Issues on Urban Finance

& Governance - PPPs

March 2013

Infrastructure Development Corporation

(Karnataka) Limited

Urban Growth
5 times the number by which GDP will have multiplied by 2030
590 million people in cities - ~ twice the population of USA
$ 2.2 trillion capital investment needed

$ 1.2 trillion in capital investment

26% of capital investment from debt and PPP

700 - 900 million sqft of commercial residential space needs to be built ~ a Chicago every year
20 times than the past decade of the capacity of roads, metros and subways need to be created
Source : Indias Urban Awakening, McKinsey Global Institute

Estimated investment for urban infrastructure over the next 20 years Rs 39.2 Lakh Crore at 2009-10 prices (HPEC Report)

Five Elements Funding, Governance, Planning, Sector Policies

and Shape
Funding where will resources come from?

PPP trends in water

Signs of success

Momentum subsided

A few projects
grounded

Onset of pessimism

Way
Ahead?

Now
Mid to
Late 90s

Mid
decade
Around
2000

First initiatives
High
international
interest
Poor results
Pune, Hyd, Goa,
Bangalore Bulk
water 100-300
Cr Failed

Sonia Vihar,
Delhi, Sangli
Bulk water
Bangalore
Rehab, O&M
500 Cr
Failed

Efforts to prepare PPP

projects
High NGO opposition
High profile projects in
Delhi, Mumbai, Failed
Successful projects also
emerge

Many ongoing
initiatives
Waiting for
commercial results
PPP interest in pilots
scale up not
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demonstrated

Water
Tiruppur Water Supply the first
attempt?
About 20% urban, and 80% industrial
by the time the project was made,
circumstances were unmade

Visakhapatnam Water Supply the

pretender
Similar structure 20% urban and 80%
industrial
But somewhere when the BOT was being
awarded, a question of conscience came
up. Are contracts not better for all
concerned?

Pilots KUWASIP, Nagpur etc.

Management contracts near risk free
Tiger tasting the blood; is upscaling on
similar model practical?

Full city models

Tariffs and adherence to
agreements

Too many models, limited

bidders
Lesser financial bids ;
more questions (pre bid
queries)
Growing interest in
participation

MSWM PPPs in JnNURM

SWM Activities
covered in PPP
Integrated Municipal
Solid Waste
Management
Collection,
Transportation &
Disposal
Transportation,
Processing and
Disposal
Treatment & Disposal
Treatment
Disposal

Types of
PPP

Average Tenure
of the Project

BOOT ,
20- 30 years (Some
DBOOT, BOT of the project
tenures linked to the
asset life)
BOOT
3 years

BOOT

20 years

DBOOT, BOT 20 / 25 years

BOO
20 -35 years
DBOOT,
3- 20 years
BOOT

Solid Waste
Lucknow Biomethanation
Was the technology inappropriate, or did the ULB literally expect
grit-to-gas?

Thiruvananthapuram Composting
How much waste does the city generate
Misfortunes one can endure--they come from outside, they are
accidents. But to suffer for one's own faults--ah!--there is the sting of
life. Oscar Wilde

Bangalore the first sanitary land-fill in the country

Land?
In any collection of data, the figure most obviously correct, beyond
all need of checking, is the mistake. Finagle's Third Law

A number of tipping fee based contracts have

been awarded
Some developers continue to rest hopes on WTE
In all things it is better to hope than to despair:

Goethe
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Urban Transport
One of the earliest LRT system awarded was in Bangalore,
but later cancelled
A few large projects bid/ awarded
With capex
Mumbai, Hyderabad (!), Haryana

Without capex
Delhi Airport Link

Bangalore airport rail link, Hyderabad (encore)

Buses:
Indore, a successful model
Interestingly, why is this model not widely replicated?

Ahmedabad BRT
A number of BRT systems (Delhi, Bangalore, Mysore)
studied and structured on PPP, but being executed by the
Authority
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Land Related
A large number of projects being
attempted on this formula
Project = land available with Authority +
Some public use + commercial development

Bus terminals. Convention centers. Malls

(oops parking complexes). IMAX (uh
tourism projects).
What is the Governments acceptable
price for land, especially when they still
own it?
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Are we on right track?

Feasibility studies provide only a partial picture projects not
financially free standing!!
Water: Tariffs set to recover only O&M costs, and after factoring
efficiencies, there is a deficit in finances.
SWM: Hardly any user charges or markets for sale of products/
recyclables
Dependence on government finances in some form (capital grants/
annuities/ tipping fees etc.)
Land and other support infrastructure requirements could be quantified
Other project parameters are matters of detail

Assuming we get the above elements right, will the

project (s) go ahead?
Given the financial situation (and lack of political will
in improving it), how can a credible investment
environment be built, where many projects require
financial support?
Lots of concerns remain unanswered!!

Big Push Theory

Nation wide impact/ externalities central scheme
JnNURM - large corpus, based on reform agenda

For the first time, cities were forced to think of an

aggregate vision and investment plan
But these were very large numbers (Bangalore is at Rs. 60,000
Crores) and the fund flow is the proverbial drop in the ocean.

However, the structure seems to have a disincentive

for improvising efficiencies , though the objective
was to encourage it.
Most projects focused on asset creation. E.g., in Bangalore, a
series of projects that was being structured through PPP
became EPC contracts after JnNURM.

To see how the newer version will fare?

Iteration, like friction, is likely to generate heat instead of
progress. George Eliot
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Access to domestic
institutions
Tax Buoyancy

Project specific/ general purpose loans from banks/ FIs/

MLAs, securing municipal revenues
Loan conditionality; State Government guarantees
Bond issues of Ahmedabad, Hyderabad, BMP, Nashik,
KUIDFC etc., have not led to large-scale replication
Issues of market appetite, end-use
Limited number of ULBs which can access financing on
a standalone basis
Small pilots Rs. 40-100 Crores. Enormous amount of
effort and arm twisting to close.
Pooled Finance seems a more appropriate structure for
small ULBs
No perceptible efforts to leverage
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Approach for Urban PPPs

PPPs in urban sector need to be hybrid models
less focus on typologymore focus on tailored
solutions + results
Governmen
t

Civic
Society

Developers

Concerns need to be addressed

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Continuity of
services
Profit motives
of private
sector
Hand back of
assets
Availability of
funds for
payments to
private
operator on a

Fear of
privatization

Increase in
tariffs
Service
Delivery

Lack of
baseline data
Tariff risks
Payment
guarantees
Impractical
performance
standards
Political Will
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Looking ahead,
hopefully

Cities have coped reasonably well in the past

Though under immense stress now
No reason why the problem cannot be addressed in
the future

Political/ Social realization of imperative need

for improvement of urban services
Policies slowly being set in place
Local capacities improving
PPP experience building up emerging models
validating proof of concept
Various precedents are being tried and tested, and
experience is maturing

But yet a long way to go

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Thank You

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