Government of Andhra Pradesh

Integrated Special Economic Zone

Presentation on role options for GoAP

January 25, 2001

Agenda

SEZ Model Governments perspective

International examples of development models and government intervention

Role options for GoAP

Quantifying GoAP support Next steps / imperatives

SEZ a bundle of Multi-service concessions

Land, land development

Land bank

Internal core infrastructure

Industrial

Residential

Commercial

Roads, Social infra.

Power, water, telecom, utilities

Access infrastructure port, airport, roads, railways Plug-and-Play facilities water, power, telecom, utilities

GoAP can play an enabling role across each of these bundles

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Governments have assumed different roles

Governments have intervened through a combination of fund based and nonfund based mechanisms to develop such zones Governments have offered direct fund based support in developing land, connectivity infrastructure and specific infrastructure components of the zones Non-fund based support includes bankability enhancers such as revenue support guarantees, securitisation support and exchange rate protection Governments have structured private sector participation through infrastructure concessions, real estate, residential/commercial developments A key non-fund based intervention has been through an enabling policy Governments have shared risks in developing such zones. GoAP will also have to share specific risks to attract developers for the SEZ
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Some of the international examples for todays discussion are

China Philippines Thailand Indonesia

: Suzhou, Zhuhai, Pudong, Shenzhen : CIP, Subic Bay, Clarke : TS21 : Batam

We have examined the development models and the role played by governments in successfully developing such zones
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Examples of development strategy - China

Seven connections and one levelling provided by government Levelled land Power, water, Telecom, Sewerage, Rain water drainage, Road, Gas Rolling over model Developing plots and using the proceeds to develop infrastructure

Facilitating commercialisation of infrastructure i.e.. concessioning out specific

components to make them self financing and bankable Government funding support (5% to 15% of SEZ development cost) Preferential policies and incentives Flexible labour laws Devolution of economic decision making authority

Examples of development strategy China

Suzhou Industrial Park (SIP), China (800 Ha) Role of government

Role of private sector

Bulk power from provincial utility

Bulk water by provincial authority External connectivity, access roads, expressway and telecom These works have been undertaken by various government agencies

Land development expenses

Initial power (2 X 20 MW DG) Internal power distribution, steam, LPG supply Developing and maintaining drainage and sewerage system Developing /concessioning industrial, residential, commercial plots Social infrastructure

Examples of development strategy - China

Zhuhai SEZ, China (121 Ha) Role of government

Role of private sector

Utilities provided by local municipal committee

Initial residential & commercial development and services incurred by Zhuhai Development Company Government helped develop highways linking the SEZ funding, revenue support guarantee, foreign exchange guarantee, securitisation support through special purpose vehicles (CITIC, GITIC, Zhuhai Highway Company)
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Port and 2 industrial parks developed by Gladhover- an investor

Land reclamation and industrial park developer by Everbright - an investor

Examples of development strategy - Philippines

Subic Bay Special Economic and Free Port Zone, Philippines (16,200 Ha) Role of government

Role of private sector

Subic Bay Development and

Management Corporation (SBDMC) formed as a JV among Subic Bay Metropolitan Authority (SBMA), China Development Corporation (a private Taiwanese company)

Water Supply Biwater

International Limited

Electric Power Enron Subic Power Corporation

Telecommunications Subic

and century Development

Corporation for a 12 Ha Subic Bay Taiwanese Industrial Park
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Telecom

Examples of development strategy - Philippines

Clarke Special Economic Zone, Philippines (28,041 Ha) Role of government

Role of private sector

Land development by Clarke

Development Corporation (CDC)

35 MLD, 50 year Water

concession Clarke Water & Sewerage Co. Inc (a JV among CDC, Kemaman Terminal One Sdn Bhd. (Malaysia) and Ciriaco Corp. (Philippines)

Basic infrastructure backbone Social infrastructure base

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Examples of development strategy - Philippines

Carmelray Industrial Park II, Philippines (145 Ha) Role of government

Role of private sector

Land availability
Policy & procedural facilitation

Captive power generated through an MoU with a private investor Land development expenses incurred by developer
consortium

Ready Built Factories (RBF) offered initially by the

developer

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Examples of development strategy - Indonesia

Batam Special Bonded Zone (715 sq Km) Role of government

Role of private sector

88 MW electricity supplied by
state power utility

Telecom services provided by 4

concessionaires (Singapore Telecom, Perumtel (Indonesia) and Telecom Australia

Government (BIDA) along with international companies has created drinking water infrastructure for the zone

Government (BIDA) responsible for sea access including ferry terminals

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Examples of development strategy - Thailand

Thailand Singapore 21 (TS 21) (1546 Ha) Role of government

Role of private sector

Government (IEAT) guarantees infrastructure improvements through a Sinking Fund IEAT/Government mediation in formalising contracts between developers and state run utility agencies for assured supply and maintenance of utility supplies Government guaranteed protection on rights and benefits, including assurance on the maintenance and upkeep of basic utilities and facilities
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Development, marketing, operation and maintenance of the park Sub-concessioning specific components

Other forms of intervention by governments

Free Trade Zones Establishment and Development Fund

Turkey

Mobilised through fees from operating permits and licenses To establish, develop and maintain FTZs Construction of social infrastructure

Mauritius

EPZ Labour Welfare Fund

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Examples of government investments

Over US$ 2.7 billion investment by government for capital construction in Shenzhen SEZ (327 Sq Km) till 1993

Pudong Bonds by Shanghai Municipality for developing Pudong New Area (350 Sq Km)
20 year plan of Zhuhai Municipality to spend Rmb 60 billion to develop Zhuhai SEZ (121 Sq Km) Investment of fixed assets of Rmb 8.752 billion by Xiamen Municipal Government to develop Xiamen SEZ (131 Sq Km)

Clearly, infrastructure led development has been the underlying theme in developing these zones and governments have taken the lead by investing in infrastructure
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To summarise, governments have played different roles as follows

Developing land, connectivity infrastructure and specific infrastructure components of the zones Bankability enhancers such as revenue support guarantees, securitisation support and exchange rate protection; enabling policies

Fund based Government Non Fund based

Private sector

Infrastructure concessions, real estate and residential / commercial developments

sharing risks and rewards with the private sector

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And governments efforts have yielded significant results

Contribution to GDP Increase in industrial output Exports and international trade Employment generation

Foreign exchange earnings

Direct and indirect economic multiplier effect International competitiveness

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PPP Options Multi-service concessions

Degree of investment, risk sharing and ownership by private sector
HIGH

Structuring involvement of other key stakeholders e.g. tenants industries

LOW

Govt. ownership

JV

BOT/BOOT

BOO

Entirely fund based intervention

GoAP Intervention

Policy support, external infrastructure non-fund based support

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Key considerations in evaluating role options

Scope/possibility of concessioning out specific components on user pays basis or through annual revenue charges Acceptability and attractiveness to potential stakeholders - co-developers, lenders, investors Funds to be infused by GoAP/GoAP Any contingent liability on GoAP/GoAP Lock-in period of investment for GoAP

Finally, GoAPs intervention has to be in a manner as to enhance the attractiveness and bankability for private developers
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Role options for GoAP

Land & Land development Core infrastructure within the zone External access / connectivity infrastructure

Fund based

Non-fund based

Policy & other interventions

across different components and of various types will have to be examined to make the proposition attractive to investors
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Role options for GoAP

Land & Land development Core infrastructure within the zone External access / connectivity infrastructure

Land for equity Fund based

Fund core infrastructure components

Develop all critical access / plug-in infrastructure

Non-fund based

Land acquisition Clearances Approvals

Third party Concessions Bankability enhancers

Third party Concessions Bankability enhancers

Policy & other interventions

As per the current and proposed SEZ Policy of Government of India

across different components and of various types will have to be examined to make the proposition attractive to investors
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Role options for GoAP

Land & Land development Core infrastructure within the zone External access / connectivity infrastructure

Land for equity Fund based

Fund core infrastructure components

Develop all critical access / plug-in infrastructure

Non-fund based

Land acquisition Clearances Approvals

Third party Concessions Bankability enhancers

Third party Concessions Bankability enhancers

Policy & other interventions

As per the current and proposed SEZ Policy of Government of India

across different components and of various types will have to be examined to make the proposition attractive to investors
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Role options for GoAP

Undertake specific components of the SEZ e.g. Power, water transmission Provide soft loans, subordinate debt, raise project specific bonds for funding infrastructure development

Development risk mitigation

Set up social infrastructure and amenities non-paying components

Would reduce development cost and development risk for promoters Could also demonstrate government commitment to the project

Jebel Ali, SAIF, Suzhou, CIP, Batam

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Role options for GoAP

Time-bound completion of all critical access and connectivity infrastructure leading up to the zone power, roads, railways, water transmission, gas pipelines, telecom

Development risk mitigation

Can significantly reduce the development risks to private investors The underlying logic - Developers should not be burdened with with the risks of external connectivity

Suzhou, Shenzhen, Batam, Zhuhai, Kulim

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Role options for GoAP

Take-or-Pay guarantee for utilities such as power e.g.. guaranteed off-take of any surplus power by APTRANSCO in the initial years

Partial demand risk mitigation, especially in the initial years

Wheeling & banking arrangement for surplus power with APTRANSCO / APDISCO Take-or-pay arrangement for water (VCMC) and other such utilities produced within the zone Permit third party sale (outside the zone) of surplus power, water and such services without any additional duties

TS21, Batam, Shenzhen, Zhuhai,

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Role options for GoAP

Partial revenue shortfall support State government guarantee for takeor-pay commitments Exchange rate protection

Credit enhancement measures

Government guarantee for debt repayment Securitisation of future receivables from specific projects within the zone. Repayment from state sales tax / stamp duty receipts Creating an SEZ Fund through cess or other such levy for contingency and credit enhancement of specific projects within the SEZ
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Turkey, Mauritius, Suzhou

Role options for GoAP

Time bound parallel concessioning of critical external infrastructure projects

Development risk mitigation

Provide credit enhancement support necessary to help bankability of these projects

Suzhou, Shenzhen, Zhuhai, Kulim

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Role options for GoAP - Recap

Land & Land development Core infrastructure within the zone External access / connectivity infrastructure

Land for equity Fund based

Fund core infrastructure components

Develop all critical access / plug-in infrastructure

Non-fund based

Land acquisition Clearances Approvals

Third party Concessions Bankability enhancers

Third party Concessions Bankability enhancers

Policy & other interventions

As per the current and proposed SEZ Policy of Government of India

across different components and of various types will have to be examined to make the proposition attractive to investors
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