PROJECTS

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PROJECTS

Urban Infrastructure Financing

Urban Forum ADB November 17, 2011

Pradeep Singh IDFC Projects, India

PRIVATE & CONFIDENTIAL

Urban Infrastructure: Agenda

Array of Financing Options State Subsidies & Grants as a Source of Financing Rationale Strategies for Efficient, Effective & Sustainable Deployment

PROJECTS

Jawahar Lal Nehru National Urban Renewal Mission in India

OBJECTIVE: ASSETS & MAINTENANCE FUNDING SOURCES INTERVENTIONS

Urban Infrastructure Financing & Development Options

Assets Maintenance

PROJECTS

Projects

Transfer Grants

Internal Generation

Capital Markets

PPP
Private Sector Capital Govt. Viability Gap Funding

Govt. Budget

Taxes Non Tax User Fees

Loans Bonds

CAPACITY REQUIREMENTS

Accounting, Tax & Operational Reforms, Rating, Project Development & Planning, Tariff Reforms, Investment Banking

Why State Subsidies & Grants? (1/2)

PROJECTS

To ensure equitable access To meet essential needs of all citizens at affordable rates in spite of inability of some to pay full cost e.g. All citizens deserve clean drinking water but some may not have the financial strength to bear the full cost. Hence state grants In the interest of positive externalities Projects provide important benefits to society at large and not just to paying users. It may also not be practically possible to charge the users for the service e.g. Good transport infrastructure has a huge multiplier effect on economic growth of the city. Benefits extend far beyond the users
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Why State Subsidies & Grants? (2/2)

PROJECTS

Due to insufficient revenue mobilization capacity of ULBs Low levels of decentralization and devolution of financial powers to urban local bodies Lack of technical and managerial capacities to mobilize financial resources To meet shortfall in revenues from User Fees History of low tariffs for water etc. Perceived political problems in increasing tariffs Resultant low revenue realization creates need for State Grant & Subsidies e.g. In India, consumers are charged a nominal amount for drinking water which is usually lower than even the O&M 6 costs

How To Make State Grants Effective (1/3)

State Grants Should Not Be Just Be Expended For Creation Of Brick & Mortar Assets

PROJECTS

Essential ingredients of a successful program of State Grants Private capital mobilization & Public Private Partnerships State Grants as viability gap funding to crowd in private sector funding and management e.g. Higher feed in tariffs for private participation in Municipal Solid Waste based power plants Focus on O&M and lifecycle costs State Grants to require Urban Local Bodies to integrate Construction and long term Operations and Maintenance to optimize lifecycle costs and efficiencies e.g.Water/Sewage Treatment Plants that integrate construction 7 with maintenance of the plants

How To Make State Grants Effective (2/3)

Introduction of Reforms State Grants to create incentives for reforms in urban local bodies with respect to stamp duties, accounting, tariffs, operations etc

PROJECTS

Introduction of cost recovery culture State Grants to enhance quality & quantity of services leading to willingness to pay by consumers e.g. A State funded management contract for water services followed by improved service, tariff enhancement and then a privately funded expansion of distribution system
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How To Make State Grants Effective (3/3)

PROJECTS

Introduce competition for Grant / Subsidy Ideally, the distribution of State Grants & Subsidies should be subjected to competition e.g. amount of Viability Gap Funding for a urban transport project to provide local bus services can be a bid parameter in a competitive process to select a private sector service provider

JnNURM (1/3)

PROJECTS

Jawaharlal Nehru National Urban Renewal Mission of India A Government of India Program to fund Urban Local Bodies for development of Urban Infrastructure and Governance Basic services to urban poor Mission launched in 2005-06 for a period of 7 years 63 cities identified most with population exceeding 1 million Mission imposes Reform Obligations on ULBs seeking funding Reforms include: Adoption of modern accrual based accounting Introduction of e-Governance system Reforms of property tax making it important source of revenue for ULBs
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JnNURM (2/3)

PROJECTS

Many ULBs have put JnNURM to good use for delivering urban infrastructure City Transport Services Solid Waste Management project Green Energy generation from Sewrage Automated Parking System
Biogas powered sewage treatment plant Rainwater harvesting initiative

Indore Vadodara Surat

Bangalore Jaipur Kulgaon

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JnNURM (3/3)

PROJECTS

Success of JnNURM Utilisation of funds by ULBs for delivering urban infrastructure Reforms process initiated by ULBs with varying progress Shortfalls of JnNURM Insufficient leveraging by ULBs in PPP projects Low progress in developing tariff culture Insufficient progress in integrating capital assets creation with O&M Grants not subjected to competitive processes
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PROJECTS

THANK YOU

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