Private sector infrastructure investment may stay elusive for another year

Excess manufacturing capacity, banks' reluctance to lend, keep private investments on hold

At the start of financial year 2016-17, there seemed to be a clear government push to increase public sector spending to revive private investment cycle in the infrastructure and energy space. As the sector steps into the current financial year, there appears to be little progress; the wait for private investments could get longer by another year, industry experts believe.

It will take time for private investments to come up. There is excessive capacity in manufacturing, so investments might not be forthcoming. In infrastructure, there is uncertainty. There are issues of funding, as banks are wary of lending to these projects with non-operating asset concentration, says Madan Sabnavis, chief economist, CARE Ratings.

In the financial year 2016-17, in addition to budget allocations made to the infrastructure and energy sectors, public sector companies operating in these segments have also made significant investments.  

Industry analysts are of the view that while these investments have helped various private companies survive, the next 12

months would decide if private investments will trickle in.

Public sector investments made in the energy sector includes state-run power producer NTPC's Rs 17,520.68 crore in the first nine months of FY17, as against Rs 16,156.50 crore in the same period last year, according to data shared by the company. Data sourced from Petroleum Planning and Analysis Cell (PPAC) shows state-run oil companies in the April-February 2017 period spent close to Rs 91,781crore, higher than the combined target of Rs 87,603 crore. 

The construction companies have seen their order books filling up, and the construction cycle has picked up due to government spending. However, private investment in infrastructure remains muted. Though some new developers are emerging, solving the NPA issue remains a prerequisite to brining back private investment. With early signs in deal activity, and government considering ways to resolve the financial stress, the next 6-12 months could be interesting, said Manish Agarwal, partner, leader & infrastructure, PricewaterhouseCoopers Pvt. Ltd.

In railways, Business Standard earlier reported according to the sources, railways had spent Rs 68,059 crore till December 31, in the first nine months of the last financial year. 

"In railways, where there is scope for private investments to come in is in the station development segment. In this segment, I expect commitments to be made in the current financial year, which actual private investment would start coming in only after 12 months time. Other ambitious projects like the bullet trains and the DFIC projects will take longer to see any private investments being made, said Vishwas Udgirkar, senior director, Deloitte India.

In the road sector, National Highways Authority of India (NHAI) in the April-January period has awarded engineering, procurement and construction (EPC) projects worth Rs 17,967.87 crore. Data for the awarding remaining two months of the last financial year are yet to be shared. Udgirkar added the current financial year may see some private investments trickling in based on the financial closures achieved for hybrid annuity model (HAM) projects in the last financial year. For roads again, through HAM, commitments of some private investment has been made in the last financial year, we may see this forming in capital investments being in the current financial year. 

As far as EPC projects and public spending through these EPC projects are to be spoken of, it has helped the private companies survive, whether it has helped make the private sector financially healthy to re-invest would be difficult to say," he added.

Even as private investments may elude for a little longer, some public sector companies are expected to continue with their capital expenditure plans. NTPC Ltd looks to invest another Rs 30,000 crore on a standlone basis in the current financial year. The capex shall be used for capital expenditure of NTPC's up-coming hydro and thermal  projects over 21,000 MW in construction along with new Solar, wind capacities, new expansions etc. the company said in an email response.

Hindustan Petroleum Corporation Ltd (HPCL) on the other hand said it plans to spend Rs 7,000 crore in the current financial year, which would be marginally higher from its last financial year capex.