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Tamilnadu Urban Development Fund TNUDF

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Title: Tamilnadu Urban Development Fund TNUDF


1
Tamilnadu Urban Development Fund (TNUDF)
  • A Presentation
  • January 2003

2
Scheme of Presentation
  • Introduction
  • Purpose of the fund
  • Objectives
  • Eligible borrowers / sectors
  • Lending policies and procedures
  • Project Prototypes

3
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

4
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.

5
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)

6
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.

7
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

8
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.

9
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

10
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.

11
TNUDF Experience - Project Proto types
  • Commercial and Non-commercial
  • Three fold categorisation indicates on the demand
    side certain types of urban infrastructure such
    as toll bridges, markets and bye-passes can be
    supported by reliance on project cash flows to
    service debt.
  • Projects such as stand alone commercial complexes
    and office space which rarely recover debt
    service from rentals are not worth investing in
    and do not constitute infrastructure in any real
    sense.
  • Second, environmental infrastructure namely water
    supply, sanitation and solid waste need a mixture
    of debt and grant financing and should attempt to
    recover appropriate user charges.
  • Third, other municipal infrastructure such as
    internal roads, parks, crematoriums etc would
    have to rely solely on general revenues to
    service debt.

12
TNUDF Experience - Commercial
  • KARUR 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.

13
Toll Fixation Criteria
  • The tolls are as follows
  • Vehicle Type Single Multiple Monthly
  • Pass (Rs.) Pass (Rs.) Pass(Rs.)
  • Car/Jeep/Van 10 15 300
  • LCV, Tractors 25 35 1050
  • Trucks 30 45 1350
  • Bus 30 60 1800
  • Multi-axle trucks, Cranes,
  • Earth-moving machines 50 -- --
  • similar heavy vehicles

14
KARUR BRIDGE
15
TNUDF Experience - Commercial
  • MADURAI BYE PASS
  • Madurai the second largest city in Tamilnadu, is
    a Corporation with an area of 51.82 sq.kms and a
    population of 9.4 lacs (1991 census). It is a
    major commercial and religious centre in the
    Southern region, linking important trade and
    tourist flows within Tamilnadu.
  • The scheme is the construction of a 2 lane
    Inner Ring Road (IRR) of 27.2 kms between
    Kanyakumari Road and Melur Road for which land
    acquisition has been completed. The IRR would
    also include construction of 2 Railway Over
    Bridges (ROB), one each at Ramnad road and
    Tirunelveli road, and a high level bridge across
    the Vaigai River.

16
TNUDF Experience - Commercial
MADURAI BYE PASS Madurai replaced its traditional
borrowings in the form of long term loan by its
own debt paper. Madurai is the first municipal
corporation in Tamil Nadu, which has issued
debentures for its project refinancing viz., the
Inner Ring Road. The servicing of the bonds
would be met out of the toll collections arising
out of the traffic on the road. This issue
resulted in a flat cost saving of about 2.50 to
3.00 percentage points to the corporation.
17
Madurai Toll Collection
18
TNUDF Experience Commercial - Madurai Bye pass
19
TNUDF Experience Loan Grant Blending - Storm
Water Drain in Valasaravakkam
20
TNUDF Experience - Commercial
  • 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.

21
TNUDF Experience Public - Private Partnerships
  • ALANDUR MODEL
  • 15,000 Households out of 17,000 have contributed
    Rs.5000/- per household representing one third of
    Project Cost of Rs.34 crores.
  • Initial tariff in Alandur fixed at Rs.150 per
    house per month.
  • Private Participation in that the private sector
    has invested equity in the STP.

22
TNUDF Experience Public - Private Partnerships
ALANDUR MODEL
23
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.
  • 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.

24
Resources
1) As a part of its vision raising exercise,
TNUDF raised Rs.110.05 crores from the capital
market during September - November 2000, by way
of issue of unsecured non convertible debentures
of Rs.1,00,000/- each. This is the first
non-guaranteed, unsecured bond issue by a
financial intermediary in India, with urban
municipal cash flow as its base. 2) The terms of
the issue are as follows
25
Way Forward - Water Sanitation Fund
  • Urban Infrastructure, especially water and
    sanitation investments require long term debt on
    account of externalities over time and space,
    severe fiscal constraints on the supply of equity
    from State and local Governments for new
    investments and substantial low income population
    constraining the ability to pay for high
    financing costs.
  • Consequently, the need to link city
    infrastructure financing requirements with
    domestic capital markets is well understood.
  • Debt finance is a pre-requisite for undertaking
    essential civic investments, and in the long run,
    domestic savings through capital markets would
    have to be, predominant source of supply.
  • The need for an institutionalised mechanism to
    raise low cost funds for water and sanitation is
    clear cut with the US Bond Bank as a potential
    model.

26
WAY FORWARD Linking Markets Cities with
Intended Use Plans
  • Creation of a revolving fund by GoI - States
  • Tax concessions for municipal bonds by GoI
  • Structure a statutory framework to manage the
    fund
  • Borrowing eligibility criteria to be established
  • Project implementation procedures including
    rational quick procurement
  • Framework for tariff setting - through a
    democratic process
  • Fixation of rational levels of upfront
    contribution by the community / local body
  • Capacity building for the raters/Merchant Bankers

27
Resources Water and Sanitation Pooled Fund
  • A Pooled entity namely, a Trust called Water and
    Sanitation Pooled Fund (WSPF) has been
    registered.
  • The initial contribution of the trust is
    Rs.10,000/-
  • Objective is to link civic financing needs with
    the capital market

28
Resources Water and Sanitation Pooled Fund
The terms of the issue are as follows
29
Resources Water and Sanitation Pooled Fund
The subscribers include Banks and Provident Fund
Trust. The sectorwise subscription of the bonds
is as follows
30
Resources Water and Sanitation Pooled Fund
31
TNUDF - Institutional Positioning
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