Tamilnadu Urban Development Fund (TNUDF)

1
Tamilnadu Urban Development Fund (TNUDF)

• A Presentation
• October , 1999

2
Scheme of Presentation

• Introduction
• Purpose of the fund
• Objectives
• Eligible borrowers / sectors
• Lending policies and procedures
• Grant Fund

3
Scheme of Presentation

• Performance (as on date)
• Lending volumes and profits
• Sector-wise investments
• Status of projects
• Project prototype
• Financials

4
Scheme of Presentation

• Prospects
• Infrastructure demand situation in Tamilnadu
• Financial Projections
• Vision

5
Introduction
6
Introduction

• A Trust established under the Indian Trusts Act,
  1882, by GoTN, ICICI, HDFC and ILFS with a line
  of credit from the World Bank

7
Purpose of the Fund

• TNUDF is a trust fund engaged in the development
  of urban infrastructure in the state of
  Tamilnadu. This trust was created as part of a
  restructuring exercise of an existing World Bank
  credit to the Government of Tamilnadu (GoTN) in
  September 1996.
• Under the World Bank credit of Rs.167 crores, the
  Municipal Urban Development Fund (MUDF) was set
  up in 1988 to fund urban infrastructure needs.
  The fund has been in existence for 8 years and
  had extended loans of about Rs.200 crores to 74
  Urban Local Bodies (ULBs) upto September 30, 1996.

8
Purpose of the Fund

• Financial discipline, strict project accounting
  and strong management enabled the fund to perform
  successfully, ending up with a net worth of
  Rs.140 crores as on September 30, 1996.
  Repayment from ULBs to the fund was also an
  impressive 96
• The projects funded varied from commercial
  ventures, such as markets etc, to core civic
  amenities including sanitation and solid waste
  management.

9
Purpose of the Fund

• Successful track record enabled GoTN to broaden
  the scope of the fund so as to attract private
  capital into urban infrastructure, and facilitate
  better performing ULBs to access capital markets.
• In 1996, GoTN, with the assistance of World Bank,
  invited three financial institutions namely,
  ICICI, HDFC and ILFS to convert MUDF into a full
  fledged trust, namely TNUDF with a private fund
  manager to deploy the resources of the trust.
• Accordingly, TNUDF was established as a trust
  under the Indian Trusts Act 1882, and is managed
  by an Asset Management Company, Tamilnadu Urban
  Infrastructure Financial Services Limited
  (TNUIFSL)

10
Purpose of the Fund

• GoTNs equity in the venture is restricted to
  49, based on the motivation to facilitate
  private sector management in investment
  decisions.
• Other shareholders of TNUIFSL are ICICI (21),
  HDFC (15) and ILFS (15). ICICI, the lead
  institution, has taken up management
  responsibility, putting in place appraisal
  systems and key personnel.

11
Fund Objectives

• Fund urban infrastructure projects which improve
  the living standards of the urban population
• Facilitate private sector participation in
  infrastructure through joint venture and
  public-private partnerships
• Operate a complementary window, the GRANT FUND,
  to assist in addressing the problems of the urban
  poor.

12
Eligible borrowers / sectors

• Urban Local Bodies (ULBs), statutory boards,
  public sector undertakings and private corporates
  are the eligible borrowers of the Fund.
• The eligible sectors include water supply,
  sanitation, solid waste management, roads /
  bridges, transportation, sites and services and
  integrated area development

13
Lending policies procedures

• Eligible items for TNUDF funding
• Only for capital expenditure
• Civil works
• Services
• Goods / Materials
• TNUDF will not fund
• Land acquisition costs
• OM expenditure / other revenue expenditure such
  as salaries etc.

14
Eligibility Criteria

• For ULBs etc.
• TE / TR lt 1
• Annuity / Total revenue lt 30
• In case where ULBs fail to meet above criteria,
  the project specific returns (IRR) should be
  greater than 18.5 p.a.
• For private sector borrowers
• Long term debt lt 1.5
• Net worth
• Net fixed assets gt 1.5
• Long term debt
• Average DSCR gt 1.5

15
Lending terms

• Interest rate structure (From 1998-99
  onwards) - Water supply and Sewerage projects
  16 pa -Other projects 16.5 pa
• -Market determined rates for private sector
  borrower.
• Overdue interest 18.5 p.a. on overdue amount
  charged from the date of scheduled repayment till
  the date of actual payments.
• Annuity Consistent with MUDF - 1 year
  moratorium, 15 year repayment for service
  projects and 5 year moratorium, 16 year repayment
  for water supply and sewerage projects.
• Repayment terms fixed on basis of cash flows (for
  commercial ventures).

16
Project Cycle

• Letter of intent from ULB
• Issue of loan application form by TNUDF
• Preparation of initial screening report
• Preparation of detailed project report
• Appraisal
• Issue of sanction letter
• Signing of loan agreement
• Disbursement
• Sample audit / monitoring / site visit
• Project completion reports

17
Security Measures

• Special recovery mechanism such as escrow
  accounts of property tax, water charges etc. and
  hypothecation of movables are being put in place.
• In case of commercial complexes,default option of
  conversion of upto 40 of loans outstanding into
  office space is being stipulated.

18
Grant Fund

• TNUDF also operates a complementary GRANT FUND
  fully owned by GoTN with following objectives
• Strengthening and upgradation of ULBs financial,
  technical, managerial and service capabilities,
  training and computerisation of municipal
  accounts and basic records e.g. birth and death
  register (Category I)
• Meeting the cost of Resettlement and
  Rehabilitation related to sub-projects to be
  financed by TNUDF (Category II)

19
Grant Fund

• Financing projects which directly benefit urban
  low income populations such as water supply,
  sanitation, storm water drain, street lighting,
  sewerage systems etc. (Category III)
• Meeting cost of project preparation for TNUDF
  financed projects as well as to facilitate
  private sector participation (Category IV).

20
Grant Fund (as on 30.09.99)

• Rs. in crores
• Stage / Category I II
  III IV
• Application 16.75 0.40 79.30 13.05
• Sanctioned 10.32 0.20 26.23
  13.03
• Disbursed 6.21 0.20 13.56
  5.49
• Cat I - Strengthening and upgradation of
  ULBs
• Cat II - Resettlement and Rehabilitation of
  urban poor
• Cat III - Capital grants
• Cat IV - Meeting the cost of project
  preparation, technical assistance
• and consultancy

21
Performance (as on date)
22
Lending Volumes Income
23
Performance

• Loan Fund / Grant Fund
• TNUDF has appraised projects costing Rs.316.47
  crores and approved loans of Rs.186.82 crores
  upto September 30, 1999.

24
Status of Projects as on 30.09.99

• Rs. in Crores
• Stage Cost Loan
  Grant
• Applications received
  1034.94 733.76 109.51
• Closed 117.98 100.63
  3.86
• Sanctioned 316.47 186.82
  49.78
• Loan agreements signed 169.47
  109.85 41.34
• Disbursed 148.67
  87.64 25.47
• Ratio of sanctions to applications - 25.46
• Ratio of disbursement to sanctions - 46.91

25
Project Prototypes

• BOT projects - Karur Municipality Bridge
• Public Private Partnership - Madurai Inner Ring
  Road
• Loan - Grant Blending

26
Public - Private Partnership

• In general factors enabling private investments
  are
• where cashflows of projects are predictable and
  assured
• where regulatory framework is in place
• where contractual obligations amongst the various
  participants are clear cut with respect to risks,
  performance and returns and
• where scarce resources of ULBs can be freed up
  for pressing investments in basic civic amenities.

27
Karur Toll / BOT Bridge

• Based on these principles, TNUDF has facilitated
  the first BOT / Toll bridge, contracted by an ULB
  in India at an estimated cost of Rs.16 crores.
• The users of the bridge are freight traffic with
  the capacity to pay. As the bridge would
  substantially reduce vehicle operation costs
  (VOC) and time, cash flows to the operator is
  expected to be predictable.
• The enabling provisions of Tamilnadu State Toll
  Act has been amended allowing ULBs to enter into
  BOT style operation, thus offering the investor a
  stable regulatory framework.

28
Karur Toll / BOT Bridge

• This project would enable Karur Municipality, the
  project sponsor, to use its resources for
  pressing public investments in core civic
  amenities.
• The concession has been awarded to East Coast
  Constructions and Industries Private Limited
  (ECCI) on the basis of competitive bid for a 14
  year period, including the construction period.
• TNUDF has already sanctioned Rupee loan of
  Rs.100 lacs to meet a part of the cost of the
  project.

29
BOT Bridge Across Amaravathi at Karur
30
Madurai Toll Road

• TNUDF is also funding a 27 km Madurai bye-pass at
  an estimated project cost of Rs.47 crores.
  Madurai Corporation, the project sponsor, would
  auction out the toll collection at the end of the
  2 year construction period.
• GoTN has indicated its willingness to meet the
  shortfall if any, between the toll revenue and
  annuity payments.
• This project structure allows for a major
  transportation facility where project benefits
  flow directly to Madurai Corporation, without
  recourse to the Corporations cashflows.

31
Madurai Bypass - Linking Highways and People
32
Madurai Toll Road

• Consultants appointed to review designs, validate
  traffic data, prepare bid documents, valuate
  bids, design of toll plazas / tolling mechanisms
  and secondary level supervision of work.
• Further the II and III phases of the bye-pass are
  being developed on a BOT basis, with recourse to
  revenues from phase I. This would clearly
  enhance the entry conditions for private
  participation.

33
Madurai Bypass - Under Construction
34
Solid Waste Management Contracts

• Conversion of Municipal Solid Waste into Organic
  Manure (50 tpd plant)
• Supply of pay contract between ULB and Private
  Sector operator at Rs.3.50 pt lease rentals
• Pressure / Incentive for the ULB to keep the
  streets clean.

35
Veeranam Water Supply Project

• 180 mld, Rs.200 crore Water Supply to 13 cities
  and Industry
• Project IRR of 16.31 at prices of Rs.25 per 1000
  litres for industry and Rs.3.50 for
  Municipalities.
• Consultants appointed for RFP documentation.

36
Storm Water Drain in Valasaravakkam - Loan Grant
Blend
37
PROJECT MANAGEMENT CONSULTANCY - VALASARAVAKKAM

• Valasaravakkam a selection grade Town Panchayat
  located on the Western Boundary of Chennai.
• First Urban Local Body implementing service
  schemes by appointing a Project Management
  Consultant (CES) to undertake the following
• Preparation of detailed designs and Bill of
  Quantities.
• Bid Evaluation and recommendation of contractor
• Project Supervision
• Quality control
• Payment recommendation

38
PROJECT MANAGEMENT CONSULTANCY - VALASARAVAKKAM

• Cost of Project
• Improvement to Roads - Rs.113.00
  lacs
• Construction of Storm Water Drains - Rs.153.00
  lacs
• Work was awarded for construction in October
  1998 and construction was completed by March 1999.

39
Underground Sewerage Projects

• TNUIFSL, through consultants, has undertaken
  detailed study for design of underground sewerage
  systems for 14 towns / cities in Tamilnadu
• Most of the consultancy assignments have been
  completed and the schemes are ready for tendering
  out.
• The schemes have been developed on user charge
  basis.

40
Underground Sewerage Projects

• Works at Alandur and Coimbatore are proposed to
  be taken up initially to assess viability of
  these schemes on user charge basis
• Suggested tariff rate to cover OM expenses, debt
  servicing and sinking fund allocation
• Deposit mobilisation
• From household Rs.5,000/-
• From commercial and industrial customers
  Rs.10,000/-
• Cross-subsidy scheme for fixation of tariff
• Household Commercial Industrial Users 135

41
Underground Sewerage Projects

• Initial tariff in Alandur fixed at Rs.150 per
  house per month as required tariff of Rs.180
  phpm. GoTN would fund the gap of Rs.30 phpm.
  Tariff to increase at 6 per annum.
• Innovative contracting procedure to be adopted
  The successful bidder would undertake all the
  following
• Construction of conveyance system through regular
  World Bank Works Contract
• Construction of STP through BOT format backed by
  Supply or Pay mechanism.
• OM Contract at fixed annual fees over a five
  year period.

42
Underground Sewerage Projects

• Administrative sanction has already been issued
  to GoTN for Alandur and Coimbatore Underground
  Schemes
• Tendering process underway for Alandur UGS
  Project and contract expected to be awarded in
  Nov 99.
• The supervision of works would be undertaken by
  an independent private sector Project Management
  Consultant

43
Loan Grant Blending

• TNUDF has structured investments in basic civic
  amenities on the basis of debt servicing
  capabilities of ULBs. This implies elementary
  budgeting based on demand analysis of civic
  needs.
• Project preparation by way of technical support
  through the Grant Fund has been a feature of all
  TNUDF activities in these sectors.

44
Bus Stand at Rajapalayam - During construction
45
Loan - Grant Blending

• Further when the ULBs have established a clear
  geographical-demographic linkage in terms of
  direct benefit to the urban poor, TNUDF has
  supplemented its debt with a Grant component,
  thereby reducing the effective rate of interest.
• In the longer term, TNUDF believes that these
  investments can be sustained only by improved
  project management performance by ULBs. Pursuant
  to this, TNUDF has supported capacity building
  efforts such as computerisation of accounts and
  training programs to manage environmental and
  social issues etc.

46
Drinking Water at Madhavaram - Loan Grant Blend
47
KEY PROFITABILITY INDICATORS

• Rs. in Crores
• For the Period 1.4.98 to 1.4.97 to
  29.11.96 to
• 31.3.99 31.3.98 31.3.97
• Total Income 44.51 39.01 9.72
• Net Interest Income 24.81 20.42
  6.12
• Profit before tax 23.44 19.65
  5.62

48
Prospects
49
Infrastructure Demand situation in Tamilnadu
50
Urban Tamilnadu Existing Situation

• Demography and Urbanisation
• In 1991, Tamilnadu had a population of 55.08
  million which makes it the 7th highest State in
  the country and somewhat smaller in size to
  countries such as Turkey, Thailand or France.
• Tamilnadu has a relatively large urban
  population. The percentage of States urban
  population in 1991 was 34, significantly higher
  than the all India average of 26, and next only
  to that of Maharashtra.

51
Urban Tamilnadu Existing Situation

• Demography and Urbanisation
• Compared to other major States, such as
  Maharashtra and West Bengal, the urban population
  in Tamilnadu is more evenly spread out among
  various size classes of urban agglomerations and
  towns.
• Chennai had a population of 5 million in 1991
  accounting for 20 of States urban population of
  19.02 millions. Other major agglomerations in
  the States are Coimbatore (9.89), Madurai
  (8.15), Trichy (5.78) and Salem (5.94).

52
Urban Tamilnadu Existing Situation

• Demography and Urbanisation
• The pattern of urbanisation also seems to be
  related to large scale industrialisation as a
  thin belt across the northern part of the State,
  consisting of large urban agglomerations like
  Madras, Vellore, Salem, and Coimbatore which
  accounts for the bulk of the urban population of
  the State.
• On the other hand, the State has dry, backward
  areas where the degree of urbanisation and the
  process of urbanisation appears to be a
  reflection of recurring distress conditions in
  poor and unstable agricultural regions.

53
Institutional Framework

• The 74th Constitution (Amendments) Act, 1992 has
  paved the way for significant devolution of
  powers to the ULBs. The spirit of the amendment
  seeks to achieve a paradigm shift in the role of
  a ULB from that of a constrained and indifferent
  service provider to a freer and more responsive
  developer of urban infrastructure.

54
Institutional Framework

• This amendment seeks to make municipalities focal
  institutions in the provision of urban
  infrastructure through participation of people at
  the local level and by endowing it with authority
  commensurate with responsibility.
• In practical terms an annual statutory devolution
  of about Rs.200 crores to all ULBs has been put
  in place. This implies an opportunity to
  leverage resources for substantive upgradation of
  basic civic services.

55
Urban Tamilnadu Existing Situation

• Primary Infrastructure Requirement
• Water supplies vary from 34 lpcd in Town
  Panchayats to 74 lpcd in Corporations,
  significantly below the state norm of 90 lpcd.
• Only 57 of population in Corporation areas, 32
  in Municipalities and 16 in Panchayats have
  access to sanitation.
• Although 70 of Solid Waste generated is
  collected, must local bodies do not have
  organised disposal facilities.
• Less than 50 of the roads are provided with
  Storm Water Drains.

56
Urban Tamilnadu Existing Situation

• Financial Implication
• Investment needs by Local Body type
• Local Body Rs. in crores
• Corporations 2087.99
• Municipalities 1063.58
• Town Panchayats 634.05
• Total 3785.62
• Sector wise break up of investment needs
  indicates that 64 of the requirement is for
  water and sanitation sector, followed by 31 for
  roads, drains lighting.

57
Urban Tamilnadu Existing Situation

• Financial Implications (Sectoral Investment
  requirements)
• Rs. in crores
• Local Body Corporations Municipalities
  Town Total
• Panchayat
• Water Supply 522 212
  167 901 24
• Sewerage
• sanitation 875 520
  127 1522 40
• Solid waste mgmt. 40 32
  24 96
  2
• storm water drains 287 81
  192 560
  15
• Roads 337 197
  62 596 16
• Lighting 26 21
  63 110 3
• TOTAL 2087
  1063 635
  3785 100
• Source State Finance Commission, 1996
• Note Price Escalation - 12 p.a.

58
Urban Tamilnadu Existing Situation

• Urban Local Body - Finance Gap
• Estimates of Finance Gap 1997-2002
  Rs. in crores
• Local Body Investment Investment
  Borrowing Gap
• Class needs 1997-98
  needs end Capacity
• costs 2002
• 1 2 3 4 3-4
• Corporations 2088 2653 1698 955
• Municipalities 1064 1351 419 932
• Total 3132 4004 2117 1887

59
Financial projections for the plan period 1999-00
to 2002-03
60
Lending Volumes Profits
61
Evolution of TNUDFs portfolio
March 31, 2003
62
TNUDFs sanctions as on 30.9.99
63
TNUDFs disbursements as on 30.9.99
64
Financials

• Projected Balance Sheets Rs. in Crores
• As on March 31, 2000 2001
  2002 2003
• Total contribution 209 226 248
  285
• Term debt 443 573 696
  816
• Loans and advances 526 657 785
  908
• Investments 129 150 177
  222
• Debt-equity 2.12 2.54 2.80
  2.86
• Ownership pattern
• - GoTN 70 67 62 57
• - FIs 30 33 38 44

65
Financials

• Projected Profit and Loss Statement Rs.
  in crores
• For the year 1999-00 2000-01
  2001-02 2002-03
• Income
• - Operations 35.8 59.2
  82.2 104.6
• Total Income 47.7
  73.1 98.5 124.5
• Net profit 32.9
  49.2 59.5 84.8
• Net profit /
• Networth 15.7
  21.8 23.9 29.7

66
Assumptions

• The projected financial assumes a primary source
  of long tenure finance as a line of credit from
  IBRD of US 80 million.
• It is assumed that the entire drawal in a year is
  disbursed to sub-borrowers in the same year.
• The entire share of GoTN profit is assumed to be
  transferred to the grant fund while the entire
  share of the FI profits is ploughed back into the
  trust fund.
• As on March 31, 2003 the debt equity ratio of the
  entity would be satisfactory at 2.86 and GoTN
  would hold 56.5 of the paid up contribution
  whereas the FIs would hold 43.5.

67

• The total income of the Fund would increase from
  Rs.30.7 crores in 1997-98 to Rs.124.5 crores in
  2002-03.
• The profits of the Fund would increase from
  Rs.23.6 crores to Rs.84.8 crores during the same
  period.
• The loan outstanding of TNUDF as on March 31,
  2003 would be Rs.908 crores

68
Vision
69
Vision

• TNUDF would position itself as a strategic
  intermediary linking capital markets with Urban
  Infrastructure needs.
• Positive performance during the plan period,
  achievement of lending targets, high repayment
  rates and quality infrastructure would
  demonstrate a track record enabling market access
  for the Fund.
• Preparation for Pool Finance Structure would
  commence by year 2001. Capacity building
  activities, financially disciplined ULBs and
  strong project pipeline are enabling factors.
  Preparation includes rating of TNUDF risk
  assessment of ULBs, setting up a credit enhances,
  revenue intercepts etc.

70
TNUDF - Institutional Positioning
Partial Credit Guarantee
MLA
Umbrella Crd Enchanc.
Technical Assistance
Co-finance
Sov. . Grant
Sov. Govt. Transfer Payments
Bonds
TNUDF
Investors
Funds Market Rate Long term
Reserve Account
Local Govt. Project
Local Govt. Project
Local Govt. Project
Revenue Intercept
Trustee
Principal Interest payments
If necessary
If necessary