STATE REVOLVING FUNDS:
THE INDIAN CONTEXT
PARIS 2003
SCHEME OF PRESENTATION
• BACKGROUND
• ISSUES
• PROSPECTS
BACKGROUND
Until now, since the 50’s
Institutional Borrowings by Governments from State owned Financial Institutions
on basis of Guarantees.
Project Implementation by Parastatals / Cities
Under investment in Urban Water and Sanitation
User charges rarely covering even O & M
Lending now:
 Potential drying up of institutional sources based on State Guarantees on account
of ceilings on contingent liabilities.
Limited low cost / equity / grant type funds.
Excess supply of commercial funds.
BACKGROUND : Demand - Supply Gaps
Primary Infrastructure Requirement
 Water supplies vary from 34 lpcd in Small Towns
to 74 lpcd in larger cities significantly below the
norms of 90 lpcd.
 Only 57% of population in larger cities, 32% in
medium towns and 16% in small towns have
access to sanitation.
 Sector wise break up of investment needs
indicates that 74% of the requirements is for water
and sanitation sector.
ISSUES: Basic Principles
 Stable
regulatory framework for debt finance.
 Mechanisms for ensuring predictability of revenue
flows.
 Transparent procurement process to minimise
implementation gaps and improve contestibility of
capital costs.
 Acceptance of pricing through political consensus.
ISSUES : Need for Water Sanitation Funds
•
Urban Infrastructure, especially water and sanitation investments
require long term debt on account of externalities over time and
space, severe fiscal constraints on the supply of equity from State and
local Governments for new investments, and substantial low income
population constraining the ability to pay for high financing costs.
•
Consequently, the need to link city infrastructure financing
requirements with domestic capital markets is well understood.
•
Debt finance is a pre-requisite for undertaking essential civic
investments, and in the long run, domestic savings through capital
markets would have to be, predominant source of supply.
•
The need for an institutionalised mechanism to raise low cost funds
for water and sanitation is clear cut with the US Bond Bank as a
potential model.
PROSPECTS : Linking Markets & Cities with
Intended Use Plans
• Creation of a revolving fund by GoI - States
• Tax concessions for municipal bonds by GoI
• Structure a statutory framework to manage the fund
• Borrowing eligibility criteria to be established
• Project implementation procedures including rational & quick
procurement
• Framework for tariff setting - through a democratic process
• Fixation of rational levels of upfront contribution by the
community / local body
• Capacity building for the Raters/Merchant Bankers
PROSPECTS - Institutional Positioning of Pooled
Finance Framework
Partial Credit Guarantee
DONORS
Umbrella Crd
Enchanc.
Technical Assistance
Co-finance
Sov. Govt.
Transfer
Payments
WSPF
Sov.Grant
Revenue
Intercept
If necessary
Bonds
Investors
Funds
Market Rate
Long term
Reserve
Account
Local
Govt.
Project
If necessary
Local
Govt.
Project
Principal
Local
Govt.
Project
& Interest payments
Trustee
PROSPECTS – Water and Sanitation Pooled
Fund
•
A Pooled entity namely, a Trust called Water and
Sanitation Pooled Fund (WSPF) has been registered
on 20.8.2002.
•
Objective is to link civic financing needs with the
capital market.
•
The use of DCA as a market creation tool.
ACHIEVEMENTS – Water and Sanitation
Pooled Fund
The terms of the issue are as follows:
Mode
Issuer
:
:
Issue Size
Coupon
Tenor
:
:
:
Redemption
Payment of Interest
:
:
Security
:
Private Placement Issue
Water and Sanitation Pooled Fund (WSPF) a trust, the
deed of which is registered under the Indian Trust Act
This will pool certain Water and Sanitation projects of
14 participating Urban Local Bodies (ULBs) and the
issue proceeds would be utilized to refinance/finance
these projects. Tamil Nadu Urban Infrastructure
Financial Services Ltd., (TNUIFSL) would act as the
Trust Manager
Rs. 304.1 Million (USD 7 million approx.)
9.20% p.a.
15 years (With a put and call option at the end of 10th
year)
In 15 equal annual instalments
Annual payment of coupon on a diminishing balance
method.
Unsecured Issue
ACHIEVEMENTS – Water and Sanitation
Pooled Fund
Credit Enhancements
:
Credit Rating
Method of Servicing by
ULBs to WSPF
:
:
a) The first level of credit enhancement is the escrow of the
property tax and other collections of the ULBs. This will be
covered under a tripartite agreement among WSPF, ULB and
ULB’s banker.
b) The second level of credit enhancement is covered by a
Debt Service Reserve Fund in the name of Bond service
Reserve Fund (BSF) which will be set up by the Government
of Tamil Nadu with a liquid investments of Rs.6.90 crores.
This is regardless of ULB’s cash flows.
c) The next level is the guarantee issued by USAID to the
extent of 50% of the principal. The balance is covered by an
undertaking by GoTN in the form of a Government order
that the shortfall would be replenished by the GoTN to the
BSF by deducting their respective share of State Finance
Commission (SFC) devolution accruing to the ULBs.
d) WSPF represented by TNUIFSL would monitor the
escrow account of the ULBs, coordinate with GoTN in case
of a shortfall and ensure the repayment amount payable to
the investors, in the bank account of the WSPF, before 30
days from the due date of bond annuity.
L AA (SO) by ICRA , Ind AA (SO) by Fitch
1/9th of the annuity due would be placed by the respective
ULBs in a Fixed Deposit every month for a period of 9
months. At the beginning of 10th month the amounts so
placed in Fixed Deposits would be transferred to the account
of WSPF. In case there is a short fall in the amounts to be
serviced, the same would be met out of SFC devolution/BSF.
ACHIEVEMENTS – Water and Sanitation
Pooled Fund
LIST OF POOLED PROJECTS
S.No. Particulars
Water Supply Schemes:
1 Ambattur Municipality
2 Tambaram Municipality
3 Madhavaram Municipality
4 Rajapalayam Municipality
Adjacent Urban Areas - AUA
5 (I) Alandur Municipality
6 (ii) Pammal Municipality
7 (iii) Ankapathur Town Panchayat
8 (iv) Ullagaram Town Panchayat
9 (v) Porur Town Panchayat
10 (vi) Maduravoyal Town Panchayat
11 (vii) Valsaravakkam Town Panchayat
12 (viii) Meenambakkam Town Panchayat
Under Ground Drainage:
13 Madurai Corporation
Rs. In Million
Project Loan amt Loan
Cost
sanctioned disbursed
33.656
18.200
32.500
8.500
6.732
10.920
10.575
5.100
6.732
10.920
10.575
5.100
42.700
37.800
18.800
29.800
57.900
14.600
18.900
1.700
40.300
35.700
17.800
28.100
54.700
13.800
17.900
1.600
40.300
35.700
17.800
28.100
54.700
13.800
17.900
1.600
140.700
455.756
50.000
302.152
32.500
275.727
ACHIEVEMENTS – Water and Sanitation
Pooled Fund
Sl. No.
Subscribers
1.
2.
3.
Karnataka Bank Ltd.
ICICI Bank Ltd.
Gujarat Industries Power Co.,
Ltd, Provident Fund Trust
Metlife India Employees
Provident Fund Trust
City Union Bank Ltd.,
4.
5.
No. of
Bonds
allotted
2000
1000
11
5
25
ACHIEVEMENTS – Water and Sanitation
Pooled Fund
WSPF bonds have created quite an active secondary
market. The bonds have been sold by the original
holders to the following entities at a premium!
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
The Karnataka Bank Ltd
The Tata Engineering And Locomotive Company Ltd Superannuation Fund
The Tata Engineering And Locomotive Company Ltd Provident Fund
Credit Capital Investment Trust Company Ltd Trustees Taurus Mutual Fund
A/C Libra Bond Fund
The Tata Engineering And Locomotive Co. Ltd Employees Pension Fund
The Baghat Urban Co Operative Bank Limited
The Indian Hotels Co. Ltd Employees Provident Fund
Trust Capital Services (India) Pvt. Ltd.
Digital Globalsoft Limited Provident Fund Trust
Staff Provident Fund of Nicholas Piramal India Ltd
City Union Bank Limited - Mount Branch
Gujarat Industries Power Co. Ltd. Provident Fund Trust
Metlife India Employees Provident Fund Trust
Advanta India Management Staff Provident Fund
ACHIEVEMENTS – Alandur Underground
Sewerage
ACHIEVEMENTS – Drinking water in
Madhavaram