tamil nadu urban development fund (tnudf)
TRANSCRIPT
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Linking Cities With Domestic Markets:
The Tamil Nadu Experience
Rajivan KrishnaswamyManila, 13-14 May 2014
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
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I. Context: Nation, State, City
Nation:
INDIA
State:
TAMIL NADU
� A federal democracy
� Rule based fiscal transfers from Centre to State (in contrast
with State to City)
� Rapidly urbanizing – urban share 32% (2011 census)
� Urbanized – 53.9% population in towns (2011 Census)� 60% of urban population live in Class I Towns & 15% in
the single metropolitan city of Chennai� Urban poor constitute about 30% of this population
Urban Quality of Life� Water supplies vary from 50 lpcd in Town Panchayats to 74 lpcd in Corporations, significantly below the norm of 70 lpcd for Town Panchayats and 110 lpcd for Corporations.
� Only 57% of population in Corporation areas, 32% in Municipalities and 16% in Town Panchayats have access to treated sanitation
� Although 70% of solid waste generated is collected, most local bodies do not have organized disposal facilities
� Less than 50% of the roads are provided with storm water drains
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Municipal Finance: Key facts
• Municipals subsistence level
institutions, headed by bureaucrats
dependant on state for capital grants,
usually tied
• Majority of the debt from State
raised on guarantees
• Debt passed on to municipals but
projects executed by parastatals –
huge defaults –INR 5000 million had
to be written off
Pre- and Post- 1996• For eight years (1988-96) a Municipal
Fund (MUDF) located in govt lent to
munis based on principles of open
access and clear lending criteria (INR
2000 m, high repayment rates)
• In 1996 Govt introduced major
reforms: rational devolution, elections
• MUDF restructured to a corporate
entity, TNUDF, in partnership with
three major FIs to lend and raise
resources for municipal infrastructure
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
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II. Capital Structure and Policies
TNUDF
• Registered as a Trust under the Indian Trust Act –
GoTN and 3 All India Financial Institutions – ICICI.
HDFC, and IL & FS (initially 65% GoTN, 35% FI’s)
• Managed by an Asset Management Company
under the Indian Companies Act on basis of
Performance Contract
• Complementary Grant Fund fully owned by GOTN
Fund Objectives
• Finance urban infrastructure with focus on environmental;
• Facilitate private sector participation in infrastructure
through joint venture and public-private partnerships;
• Raise domestic finance for municipal investments
• Work with a Complementary Government owned Grant
Fund that finances project development
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Eligible borrowers / sectors
• Eligible borrowers: municipalities, statutory boards,
public sector undertakings and private corporate
• Eligible sectors: water supply, sanitation, solid waste
management, roads and drains, energy efficiency
Lending policies and 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
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Eligibility Criteria
• For ULBs etc.
• TE / TR < 1
• Annuity / Total revenue < 30%
• For private sector borrowers
• Long term debt < 1.5
Net worth
• Net fixed assets > 1.5
Long term debt
• Average DSCR > 1.5
Security and Provisioning
• Special recovery mechanism such as escrow accounts of
property tax, water charges etc.
• Provisioning policies based on Central Bank guidelines for
Non Bank Financial Institutions
• Annual loan balance confirmations with municipalities
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Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
III. PerformanceLending and Resources
• Profitable with high (100%) ULB loan repayment till date
• Raised nearly US$ 140 million in private finance
• Focus on financial sustainability, entity based appraisals and escrow as securities
o Transactions: municipal PPPs, first pooled bond issue, capital
contributions from beneficiaries, sewerage DBOTs, etc.
o TNUDP-III (US $ 300 million) focused on sewerage compared to roads
in TNUDP-II (US 60 million)
Solid Waste
Management
Sewerage &
Sanitation
Water Supply
Bus Stations &
Markets
Roads, Bridges,
SWD & Others
Over 380 sub-projects with US$ 500 million in lending
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Systemic access to market finance for
small and medium cities
Umbrella Credit
Enhancements
Sov.GrantSov. Govt.
Transfer
Payments
MLA
WSPF
Reserve
AccountRevenue
Intercept
Partial Credit Guarantee
Technical Assistance
InvestorsBonds
Trustee
Local
Govt.
Project
Local
Govt.
Project
Local
Govt.
Project
Funds
Market Rate
Long term
Principal & Interest paymentsIf necessaryIf necessary
The terms of issue
Mode : Private Placement Issue
Issuer : Water and Sanitation Pooled Fund (WSPF) a trust, which
pools infrastructure needs of 14 small cities
Issue Size : Rs. 30.41 Crores USD 10 million approx
Coupon : 9.20% p.a.
Tenor : 15 years (With a put and call option at the end of 10th years)
Redemption : In 15 equal annual instalments
Payment of Interest : Annual payment of coupon on a diminishing balance
method.
Security : Unsecured Issue
The Pooled Bond
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The Cities and the investments
Y
LIST OF POOLED PROJECTS
Rs. In 100,000
S.No. Particulars
Project
Cost
Loan amt
sanctioned
Loan
disbursed
Water Supply Schemes:
1 Ambattur Municipality 336.56 67.32 67.32
2 Tambaram Municipality 182.00 109.20 109.20
3 Madhavaram Municipality 325.00 195.00 105.75
4 Rajapalayam Municipality 85.00 51.00 51.00
Adjacent Urban Areas - AUA
5 (I) Alandur Municipality 427.00 403.00 403.00
6 (ii) Pammal Municipality 378.00 357.00 357.00
7 (iii) Ankapathur Town Panchayat 188.00 178.00 178.00
8 (iv) Ullagaram Town Panchayat 298.00 281.00 281.00
9 (v) Porur Town Panchayat 579.00 547.00 547.00
10 (vi) Maduravoyal Town Panchayat 146.00 138.00 138.00
11 (vii) Valsaravakkam Town Panchayat 189.00 179.00 179.00
12 (viii) Meenambakkam Town Panchayat 17.00 16.00 16.00
Under Ground Drainage:
13 Madurai Corporation 1407.00 500.00 325.00
4557.56 3021.52 2757.27
The Investors
Sl. No. Subscribers No. of
Bonds
allotted
1. Karnataka Bank Ltd. 2000
2. ICICI Bank Ltd. 1000
3. Gujarat Industries Power Co.,
Ltd, Provident Fund Trust
11
4. Metlife India Employees
Provident Fund Trust
5
5. City Union Bank Ltd., 25
Water and sanitation pooled fund
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WSPF bonds have created an active secondary market
Bonds sold by original holders mainly to private pension funds
Beginnings of a new market…
1. The Karnataka Bank Ltd2. The Tata Engineering And Locomotive Company Ltd Superannuation Fund
3. The Tata Engineering And Locomotive Company Ltd Provident Fund
4. Credit Capital Investment Trust Company Ltd Trustees Taurus Mutual Fund
A/C Libra Bond Fund
5. The Tata Engineering And Locomotive Co. Ltd Employees Pension Fund6. The Baghat Urban Co Operative Bank Limited
7. The Indian Hotels Co. Ltd Employees Provident Fund
8. Trust Capital Services (India) Pvt. Ltd.
9. Digital Globalsoft Limited Provident Fund Trust10. Staff Provident Fund of Nicholas Piramal India Ltd
11. City Union Bank Limited - Mount Branch
12. Gujarat Industries Power Co. Ltd. Provident Fund Trust
13. Metlife India Employees Provident Fund Trust
14. Advanta India Management Staff Provident Fund
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
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IV. Assessment and LessonsEnabling Factors
• Eight years (1988-96) of successful credit history, - lending based on municipal financial operating plans
• Accompanied by major reforms transferring authority to municipalities and backed by statutory devolutions
• 15 years of partnering with WB, allowing gradual blending of longer term finance with domestic sources – financing systems rather than projects
Lessons and an Agenda?
• Stable revenue streams – hence work on demand side to strengthen Fiscal Transfers – IGFR in South Africa, Green Light in Columbia
• Strong Intermediation – hence work on supply side –Debt Markets, Intermediation...PCG in Joburg, Tamilnadu
• In S Asia LLDF, TDF, KUDIFC etc., EA – MDFO, DFV, LADF
• Partnerships with Multilaterals – Finance systems rather than projects?
