March 2013
Infrastructure Development Corporation (Karnataka) Limited
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• 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

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

• 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

SWM Activities covered in PPP
Integrated Municipal Solid
Waste Management
Types of PPP Average Tenure of the Project
BOOT , DBOOT,
BOT
BOOT
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 20 years
DBOOT, BOT 20 / 25 years
BOO 20 -35 years
DBOOT, BOOT 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
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• 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

• 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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• 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

• 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

• 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
10

• 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

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

• 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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