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Timarpur Okhla Integrated Municipal Solid Waste Management Project

Delhi generates 7,000 metric tonnes (MT) of Municipal Solid Waste (MSW) daily, which is expected
to increase to 18,000 MT by 2021.

The Municipal Corporation of Delhi (MCD) has thus embarked on a project to reduce the amount of
MSW being disposed in the landfill sites and utilizing the waste for productive purposes such as
generation of power from waste. MCD has identified two locations, namely Timarpur and Okhla, for
implementing this project.

The following facilities are to be developed for integrated municipal waste handling project:

1. Plants for converting MSW to Refuse Derived Fuel (RDF), capable of processing 1300 TPD at Okhla
and 650 TPD at Timarpur.
2. A bio-methanation plant capable of handling of 100 TPD of green waste at Okhla.
3. A water recovery plant capable of handling up to 6 MLD of treated sewage at the Okhla site for
recycling into process water and cooling water.
4. A Power plant with a generation capacity of 16 MW at Okhla.
5. Transportation of RDF from Timarpur to Okhla for combustion in the boiler of the power plant.

The project is registered with the United Nations Framework Convention on Climate Change(UNFCCC)
for the Clean Development Mechanism (CDM) to earn 2.6 million Certified Emission Reductions
(CERs) over a ten-year period.

PPP structure of the Project:

The project has been undertaken on Built, Own, Operate and Transfer (BOOT) basis.

IL&FS Infrastructure Development Corporation Limited (IL&FS IDC) was mandated to structure the
project, evaluate various technologies, carry out project development activities and select suitable
developer through competitive bidding.

IL&FS IDC and the Andhra Pradesh Technology Development & Promotion Board established an SPV
known as the Timarpur-Okhla Waste Management Company Private Limited (TOWMCL) prior to the
bid itself.

The successful bidder M/s Jindal Urba n Infrastructure Limited (JUIL) acquired 100% equity in the

Financing Information

JUIL had estimated the project cost to be Rs. 200 crores, Rs. 25 crores more than the stated DPR
cost of Rs. 175 crores. The increase in cost was principally due to the increase in the capacity of the
power plant from 16 MW to 20 MW.

JUIL arranged finance through a mixture of equity and debt, with the debt being raised from
financial Institutions.

Axis bank was the lead consortium bank for lending towards the project

**DSCR: Debt Service Coverage Ratio

Major Risks
Risk Type Sensitivity Risk Period Primary Risk Bearer
Revenue Stream High Throughout TOWMCL
Financing the
High 0-5 years Government
Transfer and
Hand back of
project facilities
Medium On completion or
termination of


How should a Debt contract be structured?
Publicly-traded debt securities differ on a number of dimensions, including quality, maturity,
seniority, security, and convertibility. There are three main types of factors that affect the structure of
debt issues: First, firm specific factors such as leverage, growth opportunities and cash holdings are
related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide
factors, in particular the state of the macro economy, affect the quality distribution of securities
offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but
similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide
factors, project specific factors appear to influence the types of securities that are issued. Consistent
with commonly stated maturity-matching arguments, long-term, nonconvertible bonds are more
likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more
likely to finance investment in R&D.
Firms face a complex menu of choices when making financing decisions. Managers must decide
whether to finance investment projects with retained earnings, outside equity, or one of many possible
types of debt.

Debt contracts differ on a number of dimensions, including maturity, security, seniority, covenants,
and different types of embedded options such as convertible features and call options. These features
vary both across different firms debt issues and over time within the same firms issues, even when
institutions, regulations, taxation, and market conditions remain relatively constant. While there are
many theories discussing the possible reasons why firms structure debt in particular ways, there has
been surprisingly little empirical work testing the implications of these theories.

Debt Service Terms
The terms for debt service should be planned with prudence and pragmatism. The terms should be
specified clearly in the lender agreement. The main features to be detailed are:
(a) Tenure of debt;
(b) Interest rate;
(c) Moratorium period;
(d) Debt service option chosen.

Should the lenders be permitted to have any recourse to the project sponsors?
Sponsors of large and expensive projects look to project financing because such financing is non-
recourse to the sponsors (the lenders will have limited recourse, to the project assets, in the event of a
loan default).

A project financing can be structured so that it is treated for accounting purposes as off balance
sheet. In addition, most projects are highly leveraged, with 20% to 30% of the total project costs paid
by the sponsors and the remainder by loan proceeds.

To achieve these results, the project sponsors typically create a single purpose company, partnership
or other entity (the Project Owner) to develop, own and operate the project.

Another advantage of using a single purpose entity as the Project Owner is that there will be no
liabilities or obligations that the Project Owner will bear which are unrelated to the project,
thus reducing the chance that the Project Owner will end up in financial difficulty.

Let us take the example of a financing for a power project.

Because lenders will have recourse only to project assets if a loan default occurs, the project assets
should include all contracts that create the revenue stream, together with all other tangible and
intangible assets necessary to own and operate the project, including the power plant and all related
hard assets, real estate rights, governmental approvals, permits and technical licenses. All of these
assets will be pledged to the lenders to the full extent permitted under applicable law.

Despite the non-recourse character of project financings, it is not unusual, particularly in cross
border financings and financings involving multilateral institutions, that the project sponsors are
required to enter into a support agreement. This agreement might provide for contingent equity to be
contributed if, for example, cost overruns are not recovered from insurers, and for other forms of
support such as continued participation in the project or technical support. In some cases, where
surplus cash generated by the project is distributed to the sponsors, lenders may require that these
distributions be clawed back to fund unexpected expenses or to service debt.