While the overall cost of financing may go up, several aspects of the central bank proposals on provisioning norms can help ramp up the overall infrastructure buildout in the country as we advance, says Jagannaryan Padmanabhan, Senior Director and Global Head, Transport Logistics & Mobility, CRISIL Infrastructure Advisory tells INFRASTRUCTURE TODAY. Edited excerpts. How do you see the infrastructure financing landscape evolving in the last ten years in India? Since 2014, the award of contracts continues to be largely dominated by the roads and highways sector. Several contracts were awarded under the BOT (Build, Operate, Transfer) mode. The share of BOT projects in awards was about 25 per cent, with the rest being in the EPC (Engineering, Procurement and Construction) mode. HAM (Hybrid Annuity Model), now a predominant model, didn’t exist ten years ago. The financing of BOT projects was being done through the banks, with the private sector taking exposure into it. Financing was split between the central and the state governments in the 35-40 per cent range. However, unlike today, participation by the state government was not as prevalent. The private sector had a contribution of close to 30 per cent. From then to now, the split is more like 40-45 per cent each for the central and the state governments, and 15 odd per cent for the private sector. Thus, project financing has shifted from the private to largely the central and state government-owned entities doing the infrastructure buildout. The primary reason behind this transition is that in 2011 and 2012, the private sector had gone a bit overboard during bidding. Consequently, several projects got stuck leaving banks that had lent money in the lurch with huge NPAs. This led the government to step into infra financing. Given the humongous capital demanded by the sector can we expect more innovation in financing models? Of course! Innovative models of financing are always a welcome measure. The quantum of money channeled into the infrastructure sector has been increasing unabated. This will be a focus area from the government's perspective as well. Having said that, it will be nice to see the private sector back on the table. The private sector may not offer innovative financing models, but their re-engagement is critical. More than 80 per cent of the projects are in multiple segments outside core infra. Therefore, getting private capex back into infra and its ancillary businesses becomes essential. Be it BOT, DBFOT (Design, Build, Finance, Operate, and Transfer), or any other PPP (Public Private Participation) mode, we need the private sector for equitable risk sharing of projects. However, the ability to work with some of the current lacunae in the PPP structuring on the concession agreements needs to be addressed with an open mind. This is across sectors, and not in any particular order of things. What is your view on RBI recommending tighter norms for financing of infrastructure projects? Being a draft guideline it’s a work in progress. While the view is that the overall cost of financing may go up, several aspects of the proposal can help ramp up the overall infra buildout in the country in the medium and the long term. For example, a project with a negative NPV (Net Present Value) would have to be reviewed by the bank through an independent agency year-on-year. That would result in a lot more alertness on the part of all stakeholders, including the project sponsor, the banks, and the bidder, to ensure the right numbers are considered during bidding. Before approving the loan, the banks would also be required to cross-check through a third-party agency. So, you would not have aggressive numbers being bid out for merely bagging projects. Higher provisioning norms for a postponement in the project’s operationalisation would mean that the concessionaire and the concession authority would agree on far more reasonable and achievable timelines. These measures are going to facilitate the overall project preparation. Even the Kelkar Committee had urged sufficient time be spent on project preparation to avoid any cost or time overruns. Several large-sized projects of Rs. 1-10 billion or above are delayed today. These are projects where you would not want this kind of overrun to happen because the implications, including opportunity cost, are significant. To sum up, yes, there will be an impact on projects that are not appropriately planned. Also, there will be more discipline during project preparation, and adherence to timelines. Finally, going by the way the guidelines have been proposed, the developer will have more skin in the game. For FY25, the capex outlay for infrastructure has been enhanced by 11.1 per cent to Rs.11.11 trillion. Given the tremendous scope for future development, how long will this significant government participation likely be sustained? It will be difficult to say what number the government will be putting in the future. But taking a combination of both government and private sector on an absolute basis, directionally this number will only increase. If the contribution of the central and state governments is around 85 per cent, it will start reducing once the private sector starts upping investment. But the need and the absolute quantum of government investment will be higher. I read somewhere that the overall infrastructure spending is between 5.5-8 per cent of the GDP. Interestingly, there is no reliable source on the actual infra spend by the central government, state government, and the private sector. Therefore, all the numbers being bandied around are an informed view rather than fact though I may be wrong on this count. This quantum will only increase to keep up with our economic ambitions. So, I expect government spending on infrastructure to continue for another five years. With the infrastructure sector being viewed as an important contributor in making the country the world’s third-largest economy, has lending to such projects become more seamless? I wouldn’t say it has become seamless as issues and challenges remain. That’s why private sector participation is not at an optimum level. But I am certain the stakeholders want the private sector to play a more active role and there are enough players in the market to do that. Moreover, the capacity of contractors and developers to review and take on some of the most complex projects has increased significantly. To that extent, a good base is in place at the central and state levels. States like Maharashtra and Uttar Pradesh have bid out projects like the Atal Setu and the Noida International Airport. These projects showcase states’ ambition to develop large projects. But is it seamless? There is still some friction involved which will be resolved over time. But from how things were to now, there has been considerable progress. Any five-year recommendations for the new government? ‘Recommendation’ is a strong word. With the private sector now keen on taking market risks, it will only be prudent for the new government to tap into its potential. The private sector now wants to look beyond the roads and highways segment to build a project pipeline comprising multiple sectors. And there are sufficient such projects available for taking market risks. By ‘market risks’ I mean financially viable projects with scope for private investment. Thus, the government should now focus on sustained growth across different infrastructure segments. - Manish Pant