Report 3 PDF
Report 3 PDF
Report 3 PDF
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Acknowledgement
This study was made possible by the funding and support from Small Industries Development
Bank of India (SIDBI) and IL&FS Clusters would like to thank SIDBI and all the officials’ thereof
who were involved in this study. We appreciate the valuable feedback received from SIDBI during
the reviews which has been duly incorporated and has helped shape this report
IL&FS Clusters also extends its gratitude to all the stakeholders such as banks, SPVs members,
and promoters with whom IL&FS Clusters have been working for several years thereby gaining
valuable experience and knowledge which have been used in preparing this report. We are also
thankful to the policy makers at the various Ministries with whom IL&FS Clusters has had the
opportunity to work in the past and continues to work.
Finally, the study team is thankful to all the colleagues at IL&FS Clusters who have over the years
worked on such common infrastructure projects for different sectors and hence were able to
contribute with their understanding. The sagacity of such experiences has proven to be invaluable
in shaping this study and incorporating the recommendations.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Abbreviations
Abbreviations
AC Approval Committee
AMC Ahmedabad Municipal Corporation
AYUSH Ayurveda, Yoga and Naturopathy, Unani, Siddha & Homeopathy
BDS Business Development Service
BOT Build-Operate-Transfer
CA Controlled Atmosphere
CAGR Compound Annual Growth Rate
CC Collection Center
CDP Cluster Development Programme
CDSF Common Debt Service Fund
CFC Common Facility Center
CGS Credit Guarantee Scheme
CGTMSE Credit Guarantee Fund Trust for Micro and Small Enterprises
CHCDS Comprehensive Handicrafts Cluster Development Scheme
CIPS Critical Infrastructure Upgradation Scheme
CLU Change in Land Use
CPC Central Processing Centre
DC Department Commissioner
DIPP Department of Industrial Policy & Promotion
DPR Detailed Project Report
DSRA Debt Service Reserve Account
EDM Electronics Systems Design & Manufacturing
EMC Electronic Manufacturing Cluster
EoI Expression of Interest
ETP Effluent Treatment Plant
FDI Foreign Direct Investment
FI Financial Institution
FPO Farmer Producer Organization
FY Financial Year
FYP Five Year Plan
GFR General Financial Rules
GIDC Gujarat Industrial Development Corporation
GMP Good Manufacturing Practices
GoI Government of India
IA Implementing Agency
IDC Interest During Construction
IICD Indian Institute of Crafts & Design
IID Integrated Infrastructural Development
IIFCL India Infrastructure Finance Company Ltd
IIUS Industrial Infrastructure Upgradation Scheme
IPR Intellectual Property Rights
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Contents
Abbreviations .......................................................................................................................................... 3
Executive Summary................................................................................................................................ 7
Chapter-1: Introduction .................................................................................................................... 7
Chapter-2: Methodology adopted for the study................................................................ 12
Chapter-3: Significance of MSMEs in Indian Economy ..................................................... 14
Chapter-4: Major Focus Schemes Analyzed in the Study ............................................... 24
Chapter-5: Implementation Status of the Major Schemes Covered Under the
Study .......................................................................................................................................................... 51
Chapter-6: Demand Assessment for Common Industrial
Infrastructure/facilities for MSMEs..................................................................................... 84
Chapter-7: Public Private Partnerships in India ................................................................ 107
Chapter-8: Existing Legal and Regulatory Framework for PPP Projects......... 114
Chapter-9: Legal and Regulatory Framework for Common Industrial
Infrastructure Projects.............................................................................................................. 122
Chapter-10: Special Purpose Vehicles for Common Industrial Infrastructure/
Facilities for MSMEs....................................................................................................................... 135
Chapter-11: Challenges Faced by Lending Institutions in Financing of Common
Industrial Infrastructure Projects for MSMEs ............................................................. 147
Chapter-12: Recommendations .................................................................................................. 172
Annexure-1 ............................................................................................................................................ 185
Annexure-2 ............................................................................................................................................ 186
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Executive Summary
Background and Approach
There is enough evidence to suggest that various schemes/programmes being implemented for
promotion of common industrial infrastructure projects for MSMEs in our country have not met
expectations of the policymakers. Insufficient progress of these projects has had an adverse impact
on industrial development of the country, as common infrastructure facilities are considered to be
critical in making MSMEs more efficient and competitive. The present SIDBI Report is an
attempt to develop a deeper understanding of such schemes and to gain insights into envisaged
financing models and institutional structures, especially from the perspective of lending
institutions, so as to come out with solutions to identified challenges.
Most of these schemes promoting common infrastructure projects are being implemented in the
spirit of Public-Private Partnership (PPP) and provide for grant-in-aid, for part financing of
infrastructure cost, even as ownership/management of these infrastructure facilities are vested with
groups of MSME entrepreneurs who are required to meet remaining cost of such infrastructure
projects through debt and equity. Typically, the beneficiary enterprises are required to from a
separate legal entity, as a Special Purpose Vehicle (SPV), with specific objective of
implementation/management of projects being assisted by the government agencies, either in PPP
format or even under private ownership. These projects are eligible to receive capital grant
assistance from sponsoring government agency, based on defined eligibility parameters and release
milestones.
Shift in Approach
The 10th and 11th Five Year Plans marked a significant shift in the approach to development of
these common industrial infrastructure/facilities. Both the nature and scale of these schemes got a
huge boost, with the launch of the Scheme for Integrated Textile Parks (SITP) during 10th Plan
and Mega Food Parks Scheme (MFPS) during 11th Plan. Although programmes such as
Industrial Infrastructure Upgradation Scheme (IIUS) and Micro and Small Enterprises–Cluster
Development Programme (MSE-CDP) were being implemented even before that, but arguably,
SITP and later MFPS marked an approach which gave much more ownership, management and
operational flexibility to the private sector.
Earlier initiatives such as IIUS and MSE-CDP adhered largely to the accepted PPP structure, with
ownership and control of assets remaining with the government agencies, even as operation and
management of these projects were entrusted with the beneficiary enterprises. SITP, aimed at
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
setting up green-field industrial parks for textile sector, made a significant departure from this
approach, and provided complete ownership and control over assets to SPV, constituting of private
sector entrepreneurs setting up units in the Park.
A similar approach was taken under MFPS, which went one step further, and allowed equity
holding, in SPV, to even those who might not set up a unit in the Mega Food Park. Moreover,
schemes such as SITP and MFPS provided for a more comprehensive funding of project
components. Under SITP, project components such as factory sheds, inter-alia, owned by SPV but
leased to individual entrepreneurs, became eligible for grant assistance and in case of MFPS,
entire civil work and plant and machinery for core processing facilities and basic enabling
infrastructure are eligible for grant funding. It is to be noted that under SITP and MFPS, the
beneficiaries need not be confined to MSMEs and even large units can be part of assisted projects.
However, there has been a rethink recently by the policymakers over implementation model for
these schemes, recognising the challenges of the SPV model. Under IIUS, revised in 2013, there is
a complete turn about in implementation approach, and projects are now to be implemented by a
state government agency instead of earlier envisaged SPV, promoted by private sector
entrepreneurs. The revised IIUS guidelines cite “serious practical difficulties” of PPP model, as the
reason for this change in implementation model.
The revised MFPS, for setting up industrial parks for food processing sector in “Hub and Spoke”
model, has also provided for state government agencies to set up these projects without going
through the SPV route, though the latter model is still expected to be the primary implementation
mechanism for these projects.
Financing Models
The financing norms and models of common industrial infrastructure and facilities have gone
under significant changes over the years even as such norms also depend largely on the industrial
sector concerned. While the amount of financial assistance available for creation of common
industrial infrastructure/facilities varies across various schemes, most of the programmes assisting
these projects envisage lending by banks and financial institutions to achieve financial closure. In
fact, many of such schemes and programmes make bank lending mandatory to ensure that projects
are not only appraised carefully but also project implementation and utilisation of funds are
monitored by concerned banks/financial institutions. On the other hand, the banks/financial
institutions find it challenging to provide loan to such projects, in absence of a defined promoter
and often diffused management and operational responsibilities. It has also been found that lack of
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
cohesion amongst equity holders of these SPVs often leads to delays in project implementation and
even may bring projects to a standstill. The low capacity utilisation and difficulties in recovery of
envisaged user charges are also challenges of common industrial infrastructure/facilities, which
deter many banks and financial institutions.
In view of these associated challenges, the schemes and programmes funding these projects often
provide requisite safeguards for lending institutions, in form of TRA framework, escrow account
and also confer rights on them to secure their credit against assets being financed. Such provisions
have enabled lending institutions to come forward and actively assist these common infrastructure
projects, in spite of above mentioned challenges.
During the course of the study, the schemes and programmes funding such common industrial
infrastructure projects were studied in details in terms of the various institutional structures &
implementation models and constraints in accessing finance for these projects were identified. The
study also documented the challenges faced and lesson learnt during implementation of such
projects. A risk assessment framework for appraisal of common industrial infrastructure projects
has also been developed based on the financing challenges faced by the banks/ FIs.
Key Recommendations
Based on the challenges faced recommendations have been made in the report in two categories:
predictability in the selection process in terms of number of the projects to be supported and the
timeline of the selection process (f) Simplification of terms and conditions for the selection and
implementation of the projects (g) Encouraging the SPVs to adopt a transparent and an
unambiguous pricing mechanism that would make the project viable and also ensure that the
assistance received from the Ministries are also passed on to the units coming up in the parks (h)
Revision of PPP model and reconsideration of the roles and responsibilities of key stakeholders by
increasing the involvement of state agencies by giving them the ownership and implementation
responsibility of the projects (i) Ensuring active involvement of banks in designing, revising and
launching of schemes and programs to support industrial infrastructure projects (j) Considering the
Industrial Parks as ‘Infrastructure Lending’ projects as RBI provides a differential treatment to a
credit facility categorized as “Infrastructure Lending”
Recommendations for Banks/ Financial Institutions have been made to increase bankability and
financing of common industrial infrastructure projects. Some of the key recommendations made in
this category include (a) Increasing the knowledge and understanding of different schemes for
common industrial infrastructure (b) Improving the quality of appraisal of projects by the banks by
developing certain standards for appraisal of such infrastructure development projects and creating
PPP cells which would deal with large common infrastructure development projects (c) Serious
appraisal and strict due diligence of SPV structure and ownership especially related to the clarity
of roles & responsibilities and management structure of the SPV (d) Clear understanding and
assessment of different types of statutory approvals and clearances during appraisal of projects by
the banks/ FIs (e) Developing innovative options in creation of security to increase the bankability
of the projects (f) Developing different project structuring options and innovative loan products for
improving bankability and risk mitigation
Chapter-
Chapter-1: Introduction
The National Manufacturing Policy (NMP), launched with a vision to increase the share of
manufacturing in GDP from 16 percent to 25 percent, has acknowledged the advantages of
clustering though also noted that full benefits of agglomeration/ clustering are yet to be realized.
Government agencies have been implementing schemes/programmes for promoting common
industrial infrastructure/facilities with a twin approach. On the one hand, there are schemes
promoting both creation of such facilities in the existing industrial clusters and also on the other
there are also schemes encouraging setting up of new industrial parks and zones, often dedicated to
one industrial sector. The primary objectives of such schemes are to enhance international
competitiveness of the domestic industry by providing quality infrastructure through public-private
partnership in select functional industrial clusters or locations which have great potential to
become globally competitive. The strategy is to provide critical physical infrastructure in clusters
or industrial locations in terms of physical infrastructure (i.e., transport, roads, water, common
captive power generating units etc), information and communication technology infrastructure,
Research & Development infrastructure, common facilities centre, international marketing
infrastructure and any other physical infrastructure required and identified by the clusters to
become globally competitive. It has also been accepted by government agencies that creation of
any common infrastructure/facilities for MSMEs needs active involvement of beneficiary
enterprises, to be truly effective. A major highlight of such schemes is that they are public-private
partnership initiatives, which recognises the role of private sector participation in infrastructure
development based on local need, so that the entire effort is user-driven with the support of the
government. However in spite of Government grants being made available for common
infrastructure, MSMEs face serious challenges in mobilizing the industry contribution because of
their inherent limitations at individual unit level, and the fact that individual units have to raise
resources from their individual balance sheets, which puts additional burden on them. Hence there
is a critical need for adequate support from banks and financial institutions for such cluster
infrastructure projects. The role of SIDBI becomes significant here not only as a financial
institution but also as the apex agency for promotion and development of MSMEs in the country. It
is with this understanding that this report has been prepared to understand the financing challenges
of such common infrastructure projects and to recommend possible ways of overcoming such
challenges.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-2: Methodology adopted for the study
The objective of the study is to identify financing challenges for common industrial infrastructure
for MSMEs in India. There is a thrust by the Government of India on carrying out the
implementation of such industrial infrastructure in a public –private- partnership mode. Thus to
achieve the said objective, a detailed study of the schemes currently being implemented by the
different Ministries and analysis of its effectiveness were carried out. On this basis, a set of
recommendations have been proposed for improving the schemes in terms of easing financing
hurdles. The above two activities were carried out in the following phases:
Phase I: In this phase, the ten major schemes to be analysed for this study were shortlisted. After
having shortlisted these schemes, their implementation status along with their demand were
analysed. The shortlisted schemes are as follows:
Scheme for Integrated Textile Parks
Mega Food Parks Scheme
Industrial Infrastructure Upgradation Scheme
Micro and Small Enterprises–Cluster Development Programme
Scheme for Development of AYUSH Clusters
Comprehensive Handicrafts Cluster Development Scheme
Scheme for Cold Chain, Value Addition and Preservation Infrastructure
Mega Leather Cluster Scheme
Electronic Manufacturing Clusters Scheme
Scheme for Setting up Plastic Parks
As the major focus of this report is to understand the adaptability of PPP models with such
schemes, the design of these schemes were compared against the standard PPP models.
Phase II: In this phase, the legal and regulatory framework of general PPP projects was analysed.
The analysis was limited to the factors directly related with the implementation of the identified
schemes
Phase III: In the final phase, the study concentrated in understanding the Special Purpose Vehicle
(SPV) model. The associated risks and challenges with this model were analysed and understood.
The risks and challenges were categorised in terms of design, financial and operational aspects. In
this phase, the study examined in detail the envisaged financial structuring under the said
schemes/projects including identification of revenue streams and utilization thereof, loan
covenants, debt service comforts like reserve accounts, escrow & TRA framework etc. Based on
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
this, finally the recommendations were made to increase the bankability and financing of the
common industrial infrastructure projects for MSMEs.
Over the years, IL&FS Clusters have conducted numerous evaluation and feasibility studies for
common infrastructure related projects, vision documents and working group reports. IL&FS
Clusters has been a pioneer in this field who had promoted the idea of public private partnership
based common industrial infrastructures since 2005 and has been the Program Management
Agency for several major schemes since then. This study has delved into the repository of all such
experiences of IL&FS Clusters and extracted information that has been incorporated at various
stages of the report. Overall, the analysis was largely based on IL&FS Clusters’ experiential
learning over the years which were documented in various public and private sources. To analyse
the current status of these projects, inter team discussions and brain storming session were carried
out within the IL&FS Clusters division. In-depth secondary research was undertaken from various
sources like Ministry websites, Working Group Reports for relevant Ministries and Policy Papers
thereof. The insight gained from the continuous process of interaction with different Ministries,
various promoters/ members of the SPVs and banking officials have also been utilized in the
preparation of the report.
Chapter-
Chapter-3: Significance of MSMEs in Indian
Economy
With a total number of 448 lakh units and employing more than 100 million people,1 the MSME
sector is an important segment of Indian economy. The sector has a share of about 40% in
manufacturing output and 45% in total exports of the country, and therefore contributes
significantly to economic development as well as social development. MSME is the biggest
employment provider in the country after agricultural sector. It also comprises the largest share
(90%) of the total industrial units of the country. According to Ministry of Micro, Small &
Medium Enterprises, Government of India (MMSME) the number of MSME units (both registered
and unregistered) grew at a CAGR of 4.5% during FY 2007-11. Investments by MSMEs have
increased by 11.5 % during the same period. Employment generation capacity of this sector has
increased recording a CAGR of 5.3% since FY 2007 signifying the increasing labour intensive
nature of the sector. Further, nearly 50% of MSMEs2 are owned by disadvantaged groups of
society which indicates the inclusiveness of this sector. Despite facing intense competition since
year 1991 due to liberalization policies of India, this sector has survived and thrived well,
reflecting the capability to compete in International markets. The potential of this sector to grow
further and play more vibrant role in the country has also been well established and recognized by
policy makers
200
0
As per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, micro, small &
medium enterprises are defined as per the investment in plant & machinery (in case of
manufacturing industries) or on equipments (in case of service enterprises). The scope & coverage
1
Annual report 2012-13, Ministry of Micro Small, Medium Enterprises, GoI
2
Report of The Working Group on MSMEs Growth for 12th FYP-Ministry of Micro, Small & Medium Enterprises,
GoI
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
was broadened significantly under MSMED Act, 2006, which recognised the concept of
‘enterprise’ & to include both manufacturing & services sector, besides defining the medium
sector. The present classification of these sectors, in terms of investment in plant & machinery, has
been presented in table given below:
MSMEs are considered as drivers of economic growth and equitable development globally. Its
inherent nature of being less capital intensive and more labour intensive at the same time gives an
edge to the industry. MSMEs are becoming more agile and dynamic which, in turn, promoting
innovations and adaptability to the industry to survive and thrive in recent economic downturn and
recession
The importance of MSMEs is well established in developing countries like India having large rural
and semi-rural populations with major dependence on agriculture and high unemployment. In such
an environment, further promotion of MSMEs can lead to significant employment generation,
economic development and equitable prosperity
In India, this sector is highly diverse in terms of size of businesses, sectors, goods and services
offered and other parameters. The graphs given below show their break up on various parameters3:
Proprietory
Partnership Urban
44.66
Pvt. Company 55.34 Rural
Cooperative
Others
94.41 Not recorded
3
Annual report 2012-13, Ministry of Micro Small, Medium Enterprises, GoI
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
As per the data of MMSME, a large majority (about 94%) of enterprises in the MSME sector in
India are proprietary concerns. About 1.18% of the enterprises are partnership firms and only
0.14% of them are private companies. Also, rural area accounts for about 55% of the total working
enterprises in MSME sector with 200.19 lakh of working enterprises whereas urban area has about
161.57 lakh working enterprises (i.e. about 45% of the working enterprises)
Percentage Distribution by
Social Category (in %)
0.9
7.83 SC
5.76
ST
43.56
OBC
Others
41.94
Not recorded
In term of ownership of enterprises by different social categories, about 50% of MSME enterprises
are owned by disadvantaged groups (7.83% by Scheduled Caste entrepreneurs, 5.76% by
Scheduled Tribe entrepreneurs and 41.94% by entrepreneurs of Other Backward Classes). This
shows a certain amount of inclusiveness in the MSME sector and also indicates further potential of
the sector in social development
Output generated across key
sectors In the organized sectors, food & beverages is the
Leather 11
largest MSME sector in terms of both output (USD
Apparel 27 180 bn) and employment generation (USD 3.1 mn)
USD Billion
Textiles 79 followed by textiles. The other major sectors which
Food & Beverages 180 have significant contributions are apparel and leather
a growth rate of more than 10% every year till 2010-11, whereas in year 2011-12 growth rate was
19% which is approximately twice of the growth rate recorded for previous years. Following graph
depicts the growth pattern of the MSMEs (registered) in India over the last five years:
2010-1 to
2011-2 19.06
2009-10 to
2010-1 10.93
2008-9 to
2009-10 10.78
2007-8 to
2008-9 10.76
In spite of the healthy growth rate, the MSME sector has the potential of even higher growth which
is limited by various challenges and barriers. Stringent competition from global counterparts,
change in manufacturing strategies, technological shifts and highly volatile market scenario are
some of the challenges currently faced by this industry. Moreover, the MSMEs also face several
common issues such as lack of modern technology and support infrastructure, skills and quality,
access to market and capital, etc., which they, due to their small scale and lack of capital, many
times are unable to address leading to reduced competitiveness
Usually the common facilities comprise of costly, state-of-the-art hi-tech equipment, which is very
essential to meet modern processes, quality requirements and also achieving scale of operations.
Individually, MSMEs cannot afford such facilities and moreover their individual utilization would
not meet the optimum scale required for economical operations of these facilities. Such common
facilities include testing centres/ laboratories, training centres, raw material and finish products
warehouses/ cold storages, effluent and sewage treatment, complementing production processes,
packaging facilities, etc
Several industry associations in existing clusters and industrial estates promote common
infrastructure/ facility projects to provide infrastructure specifically for MSMEs. Such projects
may be either up-gradation of infrastructure in existing clusters and industrial estates, or setting up
of Greenfield clusters, i.e. industrial parks. The greenfield clusters provide opportunity for MSMEs
to move into better working environments with access to quality infrastructure and facilities. Due
to constraints of space and high costs of real estate, expansion by MSMEs is not feasible, and
therefore greenfield industrial parks provide an
opportunity to realize twin objectives of growth
Some of the major challenges
and better infrastructure. It is for this reason that faced by MSMEs in India are:
several Government departments and ministries
• Absence of adequate and timely
have schemes for promotion of infrastructure for banking finance
their specific sectors • Limited capital and knowledge,
non-availability of suitable
Such common infrastructure and common facilities technology
• Low production capacity
are normally owned by industry promoted Special
• High cost of credit
Purpose Vehicles (SPVs) which receive grants • Ineffective marketing strategy
from Government to part finance the projects • Lack of skilled man power for
manufacturing, services,
From Governments’ point of view, such projects marketing etc
• Lack of access to global markets
serve as means to encourage and promote
• Constraints on modernization of
industrial development and create more expansion
employment opportunities. These projects also • Problems of storage, designing,
packing and product display
help MSMEs and industry in general to achieve • In adequate infrastructure
efficiencies and growth, including export sales, facilities, including power, water,
roads
which helps in foreign exchange earnings for the
country. The sectoral Ministries like Ministry of Textiles, Ministry of Food Processing Industries
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
have schemes with this objective. Similarly the Ministry of Commerce & Industry has schemes
like IIUS, Mega Leather Clusters for promotion of industry in general and specific sectors.
Similarly for Electronics Manufacturing Clusters, Ministry of Communication & Information
Technology has come out with an Electronic Manufacturing Clusters Scheme. Ministry of MSME
has Micro and Small Enterprises–Cluster Development Programme (MSE-CDP) and other
Ministries like Ministry of Heavy Industries and Public Enterprises have been exploring schemes
for promotion of Capital Goods Sector through cluster approach
From the industry’s point of view, the investment in such clusters provides them access to better
facilities and infrastructure at lesser cost, and sharing of the same through joint equity investments
in such projects. Usually, the beneficiary enterprises pool in their resources and meet the share of
industry stipulated by Government in their individual schemes. Industry is keen on investing in
such projects as it would give them competitive advantage of other similar units and also help in
meeting global compliance norms
A key motivator for industry investments in such projects is environmental compliances. With
stricter enforcement of norms and also introduction of stringent compliances necessitated by
judicial intervention, industry is left with little choice but to promote such projects. Specific
incentives are laid down for common effluent treatment plants in the Mega Leather Clusters
Scheme. Such projects also help the individual units in externalizing their obligations for
environmental compliances. Several textile parks have included effluent treatment plants in their
plans
The MSMEs predominantly operate in clusters as these provide them with opportunity of sharing
key resources like raw materials, specialized/skilled manpower, supporting industries, technology
and market and thus make them more efficient and competitive. There are a large number of
industrial clusters present in the country, often developed around one industry or sector and the
promotion of common industrial infrastructure/facilities for MSMEs in these clusters has been
integral to industrial development policy of the country. The nature of these clusters has
encouraged the policymakers to promote creation of common industrial infrastructure/facilities as
the most effective instruments to reach the largest number of MSMEs (beneficiaries). However,
there are different models of ownership and management (O&M) of the common infrastructure
facilities thus created in the MSME clusters. Such O&M models range from entirely government
owned and managed common infrastructures to beneficiary enterprises driven models
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
It has been accepted by government agencies that creation of any common infrastructure/facilities
for MSMEs needs active involvement of beneficiary enterprises, to be truly effective. The
emergence of Public-Private Partnership (PPP) is considered to be a sustainable financing and
institutional \mechanism with the potential of bridging the common industrial infrastructure gap in
the MSME sector. Typically, a Public Private Partnership entails an arrangement between a
government/statutory entity on one side and a private sector entity (typically beneficiary
enterprises although in some schemes it may be an independent third party) on the other side, to
provide public assets/services, through investments being made and/or management being
undertaken by the private sector entity, for a specified period of time, where there is a well defined
allocation of responsibilities and risk between the private sector and public entity. Many of
common infrastructure/facilities projects for MSMEs are being implemented in the spirit of Public-
Private Partnership (PPP) and provide for grant-in-aid, for part financing of infrastructure cost,
even as ownership and/or management of these infrastructure facilities are vested with groups of
MSME entrepreneurs, who are required to meet remaining cost of such infrastructure projects. In
some cases the government also recognizes that some common infrastructure/facilities projects
may not always be viable on PPP and it uses other mechanism of compensation such as provision
of Viability Gap Funding (VGF) or annuity payments, etc. Alternatively, the government
sometimes directly implements such facilities upfront and then transfer O&M of facilities and
services to a Private Sector Participant (PSP) where feasible
Typically, the beneficiary enterprises are required to from a separate legal entity, as a Special
Purpose Vehicle (SPV), with specific objective of implementation and/or management of projects
being assisted by the government agencies, either in PPP or even under private ownership.
However, the mode and amount of assistance granted by the government agencies and envisaged
financial models for these projects range widely. The various SPV structures and O&M models
have been discussed in details in the subsequent chapters of the report
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Project Background
Coimbatore is the second largest industrialized region in Tamil Nadu after Chennai and is an
important industrial hub housing more than 50,000 small and medium enterprises
constituting about 22% of the factories in the state. The existing industrial estates promoted
by SIDCO/private co-operatives are completely taken
Objectives
up with no vacant land available. More importantly,
these industrial estates are poor when it comes to • To develop a green field state-
of-art Industrial Park for the
industrial infrastructure, with limited industrial SME Industry of Coimbatore
Region.
amenities. In view of this, the SME units felt the need
to have larger plots of industrial land area to cater to
the growth in demand. The Coimbatore District Small • To provide enabling support in
the manufacturing of
Industries Association (CODISSIA), which is the
engineering products and
single largest District Association of Small Industries services and accelerate the
Project Cost
On the basis of cost estimates worked out for all facilities planned, the project cost is
estimated at Rs 225 Cr. The project is being developed with no grant support from
Government but purely through a mix of debt and equity from the members of CODISSIA.
Banks are showing keen interest in funding such infrastructure projects as they assist in
catalyzing industrial development and empowering the sector. Furthermore, this also
provides opportunity to banks in funding future needs of industrial units towards
construction of buildings, acquisition of machinery, etc. The Means of Finance for the
proposed project is given below:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
Infrastructure/Facil for
MSMEs Under PPP and Private Ownerships
Implementation Framework
The prime responsibility of development of the proposed project would be that of the
SPV,M/s CODISSIA Industrial park. An appropriate contractual framework has been
proposed that would facilitate project development and operations thereafter. The contractual
framework
rk is described in the schematic diagram below:
IL&FS Clusters has been retained by the SPV as the Project Management Consultant (PMC),
for the purposes of carrying out Project Development, Design and Detailed Engineering of
the proposed Project and for
or overseeing construction and implementation supervision. The
SPV has entered into financing documentation for securing the Loans and would repay the
same as per the schedule laid down in the Base Case Business Plan. SIDBI is the Lead
Banker for the Project
ct and it has undertaken detailed appraisal of the project, loan
documentation/ security creation and assistance in disbursement of the term loan.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
It is estimated that about 550-600 SME Role of SPV, CODISSIA Industrial Park
units will be set up in the park with an • Development of the Project
average per acre investment of about • Operate, manage and maintain the Park along
Rs 3 Crore and an estimated total with the infrastructure facilities
turnover of Rs. 1750 crore. The Park is • Facilitate intending industrialists in establishing
their units
envisaged to generate direct and
Role of SIDBI
indirect employment of about 17,500
• SIDBI is the Lead Banker
and 2500 people respectively. The
• Undertaken detailed appraisal of the project, loan
project will provide long and short term documentation/ security creation and assistance
in disbursement of the term loan
local job opportunities and increasing
connectivity of the region through • Monitoring the project implementation shall be
jointly undertaken by all the bankers in
construction and upgradation of roads consortium
and subsequently raw material and • IL&FS Clusters is the ‘Project Development and
Executing Advisor’
finished products. The project will go
• Assisting SPV in Project Development (site
long way in increasing the economic analysis, project related studies, preparation of
master plan and estimation of block costs)
growth of the region
• Project engineering & supervision
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-4: Major Focus Schemes Analyzed in
the Study
The Scheme seeks green field investments in the textiles sector which will be operational
through mode of Public Private Partnership for setting up textile units. All the sub-sectors of
textile industry are eligible under the scheme such as cotton ginning, spinning, weaving,
processing, garmenting and the related ancillaries. Each Integrated Textile Park (ITP) would
normally entail about 50 units. The number of entrepreneurs and investments to be made in
each ITP is project specific. The entire range of common infrastructure within the park are
eligible under the scheme which includes roads, water supply, sewage/effluent treatment,
power including CPP, training facilities, workers hostels, testing labs and SPV owned factory
buildings, etc
(1) Implementation
Each ITP is considered as a separate Special Purpose Vehicle (SPV) which involves various
stakeholders’ i.e. local industrial entities, banks and/or financial institutions, State
Governments and Central Government into a single fold. SPV shall invariably be a Corporate
Body registered under the Companies Act. ITPs may also be set up as SEZs
The state governments have a special role to play for setting up ITPs. All kinds of necessary
approvals and required assistance for power, water and other utilities etc., wherever
necessary, are to be obtained from state governments. Further, they also assist in
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
identification and procurement of land at locations suitable for development of a textile hub
in the state. Various state government agencies may also participate in the projects by
subscribing to the equity of SPV or by providing grants-in-aid for the project
The project cost covers common infrastructure and buildings for production/support activities
as per the specifications of the ITP. However, aggregate investment in land, factory buildings
and Plant & Machinery by the entrepreneurs in a Park shall be at least twice the cost of
common infrastructure proposed for the Park. Total project cost is funded through mix of
equity and grant-in-aid from various agencies i.e. Ministry of textiles State Government,
State Industrial Development Corporation, Industry, Project Management Consultant and
Loan – from Banks/ Financial Institutions etc. extend financial support to the ITP.
Government of India extends financial support to the project through the Scheme up to 40%
of the project cost subject to a ceiling of Rs. 40 crore. Financial assistance from Govt. of
India is generally a grant-in-aid to the project unless specified by Project Approval
Committee (PAC) to be equity. The combined equity stake of government agencies i.e.
Central Government/State Government/ State Industrial Development Corporation would not
exceed 49% of the project cost. GOI support will be provided at 90% of the project cost
subject to a ceiling of Rs. 40 crore for first two projects in the North East States and Jammu
& Kashmir
In October 2007, the erstwhile cluster development scheme ‘Small Industries Cluster
Development Programme (SICDP)’ was renamed as ‘Micro and Small Enterprises – Cluster
Development Programme (MSE-CDP)’. It was also decided that the ‘Integrated
Infrastructural Development (IID)’ Scheme shall be subsumed in MSE-CDP for providing
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
developed sites for new enterprises and upgradation of existing industrial infrastructure. A
comprehensive MSE-CDP is being administered by the office of Development Commissioner
(MSME), the Ministry of MSME
(1) Objectives
As per the scheme guidelines, the objectives of the scheme are given below:
• To support the sustainability and growth of MSEs by addressing common issues such
as improvement of technology, skills and quality, market access, access to capital, etc.
• To build capacity of MSEs for common supportive action through formation of self
help groups, consortia, upgradation of associations, etc.
• To create/upgrade infrastructural facilities in the new/existing industrial areas/
clusters of MSEs.
• To set up common facility centres (for testing, training centre, raw material depot,
effluent treatment, complementing production processes etc).
(2) Activities
• Diagnostic Study Reports: These reports are prepared to identify a cluster and to
prepare an action plan for the same.
• Soft Interventions: To provide technical assistance, capacity building, exposure
visits, market development, trust building, etc for the cluster units.
• Detailed Project Report: To prepare a technically feasible and financially viable
project report for setting up of a common facility center for cluster of MSE units
and/or infrastructure development project for new industrial estate/ area or for
upgradation of infrastructure in existing industrial estate/ area/ cluster.
• Hard Intervention/Common Facility Centers (CFCs): Creation of tangible “assets”
like Testing Facility, Design Centre, Production Centre, Effluent Treatment Plant,
Training Centre, R&D Centre, Raw Material, Bank/Sales Depot, Product Display
Centre, Information Centre, any other need based facility.
• Infrastructure Development: Development of land, provision of water supply,
drainage, power distribution, non- conventional sources of energy for common
captive use, construction of roads, common facilities such as first aid centre, canteen,
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
(3) Implementation
It is necessary to form an SPV prior to setting up of and running the proposed CFC. An SPV
should be a clear legal entity (Cooperative Society, Registered Society, Trust or a Company)
with evidence of prior experience of positive collaboration among its members. The SPV
should have a character of inclusiveness wherein provision for enrolling new members to
enable prospective entrepreneurs in the cluster to utilise the facility should be provided. There
should be a minimum of 20 MSE cluster units serving as members of the Special Purpose
Vehicle (SPV). There is no ceiling on the maximum number of members. In special cases,
where considerations of investments, technology or small size of the cluster warrant lesser
number of units, a minimum of 10 MSE units may be considered for the SPV
Following are the agencies made responsible for the above mentioned activities:
Activity Implementation Agency
Diagnostic study • Officers of Ministry of MSME.
Soft interventions • Offices of State Governments.
Setting up of CFC • National & international
institutions engaged in
development of MSE sector.
• Any other institution/agency
approved by Ministry of MSE.
Infrastructure development projects State/UT Governments through an
appropriate state government agency with
a good track record in implementing such
projects.
Under this scheme, broadly five activities have been proposed for funding pattern:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
• Diagnostic Study Reports: Total grant of maximum Rs. 2.5 lakhs for each cluster
will have to be aided by Ministry. The grant amount is Rs. 1.00 lakhs for field
organizations of Ministry of MSME
• Soft Interventions: Maximum limit of Rs. 25.00 lakhs per cluster has been marked.
GoI grant for the soft interventions will be 75% of the sanctioned amount of the
project cost. For NE & Hill States, Clusters with more than 50% (a) micro/village (b)
women owned (c) SC/ST units, the GoI grant will be 90%. The cost of project will be
moderated as per size/ turnover of the cluster
• Detailed Project Report: A maximum grant of Rs. 5.00 lakhs will be provided for
this task
• Hard interventions: Financial assistance from Govt. of India as grant-in-aid will be
restricted to 70% of the project cost subject to maximum of Rs. 15.00 crore. GoI
grant will be 90% for CFCs in NE & Hill States, Clusters with more than 50% (a)
micro/ village (b) women owned (c) SC/ST units
• Infrastructure Development: Govt. provides grant up to 60% of the project cost
maximum up to Rs 10.00 crore. GoI grant will be 80% for projects in NE & Hill
States, industrial areas/ estates with more than 50% (a) micro (b) women owned (c)
SC/ST units
The Scheme was implemented through SPV model in PPP mode in 10th & 11th FYP.
However, various practical shortfalls had to be faced while implementing the Scheme
through this mode. As per the modified scheme guidelines, there were enormous delay in
implementation, cost escalation in case of majority of the projects, lack of project
accountability and shortfalls in achievement of outcome. It was challenging for stakeholder
industries to unite to form a SPV for creating a common infrastructure due to internal conflict
among industries. The SPVs faced difficulties in raising equity from its members as
envisaged in the project; and some SPVs defaulted in raising funds and in some cases, state
government and local bodies contributed funds to the extent of failed contributions from the
Industries. Further, optional involvement of the State Governments in the scheme led to weak
ownership of the project with reduced financial, monitoring and mentoring support to the
project
Considering the shortfalls of previous modes and taking the lessons from the past, the
modified Scheme now will be implemented through State Implementing Agency (SIA) in
12th FYP. SIA will formulate the project interventions as well as implement and monitor the
progress of the project. The SIA for each IIUS project could be the State Industrial
Development Corporation (SIDC) or any equivalent state entity as identified and
recommended by the respective State Government
It is also proposed that the proposals can be taken up under either of the following two
options:
• For funding of new or existing Industrial Estates/Parks/Areas, SIA would choose the
site in consultation with the industry to assure that funds are not sought for Industrial
Estates/Parks/Areas in place where industry does not find it viable.
• For funding through SPV-led Clusters, the proposal is routed through the SIA-led
implementation route
The role of states in the scheme has been redefined for nominating the State Implementation
Agency (SIA) such as State Industrial Development Corporations for execution of the project
and sharing the project cost. It is expected that with this change, bottlenecks which delayed
the projects in earlier versions of scheme would be overcome. In this way, state governments
have to play a central role in this Scheme considering the industry is a State subject
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The central government will contribute up to 50% each of the project cost subject to a ceiling
of Rs. 50 Crore. The remaining contribution will be from the SIA, beneficiary industries and
loan from financial institutions. The minimum contribution of the SIA will be 25% of the
project cost. In case of North Eastern States, the central grant and the minimum contribution
of the SIA will be 80% and 10% respectively. Central grant for physical infrastructure will be
up to 25% of the central grant subject to a ceiling to Rs.12.5 crore. ‘CETP’ component of the
project would be considered subject to ceiling of assistance upto Rs. 15 crore/CETP
(maximum Rs. 1.50 crore/MLD) and for ZLD treatment (Zero Discharge) maximum
assistance up to Rs. 20 crore/CETP (Rs. 4.50 crore/MLD)
Central government funding will be confined only to creation of durable assets and activities
relating to productivity enhancement and no recurring expenditure will be funded by Central
Government under the scheme
The central assistance will be a onetime grant-in-aid (not equity) and the contributions of
other stakeholders must be in the form of cash and not in kind like the cost of land/existing
building. The SIAs will meet all expenses beyond the prescribed limit from their own
resources. In case of downward revision of project cost, the central government grant would
be reduced proportionately
Interest earned on central grant by the SIA to be treated as a part of the central grant. Land
and Land development cost, working capital and contingencies shall be excluded from the
project cost. Higher expenditure in the project cost due to time and cost-overruns have to be
borne by the SIA or other stakeholders
The primary objective of the MFPS is to provide modern infrastructure facilities for the food
processing along the value chain from the farm to the market. It will include creation of
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
processing infrastructure near the farm, transportation, logistics and centralized processing
centers. The main feature of the Scheme is a cluster based approach. The scheme will be
demand-driven, and will facilitate food processing units to meet environmental and safety
standards
The expected outcome is increased realization for farmers, creation of high quality processing
infrastructure, reduction in wastage, capacity building of producers and processors and
creation of an efficient supply chain along with significant direct and indirect employment
generation
• The Scheme aims to facilitate the establishment of a strong food processing industry
backed by an efficient supply chain, which would include collection centers, primary
processing centers and cold chain infrastructure. The food processing units, under the
Scheme, would be located at a Central Processing Centre (CPC) with need based
common infrastructure required for processing, packaging, environmental protection
systems, quality control labs, trade facilitation centers, etc
• The extent of land required for establishing the CPC is estimated to be between 50-
100 acres, though the actual requirement of land would depend upon the business plan
of investor(s), which may vary from region to region. CPC would be supported by
Primary Processing Centers (PPC) and Collection Centers (CCs) in identified
locations based on a techno-feasibility study, adequate to meet the raw material
requirements of the CPC. The land required for setting up of PPCs and CCs at various
locations would be in addition to land required for setting up the CPC
• It is expected that on an average, each project may have around 30-35 food processing
units with a collective investment of around Rs 250 crores that would eventually lead
to an annual turnover of about Rs 450-500 crores and creation of direct and indirect
employment of about 30,000 persons. However, the actual configuration of the project
may vary depending upon the business plan for each Mega Food Park. The aggregate
investment in CPC, PPCs and CCs should be proportionate and commensurate to the
size of the total project keeping in view the economies of scale
• The spirit of the guidelines of the Mega Food Parks Scheme is to facilitate setting up
of only food processing industries. Accordingly, only food processing industries that
make food products fit for human/animal consumption may be permitted to be set up
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
in the Mega Food Parks. Packaging facilities of food products as ancillary to the food
processing industries may also be allotted land in the Mega Food Parks
(2) Implementation
The project under this scheme will be implemented through a Special Purpose Vehicle (SPV)
registered under Companies Act. However, State Government/ State Government
entities/Cooperatives applying for the project under the scheme will not be required to form a
separate SPV
The Anchor Investor in the SPV holding majority stake, with or without other promoters of
the SPV, will be required to set up at least one food processing unit in the park with an
investment of not less than Rs. 10 crore. The Anchor Investor will have at least 51% stake in
such processing unit(s). However, State Government/ State Govt. entities/ Cooperatives will
not be required to set up processing unit(s) in the park
As per the guidelines, lead promoter is the one who has maximum equity share in the SPV.
The lead promoter has to coordinate with the key stake holders including Ministry of Food
Processing Industries. The combined net worth of the promoters should be not less than Rs.
50.00 crore and each member in SPV must have a net worth at least 1.5 times of his/her
proposed equity contribution in order to ensure requisite contribution for the project from
each shareholder. The SPV has to bring in at least 20% of total project cost as equity in
general areas and at least 10% of total project cost in difficult & hilly areas & ITDP notified
areas. Also, only up to 26% equity share can be taken up by Central Government. However,
there are no such restrictions on State Government entities/Cooperatives. SPV is not
permitted to sell or lease the common facilities under Mega Food Park and can only be
offered on rental basis
In addition to the PMA, for ensuring smooth implementation of projects at ground level,
Ministry has drawn up a panel of Project Management Consultants (PMC) with experience in
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
preparation of DPRs for large projects and in project implementation. Any of these Ministry’s
empanelled agencies may be engaged by the SPVs for preparation of DPRs and for assistance
in implementation and the cost of which would be considered as one of the eligible
components of the project. However, such cost should not exceed 2% (inclusive of taxes) of
the eligible grant amount of the project
The Scheme shall provide a capital grant at the rate of 50 percent of the eligible project cost
in general areas and at the rate of 75 percent of eligible project cost in difficult and hilly areas
i.e. North East Region including Sikkim, J&K, Himachal Pradesh, Uttrakhand and ITDP
notified areas of the States subject to a maximum of Rs.50 crores per project. The eligible
project cost is defined as total project cost but excluding cost of land, pre-operative expenses
and margin money for working capital. However, Interest During Construction (IDC) as part
of preoperative expenses and fee to Project Management Consultant (PMC) up to 2% of the
approved grant would be considered under eligible project cost
(1) Objectives
The objective of the Scheme is to provide integrated and complete cold chain, value addition
and preservation infrastructure facilities without any break, for perishables from the farm gate
to the consumer and to link producers to food processors and market through well equipped
and efficient supply chain. To achieve this objective pre-cooling facilities at production sites,
reefer vans and mobile cooling units are also assisted under the Scheme. The Scheme also
aims to establish value addition with infrastructural facilities like sorting, grading, packaging
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
and processing for a variety of products such as fruit and vegetable, marine, dairy, poultry,
etc
a. Minimal Processing Centre at the farm level. This centre may have facilities
for weighing, sorting, grading, waxing, packing, pre-cooling, Controlled
Atmosphere (CA)/ Modified Atmosphere (MA) cold storage, normal storage,
Ripening Chamber and Individual Quick Freezing (IQF) etc
b. Mobile pre-cooling vans and reefer trucks
c. Distribution hubs with multi product and multi CA /MA chambers cold
storage /Variable Humidity Chambers, Packing facility, grading and sorting
facility, CIP Fog treatment, Ripening Chambers, IQF and Blast Freezing etc
d. Irradiation facility
To avail financial assistance, any two of the components, from (a), (b) or (c) above are
required to be set-up by the units. Considering the functional nature of the facility, Irradiation
facility is considered on standalone basis for the purpose of eligibility
Financial assistance is provided @ 50% of the total cost of plant & machinery and technical
civil works in general areas and 75% for NE region and difficult areas (North Eastern states,
Sikkim, J&K, Himachal Pradesh and Uttrakhand) subject to a maximum grant-in-aid of Rs 10
Crore
Applications under the scheme are invited through EOI by the Ministry. The proposals have
to meet the following basic eligibility criteria:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
a) The net worth of the applicant should be at least 1.5 times of the grant applied for.
b) Availing term loan from the Bank/Financial Institution for an amount not less than
10% of the project cost
c) Appraisal of the project by Bank/Financial Institution
d) Minimum two components [from (a), (b) and (c) of Components of Scheme as
mentioned above]
e) Irradiation facility can be treated as a standalone project for the purpose of availing
grant
f) No second proposal from the same applicant / company
g) Date of commercial production should not be prior to the date of submission of
application
The proposals found prima facie eligible based on the above mentioned criteria are evaluated
as per the approved assessment criteria
The cold chain project, promoted by Suri Agro Fresh Pvt. Ltd at Rai Food Park in Sonepat,
Haryana, is envisaged to be an integrated facility consisting of multi-product/ multi-chamber
cold storage (controlled atmospheric/ modified atmospheric chambers, ripening chambers)
packing line for fruits and vegetables, and dry storage for other agricultural crops.
The major cold chain components being set up by them are as follows:
authorized distributors of companies such as Zespri of New Zealand, Dole, Unifruitti, FHEL
and Adani Agri Fresh. The promoters also sell their fresh and processed products under the
brand ‘Enjoy’. The promoters have three offices located in Delhi, Mumbai and Ahmedabad
for distribution of fresh and processed products. The promoters are planning to link the
project with three collection centers located in Shopian- Phulwama road in Jammu and
Kashmir, Kotkhai (Kokunala) and Jubbal (Saraswati Nagar) in Himachal Pradesh. These
centers will mainly procure apple and pear from farmers of this area. The collection center is
J&K is already operational and the promoters have tied up with one of the largest apple
traders of that region. Setting up of collection centers are under progress at two other
locations in Himachal Pradesh; the promoters have acquired land and begun the construction
work. The setting up of an integrated cold chain facility in Haryana is likely to add value to
the existing supply chain of fruits and other perishables. It shall benefit both the farmers and
the traders by reducing product wastages by providing cold storage facilities. Setting up of
CA storage at the project site will increase the shelf life of the products, their marketability
and hedge farmers risk against price fluctuation. It is envisaged that farmers will have greater
access to bigger markets and hence obtain better price for their produce. This, in turn, will
significantly increase farmers income and they will have better incentives to produce good
quality products. Moreover, the project will also generate employment for both skilled and
un-skilled manpower, directly and indirectly. Overall, the project will have an impact on
more than 2000 farmers. The project has made significant progress with near completion of
technical civil work and equipments for major project components are in installation stage.
Photographs of the Cold Chain Project by Suri Agro Fresh Pvt. Ltd
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The Scheme targets development of Handicraft Mega Clusters across the country through an
umbrella cluster development program that drives the development program in an integrated
and holistic manner. It is proposed to scale up infrastructure and production facility of
identified mega clusters with artisans more than 20,000 in a cluster with geographical area
such as a district, for which comprehensive development plans would be drawn up and
implemented by way of dovetailing various schemes on a PPP basis
Till date five Mega clusters have been identified under the CHCDS:
(1) Objectives
The project components broadly covered in the scheme are: Skill Development, Design,
Innovation and Product Development, Market Promotion, Trade Facilitation Centre,
Technology Upgradation for Individual Exporters, Community Production & Facilitation
Centre, Toolkits & Safety Kits & Raw Material Bank
The implementing agency for the various interventions is selected preferably through a
competitive process. The following agencies on their own or through their SPVs are eligible
for implementing this scheme:
• The interventions under the project are implemented by IAs. It is the recipient
of grant support from the Ministry of Textiles and other agencies
• Such IA is responsible for ownership, execution and management of the
interventions/facilities created under the project. In the case of the
implementing agency being a SPV Company registered under the Companies
Act 1956, the majority of the equity of such SPV should be with the
artisans/craftsmen/ entrepreneur of the cluster and/or their
associations/cooperatives/ federations/ SHGs. The remaining stake may be
held by strategic investors such as buyers, large scale production units, banks,
financial institutions, State Government agencies, etc
• It is mandatory to induct two Government nominees in the Board of
Directors/Governors of IA/SPV for all projects including soft and hard
interventions
• For any SPV, each member is not allowed to hold more than 5% equity
(including his relatives)
• One or more SPV/IA can implement the same intervention. Also one SPV / IA
can be entrusted to implement more than one intervention
• SPV is responsible for maintaining the utilities and infrastructure created by
collecting service and user charges to recover cost and future expansion
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
• The funding is in the ratio of 75:25, wherein Government grant per cluster
may constitute 75% (with a ceiling of Rs. 70 crores) and the balance 25% is
raised by Implementing Agencies (IAs)/Special Purpose Vehicles (SPV)
comprising of various stakeholders. The contribution of 25% by SPV also
includes the cost of land. While this sharing is largely valid at the overall
project level, the respective shares of the stakeholders may vary from
component to component depending upon the nature of interventions
• All existing schemes of the Development Commissioner (Handicrafts) as well
as other complementary schemes available in other ministries can be
integrated into the proposed comprehensive cluster development program with
a strong and proactive capacity building and technical assistance.
(1) Objectives
• To bridge the critical gaps especially regarding standardization, quality assurance and
control, productivity, marketing, infrastructure and capacity building through a cluster
based approach
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
• To encourage the level of organization in the sector thereby creating social capital for
sustainability of collective initiatives
The scheme is implemented on Public Private Partnership (PPP) and Department of AYUSH
supports by the way of grant to the SPV (formed by group of entrepreneurs from AYUSH
sector). This implies that willing industry representatives desirous of framing cluster can
apply and obtain grant under the Scheme. Also, the project entails availability of
infrastructure and willingness on the part of SPV
(2) Implementation
The scheme is implanted on a PPP basis through SPV formation, owned and managed by the
user industry. An SPV is ordinarily a company registered under Companies Act, 1956. Any
other structure of SPV would require prior approval of Scheme Monitoring Committee
(SMC)
The assistance under scheme would be available for a project, prepared for development of a
cluster in general; covering the following two sets of interventions:
• Core Interventions such as those related to setting up of common facilities for testing,
certification, standardization, quality control and other capacity building measures.
• Add-on Interventions such as those related to marketing/ branding, provision of
general infrastructure to support production units etc.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The assistance would be available to the units related to Ayurveda, Sidha, Unani,
Homeopathy, Yoga & Naturopathy. Each of the cluster development projects proposed to be
implemented by a Special Purpose Vehicle (SPV) representing at least 15 AYUSH
manufacturing enterprises in a cluster is eligible for grant funding under the scheme up to
60% of cost of the core interventions, 25 % of the cost of add on interventions, within overall
ambit of 60% of the project cost subject to maximum of Rs.10.00 crore per cluster. The
assistance is further subject to the following:
• Assistance for engagement of CDEs and other management support of SPV should
not exceed 5% of the overall project cost
• Assistance for engaging engineers/ architects/ construction management/ other experts
for execution of civil works should not exceed 5% of the overall project cost
Recognizing the fact that the projects of the proposed nature requires very extensive project
development efforts, Department of AYUSH engages the services of an agency that has
experience in developing, financing and executing the cluster development projects and as
Advisor in implementation of similar PPP based Schemes, from the stage of
conceptualization to commissioning. PMC acts as a link between the Department and the
industry and would help in speedy implementation of the projects in a transparent manner
(1) Objective
The Mega Leather Clusters may host production units of all segments namely footwear,
footwear components, leather goods (including gloves), leather garments & saddlery &
harness items
It is proposed to develop Mega Leather Clusters in the States having large concentration of
leather units as also in States having potential for growth of the leather sector in view of the
labour advantage and raw material availability. The scheme is demand driven and the exact
locations are identified on receipt of DPRs from the Industry with diagnostic study along with
availability of backward and forward linkages on those locations. Such clusters should have
world-class infrastructure and good connectivity with the Ports. The maximum time frame for
complete establishment of each Mega Leather Cluster is 5 years. The selection of the Mega
Leather Cluster is done based on outcomes proposed and the proposal with the best outcomes
is approved
(2) Implementation
Each Mega Leather Cluster project is implemented by a Special Purpose Vehicle (SPV). The
assistance is provided to a SPV which should be a legal entity duly registered for this
purpose. The SPV is promoted by private companies registered under the Companies Act,
1956 engaged in leather industry value chain, industry organizations registered under
Societies Act, financial institutions, R&D institutions, State or Local governments or their
agencies and units within the Leather Industry. The structure of SPV is approved by the
Empowered Committee at the time of in-principle approval for the project
The total project cost for the purpose of the Mega Leather Cluster sub-scheme comprises of
the cost of Land development, Infrastructure, Capacity Building and engagement of
Consultant by SPV. GoI assistance is up to 50% of the project cost, subject to the limitations
as follows, depending on the total land area of the MLC:
• MLC of 25-60 acres land (to be set up without tanneries) and 40-60 acres land (to be
set up with tanneries)- GoI assistance limited to Rs 50 crore
• MLC of 61-100 acres land- GoI assistance limited to Rs 70 crore
• MLC of 101-150 acres land- GoI assistance limited to Rs.105 crore
• MLC of more than 151 acres land- GoI assistance limited to Rs 125 crore
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The SPV/industry has to bring in the land for the project at its own cost. Component wise
amount of assistance is decided from project to project by the Empowered Committee based
on due appraisal of the project proposal received from concerned SPV
As per the scheme guidelines, the objectives of the scheme are given below:
The grant is a onetime grant –in – aid to the special purpose vehicle (SPV) formed by the
State Government or any of its agencies such as State Industrial Development Corporation
(SIDC) in association with user enterprises representing the plastic sector / sub sector
(2) Activities
(a) Infrastructure to support production units like roads, water supply, drainage, electricity
supply including captive power plant, effluent treatment plant, telecommunication lines, solid
/ hazardous waste management, incinerator, etc
(b) Buildings for support services like administrative buildings, crèche / canteen / hostel / rest
and recreation facilities, facilities for labour, marketing support system, etc
(c) Buildings and equipment / machinery for common facilities for characterization,
prototyping & virtualization, non-destructive material testing, incubation, training,
warehousing, plastic recycling, tooling, designing, Research & Development, etc
(d) Administrative and other management support including the salary of CEO for the project
implementation period
(e) Assistance for engaging engineers/ architects / construction management / other experts
(f) Besides the above mentioned components aimed at creation of infrastructural facilities, the
scheme shall also support initiatives which are soft in nature to ensure that the capacity of the
beneficiary SPV and member enterprises is suitably strengthened in order to absorb,
implement and sustain the proposed initiatives. These illustratively could include surveys /
studies, sensitization / awareness generation, skill development / training at various levels,
exposure visits, etc
The above list of common facilities is illustrative and each park may have its own specific
requirements based on the nature of units being set up and the products proposed to be
manufactured in the parks. The Scheme Steering Committee (SSC) approves the project
components and funding thereof depending upon the merits of the proposal
(3) Implementation
The implementing SPV should be a distinct legal entity formed by the State Government or
its agency such as State Industrial Development Corporation or any equivalent state entity as
identified and recommended by the respective State Government in association with user
enterprises representing the plastic sector / sub sector. The SPV is ordinarily a Company
registered under Companies Act 1956. Any other structure will be subject to the approval by
SSC. Programme managers are to be appointed to assist department and state government
will make environment conducive for setting up of parks
(4) Implementing Agencies
Following are the agencies made responsible for the above mentioned activities:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Special Purpose Vehicle (SPV) • Preparation of DPR with complete technical and
financial details and procurement of land.
• Allocate sites to industry, maintain assets.
• Appoint Business Development Service
provider/consultant/contractor.
• Achieve financial closure for the project
• Statutory approval and clearances including
environmental from Government and other bodies
& furnish requisite information
• Equity contribution of the State Government agencies is at least 26% of the cash
equity of the SP (excluding value of any land given as equity)
• Cost escalation due to any reason has to be borne by the State Government agencies.
• Assistance for Administrative and other management support of SPV including the
salary of CEO for the project implementation period shall not exceed 5 % of Grant-in-
aid of the overall project cost
Also, assistance for soft initiatives is over and above the grant provision for infrastructure
components and is to an extent of 75 % of the cost of soft interventions not exceeding Rs 50
lakhs per project. This amount may be met from within the total grant to be given for each
project
SPVs may dovetail funds from other sources as well for the project, provided there is no
duplication of funding for the same component / intervention
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
(1) Objectives
As per the scheme guidelines, the objectives of the scheme are given below:
It is necessary to form an SPV prior to setting up of and running the proposed EMCs. An
SPV should be a clear legal entity (Company or Society) constituted as per the structure
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
specified by the Department of Electronics and Information Technology with the objective of
establishing an EMC by way of development of the requisite common infrastructure and
facilities within the scope of the EMC Scheme. Each EMC shall have a separate SPV for
management & implementation of the project.
A Steering Committee for Clusters (SCC) is constituted for proper implementation of project.
The SCC may include any activity which in its opinion would serve towards achieving the
objective of the Scheme.
Chapter-
Chapter-5: Implementation Statu
Status
atus of the
Major Schemes Covered Under
Under the Study
The total amount of grant sanctioned to the Parks is Rs. 2218 crore out of which about Rs.
1107 crore has already been disbursed to the Parks. Out of the 61 approved Parks, 13 Parks
have already been completed,
eted, although in 27 Parks, units are already operational. The Parks
have generated more than 50,000 direct employments and so far, attracted FDI of more than
Rs. 1000 crore
The impact of Scheme for Integrated Textile Parks (SITP) on overall economy, env
environment
of the region, employment generation and other social aspects has been observed to be quite
encouraging. Evaluation of the scheme has revealed that it has created high-class
high class assets for
the Textile Industry in the country to enhance competitiveness and upgrade technologies. The
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
scheme has been instrumental in addressing the problem of fragmentation of industry by way
of creating vertically integrated value chain within the Parks. It has also increased the ability
of the industry in meeting the regulatory and trade compliances in the areas of environment,
quality and social standards and thereby providing greater market access. The scheme, by
establishing large Parks with multiple units in the value chain available at one location, also
helped to attain economies of scale by attracting the attention of large scale global and
domestic buyers. The unit cost of production for the units located outside the Parks have also
been reduced due to sharing of common infrastructure and reduced lead times in procurement
of inputs
The SITP have had its share of implementation challenges which delayed some of the
projects. Some of the major challenges faced by the projects are given below in brief:
• Delays in obtaining the approvals for conversion of land and PCB related
• Delays on the part of SPV in arriving at consensus and decision on the project
configuration
In view of the challenges, the Ministry of Textiles has proposed some steps to assist in
efficient implementations of the projects. MoT has proposed to execute MoA with the State
Governments to ensure early clearances to the Textile Parks proposed in the State. To check
the delays on the part of SPV in arriving at consensus and decision on the project
configuration, MoA is being executed with the SPV which has penalty clauses in case of
delay in implementation of the Project. The Project Management Consultant has also been
advised to assume greater responsibility of ensuring that likeminded people are inducted into
the SPV, in event of a Project getting cancelled due to inability of the PMC to implement,
penalty would levied on the PMC. The MoT has also decided that the proposals to be
submitted for consideration under the Scheme should be appraised by the Banks and weight
age has been assigned for proposals vetted by the Bank being submitted for approval
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Based on IL&FS Clusters’ experience as PMA with the Ministry of Textiles for the scheme
implementation, it has been found that there are certain common attributes of successful
textile parks which are as follows:
• Enhanced State Government role in setting up the Park and its pro-active support in
facilitating the external infrastructure and clearances
• Availability of land with clear title and land use conversion, if required
• Supply chain within the Park leading to economies of scale and emergence as
sourcing hubs for international buyers
• Shared infrastructure like ETP, skill development centres, testing labs, and others with
a robust O&M framework reducing the cost of operations for individual units
• Appointment of reputed contractors with requisite resources who can execute the
works at faster pace
i. Diagnostic Study
ii. Soft Intervention
iii. Setting up of Common Facility Centres and
iv. Infrastructure Development
The component wise distribution of completed activities under this scheme is as follows:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Total
%
Sl No Component Number of
distribution
Clusters
Out of 39 projects sanctioned in the 10th and 11th Five Year Plan periods under Industrial
Infrastructure Upgradation Scheme (IIUS), 21 projects have been completed and the
remaining are at various stages of implementation. Sanction has been withdrawn in respect
of two projects as these projects could not start implementation activities in more than two
years despite efforts made by this department. There has been a delay in most of the projects
on account of land related issues and environment clearance. Some projects have also been
delayed on account of shortfall in contributions from Industrial stakeholders and State
Governments. The findings of the Evaluation Study of NPC(National Productivity Council)
done in 2011 indicates that the scheme has provided a robust platform for development of
common facilities like Research & Development labs, Skill Up-gradation Centres, Common
Tool Rooms, Prototyping Centres, Effluent Treatment Plants and basic infrastructure (road,
water, supply, power, etc.) which are essential for the clusters as majority of these clusters
belong to Small and Medium Enterprises who have taken up green initiatives and
components to curb pollution. During the 12th Five Year Plan, the IIUS has been revised as
‘Modified Industrial Infrastructure Up-gradation Scheme (MIIUS)’ and under this scheme
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
only State Implementing Agency (SIA) such as State Industrial Development Corporation is
authorised to implement the project. Due to modification in the scheme, projects in the 12th
Plan Period cannot be undertaken by SPV or Special Purpose Entity (SPE), however new
projects have been undertaken through SIA. The overall performance and achievement of the
Special Purpose Vehicles (SPVs) for implementation of 39 projects sanctioned during the
Tenth and Eleventh Five Year Plan Periods are deemed to be satisfactory4
The following table provides the detailed project wise progress status of the scheme in the
identified clusters during the 10th and 11th Five Plan:
4
http://pib.nic.in/newsite/PrintRelease.aspx?relid=106285, accessed on 4-august-2014
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
Total Funds generated from
Approved Released
Project all Physical
Sl No Name of the Industrial Cluster State GOI grant GOI grant
Cost (Rs. stakeholders (Financial Progress
(Rs. Cr.) (Rs. Cr.)
Cr.) Progress in Rs. Cr.)
Andhra
1 Pharma Cluster, Hyderabad 66.16 49.62 48.13 62.08 Complete
Pradesh
2 Chemical Cluster, Ahmedabad Gujarat 71.35 41.39 40.14 69.41 Complete
6 Machine Tools Cluster, Bangalore Karnataka 135.5 49.12 47.64 149.09 Complete
8 Auto Components Cluster, Pune Maharashtra 59.99 44.99 44.54 63.05 Complete
Auto Components Cluster,
9 MP 62.97 47.23 45.81 67.64 Complete
Pithampur
10 Textiles Cluster, Ludhiana, Punjab Punjab 17.19 12.69 12.3 17.24 Complete
12 Auto Components Cluster, Chennai Tamil Nadu 47.49 27.74 26.9 54.67 Complete
Cereals Pulses & Staples Cluster,
13 Tamil Nadu 39.96 29.97 29.07 40.03 Complete
Madurai
Foundry/Pump/Motor Cluster,
14 Tamil Nadu 55.3 39.39 38.99 55.57 Complete
Coimbatore
15 Leather Cluster, Ambur Tamil Nadu 67.33 43.93 43.49 96.34 Complete
56
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
17 Multi Industry Cluster, Haldia West Bengal 58.85 35.97 34.89 52.76 Complete
18 Iron & Steel Cluster, Raipur Chhatisgarh 55.06 31.76 30.79 58.33 Complete
23 Gem & Jewellery Cluster, Surat Gujarat 61 45.61 44.15 45.64 75.75%
24 Rubber Cluster, Howrah West Bengal 29.74 15.71 14.835 27.99 94%
25 Foundry Cluster, Howrah, West Bengal 95.03 38.68 32.57 54.02 57%
57
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
58
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Under the 12th Five Year Plan, the following list of projects has been sanctioned for
implementation by the different State Implementing Agencies:
Sl.
Name of Project State Central grant (Rs. Cr.)
No.
1 Industrial Area Zuangtui, Aizawl Mizoram 15.22
The following listed projects are still under evaluation by the National Productivity Council
which is the Program Management Agency (PMA) for this phase5:
5
http://pib.nic.in/newsite/PrintRelease.aspx?relid=108334, accessed on 5-august-2014
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Proposed
Central
Sl. No. Name of the project State Reasons for Pendency
Grant(Rs.
Crore)
The State Implementing
Agency (SIA) revised their
project proposal and the
Pashamylaran Industrial
1 Telengana 30.51 same has been evaluated by
Area, Medak
PMA; the proposal is under
consideration in the
Department.
Textile park at Addl.
2 Amravati Industrial Area Maharashtra 33.55
These proposals were
3 Tarapur Industrial Area Maharashtra 12.5 received after the cut-off
Rajiv Gandhi Info Tech date prescribed by this
4 Maharashtra 12.5 Department and therefore,
Park
could not be considered
Tamilnadu Chamber
along with the proposals
Linkage Infra Ltd.,
5 Tamil Nadu 44.05 received on or before the
Madurai (Convention
due date. These are being
and Centre at Madurai)
evaluated by PMA for
Engineering Industry further consideration by the
6 Tamil Nadu 60
Cluster ( SIPCOT) Department.
Chemical park under West Not
7
MIIUS at Howrah Bengal mentioned
The supply chain will establish on-farm Primary Processing Centre cum cold chain facilities
for aggregation of the produce at village level, which will be linked to the retail as well as to
CPC through appropriate produce aggregation facility and collection centre-cum-cold chain
and reefer transportation net works
The food processing units would be located at CPC. The developed plots at the CPC shall be
leased out to them on a long term lease basis. The processing units that can be set up in the
Parks are expected to be in line with the availability of various processable raw materials.
Such units can avail the benefits of common facilities on a user fee basis
The summary table of the number of projects approved by the Ministry (starting 2008-09 till
date) is given below:
Status of Projects
Total 18 16 8
As can be seen, the Ministry has approved projects in a phase-wise manner. Thus, a total of
42 projects have been taken up by the Ministry during the 11th and 12th plans. Of this, 16
projects have been accorded final approval and 18 projects have been given in-principle
approval. EOI for remaining projects has been invited with last date of submission being June
30, 2014. The state-wise distribution of Parks which have been granted approval by the
Ministry is given in the exhibit below:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
A summary chart for investment and grant numbers is given below: (Figures in Rs. Cr)
534 561
449
416 400
249 269
200 200 216
104
55
Project Cost Amount of Grant Pvt. Sector Amount of Grant Total Expenditure
Approved Investment (SPV) Released* Till Date*
Assuming an average project cost of Rs. 115.00 crore, these 42 Parks will have a cumulative
investment of approx. Rs. 4800 crore. Total government grant outlay in these projects would
be approximately Rs. 2100.00 crore
It is expected that on an average, each project, upon completion, will have around 30 food
processing units with a collective investment of around Rs 250 crores that would eventually
lead to an annual turnover of about Rs 450-500 crores and creation of direct and indirect
employment to the extent of about 30,000 persons
• 18 more projects in pipeline - Shall provide for setting up about 500-550 units
• EoI for 5 more Parks out - opportunity for ~150 processing cum ancillary units
• Approx. Rs. 250 crore expected to be invested in these units in each. Hence,
approximately 40 parks would imply cumulative investment of approx. Rs. 10000
crore (in addition to the project cost numbers mentioned above)
• Overall, the 42 Mega Food Parks shall provide state-of-the-art facilities for setting
up of about 750-800 food processing including ancillary units
Of these, the ones in Andhra Pradesh and Uttarakhand are in the most advanced stages.
Having started commercial operations, these projects have started to embody the objectives
of the Scheme – investment mobilization, employment creation, wastage reduction,
streamlined supply chain operations to name a few. A snapshot of key numbers is given in
the following table:
4 Turnover of Units Over Rs. 250.00 crore Over Rs. 200.00 crore
Some of the products being manufactured in Patanjali Food and Herbal Park include juice,
candy, murabba, flour, spices, besan etc. Products for which units are being/have been set up
in Srini Food Park include noodles, sauces, pickles and juices
It is expected that as other parks commence commercial operations in due course, they will
have similar impact on aspects like employment, wastage reduction and supply chain
operations in the cluster to which they shall cater
The Scheme was launched in 2008-09 when 10 projects were accorded approval by the
Ministry. Subsequently, as has been mentioned above, 34 projects have been approved by the
Ministry till date. Five years down the line, only two projects have commenced commercial
operations. No project has yet been able to avail the entire grant of Rs 50.00 crore allocated
to it. This half decade has been a learning experience both for MoFPI and for entrepreneurs
implementing the projects. In order to make the Scheme more investor friendly and smoother
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
to implement, MoFPI has time and again revised the Scheme Guidelines. Some of the
learnings and resulting revisions in Guidelines are highlighted below –
1. Arranging for project land has been observed as a key reason for delay: Arranging for
minimum 50 acres contiguous land with CLU for industrial use has been one of the
biggest challenges for promoters, especially in hilly regions. Issues such as land ceiling
laws, no sub-lease permissions in state government laws in many states, time taken to
obtain environmental clearances etc have not helped the cause. Over time, Ministry has
now started giving more weight to projects which have land upfront at EoI stage (initial
screening stage). Also, final approval is accorded only when promoters have land in
possession with CLU permission so that no delays are caused post final approval. State
Governments have now been made an integral part of selection and approval process.
With this, state governments are being sensitized about the requirements of the Scheme,
and in turn, they are making suitable modifications in the land related laws
2. Lack of adequate response from large and recognized players in food processing sector:
The first set of Guidelines required the SPV to have at least five independent entities. The
number was later reduced to three. This condition was found to be restricting as many
large entities were keen on setting up such projects on their own. Based on feedback from
the industry and consultations with other stakeholders, the Guidelines have now been
further modified and a single entity can also implement the project. Also, while in the
earlier set of Guidelines, having a food processor member was a must, new Guidelines
have done away with this condition so as to encourage participation by large players in
the infrastructure space
3. The Scheme earlier required only in-principle approval for term loan component before
final approval. This led to significant delays as in most cases formal sanction of term loan
took more than 6 months even as SPVs awaited this sanction before going ahead with
project construction and award of contracts. After Financial closure too, it was observed
that pre-disbursement conditions imposed by the banks were too strict to be met in some
cases. Banks are now being sensitized about the Scheme by PMAs and PMCs. Revised
Guidelines have made sanction of term loan along with submission of bank appraisal
report a pre-requisite for Final Approval. This is expected to improve the quality of DPRs
being submitted by SPVs and make them more realistic. It is also likely to assist
Ministry/PMA in appraisal and approval exercise and in significantly reducing the project
implementation period
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
4. Scheme Guidelines earlier provided for release of 10% of approved grant as advance after
Final Approval and SPVs providing proof of equity contribution of 10 %. They did not
require SPVs to incur any expenditure except for land acquisition cost. Revised
Guidelines require expenditure certificate from SPVs for at least 10 % of equity
contribution (term loan plus equity) out of eligible project cost. SPVs are now required to
incur expenditure on project components, in addition to land and pre-operative
expenditure, before receiving any grant. Grant installments are now also linked to clear
and proportionate physical progress not only on core processing infrastructure at CPC but
also on other project components like PPCs, SDF sheds and leasing units. These
modifications are likely to assist in more holistic development of projects
5. Guidelines now envisage a greater involvement of State Govt. for effective project
implementation. State Govt. representative is now member of both the Technical
Committee (TC) and the Approval Committee (AC). Ministry is also encouraging State
Govt. Representatives to be part of SPV’s board
6. Another modification in the Guideline has been the redefining of the eligible Project Cost
for grant eligibility. Eligible project cost was earlier defined as total project cost minus
cost of land. Eligible project is cost now defined as total project cost minus (-) cost of
land, pre-operative expenses and margin money for working capital (MMWC). However,
PMC Fee (up to 2 percent of eligible grant) and interest during construction (IDC), both a
part of pre-operative expenses, shall be part of the eligible project cost
As concluding remarks on the performance of the Scheme, it can be said that while it was
slow to take off due to reasons highlighted above, a more conducive implementation
environment and more investor-friendly Scheme Guidelines may go a long way in ensuring
timely execution of such projects. While two projects are already operational, another 3-4
projects (in West Bengal, Punjab and Karnataka) are expected to be complete within in this
financial year. Hence, close to half a dozen operational projects by end of FY 2014-15 will
serve as a boost not only to MoFPI’s initiatives but also to other private players executing
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
these projects in other parts of the country. Overall, the Scheme has the potential to augment
food processing related operations in India. The growth of the sector, as is well documented,
is critical for achieving growth in the agricultural sector which in turn is a pre-requisite for
holistic growth of Indian economy. Growth of sector is also essential to meet twin national
objectives of “inclusive growth” and “food security”. Importantly, the growth of this sector
will reduce food wastage across value chain (value terms) and is also seen as a means of
curbing inflationary tendencies. The successful implementation of the Mega Food Parks will
help, in its own unique way, in providing fillip to the above mentioned positive ripple effect
Total 122
The total project cost of the all the approved cold chain projects is more than Rs. 2800 crore
with a approved grant amount of about Rs. 950 crore, out of which about Rs. 328 crore has
been disbursed to the projects. Out of the 122 approved cold chain projects, 24 projects are
completed and operational. Another 13 projects have also reported to be completed and the
final verification/ release of the final installment of grant by the Ministry are pending in these
cases. Recently, the Ministry has come out with another invitation for EOI for about 15 more
cold chain projects under the scheme. The appraisal process for the same is underway. The
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
state-wise distribution of Cold Chain Projects which have been granted approval by the
Ministry is given in the exhibit below :
Sl. No. Name of State No. of Projects Sl. No. Name of State No. of Projects
1 Andhra Pradesh 7 13 Maharashtra 31
2 Arunachal Pradesh 1 14 Manipur 1
3 Assam 4 15 Mizoram 2
4 Bihar 1 16 Odisha 1
5 Chhatisgarh 2 17 Punjab 7
6 Gujarat 8 18 Rajasthan 3
7 Haryana 5 19 Sikkim 1
8 Himachal Pradesh 9 20 Tamil Nadu 1
9 Jammu & Kashmir 4 21 Uttar Pradesh 6
10 Karnataka 4 22 Uttarakhand 11
11 Kerala 3 23 West Bengal 7
12 Madhya Pradesh 3 Total 122
Based on the stakeholders’ feedback and deliberation during the Working Group for 12th Five
Year Plan, the scheme has been revised for non-horticulture produces which are now being
implemented under National Mission of Food Processing by the state governments (although
the for horticulture produces, the MoFPI still implements the scheme directly). Under NMFP,
the financial incentives are given now in two parts: Capital Subsidy and Interest Subsidy
The above has been designed to ensure that project assets, after completion, are efficiently
utilized. This was based on the suggestion that many of the projects after completion, and
receiving entire grant amount, are not operated in optimal manner. Under the revised
framework, the applicants have to ensure operation of the facilities to avail entire grant. This
was also to address the concerns that assistance to cold chain projects would be more critical
during operation phase than implementation phase
The capital subsidy has been reduced to 35% of the bank appraised project cost including
Interest during Construction (IDC), subject to a maximum of Rs. 5 crore per project. There is
also interest subvention available for a period of 5 years from the date of completion of the
project. Every year the interest subsidy @ 6% will be paid to the Bank/FI directly against the
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
term loan sanctioned by it, subject to a maximum of Rs. 2 crores per project or actual interest
accrued on term loan, whichever is less
In Difficult areas and NER, the capital subsidy is now up to 50% of the bank appraised
project cost including Interest during Construction (IDC), subject to a maximum of Rs. 5
crores per project. The interest subvention is available for a period of 7 years from the date of
completion of the project. Every year the interest subsidy @ 7% will be paid to the Bank/FI
directly against the term loan sanctioned by it, subject a maximum of Rs. 3 crores per project
or actual interest accrued on term loan, whichever is less
Another significant revision under the scheme for NMFP has been that for all the projects,
there needs to be term loan of at least 25 % of the project cost. This was considered advisable
as many applicants did not propose term loan for their projects or provided for small term
loans (even less than 10 % of project cost), which made the entire appraisal exercise
unreliable. It may be noted that under the Scheme, the Ministry relies mostly on bank
appraisal notes, to establish technical and financial viability of the projects, as also
commitment and resourcefulness of the promoters. Thus, in case of no loan or insignificant
loan amount, the appraisal notes from banks/financial institutions were not found adequately
detailed and trustworthy
The scheme so far has achieved considerable progress and witnessed very encouraging
response from stakeholders. The approved projects would be creating more than 2 lakh MT
of cold storage, 1.3 lakh MT of MA/CA storage, 55,000 MT of Deep Freezers, about 100
MT/Hr capacity of Individual Quick Freeze (IQF), 100 Lakh Litres/Day of milk processing
facilities and more than 600 refrigerated vehicles. Presently, it has been observed that the
projects, which are being funded under the Scheme, generally do not face any major issues
regarding sanctioning of term loans from banks and other financial institutions. This is due to
relatively large amount of grant from the Ministry and reduced risk exposure of the banks
through security cover. Although such favourable views of the banks/ FIs towards the cold
chain projects lead to financial closure without many hindrances, however, it may lead to less
rigour and detailing in the appraisal process of the banks/ FIs for the projects and may also
result in less due diligence of the projects by the banks/ FIs during the project execution and
operational phases. In the past, some projects may have been cancelled due to such issues
Apart from modifications made under the NMFP, the Scheme was also modified for
horticultural produces (which is directly implemented by the Ministry) in 2013. The major
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
modifications made are the mandatory requirement of term loan from banks/ FIs of at least
10% of the project cost and revision of project implementation timeline from 18 months to 24
months in case of projects in general areas. In case of projects located in Northeast and hilly
areas the implementation timeline was increased to 30 months instead of 18 months
This section will briefly describe the progress of the proposed mega clusters.
Moradabad Mega Cluster: In this mega cluster six new projects with the project
cost of Rs.57.55 crore have been sanctioned to six Special Purpose Vehicles
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
(SPVs) with the Government of India investing Rs.50.21 crore. Raw material
Bank for Metal Craft, Common Facility Centre for Wood procession, Common
Facility Centre for Metal Handicrafts Processing, Design & Product Development
Centre and Marketing Support Centre have been inaugurated during 2012-13.
Mirzapur-Bhadohi and Srinagar Carpet Mega Clusters: In these two mega
clusters, Cluster Management and Technology Agencies (CMTAs) have been
appointed. For the Mirzapur-Bhadohi cluster, Skill Development Programme for
20,000 carpet weavers at total project cost of Rs. 21.67 crore and Government of
India share of Rs. 15.55 crore have been sanctioned. For the Srinagar cluster, Skill
Development Programme for 10000 Carpet weavers at total project cost of
Rs.12.75 crore and the Government of India share of Rs.10.00 crore have been
sanctioned. In addition to this distribution of 2000 improved carpet looms at
Project cost of Rs. 10.00 crore with Government of India share of Rs. 8.00 crore
has been sanctioned.
Narsapur Mega Cluster: In this mega cluster four new projects with project cost
of Rs.41.87 crore have been sanctioned to four SPVs with the Government’s
investment of Rs.35.05 crore.
The Detailed Project Report (DPR) for comprehensive handicrafts Cluster Scheme
for Jodhpur Mega Cluster, has been approved
The cluster development scheme for handicrafts is further divided into sub-components for
the disbursement of grant-in-aid money from the Government of India. The sub-components
are as follows:
1. Ambedkar Hastshilp Vikas Yojana(AHSVY)
2. Marketing and Support Services(MSS)
3. Human Resource Development Scheme(HRDS)
4. Design Scheme(DS)
5. Research and Development Scheme(RDS)
6. Infrastructure and Technology Development Scheme(ITDS)
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
The following table provides us with the figures on the Government grant-in-aid under the various sub-components of the handicraft clusters for
the financial year 2014-15:
CL-
STATES AHSVY MSS CL-DS CL-HRD HRDS DS RDS ITDS Total
MSS
Uttar Pradesh 0.04 1.13 0.74 0.40 0.13 0.42 0.12 0.21 0.24 3.43
Rajasthan 0.02 0.00 0.12 0.12 0.01 0.00 0.00 0.00 0.00 0.27
Jammu & Kashmir 0.01 0.32 0.00 0.02 0.00 0.00 0.00 0.00 0.00 0.34
Bihar 0.01 0.02 0.85 0.08 0.00 0.00 0.00 0.02 0.00 0.97
Haryana 0.05 0.33 0.77 0.67 0.08 0.00 0.00 0.06 0.00 1.96
Punjab 0.04 0.10 0.11 0.04 0.11 0.00 0.00 0.00 0.00 0.40
Uttrakhand 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01
Delhi 0.01 4.02 0.35 0.15 0.04 0.38 0.69 0.05 8.63 14.32
Andhra Pradesh 0.01 0.00 0.06 0.02 0.01 0.01 0.00 0.00 0.00 0.10
Jharkhand 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01
Odisha 0.01 0.30 0.17 0.04 0.13 0.02 0.01 0.05 0.00 0.73
Manipur 0.02 0.00 0.00 0.00 0.00 0.00 0.02 0.00 0.00 0.03
Assam 0.00 0.42 0.00 0.00 0.00 0.01 0.06 0.02 0.00 0.50
Gujarat 0.00 0.27 0.22 0.11 0.04 0.00 0.05 0.00 0.00 0.68
Himachal Pradesh 0.00 0.09 0.08 0.13 0.00 0.00 0.00 0.00 0.00 0.30
Karnataka 0.00 0.04 0.07 0.04 0.00 0.00 0.01 0.00 0.02 0.17
Madhya Pradesh 0.00 0.29 0.85 0.33 0.02 0.38 0.05 0.02 0.00 1.95
Nagaland 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01
Tamil Nadu 0.00 0.69 0.00 0.00 0.01 0.00 0.00 0.00 0.13 0.83
West Bengal 0.00 0.06 0.00 0.00 0.00 0.00 0.07 0.03 0.00 0.16
Uttarakhand 0.00 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.04
Chhattisgarh 0.00 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.05
Kerala 0.00 0.00 0.02 0.05 0.00 0.00 0.00 0.00 0.00 0.06
Maharashtra 0.00 0.00 0.32 0.18 0.00 0.00 0.04 0.00 0.00 0.54
Manipur 0.00 0.00 0.05 0.05 0.00 0.00 0.00 0.00 0.14 0.25
Figures are in Rs Crores
72
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The Department of AYUSH, Ministry of Health and Family Welfare, had approved nine
AYUSH clusters in eight States one each in Kerala, Karnataka, Tamil Nadu, Odisha, Andhra
Pradesh, Punjab, Rajasthan and two in Maharashtra for setting up of AYUSH industry cluster
as common facilities centre for manufacturing and testing facilities for Ayurvedic, Siddha,
Homeopathy and Unani medicines. The scheme was launched in 2008 and was to co-exist
with the 11th five year plan with a scheme outlay of Rs. 100 crore. Since then scheme has
been slightly modified and was approved for continuation into the 12th Five Year Plan by the
Expenditure & Finance Committee (EFC) in 2013 after a mid term appraisal commissioned
by the Department. The Department through the continued scheme intends to cover the
hitherto uncovered states so as to have geographical parity. Till date 10 projects have been
sanctioned with a total project cost of Rs. 160 crore and a cumulative sanctioned grant of Rs.
94 crore. One out of the 10 projects, Andhra Pradesh has been cancelled in 2013 because of
internal mismanagement in the SPV. One project has started commercial operations and has
drawn the last instalment of grant on reimbursement basis. There are three projects which
have drawn three instalments of grant and the last instalment of grant on reimbursement basis
is pending. Rests of the projects are at different stages of implementation and are likely to get
commissioned in FY 2014- 15
The following table presents the fund details of the nine AYUSH approved clusters6:
Funds Allocated
Sl No State/UT AYUSH Special Purpose Vehicle
(Rs. in crores)
1 Andhra Pradesh Lepakshi Ayush Park Private Limited 10.00
2 Karnataka Ayurpark Health Care Limited, 10.00
3 Kerala CARE Keralam 10.00
Maharashtra Ayurved Center Pvt. Ltd. 9.49
4 Maharashtra
Konkan Ayur Pharma Pvt. Ltd. 8.87
6
http://pib.nic.in/newsite/PrintRelease.aspx?relid=82718
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Total 83.70
The following table presents the details of grant-in-aid released under the Central Sector
Scheme for the Development of Common Facilities for AYUSH Industry Clusters:
2008-09
Grant- in-
S. No Name of the SPVs aid(Rs in
crores)
1 M/s Confederation for Ayurvedic Renaissance Keralam Limited 2.00
2 M/s Konkan Ayur Pharma Pvt Ltd., Sangemeshwar, Maharashtra 1.50
3 M/s Herbal Health Research Consortium Pvt. Ltd., Amritsar, Punjab 2.00
2009-10
1 M/s Mahrastra Ayurvded Center Pvt. Ltd; Pune,Maharshtra 2.50
2 M/s Ayurpark Heatlh Care Limited, Bangalore, Karnataka 2.00
3 M/s Traditional AYUSH Cluster, Pvt. Ltd;Tamil Nadu, Chennai 2.00
4 M/s Herbal Health Research Consortium Pvt Ltd.,Amritsar, Punjab 4.00
5 M/s Konkan Ayur Pharma Pvt Ltd., Sangemeshwar, Maharastrha 1.04
2010-11
1 M/s Mahrashtra Ayurved Center Pvt. Ltd; Pune, Maharashtra 3.50
2 M/s Konkan Ayur Pharma Pvt Ltd., Sangemeshwar, Maharashtra 1.96
3 M/s Ayurpark Heatlh Care Limited, Bangalore, Karnataka 4.00
4 M/s Lepakshi Ayur Park Pvt. Ltd; Hyderabad, Andhra Pradesh 2.00
5 M/s Rushikulya Ayurvedic Cluster Pvt. Ltd; Ganjam, Odisha 1.20
In addition to the above mentioned SPVs, M/s Assam Ayurvedic Consortium Pvt. Ltd in
Assam, M/s CG Ayursh Health Pvt. Ltd in Chattisgarh and M/s Sanskar Ayush Medicare
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Pvt. Ltd in Uttrakhand have received “Conditional In-principle Approval”. The cancelled
Special Purpose Vehicles under the ambit of this scheme are M/s Spark Herbotech Ltd;
Hyderabad, Andhra Pradesh and M/s Maha AYUSH Park Ltd; Nasik, Pune
The Government of India has targeted to implement this scheme in the 12th Five Year Plan
period i.e. 2012-17. To this effect, the Ministry of Commerce and Industry, Department of
Industrial Policy and Promotion (Leather Section) convened a meeting on 20th January 2014,
at Udyog Bhawan where in they have constituted an Empowered Committee and a Steering
Committee for the implementation of the scheme
The roles and responsibilities of the Empowered committee have been defined as the
following:
Sl No Personnel Position
1 Secretary(IPP) Chairman
2 Financial Advisor, Department of Industrial Policy and Promotion Member
3 Representative of Planning Commission not below the rank of Advisor Member
Representative of Ministry of Environment and Member
4 Member
Forests not below the rank of Joint secretary
Representative of Department of Animal Member
5 Husbandry and Dairying not below the rank of Member
Joint Secretary
Representative of Ministry of MSME not below the Member
6 Member
rank of Joint Secretary
7 Chairman, Council for Leather Exports Member
Chairperson, Footwear Design and Development Member
8 Member
Institute
Managing Director, Footwear Design and Member
9 Member
Development Institute
10 Director, Central Leather Research Institute Member
Representative of State Government pertaining to the State for which the
Special
11 proposal under Indian Leather Development Programme is being
Invitee
considered
Representative of the organization (s) for which the proposal under Special
12
Indian Leather Development Programme is beinq considered Invitee
Experts from organization having expertise on the proposal under Indian Special
13
Leather Development Pronrarnme is being considered Invitee
Joint Secretary (Leather), Department of Industrial Convener Policy and
14 Convener
Promotion
The roles and responsibilities of the Steering committee have been defined as the following:
1. Ensure effective implementation, lay down procedures. decide normative prices for
standard plant and machineries required for the modernization programme, accord
sanction of financial assistance from Government, and monitor and follow up
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
disbursal of financial assistance from Government to the industrial units under the
sub-scheme Integrated Development of Leather Sector (IDLS);
2. Approval of proposals under the sub-schemes of Indian Leather Development
Programme costing upto Rs. 15 crore; and
3. Monitor the implementation of the projects sanctioned by the Department under
Indian Leather Development Programme.
4. Approve specific issues concerning all sub-themes of ILDP as mentioned in the
concerned guidelines.
5. Any other work assigned by the Empowered committee.
The notice for inviting applicants for setting up the Mega Leather Cluster and empanelment
of Project Management Consultants are displayed below:
Notice for Invitation of Applicants for setting up the Mega Leather Cluster
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
In the wake of the Central Government approving the National Plastic Park policy which was
further modified in 2013, four plastic parks were approved in the following states of Madhya
Pradesh, Tamil Nadu, Odisha and Assam. These four shortlisted plastic parks were in
allocated in the following regions: Paradip in Odisha, Manali Industrial Estate near Ennore
port in Tamil Nadu, Tinsukia in Assam and Bhopal in Madhya Pradesh. They are expected to
be operational in the next one to two years. In the 12th Five-Year Plan, it is envisaged that six
more plastic parks will come up in Punjab, Haryana, Rajasthan, Uttar Pradesh, Odisha and
Andhra Pradesh
The following section will briefly describe the four plastic parks that are under various stages
of implementation.
Post the Department of Chemical and Petrochemical under the Union ministry
of Chemicals and Fertilizers had given its in-principle approval, the central
government has given its final nod for the Plastic Park project near
Paradip. This plastic park is being developed through the Special Purpose
Vehicle known as Paradip Plastic Park Limited with Indian Oil Corporation
Limited and Odisha Industrial Infrastructure Development Corporation
(IDCO) having 74 per cent and 26 per cent stakes in it respectively. The site
has been finalized at Siju village near the Paradip port. The acquisition of the
required land of 120 acres required for the project by Odisha Industrial
Infrastructure Development Corporation (IDCO) has been completed and the
construction of the park is expected to get completed by 2014.The
Odisha government expects to attract investment of Rs 2.78 lakh million in the
Paradip Petroleum, Chemicals and Petrochemicals Investment Region and
other related projects
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The State Industries Promotion Corporation of Tamil Nadu (SIPCOT) and the
Tamil Nadu Industrial Development Corporation (TIDCO) had floated a joint
venture to implement the plastic park project which will be set in the
government owned land near the Ennore port and the Larsen & Turbo port
near Kattupalli. The plastic park is earmarked to be set up in 300 acres of land
and the total project cost is Rs 243 crore with Government of India pitching in
with Rs 40 crore in grant. The detailed project report was submitted in April
2013 and it is expected to be completed by 2016. Indian Oil Corporation has
expressed its interest in setting up a plastic container manufacturing unit. The
park will have the capacity to have over 70 such units which can generate over
25,000 jobs
The proposed plastic park is being set up at Tamot village in Raisen district.
The state government has already transferred 138 acres of land belonging to
Madhya Pradesh Audyogik Vikas Nigam, Bhopal to the Special Purpose
Vehicle for setting up the park. Besides this it also exempted the land from
registration fee and stamp duty. The Madhya Pradesh Audyogik Kendra Vikas
Nigam has been appointed as the nodal agency for its implementation and the
name of the Special Purpose Vehicle is Madhya Pradesh Plastic Park
Development Corporation Ltd. The proposed plastic park will house around
150 industrial units and would create jobs for 25,000 persons directly or
indirectly. At present, 30 industrialists/ investors have deposited money for
acquiring shares in the park. The All-India Plastic Manufacturers Association,
Mumbai and its members have also signed MoU with Trade and Investment
Facilitation Corporation Limited, Government of Madhya Pradesh for
bringing major investment proposals in the plastic sector
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The Electronic Manufacturing Clusters scheme was launched in April 2013. The scheme has
a two step approval process- in-principle approval and final approval. The scheme supports
setting of common facilities in Brownfield clusters and setting up of Greenfield cluster parks.
Under this scheme, 7 Greenfield parks and 1 common facility centre has been accorded in-
principle approval under the scheme till December 2013. While 6 out of the 7 Greenfield
projects are promoted by State Governments/ their agencies the remaining Greenfield and 1
common facility projects is being promoted by industry associations. The common facility
centre is proposed in Karnataka. None of the projects have been accorded final approval as of
now
The following table shows the status of the proposed Greenfield projects under this scheme:
Financial outlay
Proposed
Sl. Location of (Figure in Rs. crores)
State Area Status
No Cluster Estimated GIA
(Acres)
Cost sought
Andhra e-city In Principle
1 602.37 580 264
Pradesh Hyderabad approval accorded
Andhra
2 Maheshwaram 310.15 360 155 Non Responsive
Pradesh
EMPI
Andhra Under preliminary
3 Innovation Park 100.00 1201.1 22.57
Pradesh Appraisal
Ltd.
Andhra Applications
4 Chilamathur 47.00 53.48 62.5
Pradesh withdrawn
Andhra Applications
5 Puttandoddi 125.00 125 0
Pradesh withdrawn
Andhra Pydi Applications
6 0.00 0 0
Pradesh Bhimavaram withdrawn
Andhra Applications
7 Parwada 0.00 0 63.6
Pradesh withdrawn
Andhra Under preliminary
8 Shankarpur 175.00 130.64 276
Pradesh Appraisal
Tamil In Principle
9 Hosur 527.08 549.5 78.5
Nadu approval accorded
Tamil Under preliminary
10 Coimbatore 157.00 171.11
Nadu Appraisal
In Principle
11 Rajasthan Bhiwadi 100.66 198.64 50.35
approval accorded
12 Madhya Bhopal 50.00 45.11 21.61 In Principle
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The following table shows the status of the Brownfield project for the Common Facility
Centre:
Financial outlay
S.no State Location of Cluster Status
(Figure in Crores)
Electronic
In Principle approval
1 Karnataka city 85.15
accorded
Bangalore
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-6: Demand Assessment for Common
Industrial Infrastructure/facilities for
MSMEs
The rapid growth of the Indian economy in recent years has placed increasing stress on
physical infrastructure which already suffers from deficit in terms of capacities as well as
efficiencies. The pattern of inclusive growth averaging at 9 percent per year as conceived
under the Twelfth Five Year Plan (2012-17) can be achieved only if this infrastructure deficit
is overcome and adequate investment takes place to support higher growth and an improved
quality of life for both urban and rural communities. Based on projections provided in the
Mid-Term Appraisal of the Twelfth Plan, in order to attain a 9 percent real Gross Domestic
Product (GDP) growth rate, infrastructure investment should be on average almost 10 percent
of GDP during the Twelfth Plan. This translates into INR 41 lakh crore at 2006-07 prices
(real terms), as estimated by the Planning Commission of India. At an annual inflation rate
of 5%, this translates into an equivalent to INR 65 lakh crore in current prices
Total Twelfth
FY13 FY14 FY15 FY16 FY17
Year Plan
GDP at FY07 prices
68,825 75,019 81,771 89,131 97,152 411,898
(INR Billion)
Infrastructure investment as %
9% 10% 10% 10% 11% 10%
of GDP
Infrastructure Investment
6,194 7,127 8,095 9,180 10,395 40,992
(INR Billion in current prices)
Source: Mid Term Appraisal Twelfth Five Year Plan, Planning Commission
This section of the report will focus on assessing the demand of the projects elucidated within
the scope of this report and assess the need of such schemes. This covers the following major
schemes a) Scheme for Integrated Textile Parks b) Micro and Small Enterprises–Cluster
Development Programme c) Modified Industrial Infrastructure Up-gradation Scheme d)
Mega Food Parks Scheme e) Scheme for Cold Chain, Value Addition and Preservation
Infrastructure f) Comprehensive Handicrafts Cluster Development Scheme g) Scheme for
Development of AYUSH Clusters h) Mega Leather Cluster Scheme i) Plastic Parks Scheme
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
and j) Electronic Manufacturing Clusters Scheme. The major focus on such schemes
promoted by the government is creation of well equipped infrastructure for the promotion of
these sectors through a Cluster Based Approach. The design and implementation of the
schemes is a well thought out strategy by the central government wherein equal thrust is
given on skills development, technology up gradation and private sector involvement as well.
Overall these schemes seek to address the following gaps that are present in these sectors: a)
Access to finance b) Access to markets c) Access to infrastructure d) Access to people e)
Access to technology and f) Smoothening regulatory constraints.
introduced in late 70s is still the most prevalent technology and decades behind modern
technologies available to competing countries like China, Taiwan, etc. The sports goods
cluster in Jalandhar produces about 15 million soccer balls each year with about 30,000
workers, in comparison, a leading manufacturer of soccer balls in China produces 18 million
balls with about 6000 workers. The difference is due to adoption of technology which has
automated stitching to some extent. Similarly MSMEs in the auto component sector need
about 3 months for product development which can be achieved in less than 3 days with
access to technologies like Rapid Prototyping. The availability of such knowledge
infrastructure can address these technology related gaps. In the leather sector, which is highly
labor intensive, total capacity of institutional infrastructure for training is less than 5000
persons per annum while the demand is for more than 50,000 additional skilled workers for
the shop floor operations alone
The Indian Textile Industry contributes about 11 percent to industrial production, 14 per cent
to the manufacturing sector, 4 percent to the GDP and 12 per cent to the country's total export
earnings. It provides direct employment to over 35 million people, the second largest
provider of employment after agriculture. Besides, another 54.85 million people are engaged
in its allied activities. The primary production and inefficiency gaps that exist in the Indian
Textile Sector are as follows:
Availability of critical input material like raw materials, manpower and
technology
Acute shortage of new & skilled workforce in the industry
Inadequate Support Infrastructure
Issues impacting value addition
In the 11th Five year plan, a total of forty projects totaling Rs. 4183.26 crores in project cost
were sanctioned. In the 12th Five year plan, an additional forty parks has been sanctioned with
the total fund outlay of Rs.1400 crore by the government. During the 12th Five Year Plan the
Ministry of textiles estimates that the annual production of cloth is projected to increase from
64.90 billion square meters in 2011-12 to 111.85 billion square meters by the terminal year
i.e. 2016-17, with incremental production of 46.95 billion square meters which is a rise of
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
Infrastructure/Facil
for MSMEs Under PPP and Private Ownerships
The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and
innovation.
n. This sector contributes 8 per cent of the country’s GDP, 45 per cent of the
manufactured output and 40 per cent of its exports. The MSMEs provide employment to
about 60 million persons through 26 million enterprises. The MSE Cluster Development
Programmee focuses on imbibing increase in productivity and competitiveness in the clusters.
In a survey conducted by UNIDO, it is estimated that there are around 6400 clusters in India.
Out of these a total of 4259 clusters have been mapped. The typology of these clusters is as
follows:
The following figure shows the zonal distribution of the SME clusters in India.
31%
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The state of Uttar Pradesh leads in terms of maximum clusters in a state. The figure displays
the distribution of SME clusters in India. 80 per cent of the clusters are present in the
following states: Uttar Pradesh, Tamil Nadu, Gujarat, Maharashtra, Kerala, Andhra Pradesh,
Karnataka, Punjab, West Bengal and Madhya Pradesh.
Orissa
Rajasthan
80%
West Bengal
Karnataka
Kerala
Gujarat
Uttar Pradesh
The demand assessment of the Cluster Development Programme is carried out based on the
scope of activities of the scheme, which are as follows:
The Ministry of Micro, Small and Medium Enterprises has till date carried
out 470 Diagnostic Study Reports which means that only 43 per cent of the
clusters have been covered. There is a further requirement of Diagnostic
Study Reports to be prepared for 742 clusters.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Remaining
Completed
Andhra…
Jammu &…
Madhya…
Uttar…
Himachal…
Karnataka
Goa
Haryana
Meghalaya
Odisha
Pondicherry
Bihar
Gujarat
Manipur
Jharkhand
Nagaland
Uttarakhand
Punjab
Rajasthan
West Bengal
Delhi
Kerala
Assam
Maharashtra
Tripura
Chattisgarh
Lakhsadweep
Tamil Nadu
ii. Soft Intervention
A total of 388 industrial clusters across 21 states in India have been identified by the
Department of Micro, Small and Medium Enterprises. The identified clusters encompass all
the sectors ranging from agricultural implements, electronics and electrical manufacturing,
leather, auto components etc. Out of these clusters, only 39 clusters have been brought under
the ambit of the MIIUS scheme during the Tenth and the Eleventh Five Year Plan. These
clusters can be further segregated based on the following indicators: Maximum Potential for
Technology Up gradation and Export Potentiality of the products. Ranking the clusters on
High, Medium and Low for the aforementioned indicators the demand assessment for this
scheme is carried out. The present analysis takes into account only the High and Medium
ranks for the indicators. The analysis shows that there are a total of 305 clusters covering 20
states across India where MIIUS can be further implemented. The following table lists out the
state-wise potential number of clusters.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Number of Number of
States States
Clusters Clusters
Andhra Pradesh 26 Maharashtra 44
Bihar 3 Madhya Pradesh 9
Chattisgarh 2 Odisha 13
Delhi 14 Punjab 27
Gujarat 40 Rajasthan 18
Himachal Pradesh 1 Tamil Nadu 22
Goa 1 Uttaranchal 2
Haryana 15 Uttar Pradesh 30
Jammu & Kashmir 3 West Bengal 13
Karnataka 14 Kerala 8
Maharashtra 44
Total number of clusters = 305
Kerala Approval
Number of
Jammu & Kashmir clusters(Unmet
Goa demand)
Gujarat
Chattisgarh
Andhra Pradesh
0 10 20 30 40 50
Number of Clusters
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Vision 2015
To realize the vast potential of Indian agriculture by trebling the size of processed food
sector so as to enhance farmer income, generate employment opportunities, provide
choice to consumers at affordable price and contribute to overall national growth by
increasing the following:
A. The level of processing of perishables from 6% to 20%.
B. Value addition from 20% to 35%
C. Share in global food trade from 1.5% to 3%
The rationale behind setting up food parks is that small and medium entrepreneurs find it
difficult to invest in capital intensive activities. Thus, as a strategy to develop the food
processing infrastructure, Ministry of Food Processing has been actively pursuing setting up
of food parks in different parts of the country. It is envisaged that in such parks common
facilities like cold chain, food testing and analysis laboratories, packaging centers, training
facilities will be housed for the entrepreneurs. Such schemes are designed to provide impetus
to the Indian food industry which is expected to touch Rs. 13, 50,000 crore by 2015. The food
processing industry can be basically divided into the following three categories: a)
Agriculture based b) Livestock based and c) Fisheries based. MFPS is expected to facilitate
the achievement of the Vision 2015 of Ministry of Food Processing Industries. The below
table provides us with an indicative snapshot of the Primary Processed Products and Value
Added Products as per the above three categories
It is forecasted that the market size for Projects Approved in Mega Food Park Scheme
Status of Food Processing Units under Food Park and Mega Food Park
Scheme in India
processed foods will increase from Rs.
12th Five Year Plan 50
4, 60,000 crore to Rs. 13, 50,000 crore Total 34
(at 2003-04 prices) and the share of 11th Five Year Plan 15 30
Food Parks already setup
7
http://www.dsir.gov.in/reports/isr1/Food%20Processing/6_5.pdf
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
Infrastructure/Facil
for MSMEs Under PPP and Private Ownerships
currently 25 million tonnes8 of storage capacity across 23 states whereas the total horticulture
production as per NHB data
ata is around 2807 million tonnes.
tonnes It is no wonder that in light of
such situation, India ranks high in food wastage globally.
8
http://www.thehindu.com/business/Industry/private
http://www.thehindu.com/business/Industry/private-investments-needed-to-fill-cold-storage-facility-gap-mfp/article5321214.ece
mfp/article5321214.ece
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
According to a report developed by UNIDO in 2013 for the Department of Micro, Small and
Medium Enterprises reported that there are 2862 handicraft clusters in India. The following
states namely Uttar Pradesh, Odisha, West Bengal, Gujarat, Maharashtra, Madhya Pradesh,
Andhra Prades, Karnataka, Bihar and Rajasthan constitute for around 69 per cent of the total
such clusters in India.
Out of a reported 2 lakh artisans in India, Gujarat, Uttar Pradesh, Andhra Pradesh, Karnataka,
Kerala, Jammu and Kashmir, Odisha, West Bengal, Delhi and Assam constitute for 72 per
cent of the total artisans and 65 per cent of the total handicraft products produced. The
following table lists out the clusters/production centers along with the identified handicraft
identified by the Working Group, Ministry of Textiles report for the 12th Five Year Plan. For
the 12th Five Year Plan, the government has proposed Lucknow, Bareilly and Kutch for the
next set of Mega Clusters. The following table lists the identified major production centres
for various handicraft products.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Further analyzing the identified production centers based on the following indicators: a)
Turnover of the Clusters b) Total Export Value and C) Artisans Involved, it can be seen that
Saharanpur and Agra has the potential to come up as Mega Clusters in the immediate future.
The combined turnover of these two clusters is Rs 600 lakhs, out of which 50 per cent comes
from exports indicating good export market for their products. The total number of artisans
involved for these two clusters is 80,000.
“In a vast country like India, there should be at least one AYUSH industry cluster in each
state”.
The Scheme for Development of AYUSH Clusters was designed to promote the the
Ayurveda, Yoga and Naturopathy, Unani, Sidha & Homeopathy (AYUSH) industry which
represents the traditional form of Indian medicine and has been part of India’s socio- cultural
heritage. The estimated global herbal industry is valued over US$ 60 billion mainly in the
form of pharmaceuticals (US$ 40 billion), spices and herbs (US$ 5.9 billion), natural
cosmetics (US$ 7 billion) and essential oil (US$ 4 billion) and it is growing at the pace of 7%
per year and is expected to reach US$ 5 trillion by the year 2050. During the last four Five
Year Plans, total export of herbal products from India had increased from about Rs. 581 crore
in 1995-96 to about Rs. 1713 crore in 2010-11 showing a positive balance of trade despite the
fact that overall balance of trade has been negative since 1996-97. Despite a steady
performance of MAPs sector over the years, Indian share in the world’s herbal export is
insignificant comprising of around 1.6% and largely 2/3rd of it in the form of raw herbs9. This
industry has approximately an annual turnover of Rs. 5000 Crore and is essentially dominated
by micro, small and medium enterprises (MSMEs) which account for more than 80% of the
enterprises that are located in identifiable geographical clusters. Till now the government has
promoted the following 9 AYUSH clusters:
9
Vision 2050, Department of Medicinal and Aromatic Plants Research
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The Plan outlay for Department of AYUSH for 2014-15 is Rs. 1069.00 crore10.The system
wise details of manufacturing units in India in India as per the Department of AYUSH are as
follows11:
10
Expenditure Budget Vol.I, 2014-2015
11
http://www.indianmedicine.nic.in/showfile.asp?lid=44
12
Indiastat, accessed on 13-august-2014
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The supply chain in these production centres can be categorized into the following13: a)
Number of Growers b) Number of Traders c) Number of Manufacturers and d) Number of
Exporters14.Of these four categories, traders constitute 45% of the total supply chain agents
indicating that most of the products are traded in non-processed form. Estimating cost of raw
materials at Rs 41.4015 per kg, it can be observed that Madhya Pradesh provides an
immediate need of establishing an AYUSH cluster followed by Arunachal Pradesh,
Chattisgarh, Uttar Pradesh and Haryana respectively.
13
Organized sector
14
http://www.nmpb.nic.in/index1.php?level=0&linkid=92&lid=694
15
Calculation: As per Vision 2050 document, total industry size is Rs 5000 crore with 2/3rd of it in raw form which equates to around Rs
3750 crore. The total production of MAP is 904.94 ‘000 metric tonnes, which results in Rs 41.40 per kg.
16
http://www.leatherindia.org/products/leather_goods_23-4-13.asp
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Sl.
Export No. of Units Annual
No State District Employment
Potential in the Cluster Turnover
.
Andhra
1 Hyderabad High NA NA NA
Pradesh
2 Delhi South Delhi High 100-500 NA NA
High Less than or
3 Gujarat Ahmedabad 100-500 0-10 Crore
equal to 1000
4 Karnataka Bangalore High NA NA 100-1000 Crore
17
http://www.dcmsme.gov.in/clusters/clus/smelist.htm#clus
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
countries. In 2011–12, exports of Indian plastics stood at US$ 7.19 billion. In 2012–13,
exports of Indian plastics stood at over US$ 7.2 billion, and are expected to reach the US$ 10
billion by 2015-16. India's plastic exports are increasing at a high rate, as such, during May
2014 to June 2014, India exported plastic products worth US$ 971,273, followed by Saudi
Arabia and United States with exports valued at US$ 200,316 and US$ 174,471 respectively.
Indian plastics exports have grown at a rate of 19.9 per cent since 2007–08. Products from the
Indian plastics industry are exported to more than 150 countries; major trading partners being
China, the US, the UAE, Turkey, Italy, the UK, Indonesia, Germany, Vietnam, Bangladesh,
Nigeria, Pakistan, South Africa, Brazil, Singapore, Saudi Arabia, Nepal, Egypt, Sri Lanka
and the Netherlands18. With such a promising future for the industry, the Department of
Chemicals and Petrochemicals under the Ministry of Chemicals and Fertilizers sought to
provide impetus to the sector through the Plastic Park Scheme. Through this scheme, it
envisioned to bring the SMEs involved in the plastic sector with the much needed
infrastructural support. AIPMA (All India Plastics Manufacturers Association) envisages an
additional investment of Rs 25,000 crore for the industry in the coming years. According to
AIPMA officials, the country's plastics consumption is expected to grow to 20 million tonnes
by 2020 from the present 8 million tonnes. Even though exports of plastic and plastic
products have been growing at a brisk rate, the trade of balance for plastic and plastic
products has not been in India’s favour in the past19. The primary reason behind this is lack of
technological advancements in this sector. The industry representatives have been making
18
http://www.ibef.org/exports/plastic-industry-india.aspx
19
http://chemicals.nic.in/petro1.htm
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
requests for the sector to be brought under the ambit of TUF (Technology Up gradation
Fund). Unless the industry is nurtured with such schemes, it is very unlikely that standalone
Plastic Park Schemes will encourage the industry in terms of investments and expansion20.
The Indian Electronic System Design and Manufacturing industry is expected to grow at a
CAGR of 9.9% to reach US$94.2 billion by 201521.According to the study, products like
mobile phones, television and computing device alone account for 60% of the overall
electronics consumption. Currently a majority of the electronic products (65%) are imported
in the country, and the remaining 35% of the products that are manufactured in India belong
to "Low Value Added Manufacturing". Out of the 25 product categories, mobile phones lead
the demand with 38.85 per cent share, followed by FPD TV at 7.91 per cent, notebooks at
5.54 per cent and desktops at 4.39 per cent. Buoyed by the IT Industry, where India remains a
market leader globally, the hardware sector is also expected to rise in India. The government
in a bid to push the electronics manufacturing sector has identified seven Greenfield
Electronic Manufacturing Clusters to be set up. It is envisaged that this sector will employ
close to 28 million persons. The identified clusters are identified at Bhopal, Bhubaneswar,
Hyderabad, Maheshwaram, Bhiwadi, Jabalpur, Hosur and Kakhanada. Further to this,
recently the Department of Electronics and Information Technology has identified 5 clusters
in 3 states for Brownfield Electronic Manufacturing Clusters under the Modified Special
Incentive package Scheme22. The identified clusters are shown in the following table:
20
http://zeenews.india.com/news/eco-news/set-up-plastic-parks-provide-technology-upgrade-fund-group_894219.html
21
http://articles.economictimes.indiatimes.com/2014-01-13/news/46149784_1_iesa-warehousing-zone-mobile-phones
22
http://www.efytimes.com/e1/creativenews.asp?edid=102854
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
However the Government has put an upper limit in the Research and Development
component as 50% of the total project cost which is very surprising given that the electronics
industry is highly research oriented. It would not be surprising if this deters potential
investors from participating in this scheme notwithstanding the potential. This scheme will be
open for five years from the date of notification i.e. 22nd October 2012 until notified
otherwise.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-7: Public Private Partnerships
Partnerships in
India
“The Twelfth Plan must continue the thrust on accelerating the pace of investment in
infrastructure, as this is critical for sustaining and accelerating growth. Public investment in
infrastructure will have to bear a large part of the infrastructure needs in backward and
remote areas to improve connectivity and
Definition: “Public Private
expand the much needed public services. Since
Partnership” or “PPP” means an
resource constraints will continue to limit public arrangement between the Appropriate
investment in infrastructure in other areas, PPP- Government or a statutory entity or a
government-owned entity or Central
based development needs to be encouraged Public Sector Undertaking on one side
wherever feasible”. and a private entity on the other, for the
provision of public assets and/or public
- Approach to the 12th Five Year Plan, services, through investments being
made and/or management being
Planning Commission, GoI undertaken by the private entity, for a
specified period of time, where there is
The Government of India has clearly assimilated
well defined allocation of risk between
PPP as a significant part of its policy framework the private entity and the public entity
and the private entity receives
for infrastructure development in the country.
performance linked payments that
There has also been considerable progress in this conform (or are benchmarked) to
direction with share of PPP projects in total specified and pre-determined
performance standards, measurable by
infrastructure investments showing a rising trend the public entity or its representative.
It may be noted that the above figures are from PPP database of the Ministry of Finance,
Government of India and all projects have to meet prescribed guidelines to qualify as a PPP
project which would then also become eligible for Viability Gap Funding
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Civil aviation
Sports
1% Tourism and
2%
Railways
Ports 1% each
12%
Housing
3%
Roads
82%
In addition, to be eligible for consideration under VGF, a project needs to meet the following
criteria:
b. The criterion for bidding is the amount of viability gap funding required by the
private sector company for implementing the project where all other
parameters are comparable.
d. The concerned sponsoring entity has to certify with reasons the following: The
tariff /user charge cannot be increased to eliminate or reduce the viability gap
of the PPP project. The project term cannot be increased for reducing the
viability gap. The capital costs are reasonable and are based on standards and
specifications normally applicable to such projects where the capital cost
cannot be further restricted for reducing the viability gap.
BOT model has got two main approaches to handle traffic/market risk. Under the toll-based
BOT projects, traffic/market risk is borne by the private operators.
Under this model, capital subsidy may be provided to selected bidder for meeting the
projected “viability gap” during construction phase. An important variant of this approach is
“shadow tolling”, wherein private partners do not collect tolls from the road users but are
exposed to traffic risks, as they are paid on the basis of the volume of actual traffic. This
model has been found attractive due to provision of subsidy during construction phase. In
fact, as mentioned earlier, VGF which is the main scheme providing government support to
PPP projects has provision for providing capital subsidy normally during construction phase.
On the other hand, the private bidder remains exposed to traffic/ market risk under this model
which may make it unattractive for projects which are seen to have large market risks
Under BOT- Annuity Model though, the sponsoring entity (government or its agency)
absorbs the traffic risk and the private operator is paid for making the specified level of
infrastructure/service available regardless of the extent of traffic/market, these are also known
as “availability based” projects. This model has thus been found acceptable for NHAI
projects for highways which assures private operators the regular “annuity” payments over
project period. Of course, in this case, private operators may need to arrange for large capital
funds for completing the project which has its own cost implications
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
User-Fee Based BOT models - Medium to large scale PPPs have been awarded mainly in
the energy and transport sub-sectors (roads, ports and airports). Although there are
variations in approaches, over the years the PPP model has been veering towards
competitively bid concessions where costs are recovered mainly through user charges (in
some cases partly through VGF from the government)
Annuity Based BOT models – In sectors/projects not amenable for sizeable cost recovery
through user charges, owing to socio-political-affordability considerations, such as in rural,
urban, health and education sectors, the government harnesses private sector efficiencies
through contracts based on availability/performance payments. Implementing “annuity
model” will require necessary framework conditions, such as payment guarantee mechanism
by means of making available multi-year budgetary support, a dedicated fund, letter of
credit etc. Government may consider setting-up a separate window of assistance for
encouraging annuity-based PPP projects. A variant of this approach could be to make a
larger upfront payment (say 40% of project cost) during the construction period
Performance Based Management/ Maintenance contracts – In an environment of
constrained economic resources, PPP that improves efficiency will be all the more relevant.
PPP models such as performance based management/maintenance contracts are encouraged.
Sectors amenable for such models include water supply, sanitation, solid waste
management, road maintenance etc
Modified Design-Build (Turnkey) Contracts: In traditional Design-Build (DB) contract,
private contractor is engaged for a fixed-fee payment on completion. The primary benefits
of DB contracts include time and cost savings, efficient risk-sharing and improved quality.
Government may consider a “Turnkey DB” approach with the payments linked to
achievement of tangible intermediate construction milestones (instead of lump-sum
payment on completion) and short period maintenance / repair responsibilities.
Penalties/incentives for delays/early completion and performance guarantee (warranty) from
private partner may also be incorporated. Subsequently, as the market sentiment turns
around these projects could be offered to private sector through operation-maintenance
Large sized and complex PPP projects are often developed through an SPV route, wherein a
project SPV is incorporated and it takes the responsibilities of acquiring land and other
statutory and environmental clearances. The SPV, along with the project, is then bid out
through a transparent process
There are other variants possible of this model which may though vary from traditional PPP
approach. For example, it may be envisaged to invite private operators for participation in the
equity structure of the SPV along with the government agency. The equity being offered to
private operator may be either majority share (51 % or more) or minority share (49 % or
less), depending on the nature of the project and decision of the concerned government
agency in this regard. The selected private operator shall also be given responsibility of
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
(e) Finally, it may also be noted that clusters are, at least in part, being made to
overcome deficiencies in the provision of public services which should have
ordinarily been made available to support such activities
In view of the foregoing, the government agencies have adopted financial assistance in form
of a capital grant, as a percentage of project cost, administratively more efficient and
effective in supporting creation of common industry infrastructure projects. In providing
grant to such projects, Government agencies have established necessary conditions that need
to be available before the grant is released
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-8: Existing Legal and Regulatory
Framework for PPP Projects
As PPP projects entrust responsibility of providing public assets and/or public services to
private sector entities which are provided public funds and other concessions for this purpose,
these projects have always been under close scrutiny of both policymakers and public at
large. The Draft National Public Private Partnership Policy, in the process of finalization by
the Ministry of Finance, Government of India, therefore stresses need for a clear legislative
and regulatory framework for PPP projects
The said Draft National PPP Policy, in this context, highlights following imperatives:
(a) Need for a transparent and objective process for selection of projects taking into
consideration concessionaire (private sector) concerns about ‘Value for Money’
and welfare consideration even as process design must be consistent with the
governing framework for public procurement;
(c) Clear definition of role, responsibility and rights of various parties in the
governing instruments including the scope of public service, service standards,
pricing, and scope of governmental intervention or assistance ;
(f) Role of the Concessionaire in maintaining and managing the PPP asset/services
and in controlling access to and usage of the infrastructure facility; and
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
(g) Scope of bankability and securitization of the Concession, Project Assets and
revenue (including assignability) so that the Concessionaire is in a position to
avail affordable debt finance by securing lenders.
The size and complexity of PPP projects require a very detailed and robust legal framework
which cover the entire project life cycle, starting from the stage of selection of the
project/beneficiary itself, for which there are prescribed guidelines for inviting proposals and
bidding process. Various stages of a PPP project and prescribed legal and regulatory
framework are given as follows:
It has been prescribed that the bid documents used for procurement of private sector entities
may comprise of one or more of expressions of interest, request for qualifications, and
request for proposals. It has been suggested that technical proposals may also be invited,
depending on the complexity of a project, to assess the ability of the private entity to deliver
and appreciate desired outcomes. The financial proposals are prescribed to be ideally in the
form of a single objective parameter. The bid process and the model bidding documents viz.,
model Request for Qualification (RFQ) and model Request for Proposal (RFP) for PPP
projects in infrastructure sector, are prescribed by the government through notifications
issued from time to time
All the implementing agencies are required to observe the prescribed process or take
necessary approvals of the competent authority on the process proposed to be undertaken,
prior to commencement of the bid process. It has also been provided that a web based market
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
places, including e-tendering and auction may be promoted based on the project requirements
to promote wider participation and transparency in the process
(a) Description of the PPP Project, the estimated project cost and the project
structure;
(b) Description and schedule of the Tender Proceedings;
(c) Conditions of eligibility of Applicants, information sought from Applicants for
qualification and the form and procedure of the Application;
(d) Description of the parameters and method of evaluating qualification of
Applicants, the objective of the evaluation should be to identify Qualified
Applicants that have the requisite capability to take up the PPP Project; and
(e) Criteria or conditions, if any, for the disqualification of Applicants, such as,
Conflict of Interest, national security and other relevant considerations
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
(b) Instruction to Bidders: This component gives description of Bid submission and
evaluation and should include all procedures, terms and conditions which would
be followed by the Bidders for submission of their Bids and the Contracting
Authority in accepting and evaluating the Bids;
(c) Draft Concession Agreement: This may be said to form core of the PPP structure
and governs the contractual relations between the Concessionaire (Preferred or
Selected Bidder) and the Contracting Authority. The draft Concession Agreement
is to contain, inter-alia, rights and obligations of both the parties, payment terms,
performance obligations, defaults and their consequences, events of termination
and other ancillary clauses. For some sectors, Model Concession Agreements have
been notified, which would need to be used by the Contracting Authority. In case
Model Concession Agreements are not available for a particular sector, existing
Model Agreements may be customized to the project requirements
The criterion specified in the RFP would depend on the nature of a PPP project and Final
Offer may be submitted as: grant sought, expected revenue/annuity, tariff/shadow toll,
present value of lifecycle cost, period of the concession, upfront premium, equity stake,
extent/share of subsidized facilities to the Contracting Authority, revenue share etc.
(a) The evaluation of each technical proposal may be done taking into account several
criteria such as relevant experience, quality of the methodology proposed,
qualifications of the key staff proposed etc. Each criterion is marked on a scale of
1 to 100. Then the marks are to be weighted to become scores
(b) The evaluation of the proposals is to be carried out in two stages: first the quality,
and then the cost. The total score is obtained by weighting and adding the
technical and financial scores which would determine the overall ranking of the
proposals. This method is considered normally appropriate when scope of work
can be precisely defined and when the TOR is well specified and clear
exceptions, if any. However, it is also provided that advice by the Independent Monitor
would not be binding on the Approving Authority
Once the tender process is complete and the Concession Agreement has been signed, it
becomes critical to ensure that project is implemented, as per prescribed objective and
specifications. The PPP infrastructure projects involve large scale of construction works
which need close monitoring. The operations of the project also need to comply with given
specifications to achieve defined outcomes. It is required, therefore, that the Contracting
Authority appoints an Independent Engineer which would have responsibility of supervising
the Concession Agreement. The responsibilities of an Independent Engineer, inter-alia,
include, following:
(a) Reviewing, inspecting and monitoring of construction works, examining the
designs and drawings and conducting tests and issuing completion certificates
during the construction period;
(b) Reviewing and inspecting the operations and maintenance arrangements, and
monitoring compliance with the performance and maintenance standards, during
the operations period;
(c) Identifying delays and lapses that require action on part of the Contracting
Authority for enforcing the agreement terms;
(d) Determining the reasonableness of costs for any works or services, as required
under the Concession Agreement;
(e) Determining the period or extension thereof, for performing any duty or
obligations, as required under the PPP or Concession Agreement
Financial Institution is also required to inform the Contracting Authority at the earliest of any
payment delays by the Concessionaire to the lenders or if the Lead Financial Institution
comes to know of any financial irregularities by the Concessionaire
The mechanism of escrow account is to further ensure capturing of project fund flows in an
independent and transparent manner. The Concessionaire is therefore required to maintain an
escrow account with a bank approved by the Lender(s) during the subsistence of Concession
Agreement and enter into an agreement with such bank to ensure that all proceeds for
financing the project and all revenues and other receipts arising from the project are deposited
into such escrow account
The withdrawals and appropriations during the Concession Period, from the escrow account
may be done normally in the following order of priority:
(f) towards any reserve requirements in accordance with the Financing Documents;
The Concessionaire would be at liberty to withdraw any sums outstanding in the escrow
account after all the aforesaid payments due in any Quarter or other specified period of time,
have been made and/or adequate reserves have been created in respect thereof for that
Quarter/other specified period. The elaborate legal and regulatory framework given above is
essentially aimed at ensuring fairness and transparency during the entire PPP project life
cycle. Award and operation of PPP projects often invite close scrutiny by all stakeholders and
considering the size of projects and funds involved, it is imperative to adhere to prescribed
framework even as this may involve some delays in project implementation
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-9: Legal and Regulatory Framework
Framework
for Common Industrial Infrastructure
Projects
The preceding chapter has given details of legal and regulatory framework being followed for
PPP infrastructure projects in India. This chapter would examine legal and regulatory
provisions in various schemes for promoting common industrial infrastructure projects. It
would be important to appreciate that while schemes such as SITP, MFPS, IIUS etc. are often
referred to as PPP programmes, the projects under these schemes may not be regarded as PPP
projects. There are some pre-requisites for PPP projects, as defined by Ministry of Finance,
Government of India, which may not be met by common industrial infrastructure projects.
The structuring of common industrial infrastructure projects on PPP model may also be
considered challenging due to following key factors
To satisfy this core condition of PPP definition, land for the projects would normally need to
be arranged by the concerned government agency (Concessioning Authority), mostly by the
state governments. Under most of the schemes promoting common industrial infrastructure
projects, the responsibility of arranging land lies with the private sector. This is also due to
the fact that these Schemes are being implemented as central sector schemes by the Ministries
of the Government of India and it was not found feasible by these Ministries to take
responsibility of providing land
It may also be noted that the condition of arrangement of land by the government has, in fact,
led to huge delays in various infrastructure projects in the country. In recent years, land has
become an extremely sensitive issue for most of the state governments, which are
increasingly unwilling to acquire and transfer land for industrial and infrastructure projects
The requirement of land allotment by state governments has already had severe impact on the
progress of the Modern Terminal Market Scheme, the flagship scheme for modern marketing
infrastructure, by Ministry of Agriculture, Government of India. Most of the state
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
governments have not been able to find or willing to earmark a relatively large parcel of land
(say, around 40-50 acres) for terminal market projects and consequently the projects have
shown some progress in hardly 2-3 states. Even in case of projects which may not require
large size of land, finding land at locations with suitable basic infrastructure and market
connectivity remains a challenge
(2) Private sector given a contract/concession for the project term to recover
its investments
It may be appreciated here that typically PPP projects like roads, ports, airports etc provide
certain captive market to interested developers and, therefore, may not require large efforts at
market development. In fact, many PPP facilities evolve as monopolies which ensure certain
traffic (market) to private sector bidders selected for building and operating these facilities. In
case of roads and seaports/airports under PPP, most of these projects have little competition
and get assured traffic. In case of modernisation of airports under PPP in India, no new or
existing airport is permitted by Government of India to be developed as, or improved or
upgraded into, an International/Domestic Airport within an aerial distance of 150 kilometres
of the Airport before completion of 25 years of operation. Thus, the project operators in all
these cases are assured of a captive market and “market risk” to a large extent is taken care of
under PPP model. Of course, the market risk of accuracy of traffic projections would remain
This may though not be applicable to common industrial infrastructure projects. The facilities
created under these projects, though need based, would require to compete with similar
existing and future facilities, both in the public and private sectors. Considering the
effort/investment required in building forward and backward linkages for these projects, the
condition of transferring ownership of the projects back to the government/sponsoring entity
may also discourage private enterprises from bidding for these projects under PPP
This would be another challenge for common industrial infrastructure projects if these need
to be aligned with PPP model. User charges need to be determined in advance for projecting
“viability gap” for PPP projects, which may be a difficult exercise due to greater market
uncertainties in industrial and agribusiness infrastructure sector. Moreover, any private
enterprise operating in dynamic and competitive market conditions needs to have flexibility
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
in pricing its services. The absence of such flexibility may come in the way of commercial
sustainability of these projects
The selection of projects under SITP initially was on “first come, first served” basis. The
Scheme provided for eligibility criteria for assistance, and all proposals from eligible
applicants were considered for approval by the Ministry of Textiles, Government of India.
The Ministry had though provided for a Project Management Consultant (PMC) under the
Scheme which was responsible for “speedy implementation of the Projects in a transparent
and professional manner so as to achieve high degree of quality at a low cost acceptable to
the members of the SPV for which fee will be paid to the PMC”
It was provided that PMC would report to Ministry of Textiles, which would directly
supervise the implementation of projects under the superintendence and control of Secretary
(Textiles). PMC was to discharge, inter-alia, following functions:
(a) Identifying the locations for setting up the projects based on a scientific assessment
of the demand and potential of the area.
(b) Facilitating formation of SPV at each project level with the participation of local
industry.
(c) Preparation of Project Plan including the setting of standards for infrastructure.
(d) Structure and appraise the projects and submit the same for consideration of Project
Approval Committee (PAC).
(e) Assist the SPVs in selection of agencies for preparation of bid documents,
construction, operation and maintenance of the facilities in the Project.
(g) Monitor the implementation and submit periodical progress reports to the MOT.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
After going through responsibilities of PMC, it is evident that the Ministry clearly regarded
“project development” as an important pre-requisite for development of the textile parks and
thus invitation for proposals or “bidding” was not found appropriate without sufficient project
development work by the PMC. It was felt that without necessary hand-holding support to
textile entrepreneurs in various textile clusters of the country, setting up integrated textile
parks may not be found feasible by them and the Ministry therefore may not receive
sufficient number of proposals through a bidding process. There were also no specific
criteria given to evaluate proposals submitted for setting up textile parks and decision of the
Ministry depended on the evaluation and appraisal of projects by concerned PMC. During
12th Plan, though, the Ministry of Textiles has come out with detailed evaluation criteria, on
the basis of which proposals would be ranked and given approval. However, the
advertisement seeking proposals for textile parks released by the Ministry of Textiles did not
specify any last date for submission of proposals and thus may not be regarded as a bidding
process. In case of IIUS Scheme, too, DIPP has kept the Scheme “on tap”, and project
proposals can be submitted provided the eligibility conditions are met and due submission
process is followed
In case of MFPS, though, the Ministry of Food Processing Industries has been following the
bidding process from the first phase itself. One probable reason may be that the Ministry of
Food Processing Industries had in the first phase invited proposals for only 10 mega food
parks in the country and so it decided to not only invite Expression of Interest but also
specified the States in which these projects can be set up. It may be noted that later when this
Ministry invited proposals for more mega food parks in the country, the requirement of
Expression of Interest along with evaluation criteria of proposal was continued
In case of Mega Food Parks, the approval of projects is given in two stages: first, in-principle
approval is granted to projects after evaluation of technical proposals and these projects are
required to meet conditions of final approval within 6 months of in-principle approval
A major difference between procurement methods of PPP projects and common industrial
infrastructure projects is the absence of financial bidding in the latter category of projects,
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
even if proposals are invited and evaluated as per pre-determined criteria. Thus, bids or
proposals in these cases are only evaluated on technical criteria, and all selected proposals
become eligible for grant amount, as provided under respective schemes.
It may be noted that in case of PPP infrastructure projects, financial bids play a critical role
and often become the determining factor in selection of a proposal/bidder. While need for
introducing financial bidding in common industrial infrastructure projects has been often
discussed by policymakers, it has been felt that such a provision would necessitate pre-
determining user charges, to estimate “viability gap”, as practiced in case of PPP projects. It
may be appreciated that bidders for PPP projects need to clearly mention user charges, based
on which viability gap has been estimated, and once grant has been sanctioned on given
assumptions, these user charges/tariff need to be adhered to during project period, subject to
permitted escalation benchmarks
As mentioned above, considering absence of captive market and prevailing dynamic and
competitive conditions, it has not been found desirable to insist on pre-determining user
charges for common industrial infrastructure projects. Thus, selection of such projects has
been done through evaluation of technical proposals alone
As the common industrial infrastructure projects/facilities are provided grant funds and other
concessions by the government agencies, even though these are owned/ managed by private
sector entrepreneurs, legal and regulatory safeguards are necessary to ensure that project
objectives are met and public funds are not misappropriated but used in a justified and
transparent manner
There are various legal arrangements for involved parties to reach on consensus or mutually
agreed terms and conditions. Memorandum of Understanding (MoU), Memorandum of
Agreement (MoA), surety bond etc are some of the arrangements that have been incorporated
for the parties involved in the projects while designing schemes. MOT and MoFPI require
MoU/MoA to be signed by concerned parties for the project implementation by SPVs for the
schemes SITP, CHCDS and MFPS. On the other hand, there are some schemes, such as
Scheme for Development of AYUSH Clusters and Scheme for Cold Chain, Value Addition
and Preservation Infrastructure where the concerned parties sign a Surety Bond on a non-
judicial stamp paper. Surety bond is a concise excerpt of project description, financial
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
assistance to be provided, clauses to prevent undue delay of the project implementation and
to minimize the instances for unlawful use of taxpayers’ money on the part of concerned
party
timely completion of the planned projects. A comprehensive MoA/MoU also includes various
other clauses such as inspection and audit, events of default, force majeure risks, dispute
resolution mechanisms, representation and warranties, liabilities and indemnities etc. Some
major features of MoA/MoU relevant to the present study are summarized below:
As described in the previous chapters, generally the projects under most of the schemes are
implemented through involvement of Special Purpose Vehicle (SPV). Following are the tasks
which are generally incorporated in the MoA/MoU for SPVs as a part of project requirement:
• Securing finance from bank, appointment and hiring the staff and officials appointing
contractors/consultants in compliance with the Scheme guidelines;
• Implementation of the project as per the compliance conditions apart from facilitating
the Ministry or program management agency for inspection;
MoAs in some of the schemes delineate the roles and responsibilities of the concerned
Ministries in implementation of the project, such as:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
• Release of grant installments, subject to the SPV complying with the guidelines and
provisions of the scheme as well as of the agreement within stipulated time frame
from the time of approval by the Integrated Finance Wing
• Hold meetings at regular intervals to review the physical and financial progress of the
project;
• Liaise with other government agencies to expedite the process of necessary approvals
and clearances
On project completion, in the operations phase, the TRA is used to route all collections from
members, and payments are directly routed to the lenders by the TRA Agent. This not only
provides comfort to the lenders, but also to the members of the SPV, who are assured that
their payments to the SPV are used only for debt service
As per the guidelines of SITP, it is mandatory for the SPV to open an escrow account for the
project to receive all funds for implementation of the project including grant-in-aid disbursed
by Ministry. This account is subject to audit by Comptroller & Auditor General of India. It is
mandatory for SPV to allow the Ministry/PMA or their representatives to inspect books and
records pertinent to the grant funds and its utilization from time to time.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
In case of CHCDS and MFPS, the SPV/applicant is required to open a TRA with the TRA
Agent in order to seek release of grant-in-aid sanctioned to the applicant by Ministries. TRA
Agent is generally a nationalized bank with satisfactory capital adequacy. The bank agrees to
be TRA Agent based on the terms and conditions mentioned in the TRA Agreement
The MoU under CHCDS further prescribes the SPV to enter into a TRA Agreement with a
Schedule-A Commercial Bank to utilize the grant-in-aid and other funds for the project
In MoA of MFPS, it is mentioned that the MOFPI will get the details of amount deposited in
TRA account and interest earned on the same. The interest earned by SPV from the
investments of MFPI grant in TRA account is adjusted against the total approved grant by
MOFPI
As per the clauses for TRA in MFPS, the company is required to open a current account as
TRA and deposit all cash inflows during the period of agreement including but not limited to:
The withdrawals from the TRA commences only upon written communication from MOFPI
to the Trust and Retention Account Agent and the amounts deposited in the Trust and
Retention Account is utilized only for some specific purposes mentioned in the Agreement.
TRA Agent needs to notify the Ministry regarding deposits and withdrawals
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The SPV may invest the surplus in Permitted Investments23 through the TRA. Such Permitted
Investment is made in the name of the SPV. The SPV should ensure that all Project Proceeds
are paid directly to the credit of the TRA during Period of Agreement. The duties of TRA
Agent are also specified in the TRA Agreement, which are as follows:
• TRA-I: This account is used to credit all the contributions raised from shareholders,
lenders and other sources except the grant from Ministry. The funds in this account
are used towards the payment of construction and equipment contractors/vendors,
PMC/engineering consultants for fees for providing engineering / architectural /
project management services and for pre-operative expenses.
• TRA-II: This account receives only the grant from MoFPI. The amount lying in TRA-
II can be utilized towards the payment to construction & equipment
contractors/vendors, PMC /engineering consultant(s) for fees for providing
engineering / architectural / project management services
• Regular Current Account: It is used to meet the salary and administrative expenses
during the project implementation period
project execution
(9) Dovetailing
Normally, the SPVs are entitled to dovetail the assistance from other schemes of GoI and/or
State Governments to finance the project subject to certain conditions. In MFPS, it is
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
specifically mentioned that there should be no duplication of assistance for the same
component/activity of the project. However, CHCDS does not mention any clause related to
dovetailing
(11) Termination
A comprehensive MoA defines the Events of the Default which may be the reason to
enforce the termination clause by the Ministries. In case of default, Ministries are entitled to
recall the grant-in-aid given under scheme guidelines along with accrued interest thereon. It
also has right to recover the monies as arrears of land revenue
In the MFPS, the termination process has been described in detail. As per the MFPS, it is
binding on behalf of Ministry to issue a Preliminary Notice to the concerned party to inform
its intention to issue Termination Notice. In case the SPV does not take corrective measures
within 60 days of issuing Preliminary Notice, the Ministry is entitled to terminate the
agreement and recall the grant given under MFPS along with accrued interest thereon.
Alternatively, MoFPI is empowered to attach project assets created out of the grant given
under this scheme and use them for purpose or invite fresh bids from potential investors,
make changes in project scope and do anything else in the interest of the revival of the
project. While termination of the contract and/or attaching the project assets, clauses under
MoA under MFPS suggest the MoFPI to take lenders’ rights into consideration and consult
lender banks/financial institutions and conclude the best possible way to revive the project.
Hence, in case of financial closure for the project, the ownership of all project assets created
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
with the grant amount will not come in the way of SPV creating mortgage, lien on assets for
raising term loan. Similar process has been outlined in CHCDS Scheme
Chapter-
Chapter-10:
10: Special Purpose Vehicles for
Common Industrial Infrastructure/
Facilities for MSMEs
The concept of SPV was primarily used for financial transactions especially in the mortgage
sector. It started getting used as an implementation instrument when projects in Public Private
Partnership (PPP) as a mode of implementation in infrastructure projects were introduced.
SPVs were looked at as vehicles for facilitating private investment into infrastructure
development. Subsequently the concept of SPV was extended to cluster model based
infrastructure schemes also. While most of the schemes do not strictly follow PPP model of
implementation or the Viability Gap Funding (VGF), however they have been loosely
structured around these principles. The assistance provided is fixed with an upper limit and is
provided to all those eligible under such schemes, however the objective of providing
assistance remains the same i.e. encouraging private investment into viable infrastructure
projects. While VGF primarily aims at general infrastructure development and is aimed at
large projects, the cluster based schemes aim at development of industrial infrastructure and
in most of the cases sector specific facilities. The procurement under VGF is through bidding
while the funds under the schemes are available on tap based on the financial outlay for the
scheme
(II) Genesis
The cluster concept in development of infrastructure gained prominence in the late 90’s with
the launch of IIUS. Before SPVs became the instrument for implementation of schemes,
industry associations were recognized as the beneficiaries. However it was gradually realized
that though industry associations could be the promoters of such projects, it will be more
efficient to have separate legal entities created for setting up large projects. This shall also
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
address the conflict of interest issue between the industry associations and the project
shareholders
(III) Functions
A typical SPV under any Government of India scheme would generally have the following
responsibilities:
a. Prepare the feasibility and/ or Detailed Project Reports for the project covering the
technical, financial, institutional and O&M aspects of the projects.
b. Achieve the financial closure of the project through debt/ equity i.e. to raise the balance
of the financial assistance available under the scheme
c. Obtain any statutory approvals/ clearances for the project from the respective authorities
e. Recruit suitable functional professionals in order to ensure that the project is executed
smoothly
i. Meeting statutory and regulatory compliances under the law governing the SPV
(IV) Structures
While an SPV can be set up as any legal entity such as company, trust, cooperative society,
corporation etc, the most common form of SPV in most of the schemes has been a company.
Some of the schemes such as IIUS insisted on a Section 25 company (which has undergone a
revision now), scheme such as MSECDP though is flexible about the structure insists the
profits to be ploughed back into the SPV which essentially is a feature of a Section 25
company. While the legal structure of the SPV remains flexible, it is imperative that the
structure allows the flexibility to enter into arrangements with other stakeholders providing
backward and forward linkages to the project, service providers, financiers etc. A typical
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
Infrastructure/Facil
for MSMEs Under PPP and Private Ownerships
SPV, supported by a Government scheme would enter into the following agreements/
relationships during project execution:
Most of the schemes prescribe the industry/ entrepreneurs to hold majority stake in the SPV
while balance could be held by State Government, strategic investors/ mother units etc. While
some of the schemes specify the minimum number of enterprises in the SPV, such as 15 in
case of AYUSH, 7 enterprises on board in case of EMC scheme, 20 in case of MSECDP etc
there are schemes which have changed criteria over
o a period of time. Under SITP, the
Ministry of Textiles while reviewing the projects under the scheme felt that some guidelines
with respect of number of entrepreneurs and investments should be specified for the benefits of the
entrepreneurs. After deliberation,
iberation, the following criterion was devised:
Some of the latest schemes such as EMC specify that the investment in the park has to be
four times of the approved grant. Almost all the schemes specify that the maximum share of
any single enterprise cannot be such that the management control is held by him. While SITP,
Scheme for setting up of AYUSH Clusters etc specify that any individual unit cannot hold
more than 25% of equity stake, MSECDP limits this to 10%. These measures have been
included in the schemes to ensure that the benefits under the scheme are not cornered by a
few of the enterprises and the collective nature of the project is maintained
(V) Advantages
Some of the advantages which these SPVs offer are as follows:
• Transparency: The SPVs are legal entities and hence comply with the rules laid down
under the law governing that entity. The operations of the entity are more transparent and
regular reporting and compliance make the entity more open to its shareholders and
remain committed to its objectives
• Managing stakes of multiple stakeholders: In most of the cluster based projects, the
project promoters could be from diverse backgrounds with different level of interest in
the project. Typically the shareholders would be the entrepreneurs, Government agencies
(Central/ State), financial institutions/ banks and in some cases strategic partners such as
buyers etc.
• Better financial management: The SPV structure gives the flexibility to the promoters
and the members to invest as per individual capacity. The accounts of the SPV are kept
separate from the accounts of the members and the financial status of the promoter has a
limited bearing on the financial status of the SPV
• Limited risk by the promoters: By having a separate SPV, the promoters could restrict
their liability as well as risk to their equity share in the SPV. This provides confidence to
the members to go ahead with complicated and large projects
• Developmental Initiatives: The SPV provides a platform to the members to pursue
collective initiatives beyond setting up of infrastructure facilities. These include
initiatives for raw material procurement, collective marketing, shared logistics etc. This
brings positive externalities to the members associated with the SPV
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
• Role allocation as per strengths: Generally under the SPV, committees are set up to
pursue responsibilities such as financial, procurement, technical etc and members based
on their individual strengths are nominated for the committees. This brings a lot of
operational efficiency into the functioning of the SPV and also gives a sense of
commitment since most of the members are involved
(VI) Disadvantages
• No credit history hence limited financing avenues: The SPV is a new entity and does
not have any credit history. In most of the projects where external financing is involved,
banks and financial institutions have reservations on the lack of credit history of the SPV
and perceive it to be a high risk proposition. Further there are schemes such as MSECDP,
where the ownership of assets does not lie with the SPV and the first charge on the assets
remains with Government. In such cases, it becomes very difficult for the SPV to raise
finances. The documentation in the case of SPVs is more stringent and conditional based
on approvals and clearances. The cluster based model of financing is in the process of
evolution, however it shall take time to standardize the procedures and remove the
discretions to ease the financing
• Dependent on promoters’ credibility and eligibility: Due to lack of credit history of the
SPV, the promoters or the Directors of the SPV are required to give personal guarantees
in order to secure loan from the financial institutions. This is over and above their
contribution into the equity. This becomes a deterrent for many of the MSMEs to
participate in the project
• Difficult to manage diverse interests: The SPVs have stakeholders drawn from diverse
groups and their interests are driven by the nature of their own business. Though the
SPVs should ideally be managed by professionals, in cases where these are weak or
nonexistent the personal interests of the shareholders may lead to an unstable SPV
• Lack of ownership: Being collective projects and limited stake of the members, there is
lack of ownership of the members. Many a times this leads to weak management of the
project and ultimately leading to the project not getting successful
The establishment and smooth operation of common industrial infrastructure Projects would
require a cohesive SPV structure. Considering the objective of setting up these facilities and
also the amount of financial assistance involved, it becomes imperative that SPV should not
only be committed to the project but also it should address the concerns of all stakeholders
The challenge for the sponsoring institutions thus is to ensure that such facilities are indeed
available for “collective” use for MSMEs located in the cluster or at least to all the
shareholders/members of SPV. This remains a huge challenge, as experience over the years
suggests that in many cases, such facilities are mostly used by some of the dominant
shareholders/members of the SPV, and other stakeholders of SPV are often deprived of the
advantages of these facilities
This becomes a much bigger challenge in case of the schemes which allow shareholders of a
SPV to own project assets, which becomes a huge attraction for private sector entrepreneurs,
all of whom may not be guided by the spirit of collective benefits. Two key challenges in
such projects are first, to ensure that project assets are being used for the benefit of all
shareholders of SPV and cluster stakeholders, and second, the ownership or control of project
assets is not transferred for material benefits.
The government agencies have attempted to meet the above challenges by prescribing nature
of SPV formation and its management, so as to ensure its collective and transparent
functioning. Most of the schemes stipulate a requisite number of members to from a SPV so
as to discourage concentration of control over project operations. There are also provisions to
induct government officials and other key stakeholders in SPV, so that project meets the
larger objectives of benefiting concerned cluster. In addition, under some of the Schemes, all
the shareholders need to enter into a prescribed Share Subscription Agreement (SSA) which
contains appropriate safeguards clauses. The obligations of the shareholders are clearly
prescribed in SSA and all the members are expected to adhere to these obligations
In addition, the shareholders of SPV are also obliged to meet certain conditions under SSA,
such as being responsible for implementation of the project in compliance of project
requirements notwithstanding the appointment by SPV of the contractor(s) to implement the
project facilities. SSAs often have an important provision that the members will do only the
stated activity i.e. textiles, etc and not just be investors or speculators, Thus the SSAs bind the
members into a common sharing and collaborative arrangement The shareholders are further
required to ensure compliance with performance standards at the time of commissioning the
project and execute such financing documents, agreements and provide necessary guarantees,
undertakings and security as may be required or stipulated by the lenders to the project
The above stipulations have been designed to provide a legal framework to the relationship
between SPV and its shareholders, which may be a set of diverse entities, with the aim to
implement the project in an appropriate matter
This provision of SSA has been used under both SITP and MFPS which had SPVs
incorporated under Companies Act. In case of the MFPS, additionally, the initial shareholders
are required to undertake that they would by themselves or through their affiliates, hold at
least 51 % of the equity share capital of the SPV at all times in case of induction of new
shareholders or any other changes in the equity structure of the SPV. This provision has two-
fold purpose, on the one hand, it is expected that the initial shareholders of SPV who came
together to form SPV remain committed to implement the project and meet its objectives; on
the other, it is to prevent these initial shareholders to transfer control of the assets and gain
premium, which may become possible after approval of large capital grant to the project
(1) MSE-CDP
In case of MSE-CDP, while there is no provision of SSA, as SPV need not be a company and
may take the form of a cooperative society, registered society or a trust, there remains strong
stress on ensuring “collective” uses of the facilities. The scheme guidelines provide that in
addition to the contributing members of the SPV, there should be written commitments from
‘users’ of the proposed facilities so that their benefits can be further enlarged. It is also
prescribed that bylaws of SPV should have provisions for inducting a state government
official as member of the SPV
There is provision of a minimum of 20 MSE cluster units serving as members of SPV, with
no ceiling on the maximum number of members, even as in some exceptional cases, a
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
minimum of 10 MSE units may also be considered for the SPV. To ensure democratic
functioning of SPV, it is further provided that a single unit would not be allowed to hold
more than 10 per cent in the equity capital (or equivalent capital contribution) of the SPV.
Although the scheme provides that large mother manufacturing firms, other major buyers of
the cluster MSE products, commercial machinery suppliers, raw material suppliers and
business development service (BDS) providers are eligible to contribute up to 49 per cent for
SPV, the management of SPV has to remain clearly with the intended beneficiary SPV
The scheme guidelines also provide for a Tripartite Agreement among the Government of
India, concerned State Government and project SPV for managing Common facilities centre
(CFC). The Agreement requires SPV to follow the directions of the central or state
government for better management of the SPV or the better running of the CFC. To prevent
misutlilisation of such facilities, the scheme guidelines also stipulate that in case CFC project
assets are sold or otherwise disposed of, the Government of India would be entitled to recover
the amount of loss as arrears of land revenue from the SPV and /or persons connected with its
management jointly and severally
(2) IIUS
In case of IIUS, there was initially provision of incorporation of SPV by the cluster
association for developing, operating and maintaining the infrastructure facility created in the
industrial locations. The scheme guidelines provided that SPV would be a Corporate
Body/Association registered under Companies/Societies Act and the stakeholders could be
the Private Companies, Industrial Association, Premier R&D Institution, Financial Institutes,
Local Authority (optional), Govt. of India - mandatory and State Government (District
Authority)- mandatory.
In 2009, the IIUS scheme was revised and it was provided that the project would be
implemented through a SPV, which would be a non-profit making company, registered under
section 25 of the Companies Act. SPV was required to have representatives from local
industries, financial institutions, State & Central Government and R&D organisation.
Another revision in IIUS guidelines now has done away with SPV structure itself. The
modified IIUS guidelines have also mentioned reasons behind this rethink. It has been
mentioned that the scheme was implemented through SPV in PPP mode during 10th and 11th
Plan, and this model faced serious practical difficulties which led to enormous delay in
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
These observations can be considered raising serious questions on the model of industry
promoted SPV, a model which has long been the most accepted implementation model for
common industrial infrastructure projects.
The recently launched scheme for establishment of Mega leather cluster by Department of
Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India
also provides for a flexible SPV structure. It is envisaged that SPV would be a legal entity
duly registered for this purpose. SPV may though be promoted by private companies
registered under the Companies Act, 1956 engaged in leather industry value chain, industry
organizations registered under Societies Act, financial institutions, R&D institutions, State or
Local governments or their agencies and units within the Leather Industry. It has been further
provided that the structure of SPV would be approved by the Empowered Committee at the
time of in-principle approval for the project
large scale production units, banks, financial institutions, State Government agencies etc.
However, the individual stake of such agencies is not to exceed 26 percent.
In case of Plastics Parks being assisted by Ministry of Chemicals and Fertilisers, Government
of India, SPV is required to be a distinct legal entity, ordinarily registered under Companies
Act, though it can also take other forms, with requisite approval. In this case, SPV is to be
promoted as a joint venture, to be formed by the State Government or any of its agencies such
as State Industrial Development Corporation (SIDC) in association with user enterprises
representing the plastic sector / sub sector. It is provided that the equity contribution of the
State Government or State Industrial Development Corporation or similar agencies of the
State Government would be at least 26% of the cash equity of the SPV (excluding value of
any land given as equity).
The scheme, aimed at setting up of common facilities for development of unorganized and
micro AYUSH enterprises, mandated 15 enterprises operating in the cluster to be members of
the SPV. The structure of the SPV is preferably prescribed to be a company, however the
scheme monitoring committee has the authority to approve any other structure of the SPV as
well. These 15 members together need to hold atleast 51% of the equity and share of any
single entity has to be below 26%. The board of the SPV need to have three nominee
directors, one from Department of AYUSH, one from State mission on medicinal plants/
State horticulture mission and one from the PMC. This structure was to ensure that there are
enough checks on the decisions taken by the SPV as the projects involved a lot of financial
management. The members of the SPV were supposed to sign a SSA with the SPV besides
giving letters assuring usage of facilities. All the SPVs are advised to have functional/
technical committees to decide on operational matters and make recommendations to the
board on specific matters. Some of these committees are for civil works, equipment
procurement, capacity building, financial management etc. This structure also encourages
participation of most of the SPV members in the functioning of the SPV.
It is mandatory for all the 15 members to hold a valid AYUSH manufacturing license,
however to ensure that the member units have sufficient experience in dealing with the
sector, 12 out of 15 units had to be in business for more than three years while rest 3 could be
new entities. The members of the SPV are to be legally independent entities as per AS18.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
However as the scheme progressed, due to the nature of the sector, it was felt that all the
members of the SPV needs to be GMP ( Good Manufacturing Practices) certified as without
that it was not possible for AYUSH enterprises to operate legally without a GMP license.
Hence, this clause was introduced in the guidelines.
When the scheme was launched, it was silent about the financial position of the members,
however it was felt by the Government that while it is important to have an equitable
structure of the SPV so that benefits are not cornered by relatively bigger units, it is also
important that the SPV has people with financial resources available to be able to invest in
the project. To ensure this, the scheme was revised in October 2008 and it was stipulated that
at least 3 to 5 of the participating units should have annual turnover of Rs.50.00 lakhs and
above and 5 units of Rs.20.00 lakhs and above.
EMC Scheme was launched in April 2013. The projects under the scheme are to be
implemented by an SPV, however the scheme allows a Chief Promoter (a strategic investor)
to file the application and take all approvals for the project. The Chief Promoter, however is
required to form the SPV within 24 months from the date of approval. While the chief
promoter could be a unit, financial institution, academic/ R&D institution, Government
agency etc, the SPV needs to have seven constituent units on its board and it should be a legal
entity (company/ society). The electronics manufacturing units need to hold 51% of the share
capital of the SPV with no single unit owning more than 25%. The Chief Promoter or any
other legal entity (financial institutions, Government agencies, academic institution etc) could
also be part of the SPV. In case the SPV has a Government agency on board, it is mandatory
to have a State Government represented on the board in the cases where project is jointly
promoted by industry and Government. The scheme also prohibits the same SPV to set up
more than one project under the scheme.
(8) Scheme for Cold Chain, Value Addition & Preservation Infrastructure, MoFPI
(SCC)
In case of the SCC, there is no requirement of creation of an SPV for the implementation of
the approved projects. Any business entity including individuals (proprietorship concerns),
cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs),
NGOs, Central/State PSUs, Partnership Firm, Private/ Public Ltd. company, LLP etc. can
apply for grant under the scheme. The projects approved under the scheme are typically in the
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
range of Rs. 20-25 crore with an average grant of about Rs. 8 crore per project. Applications
under the scheme are invited by MoFPI through EOIs. The proposals found eligible based on
predetermined eligibility criteria are further evaluated as per the approved assessment criteria
and proposals with higher scores are approved for grant assistance based on the number of
slots available. One of the basic criteria for a proposal to be considered eligible is that the net
worth of the applicant should be at least 1.5 times of the grant applied for. The revised
scheme guidelines have also made it mandatory for the projects to avail term loan from
Bank/Financial Institution for an amount not less than 10% of the project cost.
The SCC is fundamentally different from other common industrial infrastructure schemes as
these projects are primarily infrastructure development projects (with facilities such as cold
storages, IQF, blast freezers, sorting, grading, packaging, farm level primary processing, etc.
and refrigerated logistics) without any requirement of plot development for units. The
facilities under the scheme are created by the promoters after gauging the demand of such
facilities/ services in the production areas and/or in the consumption centres. The promoters
are free to decide the appropriate business model for the projects without any imposition of
conditions from the Ministry. The facilities, thus created, are either rented out to users (rental
model) such as farmers, traders, etc. or utilized for captive use by the promoter. The rental
model of the projects ensures that the facilities are used as common infrastructure especially
in the production clusters by providing storage spaces, logistics and other facilities to the
farmers and other entrepreneurs. Hence, the SCC, although not envisaged as a common
industrial infrastructure scheme, plays an important in creation of such common facilities in
the agriculture and allied sectors clusters
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Chapter-
Chapter-11:
11: Challenges Faced by Lending
Institutions in Financing of Common
Industrial Infrastructure Projects for
MSMEs
(I) Common Industrial Infrastructure – As a Business Model
It has been observed that term loan component accounts for about 30-40 percent of total
project cost in case of schemes such SITP and MFPS. In Schemes such as MSE-CDP and
IIUS though the debt component is relatively small, there remains a need for bank finance to
achieve financial closure. The banks and financial institutions have to therefore play a
significant role to ensure implementation and operation of common industrial infrastructure
projects and facilities. However, the availability of loan for these projects is dependent on
establishing the financial viability of project operations, which has often been considered a
challenge by lending institutions. This chapter would examine the business models of these
common infrastructure projects and suggest measures to make them more acceptable to
lending institutions
It would be important to note here that business models for these projects under various
schemes vary a lot. But the core of business model remains that of SPV earning its revenue
through user charges for project core facilities and maintenance charges for basic
infrastructure
For cluster SPVs, thus the business model is usually based on a cost plus approach with
provision to earn income by way of user charges for common facilities and/or common
processing, effluent treatment charges, etc
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The advantage in the cluster model is that the focus is on deriving benefits for the industry
and that is why govt schemes provide grants for such projects with the specific aim of
providing impetus to the concerned sector. Grants for developer led projects are rare and
benefits to SEZs are given by Govt in the context of export promotion rather than so much on
infrastructure developments
Under SITP, a SPV owns all textile park project assets which have been funded by the
Ministry of Textiles. Thus, project land, factory buildings and all other basic infrastructure
assets and common amenities are owned by SPV. Individual entrepreneurs (shareholders of
SPV) are provided readymade factory buildings to set up and operate their units by installing
necessary plant and machinery and other requisite equipment
SPV enters into a lease Agreement with the units. The lease Agreement provides rights to the
units for setting up textile facilities in the park and also contractually binds these units to pay
all such charges as may be levied by SPV for the allotment, development and maintenance of
infrastructure assets and provide recourse by way of right to replace units that have defaulted
in respect of payments to the SPV
SPV is responsible for the Operations and Maintenance (O&M) of all project assets including
common facilities and normally maintains adequately staff for this purpose. SPV recovers
O&M charges from the units by way of the following monthly charges:
This may include lease rentals and asset replacement charges apportioned to all industrial
units on the basis of allocable area. The asset replacement charges are for replacing fixes
assets at the end of their economic life (depreciation) and amount collected is to be deposited
into a “sinking fund”.
• Charge II - Variable Utility Charge
This is based on monthly consumption of utilities such as water, power and effluent treatment
and other O & M cost together with variable expenses of the SPV apportioned to all units on
the basis of allocable area to each of the industrial units
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Finance Charge is recovered from the units for paying the interest charges and principal
repayments of the loan taken by SPV for infrastructure development. This charge is also
apportioned on the basis of area under occupation by the individual Units.
SPV recovers all its costs from the entrepreneurs and also generates a small profit margin to
protect its future cash flows from any exigencies. It is important to ensure here that
operations of the units have the requisite capacity to absorb the cost of infrastructure as is
proposed to be charged by SPV to recover its capital and operational costs.
(Rs. Lakhs)
Revenues
Asset replenishment fund 355.95 355.95 355.95 355.95 355.95 355.95 355.95
Maintenance charges (common infra.) 66.40 66.40 66.40 66.40 66.40 66.40 66.40
Power charges - SPV consumption 62.21 62.21 62.21 62.21 62.21 62.21 62.21
Maintenance charges (common amenities) 9.90 9.90 9.90 9.90 9.90 9.90 9.90
Expenditure
Maintenance cost (common infra) 66.40 66.40 66.40 66.40 66.40 66.40 66.40
Maintenance cost (common amenities) 9.90 9.90 9.90 9.90 9.90 9.90 9.90
Other administrative costs 3.28 3.32 3.36 3.41 3.46 3.72 3.81
Interest
on working capital borrowings 6.67 13.39 14.67 15.92 15.95 16.07 16.11
Net cash accruals 489.84 488.09 714.18 740.99 771.25 814.38 842.36
A major difference between integrated textile parks and mega food parks is that while a SPV
normally constructs and owns all factory buildings in case of former, in case of latter, SPV
only constructs and owns factory buildings for core processing facilities and MSME sheds,
and leases out remaining developed plots to interested entrepreneurs for setting up food
processing units. SPV recovers O&M charges from the units by way of the following
monthly charges:
Lease rentals for developed plots and MSME sheds are determined by SPV based on its own
cost of developing the park and may also take into consideration the market rates for such
plots/sheds.
• Charge II – User Charges for Core processing facilities and common amenities
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
User charges for use of core processing facilities such as warehouses, cold storage facilities,
ripening chambers, IQF and Deep Freeze facilities, aseptic/tetra pack facilities, weigh bridges,
plastic crates etc. are normally based on market rates. Similarly, common amenities such as
office space, canteen, guest houses may be made available to users on market rates.
This is based on monthly consumption of utilities such as water, power and effluent treatment
and other O & M cost together with variable expenses of the SPV apportioned to all units on
the basis of allocable area to each of the industrial units
Expenses
Power 1404.99 2009.14 2550.07 3179.08 3702.69 5421.11 5963.23
Water 195.76 258.15 300.72 344.08 366.06 366.06 366.06
ETP 248.86 323.52 373.30 423.07 447.95 447.95 447.95
Fuel 262.80 375.80 476.98 594.64 692.58 1014.00 1115.40
Employee Cost 316.20 347.82 382.60 420.86 462.95 677.80 745.58
Maintenance 125.56 138.12 151.93 167.13 183.84 269.16 296.07
Insurance 79.94 79.94 79.94 79.94 79.94 79.94 79.94
Admin & Selling Overheads 61.00 67.10 73.81 81.19 89.31 130.76 143.83
Provision for Crates replacement 40.17 57.42 73.00 90.95 105.90 154.80 170.10
Total Expenses 2735.28 3657.01 4462.34 5380.93 6131.22 8561.59 9328.17
Net Profit (PAT) -670.18 64.72 499.29 937.73 1348.59 2301.11 2650.15
Net Cash from Operations -33.65 701.25 1135.81 1673.25 2084.10 3036.63 3385.67
The “cost recovery” model of SITP though has a distinct advantage as promoters of SPV are
envisaged as user entrepreneurs and so “market risk” may be regarded as quite low. In case of
MFPS, this “market risk” may be considered high as SPV would need to find entrepreneurs
willing to set up industrial units in the Park and also use their core processing facilities. Thus,
SITP and MFPS may be considered to provide two distinct business models of setting up
common industrial infrastructure/facilities
The total project cost of this food park was approximately Rs. 95 crore. The Central
Processing Centre (CPC) is spread over 70 acres on Laksar Road (in Haridwar district). The
Primary Processing Centres are located at Lal Tappar, Kotdwar, Daudpur Haji, Budhana,
Devprayag and Bazpur. The project (CPC and PPCs combined) possesses state-of-the-art
processing infrastructure like cold storage, Tetra Pack, warehousing, ripening chambers,
sorting & grading line, IQF, grain milling and world class quality testing laboratory among
others. In addition, to facilitate in processing activities, the CPC is equipped with a host of
enabling basic infrastructure facilities like roads, drainage, STP, ETP, WTP, rainwater
harvesting, 11 KVA electrical supply and 33 KVA sub-station. A fully equipped
administration building, office spaces, conference facilities and workers’ canteen
complement the processing activities at the project CPC. The CPC also has standard design
factory sheds for micro and small enterprises (MSEs). These sheds serve as plug-and-play
facilities for MSEs. As far as setting up units in the Park is concerned, CPC has
approximately 35 acres of leasable area for plots. At present, 17 processing and packaging
related units are operational in the Park spread approximately 30 acres. These units are
engaged in the production of candy, juice, murabba, flour, spices etc. State-of-the-art
packaging facilities are also available to these units. The cumulative turnover of these
industries is in excess of Rs. 250 crore, serving as a huge boost to the food processing sector
in general and state’s economy in particular. More importantly, the project CPC employs
over 5000 people (direct and indirect) and has become an important source of livelihood for
the people of the region. In addition, the storage facilities in these farm proximate facilities
shall help reduce wastage through the entire supply chain, a focus area, especially in a hill
state like Uttarakhand. This food park has been shining example of the success of the Mega
Food Park Scheme. It has provided an impetus to the local economy. Now the local producers
of raw materials are directly connected with the market, hence results in lesser wastage and
higher returns of the primary producers.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The experience of implementation of textile park projects under SITP though has been mixed
and in many cases, the above two assumptions have not been met. While the model assumed
that all shareholders of SPV would be keen to set up their plant and machinery in allocated
factory sheds and start operations, in many cases this was not possible due to various reasons.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
This also meant that those shareholders of SPV who have not started their operations in the
park, may not be willing to pay due charges to SPV, making it difficult for SPV to honour its
financial commitments to lending institutions
A key challenge to business model of cluster SPVs is that the SPVs are vulnerable to some
units not setting up their units in the agreed timeframes and/or not performing satisfactorily,
leading to delayed or reduced cash flows, affecting the financial health of the SPVs and also
affecting the debt servicing. As the revenue model is cost plus, and there is no market pricing
of land at the time of allotment, the scope for high profits is very less. Therefore, cluster
SPVs deserve special dispensation from regulators like inclusion in priority sector lending,
reduced capital adequacy on loans to such SPVs, easier provisioning norms, treating such
projects as infrastructure projects rather than industrial real estate, etc
In 1986, the area came under Ahmedabad Municipal Corporation (AMC) Jurisdiction. From
1960 to 1986, GIDC collected services charges from all the units in the estate. After the estate
came in AMC’s jurisdiction, AMC started collecting property tax and octroi from all the units
and it collects approx. Rs 3.5 crores of property tax annually. The property tax collected by
AMC was meant to be utilized for maintenance of existing infrastructure facilities within the
estate. Over a period of time, the infrastructure facilities in GIDC Vatva did not keep pace
with the industrial growth in the area thereby considerably affecting the service levels. The
roads became un-motorable during monsoons and black top was usually washed during rains
creating deep potholes and undulations on the roads. There were also no proper rain water
drainage leading to massive water logging in the estate during the monsoon which used to
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
disrupt the movement of goods and services. The sewerage system was also in shambles and
all the units used septic tanks to take care of domestic sewerage
With an objective to improve the facilities in the estate, VIA took up an initiative for
developing an integrated infrastructure development program. However, VIA being a welfare
association did not have the requisite funds to take up the infrastructure development activity
on its own. After some efforts, it convinced AMC to share part of the property tax collected
from Vatva GIDC area for the development of the estate. After 2 years of pursuance, AMC
agreed to sign a MOU with VIA whereby AMC agreed to remit 75% of the property tax
collected by it from GIDC Vatva into an Escrow Account with a bank. The funds remitted to
the above Escrow Account were to be utilized by VIA/SPV created by VIA for the purpose of
infrastructure development in GIDC Vatva. VIA formed an SPV - Vatva Industrial Estate
Infrastructure Development Limited (VEL) for taking up the infrastructure development
activities. VIA applied to Department of Industrial Policy and Promotion (DIPP),
Government of India for comprehensive up-gradation under Industrial Infrastructure
Upgradation Scheme (IIUS) and obtained sanction of Rs 24 crores for
upgradation/development of the Estate for the following components:
(i) Upgradation of Roads and Construction of Storm Water Drainage
(ii) Solid Waste Treatment Facility
(iii) Upgradation of CETP
(iv) Disaster Management System
(v) Centre of Excellence and Training Centre
(vi) Acid Reconcentration Plant
VEL (SPV formed by VIA) also applied to State Government under Critical Infrastructure
Upgradation Scheme (CIPS) wherein they got a sanction of grant Rs 41.00 crores for
infrastructure upgradation of the estate. The project was implemented in three phases as given
below (along with the project costs for each phase):
VEL obtained term loans of Rs 23.79 crores and bridge loan of Rs 7 crores (the bridge loan
was required as the State Govt grant was back-ended) as per the following details:
S. No Bank Amount
Term Bridge
Loan Loan
1 Bank of India 10.00 5.00
2 Oriental Bank of Commerce 7.00 Nil
3 SIDBI 6.79 2.00
Total 23.79 7.00
In addition, Indian Overseas Bank also agreed to sanction financial assistance for the project.
The term loans were sanctioned only on the basis of hypothecation on property tax receipts
deposited by AMC into the escrow account opened by VEL. The term loans were structured
only on the basis of escrow of property tax receipts deposited by AMC into the escrow
account opened by VEL and MOA between AMC and VIA/VEL. No collaterals or personal
guarantees were stipulated as the project was to build public assets and no direct ownership
of any individual or industrial group was present
The project was successfully implemented with the creation of world class infrastructure in
the estate
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The key challenges faced during the project development and execution stages are given
below:
(a) For the property tax reimbursement, initially there was no legal agreement
between AMC and VIA, there was only a MoU. Hence for the term loan
repayment, it was a requirement of the banks to convert the MoU into a MoA.
This was a challenge and it took almost a year to convert the MoU into a MoA.
Finally, a tripartite agreement between the banks, AMC and VEL was signed
(b) The sanctioning of term loan by the banks was also a challenge as there was no
security of assets against the term loan. The only security was the property tax
reimbursement agreement between AMC and VEL
(c) The estate was around 46 years old and there were no records or drawings of the
existing utilities. Hence during execution, lots of trial pits had to be done before
initiation of any activity. The existing utilities were then shifted and new activities
were planned accordingly. This issue delayed the project to a certain extent
(2) Impacts
The infrastructure development project had a strong positive impact on Vatva Industrial
Estate with the number of units increasing from 1800 to about 3000 during the project
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
execution. There was also an increase in turnover and export of most of the companies/units
present in the estate. The property tax collection also increased after the implementation of
the project. The World Bank published a case study on the project, highlighting the unique
structure which makes it one of the most innovative projects in the emerging economies. This
model was replicated by Odhav Industries Association (Odhav GIDC), the 3rd largest
industrial estate in Ahmedabad, and it has also successfully completed the infrastructure
upgradation project through CIPS grant and support from IL&FS
One of the key constraints of common industrial Infrastructure project delivery for MSMEs is
the raising of finances. While its suits the initial objective of the SPV to develop project for
which it has been set up, larger aspects of parentage and the SPVs ability to support project
development, considering risks involved have always been under discussion. As SPVs,
irrespective of who the promotes are, do not have credit histories, it makes the lenders extra
cautious when it comes to project based lending
Lenders are, by-and large, comfortable to carry out collateral based lending so that, should
the loans go bad, they have adequate security to fall back upon. However, when such SPVs
are structured for project delivery, they are new companies and hence do not have the
wherewithal to provide any collateral for borrowing loans for part financing of projects. The
lenders thus have to fall back upon project recourse based financing, which means they
depend upon the project income once they are set up. In a project recourse based financing,
the security to the lenders will also be limited to all project assets created in the present and
future. However, for lending agencies like banks and financial institutions like SIDBI, these
projects offer viable lending options. The structure and nature of such projects has some
benefits like:
a. Part-funding by Government improves the viability and also reduces the effective
up-front cost to the industry, which is the ultimate source of repayment of any loan
given to such projects
c. Grant schemes require the land to be in possession of the SPVs before grant release.
Therefore bank funding is protected from land acquisition related risks. Capital
appreciation in the industrial real estate of industrial parks is usually very rapid and
with land acquisition being the key hindrance to new industrial projects, industrial
parks have the cushion of appreciation in valuation of the projects
d. Association with such projects provides opportunity for lending agencies to build up
a large customer base for traditional banking business of working capital and term
loans, trade finance, and liabilities business
Such SPV based financing for projects is at least a decade old phenomenon in the country and
already many insights have been gained regarding the same. Cutting across various cluster
based projects in common industrial infrastructure/facilities for MSMEs, there have been fair
amount of learnings which are elaborated below:
comfortable security cover against the term loan provided to the SPVs. Hence, banks
may forgo personal/corporate guarantee of the promoters given the huge financial
assistance from Government and security protection for the project
The ownership of all project assets, including building, plant and machinery, misc. fixed
assets, utilities etc. constructed with the grant amount vests with the SPV which is
responsible for operation and maintenance of such assets. Generally, common infrastructure
projects do not have one single promoter or promoter group, which makes identification of
responsibilities for compliances and repayments difficult. Usually, a few units and their
owners take initiative and responsibilities at the time of project initiation and are usually
Directors on Board of the SPV. Accordingly, they take care of project implementation and
liaise with lenders for sanction of loans, documentation and disbursements. So the lenders
usually rely on them to ensure debt servicing. However, it is to be understood that the actual
source of repayment of the loans is not just these directors but all the members of the park.
As all members are exclusive to each in their individual operations, their ownership and
obligations are limited to their holding of the land in the project. Therefore, their obligations
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
for debt repayment are also pro-rata allocated accordingly and therefore each member’s debt
service obligations are limited to a discreet amount. In such an event, default by few
members is not usually made good by other members. Due to this, plausibility for having
irregularities in debt servicing may arise
Due to the nature of ownership and distribution of equity, personal guarantees are not
structured in the sanction terms as the debt service obligations are not ‘joint and several’ in
nature
(2) Collateral
Typically, banks have practice of taking additional collateral security which is in addition to
the primary security i.e. project assets. This has been done through immovable properties of
promoters in MSMEs and such collateral acts as deterrent to defaults by the borrowers. In
common infrastructure projects, there is no collateral available with the SPVs. This makes
some banks reluctant to sanction such projects
(3) Security
While there is adequate asset cover for lenders, as large portion of assets are funded by the
grants from the government, the individual members face difficulty in arranging for security
when they borrow for setting up projects in the land allotted to them by the SPV. This is
because the ownership of land (and also buildings thereon in projects like SITP) is vested
with the SPV, and therefore the same gets mortgaged to SPV lenders. Thus, there is usually
difficulty faced by members in leveraging the value of the property for raising loans
Several common infrastructural projects that are funded by banks face difficulty in ensuring
timely repayment to lenders. This is because the SPV usually has to rely on collections from
multiple sources every month to make interest & principal payments to the lenders. If some
members default in their obligations to the SPV, there is a shortfall in debt service. This is
usually made good in subsequent month by collection in arrears from the members. However,
due to the 90-day NPA norm of financial sector, there is little time cushion available to SPV
to manage its collections from the members
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Based on these terms and conditions, term loans of Rs.27.68 crores from the following lenders were
raised for the park:
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
a) IL&FS: Rs 5 crore
b) SIDBI: Rs 5 crore
With a present loan outstanding of Rs 22.50 crores, the model whereby the SPV initially borrows the
loan but the repayment liability vests with the individual members seems to be a workable viable
model. The key success factor of this project was due to the key anchor promoters, Mr Senthil Kumar
in this case, professional management for running of the Park, strict action against defaulters and an
inherent sense of commitment from the members to meet their dues for ensuring sustainability of the
Park.
Photographs of Palladum Hi-Tech Textile Park
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Project Design • Has the SPV appointed a professional agency as its Project Management
Approvals, bid Consultant, which will assist the SPV in Project Development, Approval
management and Process, Bid Process Management and Construction Supervision of the
construction Project during implementation?
supervision of the
Project
The promoters of SPV and the SPV structuring/ dynamics is critical for
the success of any large infrastructure project. For the financing banks,
it is very important to very
construction cost • Whether the risk of delay and cost overrun will be passed on to the
overrun contractors/suppliers? Such clauses should be suitably provided for
in the TOR/MOU to be entered into with various contractors and
equipment suppliers.
• The technical consultant should periodically submit progress
reports on the project construction and would bring any time
slippages to the attention of the Board of Management.
The utilities such as water and power are extremely important for
successful implementation and operations of such project. The risks
related to availability of water and power need to assessed during the
project designed and suitable mitigation measures need to be adopted
Availability of against the associated risks. The key parameters of evaluation of risk
Water & Power related to availability of water and power involve assessment of the
following:
• What kinds of provisions have been made for receipt of funds and
expenses to be incurred?
• Whether project funds would be routed through Trust & Retention
Account (TRA) to ensure that all the money raised by the SPV
Utilization of funds (from the promoters as equity contribution, from the units by the
by SPV for way of long term / non refundable deposits, if any, GoI’s grant and
unauthorized debt) are utilized in a transparent manner for authorized
payments expenditure during the project implementation and operational
phase?
• Are there discrete sub-accounts of the TRA exclusively for
receiving grant and loans?
• Who will be the TRA agent? A bank should be designated as TRA
agent for escrowing all funds flows / cash flows of the SPV during
the project implementation stage.
• Whether a proper system is in place which would ensure that funds
are withdrawn from the TRA account for the purpose of utilization
in and order of priority laid out below (indicative):
For the construction of the project – Payments to be made to
contractors and equipment suppliers for various components of
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Risk of recovery of • Are there suitable agreements between the SPV and individual
charges and/or members (units) for fixed and variable charges?
members' businesses • Do the agreements have provisions such as recourse by way of
not doing well rights of replace units that have defaulted in payments or which
do not commence operations within a given time period?
• Do the agreements have suitable clauses to claim compensation
and/or recover payments in case of breach of agreement by the
units?
• Do the agreements have other provisions such as security
deposit, etc. which would be forfeited in case of defaults in
payments by the units?
• Is there a provision for re-possession of the factory shed / plot
Units do not by SPV in the event a unit does not commence production
commence production within a given time period or such time may be extended By
SPV?
• Has the SPV entered into suitable O&M contracts for the
operation and maintenance of project assets?
• Do the contracts have suitable clauses to claim compensation
O & M risks
and/or recover payments in case of breach of contract by the
O&M contractors?
The risk associated with availability of skilled manpower in the
project area should be assessed carefully. The key parameters of
evaluation of risk related to availability of skilled manpower
involve assessment of the following:
Chapter-
Chapter-12:
12: Way Forward
During 10th and 11th FYPs, the GoI introduced several schemes to develop common industrial
infrastructure in manufacturing sector with huge grant assistance to private sector with an
objective to achieve economic growth. There was a paradigm shift in which the thrust on PPP
models for infrastructural development of the country witnessed large scale participation of
the private sector. In this regard, the GoI trusted the private sector with the belief that it
would bring efficiency in the implementation of various schemes and programs through
demand driven and commercially viable interventions. Also, it was assumed that private
sector participation would enable the Ministries to timely complete such capital intensive
projects. Most of such private sector participation came through schemes providing capital
grant which, although may not be defined as a classical PPP model, but was in the spirit of
the private sector participation as envisaged by the GoI. During the last 2 FYPs, a large
number of private sector driven common infrastructure projects have been approved and are
at various stages of implementation. For example, the MoT has approved as many as 61 ITPs
and the MoFPI has approved a total of 34 MFPs (excluding 8 projects which have been either
withdrawn or cancelled). However, considering the demand for such projects, these projects
have not been able to meet the requirements of the concerned sector and many states and
regions remain devoid of due coverage. In the following section, the response of the private
sector to the schemes and programs has been discussed
Experience of Implementation by
Number of Textile Parks Approved
Private Sector
experience and glitches in implementation of the government schemes through such models,
12th FYP had brought in a change in approach in the whole process by encouraging increased
roles and responsibilities of state agencies in implementation of such projects. For instance,
as mentioned earlier, schemes such as IIUS and MFPS calls for increased involvement of
state agencies. The revised guidelines of IIUS have now done away with SPV structure itself
and have allowed only State Implementing Agencies (SIAs) such as SIDCs or any equivalent
state entity as identified and recommended by the respective state governments to apply
under the scheme. In revised MFPS scheme as well, the MoFPI has now allowed state
government/ state government entities on their own to apply under the scheme even without
forming separate SPVs. Earlier, the scheme allowed state government ownership of the SPVs
up to only 26%. These decisions have been taken based on appreciation of the challenges
faced by the private sector in implementation of such projects
It is appreciated that there may have been other external factors, which may have affected the
scheme implementation adversely in the previous Five Year Plans. In the last 4-5 years the
economic downturn, which was experienced all over the world including India, might have
impacted the capacities of private players which in turn affected growth and momentum in
the common industrial infrastructure projects
Moreover, it has been observed that in many cases, the implementing agencies had faced
several obstacles such as delay in change in land use permissions, environmental clearances
and other statutory clearances. Such considerable delays have huge ramifications not only in
terms of timeline of the project but also in financial health of the project making many
projects unviable. Further, during this period, land acquisition, especially for large projects,
became a difficult issue which did not allow some projects to take off. In many cases the state
governments were unable to hand over the duly allotted land to the SPVs in time due to
various complications involved, which includes opposition from local communities etc
In spite of the above issues, there have been enough opportunities in the sector for successful
private investment especially when assisted by GoI with large financial grants/ subsidies.
However, many a time such private investments in the common industrial infrastructural
projects were not successful. Large corporate players generally have not found the schemes
very promising because of some inherent issues. This is especially true for the schemes which
make it mandatory for SPVs to have at least a certain number of members and restrict the
percentage of share holding of each member in SPV. Many of the large corporate players are
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
not comfortable with such diluted ownership and most of the times, they want complete
control on the decision making process for the projects. The entrepreneurs who came forward
for the implementation of these schemes have mostly not been able to show adequate
enthusiasm, willingness and appetite for long term investments in infrastructural projects.
As noted earlier, the rationale for providing such huge capital grant by the Government was
based on the assumption that without such grants, the large infrastructural projects may not
be commercially sustainable. It was assumed that initially such projects may not have
sufficient capacity utilization and may face revenue deficits, although overall the projects
would credit worthy and financially viable
In most cases, the SPVs/ promoters have developed cold feet in facing the challenges of
raising adequate capital for projects which have long gestation period and thus many of the
projects were not completed. This may have also happened due to inability of the private
sector promoters to raise requisite debt, with reasonable rate of interest and sufficiently long
repayment period, even as the very nature of the private sector requires quick returns and
ready cash flows for continuance of operations. In some other cases, the SPVs have been
eager to utilize common facilities for their own benefits rather than passing them on to
individual entrepreneurs for setting up units in the park. Such deviations in project
implementation have put a question mark on the entire rationale of private sector driven
implementation of schemes and programs
Recommendations
The recommendations made in the study have been categorized into the following:
One of the main objectives of providing financial assistance by the Government to the SPV is
to ensure the benefits are passed on to the end users. It has often been argued that the huge
investments made for the project do not translate into the intended purpose. In many cases, it
has been observed that SPVs often fail to pass on the benefits/assistance received from the
government proportionately to the entrepreneurs/units. It is also a matter of concern that these
investments may not be efficiently utilized thereby making the infrastructure and capital
expenditure inefficacious and idle. So, such unproductive capital infrastructure may not be
beneficial to the investors i.e. promoters, banking institutions and government agencies
of the total admissible grant may be disbursed for infrastructure creation. Of the
balance 20% of grant admissible, 50% may be structured as seed funding / working
capital funding once the units in the respective projects are ready to get operational.
The remaining 50% may be escrowed in the SPVs bank account as a bonus / penalty
for timely completion of project. The bonus / penalty, so structured, would be
appropriated only on lenders comforts. If the SPV insists on lenders for release of
such amounts, same could be done after a Bank Guarantee is furnished by the SPV to
the lenders for the amount being transferred. This way, lenders would have an
additional security for any unforeseen dips in revenue, which may hamper any
payment obligations. Similar structures could be worked for various schemes,
depending upon the nature of projects, the extent of capital required by units at start
up stage and examining the amount of lender involvement required. The percentages
suggested above are only indicative in nature and is a representation for making
schemes work better and address various quarters of stakeholders. Specifics would
need to be worked out in consultation with all stakeholders involved
(2) Project Implementation
• Under different schemes, the project proposals are either invited as Expression of
Interest (EoI) or the assistance under the schemes is available on ‘on-tap’ basis.24 The
selection of proposals through EoIs is generally accepted as a transparent way of
selection with well-defined appraisal process and evaluation criteria. Many a time,
when the number of project slots is limited due to budget constraints or other reasons,
selection through invitation of EoIs ensures that the best proposals/projects are
selected for grant assistance. However, the process for selecting proposals through
EoI may sometimes become cumbersome and lengthy. Also, as there are limited slots
available, the certainty for the proposals to be supported by the government is not
ensured even if all the eligibility criteria are met by the proposals. In such a scenario,
for the promoters, the timeline for the project implementation may be compromised
and may lead to higher costs. Also, unlike ‘on-tap’ schemes, where applicants have a
sufficient time window to apply for the financial assistance, EoI restricts the time for
applying for the grant-in-aid. The applicants may not get sufficient time for fulfilling
compliance conditions and incomplete and ill-prepared proposals may lead to delay in
24
On-tap schemes are open schemes which do not have fixed deadlines to apply for grant assistance by eligible
promoters.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
revise PPP model and reconsider the roles and responsibilities of key stakeholders.
The involvement of state agencies may be increased and such agencies may be given
the ownership and implementation responsibility of the projects. Private sector may
be allotted the task of O&M for the projects
• It is also advisable to ensure active involvement of banks in designing, revising and
launching of schemes and programs to support industrial infrastructure projects. The
banks as an important stakeholder should be involved in the decision making process
in this regard.
(3) Categorization as ‘Infrastructure Lending’ Projects
Industrial parks generally face challenges such as low returns on huge investments and often
fail to address its financial concerns. SPVs face such issues due to high capital & operating
costs and limited market penetration. They also have to grapple with procurement issues
which lead to low capital utilization. Moreover, it has often been observed that industrial
parks are considered as ‘Real Estate’ projects rather than ‘Infrastructure Lending’ projects by
the banks and financial institutions. This leads to difficulty in accessing easy and better credit
facilities from lending banks
In view of this, to tackle the issues of financial viability of such projects, the Government
may consider the Industrial Parks as ‘Infrastructure Lending’ projects as the RBI provides a
differential treatment to a credit facility categorized as “Infrastructure Lending”. As per RBI
norms, ‘Infrastructure Lending’ inter-alia includes “common infrastructure for industrial
parks, SEZ, Post harvest storage infrastructure for agriculture and horticultural produce
including cold storage, Cold chain25”. Based on this definition, the Industrial Parks should be
categorized as ‘Infrastructure Lending’ Projects. Such categorization of the projects would
provide the following benefits:
• Infrastructure Status would allow the SPV to claim tax benefits as per section 80-IA
of the Income Tax Act which allows deduction of 100% profit from its income during
initial 5 years of operation and then 30% deduction of profit from income during
another 5 years. For this purpose, ‘infrastructure’ already covers electricity, water
supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation,
storage (at ports) and industrial parks/SEZ
25
Cold chain includes cold room facility for farm level pre-cooling, for preservation of storage of agriculture
and allied produce, marine products and meat.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
issues may come up at a later stage of the project implementation due to variances with the
scheme guidelines.
To address this, the banks/ FIs should actively study and analyze the different schemes for
common industrial infrastructure. They should also continuously follow up with Ministries
for any changes in the scheme guidelines. State Level Bankers’ Committees (SLBCs) should
be encouraged to disseminate information regarding project status and getting feedback from
banks regarding their experience in this regard. Involvement of Lead Bank at district level
where the projects are coming up may also help in the process.
It has also been noticed that the quality & details captured by the banks in project appraisals
vary greatly from bank to bank. Some banks do conduct proper appraisals and capture all
necessary details in the appraisal report before sanctioning term loans to projects. However,
there are many banks which do not conduct proper appraisal and hence have limited
understanding of the project and the business model. It has been observed that many times
TEV reports submitted by consultants become the basis for project approval without proper
validation. This leads to sanctioning of term loans to unviable projects resulting in defaults
and NPA. In this regard, the banks/ FIs should develop certain standards for appraisal of such
infrastructure development projects and all the banks/ FIs should be encouraged to follow
such standards for the appraisal process. The banks/FIs should also create PPP cells which
would deal with large common infrastructure development projects and the employees in the
cell should be adequately trained for the same
Generally, common industrial infrastructure projects do not have one single promoter or
promoter group and they are promoted by SPVs which have unrelated and independent
promoters/ shareholders. This sometimes may lead to slow progress due to lack of
coordination among the different SPV members. Moreover, there can be conflict amongst
independent/ unrelated promoters due to the lack of understanding and clearly delineated
roles and responsibilities for management of the SPV. The lack of role clarity and
understanding among the SPV members may also lead to serious conflict for larger control
and representation in the management of the SPV and project. There are instances of
promoters taking legal course by approaching Company Law Board due to such conflicts.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
Such issues may cause inordinate delays in the project implementation and result in lack of
progress. In view of this, it is imperative that the banks/ FIs conduct serious appraisal and
strict due diligence of SPV structure and ownership especially related to the clarity of roles &
responsibilities and management structure of the SPV. Proper attention to these aspects of the
SPVs with more effort and time may help the banks/ FIs to avoid avoidable delays in the
progress of the projects.
The common industrial infrastructure projects typically require a large number of statutory
approvals ranging from CLUs for land to environmental clearances for project construction
and implementation. Moreover, many times further complexities may arise during the
implementation which may require further approvals/ clearances from the concerned
departments. It is critical to understand the requirements of different statutory approvals so
that the project can be designed and planned accordingly. Otherwise, inordinate delays may
result in the project implementation due to issues with obtaining statutory approvals. The
common industrial infrastructure projects generally require large contiguous land areas and it
is unusual to expect that there will be no issues with approvals/ clearances for such large tract
of contiguous land areas. Many times there are existing irrigation channels running through
the land and removal for these channels requires permission from Department of Irrigation.
Similarly, felling of trees in the land would require permission from the Forest Department.
Also, in certain states the permission for acquisition of large tract of land and CLU for
industrial purpose is accorded by the highest decision makers. Due to this, obtaining such
permissions make take long time causing delaying in the project implementation.
Similarly, many hindrances may occur while obtaining environmental clearances for the
projects. It is very important to assess the environmental concerns regarding the project at an
early stage of project designing. During the project appraisal the banks/ FIs should critically
assess the environmental risks such as whether the land is located in Ecologically/
Environmentally Sensitive Area or Coastal Regulation Zone. The banks/ FIs should also
assess whether the project would require an Environmental Clearance as there are minimum
requirements regarding land and built up area for qualifying for environmental clearance.
Also, there are multiple steps in obtaining environmental clearance such consent to establish
and consent to operate from state Pollution Control Boards (PCBs). Hence, clear
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
understanding and assessment of different types of statutory approvals and clearances is vital
for a proper appraisal of a project by the banks/ FIs.
• One possible solution may be that the entire land is not mortgaged to lenders by SPV.
The land area available for Core Processing Facilities (Common Facilities) and for
basic enabling infrastructure only may be mortgaged by SPV to the banks for term
loan purposes by keeping the land area for units free of mortgage. In this way, the
units coming up in such parks will be able to arrange finances by mortgaging the plots
to the banks. Such arrangement has already been taken up in some of schemes.
• In most of the industrial parks, the title of the land is never conveyed to the units/
members, as the Government Schemes require the assets to be vested in the SPV. In
such cases, the land/plots are given on long term leases to each unit separately. The
units may be required to pay annual lease rentals to the SPV towards the plots. In this
way, there would be no capital expenditure on land and the lease rentals would
become a part of operating costs of the unit. In such cases, as the cost of land is not a
part of project capital cost, the land may not be used as mortgage by the bank. The
P&M and other assets may be used for mortgage for leveraging bank finance
• The bank(s)/consortium of banks which have extended the financial support to the
SPV for the project should be encouraged to provide term loans to the units in the
park. As the lending bank(s) already have a fair idea about the project components,
financial projections, the viability of the project and overall project structure, their
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
comfort level would be higher regarding such units. Also as the land for the park is
already mortgaged to the bank(s), they would most likely come up with suitable
arrangement for further lending to the units
• To encourage common infrastructure projects, it is also suggested that banks may be
more flexible in releasing of partial security. This would streamline compliances by
the SPV, reduce its administrative costs and also encourage clear and discrete division
of responsibilities between members
(5) Project Structuring Options for Improving Bankability
Several structures have been introduced to improve the creditworthiness of SPVs promoting
common infrastructure projects. IL&FS has been the pioneer in arranging debt finance for
cluster projects and has arranged loans for several industrial cluster projects. It has raised
loans from banks, institutions like SIDBI, LIC, IIFCL, and has also taken debt exposure in
few projects. As mentioned earlier, due to distributed ownership, and mutually exclusive debt
service obligations of the members, there could be shortfall in debt service in some of the
months. To address this, IL&FS has used the following two measures:
• Debt Service Reserve Account (DSRA): In the project cost, provision is made for
DSRA which is equivalent to 6 months’ debt service obligation of the SPV. Thus, in
case of temporary mismatch in cash flows of the SPV, the DSRA can be used to
ensure timely repayment to the lenders. Therefore, if all the members default in
repayment, the loan can become NPA only after 6 months, and likelihood of all
members or even a significant proportion of members defaulting is limited
• Common Debt Service Fund (CDSF): In some of the projects, an additional reserve
is stipulated. This involves collection of an additional amount equivalent to 10% of
monthly debt service payment by each member, which is kept in a separate account.
The CDSF is collected till the balance is equivalent to 50% of net outstanding term
loan allocated to the member. In case of any temporary shortfall or default in payment
in any month by the member, the CDSF can be used to make payment to the lenders
Considering the nature of the large infrastructural projects with different types and tenure of
revenue generations, the banks, instead of a blanket fit for all repayment schedules, should
come up with innovative loan products with repayment schedules aligned to the revenue
generation
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities
for MSMEs Under PPP and Private Ownerships
The banks may also consider creating other innovative risk mitigation strategies to protect its
loans for these kinds of projections. Products in line with the Credit Guarantee Scheme
(CGS) of GoI & SIDBI, suitably modified for large infrastructural projects, should be
developed. Other forms of innovations such as risk sharing funds, insurance mechanism for
credit risk etc. may also be explored in this regard. The banks may also incorporate suitable
ways of bringing in new promoters/ management and/ or funds into the project to help
recover the projects in case of default due to low operational level etc.
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for
MSMEs Under PPP and Private Ownerships
Annexure-
Annexure-1
• Study of existing PPP models, schemes and programs presently being implemented by
various central government ministries for promoting industrial infrastructure for MSMEs.
• Performance of such PPP models and other models of assistance
• Major challenges being faced by such programs and issues involved
• Impact of such PPP based programs and other such models
• Success Stories for such models and its potential for replication
• Legal and regulatory framework for projects under such schemes and programs.
• Operation and Management framework for such PPP models of assistance including
various structures of Special Purpose Vehicles (SPVs) being used (in PPP and Private
projects)
• Financial Models for raising funds for capital expenditure for such projects
• Project structuring for creation of mortgage rights/other securities for lenders to facilitate
debt for project
• Response of banks and financial institutions towards funding of such projects and
challenges being faced in this regard
• Existing policy constraints (land, other statutory approvals etc.) for such PPP based
schemes/programs
• Assessment of demand for such projects in the country vis-à-vis schemes/programs
promoting these projects
• Policy recommendations for addressing key concerns of banks and financial institutions
for such projects.
185
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
Annexure-
Annexure-2
S No. Scheme Beneficiary/Eligibility Intervention GOI Contribution Remarks / Benefits
1 Micro and Small A minimum of 20 MSE units required to A combination of Hard and Soft The GOI contribution is as follows: (i) Scheme under Ministry of Micro, Small
Enterprises - Cluster be member of the SPV interventions, as emerging from the For preparation of Diagnostic and Medium Enterprises
development Programme Diagnostic study. Study Report: Rs 2.50 lakhs
They can be: For Soft Intervention, contribution (ii) The scheme is open to all industries and
Creation of Common will be 75% and 90% for North follows a collective approach of development
FacilityCentres Eastern states and for clusters
Infrastructure Development where more than 50% are women, (iii) The GOI contribution does not include
SC/ST units. land and civil works cost
For Detailed Project Report, GOI
will contribute Rs 5 lakhs. (iv) The scheme has been utilized largely only
For Setting up CFC, GOI will for softer interventions as of March 2006, thus
contribute maximum 70% of the the Ministry has decided to broad base the
total project cost and 90% for NE scheme for including HARD interventions
states.
For Infrastructure Development,
GOI will contribute maximum
60% of the total project cost and
80% incase of North Eastern and
hill states.
2 Modified Industrial State Implementing Agencies Support to be provided for developing 75% of the project cost subject to a ceiling of (i) Scheme under Ministry of Commerce &
Infrastructure Common infrastructure, ICT Rs. 50 crores. Industries, Department of Industrial Policy &
Upgradation Scheme infrastructure, R&D Infrastructure Promotion
(Research), Quality Certification Center,
International Marketing Infrastructure, (ii) Only selected existing, high potential
Infrastructure for process reengineering bearing clusters to be provided funding limited
to Rs. 50 crores
186
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
3 Scheme for Integrated SPV formed by likeminded entrepreneurs Support to be provided for developing Grant support to the extent of 40 % of the (i) Scheme under Ministry of Textiles
Textile Parks in the textile value chain of activities Common infrastructure, Factory Project cost or Rs. 40 crores, whichever is
Buildings, Common Facilities and Plant lower. For NE states and Jammu & Kashmir, (ii) Textile Machinery Manufacturing is not
& Machinery this support can be 90% of total project cost included to extend benefits of this scheme
with a maximum ceiling of Rs. 40 crores.
(iii) Industry is the torch bearer of the scheme
with Government as a facilitator
4 Scheme for SPV formed by likeminded entrepreneurs The interventions are as follows: The assistance would be restricted to 60 % of (i) Scheme under Ministry of Health and
Development of AYUSH from AYUSH sector the Project Cost subject to a maximum of Rs Family Welfare
clusters Primary Interventions 10 crores.
First Level Processing (ii) The scheme requires atleast 15 enterprises
Testing facilities to form the SPV in a cluster. Given the
Laboratories geographical dispersion of availability of
Quality control and standards raw materials, it proves to be a limiting
factor for such an arrangement
Add on Interventions
Common Marketing Brochure
Common Website
Joint Participation in National
and International Exhibitions
Business Delegations Abroad
Brand development and
promotion
Infrastructure to support the
production units such as
water supply, roads,
sewerage, effluent treatment,
power supply, boundary wall
etc.
187
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
5 Mega Food Park Scheme SPV formed by individuals, private The interventions will comprise of the The GOI contribution will be a capital grant (i) Scheme under Ministry of Food
enterprises from the food sector. following: as of 75% of the total eligible project cost for Processing Industries
(Earlier there was a requirement of more Core Processing Facilities, general areas and 90% of total project cost
than one individual to form the SPV, but Factory Buildings, Enabling for hilly and difficult areas respectively (ii) Cost of land is not included in the Grant
now it has been changed to one individual Basic Infrastructure, Non- subject to a ceiling of R. 50 crores component.
also) crore Infrastructures.
Establishment of 30-35 (iii) 50% of the total project cost should
processing units in each park constitute of core processing facilities
Direct and Indirect
employment creation of upto (iv) An integrative approach which envisages
30,000 to connect farms with processors through
creation of Primary Processing Centers
and Central Processing Centers
6 Scheme for Cold Chain, Individuals, Private Enterprises, Self Help The interventions will comprise of the The financial assistance will be 50% of the (i) Scheme under Ministry of Food
Value Addition and Groups, NGOs, Public Sector Units, following for components: total cost of Plant and Machinery and Processing Industries
Preservation Farmer Producer Organizations etc a. Farm level processing Technical civil works in general areas and
Infrastructure centers, 75% in case of NE states and hilly areas, with (ii) Out of component (a), (b) and (c) any two
b. Pre-cooling vans and reefer a limit of Rs 10 crores. has to be put up the promoters on their
vans, own to be eligible for financial assistance.
c. Distribution hubs and
d. Irradiation facility (iii) Component (d) is eligible to considered as
a separate project for availing the grant.
7 Comprehensive SPV preferably a Company with the The interventions will be in the The GOI assistance is designed as follows: (i) Scheme under Ministry of Textiles
Handicraft Cluster participation of related stakeholders, following areas:
Development Scheme particularly the leading manufacturers, Common facility centers; Soft skills such as skill development (ii) The SPV can also finance their
suppliers, buyers, and artisan CAD Centres; Training, Product Development requirement by dovetailing into other state
federations/SHGs. Communication Network; workshop, etc: and central government schemes
Design Banks; Rs 10 crores/ project
Establishment of Resource (iii) The funding categories can be broadly
Centers for major crafts; Common production related divided into the following three types:
Building Marketing Infrastructure which are artisan centric First type could be a project in
Infrastructure; such as CFC, Work shed, etc: which specific scheme of Govt.
Creation of Raw Material Banks. Rs 20 crores/ project of India exists
Second type could be those
Other commercial infrastructure – such specific interventions, which
Gas pipe line, etc: are required for growth of the
Rs 20 crores/ project Handicrafts cluster and are
covered as a part of scheme of
Facility Centers for the Office of the Development
Exporters/entrepreneurs: Commissioner [Handicrafts].
Rs. 2 crores/ facility Third type of intervention
centre/Entrepreneur relate to missing gaps, not
covered under the scheme of
Central or State Government
188
Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships
8 Mega Leather Cluster SPV formed by private companies The primary interventions are as follows: The GOI assistance can be 50% of the total (i) Scheme under Ministry of Commerce &
engaged in leather industry value Core Infrastructure project cost. Industries, Department of Industrial Policy
chain, industry organizations Social Infrastructure and Promotion
registered under Societies Act, Production Infrastructure The GOI assistance is subject to the
financial institutions, R&D Human Resource following limitations: (ii) Land development is a major component
institutions, State or Local Development of this scheme. Although there is no direct
governments or their agencies and Research and Development 20-60 acres land(without assistance in land procurement, financial
units within the Leather Industry. Infrastructure tanneries): Upto Rs. 50 crore assistance is linked proportionately with
Export related infrastructure 40-60 acres land(with tanneries): the land size.
Upto Rs. 50 crores
61-100 acres land: Upto Rs 70
crore
101-150 acres land: Upto Rs. 105
crore
More than 150 acres land: Upto
125 crore
9 Plastic Parks SPV formed by the consortium of Support to be provided for the following: The GOI assistance will be 50% of the total (i) Scheme under Ministry of Chemicals and
the following: Infrastructure to support project cost with a limit of Rs. 40 crore per Fertlizers
production units project.
User enterprises representing the Buildings for support (ii) Usage of the financial assistance has to be
manufacturing value chain Buildings and equipment / in the following way:
Mother/ anchor enterprise machinery for common facilities 25% for common enabling
representing the plastic facilities
sector/sub sector together with The scheme shall also support initiatives 5% for administrative and
ancillary enterprises which are soft in nature to ensure that the management support
A large infrastructure developer/ capacity of the beneficiary SPV and 5% for civil works
financial investor in association member enterprises is suitably
with user enterprises strengthened in order to absorb,
representing the plastic sector / implement and sustain the proposed
sub sector initiatives. These illustratively could
Any Central/ State Government include surveys /studies, sensitization
agency in association with user /awareness generation, skill development
enterprises representing the / training at various levels, exposure
plastic sector/ sub sector. visits etc.
10 Electronic and Manufacturing SPV formed by private enterprises. The scheme has to two parts: For Greenfield EMCs, the assistance (i) Scheme under Ministry of
Clusters Scheme Industry associations, R&D Brownfield EMCs, Greenfield will be 50% of the total project cost Communications and IT
Institutions, State or Local EMCs. with a limitation of Rs 50 crores for
Institutions every 100 acres of land. For larger sized (ii) The scheme is participatory in nature. In
Interventions will mainly focus on cluster, the limit would be decided by case of Brownfield EMCs, of the
the following: R&D center, tool pro-rata basis remaining project cost (after deduction of
rooms, training center and captive the GOI assistance) a minimum of 25%
power generation. For Brownfield EMCs, the assistance has to be financed by the units in the
will be 75% of the total project cost EMC. Similarly for Greenfield EMCs,
with a maximum limit of Rs. 50 crore. 15% of the remaining project cost has to
be financed by the unit.
189