Singhania and Co. LLP

OPPORTUNITIES IN INFRASTRUCTURE

INVESTMENT IN INDIA & ITS CHALLENGES

INFRASTRUCTURE IN INDIA

The infrastructure sector is defined as;- — Power: Generation, distribution and transmission of electricity

— Telecommunication: Setting up infrastructure and provision of GSM and CDMA services

— Railways: Provision of support infrastructure

— Road including bridges: Construction and management

— Sea port and airport : Construction and management

— Industrial parks : Construction and management

— Urban infrastructure (water supply, sanitation and sewage projects)

— Mining, exploration and refining

— Cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

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OPPORTUNITIES— As per Planning Commission’s projection the Investment in

Infrastructure will almost double at US $1000 Billion over 12th Five year plan (2012-17).

— Opportunities exist for all EPC contractors to participate in each of the infrastructure sector. Government is keen on public private partnership- where contracts are awarded on Build Operate Transfer (BOT) and Build Own Operate and Transfer (BOOT) basis. Typical operating period is 35 years or more.

— Opportunities also exist for consulting firms in the area of Project Preparation, Design Engineering and Construction

— And there is tremendous scope for equipment manufacturers to lease or sell construction equipment

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Opportunities in Power sector

— Power sector to grow by 9% to sustain the economic growth

— Installed capacity to reach 800 GW by 2031-32 from present level of 128 GW

— Entry barriers are removed for power generation, reduced for transmission, distribution and supply.

— Open access in transmission already in place in interconnected all India Grid

— Open access to consumers above 1 MW requirement (Business supply)

— 100% FDI permitted in all segments. Over 12th Five Year Plan 2012-17 Investment of USD 50 Billion is required for Generation and another USD 50 Billion for Transmission, Distribution and Rural Electrification

— Duty free import of equipment permitted for Mega Power Project (above 1000MW for Thermal and 500MW for Hydro project)

— Most project execution through International Competitive BiddingSinghania and Co. LLP

The Energy Strategy — Full Development of Hydro Power

— Domestic coal to remain primary source with emphasis on Super Critical Plants and Clean Coal Technology

— Import of coal on moderate scale for coastal locations

— Use of gas dependant on availability and price

— Import of gas- LNG terminals, Gas pipelines from Western and Central Asia

— Emphasis of Biomass

— Development of Wind Power. With more than 5500 MW Wind Capacity India is fourth largest in the world.

— Development of mini and micro Hydroelectric projects, Solar Power and rapid increase in share of nuclear power dependant on International cooperation.

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Railways Sector Summary

— Total size of the Sector US$ 18 billion it is one of the largest developed networks in the world.

— It is the largest rail network in Asia and the world’s second largest under single management.

— It covers 63,140 route km, carrying 20 million passengers a day on about 18,000 trains.

— It employs 1.4 million people.

— It is one of the few mixed traffic systems in the world, carrying both passengers and freight that generates a cash surplus.

— The Central Statistical Organisation suggests growth rates at 12.5 per cent and 6.7 per cent for net tonne km and passenger km, respectively.

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Opportunities in Railways

— The private sector can invest in projects ranging from multi-level parking facilities, multi–modal logistic parks, auto hubs, high-speed train corridors and rolling stock units.

— Private investment slated to increase from the current US$ 217.88 million to US$ 1.08 billion in the next three years.

— The Indian Railways has worked out new projects under the public-private-partnership scheme. Infrastructure major Punj Lloyd Group has secured three contracts worth US$ 61.4 million from the Bangalore Metro Rail Corporation for the construction of eight stations. The group is working on several projects for Delhi Metro.

— Reliance Infrastructure, an ADAG company, has finalised contracts for the metro rail link in Delhi and Mumbai.

— Indian Railways is considering the addition of exclusive luxury coaches to all its major trains, in order to attract foreign tourists.

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Opportunities in Roads— As per National Highway Authority of India , the country has the

second largest road network.

— The potential Investment in the sector is expected to be to tune of US $ 107 Billion from 2010 to 2013-2014.

— The investment of US $ 50 Billion on concession /contracts to be awarded by 2012.

— Road sector has been declared as an Industry by Government of India.

— The National Highways Authority of India and The United Kingdom Trade and Investment department signed an agreement on Cooperation for trade and investment in the roads and Highways sectors in India.

— Private Participation in Roads may be through BOT route in which concessionaire has right recover costs and make profit by collection of tolls.

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Opportunities in Sea Port and Airport

— Ports: Planned capacity addition of 485 million MT in Major ports, 345 million MT in Minor Ports, Construction of Jetties and berths, Port Connectivity, Channels deepening and Port equipment's.

— Airports: Planned modernization and redevelopment of 4 metro and 35 non-metro airports, constructing 7 Greenfield airports, Constructing 3 airports in North East, Upgrading CNS/ATM facilities, Establishing training facilities and MRO.

— The civil Aviation sector includes Airports, scheduled and Non-Scheduled domestic passenger airlines, Helicopter services/Seaplane services, Ground Handling Services, Maintenance and repair organisations, flying training institutes and technical training institutions.

— FDI from 49% to 100% under automatic route is available for specific activities as per revised guidelines issued by Department of Industrial Policy and Promotion.

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COMMERCIAL AND LEGAL ISSUES

— There are varied options for foreign Companies to enter in Indian Market.

— They may operate through Liaison Office, Project Offices or Branch offices.

— They can also operate as an Indian Company through a joint venture or wholly owed subsidiary.

— They are also allowed to invest in export processing Zones/100% export oriented units and special economic Zones.

— Company or Intending investor may associate in BOT projects or by participation in Bond and Direct Borrowings.

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Problems in Financing Infrastructure Projects in India

— Inadequate and Under-developed infrastructure mainly power and roads.

— The Problem of Tariff determination – The tariff is typically fixed in advance and is adjustable over time only in accordance with pre determined contractual terms. Disputes over tariffs can delay project implementation. There are 3 ways of fixing tariffs

Cost Based tariff, Competitive bidding and Regulated Tariff

Any of these methods for fixing tariffs can ensure adequate returns to investors. More difficult is ensuring that the resulting tariff pass the test of Public acceptance.

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Problems continued……

— Operating Risk – The technical performance of the project during its operational phase can fall below the levels projected by investors for a number a reasons such as fuel supply or material supply risk

— Market risk – Market risk relate to the possibility that market conditions assumed in determining the viability of the project are not realised. Unrealistic demand projection is an obvious example of market risk

— Interest Rate Risk – Interest rates can vary during the life of the project. They are particularly important in Infrastructure projects because of high capital intensity and long payback periods

— Foreign Exchange Risks –Exchange rate risk related to domestic revenues required to make overseas payments in USD. The Indian rupee is weak currency that carries risk of devaluation

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Problems continued……

— Regulatory Risk – Regulatory risk arises because infrastructure projects have to interface with various regulatory authorities throughout the life cycle, making them specially vulnerable to regulatory action.

— Infrastructure projects have high visibility, and there always a strong element of public interest. This makes them vulnerable to political action that can interrupt or upset settled commercial terms.

— Construction Risk – It refers to unexpected developments during the construction period that lead to time and cost overruns or short falls

in performance parameters of the completed project.

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Notable Cases

— We have advised Hyundai Motors based in South Korea about Entry in India and Indian Corporate Matters.

— We assisted IBM based in US on joint ventures and Indian Corporate matters.

— We also provided legal assistance to Nissan Motors based in Japan on joint ventures and Indian Corporate matters.

— Our firm provided assistance to a German Company ‘ RuhrGas’ about Acquisition of Indian Subsidiary of another transnational company.

— We also provided legal assistance to KNP (Royal Dutch Telecom) based in The Netherlands on Indian Corporate matters.

— We also advised British Telecom on Indian Corporate Matters.

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Singhania & Co. LLP1 QUEEN Anne’s Gate

LONDON SW1H 9BTTEL: +44(0) 20 77991688FAX: +44(0) 20 77991687

E-mail: info@singhaniauk.comWeb: www.singhania.com

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