Latest Developments in Construction Law: An Indian

Perspective

Ramesh K. VaidyanathanPartner

ADVAYA LEGAL

Overview

• India's middle class population, which is expected to exceed 600 million by 2030, will be a major driving force in global consumption.

• Asian consumers are likely to spend $ 32 trillion by 2030, accounting for 43 per cent of total global consumption, in which India and China will have major shares.

• Construction is the second largest economic activity after agriculture, accounting for nearly 65% of the total infrastructure investment.

What is the opportunity?

XI Five Year Plan

Sectors USD billion Share (%)

Electricity (incl. NCE) 146.3 32.06

Roads and Bridges 61.9 13.57

Telecommunication 76.6 16.80

Railways (incl. MRTS) 44.7 9.78

Irrigation (incl. Watershed) 54.8 11.99

Water Supply & Sanitation 24.9 5.44

Ports 9.1 1.98

Airports 8.1 1.76

Storage 1.9 0.44

Oil & Gas Pipelines 28.2 6.20

Total 456.5 100

Transaction Structure

• Commonly used PPP models:

Build Operate Transfer (BOT) Toll based or Annuity based and variants thereof – DBFOT, BOOT, BTL, BOO, BTO, etc.

Concession.

Joint Venture.

EPC/ Construction contracts.

• Consideration:

Revenue Share/ lump sum payments.

Collecting user fees or charging tariffs.

Availing government subsidies/ grants.

Government Initiatives

• 100% Foreign Direct Investment (FDI) allowed in realty projects through the automatic route. • In the case of integrated townships, the minimum area to be developed has been brought down to 10 hectares from 40 hectares. • Minimum capitalisation of $10 million for wholly owned subsidiaries and $5 million for joint ventures with Indian partners.

•Full repatriation of original investment after three years.

•51% FDI permitted in single brand retail outlets and 100% in cash and carry trading through the automatic route.

• FDI is not allowed in the Real Estate business.

Dispute Resolution: Biggest legal bottleneck

• Dispute Resolution continues to be the biggest impediment. • National Highways Authority of India (NHAI) has an ambitious target of building 20 km of roads per day.

• Currently, nearly Rupees 98600 million involving 1,240 cases is locked in various disputes between NHAI and road developers and contractors.

• Long process of ten years and legal expenses exceeding the claim amount in some cases major concerns.

Dispute Resolution: Biggest legal bottleneck

• In 80 per cent of the disputed cases, DRB decision in favour of the road developer. However, NHAI chooses to challenge.

• In many cases, the interest awarded is twice the principal amount.

• One time settlement of pending cases with claim amounts of less than a certain threshold necessary.

• Stop of further litigation required if the decision given by the DRB and Arbitral Tribunal earlier is similar.

Rebuilding the Mumbai International Airport: Why is it one of the most challenging infrastructure projects in the world?

India‘s busiest international airport with 21.5% of India’s air traffic

46 International airlines, 9 Domestic airlines 23.4 million passengers annually, 64000 passengers daily

650 aircraft movements every day 530,000 tons of cargo per year

• Carved out: 42 ac

• Encroached: 276 ac

• Under litigation: 34 ac

• Govt. & Colonies: 193 ac

• Leased, etc: 293 ac

• Operational area: 1005 ac

• Vacant land: 51 ac

Land Constraints

In addition to the above , some land area is also occupied by NACIL, government and other external agencies.

Most constrained Airport in the world

Terminals 3m sqft

Cargo 1m sqft

Air India 2m sqft

Colonies 0.5m sqft

Slums 276 acres

Total: 6.5 m sqft

Demolish and rebuildwhile in operation

• Approximately 276 acres of airport land encroached.• There are approximately 82000 hutments in which nearly 350,000

people live.• Security hazard to the airport operations.• 175-185 acres required outside airport.• Rehabilitation In–Situ not possible.• All slum dwellings set up before 1995 eligible

for rehabilitation. • Will be completed over the next 4 years.• 18,000 units currently under construction targeted for completion by

end of 2010.

Unique challenges

• There is a river that flows under the runway, which will need diversion.

• There are two muslim burial grounds and hindu temples on airport land.

• The terminal construction will involve the shifting of a statue of a former local ruler, which is a politically sensitive issue.

• Many parts of airport land being used for agriculture, and there are ongoing litigations against the airport over title.

• There are over 125 reservations located on airport land under the city master plan.

Unique challenges

Master plan for the Mumbai Airport

Sahar T2 – 40M

PAXCargo

Santacruz PAX/Cargo

Integrated Terminal Development Sequence

T2A

T2B

T2C

All operations out of 2A will move to 2B-2C

2A to be demolished & site to be used for new T2 construction

New Integrated Passenger Terminal

New Integrated Passenger Terminal

Integrated Passenger Terminal

Integrated Passenger Terminal

Integrated Passenger Terminal

Integrated Passenger Terminal

Integrated Terminal - Airside View

Thank you