PROJECT MANAGEMENT II OIL & GAS INFRASTRUCTURE (PGPM 34)

SUBMITTED TO

NATIONAL INSTITUTE OF CONTRUCTION MANAGEMENT AND RESEARCH (NICMAR) PUNE. SCHOOL OF DISTANCE EDUCATION (SODE)

By

SWAPNIL VIRENDRA SHINDE (PGDPM)

Reg.no.-211-08-31-9784-2131

Course no: PGPM 34

PROJECT MANAGEMENT II OIL & GAS INFRASTRUCTURE

Course title: Project Management II -Oil & Gas Infrastructure

2 of21

Course no: PGPM 34

CONTENTS

SR.NO .
1 2 3 4 5

DESCRIPTION
INTRODUCTON NEW INSTITUTIONAL MECHANISM FOR PPP INFRASTRUCTURE SECTORS IN INDIA CONCLUSION BIBLIOGRAPHY

PAGE NOS.
5 6 9 18 21

Course title: Project Management II -Oil & Gas Infrastructure

3 of21

Course no: PGPM 34 Assignment question: For a country of Indias size, an efficient infrastructure is necessary both for national integration as well as for socio-economic development. The major infrastructural sectors include energy and transport sector. Good physical connectivity in the urban and rural areas is essential for economic growth. Indias transport sector is large and diverse; it caters to the needs of 1.1 billion people. However, the sector has not been able to keep pace with rising demand and is proving to be drag on the economy. Major improvements in the sector are therefore required to support the countrys continued economic growth and to reduce poverty. 1. What are the major challenges facing the transport sector of India. 2. What are the major changes required in setting up an effective regulatory framework for a speedy infrastructural development in India? 3. Nuclear energy is the best option to meet Indias growing energy needs noting that the country is dependent on oil and gas imports and its coal supplies are limited. Discuss in detail by substantiating the statement with facts and figures.

Course title: Project Management II -Oil & Gas Infrastructure

4 of21

Course no: PGPM 34

INTRODUCTON
Infrastructure development has a key role to play in both economic growth and poverty reduction. Investors, policymakers and citizens alike acutely feel the constraint of physical infrastructure on economic growth. Many of the ingredients for rapid economic growth and poverty reduction in India are already in place and the transformation of the lives of millions seems within reach. Yet there is a long way to go. The challenge of finding the money to invest in infrastructure projects without jeopardizing fiscal health has been keeping policymakers on their toes. We will discuss the efforts made by the government in this area. Many initiatives taken in the infrastructure Sector, laudable as they are, are coming under the scrutiny of the public and the investors. The commercialization of infrastructure is not progressing fast enough to provide decent living conditions to citizens at large. Young India struggles daily to reach school and workplace and yet remains optimistic. We describe here, recent developments in different sub-sectors within the infrastructure sector. Challenges are emerging with changes in technology in the telecom sector. Development in the power and transport sectors is slowing down due to a plethora of issues, which we study here. Within the transport sector we map the growth trajectory of those sub-sectors that are expanding rapidly. Within urban infrastructure we take note of the important projects in progress and study the consequences of long-term policy failure. NEW INSTITUTIONAL MECHANISM FOR PPP Progress in creating new infrastructure has been slow while demand for infrastructure services is burgeoning. While it is clear that private sector is keen to participate in infrastructure projects, organizations are very cautious in their approach. Given the risks involved in large projects the government has realized that only public sector involvement with central government development assistance for infrastructure projects is not adequate to meet the challenge. Unless the government assures availability of funds at rates of return appropriately adjusted for risks, the private sector is unlikely to venture into infrastructure in a big way. Recognizing the imponderable risks, which infrastructure projects entail, with long gestation periods, high costs and Course title: Project Management II -Oil & Gas Infrastructure
5 of21

Course no: PGPM 34 budget constraints, the government has proposed a flexible funding scheme, which will find support from budgetary allocation to fund public-privatepartnerships (PPPs) for infrastructure projects. The government has proposed India Infrastructure Finance Company (IIFC) and formulated a scheme to support PPPs in infrastructure. As part of this scheme, PPP opportunities are to be awarded through competitive bidding in a transparent manner and for each project, performance is to be assessed against easily measurable standards, based on unambiguously defined criteria, in order to inspire confidence among investors. India Infrastructure Finance Company The Finance Minister announced a special purpose vehicle (SPV) to fund infrastructure projects in his 2005 budget speech. The SPV, India Infrastructure Finance Company (IIFC) is proposed to be a wholly owned government entity under the Companies Act. The authorized capital of the company is fixed at Rs 1000 crore and the borrowing limit for the current fiscal has been pegged at Rs 10,000 crore. The company will fund projects in urban infrastructure, roads, power, railways, ports, airports, and tourism. The projects could be publicly or privately owned or could be schemes involving publicprivate partnerships. In case of projects which need viability gap funding under a government scheme, IIFC will also fund these provided their viability is assessed by the Inter-Institutional Group (IIG) of banks and financial institutions consisting of IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank. The company will provide refinance to banks/financial institutions for loans of five years or more. It is hoped that the way National Housing Bank helped in the development of the housing market, the IIFC would be able to help in development of infrastructure in the country. The borrowings of IIFC are to be guaranteed by the Union government. This is in marked contrast to a traditional SPV, which raises funds on the strength of a projects future receivables. Being a wholly owned government company, with lower return expectations and lower cost of funds emanating from a sovereign guarantee, IIFC will have the ability to bear risks at lower rates. The establishment of IIFC should accelerate the financial closure of many Course title: Project Management II -Oil & Gas Infrastructure
6 of21

Course no: PGPM 34 infrastructure projects and consequently, increase considerably, the size of the infrastructure loan market going forward. Furthermore, since the appraisal of a proposed project for IIFC will be undertaken by the IIG, consisting of existing financial institutions, they will be fully involved in the projects supported by IIFC. This will ensure that the capital of IIFC is leveraged to the maximum extent possible by extending minimum crucial support to each individual project while structuring the funding in a manner that is complementary to the lending by existing financial institutions. Scheme to Support PublicPrivate Partnerships in Infrastructure The government has formulated a scheme to provide viability gap funds to infrastructure projects. The viability gap funding would make infrastructure projects commercially viable. It is a plan scheme to be administered by the Ministry of Finance (MoF). Funding under this scheme will be disbursed contingent upon agreed milestones (preferably physical) and performance levels attained, as detailed in a funding agreement. The project will then be put to bid by the concerned public agency through a transparent and open competitive process. The result of the bidding will indicate the extent of viability gap funding required, in other words, how much money is needed to make the project feasible. In the first two years of the facility, funding will be allocated to projects on a first-come, first-served basis, subject to eligibility criteria. In later years, funding will be provided based on an appropriate formula that balances needs across sectors. A lead financial institution will be responsible for regular monitoring and periodic evaluation of project compliance with agreed milestones and performance levels. The lead financial institution will release the viability gap funds to the project authorities when due, and obtain reimbursement from the empowered institution (GOI 2005a). The scheme covers roads, railways, seaports, airports, inland waterways, power, infrastructure projects in SEZs, international convention centers and other tourism infrastructure projects, urban transport, water supply, sewerage, solid waste management and other physical infrastructure projects in urban areas. Salient provisions under the scheme are: Infrastructure asset indirectly owned by the government; Course title: Project Management II -Oil & Gas Infrastructure
7 of21

Course no: PGPM 34 Project built and maintained by a private sector entity; Project designed and an estimate of viability gap given by a government entity; Viability gap fundone time or deferred grantprovided by the government; Viability gap fund not to exceed 20 per cent of the total project cost; but the entity that owns the project may provide additional grants up to another 20 per cent of the project cost from its own budget; A pre-determined tariff or user charge to be collected from users.

Course title: Project Management II -Oil & Gas Infrastructure

8 of21

Course no: PGPM 34 INFRASTRUCTURE SECTORS IN INDIA HIGHWAYS Initiatives For a country of India`s size, an efficient road network is necessary both for national integration as well as for socio-economic development. 65,569 km National Highways (NH) serves across the country. 5,900 kms Four-laning Golden Quadrilateral (GQ) connecting Delhi, Mumbai, Chennai and Kolkata is nearing completion. East-West (NSEW) corridor is to be completed by December 2009. Committee on Infrastructure adopted an Action Plan for development of the National Highways. An ambitious National Highway Development Programme (NHDP), involving a total investment of Rs, 2, 20,000 crore up to 2012, has been established. The main elements of the programme are as follows: Four-laning of the Golden Quadrilateral and NS-EW Corridors (NHDP I & II) The HPDP Phase I & II comprise of (GQ) link four metropolitan cities in India ie. Delhi-Mumbai-Chennai-Kolkata, the North-South corridor connecting Srinagar to Kanyakumari including Kochi-Salem spur and the East-West Corridor connecting Silchar to Porbandar besides port connectivity and some other projects on National Highways. The contractors for project forming par of NS-EW corridors are being awarded for its rapid completion. Four-laning of 10, 000 kms (NHDP-III) The Union Cabinet has approved the four-laning of 10,000 km of high density national highways, through the Build, Operation & Transfer (BOT) mode. The programme consists of stretches of National Highways carrying high volume of traffic, connecting state capitals with the NHDP Phases I and II network and providing connectivity to places of economic, commercial and tourist importance. Two laning of 20,000 km (NHDP-IV) Course title: Project Management II -Oil & Gas Infrastructure
9 of21

The ongoing four-laning of the 7,300km North-South

Course no: PGPM 34 To provide balanced distribution of improved/widened highways network

throughout the country, NHDP-IV envisages up gradation of 20,000 kms of such highways into two-lane highways, at an indicative cost of Rs.25,000 crore. This will ensure that their capacity, speed and safety match minimum benchmarks for national highways. Six-laning of 6, 500 kms (NHDP-V) Under NHDP-V, the Committee on infrastructure has approved the six-laning of the four-lane highways comprising the GQl and other through PPPs on BOT basis. These corridors have been four-lanes under the 1st phase of NHDP, and the programme for their six-laning, to be completed by 2012. Development of 1000 km of expressways (NHDP-VI) Committee of Infrastructure approved 1000 km expressways on a BOT basis costing Rs.15, 000 crore. Other Highway Projects (NHDP-VII) For full utilization, safety & efficiency of Highway, development of ring road, bypasses, grade separators and service roads is necessary. Rs.15000 crore has been mandated for its development. Accelerated Road Development Programme for the North East Region. NEDProject will provide connectivity to all State-Capitals & district headquarters. NH and state highways are necessary for economic development of NE region. Institutional Initiatives NHAI re-structures and strengthens National Highways. Directorate of Safety & Traffic Management. Model Concession Agreement (MCA) is mandated for PPPs in national highways to balance risk and reward. Course title: Project Management II -Oil & Gas Infrastructure
10 of21

Cost of

Institutional

mechanism cares land acquisition, environmental clearance etc, through

Course no: PGPM 34 Size Govt. of India spends Rs.18000 crores annually on road development Programme for 4-laning of 14000 km of National Highways NHDP of Govt include Golden Quadrilateral (GD-5846 ks of 4 lane highways) North-Sout & East-West Corridors 7300 kms of 4 lane highways

Programme for 4-laning of 14000 km of National Highways

Structure Policy 100%FDI is permitted Incentives 100% Income Tax exemption for 10yrs NHAI provide grant/viability gap fund Model Concession Agreement formulated Govt. body formed National Highway Authority to implement NHDP on Competitive bidding. Construction Contracts are awarded to private sector BOT contracts permit stretches of NHDP BOT stretches on lowest basis

Course title: Project Management II -Oil & Gas Infrastructure

11 of21

Course no: PGPM 34 RAILWAYS Initiatives The rapid rise in international trade and domestic cargo has placed a great strain on the Delhi-Mumbai and Delhi Kolkata rail track. Government has, therefore decided to build dedicated freight corridors in the Western and Eastern high-density routes. The investment is expected to be about Rs. 22,000 crore. Requisite surveys and project reports are in progress a work is expected to commence within a year. With increasing containerization of cargo, the demand for its movement by rail has grown rapidly. So, far container movement by rail was the monopoly of a public sector entity, CONCOR. The container movement has been thrown open to competition and private sector entities have been made eligible for running container trains. Tariff rationalization and effective cost allocation mechanism are also on the anvil. This includes a methodology for indexing the fair structure to line haul costs. Efforts aimed to introducing commercial accounting and information technology systems are also underway. Technology up gradation and modernization for higher operating efficiency. PPP envisaged in new routes, railway stations, logistics park, cargo aggregation an ware houses PORTS Initiatives The experience of operating berths though PPPs at some of the major ports in India has been quite successful. It has, therefore been decided to expand the programme and allocate new berths o be constructed through PPPs. The Government has also decided to empower and enable the 12 major ports to attain world-class standards. To this end, each port is preparing a perspective plan for 20 years and an action plan for seven Course title: Project Management II -Oil & Gas Infrastructure
12 of21

Course no: PGPM 34 years. Recognising that the shipping industry is moving towards large vessels, a plan for capital dredging of channels in major ports has also been formulated. A high level committee has finalized the plan for improving rail-road connectivity of major ports. The plan is to be implemented within a period of 3 years. Size Indian ports handle cargo of 519 million tones in 20004-2005, a 11.8% increase over 2003-2004. 70% of the traffic at major ports by volume is dry and liquid bulk, remaining 30% is general cargo including containers which has grown at a rate of about 14% p.a over the last five years. India has 12 major ports and 187 minor ports along 7517 kms long Indian coastline. Of the 12 major ports, 11 are run by port trusts while the port at Ennore is a corporation under the central Govt. These ports handle 383.75 million tones of cargo in 2004-2005. Structure Government of India dominated maritime activity in the past. Policy direction is now oriented to encouraging the private sector to take the lead in port development. Many major ports now operate largely as landlord ports. Significant investment by BOT basis by foreign players including Maersk (JNPT, Mumbai) and P&O ports (JNPT, Mumbai & Chennai) , Dubai ports international (Cochin & Vishakapatnam) and PSA Singapore (Tuticorin) Minor Ports are already being developed by Domestic and International Private Investors. The national maritime development programme is expected to bring a total investment of over 50,000 crore.

Course title: Project Management II -Oil & Gas Infrastructure

13 of21

Course no: PGPM 34 Policy 100% FDI under the automatic route is permitted for Port Development Projects. 100% Income Tax exemption is available for a period of 10 years. A comprehensive national Meritime policy is being formulated to lay down the vision and strategy for development of the sector till 2025. Growth in merchandise exports projected at over 13% P.A underlines the need for large investments and post infrastructure. Investment need of Dollars 13.5 billion in the major ports under NMDP to boost infrastructure at this ports in the next seven years. The Plan proposes an additional port handling capacity of 530 MMTE in major ports. Investment need of Dolors 4.5 billion for improving minor ports.

AIRPORTS Initiative The Committee on infrastructure has initiated several policy measures that would ensure time bound creation of world-class airports in India. The policy of open skies introduced some time ago has already provided a powerful spurt in traffic growth that has exceeded 20% P.A. during the last two years. International Airports at Bangalore and Hyderabad have been approved and commissioned in 2008. Modernization and expansion of Delhi and Mumbai Airports through PPPs has been awarded. Other major airports such as Chennai and Kolkata are also proposed to be taken up for modernization through the PPP route. On the analogy of the Highway sector, a model concession agreement I also been developed for standardizing and simplifying the PPP transactions for airports.

Course title: Project Management II -Oil & Gas Infrastructure

14 of21

Course no: PGPM 34 Size India has 125 Airports: Of these 11 are designated as International Airports. In 2004-05 Indian airports handled 60 million passengers and 1.3 million tons of cargo. Structure Currently all 125 Airports are owned and operated by the Airports Authority of India. The Govt. aims to attract private investment in aviation infrastructure. Air India and Indian Airlines are government own international and domestic flat carriers respectively. Indian private airlines Jet Sahara Kingfisher Spice Jet Indigo accounts for around 60% of the domestic passenger traffic. have now started International Flights. Policy 100% FDI is permissible for existing airports: FIPB approval required for FDI beyond 74%. 100% FDI under automatic route is permissible for green field airports. 49% FDI is permissible in domestic airlines under the automatic route. 100% tax exemption for airport projects for 10 years. Open Sky policy of the government and rapid air traffic board have resulted in the entry of several new privately owned air lines and increased frequency for international air lines. Potential Favorable democratic on rapid economic growth point to a continued boom in domestic passenger traffic and international outbound traffic. International in bound traffic will also grow rapidly with increasing investment and trade activity. The govt. is taking steps to increase participation by private industry. Some

Course title: Project Management II -Oil & Gas Infrastructure

15 of21

Course no: PGPM 34 Major opportunities lie in modernization/up gradation of metro airports and new Greenfield airport projects. Estimated investment is about 40000 Crores for Airport Development over the next 5 years. POWER Size Generation capacity of 122 GW, 590billion units produced. India has the fifth largest electricity generation capacity in the world T&D network of 5.7 million circuit km the 3rd largest in the world. Coal- fired plants constitutes 57% of the installed generation capacity, followed by 25% from hydel power, 10% gas based, 3% from nuclear energy and 5% from renewable sources. Structure Majority of generation, Transmission and Distribution capacities are with either public sector companies or with State Electricity Boards. Private sector participation is increasing especially in Generation and Distribution. Policy 100% FDI permitted in Generation, Transmission & Distribution he Govt. is keen to draw private investment in the sector. Policy framework in place: Electricity act 2003 and National Electricity Policy 2005 Incentives: Income tax holiday for 10 years in the first 15 years of operation; waiver of capital goods import duties on mega power projects. Independent regulations: CERC for Central PSUs and Inter State issues. Each state has its own ERC.

Course title: Project Management II -Oil & Gas Infrastructure

16 of21

Course no: PGPM 34 Opportunity Over 150000 MW of hydel power is yet to be tapped in India. India requires an additional 100000 MW of generation capacity by 2012. Potential Large Demand-Supply gap: All India average energy shortfall at 7% and peak demand shortfall of 12%. The implementation of key reforms is likely to foster growth in all segments. Opportunities in Transmission network ventures additional 60,000 circuit km of transmission network expected by 2012. Opportunities in Distribution through by bidding for the privatization of distribution in thirteen states that have unbundled/ corporatised their SEBs expected to take place over the next 2-3years. Total investment opportunity of about $200 billion over a seven year horizon.

Course title: Project Management II -Oil & Gas Infrastructure

17 of21

Course no: PGPM 34 CONCLUSION Indias agenda to promote PPPs for infrastructure development aims at enhancing the quality and quantum of infrastructure services, releasing the full potential of public sector assets and ensuring that stakeholders receive a fair share of benefits from the PPP. These partnerships backed by the IIFC and the viability gap fund scheme hold the promise of faster financial closure of infrastructure projects without overburdening the countrys public finances. An infusion of private capital and management can ease fiscal constraints on infrastructure investment and boost efficiency. In general, wherever private sector is participating to finance, build and operate a wide array of infrastructure projects, either on its own or within the framework of PPP, the sector is recording growth. In order to manage a complex PPP programme in the country government is leaning on project appraisal and prioritization skills of financial institutions that are also partners in lending to infrastructure projects. The government is keenly aware that it has to facilitate PPP actively. The proposed IIFC and the scheme to support PPPs in infrastructure would go a long way in construction of large infrastructure projects in the country. Expanding telecom network capacity has brought down prices and made the internet more widely available, fuelling a new round of online innovation. In metropolitan cities spectrum availability has become an issue before 3G services can be rolled out. Just as with the growth of mobiles, broadband use explodes only when it becomes affordable to large sections of people. This requires both the connectivity and the internet access devices (such as PCs) to be affordable and programmes which are useful to users which are hitherto either not available or accessible at prohibitive cost. Power is indispensable as an infrastructure input for the growth of an economy and acceleration in the growth of the power sector greatly depends upon the financial and commercial viability of the sector. The implementation of APDRP in the last two years shows reduction in aggregate technical and commercial losses of the SEBs and a step towards commercial viability of the power sector. The Planning Commissions evaluation of the power sector, however, suggests that the sector is still saddled with several shortcomings, and remains an area of serious concern. The assessment points out that although power sector reforms in the country have been underway for over a Course title: Project Management II -Oil & Gas Infrastructure
18 of21

Course no: PGPM 34 decade, with a few milestones reached in crucial areas, the sector remains locked in a situation that is fundamentally unsustainable. The enforcement of Electricity Act 2003 marked a renaissance in the power sector of the country with its progressive package of policy initiatives, the positive results from it are yet to manifest in the full. But, large investments are being committed to develop generation and transmission capacity as power become a tradable commodity across the states and generators are free to sell power directly to high paying customers. To achieve an 8 per cent growth in GDP, the transport sector, mainly comprising of road, rail and shipping sectors needs to display a 9 per cent growth. There is acute awareness that lack of transport capacity could be the stumbling block in realizing the growth potential. Further development of national highways appears to have slowed down though impetus is being given to ensure that the national highways network continues to expand its capacity. The government is keen to link the national highways network and the rail network with ports. Indian Railways, however, is largely dependent on budgetary support for capacity expansion. A review of recent investment decisions would indicate that while road and ports have made quite a few positive moves in the recent past, the Railways action plan is somewhat hazy. The port sector is also expanding and there is competition to develop large container port capacity. A massive national maritime development programme is set to be launched to rejuvenate the port sector and strengthen it in the face of increasing traffic. The project will be based on publicprivate partnership and will have an estimated investment of more than Rs 60,000 crore. India is on the verge of an aviation revolution. Only 50,000 people travel by air each daya fraction of the number uses the rail network. Existing airport infrastructure is being augmented and new airports are at various stages of development to be able to service national and international travelers. New developments in the civil aviation sector have included many budget airlines and low-cost, no-frills airlines, which have commenced to offer services in a big way. The development of urban infrastructure has been fairly stop-gap in the last few decades. Barring a few large projects in a handful of cities, paucity of urban infrastructure projects is glaring. Whereas city mass transport systems Course title: Project Management II -Oil & Gas Infrastructure
19 of21

Course no: PGPM 34 and airports have found place in developmental plans, essential services such as roads, drinking water, sewage management, drainage, and primary health the under belly of urban infrastructure have not yet come on the developmental radar. Efforts are being made to develop urban infrastructure in a sustainable fashion. Government wants ULBs to seriously take up the planning and development of urban infrastructure. With the economy growing at 8 per cent plus rate, business confidence in the economy is at a ten year high and the government is targeting an economic growth rate of 8 per cent during the Eleventh Plan (200812). The picture is one of brimming optimism; the need of the hour is to ensure that the irrational measures of the polity do not take a toll on the pace of the acceleration of reforms.

Course title: Project Management II -Oil & Gas Infrastructure

20 of21

Course no: PGPM 34 BIBLIOGRAPHY: Mid-Term Appraisal of the Tenth Five Year Plan (2002 2007), Planning Commission, New Delhi. Report on infrastructure sector performance ( 2005 - 2006 ), ministry of statistics and programme implementation Indian Infrastructure Report Planning Commission (2002). Foreign investment, Report of the Steering Group on Foreign Direct Investment, August, Government of India, New Delhi. www.iitk.ac.in/3inetwork/html/reports www.indiainfrastructure.com www.renewingindia.org

Course title: Project Management II -Oil & Gas Infrastructure

21 of21