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The country’s infrastructure sector may be passing through tough times, but the medium- to long-term prospects will improve if reforms are carried through, according to Wilfried Aulbur, Managing Partner, India, of Roland Berger Strategy Consultants. Among the top five global strategy consultancies, Roland Berger operates in India with offices in Mumbai and Delhi and is set to add an office in Pune shortly. Aulbur was earlier MD of Mercedes Benz India. Excerpts from an interview:
How are you reading the macroeconomic environment with reference to the infrastructure sector? What are the key challenges?
Due to global factors, slow reforms and delays in the implementation of many infrastructure projects, GDP growth has slowed markedly in the last 23 years.
Key challenges going ahead are the issues relating to debt funding from banks, land acquisition, environmental clearances and increasing the capacity of the project developers.
Liquidity seems to be a major concern for most companies. Interest rates are ruling high. When do you see this getting sorted out?
It is unlikely that the interest rates will come down in the short run. Since the problems with funding and liquidity are structural issues, significant policy action will be required to sort them out. Until then, the liquidity issue will remain precarious.
FDI has slowed down. Most companies are seeking to divest stakes to free up debt. But things are not working in their favour. How is this likely to improve?
Although 100 per cent FDI in infrastructure has been allowed through the automatic route, the number of foreign players is still nominal. Most large foreign companies that have invested in India today are integrated players executing projects as developers or EPC contractors. However, the few foreign players in India have secured many projects already, and cannot invest any further. The current economic uncertainties have amplified the risks for foreign participation.
Do you see more companies seeking to restructure debt?
Access to new funds is restricted at the moment since banks are close to their lending limits for infrastructure. Most firms will attempt to solve this funding pressure by opting for an asset disposal, such as GMR and GVK. Other large firms have opted for CDR (corporate debt restructuring), such as Lanco Infratech, Suzlon and Gammon India. CDR is a short-term solution and firms with many projects in the pipeline will opt for this option to stay afloat until they start making profits again.
In the road sector, most of the assurances made by the Government have not been fully implemented. Are the developers’ concerns are quite real?
The NHDP (National Highways Development Project) envisages upgrading/strengthening 54,000 km of highways. However, 40 per cent of this is yet to be awarded. While it was expected to see 20 km/day of roads, the rate was 10.39 km/day in 2011-12.
Developers’ concerns are real, as there have been numerous delays with regard to land acquisition, changes in the scope of projects and cost overruns. This increased risk of projects makes it difficult to get loans from banks and weak capital markets have made raising equity finance almost impossible.
How do you see the medium- to long-term turnaround for the infra sector?
While the short term outlook is negative, the medium- to long-term view remains stable. A turnaround will be viable if the proposed reforms are passed and there is an improvement in the growth rate and investment climate.
A decline in GDP growth rate, subdued equity markets, high interest rates and sharp rupee depreciation will continue to exert pressure on the revenue of infrastructure assets in the near term.
Fuel supply woes continue to dog the power sector. Any sign of change in course?
Short-term relief for the power sector is unlikely. While the government is attempting to sort the fuel shortage issue, the cost of fuel is expected to go up since companies will have to start importing more coal. The supply deficit is expected to be 140 million tonnes.
> rishikumar.vundi@thehindu.co.in
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