sales/income from operations: INR8.50bn (US$182mn) – three months to June 30

2009.

Profit after tax: INR250mn (US$5.36mn) – three months to June 30 2009.



Reliance Infrastructure

Strengths The company’s portfolio includes some of India’s flagship infrastructure projects, such as

the Mumbai and New Delhi metros, and more recently the Tilaiya UMPP.

Fitch Ratings India has awarded an ‘Ind AAA’ debt rating for the company.

Weaknesses Reliance’s heavy involvement with the PPP market potentially exposes the company to

demand risks associated with external economic shocks.

Opportunities Strong population growth and a growing economy is fuelling demand for infrastructure.

India’s government is looking to improve the regulatory regime to make the business

environment more attractive for private sector companies looking to invest in

infrastructure. It is also opening up the sector to private companies through PPPs.

Threats Lack of widely available domestic expertise to take on large infrastructure and civil

engineering projects.

Company Overview Reliance Infrastructure Ltd (formerly Reliance Energy Limited) is India’s largest private sector

power utility, as well as a key player in many other infrastructure sectors. In the power sector,

Reliance is involved in the generation, transmission, distribution and trading of electricity; and

constructing power plants as energy performance certificates partners. In the infrastructure space,

the company is focused on roads and urban infrastructure, including mass rapid transit systems,

sea-link and airports, as well as in specialty real estate and special economic zones (SEZ).

Recent Activity In October 2011, Reliance Power has received permission to start trading carbon credits for its

3,960MW Tilaiya ultra mega power project (UMPP) in Jharkhand. The coal-fired plant secured

approval from the Clean Development Mechanism Executive Board (CDM-EB) of the United

Nations Framework Convention on Climate Change (UNFCCC). The approval will enable the

plant to earn INR20bn (US$407.36mn) by trading 21.3mn carbon credits during the first 10 years

of operations. The plant, scheduled to start generation in 2015, is being developed by Reliance's

wholly owned subsidiary Jharkhand Integrated Power.

In September 2011, the first phase of construction of the Mumbai Metro rail line was set to be

completed by the end of 2012, reports News Resources International. The Mumbai Metropolitan

Region Development Authority has said that the US$510mn project is 80% complete.

Construction is being led by Indian utilities company Reliance Infrastructure. The entire line will

total 146.5km, and is projected to cost US$4.3bn.

In September 2011, Arizona-based solar technology company First Solar is to supply Indian

energy generator Reliance Power with 100MW of solar modules, according to Reuters. Around

40MW-worth of First Solar's thin film modules are to be supplied by the end of 2011, with the

remaining 60MW to follow in 2012. The deal was supported by the Export-Import Bank of the

United States (Ex-Im Bank), which approved a US$84.3mn direct loan to Reliance, as part of its

efforts to support the US solar-energy exports.The thin film modules will be used at Reliance's



plant in Jaisalmer, Rajasthan.

In August 2011, Reliance Power (R Power) announced plans to make a INR15bn (US$333.2mn)

investment in a 200MW wind power plant project in Vashpet, Maharashtra. The plant, which is

scheduled to start operations in September 2012, will have 80 wind electric generators supplied

by German wind turbine supplier Fuhrländer. A long-term power purchase agreement (PPA),

already sanctioned by the Maharashtra State Electricity Regulatory Commission, has been signed

with Reliance Infrastructure at a rate of INR5.37 (US$0.12) per unit. The plant's generation

capacity will eventually increase to 400MW. The project will be entitled to receive 3.7mn certified

emission reductions (CERs) during the first 10 years, which is likely to generate additional

revenue of INR3bn (US$66.6mn) for the project.

In August 2011, Reliance Power was set to receive a US$625mn (INR28bn) loan from US Exim

Bank for the construction of its 2,400MW gas-based power project in Samalkot, Andhra Pradesh.

The approval process for the loan was expected to be completed by September 2011, according

to chairman of US Exim Bank, Fred Hoghberg. The loan is part of a memorandum of

understanding (MoU) signed between US Exim bank and Reliance Group, with the former

agreeing to provide up to US$5bn for the purchase of US goods and services used in Reliance's

projects. The US$625mn loan was disbursed because Reliance Power had, in November 2010,

awarded GE Energy a US$750mn contract to supply three steam turbines and six gas turbines for

the Samalkot power project. Besides GE, US electrical engineering company Black & Veatch was

also selected to design the Samalkot power plant in March 2011.

In June 2011, Reliance Infrastructure (RLIN) announced that it was holding talks with investors

and funds to sell a stake in its roads, metro lines, and transmission businesses. Reliance currently

has a portfolio of three urban railway lines in Mumbai and Delhi, five transmission line projects

and 11 road projects. According to its CEO, Lalit Jalan, Reliance's business units are receiving a

lot of interest from several foreign parties such as construction companies and private equity

firms. He believes that this strong interest is due to the significant growth potential of these

businesses. However, he declined to identify the interested parties.

In June 2011, Reliance Infrastructure won a 53km road construction project in India, according to

Reuters. The firm will build and operate the road, which is to be located in Rajasthan, over a

period of 18 years. The project is worth INR5.9bn (US$128mn).

In March 2011, Reliance Infra had announced that it will build a 2,400MW power plant in

Samalkot, in Andhra Pradesh, India, according to Infra News. The gas-based plant will cost an

expected INR72bn (US$1.6bn) and was contracted by Indian energy firm Reliance Power.

In February 2011, Reliance Infrastructure announced that the company would purchase up to

INR10bn (US$221mn) of its outstanding equity shares at INR725 per share. The buyback will be

made from the open market through the stock exchange.



Strategy And

Evaluation

Reliance’s core market is the generation, transmission and distribution of electricity. However,

Reliance has also established a strong presence in other infrastructure segments such as road

and metro projects.

According to Morgan Stanley, Reliance was estimated to have invested a total of INR16,500mn in

infrastructure projects by the end of the 2010 financial year.

The Morgan Stanley report said that ‘stronger than expected’ growth in the engineering,

procurement, construction (EPC) portfolio will insulate the company’s operations from potential

‘political interference’ in the PPP market.

We note that reducing the reliance on long-term concessions in both transport and power projects

will consequently reduce the company’s exposure to demand risks and possibly price risks.

However, the government has shown significant willingness to finance the country’s massive

infrastructure needs through private sector participation and to buttress that involvement through

schemes such as the viability funding gap, making political interference a relatively small risk.

The company had already signed a US$5bn credit agreement with US Exim bank for the

purchase of US goods and services used in Reliance's projects, while it is currently holding talks

with investors and funds to sell a stake in its roads, metro lines, and transmission businesses,

potentially unlocking additional value in them.

Reliance is thus in a favourable position to extend its portfolio in both the transport and power

sectors in India.

The chairman of Reliance Power, Anil Ambani, announced that the company planned to finance

power projects with debt in 2009/10, according to Reuters. The company was planning to raise

nearly INR200bn (US$4.1bn) to finance its three mega-power projects. The three projects are

expected to generate 4,000MW of electricity each.

Reliance posted improved results in its 2008/09 annual report (covering April 1 2008 to March 31

2009). Gross revenue for the company increased by an impressive 46% in a challenging business

environment to reach INR109bn (US$2.16bn) up from INR750bn (US$1.87bn) in 2007/08. Both

gross and net profit also increased, by 3.5% and 4% respectively. Net profit for the year was

INR11.39bn up from INR10.85bn in 2007/08. Conversely, the company’s net profit in US dollar

terms, as quoted by Reliance in their annual report, fell to US$224.55mn in 2008/09 from

US$270.34mn, illustrating the currency fluctuations between the US dollar and the Indian rupee.

However, as Reliance carries out the majority of its work in India, this had a limited impact on

profit margins.

Company Data Gross revenue (April 2008 to March 2009): INR109bn (US$2,160.69mn)

Net profit (April 2008 to March 2009): INR11.39bn (US$224.57mn)



Larsen & Toubro

Strengths Strong focus on technology and innovation, with engineering research centres in numerous parts of India; Mumbai, Vadodara, New Delhi, Chennai and Kolkatta.

Revenue streams diversified over different parts of India. Large construction order book - around INR1,364bn (US$3.0bn) at the end of June 2011.

Weaknesses Limited geographical diversification – 91% of order book from India at the end of June 2011.

Opportunities Opportunities for greenfield projects span across all sub-sectors of India’s infrastructure sector.

Strong population growth and a growing economy is fuelling demand for infrastructure in India.

India’s government is keen to encourage and facilitate the participation of private sector in infrastructure.

Threats India has a complex and over bureaucratic business environment, with a lack of transparency in some tendering processes.

Project delays, caused by issues with land clearance and a nebulous bureaucratic system, continue to be a significant problem in India’s infrastructure industry.

Concerns with access to finance due to maturity mismatch between loans required by infrastructure companies and loans offered by Indian banks.

Company Overview

Larsen & Toubro (L&T) is a technology, engineering, construction and manufacturing

conglomerate based in India. The firm was established in 1938 and is one of the largest

companies in India’s private sector, with global operations in 20 countries. The Engineering and

Construction Division of L&T is the largest construction organisation in India. The division covers

every discipline of construction: civil, mechanical, electrical and instrumentation engineering. L&T

also manufactures and markets critical construction and mining machinery, plus a wide range of

electrical and electronic products and systems

Financial Highlights

(L&T) continues to ride the infrastructure boom in its domestic market, with revenues in the first

quarter of FY2011/12 (April-March) growing by 21% y-o-y to reach INR94.8bn (US$2.1bn). This

places it in a good starting position to hit its revenue growth target of 25% for FY11/12. The

surprise performance was its net profit performance, which beat consensus and saw a higher-

than-expected increase of 12% y-o-y in Q1 FY2011/12. This was a reversal from Q1 FY2010/11's

net profit figures, which fell by 58% y-o-y. According to L&T, its Q1 FY2011/12 net profit

performance was aided by an acceleration in project execution, but we note that income from its

non-operating operations, particularly in financial services, was also a key component in boosting

headline profitability, growing by 38% y-o-y in Q1 FY2011/12.

Strategy and

Evaluation

Headwinds On The Horizon

We believe that the company is facing several headwinds over the short term due to its

exposure to the Indian infrastructure market. India accounted for 91% of its order book at the

end of Q1 FY2011/12, while its engineering and construction division, which covers the

infrastructure, power and hydrocarbons sectors, accounted for 85% of its total order book.

Elevated levels of inflation and rising interest rates (to curb inflation) are increasing the

operational costs and financing costs for L&T. Both factors have already affected L&T's

financials in Q1 FY2011/12 and are expected to continue to do so through the rest of the



financial year. Operating margins fell to 11.9% in Q1 FY2011/12 from 12.8% in Q1 FY10/11,

while interest expenses grew by 25% y-o-y compared with the previous quarter. In July, the

company launched a stake sale at its financial holding company, L&T Finance Holdings, to

raise US$252mn in funds for its infrastructure financing vehicles, but this is unlikely to be

sufficient to meet its financing needs.

Another major concern – due to tighter monetary conditions – is the impact on the broader

economy. Economic activity is slowing down in India and the government is releasing fewer

infrastructure projects so as to further cool the economy. This slowdown in project releases

means that L&T will continue to face growing competition for infrastructure projects in India. For

example, the recent release of the 555.5km Ahmedabad-Udaipur-Kishangarh expressway-

widening project, India's largest ever road project, saw 11 parties compete for the project, while

the US$290mn Vemagiri-Hyderabad transmission cable laying concession saw 28 companies

taking part in its bidding process. These issues are reducing the number of projects being

awarded to L&T and have impacted the company's project order inflows, which grew by just

4% y-o-y in Q1 11/12.

Overseas Markets Not Offering As Much Long-Term Growth Potential

A move overseas would seem prudent to offset this current weakness in the Indian

infrastructure sector. L&T has done just that, winning three overseas hydrocarbon projects (two

from UAE and one from Thailand) worth US$889mn in August. However, these markets offer

limited growth opportunities going forward, with real construction growth in the UAE and

Thailand expected to come in at a relatively modest 3.3% and 3.9% per annum over the next

five years respectively, compared to 8.5% (9.9% for the infrastructure sector) in India. Thailand

continues to hold significant political risks which could hamper project implementation in the

country, while there are suggestions within the UAE that there could be a review of all

government-sponsored projects in Abu Dhabi – an indication that there could be a cut in

construction spending.

Stock Price To Trend Sideways And Still Outperform

We therefore conclude that L&T should instead focus on streamlining its operations (ie

increasing efficiency in project execution and maintaining a tight control on costs) in the Indian

market and weather the market's near-term weakness. L&T still retained a huge construction

orderbook at around INR1,364bn (US$3.0bn) at the end of Q1 11/12 – more than three times

full-year revenue figures – and this will sustain revenues over the next couple of years. Its

strong focus on technology should also hold it in good stead. The company has numerous

engineering research centres in different parts of India carrying out in-depth research on

construction design, engineering systems and material stress analysis. This focus on

technology and construction has allowed the firm to take on a diverse range of infrastructure

projects, from oil rigs to metro railway networks.

Following recent selling pressure, we do not have a firm conviction on the company's stock

price over the near-term, and suspect that it will continue to trend sideways in FY2011/12.

Even if this scenario were to take place, we would expect L&T to remain an outperformer

against the broader Bombay Stock Exchange, given that other sectors (most notably consumer

discretionaries and technology) are much more expensive and, by extension, exposed to



downside growth risks. From a global perspective, L&T remains one of the stronger

infrastructure players in terms of stock performance. When rebased from the start of 2009,

L&T's stock price is an outperformer against the SENSEX and a huge outperformer against our

proprietary Infrastructure Index, which is an indication of market sentiment for the global

construction sector.

Recent

Activity/Projects

In September 2011, Larsen & Toubro announced that it had received a project order

valued around US$150mn from the Petroleum Development Oman. The order is for the

development of a gas treatment plant, which includes gas desulfurisation and gas

dehydration units with required utilities and supporting facilities as well as associated

pipelines.

In September 2011, Larsen & Toubro announced that it was set to work on a new railway

construction project in Mumbai, according to Railway-Technology. The project is expected

to cost between US$260mn to US$326mn, and will include a railway station along with

space reserved for commercial and retail operations. Work will begin once railway

operator Indian Rail gains access to the land, and will take four years to complete.

In August 2011, Larsen & Toubro announced that it had won three international contracts

worth US$889mn in the UAE and Thailand. The first contract, worth US$189mn, was

awarded by Abu Dhabi Gas Industries and involves the engineering, procurement and

commissioning (EPC) of 123km of pipelines for its Habshan-Ruwais-Shuweihat gas

pipeline project. The second US$450mn EPC contract was awarded by UAE-based

ADMA-OPCO. The contract involves the development of towers, bridges and pipelines.

The third contract, valued at US$250mn, was awarded by Thailand-based PTTEP

International for the Phase-1A of the Zawtika Development Project.

In July 2011, Larsen & Toubro announced that it had won a INR12.1bn (US$269mn) EPC

contract from Qatar General Electricity & Water Corporation for the supply and

construction of 13 extra high-voltage substations in Qatar. The project will be completed in

between 18 to 26 months times.

In June 2011, Larsen & Toubro’s L&T BPP Tollway Private Limited announced that it had

signed the INR26bn concession agreement with NHAI for the four-lane widening of the

24km stretch of NH14 between Beawer and Pindwara in the state of Rajasthan. The

project will be executed on a BOTDBFO (Design, Build and Finance & Operate) basis and

is expected to be completed within 30 months.

In May 2011, Larsen & Toubro announced that it had won a INR35bn order from PPN

Power Generating Company to develop a three 360MW gas-based power plants – in the

Nagpattinam District of Tamil Nadu state – on a EPC basis.

Company Data Gross revenue (April 2010 to March 2011): INR109bn, % y-o-y

Net profit (April 2010 to March 2011): INR11.39bn % y-o-y



Global Overview

BMI View: There is a sense of déjà vu in the infrastructure space. Valuations are falling, credit is drying

up, demand risk is rising and investors are avoiding risk; factors seem to be aligning for a repeat of the

fall of 2009. While we see several red flags in the infrastructure finance market, we do not believe that the

market will come to a standstill. Instead we anticipate a much more select pipeline of projects coming to

market, particularly from the energy infrastructure segment, for which there is willingness to finance.

The crisis in the European, and by extension the global banking sector, is leading to tightening financial

conditions and credit scarcity. To be sure, in the global infrastructure space, and specifically the

infrastructure finance market, there was not the sense these past two years that the credit freeze of

2008/2009 had thawed completely, or that the circumspection of sponsors had eased much. Just as things

were looking up, a bearish sentiment has gripped the markets since the start of the second half of

2011 and we anticipate volatility and risk aversion to persist.

Crucially in 2011, as opposed to 2009, governments in several of the markets cannot bolster the industry

through stimulus plans, though cash rich governments in emerging markets like Russia and the GCC

states will continue to channel money into big public spending programmes. Our forecasts for

infrastructure industry value for 2012 are relatively sanguine, but we note risks to the downside. If capital

constraints are restricting project finance then infrastructure industry values could decline.

Moderation In Growth And Downside Risks Ahead For 2012 Global Construction and Infrastructure Industry Value Forecasts

*Sum of 76 markets globally. **Sum of 35 markets globally. 2012-2016 = Forecasts. Source: National Statistics Agencies, BMI



We look for indicators in the banking and financial sector as proxies to gauge sentiment and look for red

flags for infrastructure finance. What we see gives reasons for concern that a new credit crunch is

underway, with banks unwilling to lend to each other. Spreads between the London Interbank Rate

(LIBOR) and the US swap rates have been rising steadily since August 2011 reflecting stress in the

banking sector.

Stress In The Banking SectorSpread: 3-month LIBOR and 3-month US swap rates

Source: Bloomberg

More specifically, and tied to the above, is the picture from the credit default swap rates (CDS) for major

banking institutions around the world. Universally, they are at their highest levels in two years, reflecting

deep investor concern about the prospects for the sector.

Pricing In The Risks2-Year Credit Default Swap Rates For Banking Groups



Source: Bloomberg

Worryingly for the infrastructure market, some of the largest and most active lenders, including

Sumitomo, Societe General and Credit Agricole and the export import banks of China and India are

amongst the banks globally with the highest premiums.This spike in CDS rates leaves us with two main

conclusions:

Firstly, we see trouble ahead for the French infrastructure market, as its domestic banks may struggle to

support Europe's largest PPP market.

Secondly, and most importantly, we believe that it raises red flags in emerging markets, particularly sub-

Saharan Africa, Asia and Latin America, which rely on export credit from China to finance a lot of the

larger infrastructure projects. The state-owned nature and strategic value the export credit agencies means

that their operations will be supported by a constant supply of state money. However, the movements in

their CDS highlight the deteriorating market perceptions of the risks the banks are exposed to.

Having said all of the above, we stress that we do not see the market being in a funding drought, nor do

we believe the infrastructure finance market will descend into the hibernation we saw in 2008/2009. We

have not seen deals failing to be financed, on the contrary there has been a healthy PPP pipeline.

However, it is much leaner. What we expect is that the project finance market will become much more

selective and we highlight the energy sector (excluding renewables) as the most likely candidate to see

the highest level of activity. Already, this seems to be the case with major financings announced in recent

days for the Origin LNG terminal and the SIR refinery in Cote d'Ivoire.



Private Capital Not Meeting Expectations

Against the backdrop of one of the worst climates for private equity fundraising, infrastructure

fundraising activity has also come to a standstill with a mere US$2.8bn raised between July and

September 2011, according to data from the industry journal Infrastructure Investor. This is significantly

below the US$100bn target set by the industry in 2011. In April 2011, research firm Prequin said that

there were 131 unlisted infrastructure funds in the market seeking to raise a total of US$92bn from

institutional investors.

This ambitious fundraising target reflects a perceived appetite in the market from institutional investors to

become involved in infrastructure. However, the disappointing fundraising achieved in the first nine

months of the year however reflects that institutional investors are reluctant to part with their money. It

also reflects a change in the infrastructure finance markets, whereby big institutional investors are

circumventing fund managers and private equity firms and going straight to the market themselves, as

was the case with the Gassled divestment in Norway and the Brussels and Copenhagen airport stakes,

where large Canadian pension funds went for a direct stake in the assets.

Fundraising Struggles To Recover In Spite Of Numerous New Funds Capital Raised By Infrastructure Funds, US$bn

*BMI Estimate based on 9-month 2010 actual figures; **BMI estimate. Source: Preqin



Therefore, with more and more data suggesting tightness ahead we believe that, once again, demand

sensitive assets, such as toll roads, ports and airports, will be the most vulnerable to falls in investments.

BMI's revised Infrastructure Index, a weighted index of 65 companies involved in infrastructure,

corroborates this view. Nearly half the transport operators that we include in our Index are amongst the

worst performers year-to-date, namely port operator COSCO Pacific, Chinese toll road Zhejiang

Expressway, India's GMR Infrastructure, Mexico's Empresas ICA and Portuguese toll operator Brisa.

BMI's Infrastructure Index PE Ratio (Dark Grey Bar)/ % Change in Share Price YTD (Light Bar)

BMI's Infrastructure Index (Cont.) PE Ratio (Dark Grey Bar)/ % Change in Share Price YTD (Light Bar)



Source: BMI

We anticipate that the energy sector will perform much better, buoyed very much by the flurry of activity in oil and gas

exploration and production, which will also require new infrastructure. According to estimates, shale gas E&P will

require around US$200bn for new infrastructure in the United States to support the sector. Tied to this is BMI's bullish

view on oil and gas services companies, which prompted a bullish outlook for the S&P Oil & Gas Services &

Equipment Index (see BMI's Global Market Views - Oil Equities On Sale, 11 October 2011)

Gas mid-stream infrastructure therefore is a favourite amongst investors (both equity investors and

institutional). El Paso Corp., Enbridge and TransCanada - the North American transmission operators

- are the top performers in our Index in terms of year-to-date (YTD) share price gains, as the companies

are operating right at the heart of the shale gas developments in the United States. On the institutional

front, we see more and more infrastructure investors, and pension funds going into gas associated

infrastructure. Most recently, PE firm First Reserve entered into a joint venture with Energy Corp of

America to invest in gas gathering facilities in Pennsylvania, home to the giant Marcellus Shale

formation.



Valuations Falling, But Gas-Related Equities Outperform BMI Infrastructure Index, Major Stock Indices / Best and Worst Performers In BMI's Infrastructure

Index, 100 = January 2011

Source: BMI

The successive sell offs in global equity markets in August and September pushed down all equities, and

infrastructure saw a steeper fall led by declines in construction and building materials, with Mexico's

CEMEX having witnessed the largest fall YTD.

With valuations falling, cash rich companies (particularly ones backed by big sovereign wealth funds, like

Qatari Diar and Mubadala) could move to snap up attractive, but undervalued assets. Already Qatar has

been on the prowl, looking to increase its infrastructure portfolio in Europe. If wider M&A activity picks

up globally then we see opportunities in the market as our Infrastructure Index suggests that companies

with strong underlying assets are trading at low valuations.



Methodology

Industry Forecasts

BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and

causal/econometric modelling. The precise form of model we use varies from industry to industry, in each

case being determined, as per standard practice, by the prevailing features of the industry data being

examined. BMI mainly uses ordinary least squares (OLS) estimators and in order to avoid relying on

subjective views and encourage the use of objective views, uses a ‘general-to-specific’ method. BMI

mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when

necessary. During periods of ‘industry shock’, for example a deep industry recession, dummy variables

are used to determine the level of impact. Effective forecasting depends on appropriately selected

regression models. BMI selects the best model according to various different criteria and tests, including,

but not exclusive to:

R2 tests explanatory power; Adjusted R2 takes degree of freedom into account;

Testing the directional movement and magnitude of coefficients;

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);

All results are assessed to alleviate issues related to auto-correlation and multi-co linearity.

BMI uses the selected best model to perform forecasting.

It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s

industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that

analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely

mechanical forecasting process would not. Within the infrastructure industry, this intervention might

include, but is not exclusive to, new investments across sectors or cancelled projects; general investment

climate and business environment changes; changing domestic or regional trends; macroeconomic

indicators; and regulatory changes.

Example Of Construction Value Model

(Construction value)t = β0 + β1*(Gross Fixed Capital Formation)t + β2*(inflation)t + β3*(lending rate)t +

β4* (population)t + β5*(government expenditure)t + β6*(construction value)t-1 + εt

Note: Infrastructure sub-sector values are forecast using a similar regression model.



Construction Industry

A number of principal criteria drive our forecasts for each construction and engineering variable:

Construction GDP And Infrastructure Spending

Figures for construction GDP and infrastructure spending are based, where possible, on national accounts

as published by relevant central banks, as well as primary government/ministry sources and official data.

Where these are unavailable, construction GDP forecasts are based on a range of variables including:

Stated infrastructure and development programmes;

Likely increases owing to related urban or industrial sector developments;

Political factors (such as an electorally motivated public works programmes).

Construction as a percentage of GDP is calculated using BMI’s own macroeconomic and demographic

forecasts.

Employment Within The Construction Industry

These figures are forecast based on:

The growth or otherwise of the construction industry;

Company results and expansion plans.

Data Methodology

New Infrastructure Data Sub-sectors

BMI’s new Infrastructure Data examines the industry both from the top down and the bottom up in order

to calculate the industry value of infrastructure and its sub-sectors.

For the bottom up - a country-specific - approach, we have made full use of BMI’s Infrastructure Major

Projects Databases for each country, in most cases dating back to 2005. This has allowed us to calculate

historical ratios between general infrastructure industry value and its sub-sectors, which we then use for

forecasting. Our Major Projects Tables are not exhaustive, but they are sufficiently comprehensive to

provide a solid starting point for our calculations.

The top down approach uses deduction to form the main hypothesis. We have separated the 35 countries

into three Tiers. Each Tier comprises a group of countries that are on a similar economic development

trajectory and have similar patterns in terms of infrastructure spending, levels of infrastructure

development and sector maturity. This methodology enables us to confirm and overcome any deficiencies

of infrastructure-specific data, by applying an average group ratio (calculated from the countries for

which official data exists) to the countries for which data is limited.



Tier I- Developed States; common characteristic: mature infrastructure markets, investments typically

target maintenance of existing assets or highly advanced projects at the top of the value chain.

Infrastructure as percent of total construction on average around 30%.

Countries in Tier I: Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan,

Australia.

Tier II – Core Emerging Markets; common characteristic: the most rapidly growing of emerging markets,

where infrastructure investments are a strategic priority for the government. There is significant scope for

new infrastructure facilities from very basic levels (highways, heavy rail for instance) to more high value

projects (renewables, urban transport). Infrastructure as percent of total construction on average around

45% and above.

Countries in Tier II: Mexico, South Korea, Peru, Turkey, Vietnam, Poland, Hungary, South Africa,

Nigeria, Russia, China, India Brazil, Indonesia.

Tier III- Emerging Europe; common characteristic: regional socioeconomic trajectories, development has

been defined by the recent or pending accession to European structures such as the European Union.

Infrastructure development to a large degree dictated by EU development goals and financed through

vehicles such as the PHARE and ISPA programmes, and institutions such as the EBRD and EIB.

Infrastructure as percent of total construction on average between 30% and 40%.

Countries in Tier III: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania,

Croatia, Ukraine.

This methodology has enabled us to calculate infrastructure industry values for states where this was not

previously possibly. Furthermore, it has enabled us to create comparable indicators.

The top down hypothesis-led approach has been used solely to calculate the Infrastructure Industry Value

as a Percentage of Total Construction. For all sub-sector calculations we have applied the bottom-up

approach, i.e. calculated the ratios from our Major Projects Tables where data was not otherwise

available.

Construction

Construction Value

Our data is derived from GDP by output figures from each country’s national statistics office (or

equivalent). Specifically, it measures the output of the construction industry over the reported 12 month

period in nominal values (i.e. domestic currency terms). As it is derived from GDP data, it is a measure of

value added within the industry (i.e. the additional contribution of the construction industry over other

industries, such as cement production). Consequently, it does not measure the nominal value of all inputs

used in the construction industry, which, for most states would increase the overall figure by 50-60%.



Furthermore, it is important to note that the data does not provide an indication of the total value of a

country’s buildings, only the construction sector’s output in a given year.

This data is used because it is reported by virtually all countries and can therefore be used for

comparative purposes. However, it is important to note that, where we are able to locate them, data

released by national statistical offices or industry groups or associations for the overall value of the

construction sector also taken into account and published by us.

Growth

Our data and forecasts for real construction measures the real increase in output (rather than nominal

growth, which would also incorporate inflationary increases). In short, it is an inflation adjusted value of

the output of the construction industry year-on-year. Consequently, real growth will – in virtually all

instances – be lower than the nominal growth of our ‘construction value’ indicator.

Construction Industry, % Of GDP/Construction Value (US$)

These are derived indicators. We use BMI’s Country Risk team’s GDP and exchange rate forecasts to

calculate these indicators.

Capital Investment

Total Capital Investment

Our data is derived from GDP by expenditure data from each country’s national statistics office (or

equivalent). It is a measure of total capital formation (excluding stock build) over the reported 12 month

period. Total capital formation is a measure of the net additions to a country’s capital stock, so takes into

account depreciation as well as new capital. In this context, capital refers to structures, equipment,

vehicles etc. As such, it is a broader definition than construction or infrastructure, but is used by BMI as a

proxy for a country’s commitment to development.

Capital Investment (US$), % Of GDP, Per Capita

These are derived indicators. We use our Country Risk team’s population, GDP and exchange rate

forecasts to calculate them. As a rule of thumb, we believe an appropriate level of capital expenditure is

20% of GDP, although in rapidly developing emerging markets it may, and arguably should, account for

up to 30%.

Government Capital Expenditure

This is obtained from government budgetary data and covers all non-current spending (i.e. spending on

transfers, salaries to government employees, etc.). Due to the absence of global standards for reporting

budgetary expenditure, this measure is not as comparable as construction/capital investment.

Government Capital Expenditure, US$bn, % Of Total Spending

These are derived indicators.



Construction Sector Employment

Total Construction Employment

This data is sourced from either the national statistics office or the International Labour Organization

(ILO). It includes all those employed within the sector.

Construction Employment, % y-o-y; % Of Total Labour Force

These are derived indicators.

Average Wage In Construction Sector

This data is sourced from either the national statistics office or the ILO.



Infrastructure Business Environment Rating

Risk/Reward Ratings Methodology

BMI’s approach in assessing the risk/reward balance for infrastructure industry investors globally is

fourfold. First, we identify factors (in terms of current industry/country trends and forecast

industry/country growth) that represent opportunities to would-be investors. Second, we identify country

and industry-specific traits that pose or could pose operational risks to would-be investors. Third, we

attempt, where possible, to identify objective indicators that may serve as proxies for issues/trends to

avoid subjectivity. Finally, we use BMI’s proprietary Country Risk Ratings (CRR) in a nuanced manner

to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the

system offers an industry-leading, comparative insight into the opportunities/risks for companies across

the globe.

Ratings System

Conceptually, the ratings system divides into two distinct areas:

Rewards: Evaluation of sector’s size and growth potential in each state, and also broader industry/state

characteristics that may inhibit its development.

Risks: Evaluation of industry-specific dangers and those emanating from the state’s political/economic

profile that call into question the likelihood of anticipated returns being realised over the assessed time

period.

For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall

risk/reward rating a weighted average of the total score. Importantly, as most of the countries and

territories evaluated are considered by BMI to be ‘emerging markets’, our rating is revised on a quarterly

basis. This ensures that the rating draws on the latest information and data across our broad range of

sources, and the expertise of our analysts.



Table: Infrastructure Business Environment Indicators

Indicator Rationale

Rewards

Industry rewards

Construction expenditure, US$bn

Objective measure of size of sector. The larger the sector, the greater the opportunities available.

Sector growth, % y-o-y Objective measure of growth potential. Rapid growth results in increased opportunities.

Capital investment, % of GDP Proxy for the extent the economy is already oriented towards the sector.

Government spending, % of GDP

Proxy for extent to which structure of economy is favourable to infrastructure/ construction sector.

Country rewards

Labour market infrastructure From BMI’s Country Risk Ratings (CRR). Denotes availability/cost of labour. High costs/low quality will hinder company operations.

Financial infrastructure From CRR. Denotes ease of obtaining investment finance. Poor availability of finance will hinder company operations across the economy.

Access to electricity From CRR. Low electricity coverage is proxy for pre-existing limits to infrastructure coverage.

Risks

Industry risks

No. of companies Subjective evaluation against BMI-defined criteria. This indicator evaluates barriers to entry.

Transparency of tendering process

Subjective evaluation against BMI-defined criteria. This indicator evaluates predictability of operating environment.

Country risks

Structure of economy

From CRR. Denotes health of underlying economic structure, including seven indicators such as volatility of growth; reliance on commodity imports, reliance on single sector for exports.

External risk From CRR. Denotes vulnerability to external shock – principal cause of economic crises.

Policy continuity Subjective rating from CRR. Denote predictability of policy over successive governments.

Legal framework From CRR. Denotes strength of legal institutions in each state. Security of investment can be a key risk in some emerging markets.

Corruption From CRR. Denotes risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies’ ability to compete.

Source: BMI

india infrastructure report.pdf

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