Transcript: Trade Opportunities in the Asian Century - Infrastructure in India

Download alternative video format (MOV, 31.4MB)

Transcript

>>Nicola Watkinson: Well, thank you very much, and many thanks also to Anthony who I think has done an excellent job today of covering some of the opportunities across ASEAN and for many of you some of those Southeast Asian markets, in terms of their size and scope, are an excellent place to look at starting your business and exports into the region.

Today I'm going to talk about the elephant in the room and that is, of course, India. So in looking at how to prepare for the seminar today I thought the best thing I could do is go out and talk to the businesses in India. So over the last couple of weeks I've had meetings with Rio Tinto, Hatch, Tata Power, Thiess, Golda, the Ministry of Finance, National Water Commission, Leighton Welspun, AMP Capital, the Federation of Indian Mineral Industries, Bhushan Steel, Crisil and KPMG Infrastructure. The aim behind this is to make sure that what I bring you today are some fresh market insights from Australian companies who are doing business in the market as well as Indian companies, both public and private, who have real opportunities about where they see the potential for Australian companies.

So I'm not going to spend a lot of time today talking about facts and figures because you can find that all on the web, and we all know that the figures are big. So today what I'm going to talk about is three particular things. The first of those is the size and scope of the opportunity for Australian business. The second is to give you some examples of what's possible and, third, to then tell you a little bit about what to expect, perhaps offer a few tips for success and then discuss a few of the next steps that you may wish to pursue.

So if we look at the numbers, the one trillion number, many of you might challenge given what you read in the paper, about whether India actually is and has the potential to spend this kind of money. It's true that there is a slightly chaotic way of doing things in India but, having said that, things do get done and if you look at the last five year plan which was a $500 billion plan, the Indian government did get to $480 billion. It had a target of 30% of private sector investment and it got to 37%. So this is only to say there is a demonstrated track record of actually moving things forward in India, despite some of the things that you read.

The second thing which distinguishes India is the fact that it's not only the large PPP market in the world but it's been listed by the Economic Intelligence Unit as the third most mature after Australian and the UK.

So as you can see there are a lot of opportunities in the market. I'm just going to focus on four areas because when we've looked at it from an Austrade perspective what we've tried to do is to match where we see the opportunities in India with the capability and the interest that we see back here in Australia.

So, today, I'm going to focus on transport infrastructure, green build and hospitals. Now, the transport infrastructure is up here on the slide and you can see if falls into three main parts. Roads is the most advanced area of PPPs and there's already a very strong area of foreign participation in this sector with companies such as Isolux Corsan, Morgan Stanley Infrastructure, Leightons and a number of Chinese, Malaysian and Russian businesses active as well.

There's also a well-established concession market for toll roads and some quite interesting mechanisms such as the viability gap funding that helps to bring marginal projects over the line. So if any of you are interested in that space I'm happy to give you more information.

The other area that I see as very prospective is in the rail sector. Now, there's a whole lot of opportunities in rail around Metro but what I wanted to highlight today was heavy haul. The rail sector is one of the oldest pieces of infrastructure in India, and many of it still dates back to the English rule and it is in urgent need of upgrade. It has been made a key priority for the India government because it can be a real game changer.

So at the moment any of you who know India at all would not be surprised when I tell you that if you're trying to transport something from the north down to the south it can take anywhere from 12 to 14 days. With the dedicated freight corridor that is being looked at at the moment, the idea is to reduce that to 13 to 14 hours. So that might start to give you a feel for what kind of investment the government is making in ensuring this kind of infrastructure does come to fruition.

The other point that makes this interesting is that the Indian government would be very happy to acknowledge that it does not feel it has the capability to be able to do the heavy haul systems on its own. It simply doesn’t have the technology to manage 25 tonne axle loads in-house, so to speak, and it feels that Australia is one of only three countries in the world that has the relevant expertise, along with the US and Canada. So what that says to me is this is an area of limited competition where Australia is seen as being an area of real expertise. Let's face it, we're not front of mind for everything in India. So where you do find an area of opportunity it's something that's worth looking at.

I've mentioned the freight corridor. It's a good example of just one opportunity that we see. It is about 1500 kilometres worth of dedicated freight corridor. It's designed to take 70% of the truck traffic off the roads on those major routes and onto the rail. I spoke to the head of the Freight Corridor Project, a gentleman called Amit Amajah, and I asked him, being Australian, "What do you think are the opportunities for Australian business?" Once he got over my rather direct style he did offer four areas that he thought were good opportunities. That is in the area of consulting and project engineering. Secondly, in the area of finance, equity, but also some debt financing, some specialist construction capabilities such as around the laying of the heavy rail tracks and, finally, for components and supply for the freight trains themselves which will probably end up coming from Japan given some of the funding mechanisms at play.

Finally, airports: now any presentation you go on on infrastructure in Asia will have something about airports because it's a priority for the Philippines. It's a priority for just about every market in terms of upgrade and new development work. In India that is certainly the case. So the point I really just want to highlight here is there has already been five airports that have been modernised successfully, a couple of them in Hyderabad and Bangalore using PPP models. So there is a good track record there. We see good opportunities in the air traffic management, the safety and the training area. As a resident of India I would be very grateful for some improvements in this space.

So this is obviously being driven by the emergence of low cost carriers, the restructuring of the Indian Aviation bodies, more international connections and all of that is driving an increased focus on compliance with international safety norms. We've just had one of the most senior public servants from the Civil Aviation Authority from India over here around the Avalon Air Show. They are talking to the Australian Civil Aviation Authority about our safety systems. Again what that says to me is that if you're a company working in this space, and you're already meeting Australian Standards, and those Standards are adopted in India, then you already have a particular advantage in this space.

Our next effort is to get the Minister over we hope end of May, beginning of June. So this is a real live opportunity and if you're interested you should come and talk to us afterwards.

In the green building space there are some very aggressive targets, 20% energy efficiency, 20% water efficiency. Again, we may question whether the government will be able to reach such very ambitious targets but what I can say is that the growing middle class and the increasing presence of international companies in the marketplace is really driving demand for green business solutions. Now, I think it would be fair to say that we all know Australia is not able to compete in markets like India on price, but what we can do is provide niche solutions and services to the top end of the market. That's grade A commercial buildings, hotels and top end apartments.

The final area I wanted to cover under the particular infrastructure topics is hospital build. I was at an AIBC breakfast this morning and we talked again about the dire need that India has to improve its infrastructure in this space, and you can look at it any number of different ways. At the moment the way I think about it is India has 860 beds per one million people. Now, even the global average is 4000.

So you can see there's a lot of growth that's needed in this area. What makes it interesting is it's one of the sectors where 100% of private investment is permitted into the industry. That again means it's much more liberalised. The HSBC has listed this sector as one of the most highest potential areas in India. It has far less approval issues to contend with and it requires specialist design and fit out expertise which is not present in the market. So there's very little domestic competition.

So we've really just tried to bring together here a summary of where we see the opportunities being. Many of those are in what I would see as the low-risk side of the business, advisory, architectural, engineering, project management and training. What I liked when I talked to KPMG Infrastructure was they said to me, "Just think about it this way, Nicky, consulting is about 1.5% to 2% of the value of the project." So even if the full $1 trillion is not realised, even if we discount that to 60%, 1.5% of $600 billion is still a lot potential work to be had, and that I guess is the message that we'd like you to think about.  

So, now, I want to move quickly onto how do you do it. I've just put up a couple of examples of companies who are working very successfully in the market. Populus would be known to many of you because it's a local company here. They've recently secured the redevelopment of the Delhi Exhibition Centre. They've also done some work around some other projects in India as well. Also Modelcraft is involved in project animation and developing architectural scale models for the infrastructure developers. They've led their business out of their Dubai office.

So when I asked them what are your key learnings so far from the marketplace, they would say to me the following: the qualification of suitable partners is really important, not just people who are sort of generally interested but those who have a real dedicated interest and are able to bring actual projects in hand. Secondly, long term relationships not particular to India, right around the region, are important as well as frequent in-market visits to build momentum and, secondly, the ability to negotiate hard without compromising on what your unique value proposition is.

India is a price sensitive market but it is also willing to pay for cost effective solutions and services where you can convince people of your value-add.

The second example is around the airport services and technologies and this is to demonstrate that particular products can be sold into the marketplace. Austrade's value add proposition here was to be able to support the local representative with the badge of government. These airport projects are government-driven and being able to get into the right level of government and talk to decision makers is an important value-add that we can offer.

So hopefully by now I've given you a small taste of the sizes and scope of the opportunity in India. So maybe now you're thinking about what could I do. If you're interested in coming to the market this is just a few of the major events you could tie a visit around and we would be happy to talk to you about what else we might be able to do to add value to your site visit program.

If you're even more enthusiastic and you think you might be ready to do something straightaway then this is just a few examples of real life projects that are on the go at the moment that we from the Austrade team have prequalified. So for us it's not about how many projects are out there, it's how many of those projects are contestable. How many of those project actually need external expertise and are interested in hearing about solutions from the Australian market? So there are more of these but this just gives you a feel and we're happy to provide more details on any of these.

So what I really now just wanted to touch on is what to expect in India. I have to say that coming from Germany, India looks pretty scary from the outside. Actually, even once you're inside I have to say there are times when it doesn’t necessarily make complete sense but it is quite amazing how things do get done even if you don’t quite understand how and why they're getting done. I do have to say it is not for companies who are looking for a quick and easy win.  

The Head of Economic Development for the Ministry of Finance summed it up for me very nicely when she said the other day, "The long term returns on infrastructure investment projects in India are four to 5% higher than any other major market." That just would not be the case unless we had to do more to entice companies into the market and help them to manage the risk. So the essential message here is higher risk, higher return.

The second point is India is often accused of not moving things forward. There is also many cases we can point to of that but what I would like to say is the government has acknowledged some of the challenges and is doing some quite tangible things at the moment to try and address that.

For major projects it has set up a Cabinet committee on investment which meets twice weekly to try and look at across government approvals and be able to progress things forward. For major projects like the Freight Corridor it has set up special purpose vehicles where it pre-acquires the land and pre-acquires the approvals, puts them into a special purpose vehicle and then goes out to tender on that basis.

We've also seen such as in the hospital area there's a much higher level of privatisation and liberalisation and a willingness to look at outside expertise.

The final issue which is always raised is around payments and corruption in India. This is an issue that you will always have to think about when you're going into new and evolving markets. We will certainly help to guide you through that process and put you in touch with service providers who have a lot of experience in assessing risk in the market and giving you the ideas and the advice on how you can best manage that situation. The one point I would make is that we know many Australian companies who are doing business successfully in the market who have put strategies in place and are finding that the situation can be managed if you approach it upfront and look sensibly at some of the strategies that you'll need to have in place.

So, finally, I'm going to talk about a few ideas on what it might take to succeed. Please, this is not exhaustive. I'm relatively new to the market. So these are my initial impressions of what I think I can share at the moment. The first thing is don’t treat India as one market. This is not one elephant. This is a whole herd of little baby elephants. The famous saying in India is, "India is one nation only when it plays cricket." The rest of the time, it is a whole conglomeration of cities, municipalities, communities, regions. It is not one market. One of the things that the State government and Austrade can help you with is to identify where you should best start to focus your efforts.

Secondly, pick a project that is less complex to start with. This again might be a municipal project or a city level project or in one of the States which is more progressive. So you might find that that's a much less complex way to start doing business. Again, Austrade has offices in 11 particular locations across India. We know the tier 2 cities as well as the tier 1 cities and we can help to give you some ideas on where the best place to start your business search might be.

The third thing is find a good local partner. Again, this is not unique to India but it is very important. This will help you to reduce your risks. It will help you to reduce your costs which is also very important in a market like India. You can look at ways in which you can become in partnership with an India player, the expert advisor for a particular project rather than trying to manage the whole scope.

The other point I would make is be prepared to negotiate hard. The Indians have a real gloves-off approach to negotiation. It's long. It's tortured. Sometimes you think it may never end but I do have to say it's not personal and if they are willing to compromise, if you maintain your tenacity and if you have a clear value proposition to put forward.

Finally, please do use the assistance that is available out there both from the State government and also from Austrade. We can help you with some knowledge and insights. We can help you with site visit support and the guidance that you need. You just will not be able to do business successfully in a market like India without the commitment of time and effort but the rewards really are great.

So to finish off we looked at the size and scope of opportunities across rail, across roads and across airports. We covered health and we covered green building. We then looked at what kind of projects might you do in those sectors. So we looked at the project management, the architectural services, the consulting and the specialist technologies and solutions. We looked at a couple of companies who are succeeding in the market and some of the tips that they had to offer. Then we looked at a few ways in which you might take some next steps.

So I hope after all of this I've given you enough to think about how you might go forward in a market that is both complex and rewarding. We do have a number of our own team here today who have a lot of expertise, who are based here in Brisbane, who can help you with some of your enquiries, such as Adrian and Janelle, and we also have some colleagues here from the State Development area as well who can help you with the contacts for their offices over in India. So please do take use of the time to talk to us and see what we can do to help you. Thank you.

[END RECORDING / END TRANSCRIPT]

More information

View all Trade Opportunities in the Asian Century presentations by industry sector.