Risk Analysis of Infrastructure Projects – A Case Study on Build ~Operate ~Transfer Projects in India
NAME: Dr. Hiren M Maniar *
INSTITUTE: - L&T Institute of Project Management, Vadodara, Gujarat, India
E Mail:- email@example.com
PHONE NO: +919898010291
* Dr.HIREN M MANIAR is currently working as a Faculty in Finance at L&T Institute of Project
Management, Vadodara, Gujarat, India. He may be contacted at firstname.lastname@example.org
Paper Published in the in International Journal “The IUP Journal of Financial Risk Management” Vol.II No.4 December 2010. For more details please refer link http://www.iupindia.in
The growth of the infrastructure sector in India has been relatively slow compared with the industrial and manufacturing sectors. The energy shortage, an inadequate transportation network, and an insufficient water supply system have caused a bottleneck in the country’s economic growth. The Build-Operate-Transfer (BOT) scheme is now becoming one of the prevailing ways for infrastructure development in India to meet the needs of India’s future economic growth and development. There are tremendous opportunities for foreign investors. However, undertaking infrastructure business in India involves many risks and problems that are due mainly to differences in legal systems, market conditions and culture.
It is crucial for foreign investors to identify and manage the critical risks associated with investments in India’s BOT infrastructure projects. Based on the survey, the following critical risks, in descen ding order of criticality, are identified: delay in approval, change in law, cost overrun, dispatch constraint, land acquisition and compensation, enforceability of contracts, construction schedule, financial closing, tariff adjustment, and environmental risk. The measures for mitigating each of these risks are also discussed. Finally a risk management framework for India’s BOT infrastructure projects is developed. Main purpose of this paper is to investigate critical risks associated with Build Operate Transfer projects in India.
Keywords: Risk management, BOT, Infrastructure projects, Mitigating measures
Scenario of Infrastructure development in India
India's economy has shown remarkable growth over the past several years and many foreign economists predict a healthy growth in the near future. A private international forecasting firm predicts that India's GDP will grow at an average annual rate of about 8 per cent between 2010 and the year 2015.
India's investment reforms, rapid economic growth and social development have led to a surge in foreign direct investment (FDI). Annual utilized FDI in India grew from $636 million in 1991 to $26 billion in 2009, making India, in recent years, the third largest destination of FDI in the world. A number of reasons can explain India’s attractiveness to foreign investment.
1. Relatively cheaper human resources, especially the labour. (It is okay) 2. Governments at all levels in all states are eager for funding their local economic growth and have become increasingly friendly to foreign investors.
3. A number of major international events have shown that India is safer oasis of investment. 4. The economic and social infrastructure that used to be considered as bottlenecks has been significantly improved in recent years. Governments at various levels in have been making investment in infrastructure development to keep pace with the local and the national economic growth.
5. India's economy has shown remarkable economic growth over the past two decades at an average annual rate of about 7.5 per cent, it is expected that India's GDP will grow at an average annual rate of about 9 per cent in year 2010.
6. India became a member of the World Trade Organization (WTO), which enables India to play a major role the development of new international rules on trade in the WTO, gives India access...
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