Urban Infrastructure Financing

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Urban InfrastructureFinancing

Urban Forum

ADB

November 17, 2011

Pradeep Singh

IDFC Projects, India

PRIVATE & CONFIDENTIAL


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Urban Infrastructure: Agenda

Array of Financing Options

State Subsidies & Grants as a Source of Financing

RationaleStrategies for Efficient, Effective & Sustainable

Deployment

Jawahar Lal Nehru National Urban Renewal Mission inIndia


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Urban Infrastructure Financing& Development Options

OBJECTIVE:

ASSETS &MAINTENANCE

Assets Maintenance Projects

FUNDING

SOURCES

TransferGrants

InternalGeneration

CapitalMarkets

PPP

INTERVEN-TIONS

Govt.Budget

TaxesNon TaxUser Fees

LoansBonds

PrivateSector CapitalGovt.Viability Gap

Funding

CAPACITY

REQUIREMENTS

Accounting, Tax & Operational Reforms, Rating, Project

Development & Planning, Tariff Reforms, Investment

Banking


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Why State Subsidies & Grants? (1/2)

To ensure equitable accessTo meet essential needs of all citizens at affordable

rates in spite of inability of some to pay full cost

e.g. All citizens deserve clean drinking water but some may

not have the financial strength to bear the full cost. Hencestate grants

In the interest of positive externalities

Projects provide important benefits to society at large

and not just to paying users. It may also not bepractically possible to charge the users for the service

e.g. Good transport infrastructure has a huge multipliereffect on economic growth of the city. Benefits extend farbeyond the users


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Why State Subsidies & Grants? (2/2)

Due to insufficient revenue mobilization capacity ofULBs

Low levels of decentralization and devolution offinancial powers to urban local bodies

Lack of technical and managerial capacities to mobilizefinancial resources

To meet shortfall in revenues from User Fees

History of low tariffs for water etc.

Perceived political problems in increasing tariffsResultant low revenue realization creates need for

State Grant & Subsidies

e.g. In India, consumers are charged a nominal amount for

drinking water which is usually lower than even the O&Mcosts


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How To Make State Grants Effective (1/3)

Essential ingredients of a successful program of State Grants

Private capital mobilization & Public Private Partnerships

State Grants as viability gap funding to crowd in privatesector funding and management

e.g. Higher feed in tariffs for private participation in MunicipalSolid Waste based power plants

Focus on O&M and lifecycle costs State Grants to require Urban Local Bodies to integrate

Construction and long term Operations and Maintenance tooptimize lifecycle costs and efficiencies

e.g.Water/Sewage Treatment Plants that integrate construction

with maintenance of the plants

State Grants Should Not Be Just Be Expended ForCreation Of Brick & Mortar Assets


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Introduction of Reforms

State Grants to create incentives for reforms in urban localbodies with respect to stamp duties, accounting, tariffs,operations etc

Introduction of cost recovery culture

State Grants to enhance quality & quantity of servicesleading to willingness to pay by consumers

e.g. A State funded management contract for water services followed by improved service, tariff enhancement and then aprivately funded expansion of distribution system


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Introduce competition for Grant / Subsidy

Ideally, the distribution of State Grants & Subsidies shouldbe subjected to competition

e.g. amount of Viability Gap Funding for a urban transportproject to provide local bus services can be a bid parameter in acompetitive process to select a private sector service provider



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JnNURM (1/3)

Jawaharlal Nehru National Urban Renewal Mission of India

A Government of India Program to fund Urban Local Bodiesfor development of

Urban Infrastructure and Governance

Basic services to urban poor

Mission launched in 2005-06 for a period of 7 years

63 cities identified most with population exceeding 1 million

Mission imposes Reform Obligations on ULBs seeking fundingReforms include:

Adoption of modern accrual based accounting

Introduction of e-Governance system

Reforms of property tax making it important source ofrevenue for ULBs

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JnNURM (2/3)

Many ULBs have put JnNURM to good use for deliveringurban infrastructure

City Transport Services Indore

Solid Waste Management project VadodaraGreen Energy generation from Sewrage Surat

Automated Parking System Bangalore

Biogas powered sewage treatment plant Jaipur

Rainwater harvesting initiative Kulgaon


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JnNURM (3/3)

Success of JnNURM

Utilisation of funds by ULBs for delivering urbaninfrastructure

Reforms process initiated by ULBs with varying progress

Shortfalls of JnNURM

Insufficient leveraging by ULBs in PPP projects

Low progress in developing tariff culture

Insufficient progress in integrating capital assets creationwith O&M

Grants not subjected to competitive processes


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THANK YOU

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Urban Infrastructure Financing

Documents

Transcript of Urban Infrastructure Financing