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 IL&FS 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 IL&FS 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 • GoTN’s 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 IL&FS (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 • O&M expenditure / other revenue expenditure such as salaries etc.

14. Eligibility Criteria • For ULBs etc. • TE / TR < 1 • Annuity / Total revenue < 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 < 1.5 Net worth • Net fixed assets > 1.5 Long term debt • Average DSCR > 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 ULB’s 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 Corporation’s 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 O&M 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 = 1:3:5

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. • O&M 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.