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Innovative Innovative Infrastructure FinancingInfrastructure Financing
a presentation by
V SureshDirector General, Good Governance India and
Former Chairman and Managing Director, HUDCO
New Delhi05-03-2004
The Urbanising World
• The 20th Century began with a population of 2 billion which increased to 6 billion population by the end of the century.
• The Century also witnessed the biggest exodus of human population from Rural to Urban areas
• The global urbanisation level increased from 10% to 50% during the century; The world has turned urban with more than half the population living in urban areas
Extra-ordinary Urban Growth in Less Developed
Countries• 600 Million people added to the world’s
urban population between 1990-2000• Close to 3 million people are added in
Asia alone every month, i.e. equivalent to one new City a month
• Of the 21 mega cities (popln. 10 million+) in the world today, 17 are estimated to be in developing countries
9300
68836100
5667(82%)
4900(80%)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2000 2010 2020 2030 2040 2050
World Population TrendsWorld Population Trends
8200 (88%)
DEVELOPING COUNTRIES
WORLD POPULATION
(in millions)
Source: UN Population Division; WORLD POPULATION PROSPECTS
Population Reference Bureau: WORLD POPULATION DATA SHEET
Population in and developing (lesser developed) countries to be 88% of total population by 2050
1350 M
361330 M
459 M(34%)
366.3(31.13%)285.35
(27.78%)217.61
(25.71%)62(17%)50 M (16%)
0
300
600
900
1200
1500
1947 1951 1961 1971 1981 1991 2001 2011 2021
Total Urban
Urbanisation Scenario in India
Decadal Growth Rate of Population (1991-2001) UrbanUrban: 31.13% RuralRural 17.97%
1027 M11 May, 2000, 1000 M
1 March, 2001,
705335
23950
20
40
60
80
1951 1971 1991 2001 2011 2021(Projected))
No. of Cities/Agglomerations with more than
1 Million Population
(37.8 % )(33.0 % )
No.of Class-I Cities(> 1 Lakh) - 300 (1991)
% of Urban Population - 65%
India: Urbanisation Scenario Metropolitan
Cities/Agglomerations
India : Million plus Cities and Urban Agglomerations - 2001
Category City
10 Million+ (3) Greater Mumbai, Kolkata, Delhi
5 – 10 Million (3) Chennai, Bangalore, Hyderabad
3- 5 Million (2) Ahmedabad, Pune
2 – 3 Million (5) Surat, Kanpur, Jaipur, Lucknow, Nagpur
1 – 2 Million (22) Patna, Indore, Vadodara, Bhopal, Coimbatore, Ludhiana, Kochi, Visakhapatnam, Agra, Varanasi, Madurai, Meerut, Nashik, Jabalpur, Jamshedpur, Asansol, Dhanbad, Faridabad, Allahabad, Amritsar, Vijayawada, Rajkot
35 million plus cities/ urban agglomerations
Protected Water Supply
Sewerage & Sanitation
Latrine
Refuse Collection/ Disposal
Electrification
Urban Population Coverage (%)
Availability Deficiency
75
72
69
46
84
25
28
31
54
16
Urban Infrastructure Scenario in India – National Perspective
1991 Census
Urban Infrastructure Scenario in India
• According to estimates of the Rakesh Mohan Committee total requirement for urban infrastructure development covering backlog, new investments and O&M costs for the next ten years is Rs. 2,50,000 Crores (US$ 57 Billion)
• The ninth Plan proposal identifies only around Rs. 12000 Crores. With anticipated growth in Tenth plan providing additional funds of Rs.13,000 Crores, the total expected plan outlay comes to Rs. 25,000 Crores (US$ 5.7 Billion).
• Funds for UI development fall short by more than 10 times the requirement
The Vicious Circle
Low Collection/Recovery
Low Collection/Recovery
Low Maintenance
Low Maintenance
Low ServiceLevel
Low ServiceLevel
Low Level of InfrastructureLow Level of Infrastructure
Low Capacity to Pay
Low Capacity to Pay
Low Investments
Low Investments
Low Equilibrium Cycle
VS/ KS
Cities and Citizens get the infrastructure they desire and deserve.
Challenges facing Infrastructure
• Characteristics of infrastructure projects: – natural monopolies - non-exclusive nature– in-elastic demand - huge investment required
for capital & maintenance • Traditionally Infrastructure provision seen as role of
government• Schemes conceived as unitary service - no experience in
unbundling • Although Financing options are rapidly changing due to
financial, technological and organisational innovations at project and policy levels- no clear guidelines for Private sector Participation
Major Concerns in Urban Infrastructure Sector
• Inadequate coverage and service level• Poor quality of service to consumers• Institutional deliquencies and high administrative
overheads• Insufficient financial and managerial resources with
Urban Local Bodies / parastatals • High non-revenue component due to wastage,
pilferage, unaccounted-for losses and free riders• Inefficient operation and maintenance• Poor monitoring and cost recovery• Unsustainable resource management practices• High investment needs and project costs• Lower priority accorded to certain urban services
Financing of Infrastructure Schemes• Budgets of
– Central Government – State Governments– Local Governments
• Raising loans from LIC/HUDCO and other Financial Institutions
• Loans from International Funding Agencies like OECF(JBIC), World Bank, ADB, KfW, USAID, etc.
• Grant funds from Donor Agencies like DANIDA, DFID, CIDA, National Trust/ Missions
“Every One Crore rupees spent in infrastructural provision now, saves Ten Crore on cost escalation and
public health care due to deficient services later!”
“Every One Crore rupees spent in infrastructural provision now, saves Ten Crore on cost escalation and
public health care due to deficient services later!”
Role of Financing Agencies as Facilitators of Change
• Principles of “user-pay”, “abuser pay” or “polluter pay” to be used while determining the service charges to assess the practical aspect of pricing.
• Willingness to Pay OROR Willingness to Charge
• For improving the sustainability of UI projects HUDCO emphasises
– Principle of full cost recovery– Transparent, Targeted and Measurable subsidy, if
needed– Cost savings through energy efficiency, reduction of
leakages, manpower rationalisation etc.– Full autonomy to local bodies to determine tariffs – Tariff fixation taking care of annual incremental cost,
O&M cost, debt dues, depreciation charges etc.– Compulsory 100% metering – Operation of escrow account
Issues Involved in Infrastructure Financing: Financial Institution’s Perspective
ISSUES:• Asset liability mismatch due to short term borrowing vs. longterm
funding. • Large volume of resources for capital intensive projects• Locking up of funds in specific large projects.• High risk involved in greenfield ventures • Non-uniformity in appraisal, guidelines and documentation
requirements• Lack of tangible security and partial or nil recourse basis of
funding projects.• Norms restricting exposure to individual agencies.RISKS:• Political risks & Implementation risks.• Risks of default by borrowing agency• Risks of prepayment in falling interest rate scenario• Foreign Exchange Risks and currency fluctuations
In this context, alternatives in service delivery and innovations in resource mobilisation being explored by Financial Institutions HUDCO, IDFC, ICICI, IL&FS and LIC
Some Innovative ‘User pay’ Instruments
Infrastructure Type Innovative user pay Instruments• Water Supply - Advance registration charges, Connection
charges, Enhancement of water tariff, Water benefit tax/water tax, Betterment charges, Development charges, Utilization from other sources such as octroi, property tax, sale of plots etc. and Charges from water Kiosks
• Sewerage - Connection Charges, Sewerage Cess Tax, Conservancy Tax, Sale of Renewable waste, Sale of Sludge and Sale of Nutrient rich wastewater.
• Solid waste - Collection Charges, Cess, Sale of Renewable waste, and Fines for dumping waste.
• Roads/Fly-overs/ - Toll Tax, Land as a Resource and Advertising Bridges• Airports/Rly. Stations/ - Surcharge on tickets,using land as a resource, Bus
Terminals Toll Tax, User, Charges for transportation terminals and advertising rights.
• WATER SUPPLY– Water resource management & Development of source– Treatment of water and bulk supply - Water Purchase
Agreement– Distribution / Operation and Maintenance (O&M)– Billing / Collection
• SANITATION– Sewerage network (collection system) – Pumping Stations(Installation and O&M) – Disposal system - Through taxes (on the basis of water
consumed)
Commercialisation to Privatisation:
Illustrative List of Potential Unbundling
Packages
Commercialisation to Privatisation:
Illustrative List of Potential Unbundling PackagesSOLID WASTE MANAGEMENT
• Collection• Separation and treatment • Distribution of by-products (scrap material, manure, fuel
pellets & bio-gas)
URBAN TRANSPORT• Development of urban mass transit systems• Operation and maintenance of urban mass transit systems • Development and maintenance of terminals• Operation of bus and intermediate public transport (IPT)
systems• Construction and maintenance of toll bridges• Construction and maintenance of parking facilities
Increased emphasis on Private Sector Participation in Urban Infrastructure
The imperative need for Private Sector Participation for:
• EXTENDED RESOURCES
• EFFICIENT PROJECT MANAGEMENT / MAINTENANCE
• STATE-OF-THE-ART TECHNOLOGIES
Route to Private Sector Participation
• The concept of Public-Private -Partnership is generally seen as one of these models:
– Build-Operate-Transfer (BOT)
– Build-Operate-Own-Transfer (BOOT)
– Build-Operate-Lease-Transfer (BOLT)
– Rehabilitate-Operate-Transfer (ROT)
– Design-Build-Finance-Operate-Transfer (DBFOT)
• In INDIA full blown Private Sector Participation models have not been put into place, so far
Options for Private Sector Participation
(PSP)• However, the various options available, in order of
increasing Private Participation in Water Supply & Sanitation Projects being taken up are:– Service Contracts– Management Contracts– Lease– ConcessionWith experience and later on, through– BOT/BOOT etc.– Divestiture
Private Sector Participation in Water Utilities - Manila Experience
• Successful involvement of Private Sector in Power Generation and Distribution; Largest effort in privatisation of Water utilities.
• Metropolitan Water Works and Sewerage System (MWSS) had covered only 67% population with intermittent water supply and 8 % with sewerage system in 1994.
• 56 per cent of 3000 mld supply was non-revenue water
• MWSS privatised in 1997 and split into two.
• Manila divided into two Zones - East and West.
• Two Consortia led by - BENPRES for West and AYALA for east -selected to run water works on 25 year franchise; Both Groups offered rates lower than the prevalent rate (8.78 pesos)
Private Sector Participation in Water Utilities - Buenos Aires Experience
Private Sector Participation in Water Utilities - Buenos Aires Experience
• National Public Company OSN was in charge of water & sewerage.• Unaccounted-for water was about 45% of production• Objective of PSP: To reduce Government burden and minimise the
price for service delivery• Privatised in 1993 - Through Concession, thus effectively keeping the
fixed assets under Public Ownership• Single private firm to operate on 30 years concession period to be
revived by re-bidding later• Responsible to operate and maintain fixed assets and expand coverage
and guarantee water quality• Pricing to incorporate subsidy already existing, first price review
after 5 years
Improvements in Water and Sanitation Services after Awarding the Concession in Buenos AiresIndicator Before the
Concession (1992)
December 1995
Percentage change (%)
Production capacity (millions cum/ day)
3.4 4.3 27
Population served(M) Water Sewerage
6.0 4.9
6.5 5.3
8.8 6.4
Employees per 1,000 connections
7,450 4,250 -43
Response time for repairs (hours)
180 48 -73
Meters in service 30,000 170,000 460
Reasons for success :
• Comprehensive and transparent bidding process - Two Envelope System
• Independent Regulatory Agency established by Government to monitor concessionaire, enforce the terms of contracts and regulatory specifications and levy fines where necessary
• Contract had provision for adjustment and re-negotiation during enforcement of concessional period (after 2 years the initial reduction of tariff partly withdrawn in view of more capital investment on system improvement, than originally estimated)
• Re-negotiation : transparent and stakeholders involved
• Tariff policy had a fixed portion to cover cost of infrastructure and a variable part proportional to consumption
Private Sector Participation in Water Utilities - Buenos Aires
Experience
Private Sector Participation in Water Utilities - Buenos Aires
Experience
Indian Experience in Privatisation of
Water Supply & SanitationTiruppur Water Supply and Sewerage Project
• Implemented through a SPV New Tiruppur Area Development Corporation (NTADC) promoted by– Infrastructure Leasing & Financing Services(IL&FS) – Tiruppur Exporter’s Association (TEA) – TamilNadu Corporation for Industrial Infrastructure
Development (TACID)• Estimated Project cost - Rs. 900 Crores at 1998
prices (Rs. 1000 crore at present). – O&M contract to consortium of
Mahindra & Mahindra+United Utilities International, North West Water +Bechtel
– Attained financial closure with 10% stake by LIC & GIC.
Pune Water Supply and Sewerage Project -
• Developed by Pune Municipal Corporation at a estimated project cost of Rs. 750 crores ($ 187.5 M) later revised to Rs. 392 Crores with HUDCO assistance– Private Sector Participation envisaged in Construction, Operation and
Maintenance, Tariff collection– Financial Participation in addition to HUDCO expected from IL&FS,
ICICI, HDFC, IDFC and Bank of Maharashtra – Request for proposal sought– Tie-ups: Anglian Water + Trafalgar House & Shirkes
Binnie Black + Veatch & Thames Water + L&T Krugger + Generale Des eaux & Shanska Int.Preussag + Tata Projects Hyundai + Sundram Chemicals
Hanjin + Krupp and Zoom Development Group– Political Risk - work re-tendered at RfP level
Indian Experience in Privatisation of
Water Supply & Sanitation
Bangalore Water Supply Project • BOOT arrangement for sourcing 500
mld water. – Establishment of two Tertiary Water
Treatment Plants (of total 60 mld capacity) with HUDCO assistance
– Private Sector (Industries) to undertake laying of feeder mains
– envisages provision of 500 mld of water to the city on a BOT basis with estimated project cost is Rs. 800 Crores (US$ 173 M).
Indian Experience in Privatisation of
Water Supply & Sanitation
Chennai Metro Water • Out of 119 Sewerage Pumping Stations, Operation
& Maintenance of 70 by private sector
• Sourcing of water in 7 wells through private sector
• Construction of 300 mld Water Treatment Plant by - M/s Hindustan Dorr Oliver Ltd. And O&M by M/s Richardson Cruddas
• New Chembarampakkam WTP of 530 mld capacity (over and above the existing 600 mld capacity) – Bid documents for BOT by TCS – HUDCO funding availed
Indian Experience in Privatisation of
Water Supply & Sanitation
• Private Sector Participation on the anvil in water supply & Sanitation– Nagpur - Dewas– Kolhapur - Cochin– Vishakhapatnam - Dharwad– Goa - Alandur
• Karnataka Urban Water Supply and Drainage Board (KUWS&DB) for Management Contract in Distribution and O&MTowns Selected for the initiative are
- Mysore - Mangalore- Hubli – Dharwad - Gulbarga
Indian Experience in Privatisation of
Water Supply & Sanitation
Privatisation experience in India in
Solid Waste Management• ENBEE Infrastructure Ltd. on
BOO basis in Nagpur • M/s Excel Industries –
Bio-degradation of solid waste in – Vijayawada, Calcutta,
Mumbai, Bhopal, Bangalore, Gwalior, Cochin & Calicut
• M/s CELCO in Hyderabad• Common hospital waste
treatment plant by GJ Multiclave in Hyderabad
• Compost plant by IVR Enviro at Tiruppur
Privatisation experience in Transportation
• Pali Bye-pass, Rajasthan - TCI Infrastructure Ltd
• Coimbatore Bye-pass (L & T)• Karur Bridge on BOT basis by
East Coast Constns & Infrastructure Pvt. Ltd.
• Kemptee-Kalamana Toll Road in Nagpur
• Karur Bridge on BOT basis• Faridabad Byepass
• NOIDA Toll Bridge Company • Cochin International Airport
in Joint Sector by CIAL• Bangalore Airport• Ports – Pipavav, Positra, Adani,
Kakinada, Ennore, Cochin, Mumbai
Important issues in a BOT arrangement
• Who are the parties to the contract ?• What are the objects and scope of the BOT
arrangement?• What is the duration that might lead to early termination?• What are the obligations of the BOT operator ?• What are the obligations of the guarantor ?• What are the key regulatory provisions ?• How will the key risks be managed ?• How will performance be measured and monitored ?• How will the assets be transferred to the BOT operator?• What are the consents required ?• Who will be responsible for environmental liabilities ?• How will disputes be resolved ?
Countdown Steps for Structuring Private Sector
Participation Process Structuring and Stages - countdown• 09 Expression of Intent by Public Agencies• 08 Firming up the Project Contours (Consultants)• 07 Short-listing of Private Parties• 06 Project Description Report• 05 Pre-qualification of existing bidders• 04 Issue of Request for Proposal (RFP)• 03 Evaluation of Bids• 02 Negotiations• 01 Award of the Contract (Financial Closure)• 00 Commencement of Work
• Legal and Regulatory Framework– Simplification of Legislation
– Techno -Legal Regime (Australian Utilities Commission, U.K. initiatives-OFTEL, OFWATS)
– over-arching legislation in the line of Federal Law of Philippines (BOT, BOO,etc)
– State/City Level Regulatory Bodies in India
• CERC / SERC in Power Sector
• TRAI (set to become CCI) in Telecom / ICE sector
• NHAI in highways sector
• Need for similar regulators in Urban Infrastructure
Evolving Appropriate Organisational/Institutional
Mechanisms
Evolving Appropriate Organisational/Institutional
Mechanisms
Urban Infrastructure - Regulatory Authority
Utility & Shareholders
Users
Political Authorities
The Regulatory Mechanism
• Regulate prices• Promote operating efficiency• Specify and monitor service standards• Control externalities• Maintain public good functions• Ensure asset serviceability• Ensure development of essential infrastructure• Prevent manipulation of land values• Prevent unfair trade practices• Promote efficient use• Ensure responsiveness to final customer needs
Model BOT Laws• Gujarat Infrastructure Development Act – 1999
– First State to formulate a separate act
– Draws from the experiences in Philippines
• Authorises the Govt./agencies to enter into concession agreements
• Provides a list of various forms of assistance to be provided to the developer including exemption of taxes etc.
• Competitive bidding mandatory for ensuring transparency
• The concession agreement to prescribe the user fee to be charged by the developer
• Need for replication in other States
Infrastructure Authority• Infrastructure Authority formed under Infrastructure
Development Enabling Act (IDEA), Andhra Pradesh • Envisaged Roles for Infrastructure Authority:
– Conceptualisation of projects - Processing of the projects– Mobilising public opinion - Advisory role to the government– Co-ordination - Monitoring / approval of bidding– Implementation of P-P-P-P - Prioritisation of projects– Preparation of schedule. - Approval of TOR for
consultancy– Budgeting / financial allocation - Expedite clearances and
permits– Tariff fixing, user/abuser charges and cost recovery– Model contract principles– Supervision over implementation and project management
• Proposes a “Swiss Challenge Approach” for evaluating the single bid for projects brought by proprietary agencies
Legal Issues in Urban Infrastructure Financing
Security Mechanism for UI ProjectsSecurity Mechanism for UI Projects • Non-availability of Conventional securities (government
guarantees, corporate / bank guarantees) • “Letters of comfort” not a legal security option• Collateral Securities and Equipment Leases used in
certain infrastructure• Mortgages not viable securities in most UI projects• Need for partial or non-recourse financing and legislative
changes for treatment as Secured Loans in the Book of Accounts
• Negative lien could be considered only as a transient security instrument
• Escrow accounts of receivables– enhances transparency of the cash-flows– ensures sufficient balance for immediate repayments.
Innovative Escrow Account for Transportation
fleet augmentationfleet augmentation
upgradation of infrastructureupgradation of infrastructure
computerisationcomputerisation
Escrow
Rs. 1000 / bus / day (US$ 20.8) deposited in
escrow account out of the anticipated daily
revenue of Rs. 5760 per bus (US$ 120)
Innovative Resource Avenues in
UI Financing
Financing Options MatrixS.No
Characteristics of Infrastructure
Projects
Issue(s) Options/ Alternatives
1 Capital intensive Scarcity of Resources
• Multilateral financing• Consortium/Syndication• Federal Govt. Guarantee with
financial support2 Long Gestation
period Asset Liability
Mismatch• Take out financing• Long Term Borrowing• Securitisation of receivables
3 Working Capital requirements based on Project Phasing
Overlapping of project
implementn schedules
• Flexible financing delinking construction stage from
post-construction phase• Cash flow financing
4 Inadequate returns and uncertainty on returns
High cost of funds,
Defaults/NPA risk
• Tax Incentives• Priority Sector Lending• Sub-ordinate debt finance• Firm tariff policy• Escrow Accounts • Power Purchase Agreements• Sinking funds
Financing Options MatrixS.No
Characteristics of Infrastructure
Projects
Issue(s) Options/ Alternatives
5 Long Term borrowing Interest rate & Currency
fluctuations
• Interest Rate Swap• Forward Rate Agreements• Floating Interest Rates
6 Multiple debt servicing obligations
High debt equity ratio
• Sub-ordinate debt financing• Equity infusion from strategic
partners7 Lack of tangible
assets and collateral/security
Realization of loan amount
on liquidation or default
• Letters of comfort• Pari passu charge on Escrow
Account• Bank Guarantees
8 Varied expertise and advanced technology
Lack of appraisal & operational
skills
• Joint Ventures• Special Purpose Vehicles
9 Pioneering nature / Feasibility risk
Risk of en masse
deployment
• Venture Capital Funds• Project Initialisation Funds
Consortium financing / Group lending
• For capital intensive projects and greenfield ventures beyond lending capacity of single financial institution
• Pooling of resources for funding the project.• Ensures sharing of the risks involved. • Needs rationalisation and standardisation of appraisal
procedures, lending guidelines and legal documentation of the constituent financial institutions
• Need for pari passu charge on the escrow account as security to the partner institutions.
• Desirable to provide a single window facility based on tripartite or joint agreements with the borrowing agency.
Takeout Financing
Partner Institution
5 years 10 years
Primary Lender
TENURE OF LOAN(15 years)
Outstanding Loan Amt. (Principal + Interest)
Transfer of Loan
Accounts
Fees / Commitment
Charges
• Liabilities of primary lender on project absolved at the end of a specified period
• Partner institution transfers pertinent loan accounts to its own books, in lieu of an agreed fee or commitment charge.
• Both parties bear the project risks after the take-out based on a non-recourse structure.
• pari passu charge on the escrow account as security option.
Innovative Financing Mechanisms
Sub-ordinate (Mezzanine) Debt Financing:• Internal restrictions on equity participation by financial
institutions, • Lower equity and hence limited debt-equity ratio of new State level
bodies for infrastructure projects restrict them from market borrowing on a large scale.
• Funding could be considered as deemed equity for a specific period granting the bodies better financial leverage
Cashflow financing: • institutional funding to be tailor-made to suit the financial
requirements at various stages of the project calling for cash-flow financing.
Securitisation of Receivables
SPVSPV Investors
Lending Institution Borrower
Periodic Cash Flows
Pass Through Certificates
Loan
Fees
Outstanding Loan
Portfolio
Repayments
Securitisation of receivables• Conversion of future cash receivables into financial or debt instruments
tradable in capital market • Role of SPV as intermediary:
– assumes the entire credit risk on the securitised receivables of selected outstanding loan portfolio
– Insulates the lender from bankruptcy & insolvency risks– repackages the receivables into pass-through certificates of manageable lots for
onward trading in the secondary market. – Principal and interest components of the repayments are passed on to the security
owner. • Merits to Investor:
– Continuous cash flow on Securitised instruments over the life of the loan and principal “depletes” over time.
• Advantages to Lending Institution:– reduces the locking up of funds in a few projects. – facilitates reduction in borrowings – ensures better asset-liability management. – provides efficient exit option for the financial institutions to transfer the risks of
default and prepayment
Municipal Bonds
• In United States, account for nearly 70% of the capital financing for infrastructure. – General Obligation Bonds (GO)– Revenue Bonds
• Ahmedabad Municipal Corporation GO bond issue of Rs. 100 Crores
• Bangalore, Vijayawada and Ludhiana have already raised money through municipal bonds; Mumbai & Pune have obtained credit ratings; Kanpur Development Authority latest entrant
Problems faced:• Since bonds can be raised over night within a short period and their
utilisation may require 2-3 years, quite often, States/agencies tend to fall into the debt trap
• On account of the dire financial position, Credit Rating of agencies need to be enhanced to enable raising funds at lower costs.
Facilitating Urban Local Bodies in Resource Mobilisation
Government’s new strategy on the anvil for ULBs :• Credit Line
– Making available requisite loan facilities for Urban Local Bodies and other agencies
• Bond Bank– Varying capacity levels of ULBs in obtaining high credit rating,
lower borrowing costs, optimal resource utilisation & asset management
– Need for financial intermediary to pool the projects of the various agencies and float a common bond on the merit of the projects setting apart a reserve fund.
– Bond bank could be at the national level as a special purpose vehicle or as a subsidiary of the financial institutions.
• Challenge Fund– For facilitating the States and Urban local bodies implementing
the reform agenda
Project Initialisation Fund/ Project Initiative Fund /
Project Development Fund• PIF/PDF for creation of well structured projects
– Technically viable– Financially feasible and bankable– Environmentally sustainable
• HUDCO would fund 100% of the formulation cost upto a maximum of Rs. 5 Crores per project and Rs. 50 crores per year.
• HUDCO already assited– Feasibility study for alternate alignment of National Highway
connecting Jammu and Srinagar with support of Rs. 2.3 Crores– Preparation of detailed design and Bid documents etc. for the
Sports Stadia at Hyderabad for the 7th National Games to be held in 2002. Financial assistance of Rs. 2.5 Crores provided to the Sports Authority of AP
Emerging State Level Initiatives for
Financing Urban Infrastructure• State Level Urban Development Funds like TNUDF & MUDF in Tamilnadu Maharashtra, for facilitating private sector participation bringing in commercial orientation, improving financial management , assisting ULBs accessing capital markets.
• State level urban development Finance Corporations formed– APUFIDCO - TUFIDCO– KUDFC - KUIDFC– Gujarat Municipal Finance Board
• Tax intercept concept introduced in Madhya Pradesh State for urban development loan servicing fund for local bodies.
FDI in Infrastructure• Foreign Direct Investment(FDI) could be permitted through:
– Financial Collaborations– Joint Ventures / Technical Collaborations– Capital Markets via Global Depository Receipts (GDRs / Euro issues)– Private Placements or Preferential Allotments
• In India, FDI upto 100% permitted in airports (beyond 74% with approval) and Mass Rapid Transit Systems.
• FDI upto 100 % permitted in – Integrated township development including housing,
commercial premises, hotels, resorts– City and regional urban infrastructure facilities– Manufacture of building materials– Development of Land with allied infrastructure as part of
integrated township development• Enabling guidelines required to prevent capital flight (lock
in period) and regulate repatriation of profits in FDI
Special Economic Zones• Proposal to set up Special Economic Zones (SEZ) in
various parts of country as duty-free zones for industrial, service and trade operations to attract foreign investment and facilitate expeditious development.
• Proposal for a new SEZ at major Ports • The policy envisages the treatment of SEZs as priority
areas in provision of infrastructure, convergence in statutory clearances, exemption from duties and levies as well as liberal regulations.
• SEZs as industrial townships would need priority for integrated provision of infrastructure facilities.
Imperatives for Sustainability in
Infrastructure Financing• Development of
–Legal & Regulatory
–Institutional Mechanism
–Fiscal & Financial Framework
• Need for an Integrated Management of Urban Infrastructure & Intersectoral Co-ordination.
• Creation of a new Breed of Urban Managers sensitised and responsible for taking on the challenges in urban infrastructure – HUDCO’s efforts for capacity building in decentalised training.
• Curriculum upgradation to provide not only technical inputs (Civil Engg.+ Transportation Engg. + Hydraulic engineering + Public Health Engineering ); but also Financial Engineering.
Towards Sustainability in Infrastructure Development• Development of innovative financing and security
mechanisms • Enabling Public-Private-People’s-Partnerships
(PPPP) and Government-Citizen Partnerships• General consensus on common national issues • Role of the media
– creating awareness and disseminating best practices highlighting the deficiencies and pertinent issues
– mobilising unified public opinion – attracting infrastructural investments – protecting vulnerable interest groups / environment
Towards equitable and balanced Infrastructure development and economic growth.
Vicious Circle to Virtuous Cycle
HighCollection/Recovery
HighCollection/Recovery
Higher levelMaintenanceHigher levelMaintenance
High ServiceLevel
High ServiceLevel
High Level of Infrastructure
High Level of Infrastructure
Higher Willingness
to Pay
Higher Willingness
to Pay
Higher Investments
Higher Investments
High Equilibrium High Equilibrium CycleCycle
VS/ KS
Thank You for your
kind attention