Session 6: Financing South Asia s Urban Future: Good Practices in PPP for Urban Development

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1 Session 6: Financing South Asia s Urban Future: Good Practices in PPP for Urban Development Regional Policy Dialogue, UNESCAP MOUD NIUA, December 18, 2014 Chandrima Sinha Director, IDFC Foundation

provides services Infrastructure Services

entire sector responsibility to the private

services Contracting of Services: Government

to private sector PPPs Government awards

2 PPPs What are they? Public Procurement Government creates assets & provides services Infrastructure Services Privatization / Divestiture Government transfers entire sector responsibility to the private sector which then creates assets and provides services Contracting of Services: Government creates assets and contracts service provision to private sector PPPs Government awards concession/license to private sector for a fixed term under which it creates assets and provides services

3 How do they work? FINANCIALLY FREE STANDING PROJECTS Examples -Toll Roads, Urban renewal (real estate projects) PROJECTS WHERE GOVERNMENT PAYS FOR SERVICES Examples - Roads - annuity/ shadow tolls, waste management 1. Role of public sector - planning, licensing & statutory approvals 2. No financial support/ payment by government 3. Revenues through user charges 1. Private sector paid a fee (tipping fee), tariff (shadow toll) or periodical charge (annuity) by Government for providing services 2. The payment is made against performance 3. There may be demand risk transfer either in part or whole HYBRID STRUCTURES Example water supply project with viability gap funding 1. Combine the financially free standing nature levy of a user charge with payment by the public entity 2. Payment could be as a viability gap subsidy or an annuity payment 3. Principle of leveraging operates here

4 Investments (INR Crs.) Overall Penetration of PPP Penetration of PPP is low in Urban sector 510, , % 408, % 306, % 204, % 30% Planned Overall* 4 102, % 7.3% - Total Investment Requirement * Envisaged investment by the Planning Commission. Planned Urban* Actual 37,276.4 Total PPP 20% 0%

Why is Urban sector different Roads Ports Airports Urban Clarity on PPP

frameworks Project pipeline/ Projects offered Removing bottlenecks 5 Public

Weak financial health of ULBs No market for sale of products/recyclables Land

collection / disconnection / ROW over private properties ULB Employees 26

5 Why is Urban sector different Roads Ports Airports Urban Clarity on PPP Projects are location specific No established model Revenue model Enabling frameworks Project pipeline/ Projects offered Removing bottlenecks 5 Public good Highly subsidized Lack of mechanism to address tariff related issues Weak financial health of ULBs No market for sale of products/recyclables Land acquisition and infrastructure support Powers of a private operator billing / collection / disconnection / ROW over private properties ULB Employees 26 projects attempted till date Institutional set-up Political interventions Tariff regulation

6 Key issues Unbalanced emphasis on construction contracts instead of performance based O & M contracts Obsolete planning norms especially for highly congested cities Allowing more low-rise buildings requiring larger area and increasing expenses on infrastructure Fiscal and financial un-sustainability of Urban Local Bodies Lack of focus on the O & M of facilities and service standards for the urban infrastructure available Lack of focus on common spaces like markets, bridges, footpaths etc leading to creation of slums Presence of multiple authorities having overlapping jurisdictions leading to lack of an integrated approach to development Lack of capacity in ULBs for implementing PPP based projects * FICCI report on Urban Infrastructure in India,

7 Where have PPPs been used? Easier projects Commercial real estate IT Parks, Commercial complexes, Entertainment-linked real estate (multiplexes, amusement parks) largely private initiatives; some as PPPs Projects with real estate kicker Re-development of markets, multi-level parking facilities, convention centres with hotels, sports complexes Projects where user-pay arrangements can be reasonably secured Bulk water supply projects, water distribution to industrial areas, industrial waste water treatment, MSW Collection & Transportation, Road improvement Increasing difficulty Solid Waste Management Treatment and disposal facilities Mass Rapid Transport Systems bus or rail based transportation systems Urban Redevelopment & Renewal areas around railway stations, older market areas, drain development, lake area development Retail Water Distribution and Sewerage facilities 7

8 8 SOLID WASTE MANAGEMENT SECTOR

9 Where have PPPs been used? SECTOR AREA DETAILS SWM Collection and Transportation Sanitary Landfills Treatment / Recycling Integrated Collection to Processing Secondary collection - Tipping fee based NDMC Composite primary and secondary collection and treatment - Guwahati BOT Karnataka, Delhi O&M of engineered sanitary landfill Vadodara, Jaipur Integrated land fill and waste treatment/processing Rajkot, Pondicherry Bio-conversion treatment facility Tirupur Biomethanation plant Koyembedu Composting Thiruvananthapuram Composite (including waste to energy) Uttar Pradesh, Guwahati Primary collection, street sweeping, storage, transportation and processing (composting and land filling) - Cities in Uttarakhand 9

10 Why Limited PPP? Data pre-requisites necessary for bidding not available/compiled properly Category-wise waste quantification data, waste characterization, status of tools and equipment, maps setting out city roads etc. Often delays in payments by ULBs in case of C&T contracts (Almost all ULBs in the country) T&D facilities awarded on royalty basis especially the compost facilities Market risks borne by developers No guarantee by the Government to procure compost/power/fuel pellets No payment guarantee mechanism, as most ULBs have financial constraints Site identified without proper consultation processes Site related issues present even after award of project Environment and Social issues not addressed upfront Inadequacy of contracts 10

11 Solid Waste Management Collection and Transportation In Delhi Two projects were bid out (MCD / NDMC) under a BOT concession framework, the concession periods being 8-9 years (construction plus operations) Tipping fee (Rs / MT of waste transported & disposed ) is the primary revenue for the private operator Revenue upsides - advertisement rights are offered to improve competitiveness / returns to bidders Substitution rights to lenders to improve bankability. Implemented in 6 zones in Delhi and the NDMC area by 4 investors 11

12 Solid Waste Management Collection and Transportation In Delhi Waste Handling BEFORE AFTER 12

13 Payment of tipping fees WASTES Solid Waste Management Collection and Transportation In Delhi Concessionaire RAMKY Collection and transportation Capex/Opex Developing built facilities such as transfer stations MSW LANDFILL COLLECTION SEGREGATION TRANSPORTATION LANDSCAPE WASTE TREATMENT SITE NDMC CONSTRUCTI ON DEBRIS SPECIFIED LOCATIONS Encourage Source segregation Monitor segregation levels Handover project facilities Tipping fee calculated on the basis of segregation achieved Reporting particularly segregation levels INDEPENDENT AGENCY Monitor project progress Concessioning Authority Oversight Arrangement

14 Solid Waste Management Collection and Transportation In Delhi Tipping Fee was calculated on the basis of level of segregation achieved in the waste transported by the private partner so as to ensure performance Segregation efficiencies depend largely upon the efficiencies achieved in the primary stages of the Waste Management Cycle. Primary segregation was to be achieved through community participation for which mobilization efforts were to be made by both parties to the contract: partly through source segregation by households and partly through reorganization of rag pickers as a segregation agency through NGOs. Lack of coordinated efforts to mobilize community level segregation mechanisms have resulted in low segregation levels, and non-compliance with segregation benchmarks, and subsequent losses for the private sector Use of Advanced Locality Management (ALM) groups in Mumbai is one of the successful examples of community level mobilization for waste segregation. 14

15 Where have PPPs been used? SECTOR AREA DETAILS Other Urban Services Real estate development Urban Renewal Street lighting Public conveniences IT-enabled Citizen services Convention centres Hyderabad Commercial centres / Office complexes - Maharashtra SEZs Vijayawada (IT/ITES) TDR based slum redevelopment Mumbai Housing schemes Maharashtra Municipal markets redevelopment Pune, Thane ROMT concessions Karnataka, Kerala Redevelopment of old properties Cinema redevelopment Delhi BOT through ESCO - Vijayawada, Bangalore Toilets, Bus stops - New Delhi Foot-over-bridges - Hyderabad Public Toilets - Maharashtra e-mitra in Rajasthan Akshaya in Kerala 15

16 16 ENERGY EFFICIENCY

17 Energy Efficiency Street Lighting Vijaywada, Andhra Pradesh Energy inefficient existing street lighting system Rs. 450 lakh annual expenditure on maintenance and energy bills Need to introduce an energy-efficient street lighting system, through high quality equipment and high-end technology, and reduce overall energy expenditure of the ULB Concessionaire (ESCO) committed 41.5% energy savings and was responsible for system design, procurement of technology and equipment, operations and maintenance of the new system for 5 years Concessionaire had to deploy own staff for O&M and was also responsible for addressing citizen grievances All investments by the ESCO revenue as a fixed share of savings in energy bills (92.7%) Fixed share of savings from energy bills to accrue to ULB : ULB share (notwithstanding the performance of the ESCO) not less than Rs.12 lakh per annum No payment to ESCO If energy savings less than 30% ; if savings more than 41.5% then 75% of surplus accrued to ULB

18 Concessioning Authority Concessionaire 92.7% of power savings as O&M fee 7.3% Investments Energy Efficiency Street Lighting Vijaywada, Andhra Pradesh STREET LIGHTING Power savings of about Rs.170 lakh/annum VMC CONTRACTUAL STAFF - O&M OLD SYSTEM High cost ENERGY BILLS O%M cost saving of Rs.53 lakh/annum ESCO STAFF O&M ESCO NEW EQUIPMENT Energy savings up to 41.5% ADVANCED SYSTEMS

19 19 TRANSPORT INFRASTRUCTURE

20 Where have PPPs been used? SECTOR AREA DETAILS Transport Infrastructure Refurbishment of urban roads Inter-state Bus Terminals Parking Bus stops Thiruvananthapuram City roads (annuity basis) ISBT with real estate component - Dehradun, Amritsar Multi-level car parks Delhi, Guwahati, Mumbai, Kolkata (some with real estate component) Delhi Construction of modern shelters for BRTS - Vishakhapatnam Foot over-bridges Traffic management systems Hyderabad (with advertisement rights) Computerization of transport department Madhya Pradesh IT system for bus shelters, control room call centre etc. Ahmedabad BRTS 20

21 Where have PPPs been used? SECTOR AREA DETAILS Transit Systems Metro Rails / Light Rails Bus Rapid Transport Systems City Bus Transport (non BRTS) Delhi Airport link (civil work retained by GA, rolling stock and systems by private partner) Mumbai Metro BOT, Hyderabad Metro (real estate component) Pipeline Bangalore, Jaipur Ahmedabad, Rajkot and Surat BRTS (bus procurement and operations as in Indore model) Planning and civil work largely retained by public authority Delhi BRTS focus on construction and management of corridors open system bus operations/procurement not integrated Indore (Separate concessions for bus operations, ticketing and advertising integrated under a city level public transport company) 21

22 Public Conveniences Foot Over-Bridge Hyderabad 22

23 Public Conveniences Bus Stops Delhi 23

24 TRANSIT SYSTEMS BUSINESS MODELS BUS RAPID TRANSIT SYSTEMS BRTS in different cities follow different business models, although there are some commonalities: 1. To distance bus operations from red tape, a company is set up to run BRTS. The company is generally publicly owned and is responsible for corridor management 2. Bus operations are typically separated from corridor management. In most cases, bus operations are contracted out to private parties, who are responsible for investment in the rolling stock as well as bus operations 3. On the other hand, there are countries such as China and Turkey where companies set up to run BRTS also own and operate buses. 4. The cost of the infrastructure (roads, stations, etc.) is borne by the Government, while O&M costs are recovered through the passenger fares 5. Competition among bus operators for passengers, often a source of accidents, is replaced by competition for right to operate 24

25 TRANSIT SYSTEMS BUSINESS MODELS BUS RAPID TRANSIT SYSTEMS Bogota: Fleet management and operations are the responsibility of the private operators. Tariffs are set with the sole objective of covering O&M costs. Even the demand risk rests with the bus operators, who do not enjoy any such guarantee. Ahmedabad: Based on the same model, except that the demand risk is not passed on to the operators who are guaranteed fixed route kilometers Indore: Indore City Transport Services Limited (ICTSL) allocates bus routes to private bus operators who offer to pay the highest revenue to ICTSL through competitive bidding. In addition, ICTSL shares revenues from (i) advertisements on the buses and (ii) issue of daily and monthly passes to passengers. On-board fare collection goes to bus operators. Thus demand risk is shared. Delhi: Follows the third category of business model where bus operations are not yet integrated into BRTS. The focus has been on construction of corridors and corridor management and buses ply on BRTS lanes as an open system. DIMTS, which maintained the corridor, was paid a fee for O&M services 25

26 Thank you 26

Issues in Municipal Waste to Energy

Issues in Municipal Waste to Energy K. Kasturirangan Member, Planning Commission August 27, 2013 Trivandrum Status Generation - As per Central Pollution Control Board report of 2012, 1,30,562 TPD of MSW