oct city hudco

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Information about oct city hudco

Published on January 1, 2008

Author: Goldye



Transport Infrastructure Public Private Partnerships-Constraints and issues:  Transport Infrastructure Public Private Partnerships-Constraints and issues A presentation by D.Madhu Babu Housing and Urban Development Corporation Ltd. at New Delhi 22nd October, 2002 Slide2:  Transport sector A cluster of vastly divergent sub-sectors-roads, ports and shipping, railways, airports and aviation, logistics, pipelines, urban transport Differentiating factor Complexity Regulation International interactions Inter modal competition Each sub-sector has its unique set of project influencers Challenges facing Transport Infrastructure:  Cities and Citizens get the infrastructure they desire and deserve. Challenges facing Transport Infrastructure Characteristics of transport infrastructure projects: natural monopolies - non-exclusive nature in-elastic demand - huge investment required for capital & maintenance Traditionally TI provision seen as role of government Schemes conceived as unitary service - no experience in unbundling Private Sector not yet confident of engaging in TI Although Financing options are rapidly changing due to financial, technological and organisational innovations at project and policy levels- no clear guidelines for PSP The Vicious Circle:  The Vicious Circle Low Collection/ Recovery Low Maintenance Low Service Level Low Level of Infrastructure Low Capacity to Pay Low Investments Low Equilibrium Cycle VS/ KS Major Concerns in Transport Sector:  Major Concerns in Transport Sector Inadequate coverage and service level Poor quality of service to consumers Institutional delinquencies and high administrative overheads Insufficient financial and managerial resources with State Govts. / parastatals 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 Transport Infrastructure Schemes:  Financing of Transport Infrastructure Schemes Budgets of Central/Federal Government State/Provincial 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 Issues Involved in Financing: Financial Institution’s Perspective:  Issues Involved in Financing: Financial Institution’s Perspective ISSUES: 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 Role of Financing Agencies as Facilitators of Change:  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 TI projects HUDCO 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 determine tariffs Tariff fixation taking care of annual incremental cost, O&M cost, debt dues, depreciation charges etc. Operation of escrow account Slide9:  HUDCO : URBAN INFRASTRUCTURE LOAN SANCTIONS BY TYPE OF SCHEMES Project Initiation /Development Fund:  Project Initiation /Development Fund HUDCO has set up a Project Initiation Fund for assistance in preparing well structured feasibility and other reports for projects which are technically viable, financially feasible and bankable to ensure effective implementation without time and cost over-runs. HUDCO would fund 100% of the formulation cost upto a maximum of Rs. 5 Crores per project and Rs. 50 crores per year. Under the scheme HUDCO has already sanctioned projects: Feasibility study for alternate alignment of National Highway connecting Jammu and Srinagar with HUDCO’s support of Rs. 2.3 Crores Types of Cost Recovery Mechanisms :  If citizens don’t pay realistic price for services at present they would have to pay a larger price later-on. Category-I - Where beneficiaries are identifiable and the benefits accrued to each beneficiary can be quantified -Telescopic rates for water supply and electricity and cross subsidy for public transport are examples. Category-II - Where beneficiaries are identifiable but the benefits accrued to each beneficiary are not quantifiable directly -Indirect methods of estimating the benefits accrued to various beneficiaries; eg. flat rate charge like toll on road / bridge usage. Category-III - Where it is difficult to identify individual beneficiaries as well as to quantify the benefits accrued to the individuals or the groups of beneficiaries - Examples under this category are urban roads, street lighting and environmental improvement etc. Types of Cost Recovery Mechanisms Commercialisation an Imperative Concept of Cost Recovery:  Commercialisation an Imperative Concept of Cost Recovery Infrastructure Type Innovative user pay Instruments 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. HUDCO’S REFORM AGENDA:  HUDCO’S REFORM AGENDA Tariff should include O&M and part of Fixed Cost Compulsory metering Adoption of telescopic rates Reduction in System losses Emphasis on Water recycling and conservation Gross subsidization in setting tariff Involvement of NGO’s Automatic revision in Water Tariff and Surcharge Upgradation of Institutional capabilities Promoters investment to come up front and before Hudco releases. Commercialisation to Privatisation- Packaging of Services for Viability:  Commercialisation to Privatisation- Packaging of Services for Viability For self-sustainability, unbundling and packaging of services into commercially viable projects should be done to recover direct service charges. Appropriate unbundling of large and complex infrastructure services into smaller packages help to create independent cost centres to be developed as financially viable units. Commercialisation to Privatisation: Illustrative List of Potential Unbundling Packages:  Commercialisation to Privatisation: Illustrative List of Potential Unbundling Packages 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:  Increased emphasis on Private Sector Participation in Urban Infrastructure Hence the imperative need for Private Sector Participation for: EXTENDED RESOURCES EFFICIENT PROJECT MANAGEMENT / MAINTENANCE STATE-OF-THE-ART TECHNOLOGIES Route to Private Sector Participation:  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 Privatisation experience in Transportation:  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 Cochin International Airport in Joint Sector by CIAL Bangalore Airport Ports – Pipavav, Positra, Adani, Kakinada, Ennore, Cochin, Mumbai BOOT ROAD PROJECTS IN RAJASTHAN - A SUCCESS STORY:  BOOT ROAD PROJECTS IN RAJASTHAN - A SUCCESS STORY BACKGROUND:  BACKGROUND  Govt. of Rajasthan PWD initially started the construction of four high level bridges in the State with its own funds.  The State Govt. slowly realised that these projects were getting delayed thereby resulting into time & cost over-runs. The shortage of funds was also realised.  Rajasthan Govt. then approached HUDCO for funding of these four high level bridges.  It was agreed that these projects be executed on BOOT principle and toll tax be levied for recovering the investments.  Rajasthan State Bridge Constn. Corporation (RSBCC) Ltd. was appointed as BOOT operating agency to execute the projects..  Expenditure already incurred by the Govt. of Rajasthan-PWD was converted into subordinate loan and the institutional loan to meet the balance project cost was provided by HUDCO. DESCRIPTION OF A PRIVATE SECTOR BOOT PROJECT:  DESCRIPTION OF A PRIVATE SECTOR BOOT PROJECT Name of Project Executing Agency Project Implement-ation perod Project Cost HUDCO loan @ 17% p.a. Agency’s Share HUDCO loan Repayment period Recoupment period for seed money Concession period Construction of Pali Bye-pass, Rajasthan TCI Infrastructure Finance Ltd. 1-1/2 year Rs. 7.96 crores Rs. 5.57 crores Rs. 2.39 croes 8 -1/2 years 3 -1/4 years 11-3/4 years COST ABSTRACT:  COST ABSTRACT ITEM i) Executive Agency Project Implement-ation perod Project Cost HUDCO loan @ 17% p.a. Agency’s Share HUDCO loan Repayment period Recoupment period for seed money concession period COST (Rs. in lacs) TCI Infrastructure Finance Ltd. 1-1/2 year Rs. 7.96 crores Rs. 5.57 crores Rs. 2.39 croes 3-1/2 years 11-3/4 years COST ABSTRACT:  COST ABSTRACT Item Cost (Rs. in lacs) i) Sub-soil Investigation 5.00 ii) Road work 208.50 iii) Cross-drainage work 221.23 (2 minor + 2 major bridges) iv) Drainage 23.00 v) Improvement of junction 14.00 vi) Furnishing of road 3.00 vii) Construction of toll plaza 5.00 ------------- 479.73 Tender premium @ 33.4% 160.23 -------------- 639.96 Price escalation 32.00 A &S charges 55.00 Interest during construction 69.00 -------------- Total project cost 796.00 ------------------- TOLL CHARGES (For all Bye-passes in Rajasthan) :  TOLL CHARGES (For all Bye-passes in Rajasthan) NET REVENUE COLLECTION FOR PALI BYE-PASS:  NET REVENUE COLLECTION FOR PALI BYE-PASS CHALLENGES TO THE TRANSPORT SECTOR:  CHALLENGES TO THE TRANSPORT SECTOR Growth in freight & passenger traffic has outpaced the growth in road net work. As per 8th Five Year Plan estimates around Rs. 40,000 crores is required to develop the road network as per the present requirement. Identification of sources of funds to meet such a massive requirement. To attract private sector investment. Levy & collection of service charges to make road projects viable. INITATIVES TAKEN BY THE GOVT. OF RAJASTHAN:  INITATIVES TAKEN BY THE GOVT. OF RAJASTHAN To undertake various Road Projects (Bye-pass & Bridges) on BOOT (Build, Own, Operate Transfer) principle. To levy toll tax so as to make these projects viable. To allow both public & private sectors to participate in BOOT projects. To allow executive agency to levy & collect toll at viable and matually agreed rates. GOVT. OF RAJASTHAN HAS ENTERED INTO BOOT AGREEMENT WITH BOTH:  GOVT. OF RAJASTHAN HAS ENTERED INTO BOOT AGREEMENT WITH BOTH Public Sector (RSBCC Ltd.) (11 High level Bridges & 5 road bye-passes) & Private Sector (TCI Infrastructure Finance Ltd. (Construction of bye-pass at Pali) DETAILS OF ARRANGEMENT WITH RSBCC RESPONSIBIITIES OF STATE GOVT. - PWD:  DETAILS OF ARRANGEMENT WITH RSBCC RESPONSIBIITIES OF STATE GOVT. - PWD To provide cost estimates and traffic details of RSBCC Ltd. To arrange and hand over the land for the project of RSBCC Ltd. To formulate the project as per requirement. To provide Govt. guarantee as security if needed for the institutional loan to be arranged by RSBCC (Guarantee charges to be paid to the Govt. @ 1.0% of loan.) To supervise the construction works to ensure quality control and monitor the progress. To take over the project after the concession period. DETAILS OF CHARGES TO BE RECOVERED BY RSBCC FROM TOLL COLLECTION:  DETAILS OF CHARGES TO BE RECOVERED BY RSBCC FROM TOLL COLLECTION Insurance charges during toll period @ 1.00% Toll collection charges @10.00% Advertisement & toll supervision @ 1.50% charges Debt servicing charges @ 1.00% Maintenance during toll period @ 1.50% Route Development charges @ 5.00% ---------------- Total @20.00% ------------- RESPONSIBILITIES OF RSBCC:  RESPONSIBILITIES OF RSBCC To execute & complete the project as per agreement. To provide seed money and arrange the institutional finance to meet the total project cost. To obtain all necessary approvals/ permission required for completing the project. To repay the loan and recover the seed money with interest out of the toll collected from the project. To collect the toll and manage project toll fund. To develop approach routes on either sides so as to attract tollable traffic. COST COMPARISON OF PRIVATE AND PUBLIC SECTOR BOOT PROJECTS :  COST COMPARISON OF PRIVATE AND PUBLIC SECTOR BOOT PROJECTS COST COMPARISON OF PRIVATE AND PUBLIC SECTOR BOOT PROJECTS :  COST COMPARISON OF PRIVATE AND PUBLIC SECTOR BOOT PROJECTS Key lesson learnt :  Key lesson learnt Competition should be the ultimate aim of private sector participation Enhances service quality and efficiency Delivers better ‘value for money’ proposition to customers Transparency and fairness in the process of inviting private participation are key to its success Project development framework should be sensitive to the environment Take into consideration the interests of various stakeholders Return expectations in India are still high Nominal interest rates have reduced considerable in the recent past Early experience-1 :  Early experience-1 Roads sector has been able to attract significant private participation National Highway Development Programme Town bypasses on national highways River bridges State highway projects Annuity model for road projects has been a success Private investment in ports sector Privatisation of existing berths at Major Port Trust Development of greenfield minor port/captive jetties Provision of port services Equipment leasing Labour and management related issues are deterrents to private investment at the major ports Slide36:  First round of private participation in ports and roads has been moderately successful Development of standard model concession agreements facilitated flow of private investment in these sectors Other transport sectors have not been able to attract significant private participation Small toll road projects have performed better than the large projects The Regulatory Mechanism:  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 Need for Alternate Security Options for Infrastructure financing:  Need for Alternate Security Options for Infrastructure financing Conventional securities like Mortgages and Government Guarantees being not available the need is for partial or non-recourse financing. Even “Letters of comfort” issued by Govts. due to the limits stipulated by the RBI for issuing guarantees are not treated as acceptable securities. Negative lien considered only as a transient security instrument. Escrow accounts ensure sufficient balance to take care of immediate repayments, besides enhancing transparency of the cash-flows. However stiff resistance or non-compliance by agencies in maintaining escrow accounts is becoming issue of grave concern. The Way Forward:  The Way Forward ROLE OF PRIVATE SECTOR Developing consulting capacity within the country to prepare the projects in commercial format Development of local private sector capabilities Developing innovative methods of resource mobilisation Vicious Circle to Virtuous Cycle:  Vicious Circle to Virtuous Cycle High Collection/ Recovery Higher level Maintenance High Service Level High Level of Infrastructure Higher Willingness to Pay Higher Investments High Equilibrium Cycle VS/ KS Way forward-1 :  Way forward-1 Roads NHDP Project is expected to continue to boost private investment in the sector Formulation of a national tolling strategy expected by NHAI Opportunities for all management and O&M businesses expected to increase significantly going forward Private investment in roads is percolating from the National highways to the state level projectsMaharashtra, MP, Gujarat, Karnataka, etc. With the success of annuity projects, the revival of private interest in large toll BOT projects is expected to bring in private investment Way forward-2 :  Way forward-2 Ports Corporatisation/professional management of major ports would trigger the next major round of private investment Focus on upgradation/modernisation of existing facilities rather than creation of greenfield capacities Uniform regulatory framework for creation of level playing field between the major and minor ports Rationalisation of port tariffs expected in the medium term Container business, the fastest growing segment, expected to require capacity doubling over the next 6 years Increasing trend towards larger vessel sizes leading to creation of deep draft facilities Significant investments in dredging expected Way forward-3 :  Way forward-3 Airports Privatisation of metro airports is expected to bring private investment in aviation sector Development of greenfield airports expected in medium to long term

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