Tn presentation.pdf2

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PUBLIC PRIVATE PARTNERSHIP INITIATIVES IN TAMIL NADU

Vikram Kapur, IASMD & CEO

TN Urban Infrastructure Financial Services LtdChennai

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BACKGROUND

• TN - most urbanized state in India • 43% population lives in urban areas• Rate of growth of urbanization is 5%• 6 Corporations and 152 Municipalities• Present urban infrastructure not sufficient to provide

quality services to the citizens• Urban areas contribute more than 70% of GDP in TN• Organic linkage between economic growth and

infrastructure development

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PPP – BENEFITS TO GOVT

• Leveraging scarce budgetary resources of Govt• Ownership of underlying public assets to continue to vest

with Govt• Channelizing innovative and modern management

practices from private sector inProject development and structuringResource mobilizationAsset management and preservation

• Project up-sides to be shared by Govt, while capping its liabilities

• Preferred mechanism for outsourcing operations and maintenance of viable public assets

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PPP – BENEFITS TO PRIVATE PARTNER

• Policy level and statutory support by Govt• Handholding by Govt to resolve bottlenecks as in land

acquisition, R&R, clearances and approvals• Limited financial assistance by Govt for ensuring viability• Govt participation to enhance lender confidence, enabling

mobilization of cheaper funds• Continuing policy and O&M support from Govt

throughout project concession period

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SECTORS IDENTIFIED FOR PPP

• Water supply and sewerage• Road infrastructure (roads, bridges and flyovers)• Improvement of urban infrastructure• Port infrastructure• Computer literacy in school education

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PPP ORGANIZATIONS FORMED IN TAMIL NADU

• Tamil Nadu Water Investment Company (TWIC)– Promoted by GoTN and IL&FS to develop water projects– Established New Tirupur Area Development Corporation Ltd

(NTADCL) as SPV for supply of industrial and drinking water under Tirupur Water and Sanitation Project

• Tamil Nadu Road Development Company (TNRDC)– JV of TIDCO and IL&FS (50:50) to develop road projects– East Coast Road (ECR) Project

• Tamil Nadu Urban Development Fund (TNUDF)– Formed with Fis like ICICI, IL&FS and HDFC– Implementing World Bank assisted TN Urban Development Project

• Ennore Port SEZ

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TIRUPUR WATER & SANITATION PROJECT

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Genesis• Despite international recognition as a major export centre for knitwear,

Tirupur lacks quality infrastructure

– Domestic water supply is limited to a few hours on alternate days– Industries do not have access to piped supply– Depleted ground water in the region

• Investment in infrastructure is critical for a future Tirupur

• A comprehensive program (TADP) was formulated to address the infrastructure needs of the town

• Lack of budgetary resources prompted local industry to spearhead implementation of TADP on a commercial format

• New Tirupur Area Development Corporation Limited (NTADCL) was formed as the company to implement the TADP

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Summary Terms of Concession Agreement

• Concession Model : Build-Own-Operate-Transfer (BOOT)

• Concession Period : 30 years

• Concession Grantor : GoTN and Tirupur Municipality

• Concessionaire Co. : New Tirupur Area Development

• Recovery mechanism : Composite water and sewerage charges

• Tariff revision : Annual revision linked to indexation;Unusual increases to be approved by

Price Review Committee

• Transfer of Water Assets : At the end of the concession period

• Base Project Return : 20% pa on 185 Mld project cost

• Franchise Protection : Exclusive rights for service

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Concession Agreement - Investment Matrix

NTADCL

Value Added FranchiseBackbone Investment

Productivity Investments to increase supply by 65 MLD

Waste Water Recycling

Bottled Water Supply

Water Supply

Sanitation

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Scope• Water Supply 185 Mld (250 Mld)

• Urban Population 3,46,551 (2001 Census Figure)

• Rural/Semi Urban Population 4,00,266 (2001 Census Figure)

• Industry 730 Units

• Sanitation Coverage 60% of Households of Tirupur

• Low Cost Sanitation for Slums

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Schematic of Water Supply Scheme

Netaji App. Uthukali Perundurai KanchikoilPark (3.9 Mld) Chennimalai (2.7 Mld) 185 Mld(1.0 mld) (8.4 Mld)

56 km Steel Pumping Main from WTP to MBR (1400 & 1200 mm dia)

Booster Water Intake atPS Treatment Cauvery

Plant

LEGEND

PS Pumping StationFM-I to TM MBR Master Balancing Reservoir

(9 DS) FM Feeder MainTM Tirupur Municipality

FM-II to FM-III to DS Distribution StationTLPA TLPA TLPA Tirupur Local Planning Area

(17 DS) (9 DS)

MBR (23 Ml)

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Project Structure

IL&FSProject Sponsor

GoTN- Project Sponsor- Land and Right of Way- Grant of Concession

Equity InvestorsTWICL

Contractor Consortium

Pvt Equity FundsNTADCL

-Execution of the Project- O&M of the Project- Beneficiary of Concession

Terms

USERS

LendersConsortium led by

IDBI and SBI

Water Charges

EPC CONTRACTOR(WSA,, M&M, L&T, HCC)

O&M CONTRACTOR(M&M & United Utilities)

Service

Concession Agreement

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Project Implementation & Monitoring Structure

• Concessionnaire : NTADCL

• Project Sponsors : TWICL (GOTN and IL&FS)

• Construction Contractors– Advance Engineering : Bechtel Enterprises, USA

– EPC 1 Contractors : Hindustan Construction Co. Ltd.

– EPC 2 Contractors : Mahindra & Mahindra and Larsen & Toubro Ltd

• Operation & Maintenance: United Utilities, U.K and Mahindra & Mahindra

• Project Managers : Wilbur Smith Associates, USA

• Lenders Engineer : Pell Frischmann Water, U.K.

• Owners Engineer : GKW Consult, Germany and CES, New Delhi

• Independent Auditor : SB Billimoria, Chartered Accountants

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Components of the Tirupur Project• EPC1

River Intake Well and Pumping station

Water Treatment Plant & Booster Pumping Station

Transmission Main – 56 kms

Master Balancing Reservoir ( 23 Mn Ltrs)

• EPC 2Feeder Mains 1, 2 and 3 – 93 kms

Water Distribution Stations – 36 Nos.

Distribution Network – 219 kms

Distribution Network to Wayside Villages

Sewerage System – 124 kms

Low Cost Sanitation

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Total Landed Cost and Means of Finance

Rs Crores• EPC Cost 650• Owners Cost 127• Contingency 93• Interest During Construction 142• Initial Working Capital 11

Total 1023

• The project cost of Rs 1023 cr is proposed to be financed through a debt : equity ratio of 1.5 : 1

Equity 322.70Subordinate Debt 86.50Debt 613.80

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Equity StructureEquity Sub debt

GOTN 30 25Equity Sub debt

IL&FS 35 15

TWICLEquity 65 Sub debt 40

Total 105

AIDEC Fund 90 LIC 20GIC 15 Contractors 45Tirupur 10 Others 37.7

Industry

NTADCLTWICL 105Others 217.7TOTAL 322.7

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Allocation of Risks• Government of

Tamil Nadu– Political Force

Majeure– Water Source– Power– Permissions– Change in tax /

law

• NTADCL– Commercial– Construction– Operations– Insurable Force

Majeure

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Innovative Financial Structuring

• Non recourse financing

• Issuance of a 30 year bond in the US Capital Market:• Guarantee under the FIRE program• Support of USAID in timing of issuance enhanced credibility of the

Project•

• Fund for DSR using a contingent recourse structure

• Project financing with capped contingent liabilities on GoTN

• Risk Participation Agreements

• Sharing of upsides with consumers in the form of price relief

• Formulation of risk allocation matrix to allow for re-pricing

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Value of Project to Tirupur

• Industry would collapse without it, and prosper with it

• Project strength: commercial viability and Social dimensions

• Pro-poor image

• Social Benefits - Health

• Environment

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Value of NTADCL to Tirupur

• Facilitate industrial growth• Effluent Treatment• Apparel Park• IIUS

– Exhibition & Convention Center– Working Women’s Hostels– R & D Center– Roads– Traffic De-congestion

• Social Forestry – Avenue & Schools• Recreation Parks• Social Study

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PPP Strengths and Effectiveness - I

• Robust and Dynamic structure

• Arm’s length from the Govt.

• Government ownership high

• Governance structure ensures :– Allaying of private sector concerns– Social issues are addressed comprehensively– consumer interests are safeguarded

• Commercial interest protected

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PPP Strengths and Effectiveness - II

• PPP model domiciles risk to parties that are well equipped to deal with them

• Transparent and well-conceived contracts• Documentation recognizes rights and responsibilities of all

project related parties• Concerns of all stakeholders addressed• Examples of contracts :

– Concession Agreement– Bulk Water Supply Agreement– Shareholders’ Agreement– Common Loan Agreement– EPC and O&M Contracts

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PPP Strengths and Effectiveness – III• The PPP model is an effective format for implementing infrastructure

projects

• But it has its own challenges which need to be recognized

• PPP format involves the participation of a large number of Institutions: – Government, Politicians, Banks, Financial Institutions, Investors, Contractors,

Consumers, NGO’s, etc.– Each of these entities recognize the benefits of the project.

• But as the project develops, they exert pulls and pressures to enhance and further their own narrow institutional interests

• The project development exercise requires addressing each of theseissues without losing the integrity of the project concept

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What This Project Has Established

• As a pioneer project it has established:

– Demand-driven projects are inherently strong.

– Commercial formatting of projects is possible

– Private participation in the sector is viable

– Returns can be commensurate with risks

– Willingness to pay for efficient services

– Internal cross subsidy to reach the poor

– Healthy precedent to ease learning curves

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Current Status of Project

• Construction commenced October 28, 2002

• Water supply already commenced

• Sewerage component to be completed shortly

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TAMIL NADU ROAD DEVELOPMENT COMPANY

• TNRDC a 50:50 JV between TIDCO & IL&FS which have contributed Rs.5 crore each as share capital

• East Coast Road (ECR) project– Initial improvement works (Rs.61 crore) and maintenance during

Concession Period of 30 years– Recovery of initial investment, O&M and returns (capped at 20%)

by levy of nominal tolls; surpluses to be reinvested in road sector– Project funding

• Equity: Rs.10 crore• Sub Debt: Rs.10 crore• Senior Non Convertible Debenture: Rs.41 crore

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TAMIL NADU URBAN DEVELOPMENT FUND (TNUDF)

• A non-guaranteed fund managed by a private AMC• Established in November 1996 as a Trust • GoTN (Rs.143 cr), ICICI (23 cr), HDFC (Rs.17 cr), IL&FS (Rs.17 cr) • Policies and procedures by TNUITCL (FIs – 51% & GoTN – 49%)• Managed by TNUIFSL (FIs – 51% & GoTN – 49%)• Private Public Partnership arrangement to channelize private capital in

municipal infrastructure• Object is to raise resources and to provide long term finance to ULBs• Resources - Unit Capital and Line of Credit by IBRD through GoTN• Flow of funds

– World Bank to GoI by Project’s Special A/c– GoI to GoTN - pass through arrangement– GoTN to TNUDF / CMA / Grant Fund– TNUDF / Grant Fund to ULB

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INITIATIVES UNDER TNUDF

• Rs.30 crore mobilized from first Revenue Bond for Madurai Inner Ring Road

• First toll bridge on BOT model costing Rs.15 crore (Karur)• First sewerage treatment plant (STP) on BOT model

costing Rs.6.63 crore (Alandur municipality)• Rs.110 crore mobilized from domestic capital market for

municipal infrastructure• Rs.51 crore mobilized by way of equity participation• Rs.30 crore mobilized through pooled finance on lines of

US Bond Bank model (Water & Sanitation Pooled Fund)

TNUDP III• Is a follow up project of TNUDP II • Project launched on 19th October 2005• Project Size : US $ 434 m

– World Bank : US $ 300 m– GoTN : US $ 84 m– Others : US $ 50 m

GoTN• IDC to CMA : US $ 10 m• Capital Grants to ULB : US $ 48 m• Grants to CMA : US $ 26 m

Others• ULB : US $ 10 m• Market Borrowing by TNUDF : US $ 40 m

TNUDP-III

• Loan & Project Agreement - effective on 19th October, 2005

• Project period : 5 years• Objectives

– Develop TNUDF as a financial intermediary to provide finance for infrastructure in ULBs on a sustainable basis

– Strength urban reforms and consolidate the achievements under TNUDP II

– Institutional strengthening and capacity building– Provide grant to CMDA for traffic and transportation.

COMPONENTS

• Institutional Development component (IDC)– World Bank : 15 US $ m– GoTN : 10 US $ m

• Urban Investment component (UIC)– World Bank : 146.5 US $ m

(Loan 110, Grant 46.50, PDA 3)– GoTN : 48 US $ m

• Grant to CMDA– World Bank : 124 US $ m– GoTN : 26 US $ m

Funding Pattern – Break UpUS $ M

434.00134.00300.00TOTAL PROJECT COST

1.501.50Front End Fee

150.0026.00124.00Grants to CMDA - by TNUIFSL

257.5098.00159.50Total

3.003.00Project Development Advisory

94.5048.0046.50Capital grants to ULBs

160.0050.00110.00Loans to ULBs

UIC - by TNUDF

25.0010.0015.00IDC - by CMA

Total CostGoTN Finance

Bank Finance

Component

Pipeline of Projects

• Water supply Project : 11 projects; Sanctioned Loan of Rs.90 crs and Grant of Rs. 36 crs for 10 projects.

• UGD Projects : 16 projects: Sanctioned Loan of Rs.272 crs and Grant of Rs. 80 crs for 11 projects.

• Road and SWM Projects: Sanctioned Loan of Rs.75 crs and grant of Rs 33 crs sanctioned.

• Total - Loan of Rs. 437 crs, and grant of Rs.149 crores sanction (Rs. 586 crs).

• Amount disbursed : Rs.14.90 crs

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TNUDF’s Portfolio in Urban Infrastructure

TNUDF's Sector Wise Portfolio (Sanctions)

Bus Sta tio ns and Marke ts

4%

Sewerage & Sanita tio n38%

Water Supply17%

Stro m Water Dra ins1%

Others1%

Bridges and Ro ads39%

Bridges and Ro adsBus S ta tio ns and Marke tsSewerage & Sanita tio nWater SupplyStro m Water Dra insOthers

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TNUDF - Innovative Financing1. Karur Bridge –

Facilitated first toll bridge contracted by an ULB in India – cost Rs.16 crores

Predictable cash flow

TN State Toll Act amended to facilitate ULB to enter into BoT contract – stable regulatory framework

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KARUR TOLL BRIDGE

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Contd…

2. Alandur Underground Drainage – Rs.34 crores

Initial tariff Rs.150 per house per month –very high

TNUDF organised people’s participation @ Rs.5000 per household and generated Rs.14 crores

STP on BOT arrangement

With this, tariff rates reduced to Rs.75 per household per month.

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ALANDUR UNDERGROUND DRAINAGE

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Contd…3. Madurai Bye-Pass

• Included two-lane of 27 Kms, 2 RoBs and 1 high level bridge.

• Project cost of Rs.44.35 crores funded @ 15.50% interest rate (Rs.30 crores loan, 14 crores grant)

• The vehicles toll collection efficiency within 31/2 years found to be 54 %

Based on toll tax collection efficiency, TNUDF facilitated first revenue bond in the country.

Cost saving of 3% on interest rate.

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Innovative Financing under TNUDPMADURAI BYEPASS

MAP

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Contd…

4. Compost Plant on BOT in Tiruppur -• Conversion of Municipal Solid Waste into Organic

Manure (50 tpd plant)• Supply or Pay contract between ULB and Private

Sector operator at Rs.3.50 pt + lease rentals• Pressure / Incentive for the ULB to keep the streets

clean.

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Innovative Financing (Contd..)

COMPOST PLANT

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PPP POLICY FRAMEWORK FOR TN

• WB suggested consultancy for preparing policy framework• GoTN engaged Economic Consulting Associates, IL&FS

and J.Sagar Associates• Key issues identified by consultants:

– Is cross sectoral law required?– Is cross sectoral agency required?– Provide financial support to PPPs?– What project development modes?– How to manage unsolicited bids?– How to manage contracts?– How to resolve disputes?– Role of independent regulation?

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