Over the past couple of years, the government has made concerted efforts to attract foreign investments into India, especially in the infrastructure sectors. Investments have come through private equity (PE) funds, pension funds and sovereign wealth funds, strategic investors, infrastructure bonds, IDFs, etc. Greenfield and brownfield projects, operational assets, developer firms and supplier businesses have all attracted investor interest.
More recently, the government’s asset monetisation scheme and the infrastructure investment trust (InvIT) platform have attracted significant investments from across the globe. To name a few, Australia’s largest pension fund, AustralianSuper, Canadian pension funds Ontario Teachers’ Pension Plan and the Canada Pension Plan Investment Board (CPPIB) and Norway’s Government Pension Fund Global have a keen interest in India. The CPPIB plans to invest up to a third of its funds in emerging markets by 2025 and India has been recognised as an important destination.
Global PE firms and venture capitalists invested about $8 billion in India’s infrastructure sectors in 2019-20. The year 2020-21 also started on a positive note despite a slowdown due to the Covid-19 pandemic. It witnessed a spate of PE fundings in Jio Platforms and the NHAI’s third toll-operate-transfer (TOT) bundle, under which nine road assets were acquired by the Singapore-based Cube Highways Group. The road ahead for foreign investments in India looks promising with increased transparency and a streamlined procedure for global investors to enter the Indian market. The National Infrastructure Pipeline has opened up several investment avenues for foreign investors.
At a recent conference on “Foreign Investments in Indian Infrastructure.” key global strategic investors discussed their experience so far, investment opportunities, risks and challenges, and the outlook for investment in India’s infrastructure sectors.
Roadblocks for foreign investments in India
The fundamental challenge facing the sector is the uncertainty in policies and regulations. The coordination of the central and state government policies with the country’s common vision is also very critical. Global investors need a stable policy environment, both in terms of taxation and other important aspects that impact the nature of the transactions.
In Gujarat, for example, the regulatory bodies advised the distribution companies to scrap the older bids and go for rebidding with revised ceiling tariffs after learning that the tariffs discovered were lower than the tariffs submitted by the distribution companies to the regulator for approval. However, it is impossible to retrospectively apply a lower tariff discovered at one point in time. Further, the government needs to target the bidding trajectory that is linked to the confirmed offtakers. The government must keep a check on the bidding trajectory as well as on the rate at which the capacity is being built as there is a huge gap between the awarded capacity and the commissioned capacity. So far, 18-20 GW of the awarded capacity has not entered the construction phase.
The Ministry of New and Renewable Energy (MNRE) should come out with the confirmed offtakers, and the discoms should sign agreements with them according to the tariffs approved by the regulators. This will ensure that the projects are commissioned within 18-20 months from the launch of the bidding process, helping the country obtain more capacity in a much shorter time frame.
Apart from this, the pending legacy issues are a cause for concern for investors. Land acquisition is one of the key issues that government is keen to address. However, the policymaking has been quite slow in this regard. The unresolved disputes that existed before the new Arbitration Act was introduced should be closed. Certain disputes that have been pending for five to six years have put a strain on the industry and created confusion for investors. Further, the government must initiate a policy that will address the long-term funding requirements of infrastructure projects.
Focus areas of key investors
With respect to its investment strategy, Ayana Renewables is focusing on the bidding opportunities offered by the central agencies. From an acquisition perspective, the company is planning to leverage opportunities in the renewable sector, especially in projects with a capacity of 100 MW and above. The company is currently engaged in solar energy projects and is also considering the acquisition of projects in the wind energy segment. Since the outbreak of Covid-19 has slowed down the construction operations of companies, the MNRE has extended the deadlines for the projects.
Highway concession company Roadis, and the National Investment and Infrastructure Fund have jointly participated in the TOT model. ROADIS is closely working with the government for investment in the InvIT. Going forward, the company is also looking to participate in multilateral InvITs. Annuity payments under the hybrid annuity model have been realigned with the marginal cost of fund-based lending rate, thus mitigating the risk associated with the interest rate, which is a major step towards attracting long-term investments in the sector. The company’s assets have returned to pre-Covid levels, implying a one-year restricted impact of Covid-19 on the roads sector. That said, the issue of farmer agitation in Punjab and Haryana impacted the company’s assets in these areas.
Next steps and future outlook
The amount of investment India has attracted in the renewables space is phenomenal. Even more investors are looking to invest in the country, waiting for the government to address the pending legacy issues. Financing costs, GST and other induced costs must be reduced in order to drive investments. Despite the adverse impact of Covid-19, global investors remain quite optimistic about India’s growth prospects. Infrastructure development, expanding market size, digital revolution, and investors looking for an alternative to China are the factors driving investments in India. w
Based on inputs from a panel discussion among Daniel Bircher, CEO, Zurich Airport International (Asia); Shivanand Nimbargi, Managing Director and CEO, Ayana Renewable Power; and Kaushik Pal, CEO, Asia, Roadis