Challenges in Building the 21st Century Energy Infrastructure

Management of Risks and Constraints of Low Carbon Economy

Presented By:

Himadri Banerji
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India Infrastructure Country Outlook

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Planned Infrastructure Investments: India

Infrastructure Investment Projections

Present Status: A Visible Gap Target vs. Actual

Continuing mismatch between government infrastructure development targets and realized infrastructure development due to constraints in project approval, lending, delivery and operations. A continuation of some of the excesses of the pre precrisis years, e.g. high debt loads and minimum contingencies for project construction and completion risks is further aggravating matters.

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The informal System of Jugaad

Indias informal system of jugaad allows counterparties to a project to recognize the systemic problems affecting most infrastructure projects and evolve workable solutions on a casebycase basis (whereas in other developed markets, such situations may be deemed as contractual failures, leading to the collapse of the projects).
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Country Outlook India: Ignore to Redress Common Project Risks

Financing structures and debt levels do not seem to adequately address Common project risks (a) Propensity for execution delays (b) Cost over run (c) Demand overestimation (d) Lack of a strong regime for contract observance and enforcement.
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Sector Scenario Power Sector Projects

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Five Yr Plan: Power Production Target Vs achievements

Region Wise: Power Generation and Peak Deficit

Eastern Regions Status

Western Regions Status

Region Wise: Power Generation and Peak Deficit

North- Eastern Regions Status

Southen Regions Status

RegionRegion -wise Installed Generating Capacity: India

Electricity Demand Projections: India

Electricity Demand Vs Achievements: India

Power Sector Projects

(EPC) route for construction, companies are choosing to break down the entire activity
into packages System against the best practices in developed countries New Merchant power plants as unrelated diversification of the promoters Many projects continue to depend on Bharat Heavy Electrical Ltd (BHEL) for the supply of the critical boilerturbinegenerator (BTG) island, even though it has an overflowing order book
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What to Watch
Financial health of state governmentowned utility offtake counterparties.

Visible constraints on land availability, equipment vendor capacity, and sustainable fuel supplies for projects under construction

Capacity of domestic commercial bank sector to continue to finance mega power projects, given lending exposure limits.

Impact, if any, of the ongoing Climate Change Summit 2009 discussions for restricting carbon emissions.

The Challenges to Managing Growth of Infrastructure: What is needed?

1. Innovative Approaches to Project Finance Needed Encourage public private partnerships (PPPs) to raise additional financing. Encourage investment by pension funds and other large institutional investors. Make greater use of user charges for funding infrastructure. Diversify and expand traditional revenue-raising sources. Explore the funding possibilities offered by land value capture.

The Challenges to Managing Growth of Infrastructure:

Improving the Conditions Regulatory and Institutional Framework

Examine the legal and regulatory framework conditions with a view to encouraging the emergence of fresh sources of capital and new business models for infrastructure infrastructure. . Avoid Patronization and Corrupt Practices Place greater emphasis on the reliability of infrastructure functioning. functioning . Strengthen the framework for standards standards. . Explore new institutional arrangements that may provide more effective and efficient financing and or delivery of infrastructure. infrastructure .

The Challenges to Managing Growth of Infrastructure:

Strengthening Governance and Strategic Planning

Support the development of long-term, coordinated approaches to infrastructure development.

Reduce the vulnerability of long-term infrastructure planning to shortterm thinking. Ensure the involvement of a broader range of stakeholders in the infrastructure process. Step up efforts to reduce the length and complexity of the planningto-implementation process. Strengthen international co-operation for trans-border infrastructure.

The Challenges to Managing Growth of Infrastructure:

Building Capacity in Executing Project and Managing Financial and Project Risks
Financing constraints Land acquisition problems Delays in the supply of equipment Environmental and governmental clearances Problems of technology selection

The Challenges to Managing Growth of Infrastructure:

Building Capacity in Executing Project and Managing Financial and Project Risks
Three factors in particular have contributed to the perception of this dearth of execution capacity being a key Risk Growth in new project construction activity increasing scale and complexity of projects A small base of large, qualified developers available to accomplish this task.

The Challenges to Managing Growth of Infrastructure:

Managing Risks in Execution of Infrastructure Projects

Risk management is an essential and integral part of project management in major construction projects Risks which have the major impact on any infrastructure projects. Financial risk Project Risk

The Challenges to Managing Growth of Infrastructure:

Managing Financial Risk
Three main considerations with respect to financial risk. Impact of higher debt loads and interest rates Risk of Cash flows The mix of equity in the capital structure

The Challenges to Managing Growth of Infrastructure:

Managing Project Risk: Probabilistic Risk Assessment (PRA)
Evaluation of the value of project risk Probability of Completing activities project in Time and Cost Criticality of Activities Monte Carlo Simulation Techniques

The Challenges to Managing Growth of Infrastructure:

Infrastructure Growth Constraints and Low Carbon Economy
India contributes about 4 per cent of the total global CO2 emissions and the country has conveyed that per capita emission levels would never exceed the average levels of developed countries.

India's per capita carbon dioxide emissions will increase by nearly threethree -fold to 3.5 tones by 2030 Target Carbon emission intensity to decline by 2020-25 per cent by 2020

The Challenges to Managing Growth of Infrastructure

Infrastructure Growth Constraints and Low Carbon Economy
Emerging markets will have the largest growth in CO2 emissions up to 2025

Infrastructure Development in Low carbon Economy

Infrastructure Development has traditionally been carbon intensive. The energy sector is responsible for 58% of the countrys total green house gas (GHG) gross emissions of 1.9 billion tons of CO2eq electricity: 38% transport: 8% petroleum refining: 5% Urban and rural residential: 7%

The low carbon pathway :India ever green

Changing the institutional framework financing and creating appropriate incentives for adoption of cleaner and green technologies and practice Target reduction in energy intensity through : Improvements in agricultural and non agricultural practice and rural areas Development of local power generation capacities based on renewable recourses to service unserved areas and reduction pressure on grid Improvements in practices in urban manufacturing ,construction and service

As an example, there are a range of policies and policy instruments at the state level that have been passed in recent years with the mandate to promote renewable energy projects and initiatives. Solar Policy 2011 is the latest example. However, when it comes to the legal framework it is the Electricity Act, 2003 and more specifically, the New Tariff Policy (2006) under the Act Actwhich states that a minimum percentage of energy, as specified by the Regulatory Commission, is to be purchased from renewable energy sources sourcesthat alone contains a legally binding obligation requiring the creation, transmission, and deployment of renewable energy to address the countrys energy and environmental insecurity.
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Current transportation System: India

Investment Challenges in Logistic Growth: India

NILP: From Strategy to Implementation

Model Mix for Balanced Strategy: Logistic India

THANK YOU

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