Transcript City Development Plan for Bangalore

Issues on Urban Finance &
Governance - PPPs
March 2013
Infrastructure Development Corporation (Karnataka) Limited
1
Urban Growth
• 5 times – the number by which GDP will have multiplied by 2030
• 590 million people in cities - ~ twice the population of USA
• $ 2.2 trillion capital investment needed
–
$ 1.2 trillion in capital investment
–
26% of capital investment from debt and PPP
• 700 - 900 million sqft of commercial residential space needs to be built ~ a Chicago every
year
• 20 times than the past decade of the capacity of roads, metros and subways need to be
created
Source : India’s Urban Awakening, McKinsey Global Institute
• Estimated investment for urban infrastructure over the next
20 years – Rs 39.2 Lakh Crore at 2009-10 prices (HPEC
Report)– Funding, Governance, Planning, Sector Policies and Shape
Five Elements
• Funding – where will resources come from?
2
PPP trends in water
Signs of success
Momentum subsided
A few projects grounded
Onset of pessimism
Way
Ahead?
Now
Mid to
Late 90s
Mid
decade
Around
2000
First initiatives
High international
interest
Poor results
Pune, Hyd, Goa,
Bangalore Bulk water
– 100-300 Cr Failed
Sonia Vihar, Delhi,
Sangli – Bulk water
Bangalore – Rehab,
O&M
500 Cr
Failed
Efforts to prepare PPP projects
High NGO opposition
High profile projects in Delhi,
Mumbai, Failed
Successful projects also emerge
Many ongoing initiatives
Waiting for commercial
results
PPP interest in pilots – scale
up not demonstrated
3
Water
• Tiruppur Water Supply – the first attempt?
– About 20% urban, and 80% industrial
• by the time the project was made,
circumstances were unmade…
• Visakhapatnam Water Supply – the
pretender
– Similar structure 20% urban and 80%
industrial
• But somewhere when the BOT was being
awarded, a question of conscience came
up. Are contracts not better for all
concerned?
• Pilots – KUWASIP, Nagpur etc.
– Management contracts – near risk free
• Tiger tasting the blood; is upscaling on
similar model practical?
• Full city models
30
26
25
20
17
15
12
10
5
2
0
PPP projects
attempted
Contracts
awarded
Under
Implementation
Operational
• Too many models, limited bidders
• Lesser financial bids ; more
questions (pre bid queries)
•Growing interest in participation
– Tariffs and adherence to agreements
4
MSWM PPPs in JnNURM
SWM Activities
covered in PPP
Types of PPP
JNNURM Cities implementing MSW components on a PPP
framework
Average Tenure of
the Project
Integrated Municipal Solid
Waste Management
BOOT , DBOOT, 20- 30 years (Some of the
BOT
project tenures linked to
the asset life)
Collection, Transportation & BOOT
3 years
Disposal
Transportation, Processing BOOT
20 years
and Disposal
Treatment & Disposal
DBOOT, BOT
20 / 25 years
Treatment
BOO
20 -35 years
Disposal
DBOOT, BOOT 3- 20 years
18
10
11
12
9
6
6
3
3
4
4
0
Integrated
Solid Waste
Management
Status of implementation
12
14
15
Collection
Collection & Compost Plant
Transportation
Waste
Treatment
Sanitary
Landfill
10
9
8
7
8
6
4
2
0
1
3
3
Bid Stage
Pipeline Awarded
1
Operational >1 Operational <= Pre- project
year
1 year
development
Stage / Concept
Pipeline - Bid
Process to
commence
Pipeline Commercial
Operations
Pipeline Construction
5
Solid Waste
• Lucknow Biomethanation
– Was the technology inappropriate, or did the ULB literally expect ‘gritto-gas’?
• Thiruvananthapuram Composting
– How much waste does the city generate
• “Misfortunes one can endure--they come from outside, they are accidents. But
to suffer for one's own faults--ah!--there is the sting of life.” Oscar Wilde
• Bangalore – the first sanitary land-fill in the country
– Land?
• “In any collection of data, the figure most obviously correct, beyond all need
of checking, is the mistake.” Finagle's Third Law
• A number of tipping fee based contracts have been
awarded
• Some developers continue to rest hopes on WTE
– “In all things it is better to hope than to despair”: Goethe
6
Urban Transport
• One of the earliest LRT system awarded was in Bangalore, but
later cancelled
• A few large projects bid/ awarded
– With capex
• Mumbai, Hyderabad (!), Haryana
– Without capex
• Delhi Airport Link
– Bangalore airport rail link, Hyderabad (encore)
• Buses:
– Indore, a successful model
• Interestingly, why is this model not widely replicated?
– Ahmedabad BRT
– A number of BRT systems (Delhi, Bangalore, Mysore) studied
and structured on PPP, but being executed by the Authority
7
Land Related
• A large number of projects being attempted on
this formula
– Project = land available with Authority + Some
public use + commercial development
• Bus terminals. Convention centers. Malls (oops –
parking complexes). IMAX (uh – tourism
projects).
• What is the Government’s “acceptable” price
for land, especially when they still “own” it?
8
Are we on right track?
• Feasibility studies provide only a partial picture – projects not financially
free standing!!
– Water: Tariffs set to recover only O&M costs, and after factoring efficiencies,
there is a deficit in finances.
– SWM: Hardly any user charges or markets for sale of products/ recyclables
– Dependence on government finances in some form (capital grants/ annuities/
tipping fees etc.)
– Land and other support infrastructure requirements could be quantified
– Other project parameters are matters of detail
• Assuming we get the above elements right, will the project (s) go
ahead?
• Given the financial situation (and lack of political will in improving it),
how can a credible investment environment be built, where many
projects require financial support?
• Lots of “concerns” remain unanswered!!
9
Big Push Theory
• Nation wide impact/ externalities – central scheme
– JnNURM - large corpus, based on reform agenda
• For the first time, cities were forced to think of an aggregate
vision and investment plan
– But these were very large numbers (Bangalore is at Rs. 60,000 Crores) and
the fund flow is the proverbial drop in the ocean.
• However, the structure seems to have a disincentive for
improvising efficiencies , though the objective was to encourage
it.
– Most projects focused on asset creation. E.g., in Bangalore, a series of
projects that was being structured through PPP became EPC contracts after
JnNURM.
• To see how the newer version will fare?
– “Iteration, like friction, is likely to generate heat instead of progress.” George
Eliot
10
Access to domestic institutions
• Tax Buoyancy
• Project specific/ general purpose loans from banks/ FIs/ MLAs, securing
municipal revenues
– Loan conditionality; State Government guarantees
• Bond issues of Ahmedabad, Hyderabad, BMP, Nashik, KUIDFC etc., have
not led to large-scale replication
– Issues of market appetite, end-use
– Limited number of ULBs which can access financing on a standalone
basis
– Small ‘pilots’ Rs. 40-100 Crores. Enormous amount of effort and arm
twisting to close.
– Pooled Finance ‘seems’ a more appropriate structure for small ULBs
• No perceptible efforts to leverage
11
Approach for Urban PPPs
PPPs in urban sector need to be hybrid models
less focus on ‘typology’……more focus on tailored solutions + results
Government
Developers
Civic Society
Concerns need to be addressed
12
• Continuity of
services
• Profit motives of
private sector
• Hand back of
assets
• Availability of
funds for payments
to private operator
on a continuous
basis
• Fear of
‘privatization’
• Increase in tariffs
• Service Delivery
• Lack of baseline
data
• Tariff risks
• Payment
guarantees
• Impractical
performance
standards
• Political Will
12
Looking ahead, hopefully…
• Cities have coped reasonably well in the past
– Though under immense stress now
– No reason why the problem cannot be addressed in the
future
• Political/ Social realization of imperative need for
improvement of urban services
• Policies slowly  being set in place
• Local capacities improving
• PPP experience building up – emerging models
validating proof of concept
– Various precedents are being tried and tested, and
experience is maturing
• But yet a long way to go
13
Thank You
14