Infrastructure / Power

India powers ahead in economic growth. Yet, electricity shortage remains the most crippling bottle-neck for the Indian economy. Other impediment to the nation’s economic ambitions lie in visibly clogged airports and sea-ports, poor roads and a railway in need of investment – even as India seeks at State-level to resolve urban transportation, water and sewerage infrastructure

The Opportunity
The response has been an effort to step up public and private development and investment in Infrastructure – making India a magnet along with China for domestic and international Sponsors –both strategic investors and developers/operators – EPCs, and financial investors like western and domestic Infrastructure Funds.

With chronic power outages and load shedding across cities and business hubs, India’s target for achieving its goals of ‘power for all by 2012’ alone will require an increase in generation capacity over needing additional foreign investment of about USD 150Bn. Renewable energy development, primarily Hydropower, will be significant. India seeks to build over 200 new airports, and re-vamp and modernise its national railways. However, at State level there is very little capacity to for managing and executing infrastructure.

India’s Planning Commission estimates India’s investment need for Infrastructure over 5 years at USD 500Bn, while Goldman Sachs projects USD 620Bn over a decade

Considerations
Key barriers are the shortage of power, FDI barriers to entry for foreign companies, political interests and the complexities of the state apparatus and its workings. The headwind generated by this complex confluence of the private sector, regulatory frame-work, the government and the bureaucracy is probably the greatest challenge that India and foreign investors face. Global infrastructure companies and investors must overcome these challenges in what is potentially a lucrative market, and with the opportunity comes the potential of bigger and more complex issues and risks.

Issues

Apart from usual technical, economic and legal project development considerations, issues that need soft due-diligence attention within the investment strategy, negotiation, and contracting process, include:

· Cultural issues and practices – sector and community specific

· Dealings with Government/ Bureaucracy – unwritten, undisclosed promises and expectations

· Lack of transparency

· Middle men, agents and surprises

· Identifying the real stake-holders in negotiations; subtle manipulations

· Title of licences and rights being offered: validity and multiple claims and disputes

· Regulatory and legal frame-work – relying on local advisors

· Relying on the local authorities to perform their obligations and on time

· Reputation, integrity, prior conduct and political affiliations of local Indian partners

· Post-deal governance and stakeholders – the ‘soft issues’ during construction and operating stages:

· Relationship strategy – ‘soft issues’

· Overall contracting strategy – and pragmatic options for dispute resolution

 

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KNOW YOUR PARTNER, EMPLOYEE, LOCAL ADVISOR

KNOW YOUR PARTNER, EMPLOYEE, LOCAL ADVISOR

Of all risk factors, this is most crucial in managing market entry down-side risks. Clients neglect at their peril the history of personal and business conduct of local partners, employees and advisors, their modus operandi with foreign partners, successes and failures, their cultural leanings and tactics, conflicts of interest, and even political affiliations.

A common mistake is to take no steps to uncover these ‘soft’ aspects – particularly in the face of intense friendliness, bonding and warm hospitality for which Indian business culture is well known.

Knowing your local partners can be a complex, multi-layered and prolonged effort throughout the life-cycle of the relationship

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