Innovative

Infrastructure Financing
 The Urbanising World
• The 20th Century began with a population
of 2 billion which increased to 6 billion
population by the end of the century.
• The Century also witnessed the biggest
exodus of human population from Rural
to Urban areas
• The global urbanisation level increased
from 10% to 50% during the century; The
world has turned urban with more than
half the population living in urban areas
Extra-ordinary Urban Growth in
Less Developed Countries

• 600 Million people added to the world’s

urban population between 1990-2000
• Close to 3 million people are added in
Asia alone every month, i.e. equivalent to
one new City a month
• Of the 21 mega cities (popln. 10 million+)
in the world today, 17 are estimated to be
in developing countries
 World Population Trends
Population in and developing (lesser developed) countries to be
88% of total population by 2050
(in millions)

8200 (88%)

DEVELOPING COUNTRIES

Source: UN Population Division; WORLD POPULATION PROSPECTS

Population Reference Bureau: WORLD POPULATION DATA SHEET
 Urbanisation Scenario in
India
Decadal Growth Rate of Population (1991-2001) Urban: 31.13% Rural 17.97%

1500
Total Urban 1350 M

1200
1 March, 2001, 1027 M
900
11 May, 2000, 1000 M

600 459 M
366.3
(34%)
330 M 361 285.35 (31.13%)
217.61
300 (27.78%)
(25.71%)
50 M (16%) 62(17%)
0
1947 1951 1961 1971 1981 1991 2001 2011 2021
 India: Urbanisation Scenario
Metropolitan Cities/Agglomerations
80
No. of Cities/Agglomerations with more than
1 Million Population
60

40
53 70
35
20 (37.8 % )
23
9 (33.0 % )
0 5
1951 1971 1991 2001 2011 2021
(Projected)

No.of Class-I Cities(> 1 Lakh) - 300 (1991)

% of Urban Population - 65%
 India : Million plus Cities and
Urban Agglomerations - 2001
Category City
10 Million+ (3) Greater Mumbai, Kolkata, Delhi
5 – 10 Million (3) Chennai, Bangalore, Hyderabad
3- 5 Million (2) Ahmedabad, Pune
2 – 3 Million (5) Surat, Kanpur, Jaipur, Lucknow, Nagpur
1 – 2 Million (22) Patna, Indore, Vadodara, Bhopal, Coimbatore,
Ludhiana, Kochi, Visakhapatnam, Agra,
Varanasi, Madurai, Meerut, Nashik, Jabalpur,
Jamshedpur, Asansol, Dhanbad, Faridabad,
Allahabad, Amritsar, Vijayawada, Rajkot

35 million plus cities/ urban agglomerations

Urban Infrastructure Scenario
in India – National Perspective
Urban Population
Coverage (%)
Availability Deficiency

Protected Water Supply 84 16

Sewerage & Sanitation 46 54

Latrine 69 31

Refuse Collection/ Disposal 72 28

Electrification 75 25

1991 Census
 Urban Infrastructure
Scenario in India
• According to estimates of the Rakesh Mohan
Committee total requirement for urban infrastructure
development covering backlog, new investments and
O&M costs for the next ten years is Rs. 2,50,000
Crores (US$ 57 Billion)
• The ninth Plan proposal identifies only around Rs.
12000 Crores. With anticipated growth in Tenth plan
providing additional funds of Rs.13,000 Crores, the
total expected plan outlay comes to Rs. 25,000 Crores
(US$ 5.7 Billion).
• Funds for UI development fall short by more than 10
times the requirement
 The Vicious Circle
Low Level of
Infrastructure

Low Service
Low Level
Investments
Low
Equilibrium
Cycle
Low
Low Maintenance
Collection/
Recovery

Low Capacity
to Pay
VS/ KS
 Challenges facing
Infrastructure
• Characteristics of infrastructure projects:
– natural monopolies - non-exclusive nature
– in-elastic demand - huge investment required
for capital & maintenance
• Traditionally Infrastructure provision seen as role of
government
• Schemes conceived as unitary service - no experience in
unbundling
• Although Financing options are rapidly changing due to
financial, technological and organisational innovations
at project and policy levels- no clear guidelines for
Private sector Participation
Cities and Citizens get the infrastructure they
desire and deserve.
 Major Concerns in Urban
Infrastructure Sector
• Inadequate coverage and service level
• Poor quality of service to consumers
• Institutional inefficiency and high administrative
overheads
• Insufficient financial and managerial resources
with Urban Local Bodies
• High non-revenue component due to wastage,
pilferage, unaccounted-for losses and free riders
• Inefficient operation and maintenance
• Poor monitoring and cost recovery
• Unsustainable resource management practices
• High investment needs and project costs
• Lower priority accorded to certain urban services
 Financing of Infrastructure
• Budgets of Schemes
– Central Government
– State Governments
– Local Governments
• Raising loans from LIC/HUDCO
and other Financial Institutions
• Loans from International Funding Agencies like
OECF(JBIC), World Bank, ADB, KfW, USAID, etc.
• Grant funds from Donor Agencies like DANIDA,
DFID, CIDA, National Trust/ Missions
“Every One Crore rupees spent in infrastructural provision now,
saves Ten Crore on cost escalation and
public health care due to deficient services later!”
 Role of Financing Agencies as
Facilitators of Change
• Principles of “user-pay”, “abuser pay” or “polluter pay”
to be used while determining the service charges to
assess the practical aspect of pricing.
• Willingness to Pay OR Willingness to Charge
• For improving the sustainability of UI projects
emphasises
– Principle of full cost recovery
– Transparent, Targeted and Measurable subsidy, if
needed
– Cost savings through energy efficiency, reduction of
leakages, manpower rationalisation etc.
– Full autonomy to local bodies to determine tariffs
– Tariff fixation taking care of annual incremental cost,
O&M cost, debt dues, depreciation charges etc.
– Compulsory 100% metering
– Operation of escrow account
 Issues Involved in Infrastructure Financing:
ISSUES:
Financial Institution’s Perspective
• Asset liability mismatch due to short term borrowing vs. longterm
funding.
• Large volume of resources for capital intensive projects
• Locking up of funds in specific large projects.
• High risk involved in greenfield ventures
• Non-uniformity in appraisal, guidelines and documentation
requirements
• Lack of tangible security and partial or nil recourse basis of
funding projects.
• Norms restricting exposure to individual agencies.
RISKS:
• Political risks & Implementation risks.
• Risks of default by borrowing agency
• Risks of prepayment in falling interest rate scenario
• Foreign Exchange Risks and currency fluctuations
In this context, alternatives in service delivery and innovations in
resource mobilisation being explored by Financial Institutions
HUDCO, IDFC, ICICI, IL&FS and LIC
 Some Innovative ‘User pay’ Instruments
Infrastructure Type Innovative user pay Instruments
• Water Supply - Advance registration charges, Connection
charges, Enhancement of water tariff, Water
benefit tax/water tax, Betterment charges,
Development charges, Utilization from other
sources such as octroi, property tax, sale of
plots etc. and Charges from water Kiosks
• Sewerage - Connection Charges, Sewerage Cess Tax,
Conservancy Tax, Sale of Renewable waste,
Sale of Sludge and Sale of Nutrient rich
wastewater.
• Solid waste - Collection Charges, Cess, Sale of Renewable
waste, and Fines for dumping waste.
• Roads/Fly-overs/ - Toll Tax, Land as a Resource and Advertising
Bridges
• Airports/Rly. Stations/ - Surcharge on tickets,using land as a resource,
Bus Terminals Toll Tax, User, Charges for transportation
terminals and advertising rights.
 Commercialisation to Privatisation:
Illustrative List of Potential Unbundling Packages

• WATER SUPPLY
– Water resource management & Development of source
– Treatment of water and bulk supply - Water Purchase
Agreement
– Distribution / Operation and Maintenance (O&M)
– Billing / Collection
• SANITATION
– Sewerage network (collection system)
– Pumping Stations(Installation and O&M)
– Disposal system - Through taxes (on the basis of water
consumed)
 Commercialisation to Privatisation:
Illustrative List of Potential Unbundling Packages
SOLID WASTE MANAGEMENT
• Collection
• Separation and treatment
• Distribution of by-products (scrap material, manure, fuel
pellets & bio-gas)
URBAN TRANSPORT
• Development of urban mass transit systems
• Operation and maintenance of urban mass transit systems
• Development and maintenance of terminals
• Operation of bus and intermediate public transport (IPT)
systems
• Construction and maintenance of toll bridges
• Construction and maintenance of parking facilities
 Increased emphasis on Private Sector
Participation in Urban Infrastructure
The imperative need for
Private Sector
Participation for:
• EXTENDED RESOURCES

• STATE-OF-THE-ART
TECHNOLOGIES
• EFFICIENT PROJECT
MANAGEMENT /
MAINTENANCE
 Route to Private Sector
Participation
• The concept of Public-Private -Partnership is
generally seen as one of these models:
– Build-Operate-Transfer (BOT)
– Build-Operate-Own-Transfer (BOOT)
– Build-Operate-Lease-Transfer (BOLT)
– Rehabilitate-Operate-Transfer (ROT)
– Design-Build-Finance-Operate-Transfer (DBFOT)

• In INDIA full blown Private Sector Participation

models have not been put into place, so far
 Options for Private Sector
Participation (PSP)
• However, the various options available, in order of
increasing Private Participation in Water Supply &
Sanitation Projects being taken up are:
– Service Contracts
– Management Contracts
– Lease
– Concession
With experience and later on, through
– BOT/BOOT etc.
– Divestiture
Private Sector Participation in Water Utilities -
Manila Experience
• Successful involvement of Private Sector in Power Generation
and Distribution; Largest effort in privatisation of Water
utilities.
• Metropolitan Water Works and Sewerage System (MWSS) had
covered only 67% population with intermittent water supply
and 8 % with sewerage system in 1994.
• 56 per cent of 3000 mld supply was non-revenue water
• MWSS privatised in 1997 and split into two.
• Manila divided into two Zones - East and West.
• Two Consortia led by - BENPRES for West and AYALA for
east -selected to run water works on 25 year franchise; Both
Groups offered rates lower than the prevalent rate (8.78 pesos)
Private Sector Participation in Water Utilities -
Buenos Aires Experience
• National Public Company OSN was in charge of water &
sewerage.
• Unaccounted-for water was about 45% of production
• Objective of PSP: To reduce Government burden and minimise
the price for service delivery
• Privatised in 1993 - Through Concession, thus effectively
keeping the fixed assets under Public Ownership
• Single private firm to operate on 30 years concession period to
be revived by re-bidding later
• Responsible to operate and maintain fixed assets and expand
coverage and guarantee water quality
• Pricing to incorporate subsidy already existing, first price
review after 5 years
 Improvements in Water and Sanitation
Services after Awarding the Concession in
Buenos Aires
Indicator Before the December Percentage
Concession 1995 change (%)
(1992)
Production capacity 3.4 4.3 27
(millions cum/ day)
Population served(M)
Water 6.0 6.5 8.8
Sewerage 4.9 5.3 6.4
Employees per 1,000 7,450 4,250 -43
connections
Response time for 180 48 -73
repairs (hours)
Meters in service 30,000 170,000 460
Private Sector Participation in Water
Utilities - Buenos Aires Experience
Reasons for success :
• Comprehensive and transparent bidding process - Two
Envelope System
• Independent Regulatory Agency established by Government to
monitor concessionaire, enforce the terms of contracts and
regulatory specifications and levy fines where necessary
• Contract had provision for adjustment and re-negotiation
during enforcement of concessional period (after 2 years the
initial reduction of tariff partly withdrawn in view of more
capital investment on system improvement, than originally
estimated)
• Re-negotiation : transparent and stakeholders involved
• Tariff policy had a fixed portion to cover cost of infrastructure
and a variable part proportional to consumption
Indian Experience in Privatisation of
Water Supply & Sanitation
Tiruppur Water Supply and Sewerage Project
• Implemented through a SPV New Tiruppur Area
Development Corporation (NTADC) promoted
by
– Infrastructure Leasing & Financing Services(IL&FS)
– Tiruppur Exporter’s Association (TEA)
– TamilNadu Corporation for Industrial Infrastructure
Development (TACID)
• Estimated Project cost - Rs. 900 Crores at 1998
prices (Rs. 1000 crore at present).
– O&M contract to consortium of
Mahindra & Mahindra+United Utilities International,
North West Water +Bechtel
– Attained financial closure with 10% stake by LIC &
GIC.
Indian Experience in Privatisation
of
Water Supply & Sanitation
Pune Water Supply and Sewerage Project -
• Developed by Pune Municipal Corporation at a
estimated project cost of Rs. 750 crores ($ 187.5 M)
later revised to Rs. 392 Crores with HUDCO assistance
– Private Sector Participation envisaged in Construction,
Operation and Maintenance, Tariff collection
– Financial Participation in addition to HUDCO expected from
IL&FS, ICICI, HDFC, IDFC and Bank of Maharashtra
– Request for proposal sought
– Tie-ups: Anglian Water + Trafalgar House & Shirkes
Binnie Black + Veatch & Thames Water + L&T
Krugger + Generale Des eaux & Shanska Int.
Preussag + Tata Projects
Hyundai + Sundram Chemicals
Hanjin + Krupp and Zoom Development Group
– Political Risk - work re-tendered at RfP level
Indian Experience in Privatisation
of
Water Supply & Sanitation
Bangalore Water Supply Project
• BOOT arrangement for sourcing 500 mld
water.
– Establishment of two Tertiary Water
Treatment Plants (of total 60 mld capacity)
with HUDCO assistance
– Private Sector (Industries) to undertake
laying of feeder mains
– envisages provision of 500 mld of water to
the city on a BOT basis with estimated
project cost is Rs. 800 Crores (US$ 173 M).
 Indian Experience in Privatisation
of
Water Supply & Sanitation
Chennai Metro Water
• Out of 119 Sewerage Pumping Stations, Operation
& Maintenance of 70 by private sector
• Sourcing of water in 7 wells through private sector
• Construction of 300 mld Water Treatment Plant by
- M/s Hindustan Dorr Oliver Ltd. And O&M by
M/s Richardson Cruddas
• New Chembarampakkam WTP of 530 mld capacity
(over and above the existing 600 mld capacity)
– Bid documents for BOT by TCS
– HUDCO funding availed
Indian Experience in Privatisation
of
Water Supply & Sanitation
• Private Sector Participation on the anvil in
water supply & Sanitation
– Nagpur - Dewas
– Kolhapur - Cochin
– Vishakhapatnam - Dharwad
– Goa - Alandur
• Karnataka Urban Water Supply and Drainage
Board (KUWS&DB) for Management Contract
in Distribution and O&M
Towns Selected for the initiative are
- Mysore - Mangalore
- Hubli – Dharwad - Gulbarga
 Privatisation experience in India in
Solid Waste Management
• ENBEE Infrastructure Ltd. on
BOO basis in Nagpur
• M/s Excel Industries –
Bio-degradation of solid waste
in
– Vijayawada, Calcutta,
Mumbai, Bhopal, Bangalore,
Gwalior, Cochin & Calicut
• M/s CELCO in Hyderabad
• Common hospital waste
treatment plant by GJ
Multiclave in Hyderabad
• Compost plant by IVR Enviro at
Tiruppur
 Privatisation experience in Transportation
• Pali Bye-pass, Rajasthan - TCI
Infrastructure Ltd
• Coimbatore Bye-pass (L & T)
• Karur Bridge on BOT basis by
East Coast Constns &
Infrastructure Pvt. Ltd.
• Kemptee-Kalamana Toll Road in
Nagpur
• Karur Bridge on BOT basis
• Faridabad Byepass
• NOIDA Toll Bridge Company
• Cochin International Airport
in Joint Sector by CIAL
• Bangalore Airport
• Ports – Pipavav, Positra, Adani,
Kakinada, Ennore, Cochin, Mumbai
 Important issues in a BOT
arrangement
• Who are the parties to the contract ?
• What are the objects and scope of the BOT
arrangement?
• What is the duration that might lead to early
termination?
• What are the obligations of the BOT operator ?
• What are the obligations of the guarantor ?
• What are the key regulatory provisions ?
• How will the key risks be managed ?
• How will performance be measured and monitored ?
• How will the assets be transferred to the BOT operator?
• What are the consents required ?
• Who will be responsible for environmental liabilities ?
• How will disputes be resolved ?
Countdown Steps for Structuring
Private Sector Participation
Process Structuring and Stages - countdown
• 09 Expression of Intent by Public Agencies
• 08 Firming up the Project Contours (Consultants)
• 07 Short-listing of Private Parties
• 06 Project Description Report
• 05 Pre-qualification of existing bidders
• 04 Issue of Request for Proposal (RFP)
• 03 Evaluation of Bids
• 02 Negotiations
• 01 Award of the Contract (Financial Closure)
• 00 Commencement of Work
 Evolving Appropriate
Organisational/Institutional
Mechanisms
• Legal and Regulatory Framework
– Simplification of Legislation
– Techno -Legal Regime (Australian Utilities
Commission, U.K. initiatives-OFTEL, OFWATS)
– over-arching legislation in the line of Federal Law of
Philippines (BOT, BOO,etc)
– State/City Level Regulatory Bodies in India
• CERC / SERC in Power Sector
• TRAI (set to become CCI) in Telecom / ICE sector
• NHAI in highways sector
• Need for similar regulators in Urban Infrastructure
 Urban Infrastructure -
Regulatory Authority

Utility & Users

Shareholders

Political
Authorities
 The Regulatory Mechanism
• Regulate prices
• Promote operating efficiency
• Specify and monitor service standards
• Control externalities
• Maintain public good functions
• Ensure asset serviceability
• Ensure development of essential infrastructure
• Prevent manipulation of land values
• Prevent unfair trade practices
• Promote efficient use
• Ensure responsiveness to final customer needs
 Model BOT Laws
• Gujarat Infrastructure Development Act – 1999
– First State to formulate a separate act
– Draws from the experiences in Philippines
• Authorises the Govt./agencies to enter into
concession agreements
• Provides a list of various forms of assistance to be
provided to the developer including exemption of
taxes etc.
• Competitive bidding mandatory for ensuring
transparency
• The concession agreement to prescribe the user fee
to be charged by the developer
• Need for replication in other States
 Infrastructure Authority
• Infrastructure Authority formed under Infrastructure
Development Enabling Act (IDEA), Andhra Pradesh
• Envisaged Roles for Infrastructure Authority:
– Conceptualisation of projects - Processing of the projects
– Mobilising public opinion - Advisory role to the government
– Co-ordination - Monitoring / approval of bidding
– Implementation of P-P-P-P - Prioritisation of projects
– Preparation of schedule. - Approval of TOR for consultancy
– Budgeting / financial allocation - Expedite clearances and permits
– Tariff fixing, user/abuser charges and cost recovery
– Model contract principles
– Supervision over implementation and project management
• Proposes a “Swiss Challenge Approach” for evaluating the
single bid for projects brought by proprietary agencies
 Legal Issues in Urban Infrastructure
Financing
Security Mechanism for UI Projects
• Non-availability of Conventional securities (government
guarantees, corporate / bank guarantees)
• “Letters of comfort” not a legal security option
• Collateral Securities and Equipment Leases used in
certain infrastructure
• Mortgages not viable securities in most UI projects
• Need for partial or non-recourse financing and
legislative changes for treatment as Secured Loans in the
Book of Accounts
• Negative lien could be considered only as a transient
security instrument
• Escrow accounts of receivables
– enhances transparency of the cash-flows
– ensures sufficient balance for immediate repayments.
Innovative Escrow Account for
Transportation

Escrow

Rs. 1000 / bus / day

upgradation of infrastructure
(US$ 20.8) deposited in
escrow account out of
the anticipated daily
revenue of Rs. 5760 per
bus (US$ 120)

fleet augmentation

computerisation
Innovative Resource
Avenues in
UI Financing
 Financing Options Matrix
S. Characteristics of Issue(s) Options/ Alternatives
No Infrastructure
Projects
1 Capital intensive Scarcity of • Multilateral financing
Resources • Consortium/Syndication
• Federal Govt. Guarantee with
financial support
2 Long Gestation Asset Liability • Take out financing
period Mismatch • Long Term Borrowing
• Securitisation of receivables
3 Working Capital Overlapping of • Flexible financing delinking
requirements project construction stage from
based on Project implementn post-construction phase
Phasing schedules • Cash flow financing
4 Inadequate High cost of • Tax Incentives
returns and funds, • Priority Sector Lending
uncertainty on Defaults/NPA • Sub-ordinate debt finance
returns risk • Firm tariff policy
• Escrow Accounts
• Power Purchase Agreements
• Sinking funds
 Financing Options Matrix
S. Characteristics of Issue(s) Options/ Alternatives
N Infrastructure
o Projects
5 Long Term borrowing Interest rate & • Interest Rate Swap
Currency • Forward Rate Agreements
fluctuations • Floating Interest Rates
6 Multiple debt High debt • Sub-ordinate debt financing
servicing obligations equity ratio • Equity infusion from strategic
partners
7 Lack of tangible Realization of • Letters of comfort
assets and loan amount • Pari passu charge on Escrow
collateral/security on liquidation Account
or default • Bank Guarantees
8 Varied expertise and Lack of • Joint Ventures
advanced technology appraisal & • Special Purpose Vehicles
operational
skills
9 Pioneering nature / Risk of • Venture Capital Funds
Feasibility risk en masse • Project Initialisation Funds
deployment
 Consortium financing /
Group lending
• For capital intensive projects and greenfield ventures
beyond lending capacity of single financial institution
• Pooling of resources for funding the project.
• Ensures sharing of the risks involved.
• Needs rationalisation and standardisation of appraisal
procedures, lending guidelines and legal documentation
of the constituent financial institutions
• Need for pari passu charge on the escrow account as
security to the partner institutions.
• Desirable to provide a single window facility based on
tripartite or joint agreements with the borrowing agency.
 Takeout Financing
Transfer of Fees / • Liabilities of primary
Loan Commitment lender on project
Accounts Charges absolved at the end
of a specified period
• Partner institution
Primary Partner Institution transfers pertinent
Lender loan accounts to its
own books, in lieu of
an agreed fee or
commitment charge.
Outstanding Loan Amt.
(Principal + Interest) • Both parties bear the
5 years 10 years project risks after the
take-out based on a
non-recourse
structure.
TENURE OF LOAN • pari passu charge on
(15 years) the escrow account
as security option.
 Innovative Financing Mechanisms
Sub-ordinate (Mezzanine) Debt Financing:
• Internal restrictions on equity participation by financial
institutions,
• Lower equity and hence limited debt-equity ratio of new
State level bodies for infrastructure projects restrict them
from market borrowing on a large scale.
• Funding could be considered as deemed equity for a
specific period granting the bodies better financial
leverage

Cashflow financing:
• institutional funding to be tailor-made to suit the financial
requirements at various stages of the project calling for
cash-flow financing.
 Securitisation of
Receivables
Loan
Lending
Institution Borrower

Repayments

Outstanding
Loan Pass Through
Portfolio Certificates
SPV Investors

Fees

Periodic Cash Flows

 Securitisation of receivables
• Conversion of future cash receivables into financial or
debt instruments tradable in capital market
• Role of SPV as intermediary:
– assumes the entire credit risk on the securitised receivables of
selected outstanding loan portfolio
– Insulates the lender from bankruptcy & insolvency risks
– repackages the receivables into pass-through certificates of
manageable lots for onward trading in the secondary market.
– Principal and interest components of the repayments are
passed on to the security owner.
• Merits to Investor:
– Continuous cash flow on Securitised instruments over the life of
the loan and principal “depletes” over time.
• Advantages to Lending Institution:
– reduces the locking up of funds in a few projects.
– facilitates reduction in borrowings
– ensures better asset-liability management.
– provides efficient exit option for the financial institutions to
transfer the risks of default and prepayment
 Municipal Bonds
• In United States, account for nearly 70% of the capital
financing for infrastructure.
– General Obligation Bonds (GO)
– Revenue Bonds
• Ahmedabad Municipal Corporation GO bond issue of
Rs. 100 Crores
• Bangalore, Vijayawada and Ludhiana have already raised money
through municipal bonds; Mumbai & Pune have obtained credit
ratings; Kanpur Development Authority latest entrant
Problems faced:
• Since bonds can be raised over night within a short period and
their utilisation may require 2-3 years, quite often, States/agencies
tend to fall into the debt trap
• On account of the dire financial position, Credit Rating of agencies
need to be enhanced to enable raising funds at lower costs.
 Facilitating Urban Local Bodies in
Resource Mobilisation
Government’s new strategy on the anvil for ULBs :
• Credit Line
– Making available requisite loan facilities for Urban Local Bodies
and other agencies
• Bond Bank
– Varying capacity levels of ULBs in obtaining high credit rating,
lower borrowing costs, optimal resource utilisation & asset
management
– Need for financial intermediary to pool the projects of the
various agencies and float a common bond on the merit of the
projects setting apart a reserve fund.
– Bond bank could be at the national level as a special purpose
vehicle or as a subsidiary of the financial institutions.
• Challenge Fund
– For facilitating the States and Urban local bodies implementing
the reform agenda
 Project Initialisation Fund/
Project Initiative Fund /
Project Development Fund
• PIF/PDF for creation of well structured projects
– Technically viable
– Financially feasible and bankable
– Environmentally sustainable
• HUDCO would fund 100% of the formulation cost upto a
maximum of Rs. 5 Crores per project and Rs. 50 crores per
year.
• HUDCO already assited
– Feasibility study for alternate alignment of National Highway
connecting Jammu and Srinagar with support of Rs. 2.3 Crores
– Preparation of detailed design and Bid documents etc. for the
Sports Stadia at Hyderabad for the 7th National Games to be held
in 2002. Financial assistance of Rs. 2.5 Crores provided to the
Sports Authority of AP
 Emerging State Level Initiatives for
Financing Urban Infrastructure
• State Level Urban Development Funds like TNUDF &
MUDF in Tamilnadu Maharashtra, for facilitating
private sector participation bringing in commercial
orientation, improving financial management ,
assisting ULBs accessing capital markets.
• State level urban development Finance Corporations
formed
– APUFIDCO - TUFIDCO
– KUDFC - KUIDFC
– Gujarat Municipal Finance Board
• Tax intercept concept introduced in Madhya Pradesh
State for urban development loan servicing fund for
local bodies.
 FDI in Infrastructure
• Foreign Direct Investment(FDI) could be permitted through:
– Financial Collaborations
– Joint Ventures / Technical Collaborations
– Capital Markets via Global Depository Receipts (GDRs / Euro
issues)
– Private Placements or Preferential Allotments
• In India, FDI upto 100% permitted in airports (beyond 74%
with approval) and Mass Rapid Transit Systems.
• FDI upto 100 % permitted in
– Integrated township development including housing,
commercial premises, hotels, resorts
– City and regional urban infrastructure facilities
– Manufacture of building materials
– Development of Land with allied infrastructure as part of
integrated township development
• Enabling guidelines required to prevent capital flight (lock
in period) and regulate repatriation of profits in FDI
 Special Economic Zones
• Proposal to set up Special Economic Zones (SEZ) in
various parts of country as duty-free zones for
industrial, service and trade operations to attract
foreign investment and facilitate expeditious
development.
• Proposal for a new SEZ at major Ports
• The policy envisages the treatment of SEZs as priority
areas in provision of infrastructure, convergence in
statutory clearances, exemption from duties and
levies as well as liberal regulations.
• SEZs as industrial townships would need priority for
integrated provision of infrastructure facilities.
 Imperatives for Sustainability in
Infrastructure Financing
• Development of
–Legal & Regulatory
–Institutional Mechanism
–Fiscal & Financial Framework
• Need for an Integrated Management of Urban Infrastructure &
Intersectoral Co-ordination.

• Creation of a new Breed of Urban Managers sensitised and

responsible for taking on the challenges in urban infrastructure
– HUDCO’s efforts for capacity building in decentalised training.

• Curriculum upgradation to provide not only technical inputs

(Civil Engg.+ Transportation Engg. + Hydraulic engineering +
Public Health Engineering ); but also Financial Engineering.
 Towards Sustainability in
Infrastructure Development
• Development of innovative financing and
security mechanisms
• Enabling Public-Private-People’s-Partnerships
(PPPP) and Government-Citizen Partnerships
• General consensus on common national issues
• Role of the media
– creating awareness and disseminating best practices
highlighting the deficiencies and pertinent issues
– mobilising unified public opinion
– attracting infrastructural investments
– protecting vulnerable interest groups / environment
Towards equitable and balanced Infrastructure
development and economic growth.
 Vicious Circle to Virtuous Cycle
High Level of
Infrastructure

High Service
Higher Level
Investments
High
Equilibrium
Cycle
Higher level
High Maintenance
Collection/
Recovery

Higher
Willingness
VS/ KS to Pay