15-16 November 2018 Venue: Pravasi Bhartiya Kendra, New Delhi, India CONCEPT NOTE

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1 Conference Implementing Urban Infrastructure: New Approaches to Public- Private Partnerships & Municipal Finance Innovations in South and South West Asia I. Background November 2018 Venue: Pravasi Bhartiya Kendra, New Delhi, India CONCEPT NOTE Given the rate of growth of infrastructure demand vis-à-vis the actual implementation, the deficit in infrastructure is not only large, but also growing. In India alone, the overall Infrastructure financing requirement is estimated to be INR 50 trillion for the five-year period of Financial Year , which is 34% higher than the previous five-year period. As available funding from the traditional sources and capacity in the public sector to implement many projects at one time remains limited, governments have found that partnership with the private sector is an attractive alternative to increase and improve the supply of infrastructure services. At the same time in recent decades, cities in South and South West Asia have seen continuous and rapid urbanization, from 28 per cent of the region s population living in urban areas in 1990 to 36.6 per cent in 2017, with the number of people living in the region s cities more than doubling, from 348 million to 713 million over the same period. 1 The urban population in South and South West Asia is expected to further grow by almost 250 million people by There are an estimated 130 million people who reside in the slums of South Asia s cities, and they are disproportionately deprived of access to basic services and infrastructure. In case of India, nearly 31% of country s population lives in urban areas contributing to 63% of its GDP (Census 2011) and with increasing urbanization, urban areas are expected to house 40% of India s population and contribute to 75% of India s GDP by This has led to large infrastructure gaps which are holding back growth and the opportunities to reduce poverty and contributing to environmental degradation and inequality in the region. 3 Cities in the region are facing increasing demand for financing sustainable growth-inducing infrastructure such as roads and transport, social infrastructure systems, as well as environmental investments in areas such as waste management and water supply and sanitation. These gaps must 1 UNESCAP Online Statistical Database. 2 Peter Ellis and Mark Roberts, Leveraging Urbanization in South Asia: Managing Spatial Transformation for Prosperity and Livability (Washington D.C., World Bank, 2016). 3 UNESCAP, Empowering cities to implement the 2030 Agenda for Sustainable Development and the New Urban Agenda: mobilizing municipal finance for sustainable infrastructure in the Asia-Pacific region (Bangkok, Seventy-fourth session of the Commission, 2018). 1

2 be addressed for cities to grow in an equitable and environmentally responsible manner. The global community has come together on commitments to development outcomes through the 2030 Agenda for Sustainable Development and the New Urban Agenda and has recognized the significance of city-level actions in achieving the Sustainable Development Goals (SDGs). Furthermore, the Addis Ababa Action Agenda of the Third International Conference on Financing for Development, points to the imperative to mobilize domestic sources of finance. Considering the scale of investment required in infrastructure space it is becoming increasingly imperative for countries to explore innovative models to implement infrastructure projects in the country. Public-Private Partnerships (PPPs) has been one such option, which enables governments to optimally share the risks associated with a project during its life-cycle and in the process, extend the reach and the scope of the public delivery systems. Apart from this, it is also becoming extremely critical for cities to ensure measures for selfsustainability both in-terms of finances and capacity. Especially in the case of India, a deeper deliberation is required on means of democratizing the governance at city-level with a view of providing greater operational and fiscal autonomy to the Urban Local Bodies (ULBs). Also, presently many cities in the region are struggling to achieve global SDG agenda amid pressures from growth and migration, as well as increasing domestic financial and political risks. Further, the risks of investing in infrastructure projects in developing countries are often perceived to be too high for private investors to commit to equity financing. In view of the above and considering the capacity of private sector and its appetite to take balance risk in lieu optimal returns, there exists an opportunity for the government to prudently leverage on the same by structuring bankable infrastructure projects for implementation. With this it is extremely essential for the government to revamp the PPP framework in India and focus on Partnership Private & Public. Thereby to enable such intervention, with consideration to economic life and risks associated with the underlying asset, it is imperative to create a robust framework for alternative sources of Infrastructure finance. As much is imperative to focus on capacity of the local government to generate internal revenues for self-sustainability. Also, cities need to focus on innovative sources of municipal financing such as cooperation on housing & community-based financing, land value capture and environmental externality financing. These challenges and emerging new opportunities necessitate long-term, predictable financing to improve the delivery of sustainable urban infrastructure and services by focusing on institutional environment and fiscal instruments. Hence, National Institution of Transforming India Aayog (NITI Aayog), the apex policy think tank of Government of India has partnered with the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) and the Asian Development Bank (ADB) to host a conference at Pravasi-Bhartiya Kendra in New Delhi on 15 th and 16 th November, 2018 to deliberate on key regional issues, perspectives & way forward on Implementing Urban Infrastructure: New Approaches to Public-Private Partnerships & Municipal Finance Innovations in- South and South West Asia. 2

3 II. Main Objectives The overall objective of this policy dialogue is to engage stakeholders, senior policymakers, experts, and municipal finance specialists, in order to: 1. Review the overall issues and assess the sustainability of PPPs and urban finance in South and South West Asia. 2. Broaden the knowledge base regarding PPPs and innovations in municipal finance in South and South West Asia through the elaboration of international best practices and knowledge partnerships. 3. Take knowledge and recommendations forward, and to disseminate, and raise awareness within their networks. III. Expected Outcomes The expected outcomes of the policy dialogue are twofold: 1. A more granular understanding of the challenges and future opportunities of PPPs and innovations in municipal finance in South and South West Asia, to generate examples of best practices and case studies, including empirical evidence on what PPP and urban finance strategies have and have not worked. 2. Recommendations for public, private and civil society organizations in for future PPP and municipal fiscal policy and reform agendas. IV. Organization and participation In order to obtain multi-stakeholder inputs from a wide array of stakeholders and member states from South and South West Asia there will be a mixture of PPP, urban and subnational finance experts and stakeholders from local and national governments, from the UNESCAP/ADB country teams 4, and from think tanks, civil society organizations, academia, the private sector, and development partners. V. The Future of Asia and Pacific Cities 2019 Report ESCAP is producing a major Report on cities in the Asia-Pacific region with UN-Habitat, ADB and other partners titled the Future of Asia and Pacific Cities 2019, that will be launched at the seventh Asia Pacific Urban Forum during October It will be a policy advocacy Report, and its purpose will be to support inclusive and sustainable long-term thinking and decision-making by national and local governments by providing a conceptual framework for solutions to the problem of localizing the global agendas in Asia-Pacific cities. To these ends the Report will critically assess and provide knowledge and best practices of the means of implementation on a range of urban sustainability areas, including the future of urban finance. To these ends, ESCAP, ADB, and UN-Habitat are partnering to develop the Report s chapter on the Future of Urban Finance, which will focus on the enabling institutional environment and fiscal instruments for Asia-Pacific cities to be able to access long-term adequate and predictable financing to improve the delivery of sustainable urban infrastructure and services. 4 ADB has country offices in seven of the ten member States in the subregion: Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka ( 3

4 TIME VI. Tentative Programme SESSION DAY 1 (15 th November 2018) 09:00-10:00 REGISTRATION & MORNING TEA 10:00 11:30 INAUGRAL SESSION 11:30 12:30 SESSION-1: PANEL-I: IMPLEMENTING URBAN INFRASTRUCTURE The need and the scale of investment required for implementing urban infrastructure specifically in South & South West Asia region is now well established. Hence it is the time to deliberate on the newer and innovative means of financing and project implementation frameworks, along with key issues that is limiting the appetite of private sector investment and miring the ability of city municipalities/ ULBs to implement the same. Newer & Innovative Means of Financing & Implementation Governance at City Level- Clarity of Responsibility & Coherence in Output 12:30 13:30 SESSION-2: PANEL-II: PARTNERSHIP PRIVATE & PUBLIC (THE NEW APPROACH) The PPP model so far has seen mixed results, but according to experts, to boost investments and involvement of international contractors in key projects in India, it is essential for the Government/ Authorities to delve deeper and analyse core issues that are miring the growth of PPP. Furthermore, the Government/ Authorities also need to deliberate on newer frameworks for procurement and engaging with Private Sector for outsourcing Infrastructure related services. Analysing the growth, issues and way forward for PPP framework in India Newer Approaches for Procurement of Infrastructure Services Standardisation of Documents Global Best Practices & Key Learning 13:30 14:15 NETWORKING LUNCH 14:15-16:30 SESSION-3A: PANEL-III A: FUNDING THE FUTURE: ALTERNATIVE SOURCES FOR INFRASTRUCTURE FINANCING Banks and multilateral institutions have till now been the mainstay for financing of urban infrastructure in the country. However, funding requirement for infrastructure estimated at USD 4.5 trillion over the next 25 years, demands alternative innovative means. This requires exploring lenders/investors like domestic/global insurance/pension funds, sovereign funds, impact investment funds etc. through products as municipal bonds, credit enhanced debt etc. Also, suitable incentives and supportive regulatory framework are needed to deepen the reach of existing participants. Aforementioned challenges are proposed to be brainstormed through a panel discussion encompassing: o Newer products & investors o Challenges & Way Forward 4

5 14:15-16:30 SESSION-3B: PANEL-III B: BREAKOUT SESSIONS: PPP FRAMEWORK - SECTORAL FOCUS A. Urban Social Infrastructure (Health & Education) Health and education are two fundamental sectors in Asia and the Pacific region that face difficulties in providing quality services because of the limited resources. This has resulted in a greater involvement of the private sector including non-government organizations (NGOs), business corporations, and communities. Experiences in developing countries suggest that effective governance of health and education services is possible by a degree of centralized policy and finance, with decentralized management and local funding. Therefore, it is critical to attract private funding which can open up opportunities for additional resources, improved service coverage, and enhanced quality in services. Thus, exploring the complementary advantages of both the public and private sectors is imperative. B. Smart Cities: Ease of Living The smart cities are the future with focus on sustainable and inclusive development offering enhanced quality-of-life to its citizens. The smart solutions with replicable model will act as a light house to other aspiring cities. The key challenges are in financing, implementation and operation of these smart solutions. Further brainstorming is required on horizontal and vertical coordination between three tier governance, cohesion in policies, master development plan, municipal bonds, sustainability of ULBs etc., to explore path forward and make smart city mission a reality. 16:30 16:45 TEA/COFFEE 16:45 17:45 SESSION:4: PANEL 4: RECOMMENDATIONS FROM EACH GROUP, FOLLOWED BY PLENARY DISCUSSION (Speakers and facilitators from each group to report back on main highlights and recommendations) 5

6 DAY 2 (16 th November, 2018) TIME SESSION 9:00 9:30 MORNING TEA 09:30-10:30 OPENING SESSION ON MUNICIPAL FINANCING 10:30 11:30 SESSION-1: PANEL-I URBAN UTILITIES - Focus Sectors: Water Supply, Water Treatment, Solid Waste Management 11:30 13:00 SESSION-2: PANEL-II HOUSING AND COMMUNITY-BASED FINANCING Housing is a pressing urbanization issue that many South and South West Asian countries are facing today. This panel will address the benefits of adopting PPP models in affordable housing projects for municipal governments such as better usage of the private sector s resources and expertise during design and construction, ease of financial distress caused by debt and infeasible cash flow, as well as better anticipation of housing demand and supply balance. Overcoming the challenges will also be debated which includes rapidly increasing land prices, poor legal infrastructure, a lack of long-term funding at fixed rates, limited developer finance, limited access to housing finance for poor and informal workers, inefficient regulatory regimes, inappropriate land planning and urban development policies driving up prices, and limited commercially viable housing microfinance lending. This panel discussion will also address how community-based housing finance can enable the urban poor who cannot access conventional formal systems of finance to leverage funds through community saving initiatives, which can then be used for community loans and microfinance. 13:00 13:45 NETWORKING LUNCH 13:45 15:15 SESSION-3: PANEL-III: LAND-LINKED FINANCING Strengthening capacities for more effective land-linked financing and land value capture in cities in South and South West Asia could help raise finance to close the infrastructure gap and help finance large urban transport and development projects in particular. This panel will discuss strategies for governments to extract the increased value include land value taxation, land pooling, negotiated extractions, tax increment financing, special assessments, joint development, betterment levies, transportation utility fees, impact fees and air rights. 15:15 16:45 SESSION-4: PANEL IV: ENVIRONMENTAL EXTERNALITY FINANCING Externality financing is another potential mechanism through which cities in South and South West Asia could increase their financial resources. The panel will debate the application of environmental taxes that can facilitate green and sustainable urban development whilst simultaneously contributing to local tax revenues. The challenges or potential risks of externality financing will also be discussed such as can include anticipatory inflation, the reinforcement of informal economic activity, negative social impacts due to rising prices, revenues can fall over time if tax rates are not adjusted, and corruption. 16:45 17:00 TEA/ COFFEE 17:00 17:30 SESSION-5: CLOSING SESSION: WAY FORWARD & CLOSING REMARKS NITI Aayog, ESCAP, UN-Habitat and ADB 6

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