Session 6: Financing South Asia’s Urban Future: Good Practices in PPP for Urban Development
Regional Policy Dialogue, UNESCAP – MOUD – NIUA, December 18, 2014
Chandrima Sinha Director, IDFC Foundation
Government creates assets & provides
services
Government transfers entire sector
responsibility to the private sector – which
then creates assets and provides services
PPPs
Public
Procurement Privatization /
Divestiture
Infrastructure Services
Contracting of Services: Government creates assets and contracts service provision to
private sector
Government awards concession/license to
private sector for a fixed term under which it creates assets and provides services
PPPs – What are they?
FINANCIALLY FREE STANDING PROJECTS Examples -Toll Roads, Urban renewal (real estate projects)
1. Role of public sector - planning, licensing & statutory approvals
2. No financial support/ payment by government 3. Revenues through user charges
PROJECTS WHERE GOVERNMENT PAYS FOR SERVICES Examples - Roads - annuity/ shadow tolls, waste management
1. Private sector paid a fee (tipping fee), tariff (shadow toll) or periodical charge (annuity) by Government for providing services
2. The payment is made against performance
3. There may be demand risk transfer – either in part or whole
HYBRID STRUCTURES Example – water supply project with viability gap funding
1. Combine the financially free standing nature – levy of a user charge – with payment by the public entity
2. Payment could be as a viability gap subsidy or an annuity payment
3. Principle of leveraging operates here
How do they work?
507,615.5
37,276.4
14%
7.3%
30%
-
102,000.0
204,000.0
306,000.0
408,000.0
510,000.0
Total Investment Requirement Total PPP
Inv
es
tme
nts
(IN
R C
rs.)
0%
20%
40%
60%
80%
100%
Ov
era
ll P
en
etr
ati
on
of
PP
P
Penetration of PPP is low in Urban sector
Planned Urban*
Actual
* Envisaged investment by the Planning Commission.
Planned Overall*
4
Why is Urban sector different
Roads Ports Airports Urban
Clarity on PPP
Revenue model
Enabling frameworks
Project pipeline/ Projects offered
Removing bottlenecks
• Projects are location specific • No established model
• Public good • Highly subsidized • Lack of mechanism to address tariff related
issues • Weak financial health of ULBs • No market for sale of products/recyclables
• Land acquisition and infrastructure support
• Powers of a private operator – billing / collection / disconnection /
• ROW over private properties • ULB Employees
• Institutional set-up • Political interventions • Tariff regulation
26 projects attempted till date
5
Key issues
• Unbalanced emphasis on construction contracts instead of performance based O & M contracts
• Obsolete planning norms especially for highly congested cities
Allowing more low-rise buildings requiring larger area and increasing expenses on infrastructure
• Fiscal and financial un-sustainability of Urban Local Bodies
• Lack of focus on the O & M of facilities and service standards for the urban infrastructure available
• Lack of focus on common spaces like markets, bridges, footpaths etc leading to creation of slums
• Presence of multiple authorities having overlapping jurisdictions leading to lack of an integrated approach to development
• Lack of capacity in ULBs for implementing PPP based projects
* FICCI report on Urban Infrastructure in India , 2011
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Where have PPPs been used?
Commercial real estate IT Parks, Commercial complexes, Entertainment-linked real estate (multiplexes, amusement parks) – largely private initiatives; some as PPPs
Projects with real estate “kicker” Re-development of markets, multi-level parking facilities, convention centres with hotels, sports complexes
Projects where user-pay arrangements can be reasonably secured Bulk water supply projects, water distribution to industrial areas, industrial waste water treatment, MSW Collection & Transportation, Road improvement
Easier projects
Solid Waste Management –
Treatment and disposal facilities
Mass Rapid Transport Systems – bus
or rail based transportation systems
Urban Redevelopment & Renewal –
areas around railway stations, older
market areas, drain development, lake
area development
Retail Water Distribution and
Sewerage facilities
Increasing difficulty…
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SOLID WASTE MANAGEMENT SECTOR
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Where have PPPs been used?
SECTOR AREA DETAILS
SWM Collection and Transportation
Secondary collection - Tipping fee based – NDMC
Composite – primary and secondary collection and treatment - Guwahati
Sanitary Landfills BOT – Karnataka, Delhi
O&M of engineered sanitary landfill – Vadodara, Jaipur
Integrated land fill and waste treatment/processing –
Rajkot, Pondicherry Treatment / Recycling
Bio-conversion treatment facility – Tirupur
Biomethanation plant – Koyembedu
Composting – Thiruvananthapuram
Composite (including waste to energy) – Uttar Pradesh, Guwahati
Integrated Collection to Processing
Primary collection, street sweeping, storage, transportation and processing (composting and land filling) - Cities in Uttarakhand
Why Limited PPP?
• Data pre-requisites necessary for bidding not available/compiled properly
Category-wise waste quantification data, waste characterization, status of tools and equipment, maps setting out city roads etc.
• Often delays in payments by ULBs in case of C&T contracts (Almost all ULBs in the country)
• T&D facilities awarded on ‘royalty’ basis especially the compost facilities
• Market risks borne by developers
No guarantee by the Government to procure compost/power/fuel pellets
No payment guarantee mechanism, as most ULBs have financial constraints
• Site identified without proper consultation processes
Site related issues present even after award of project
• Environment and Social issues not addressed upfront
• Inadequacy of contracts
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Solid Waste Management Collection and Transportation – In Delhi
Two projects were bid out (MCD / NDMC) under a BOT concession framework,
the concession periods being 8-9 years (construction plus operations)
Tipping fee (Rs / MT of waste transported & disposed ) is the primary revenue
for the private operator
Revenue upsides - advertisement rights are offered to improve
competitiveness / returns to bidders
Substitution rights to lenders to improve bankability.
Implemented in 6 zones in Delhi and the NDMC area by 4 investors
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Solid Waste Management Collection and Transportation – In Delhi
Waste Handling
BEFORE AFTER
Solid Waste Management Collection and Transportation – In Delhi
COLLECTION
SEGREGATION
TRANSPORTATION
WA
ST
ES
LANDFILL
TREATMENT SITE
SPECIFIED
LOCATIONS
MSW
LANDSCAPE
WASTE
CONSTRUCTI
ON DEBRIS
Pa
ym
en
t o
f tip
pin
g f
ees
INDEPENDENT AGENCY
Monitor project progress
Oversight Arrangement
Monitor segregation levels
Reporting –
particularly
segregation levels
RAMKY
Concessionaire
Collection and transportation
Capex/Opex
Developing built facilities such as
transfer stations
NDMC
Encourage Source
segregation
Handover project facilities
Concessioning Authority
Tipping fee calculated on the
basis of segregation achieved
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Solid Waste Management Collection and Transportation – In Delhi
Tipping Fee was calculated on the basis of level of segregation achieved in the waste
transported by the private partner so as to ensure performance
Segregation efficiencies depend largely upon the efficiencies achieved in the primary
stages of the Waste Management Cycle. Primary segregation was to be achieved
through community participation for which mobilization efforts were to be made by
both parties to the contract:
partly through source segregation by households and partly through re-
organization of rag pickers as a segregation agency through NGOs.
Lack of coordinated efforts to mobilize community level segregation mechanisms
have resulted in low segregation levels, and non-compliance with segregation
benchmarks, and subsequent losses for the private sector
Use of Advanced Locality Management (ALM) groups in Mumbai is one of the
successful examples of community level mobilization for waste segregation.
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Where have PPPs been used?
SECTOR AREA DETAILS
Other Urban Services
Real estate development Convention centres – Hyderabad
Commercial centres / Office complexes - Maharashtra
SEZs – Vijayawada (IT/ITES)
Urban Renewal TDR based slum redevelopment – Mumbai
Housing schemes – Maharashtra
Municipal markets redevelopment – Pune, Thane
ROMT concessions – Karnataka, Kerala
Redevelopment of old properties – Cinema redevelopment Delhi
Street lighting BOT through ESCO - Vijayawada, Bangalore
Public conveniences Toilets, Bus stops - New Delhi
Foot-over-bridges - Hyderabad
Public Toilets - Maharashtra
IT-enabled Citizen services
e-Mitra in Rajasthan
Akshaya in Kerala
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ENERGY EFFICIENCY
Energy inefficient existing street lighting system – Rs. 450 lakh annual expenditure on maintenance and energy bills
Need to introduce an energy-efficient street lighting system, through high quality equipment and high-end technology, and reduce overall energy expenditure of the ULB
Concessionaire (ESCO) committed 41.5% energy savings and was responsible for system design, procurement of technology and equipment, operations and maintenance of the new system for 5 years
Concessionaire had to deploy own staff for O&M and was also responsible for addressing citizen grievances
All investments by the ESCO – revenue as a fixed share of savings in energy bills (92.7%)
Fixed share of savings from energy bills to accrue to ULB : ULB share (notwithstanding the performance of the ESCO) not less than Rs.12 lakh per annum
No payment to ESCO If energy savings less than 30% ; if savings more than 41.5% then 75% of surplus accrued to ULB
Energy Efficiency Street Lighting – Vijaywada, Andhra Pradesh
VMC
Co
nce
ssio
nin
g A
uth
ori
ty
STR
EET
LIG
HTI
NG
CONTRACTUAL STAFF - O&M
ENERGY BILLS
OLD SYSTEM
High cost 7
.3%
9
2.7
% o
f p
ow
er
savi
ng
s a
s O
&M
fee
Power savings of about Rs.170 lakh/annum
O%M cost saving of Rs.53 lakh/annum
Co
nce
ssio
na
ire
ESCO
ESCO STAFF – O&M
NEW EQUIPMENT
ADVANCED SYSTEMS
Inve
stm
ents
Energy savings up to 41.5%
Energy Efficiency Street Lighting – Vijaywada, Andhra Pradesh
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TRANSPORT INFRASTRUCTURE
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Where have PPPs been used?
SECTOR AREA DETAILS
Transport Infrastructure
Refurbishment of urban roads
Thiruvananthapuram City roads (annuity basis)
Inter-state Bus Terminals
ISBT with real estate component - Dehradun, Amritsar
Parking Multi-level car parks – Delhi, Guwahati, Mumbai, Kolkata (some with real estate component)
Bus stops Delhi
Construction of modern shelters for BRTS - Vishakhapatnam
Foot over-bridges Hyderabad (with advertisement rights)
Traffic management systems
Computerization of transport department – Madhya Pradesh
IT system for bus shelters, control room call centre etc. – Ahmedabad BRTS
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Where have PPPs been used?
SECTOR AREA DETAILS
Transit Systems
Metro Rails / Light Rails Delhi Airport link
(civil work retained by GA, rolling stock and systems by private partner)
Mumbai Metro – BOT, Hyderabad Metro (real estate component)
Pipeline – Bangalore, Jaipur
Bus Rapid Transport Systems
Ahmedabad, Rajkot and Surat BRTS (bus procurement and operations as in Indore model)
Planning and civil work largely retained by public authority
Delhi BRTS – focus on construction and management of corridors – open system – bus operations/procurement not integrated
City Bus Transport
(non BRTS)
Indore
(Separate concessions for bus operations, ticketing and advertising integrated under a city level public transport company)
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Public Conveniences Foot Over-Bridge – Hyderabad
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Public Conveniences Bus Stops – Delhi
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TRANSIT SYSTEMS BUSINESS MODELS – BUS RAPID TRANSIT SYSTEMS
BRTS in different cities follow different business models, although there are some commonalities:
1. To distance bus operations from red tape, a company is set up to run BRTS. The company is generally publicly owned and is responsible for corridor management
2. Bus operations are typically separated from corridor management. In most cases, bus operations are contracted out to private parties, who are responsible for investment in the rolling stock as well as bus operations
3. On the other hand, there are countries such as China and Turkey where companies set up to run BRTS also own and operate buses.
4. The cost of the infrastructure (roads, stations, etc.) is borne by the Government, while O&M costs are recovered through the passenger fares
5. Competition among bus operators for passengers, often a source of accidents, is replaced by competition for right to operate
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TRANSIT SYSTEMS BUSINESS MODELS – BUS RAPID TRANSIT SYSTEMS
Bogota: Fleet management and operations are the responsibility of the private operators. Tariffs are set with the sole objective of covering O&M costs. Even the demand risk rests with the bus operators, who do not enjoy any such guarantee.
Ahmedabad: Based on the same model, except that the demand risk is not passed on to the operators who are guaranteed fixed route kilometers
Indore: Indore City Transport Services Limited (ICTSL) allocates bus routes to private bus operators who offer to pay the highest revenue to ICTSL through competitive bidding. In addition, ICTSL shares revenues from (i) advertisements on the buses and (ii) issue of daily and monthly passes to passengers. On-board fare collection goes to bus operators. Thus demand risk is shared.
Delhi: Follows the third category of business model where bus operations are not yet integrated into BRTS. The focus has been on construction of corridors and corridor management and buses ply on BRTS lanes as an open system. DIMTS, which maintained the corridor, was paid a fee for O&M services
Thank you
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