Session 6: Financing South Asia’s Urban Future · 2015-01-30 · Session 6: Financing South Asia’s Urban Future: Good Practices in PPP for Urban Development Regional Policy Dialogue,

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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7

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

9


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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11

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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Waste Handling

BEFORE AFTER


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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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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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

20


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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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

23

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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Session 6: Financing South Asia’s Urban Future · 2015-01-30 · Session 6: Financing South Asia’s Urban Future: Good Practices in PPP for Urban Development Regional Policy Dialogue,

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