PUBLIC PRIVATE PARTNERSHIP

INITIATIVES IN TAMIL NADU

Vikram Kapur, IAS

MD & CEO
TN Urban Infrastructure Financial Services Ltd
Chennai

1
 BACKGROUND

• TN - most urbanized state in India

• 43% population lives in urban areas
• Rate of growth of urbanization is 5%
• 6 Corporations and 152 Municipalities
• Present urban infrastructure not sufficient to provide
quality services to the citizens
• Urban areas contribute more than 70% of GDP in TN
• Organic linkage between economic growth and
infrastructure development
2
 PPP – BENEFITS TO GOVT
• Leveraging scarce budgetary resources of Govt
• Ownership of underlying public assets to continue to vest
with Govt
• Channelizing innovative and modern management
practices from private sector in
ƒ Project development and structuring
ƒ Resource mobilization
ƒ Asset management and preservation
• Project up-sides to be shared by Govt, while capping its
liabilities
• Preferred mechanism for outsourcing operations and
maintenance of viable public assets
3
 PPP – BENEFITS TO PRIVATE
PARTNER
• Policy level and statutory support by Govt
• Handholding by Govt to resolve bottlenecks as in land
acquisition, R&R, clearances and approvals
• Limited financial assistance by Govt for ensuring viability
• Govt participation to enhance lender confidence, enabling
mobilization of cheaper funds
• Continuing policy and O&M support from Govt
throughout project concession period

4
 SECTORS IDENTIFIED FOR PPP

• Water supply and sewerage

• Road infrastructure (roads, bridges and flyovers)
• Improvement of urban infrastructure
• Port infrastructure
• Computer literacy in school education

5
 PPP ORGANIZATIONS FORMED
IN TAMIL NADU
• Tamil Nadu Water Investment Company (TWIC)
– Promoted by GoTN and IL&FS to develop water projects
– Established New Tirupur Area Development Corporation Ltd
(NTADCL) as SPV for supply of industrial and drinking water under
Tirupur Water and Sanitation Project
• Tamil Nadu Road Development Company (TNRDC)
– JV of TIDCO and IL&FS (50:50) to develop road projects
– East Coast Road (ECR) Project
• Tamil Nadu Urban Development Fund (TNUDF)
– Formed with Fis like ICICI, IL&FS and HDFC
– Implementing World Bank assisted TN Urban Development Project
• Ennore Port SEZ
6
TIRUPUR WATER & SANITATION
PROJECT

7
 Genesis
• Despite international recognition as a major export centre for knitwear,
Tirupur lacks quality infrastructure

– Domestic water supply is limited to a few hours on alternate days

– Industries do not have access to piped supply
– Depleted ground water in the region

• Investment in infrastructure is critical for a future Tirupur

• A comprehensive program (TADP) was formulated to address the

infrastructure needs of the town

• Lack of budgetary resources prompted local industry to spearhead

implementation of TADP on a commercial format

• New Tirupur Area Development Corporation Limited (NTADCL) was

formed as the company to implement the TADP

8
 Summary Terms of Concession Agreement
• Concession Model : Build-Own-Operate-Transfer (BOOT)
• Concession Period : 30 years
• Concession Grantor : GoTN and Tirupur Municipality
• Concessionaire Co. : New Tirupur Area Development
• Recovery mechanism : Composite water and sewerage charges
• Tariff revision : Annual revision linked to indexation;
Unusual increases to be approved by
Price Review Committee
• Transfer of Water Assets : At the end of the concession period
• Base Project Return : 20% pa on 185 Mld project cost
• Franchise Protection : Exclusive rights for service
9
Concession Agreement - Investment Matrix

NTADCL

Backbone
Value Added Franchise
Investment

Water Supply Productivity Investments to

increase supply by 65 MLD
Sanitation
Waste Water Recycling
Bottled Water Supply

10
 Scope
• Water Supply 185 Mld (250 Mld)

• Urban Population 3,46,551 (2001 Census Figure)

• Rural/Semi Urban Population 4,00,266 (2001 Census Figure)

• Industry 730 Units

• Sanitation Coverage 60% of Households of Tirupur

• Low Cost Sanitation for Slums

11
 Schematic of Water Supply Scheme

Netaji App. Uthukali Perundurai Kanchikoil

Park (3.9 Mld) Chennimalai (2.7 Mld) 185 Mld
(1.0 mld) (8.4 Mld)

56 km Steel Pumping Main from WTP to MBR (1400 & 1200 mm dia)

Booster Water Intake at

MBR
(23 Ml)
PS Treatment Cauvery
Plant

LEGEND

PS Pumping Station
FM-I to TM MBR Master Balancing Reservoir
(9 DS) FM Feeder Main
TM Tirupur Municipality
FM-II to FM-III to DS Distribution Station
TLPA TLPA TLPA Tirupur Local Planning Area
(17 DS) (9 DS)

12
 Project Structure

IL&FS
GoTN
- Project Sponsor
Project Sponsor
- Land and Right of Way
- Grant of Concession

Equity Investors Concession Agreement

TWICL
Contractor
Consortium NTADCL Service
Pvt Equity Funds -Execution of the Project
- O&M of the Project USERS
- Beneficiary of Concession
Lenders Terms Water
Consortium led by Charges
IDBI and SBI

O&M CONTRACTOR
EPC CONTRACTOR
(M&M & United Utilities)
(WSA,, M&M, L&T, HCC) 13
 Project Implementation & Monitoring
Structure
• Concessionnaire : NTADCL
• Project Sponsors : TWICL (GOTN and IL&FS)
• Construction Contractors
– Advance Engineering : Bechtel Enterprises, USA
– EPC 1 Contractors : Hindustan Construction Co. Ltd.
– EPC 2 Contractors : Mahindra & Mahindra and Larsen & Toubro Ltd
• Operation & Maintenance: United Utilities, U.K and Mahindra & Mahindra
• Project Managers : Wilbur Smith Associates, USA
• Lenders Engineer : Pell Frischmann Water, U.K.
• Owners Engineer : GKW Consult, Germany and CES, New Delhi
• Independent Auditor : SB Billimoria, Chartered Accountants
14
Components of the Tirupur Project
• EPC1
Ö River Intake Well and Pumping station

Ö Water Treatment Plant & Booster Pumping Station

Ö Transmission Main – 56 kms

Ö Master Balancing Reservoir ( 23 Mn Ltrs)

• EPC 2
Ö Feeder Mains 1, 2 and 3 – 93 kms

Ö Water Distribution Stations – 36 Nos.

Ö Distribution Network – 219 kms

Ö Distribution Network to Wayside Villages

Ö Sewerage System – 124 kms

Ö Low Cost Sanitation 15

Total Landed Cost and Means of Finance
Rs Crores
• EPC Cost 650
• Owners Cost 127
• Contingency 93
• Interest During Construction 142
• Initial Working Capital 11
Total 1023

• The project cost of Rs 1023 cr is proposed to be financed through a

debt : equity ratio of 1.5 : 1
Equity 322.70
Subordinate Debt 86.50
Debt 613.80

16
 Equity Structure
Equity Sub debt Equity Sub debt
GOTN 30 25 IL&FS 35 15

TWICL
Equity 65 Sub debt 40
Total 105

AIDEC Fund 90 LIC 20 NTADCL

GIC 15 Contractors 45 TWICL 105
Tirupur 10 Others 37.7 Others 217.7
Industry TOTAL 322.7

17
 Allocation of Risks
• Government of • NTADCL
Tamil Nadu – Commercial
– Political Force – Construction
Majeure
– Operations
– Water Source
– Power – Insurable Force
Majeure
– Permissions
– Change in tax /
law
18
Innovative Financial Structuring

• Non recourse financing

• Issuance of a 30 year bond in the US Capital Market:

• Guarantee under the FIRE program
• • Support of USAID in timing of issuance enhanced credibility of the
Project

• Fund for DSR using a contingent recourse structure

• Project financing with capped contingent liabilities on GoTN

• Risk Participation Agreements

• Sharing of upsides with consumers in the form of price relief

• Formulation of risk allocation matrix to allow for re-pricing

19
 Value of Project to Tirupur

• Industry would collapse without it, and prosper with it

• Project strength: commercial viability and Social dimensions

• Pro-poor image

• Social Benefits - Health

• Environment

20
 Value of NTADCL to Tirupur

• Facilitate industrial growth

• Effluent Treatment
• Apparel Park
• IIUS
– Exhibition & Convention Center
– Working Women’s Hostels
– R & D Center
– Roads
– Traffic De-congestion

• Social Forestry – Avenue & Schools

• Recreation Parks
• Social Study 21
PPP Strengths and Effectiveness - I
• Robust and Dynamic structure

• Arm’s length from the Govt.

• Government ownership high

• Governance structure ensures :

– Allaying of private sector concerns
– Social issues are addressed comprehensively
– consumer interests are safeguarded

• Commercial interest protected

22
 PPP Strengths and Effectiveness - II
• PPP model domiciles risk to parties that are well equipped to
deal with them
• Transparent and well-conceived contracts
• Documentation recognizes rights and responsibilities of all
project related parties
• Concerns of all stakeholders addressed
• Examples of contracts :
– Concession Agreement
– Bulk Water Supply Agreement
– Shareholders’ Agreement
– Common Loan Agreement
– EPC and O&M Contracts

23
 PPP Strengths and Effectiveness – III
• The PPP model is an effective format for implementing infrastructure
projects

• But it has its own challenges which need to be recognized

• PPP format involves the participation of a large number of Institutions:

– Government, Politicians, Banks, Financial Institutions, Investors, Contractors,
Consumers, NGO’s, etc.
– Each of these entities recognize the benefits of the project.

• But as the project develops, they exert pulls and pressures to enhance and
further their own narrow institutional interests

• The project development exercise requires addressing each of these

issues without losing the integrity of the project concept
24
What This Project Has Established
• As a pioneer project it has established:

– Demand-driven projects are inherently strong.

– Commercial formatting of projects is possible

– Private participation in the sector is viable

– Returns can be commensurate with risks

– Willingness to pay for efficient services

– Internal cross subsidy to reach the poor

– Healthy precedent to ease learning curves

25
 Current Status of Project
• Construction commenced October 28, 2002

• Water supply already commenced

• Sewerage component to be completed shortly

26
 TAMIL NADU ROAD
DEVELOPMENT COMPANY
• TNRDC a 50:50 JV between TIDCO & IL&FS which
have contributed Rs.5 crore each as share capital
• East Coast Road (ECR) project
– Initial improvement works (Rs.61 crore) and maintenance during
Concession Period of 30 years
– Recovery of initial investment, O&M and returns (capped at 20%)
by levy of nominal tolls; surpluses to be reinvested in road sector
– Project funding
• Equity: Rs.10 crore
• Sub Debt: Rs.10 crore
• Senior Non Convertible Debenture: Rs.41 crore

27
 TAMIL NADU URBAN
DEVELOPMENT FUND (TNUDF)
• A non-guaranteed fund managed by a private AMC
• Established in November 1996 as a Trust
• GoTN (Rs.143 cr), ICICI (23 cr), HDFC (Rs.17 cr), IL&FS (Rs.17 cr)
• Policies and procedures by TNUITCL (FIs – 51% & GoTN – 49%)
• Managed by TNUIFSL (FIs – 51% & GoTN – 49%)
• Private Public Partnership arrangement to channelize private capital in
municipal infrastructure
• Object is to raise resources and to provide long term finance to ULBs
• Resources - Unit Capital and Line of Credit by IBRD through GoTN
• Flow of funds
– World Bank to GoI by Project’s Special A/c
– GoI to GoTN - pass through arrangement
– GoTN to TNUDF / CMA / Grant Fund
– TNUDF / Grant Fund to ULB

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 INITIATIVES UNDER TNUDF

• Rs.30 crore mobilized from first Revenue Bond for

Madurai Inner Ring Road
• First toll bridge on BOT model costing Rs.15 crore (Karur)
• First sewerage treatment plant (STP) on BOT model
costing Rs.6.63 crore (Alandur municipality)
• Rs.110 crore mobilized from domestic capital market for
municipal infrastructure
• Rs.51 crore mobilized by way of equity participation
• Rs.30 crore mobilized through pooled finance on lines of
US Bond Bank model (Water & Sanitation Pooled Fund)
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 TNUDP III
• Is a follow up project of TNUDP II
• Project launched on 19th October 2005
• Project Size : US $ 434 m
– World Bank : US $ 300 m
– GoTN : US $ 84 m
– Others : US $ 50 m
GoTN
• IDC to CMA : US $ 10 m
• Capital Grants to ULB : US $ 48 m
• Grants to CMA : US $ 26 m
Others
• ULB : US $ 10 m
• Market Borrowing by TNUDF : US $ 40 m
 TNUDP-III

• Loan & Project Agreement - effective on 19th October,

2005
• Project period : 5 years
• Objectives
– Develop TNUDF as a financial intermediary to provide finance
for infrastructure in ULBs on a sustainable basis
– Strength urban reforms and consolidate the achievements under
TNUDP II
– Institutional strengthening and capacity building
– Provide grant to CMDA for traffic and transportation.
 COMPONENTS
• Institutional Development component (IDC)
– World Bank : 15 US $ m
– GoTN : 10 US $ m
• Urban Investment component (UIC)
– World Bank : 146.5 US $ m
(Loan 110, Grant 46.50, PDA 3)
– GoTN : 48 US $ m
• Grant to CMDA
– World Bank : 124 US $ m
– GoTN : 26 US $ m
 Funding Pattern – Break UpUS $ M
Component Bank GoTN Total Cost
Finance Finance
IDC - by CMA 15.00 10.00 25.00
UIC - by TNUDF
Loans to ULBs 110.00 50.00 160.00
Capital grants to ULBs 46.50 48.00 94.50
Project Development Advisory 3.00 3.00
Total 159.50 98.00 257.50
Grants to CMDA - by TNUIFSL 124.00 26.00 150.00
Front End Fee 1.50 1.50
TOTAL PROJECT COST 300.00 134.00 434.00
 Pipeline of Projects
• Water supply Project : 11 projects; Sanctioned Loan of
Rs.90 crs and Grant of Rs. 36 crs for 10 projects.
• UGD Projects : 16 projects: Sanctioned Loan of Rs.272
crs and Grant of Rs. 80 crs for 11 projects.
• Road and SWM Projects: Sanctioned Loan of Rs.75 crs
and grant of Rs 33 crs sanctioned.
• Total - Loan of Rs. 437 crs, and grant of Rs.149 crores
sanction (Rs. 586 crs).
• Amount disbursed : Rs.14.90 crs
 TNUDF’s Portfolio in Urban
Infrastructure
TNUDF's Sector Wise Portfolio (Sanctions)

Othe rs
1%
S tro m Wa te r Dra ins
1%
Wa te r S upply
17%
B ridge s a nd R o a ds B ridge s a nd R o a ds
39% B us S ta tio ns a nd M a rke ts
S e we ra ge & S a nita tio n
Wa te r S upply
S tro m Wa te r Dra ins
Othe rs
S e we ra ge & S a nita tio n
38% B us S ta tio ns a nd
M a rke ts
4%

35
 TNUDF - Innovative Financing
1. Karur Bridge –
xFacilitated first toll bridge contracted by an
ULB in India – cost Rs.16 crores
xPredictable cash flow
xTN State Toll Act amended to facilitate ULB
to enter into BoT contract – stable regulatory
framework

36
KARUR TOLL BRIDGE

37
 Contd…

2. Alandur Underground Drainage – Rs.34 crores

xInitial tariff Rs.150 per house per month –
very high
xTNUDF organised people’s participation @
Rs.5000 per household and generated Rs.14
crores
xSTP on BOT arrangement
With this, tariff rates reduced to Rs.75 per
household per month. 38
ALANDUR UNDERGROUND DRAINAGE

39
 Contd…
3. Madurai Bye-Pass
• Included two-lane of 27 Kms, 2 RoBs and 1 high
level bridge.
• Project cost of Rs.44.35 crores funded @
15.50% interest rate (Rs.30 crores loan, 14 crores
grant)
• The vehicles toll collection efficiency within 31/2
years found to be 54 %
Based on toll tax collection efficiency, TNUDF
facilitated first revenue bond in the country.
Cost saving of 3% on interest rate. 40
 Innovative Financing under TNUDP
MADURAI BYEPASS
MAP

41
 Contd…

4. Compost Plant on BOT in Tiruppur -

• Conversion of Municipal Solid Waste into Organic
Manure (50 tpd plant)
• Supply or Pay contract between ULB and Private
Sector operator at Rs.3.50 pt + lease rentals
• Pressure / Incentive for the ULB to keep the streets
clean.

42
 Innovative Financing (Contd..)
COMPOST PLANT

43
PPP POLICY FRAMEWORK FOR TN

• WB suggested consultancy for preparing policy framework

• GoTN engaged Economic Consulting Associates, IL&FS
and J.Sagar Associates
• Key issues identified by consultants:
– Is cross sectoral law required?
– Is cross sectoral agency required?
– Provide financial support to PPPs?
– What project development modes?
– How to manage unsolicited bids?
– How to manage contracts?
– How to resolve disputes?
– Role of independent regulation?
44
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