Study on Private-Initiative Infrastructure Projects. in Developing Countries in FY2007. Management System in Rajasthan, India SUMMARY.

Transcription

1 Study on Private-Initiative Infrastructure Projects in Developing Countries in FY2007 Study on the development of an Industrial area Environment Management System in Rajasthan, India SUMMARY March 2008 EX Corporation Toyota Tsusho Corporation

2 Summary 1. Background of the Project Japanese companies investing in India put environmental considerations as a high priority. However, the lack of environmental infrastructure in India is acting as a barrier for proper environmental management for these companies. In December 2006 agreement was made between the Japanese and the Indian government on the development of the DMIC (Delhi Mumbai Industrial Corridor) that includes the development of various economical and social infrastructures including port development, development of industrial parks etc. At present, both the countries are in the process of developing master plans for the implementation of the DMIC scheme. It can be expected that investment in this region from Japan will increase in the future. In this background, this study focuses on the feasibility of the formation of an Environmental Management Service Company, (EMSC, hereinafter) that provides integrated environmental services. 2. Project Content This study focuses on the establishment of an EMSC, which provides an integrated solution to various environmental services. EMSC will help pre-existing industrial parks to transform into EIP (Eco-Industrial Parks) while help establish new EIPs. EMSC will provide the following services. a. Water Supply, sewage treatment, and water reclamation business b. Treatment of hazardous waste c. Treatment and recycling of other wastes d. Establishment of air and water monitoring system e. Establishment of a regional environmental management center f. Solar Energy Services g. Lease of pollution abatement equipments h. Environmental analysis Services i. Outsourcing of Environmental management of factories 3. Project outline 3.1 target area The following areas will be chosen as the target sites for the study. Area around National Highway 8 (NH) between Delhi and Mumbai,mainly in

3 Rajasthan State(A) Bidadi area near Bangalore in Southern India(B) Regarding area A mentioned above, it is expected that the number of companies including Japanese ones will increase due to the development of the DMIC concept and during the course of this study, possibility of establishing a partnership with RIICO (Rajasthan State Industrial Development and Investment Corporation limited), a body responsible for development of industrial areas in Rajasthan state, will be studied. EMSC will provide a large variety of services but in the initial phase the services will be divided into core services and sub-services with the initial business being started from the core portions only. The services will later be expanded into sub-portions at the appropriate timing. Hence, to establish the core portion in India, a pilot project will be started in area B indicated above. The area B is an area where Toyota Tsusho Corporation has various interests. To be specific, the Bidadi industrial area in southern India near Bangalore where the factory of Toyota Kirloskar Motors (TKM) is located will be the target area. Hence, the business will start in area B and expanded to area A at the appropriate timing in the future. 3.2 business expansion Establishment and preparation Stage 1: Setting up in Bidadi Stage 2: Expansion to Bangalore Stage 3: Expansion to Northern States Construction Operation Marketing Expansion Survey Construction Operation 3 stages to be considered. The first stage will be the formation of the business foundation. The second stage will be the expansion stage and the third stage will be the expansion in the northern states including Rajasthan.

4 figure 0-1 Bidadi Industrial Area(1:10000)

5 3.3 Financial and economic analysis Investment cost and operation cost The initial investment cost is as follows. table 0-1 Initial investment cost Classification Price (million Rs) Construction 4.5 Equipment and machinery 193 Equipment 190 Heavy machinery (repair fee included) 2.9 Engineering and contingency fee 38 Total The annual O &M cost is as follows table 0-2 Annual O & M cost Type Cost (million Rs) Facility operation cost 19.4 Labor cost 10.3 Depreciation cost 11.6 Total Calculation of the FIRR For estimating FIRR in this chapter, Net Cash Flow is estimated based upon the following preconditions. Income Treatment charge obtained at the proposed facility Expenditure -Initial investment cost (Building construction, engineering service, contingency etc) -O&M Cost(Facility operation cost, Labour, ash disposal etc) Net Present Value of this project is 121 million Rs based upon 14% Discount Rate. The outcome of Financial Internal Rate of Return is 15.07%(before tax, 11.2%(after tax)on 25 th year after the operation starts and implies the project is financially sound project.

6 table 0-3 outcome of the FIRR Years from 2009 (Business operation start) 10years 15years 25years Tax Estimation outcome Before tax 6.19% After tax 1.44% Before tax 11.90% After tax 7.52% Before tax 15.07% After tax 11.2% Calculation of the EIRR Economic Internal Rate of Return (EIRR) is estimated as 15.47% based upon the above-mentioned condition. The estimation outcome is the same level as FIRR and thus this implies social benefit of the project is significant 3.4 Analysis of Environmental and social impact The implementation of this project is expected to have the following environmental improvement effects. 1. The waste matter that was temporarily stored will be treated permanently and safely 2. The hazardous waste will be treated properly 3. The environmental effects of the companies will be analyzed by a third party and improvements can be made 4. New companies expanding in India can start their business with the best possible environmental considerations 5. Water savings 6. Energy saving by the usage of solar energy and prevention of global warming 7. Establishment of an environment management system and the betterment of the image of the company Hazardous waste will be properly incinerated (or co processed in cement kiln) and be stabilized. This will lead to the elimination of environmental impact during the storage stage and the treatment stage. The hazardous waste being stored at present poses a potential for contamination and it is desirable to treat the waste immediately after its production. The flue gas and effluent from the treatment facility will be treated according to the stringent levels demanded by Japan.

7 The ash will be taken to the landfill and landfilled only after a proper pre-treatment. Further, in the long run, the facility will also help to lessen the burden by small companies who at present are dumping their waste in an in appropriate manner due to the lack of proper facilities present in the area. The EMSC will help the Japanese companies understand the laws and regulations of India regarding waste management better and hence help their environmental improvement goals. 3.5 Financial procurement Toyota Tsusho Corporation will be the major stakeholder with other partners as shown below. The capital fund will be about 30 to 50 million yen. Toyota Tsusho Corporation Sanyu Service Plant EX Corporation TKM invest fee suppliers EMSC invest Finance company TTPI companies related Corporate finance Construction capital JBIC loan Export Figure 0-2 Business scheme in Bidadi The capital will be procured using the following sources. Increase in capital stock Corporate finance or load from finance companies

8 3.6 Technological Advantages of Japanese Companies Japanese companies are competitive in the sectors of water treatment, waste treatment and laboratory analysis. However, as the project proponent is a private company, cost will play a big role in determining the exact stakeholders to be involved in the project. 3.7 Action Plan and issues This projects aims to provide environmental management services to the companies that will be present in the Northern states due to the development of the DMIC in the long run. As a first step towards achieving the ultimate goal, a model plant will be built in Bidadi with the initiatives of Toyota Tsusho Corporation. Expansion to the northern states will be the second stage. Regarding Bidadi, the business is dependent on the accumulation of suppliers due to the expected expansion of TKM. Hence it becomes necessary to receive the acceptance of TKM and TMC. Regarding the expansion to the northern states, it will be a prerequisite for the EMSC to gain experience first in Bidadi. During this time, EMSC will also propose the concept of Eco-industrial Park for incorporation in the DMIC master plan. During implementation in Rajasthan, it is desirable to receive the development rights of industrial rights from RIICO. Hence a consortium of business development companies and construction companies becomes necessary.