City Development Plan for Bangalore

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Issues on Urban Finance &

Governance - PPPs

March 2013

Infrastructure Development Corporation (Karnataka) Limited

1

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 : India’s 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

• Funding – where will resources come from?

2

PPP trends in water

Momentum subsided

Onset of pessimism

Signs of success

A few projects grounded

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 demonstrated

3

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

30

25

20

15

– 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?

10

5

0

• 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

26

PPP projects attempted

17

Contracts awarded

12

Under

Implementation

2

Operational

Too many models, limited bidders

Lesser financial bids ; more questions (pre bid queries)

Growing interest in participation

4

MSWM PPPs in JnNURM

SWM Activities covered in PPP

Integrated Municipal Solid

Waste Management

Types of PPP

BOOT , DBOOT,

BOT

Average Tenure of the Project

20- 30 years (Some of the project tenures linked to the asset life)

3 years Collection, Transportation &

Disposal

Transportation, Processing and Disposal

Treatment & Disposal

Treatment

Disposal

BOOT

BOOT

DBOOT, BOT

BOO

DBOOT, BOOT

20 years

20 / 25 years

20 -35 years

3- 20 years

Status of implementation

12

10

8

6

4

2

0

1

9

1

Operational >1 year

Operational <=

1 year

Pre- project development

Stage / Concept

Stage

3

Bid Stage

3

Pipeline -

Awarded

JNNURM Cities implementing MSW components on a PPP framework

18

15

12

9

14

11

6

4 4

3

3

0

Integrated

Solid Waste

Management

Collection Collection &

Transportation

Compost Plant Waste

Treatment

6

Sanitary

Landfill

7

8

10

Pipeline - Bid

Process to commence

Pipeline -

Commercial

Operations

Pipeline -

Construction

5

Solid Waste

• Lucknow Biomethanation

– Was the technology inappropriate, or did the ULB literally expect ‘gritto-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

6

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

7

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 Government’s “acceptable” price for land, especially when they still “own” it?

8

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!!

9

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.”

Eliot

George

10

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

11

Approach for Urban PPPs

PPPs in urban sector need to be hybrid models

less focus on ‘typology’……more focus on

tailored solutions + results

12

Government

Civic Society

Developers

Continuity of services

Profit motives of private sector

Hand back of assets

Availability of funds for payments to private operator on a continuous basis

Concerns need to be addressed

Fear of

‘privatization’

Increase in tariffs

Service Delivery

Lack of baseline data

Tariff risks

Payment guarantees

Impractical performance standards

Political Will

12

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

13

Thank You

14

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