Indijas logistikas nozare

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Logistics of IndiaLogistics of IndiaLogistics of IndiaLogistics of IndiaLogistics of IndiaLogistics of IndiaLogistics of IndiaLogistics of India

Challenges and Opportunities

Presented by Kamal BhasinPresented by Kamal BhasinPresented by Kamal BhasinPresented by Kamal Bhasin

Member of the boardMember of the boardMember of the boardMember of the board ---- IBFCCIBFCCIBFCCIBFCC


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The growth of the Infrastructure sector, of which transport is one of the most

fundamental fields, is one of the highlights of a rapidly growing Indian economy.

According to the recent UN CTAD World Investment Prospects Survey 2009-11,India is the third most attractive destination for foreign direct investment (FDI).

Of the USD 28.5 billion of FDI in the first 10 months of FY10, the services sector

(transport, power and telecom) attracted the largest share of 17%.

The strong domestic fundamentals and recent continuous growth have

contributed to Indias emergence as a leading global investment destination

which provides EU businesses and researchers in this field with a strong potential.

Introduction


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The Expansion in high quality infrastructure helps to expand trade, reduce poverty

and facilitate environmental sustainability.

Opportunities for the Green European transport and logistics solutions grow with

rapidly increasing urbanization and tremendous increase in vehicular populationin India

Global warming and climate change dangers have emphasized the need for an

integrated sustainable transport policy in India.

With its high growth economy, the country is urgently in need of clean

technologies (opportunities for EU companies), especially in the transport sector,

that can help effectively meet the climate change challenges it faces.

Introduction


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I shall briefly outline the current scenario in infrastructure development activity in

our country and touch upon the key challenges and opportunities in the four

primary sub-segments.

Sub - Segments


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The Indian Road sector forms a strong base for economic growth through better

connectivity, enhanced accessibility and promotion of trade relations. Although

the third largest in the world, it lacks behind, when compared to the networks in

advanced countries with respect to quality.

The Indian government has made huge investments to upgrade and improve this

network through several projects like National Highway Development Program

(NHDP), the Pradhan Mantri Gram Sadak Yojana (PMGSY) etc.

It is important to note that the government has encouraged private sector

participation to develop roads at the Central and State level. It has allowed 100%

FDI for this model of development

Roads which are the most preferred mode of transportation in the country and

account for 85% of the passenger traffic and 65 % of the Freight traffic have a

total length of3.3 million Km.

Roads and HighwaysRoads and Highways


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The overall development of roads in India falls under the aegis of the Ministry of

Shipping, Road Transport and Highways (MORTH).

Comparing the Highway sector with Global benchmarks.

Comparison of Indian roads with other countries*

Countries Network

length (mnkm)

Paved roads

(%) (bn km)

Freight tone

(bn km)

Passenger carried

(billion passengerkm)

United States 6.54 65 7814 2116

United Kingdom 0.40 100 736 163

China 3.45 70 975 1013

India 3.32 47 659 4252

Source: World development indicators, 2009 and Road Transport 2006-07, MORTH

* Note: Figures are of 2006



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Additionally the Indian road density on

other metrics is also below the globalaverage.

Kms per 1000

people

Kms per 1000

sq km

World

Average6.70 841

Indian

Average2.75 770



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RoadsRoadsRoadsRoads andandandand

HighwaysHighwaysHighwaysHighways

Various phases of NHDP

Phases Approving authority Other details Present status

NHDP I Cabinet Committee on

Economic Affairs,December 2000

Cost: INR 300,000 million

Composition: 1. Golden Quadrilateral = 5,846 km

2. NS-EW Corridor = 981 km

3. Port connectivity = 356 km

4. Others = 315 km

98.6%

completed

NHDP II Cabinet Committee on

Economic Affairs,

December 2003


Composition: 1. NS-EW Corridor = 6240 km

2. Others = 486 km

66.6%

completed

NHDP III Goverment, March 2005

and April 2007

March 2005: Involves up gradation and four laning of

4,035 km of National Highways on Build Operate

Transfer (BOT) basis at an estimated cost of INR

222,070 million (2004 Prices).

April 2007: Involves up gradation and four laning at

8,074 km at an estimated cost of INR 543,390 million.

12.2%

completed

NHDP IV Cabinet Committee on

Economic Affairs, 2009


Composition: Two laning of 20,000 km

To be awarded

Roads and HighwaysMeasures taken so far for the Sector


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Various phases of NHDP

Phases Approving authority Other details Present status

NHDP V Cabinet Committee on

Economic Affairs,October 2006


Composition: Six Laning of 6,500 km of existing four

lane highways under NHDP Phase V (on DBFO basis)

2.5% completed

NHDP VI Cabinet Committee on

Economic Affairs,

December 2003


Composition: 1000 km of expressways

Pre construction

work has started

NHDP VII Cabinet Committee onEconomic Affairs,

December 2007

Cost: INR 166,800 millionComposition: 700 km of Ring Roads, Bypasses and

flyovers and selected stretches

Only the 19 kmChennai elevated

road project is under

implementation


HighwaysHighwaysHighwaysHighwaysRoads and HighwaysMeasures taken so far for the Sector


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Roads and

Highways

Road projects have been financed from a variety of sources including budgetary

allocations by the central and state governments, support from multilateral agencies

and the Central Road Fund (CRF) and lately ofPublic and Private Partnership (PPP).

PPP is increasingly being regarded as the most viable mode for execution of projects.The different types of PPP models used are:

Build Operate and Transfer BOT (Toll) mode

Build Operate and Transfer BOT (Annuity) mode

Special Purpose Vehicle SPV

Design-Build-Finance-Operate

In order to increase PPP mode of funding the govt. has announced various policymeasures that would help in increasing the rate of development on Indian roads and

also encourage foreign investments in the sector (100% FDI is permitted in the road

asset level)

As a result of these measures private investment in NHDP has increased to INR 522

billion in July 2009 as compared to 376 billion in July 2008.


HighwaysHighwaysHighwaysHighwaysRoads and HighwaysFunding of Road projects in India


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Roads and

HighwaysRoadsRoadsRoadsRoads andandandand

HighwaysHighwaysHighwaysHighwaysRoads and HighwaysKey challenges faced by this sector

Delays in land Acquisition

70% of the planned projects are delayed due to land acquisition. On an average, India

takes about 21 months to get approval for land acquisition. Changes in the scope of

work as projects near completion are some of the issues which inhibit interest from

foreign investors.

Understated project cost

Regulatory issues

Govt estimates which are based on reports of private consultants are often 30-50%

lower vis-a vis financially closed project cost. This negatively impacts the project

viability. Non availability of skilled manpower in the design phase is a major

constraint, which leads to huge cost overruns due to faulty designing.

Repatriation of cash surplus so generated is difficult since it involves stringent

controls, such stringent controls tend to dampen interest from overseas investors.


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Roads and


HighwaysHighwaysHighwaysHighwaysRoads and HighwaysWay forward

Some measures which could be taken to further enhance the development of this

sector are:

Land Acquisition

Streamlining the process of land acquisition, provide additional incentives todevelopers provided they take ownership of land acquisition process.

Change in scope

Estimating project costs

To prevent change in scope the Govt. can look to providing for measures which would

increase the accountability of project engineers, thus ensuring that no scope changes

occur at later stages.

The Govt. can look at project costs approved by senior lenders and make the DPR

consultants accountable for sizeable mismatches.


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Roads and


HighwaysHighwaysHighwaysHighwaysRoads and HighwaysWay forward

Driven by the thrust by the government and private sector participation, this

sector offers a lot of opportunities for the European players.

Promote educational institutions which would provide degrees in road specific

courses. This would provide skilled manpower required by the industry.

Regulatory issues

Increase the concession

period

Recognize cash repatriation needs of the highway sector and encourage measures

such as capital reduction and exemption from taxes.

Globally concession periods for highways assets is about 75 99 years whereas inIndia it is about 20-30 years. This will attract international bidders.

Enhancing manpower supply


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The Indian Railway (IR), owned by the Ministry of Raliways MOR, is the worlds second

largest railways under a single management, it is the fourth largest in terms of length, with

a total network of 64,000 km. It accounts for 2.3% of Indias GDP and is the worlds largest

employer, employing around 1.4 million people. It runs around 18,000 trains daily.

Roads and HighwaysRailways

The IR transports around 40% of countrys freight traffic which brings about 70% of its

overall revenues and 20% of the passenger traffic. Most of the earnings come from

transport of bulk goods like coal, cement, food grains and iron ore.


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Typically, rail projects in India fall under the domain of:

Public Sector Undertakings (PSU): Container Corporation of India, Dedicated Freight

Corridor Corporation of India Limited, Indian Railways Finance Corporation and so on

Special Purpose Vehicles (SPV): Pipavav Rail Corporation Limited, Kutch Railway

Company Limited etc.

Private Players: Larsen and Turbo, Punj Llyod, KMC Construction etc.

Over the years, Indias freight and passenger traffic has increased considerably, but the

length of the rail network has not kept pace with this growing traffic. This is due to low

carrying capacity, poor quality of service and less value-added services being offered on acustomized basis. This resulted in this sector losing its market share to the road sector.

Roads and HighwaysRailways


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The following is a snapshot of the operating and efficiency parameters of the Indian

Railway vis-a vis the railway network in few other countries.

Roads and HighwaysComparison of Indian Railways with Global BenchmarksComparison of Indian Railways with Global BenchmarksComparison of Indian Railways with Global BenchmarksComparison of Indian Railways with Global Benchmarks

Comparison of Indian Railways with those of other countries

Countries Network

length

(mn km)

Freight

tone

carried

(millions)

No. Of

locomotives

No. Of

wagons

Net tone km

(NTKM)+ passenger

km (PKM)/ Route

length (millions)

NTKM

+PKM/

Employee

(millions)

NTKM

/Wagon/

dDy

(millions)

United

States

226,706 1,775 23,990 475,416 12.48 15.13 16,251

Russia 84,158 1,344 12,063 566,802 26.90 2.01 10,104

China 78,000 2,624 17,222 571,078 45.58 1.40 10,608

India 63,327 728 8,110 207,719 18.57 0.84 6,344


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All these measures increased the governments funding requirements, as these could not

be met fully by traditional sources of funding, the government has started promoting

Private participation, PPP.

The three main types being:

BOT - which is further subdivided into a) Build-Own-Operate-Lease- Transfer (BOLT), b)

Build-Own-Operate-Transfer (BOOT), c) Build-Own-Operate-Maintain (BOOM).

BOT (annuity)

SPV

Private Container Trains and Wagon manufacturing are some areas where the private

sector is being encouraged.

Roads and HighwaysMeasures taken so far to improve the railway sector


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The amount of investment in this sector proposed in the Eleventh Five year plan is likely

to be around USD 54 billion

Roads and HighwaysMeasures taken so far to improve the railway sector

Projected Investment in the Indian Railways during the Eleventh ive year Plan

Parameters 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total Eleventh

Plan

Rolling stock 67,550 77,860 89,710 103,160 119,010 457,290

Capacity

augmentation

65,820 85,060 110,090 142,660 185,060 588,700

Safety and other

works

138,740 160,530 185,970 21,570 250,350 951,290

Investment in

PSUs

16,010 17,290 18,670 20,160 21,780 93,900

DFCs 11,310 20,460 37,040 62,940 123,250 255,000

Metro rail

projects

42,820 48,430 53,780 59,310 67,570 271,910

Total INR million 342,250 409,640 495,250 603,930 767,010 2,618.080

Total US$ million 7,130.20 8,534.16 10,317.70 12,581.87 15,979.37 54,543.33


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Capacity Issues

Non availability of modern freight terminal

Delays in project execution

Lack of Customized offerings

Unsuccessful PPP Model

Roads and HighwaysKey challenges faced by this sector


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Roads and HighwaysWay forward

Inviting active participation from external equity investors, insurance companies,

National Social Security funds, Infrastructure funds etc.

Emphasis on climate protection efforts

Adopt measures to make railway travel

more attractive

Global emphasis on electric trains over diesel resulting in energy conservation and

low carbon emissions.

UK example, technical efficiency in dealing with congestion related issues.

Increase Project funding options

Introduce High Speed Trains

Follow the popular overseas model of high speed trains resulting in high speed train

density.


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IR should embed this arrangement to smoothen the complex processes involved in

project identification, project structuring, approvals and financial closures.

Regulatory clarity

Accelerated project approval and

implementation

Between the IR, government and planning commission so that different views are not

presented by the regulators which cause confusion in the mind of the investors.

Looking at the substantial investment plans that the IR has for the near future

there is a plethora of business opportunities that are available for the foreign

players.

Institutional framework


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India has substantial maritime capabilities which operate in a highly globalised

and competitive business environment and have contributed to trade growth in

the country.

India has a extensive coastline ofaround 7,500km, around 95% by volume and

70% by value of external merchandise trade is carried out by maritime transport.

India ranks sixteenth globally and handles 1.5% of the total world dead weight

tonnage (DWT). There are 12 major fully operational ports and around 200

intermediate ports, however only 1/3rd of these are operational. All the ports aregoverned by major ports trusts act of 1963.

Private players along with the Govt. of India have administrative control over 187

intermediate ports.

Over the years, Indian ports have witnessed a strong growth in traffic, while

capacity constraints and limited modernization have exerted pressure on their

efficiency and productivity.

Roads and HighwaysPorts


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The total traffic handled at Indian ports in FY 09 was 738.2 million tons, due to the

global financial meltdown this traffic saw a decline to 560.7 million tons in FY10.

Roads and HighwaysPorts

In terms ofcommodity the traffic handled at the major ports was in petroleum, Oil

and Lubricant, General bulk, Container, Iron ore, Coal and Fertilizer.

In terms ofcapacity and utilization, Indian ports operate at 90% capacity utilization

thus exerting pressure on limited infrastructure.

In terms ofKey Operational Parameters, the pre-berthing waiting time at all major

ports increased from 9.7 hrs to 13.7 hrs due to near capacity operations.

The turnaround time also increased due to limited IT applications and time

inefficiencies. The average output per ship berth per day has also increased, driven by

handling of larger ships.


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Roads and HighwaysComparison of IndianComparison of IndianComparison of IndianComparison of Indian PortsPortsPortsPorts with Global Benchmarkswith Global Benchmarkswith Global Benchmarkswith Global Benchmarks

According to the UN conference on Trade Development major ports in India areclassified under 1st generation ports (basic cargo handling) while those in the NW

Europe are classified into 2nd (1st Gen + industrial clusters) and 3rd ( 2nd Gen + Value

added services) generation ports

Indian ports vis--vis northwest European ports

Productivity comparison

Indian ports lag behind international ports when compared on productivityparameters of Dwell time, Quay crane productivity and vessel rate comparison.


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In the wake of the growth in traffic and efficacy restraints, the Ministry of Shipping has

taken a number of measures to enhance capacity and efficiency at Indian ports.

National Maritime Development Program NMDP envisages investments to the tune of

USD 20 billion spread over 350 projects to be completed by FY12.

Promoting Private sector participation via automatic approval and tax incentives. The

private sector has been tapped for the development of Cargo-handling berths, Container

terminals, Dry docks and installation of Cargo handling equipments. FDI up to 100% is

allowed for the construction and maintenance of ports and harbors. A 10 year tax holidayis offered for investment in the port sector.

Attractive policies for Greenfield port development as well as for shipbuilding and ship

repair are offered.

An expected investment of 15 billion USD is expected by international and national

private sector in the development of Indian ports as a result of these policies.

Some of the existing private players in the field as on April 2010 are:

Roads and HighwaysMeasures taken so far to improve the port sector


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In spite of various expansion program Indian ports are operating at more than 90% of

their capacity which coupled with limited IT implementation affects the efficiency in

terms of higher dwell period and turnaround time.

Poor hinterland connectivity

Inadequate IT implementation in port

operations

Aggregation and evacuation of cargo at Indian ports is inefficient due to poor

hinterland connectivity through rail, road, highways and Inland Waterways Terminals.

In the absence of an enterprise resource planning system, some resources are used

extensively while others remain idle while waiting availability of other resources.

Procedures and systems are complex and unable to facilitate electronic environment.

Operations at near capacity


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Labor issues

Inadequate cargo handling equipment/

machinery

Frequent labor strikes, malpractices and low labor productivity are common. Ports are

overstaffed with unskilled work force.

Most of the cargo handling equipment in Indian ports has outlived its designed

lifespan. Modern facilities are available in only few select ports.


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In terms of modern resources, port superstructure and services. The need for

resources to wait to service the vessel and not the other way around.

Simplification/Elimination

Of complex, cumbersome procedures, policies and practices with a view to clear

speedily to facilitate timely delivery to customers.

Complemented with electronic information exchange among stake holders, using

latest IT processes including Port Community System. Example of Rotterdam and

Singapore ports.

Availability of sufficient port infrastructure

Optimized business process flow

High degree of mechanization

In port operations especially in cargo handling and information exchange. The work

force is skill intensive and technology driven.


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Good and quick connectivity with other modes of transport.

Increase competition through privatization

Quick aggregation and evacuation of cargo

Develop infrastructure in line with global trends

Lay emphasis on value added services and trade facilitation


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Roads and HighwaysAirports

India has around 136 airports categorized into five categories:

International 17

Domestic 79

Customs 8

Civil enclaves 23

Others - 9

The Airports Authority of India (AAI) is responsible for the creation, up gradation,

maintenance and management of the civil aviation infrastructure in India. Out of the 454

airfields in India only 136 are currently operational under AAI.


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Roads and HighwaysTo Sum up the opportunities available across the infrastructure sub-segments


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Roads and HighwaysTo Sum up the opportunities available across the infrastructure sub-segments


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Thank You

Indijas logistikas nozare

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