0
1
PUBLIC PRIVATE PARTNERSHIP
INITIATIVES IN TAMIL NADU
Vikram Kapur, IAS
MD & CEO
TN Urban Infrastructure Financial Servic...
2
BACKGROUND
• TN - most urbanized state in India
• 43% population lives in urban areas
• Rate of growth of urbanization i...
3
PPP – BENEFITS TO GOVT
• Leveraging scarce budgetary resources of Govt
• Ownership of underlying public assets to contin...
4
PPP – BENEFITS TO PRIVATE
PARTNER
• Policy level and statutory support by Govt
• Handholding by Govt to resolve bottlene...
5
SECTORS IDENTIFIED FOR PPP
• Water supply and sewerage
• Road infrastructure (roads, bridges and flyovers)
• Improvement...
6
PPP ORGANIZATIONS FORMED
IN TAMIL NADU
• Tamil Nadu Water Investment Company (TWIC)
– Promoted by GoTN and IL&FS to deve...
7
TIRUPUR WATER & SANITATION
PROJECT
8
Genesis
• Despite international recognition as a major export centre for knitwear,
Tirupur lacks quality infrastructure
...
9
Summary Terms of Concession Agreement
• Concession Model : Build-Own-Operate-Transfer (BOOT)
• Concession Period : 30 ye...
10
Concession Agreement - Investment Matrix
NTADCL
Value Added Franchise
Backbone
Investment
Productivity Investments to
i...
11
Scope
• Water Supply 185 Mld (250 Mld)
• Urban Population 3,46,551 (2001 Census Figure)
• Rural/Semi Urban Population 4...
12
Schematic of Water Supply Scheme
Netaji App. Uthukali Perundurai Kanchikoil
Park (3.9 Mld) Chennimalai (2.7 Mld) 185 Ml...
13
Project Structure
IL&FS
Project Sponsor
GoTN
- Project Sponsor
- Land and Right of Way
- Grant of Concession
Equity Inv...
14
Project Implementation & Monitoring
Structure
• Concessionnaire : NTADCL
• Project Sponsors : TWICL (GOTN and IL&FS)
• ...
15
Components of the Tirupur Project
• EPC1
River Intake Well and Pumping station
Water Treatment Plant & Booster Pumping ...
16
Total Landed Cost and Means of Finance
Rs Crores
• EPC Cost 650
• Owners Cost 127
• Contingency 93
• Interest During Co...
17
Equity Structure
Equity Sub debt
GOTN 30 25
Equity Sub debt
IL&FS 35 15
TWICL
Equity 65 Sub debt 40
Total 105
AIDEC Fun...
18
Allocation of Risks
• Government of
Tamil Nadu
– Political Force
Majeure
– Water Source
– Power
– Permissions
– Change ...
19
Innovative Financial Structuring
• Non recourse financing
• Issuance of a 30 year bond in the US Capital Market:
• Guar...
20
Value of Project to Tirupur
• Industry would collapse without it, and prosper with it
• Project strength: commercial vi...
21
Value of NTADCL to Tirupur
• Facilitate industrial growth
• Effluent Treatment
• Apparel Park
• IIUS
– Exhibition & Con...
22
PPP Strengths and Effectiveness - I
• Robust and Dynamic structure
• Arm’s length from the Govt.
• Government ownership...
23
PPP Strengths and Effectiveness - II
• PPP model domiciles risk to parties that are well equipped to
deal with them
• T...
24
PPP Strengths and Effectiveness – III
• The PPP model is an effective format for implementing infrastructure
projects
•...
25
What This Project Has Established
• As a pioneer project it has established:
– Demand-driven projects are inherently st...
26
Current Status of Project
• Construction commenced October 28, 2002
• Water supply already commenced
• Sewerage compone...
27
TAMIL NADU ROAD
DEVELOPMENT COMPANY
• TNRDC a 50:50 JV between TIDCO & IL&FS which
have contributed Rs.5 crore each as ...
28
TAMIL NADU URBAN
DEVELOPMENT FUND (TNUDF)
• A non-guaranteed fund managed by a private AMC
• Established in November 19...
29
INITIATIVES UNDER TNUDF
• Rs.30 crore mobilized from first Revenue Bond for
Madurai Inner Ring Road
• First toll bridge...
TNUDP III
• Is a follow up project of TNUDP II
• Project launched on 19th October 2005
• Project Size : US $ 434 m
– World...
TNUDP-III
• Loan & Project Agreement - effective on 19th October,
2005
• Project period : 5 years
• Objectives
– Develop T...
COMPONENTS
• Institutional Development component (IDC)
– World Bank : 15 US $ m
– GoTN : 10 US $ m
• Urban Investment comp...
Funding Pattern – Break UpUS $ M
434.00134.00300.00TOTAL PROJECT COST
1.501.50Front End Fee
150.0026.00124.00Grants to CMD...
Pipeline of Projects
• Water supply Project : 11 projects; Sanctioned Loan of
Rs.90 crs and Grant of Rs. 36 crs for 10 pro...
35
TNUDF’s Portfolio in Urban
Infrastructure
TNUDF's Sector Wise Portfolio (Sanctions)
Bus Statio ns and
Markets
4%
Sewera...
36
TNUDF - Innovative Financing
1. Karur Bridge –
Facilitated first toll bridge contracted by an
ULB in India – cost Rs.16...
37
KARUR TOLL BRIDGE
38
Contd…
2. Alandur Underground Drainage – Rs.34 crores
Initial tariff Rs.150 per house per month –
very high
TNUDF organ...
39
ALANDUR UNDERGROUND DRAINAGE
40
Contd…
3. Madurai Bye-Pass
• Included two-lane of 27 Kms, 2 RoBs and 1 high
level bridge.
• Project cost of Rs.44.35 cr...
41
Innovative Financing under TNUDP
MADURAI BYEPASS
MAP
42
Contd…
4. Compost Plant on BOT in Tiruppur -
• Conversion of Municipal Solid Waste into Organic
Manure (50 tpd plant)
•...
43
Innovative Financing (Contd..)
COMPOST PLANT
44
PPP POLICY FRAMEWORK FOR TN
• WB suggested consultancy for preparing policy framework
• GoTN engaged Economic Consultin...
45
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  1. 1. 1 PUBLIC PRIVATE PARTNERSHIP INITIATIVES IN TAMIL NADU Vikram Kapur, IAS MD & CEO TN Urban Infrastructure Financial Services Ltd Chennai
  2. 2. 2 BACKGROUND • TN - most urbanized state in India • 43% population lives in urban areas • Rate of growth of urbanization is 5% • 6 Corporations and 152 Municipalities • Present urban infrastructure not sufficient to provide quality services to the citizens • Urban areas contribute more than 70% of GDP in TN • Organic linkage between economic growth and infrastructure development
  3. 3. 3 PPP – BENEFITS TO GOVT • Leveraging scarce budgetary resources of Govt • Ownership of underlying public assets to continue to vest with Govt • Channelizing innovative and modern management practices from private sector in Project development and structuring Resource mobilization Asset management and preservation • Project up-sides to be shared by Govt, while capping its liabilities • Preferred mechanism for outsourcing operations and maintenance of viable public assets
  4. 4. 4 PPP – BENEFITS TO PRIVATE PARTNER • Policy level and statutory support by Govt • Handholding by Govt to resolve bottlenecks as in land acquisition, R&R, clearances and approvals • Limited financial assistance by Govt for ensuring viability • Govt participation to enhance lender confidence, enabling mobilization of cheaper funds • Continuing policy and O&M support from Govt throughout project concession period
  5. 5. 5 SECTORS IDENTIFIED FOR PPP • Water supply and sewerage • Road infrastructure (roads, bridges and flyovers) • Improvement of urban infrastructure • Port infrastructure • Computer literacy in school education
  6. 6. 6 PPP ORGANIZATIONS FORMED IN TAMIL NADU • Tamil Nadu Water Investment Company (TWIC) – Promoted by GoTN and IL&FS to develop water projects – Established New Tirupur Area Development Corporation Ltd (NTADCL) as SPV for supply of industrial and drinking water under Tirupur Water and Sanitation Project • Tamil Nadu Road Development Company (TNRDC) – JV of TIDCO and IL&FS (50:50) to develop road projects – East Coast Road (ECR) Project • Tamil Nadu Urban Development Fund (TNUDF) – Formed with Fis like ICICI, IL&FS and HDFC – Implementing World Bank assisted TN Urban Development Project • Ennore Port SEZ
  7. 7. 7 TIRUPUR WATER & SANITATION PROJECT
  8. 8. 8 Genesis • Despite international recognition as a major export centre for knitwear, Tirupur lacks quality infrastructure – Domestic water supply is limited to a few hours on alternate days – Industries do not have access to piped supply – Depleted ground water in the region • Investment in infrastructure is critical for a future Tirupur • A comprehensive program (TADP) was formulated to address the infrastructure needs of the town • Lack of budgetary resources prompted local industry to spearhead implementation of TADP on a commercial format • New Tirupur Area Development Corporation Limited (NTADCL) was formed as the company to implement the TADP
  9. 9. 9 Summary Terms of Concession Agreement • Concession Model : Build-Own-Operate-Transfer (BOOT) • Concession Period : 30 years • Concession Grantor : GoTN and Tirupur Municipality • Concessionaire Co. : New Tirupur Area Development • Recovery mechanism : Composite water and sewerage charges • Tariff revision : Annual revision linked to indexation; Unusual increases to be approved by Price Review Committee • Transfer of Water Assets : At the end of the concession period • Base Project Return : 20% pa on 185 Mld project cost • Franchise Protection : Exclusive rights for service
  10. 10. 10 Concession Agreement - Investment Matrix NTADCL Value Added Franchise Backbone Investment Productivity Investments to increase supply by 65 MLD Waste Water Recycling Bottled Water Supply Water Supply Sanitation
  11. 11. 11 Scope • Water Supply 185 Mld (250 Mld) • Urban Population 3,46,551 (2001 Census Figure) • Rural/Semi Urban Population 4,00,266 (2001 Census Figure) • Industry 730 Units • Sanitation Coverage 60% of Households of Tirupur • Low Cost Sanitation for Slums
  12. 12. 12 Schematic of Water Supply Scheme Netaji App. Uthukali Perundurai Kanchikoil Park (3.9 Mld) Chennimalai (2.7 Mld) 185 Mld (1.0 mld) (8.4 Mld) 56 km Steel Pumping Main from WTP to MBR (1400 & 1200 mm dia) Booster Water Intake at PS Treatment Cauvery Plant LEGEND PS Pumping Station FM-I to TM MBR Master Balancing Reservoir (9 DS) FM Feeder Main TM Tirupur Municipality FM-II to FM-III to DS Distribution Station TLPA TLPA TLPA Tirupur Local Planning Area (17 DS) (9 DS) MBR (23 Ml)
  13. 13. 13 Project Structure IL&FS Project Sponsor GoTN - Project Sponsor - Land and Right of Way - Grant of Concession Equity Investors TWICL Contractor Consortium Pvt Equity Funds NTADCL -Execution of the Project - O&M of the Project - Beneficiary of Concession Terms USERS Lenders Consortium led by IDBI and SBI Water Charges EPC CONTRACTOR (WSA,, M&M, L&T, HCC) O&M CONTRACTOR (M&M & United Utilities) Service Concession Agreement
  14. 14. 14 Project Implementation & Monitoring Structure • Concessionnaire : NTADCL • Project Sponsors : TWICL (GOTN and IL&FS) • Construction Contractors – Advance Engineering : Bechtel Enterprises, USA – EPC 1 Contractors : Hindustan Construction Co. Ltd. – EPC 2 Contractors : Mahindra & Mahindra and Larsen & Toubro Ltd • Operation & Maintenance: United Utilities, U.K and Mahindra & Mahindra • Project Managers : Wilbur Smith Associates, USA • Lenders Engineer : Pell Frischmann Water, U.K. • Owners Engineer : GKW Consult, Germany and CES, New Delhi • Independent Auditor : SB Billimoria, Chartered Accountants
  15. 15. 15 Components of the Tirupur Project • EPC1 River Intake Well and Pumping station Water Treatment Plant & Booster Pumping Station Transmission Main – 56 kms Master Balancing Reservoir ( 23 Mn Ltrs) • EPC 2 Feeder Mains 1, 2 and 3 – 93 kms Water Distribution Stations – 36 Nos. Distribution Network – 219 kms Distribution Network to Wayside Villages Sewerage System – 124 kms Low Cost Sanitation
  16. 16. 16 Total Landed Cost and Means of Finance Rs Crores • EPC Cost 650 • Owners Cost 127 • Contingency 93 • Interest During Construction 142 • Initial Working Capital 11 Total 1023 • The project cost of Rs 1023 cr is proposed to be financed through a debt : equity ratio of 1.5 : 1 Equity 322.70 Subordinate Debt 86.50 Debt 613.80
  17. 17. 17 Equity Structure Equity Sub debt GOTN 30 25 Equity Sub debt IL&FS 35 15 TWICL Equity 65 Sub debt 40 Total 105 AIDEC Fund 90 LIC 20 GIC 15 Contractors 45 Tirupur 10 Others 37.7 Industry NTADCL TWICL 105 Others 217.7 TOTAL 322.7
  18. 18. 18 Allocation of Risks • Government of Tamil Nadu – Political Force Majeure – Water Source – Power – Permissions – Change in tax / law • NTADCL – Commercial – Construction – Operations – Insurable Force Majeure
  19. 19. 19 Innovative Financial Structuring • Non recourse financing • Issuance of a 30 year bond in the US Capital Market: • Guarantee under the FIRE program • Support of USAID in timing of issuance enhanced credibility of the Project • • Fund for DSR using a contingent recourse structure • Project financing with capped contingent liabilities on GoTN • Risk Participation Agreements • Sharing of upsides with consumers in the form of price relief • Formulation of risk allocation matrix to allow for re-pricing
  20. 20. 20 Value of Project to Tirupur • Industry would collapse without it, and prosper with it • Project strength: commercial viability and Social dimensions • Pro-poor image • Social Benefits - Health • Environment
  21. 21. 21 Value of NTADCL to Tirupur • Facilitate industrial growth • Effluent Treatment • Apparel Park • IIUS – Exhibition & Convention Center – Working Women’s Hostels – R & D Center – Roads – Traffic De-congestion • Social Forestry – Avenue & Schools • Recreation Parks • Social Study
  22. 22. 22 PPP Strengths and Effectiveness - I • Robust and Dynamic structure • Arm’s length from the Govt. • Government ownership high • Governance structure ensures : – Allaying of private sector concerns – Social issues are addressed comprehensively – consumer interests are safeguarded • Commercial interest protected
  23. 23. 23 PPP Strengths and Effectiveness - II • PPP model domiciles risk to parties that are well equipped to deal with them • Transparent and well-conceived contracts • Documentation recognizes rights and responsibilities of all project related parties • Concerns of all stakeholders addressed • Examples of contracts : – Concession Agreement – Bulk Water Supply Agreement – Shareholders’ Agreement – Common Loan Agreement – EPC and O&M Contracts
  24. 24. 24 PPP Strengths and Effectiveness – III • The PPP model is an effective format for implementing infrastructure projects • But it has its own challenges which need to be recognized • PPP format involves the participation of a large number of Institutions: – Government, Politicians, Banks, Financial Institutions, Investors, Contractors, Consumers, NGO’s, etc. – Each of these entities recognize the benefits of the project. • But as the project develops, they exert pulls and pressures to enhance and further their own narrow institutional interests • The project development exercise requires addressing each of these issues without losing the integrity of the project concept
  25. 25. 25 What This Project Has Established • As a pioneer project it has established: – Demand-driven projects are inherently strong. – Commercial formatting of projects is possible – Private participation in the sector is viable – Returns can be commensurate with risks – Willingness to pay for efficient services – Internal cross subsidy to reach the poor – Healthy precedent to ease learning curves
  26. 26. 26 Current Status of Project • Construction commenced October 28, 2002 • Water supply already commenced • Sewerage component to be completed shortly
  27. 27. 27 TAMIL NADU ROAD DEVELOPMENT COMPANY • TNRDC a 50:50 JV between TIDCO & IL&FS which have contributed Rs.5 crore each as share capital • East Coast Road (ECR) project – Initial improvement works (Rs.61 crore) and maintenance during Concession Period of 30 years – Recovery of initial investment, O&M and returns (capped at 20%) by levy of nominal tolls; surpluses to be reinvested in road sector – Project funding • Equity: Rs.10 crore • Sub Debt: Rs.10 crore • Senior Non Convertible Debenture: Rs.41 crore
  28. 28. 28 TAMIL NADU URBAN DEVELOPMENT FUND (TNUDF) • A non-guaranteed fund managed by a private AMC • Established in November 1996 as a Trust • GoTN (Rs.143 cr), ICICI (23 cr), HDFC (Rs.17 cr), IL&FS (Rs.17 cr) • Policies and procedures by TNUITCL (FIs – 51% & GoTN – 49%) • Managed by TNUIFSL (FIs – 51% & GoTN – 49%) • Private Public Partnership arrangement to channelize private capital in municipal infrastructure • Object is to raise resources and to provide long term finance to ULBs • Resources - Unit Capital and Line of Credit by IBRD through GoTN • Flow of funds – World Bank to GoI by Project’s Special A/c – GoI to GoTN - pass through arrangement – GoTN to TNUDF / CMA / Grant Fund – TNUDF / Grant Fund to ULB
  29. 29. 29 INITIATIVES UNDER TNUDF • Rs.30 crore mobilized from first Revenue Bond for Madurai Inner Ring Road • First toll bridge on BOT model costing Rs.15 crore (Karur) • First sewerage treatment plant (STP) on BOT model costing Rs.6.63 crore (Alandur municipality) • Rs.110 crore mobilized from domestic capital market for municipal infrastructure • Rs.51 crore mobilized by way of equity participation • Rs.30 crore mobilized through pooled finance on lines of US Bond Bank model (Water & Sanitation Pooled Fund)
  30. 30. TNUDP III • Is a follow up project of TNUDP II • Project launched on 19th October 2005 • Project Size : US $ 434 m – World Bank : US $ 300 m – GoTN : US $ 84 m – Others : US $ 50 m GoTN • IDC to CMA : US $ 10 m • Capital Grants to ULB : US $ 48 m • Grants to CMA : US $ 26 m Others • ULB : US $ 10 m • Market Borrowing by TNUDF : US $ 40 m
  31. 31. TNUDP-III • Loan & Project Agreement - effective on 19th October, 2005 • Project period : 5 years • Objectives – Develop TNUDF as a financial intermediary to provide finance for infrastructure in ULBs on a sustainable basis – Strength urban reforms and consolidate the achievements under TNUDP II – Institutional strengthening and capacity building – Provide grant to CMDA for traffic and transportation.
  32. 32. COMPONENTS • Institutional Development component (IDC) – World Bank : 15 US $ m – GoTN : 10 US $ m • Urban Investment component (UIC) – World Bank : 146.5 US $ m (Loan 110, Grant 46.50, PDA 3) – GoTN : 48 US $ m • Grant to CMDA – World Bank : 124 US $ m – GoTN : 26 US $ m
  33. 33. Funding Pattern – Break UpUS $ M 434.00134.00300.00TOTAL PROJECT COST 1.501.50Front End Fee 150.0026.00124.00Grants to CMDA - by TNUIFSL 257.5098.00159.50Total 3.003.00Project Development Advisory 94.5048.0046.50Capital grants to ULBs 160.0050.00110.00Loans to ULBs UIC - by TNUDF 25.0010.0015.00IDC - by CMA Total CostGoTN Finance Bank Finance Component
  34. 34. Pipeline of Projects • Water supply Project : 11 projects; Sanctioned Loan of Rs.90 crs and Grant of Rs. 36 crs for 10 projects. • UGD Projects : 16 projects: Sanctioned Loan of Rs.272 crs and Grant of Rs. 80 crs for 11 projects. • Road and SWM Projects: Sanctioned Loan of Rs.75 crs and grant of Rs 33 crs sanctioned. • Total - Loan of Rs. 437 crs, and grant of Rs.149 crores sanction (Rs. 586 crs). • Amount disbursed : Rs.14.90 crs
  35. 35. 35 TNUDF’s Portfolio in Urban Infrastructure TNUDF's Sector Wise Portfolio (Sanctions) Bus Statio ns and Markets 4% Sewerage &Sanitatio n 38% Water Supply 17% Stro m Water Drains 1% Others 1% Bridges and Ro ads 39% Bridges and Ro ads Bus Statio ns and Markets Sewerage &Sanitatio n Water Supply Stro m Water Drains Others
  36. 36. 36 TNUDF - Innovative Financing 1. Karur Bridge – Facilitated first toll bridge contracted by an ULB in India – cost Rs.16 crores Predictable cash flow TN State Toll Act amended to facilitate ULB to enter into BoT contract – stable regulatory framework
  37. 37. 37 KARUR TOLL BRIDGE
  38. 38. 38 Contd… 2. Alandur Underground Drainage – Rs.34 crores Initial tariff Rs.150 per house per month – very high TNUDF organised people’s participation @ Rs.5000 per household and generated Rs.14 crores STP on BOT arrangement With this, tariff rates reduced to Rs.75 per household per month.
  39. 39. 39 ALANDUR UNDERGROUND DRAINAGE
  40. 40. 40 Contd… 3. Madurai Bye-Pass • Included two-lane of 27 Kms, 2 RoBs and 1 high level bridge. • Project cost of Rs.44.35 crores funded @ 15.50% interest rate (Rs.30 crores loan, 14 crores grant) • The vehicles toll collection efficiency within 31/2 years found to be 54 % Based on toll tax collection efficiency, TNUDF facilitated first revenue bond in the country. Cost saving of 3% on interest rate.
  41. 41. 41 Innovative Financing under TNUDP MADURAI BYEPASS MAP
  42. 42. 42 Contd… 4. Compost Plant on BOT in Tiruppur - • Conversion of Municipal Solid Waste into Organic Manure (50 tpd plant) • Supply or Pay contract between ULB and Private Sector operator at Rs.3.50 pt + lease rentals • Pressure / Incentive for the ULB to keep the streets clean.
  43. 43. 43 Innovative Financing (Contd..) COMPOST PLANT
  44. 44. 44 PPP POLICY FRAMEWORK FOR TN • WB suggested consultancy for preparing policy framework • GoTN engaged Economic Consulting Associates, IL&FS and J.Sagar Associates • Key issues identified by consultants: – Is cross sectoral law required? – Is cross sectoral agency required? – Provide financial support to PPPs? – What project development modes? – How to manage unsolicited bids? – How to manage contracts? – How to resolve disputes? – Role of independent regulation?
  45. 45. 45
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