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Document of
The World Bank
Report No: 82677-IN
RESTRUCTURING PAPER
ON A
PROPOSAL TO RESTRUCTURE
THE LOAN TO THE
INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED
WITH THE GUARANTEE OF THE REPUBLIC OF INDIA
FOR THE
FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP)
IN INFRASTRUCTURE THROUGH SUPPORT TO THE
INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED PROJECT
LOAN NO. 7613-IN
(Board Approval: September 22, 2009)
November 14, 2013
South Asia Finance and Private Sector Development Unit
India Country Management Unit
South Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official
duties. Its contents may not otherwise be disclosed without World Bank authorization.
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ABBREVIATIONS AND ACRONYMS
COD
EIA
E&S
Commercial Operation Date
Environment Impact Assessment
Environment & Social
ESMU
ESDD
Environment and Social Safeguards Management Unit
Environment and Social Due Diligence
ESSF
FM
Environmental and Social Safeguards Framework
Financial Management
HR Human Resources
IBRD International Bank for Reconstruction and Development
IFR
IIFCL
IPL
IRM
Interim Financial Report
India Infrastructure Finance Company Limited
IIFCL Projects Limited
Integrated Risk Management
PDO Project Development Objective
PPPs Public Private Partnerships
R&R Relief and Rehabilitation
Regional Vice President: Philippe H. Le Houerou
Country Director: Onno Ruhl
Sector Director / Manager: Sujata Lamba/Henry Bagazonzya
Task Team Leader: Niraj Verma
3
IAINDIAdfjasdkfjskdP102771
INDIA
FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN
INFRASTRUCTURE THROUGH SUPPORT TO THE INDIA
INFRASTRUCTURE FINANCE COMPANY LTD (IIFCL PROJECT)
CONTENTS
Page
A. SUMMARY ........................................................................................................................... 6 B. PROJECT STATUS .............................................................................................................. 7 C. PROPOSED CHANGES ...................................................................................................... 8 ANNEX 1: Results Framework and Monitoring ........................................................... 14 ANNEX 2: Update to safeguards arrangements ........................................................... 17 ANNEX 3: Agreed Financial Management Monitoring Parameters ...................... 21
4
DATA SHEET
INDIA
FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN
INFRASTRUCTURE THROUGH SUPPORT TO THE INDIA
INFRASTRUCTURE FINANCE COMPANY LTD (IIFCL PROJECT)
South Asia Finance and Private Sector Development Unit
South Asia Region
1. Basic Information Project ID & Name P102771: IN: IIFCL - India Infrastructure Finance Co Ltd
Country India
Task Team Leader Niraj Verma
Sector Director/Manager Sujata Lamba/Henry Bagazonzya
Country Director Onno Ruhl
Original Board Approval Date 09/22/2009
Original Closing Date: 09/30/2015
Current Closing Date 09/30/2015
Proposed Closing Date [if applicable]
EA Category F-Financial Intermediary Assessment
Revised EA Category F-Financial Intermediary Assessment
EA Completion Date
Revised EA Completion Date
2. Revised Financing Plan (US$m) Source Original Revised
Borrower 0.00 0.00
IBRD 1195.00 195.00
Total 1,195.00 195.00
3. Borrower Organization Department Location
India Infrastructure Finance
Company Limited (IIFCL)
India
4. Implementing Agency Organization Department Location
India Infrastructure Finance
Company Ltd
Dr. Harsh Kumar Bhanwala India
5
5. Disbursement Estimates (US$m) Actual amount disbursed as of 11/14/2013 22.9
Fiscal Year Annual Cumulative
2013 0.00 22.90
2014 45.00 67.90
2015 127.10 195.00
Total 195.00
6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N
Does the restructured project trigger any new safeguard policies? If yes, please select from
the checklist below and update ISDS accordingly before submitting the package.
N
7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes
The projects objective is to increase the availability of long-term financing for infrastructure PPP projects
in India. This will be achieved by supporting IIFCL in its role to catalyze private financing for
infrastructure PPPs and stimulate the development of a long-term local currency debt financing market for
infrastructure in India. Key performance indicators will include, inter alia, the following: (a) Increase in
the number of PPPs achieving financial closure through long-term debt financing from IIFCL (at least 200
new PPPs will achieve financial closure through IIFCL s support over the life of the project); and (b)
Increase in the amount of private capital (including long-term debt and equity) available for infrastructure
projects (a targeted four-fold increase in private capital for infrastructure projects over the life of the
project).
7b. Revised Project Development Objectives/Outcomes
The proposed revised objective of the Project is “to strengthen IIFCL’s capacity for infrastructure PPP
financing through piloting new instruments and implementation approaches.”
6
FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN
INFRASTRUCTURE THROUGH SUPPORT TO THE INDIA
INFRASTRUCTURE FINANCE COMPANY LTD (IIFCL PROJECT)
RESTRUCTURING PAPER
A. SUMMARY
1. India’s infrastructure financing needs are very large. The investment requirements
for India’s Twelfth Five Year Plan (2012-2017) are estimated in the region of US$1
trillion. This needs to be financed through roughly an equal contribution of public and
private investments, including through PPPs which need to play an important role in this.
2. The IIFCL Project was designed in 2009 to finance PPPs through an International
Bank for Reconstruction and Development (IBRD) Loan of US$1,195 million to the
India Infrastructure Finance Company Ltd (IIFCL), with the objective of increasing the
availability of long-term financing for infrastructure PPP projects in India. This was a
first of its kind operation for the Bank in India. It was approved on September 22, 2009,
became effective on November 5, 2009 and is scheduled to close on September 30, 2015.
The Project includes a capacity building component for which IIFCL requested recipient-
executed grant funds, and the Bank stated its commitment to provide such funds to the
extent of US$5 million. After about four years of implementation, the Project has
disbursed only US$22.9 million (~2%) and is therefore, rated Unsatisfactory both on
progress towards achieving Project Development Outcomes (PDOs) and Implementation
Progress. On the other hand, progress in implementing the capacity building component
has been satisfactory.
3. Despite considerable management and team attention to the Project on both the
client and the Bank side, initial estimates made during project preparation of eligible sub-
loans that could be provided by IIFCL (the borrower) to sub-borrowers for the purpose of
financing sub-projects have turned out to be optimistic and overall progress has been
extremely slow. The lack of progress primarily stemmed from some divergence between
the Project’s guidelines for safeguards and current practices in India which were difficult
to bridge especially for Category A sub-projects. As IIFCL is: (i) not the ‘lead financier’;
(ii) not expected to carry out independent credit assessment; (iii) a minor financing
partner; and (iv) a late entrant (typically ‘last mile’ financier) in a large consortium of
financiers, its leverage is limited. This is particularly true in large Category A sub-
projects where its share is a fraction of the overall sub-project cost. Further, sub-projects
proposed for IIFCL financing are already procured. This made it difficult to access
documentation and IIFCL’s late intervention makes retrofitting of the Bank requirements
difficult.
4. Against the backdrop of the Bank’s resources for India being constrained due to
the single borrower exposure limit, the slow disbursal of the Project crowds out other
potential development initiatives. Government of India, in agreement with IIFCL, thus
requested a restructuring of the Project, including a cancelation of US$1 billion, which
would enable the amount freed up to be allocated to other infrastructure projects (the
proposed second Dedicated Freight Corridor Project expected to be considered by the
7
Board later in the fiscal year). Given the importance of PPPs in India, the balance loan
amount of US$195 million would remain with IIFCL. This would enable financing for
PPPs alongside a mutual learning process on financial, fiduciary and safeguards
arrangements for the Bank and IIFCL.
5. To effectively restructure the Project, while the Project components remain as
before, the key proposed changes are: (i) a reduction of the loan size to US$195 million;
(ii) a revision of the Project Development Objective (PDO) to reflect the proposed
piloting and learning approach; (iii) focus on identification of more ready sub-projects,
on Category B and C direct financing sub-projects and on ‘Take-Out’ financing (loan
book re-assignment that helps improve sub-project viability); and (iv) enhanced reliance
on IIFCL’s fiduciary and safeguards capacity. These changes help address the barriers
that hindered progress in the past and are discussed in more detail in the sections below.
B. PROJECT STATUS
6. After about four years of implementation, the Project has disbursed around US$23
million (~2%) out of the US$1,195 million loan. Except for one transmission sub-project,
no other sub-projects have materialized for Bank financing for the reasons identified
above. However, progress on the capacity building component has been better. The Bank
mobilized around US$2 million in grants. Support for, amongst others, the development
of an integrated risk management (IRM) system, a management and information system
for managing safeguards risks, and a human resources (HR) strategy has been provided.
Critically, IIFCL’s capacity on safeguards and procurement aspects has improved
substantively from its growing operational experience of PPP financing and working with
the Bank and other multi-lateral institutions, including through support of the capacity
building component under the Project. The capacity building has yielded strong results
with IIFCL now having specialized staff and capacity on these aspects that few other
banks can compare with. For instance, IIFCL’s procurement capacity now provides
sufficient comfort for the Bank to rely on its due diligence to confirm consistency of the
concessioning authority procedures and underlying transactions with applicable Bank
procurement guidelines. Procurement review of several sub-projects confirms this. And
on safeguards, recent due diligence reports prepared by the Environment and Social
Safeguards Management Unit (ESMU) are of good quality and adequately address
safeguards concerns.
7. Given the lack of progress in disbursing the loan and for the reasons discussed in
the previous section, the Government has requested a restructuring of the Project. The
proposed approach for the restructured Project is to pilot: (i) innovative financial products
that build IIFCL’s financial capacity and (ii) new implementation approaches that rely
more substantively on IIFCL’s operational capacity which has evolved substantively over
the last few years. This approach is consistent with the Bank’s reform process regarding
the implementation of its procurement and safeguards requirements. Although IIFCL’s
leverage in financial transactions in PPP sub-projects is limited, IIFCL – through this
restructured Project – can evolve as a demonstration platform of good practice by
8
facilitating the adaptation of good practices in lending in sub-projects that it finances and
by utilizing its enhanced capacity on safeguards and fiduciary aspects.1
C. PROPOSED CHANGES
Project Development Objective (PDO)
8. The proposed revised objective of the Project is “to strengthen IIFCL’s capacity
for infrastructure PPP financing through piloting new instruments and implementation
approaches.”
Results Indicators
9. The revised/updated results indicators reflecting the objectives of the restructured
project are described in Annex 1.
Project Components2
Component 1: Long-Term Finance to Infrastructure Projects (IBRD financing: US$195
million)
10. The component would continue and would include, as before, funding that is
undertaken directly by IIFCL to developers during the construction stage of the
infrastructure asset being built. In the restructured Project, this direct financing would
focus primarily on Category B and C sub-projects. Sectors where PPP sub-projects may
be supported through direct financing are expected to include power transmission, solar,
roads and port terminal sub-projects.
11. In addition this component will include, post-construction refinancing, also called
Take Out financing. This product provides post-construction stage ‘loan book re-
assignment’ between a commercial bank/lender to a PPP sub-project and IIFCL.3 Take
Out fully supports the Project Development Objective of increasing the availability of
long term financing for infrastructure PPP projects through new instruments. Such
financing facilitates improved sub-project viability and longer term loans at more
attractive interest rates as the construction stage risks are largely addressed. In the
absence of such a product, sub-projects are typically unable to get banks to re-price the
loans to reflect the lower risks of the operations stage, relative to the construction stage.
IIFCL’s product therefore helps the developer access funding at a cost reflective of the
risks. Further, as such determination of risks involves a credit rating exercise this creates
valuable credit information on the sub-project. The rating also supports use of tools that
1 Keeping this engagement also gains significance in light of the recent passing of the Indian Parliament of
the Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act
2013. As implementation of this Act begins, country practices on safeguards in PPPs are expected to
improve. IIFCL’s role in demonstrating how to incorporate safeguards good practices into sub-projects,
thereby could have a positive impact in this process of evolving safeguards practices. 2 Implementation arrangements for all components and products are described below.
3 In the unlikely event that IIFCL transfers to a third financier, IIFCL will repay such amounts to the Bank.
9
can help support risk differentiation and create asset sub-classes that could play an
important role in developing the market for secondary transactions and for investments
by other institutional forms which are otherwise reluctant to support the higher stage
construction finance PPP. Therefore, financial market deepening and improved price
discovery is also facilitated.
12. The Take Out product also helps IIFCL enhance its institutional capacity by
undertaking independent assessment of this post construction stage ‘loan reassignment’.
Cases financed since January 2012 will be eligible. Two sectors have been pre-identified
and agreed for this Project – namely roads and port terminals – and inclusion of other
sectors, if any are proposed, will need to be agreed with the Bank.
Component 2: Capacity Building and Implementation Support (Resources from
grants/trust funds to be mobilized; up to US$5 million)
13. As before, this component will continue to support Capacity Building and
Implementation Support through recipient executed grant funds would complement
Project components. Activities under this component will be contingent upon the
mobilization of trust funds for grant financing and capacity building needs. Capacity
building support to the Infrastructure Debt Fund established by IIFCL and to the IIFCL
Projects Limited (IPL), both IIFCL subsidiaries, can be included as before. Existing areas
of support, including on procurement, safeguards and risk management, would continue.
The support to new product development and research would be a particular focus. This
can help IIFCL become a catalyst in spurring innovations in the infrastructure finance
market through introducing such products as subordinated debt, credit enhancement,
development of secondary markets, etc.
Implementation arrangements
Safeguards
14. For Component 1 direct financing, a segregated approach will be deployed based
on the risks of the sub-project. In the (rare) event that any Category A sub-projects are
proposed for financing under the Project, the current safeguards approach involving Bank
prior review will continue (see Annex 2 for details).
15. Given IIFCL’s substantive capacity enhancement over the years with a well-
functioning ESMU (see Annex 2), the environment and social due diligence (ESDD) for
Category B and C direct financing sub-projects, which will be a key focus of the
restructured project, will be delegated to IIFCL with appropriate due diligence
mechanisms and protocols for review, clearance disclosure and monitoring within the
IIFCL management structure. This approach is described in Annex 2 and reflects an
update to the existing Environmental and Social Safeguards Framework (ESSF) which
includes the safeguards management process that is also described in the Operations
Manual.
16. IIFCL has several investors/partners, including other international financial
institutions such as the Asian Development Bank (ADB) and Kredit fur Wiederaufbau
10
(KFW) with committed lines of long-term low cost credit. The Bank’s commitment in
this regard is relatively less significant than that of the ADB both in terms of the overall
share and the rate of disbursement. At the time of approval of the original project, IIFCL
had an ESSF which set out the environmental and social safeguard requirements
associated with projects that it finances. The original Project relied on the 2008 ESSF but
included a covenant that IIFCL would update, adopt and re-disclose an ESSF fully
consistent with the Bank’s policies. During 2013, IIFCL updated the 2008 ESSF
applicable to the Project as per its negotiations with its other partners and this updated
ESSF was re-disclosed in July 2013. The Bank was not involved in this process. After a
review of the 2013 ESSF by the Bank during recent supervision missions, the Bank
concluded that further adjustments were required to bring the 2013 ESSF fully in line
with Bank policy and to reflect the safeguards management process for the restructured
project. Among the key areas of focus for the adjustments were: (i) the requirement that
Bank safeguards in direct financing and post Commercial Operations Date (COD) stage
of Take Out cases also apply to Category B and C sub-projects; (ii) clarity that
consultations with groups in designated tribal areas in case sub-projects are to be
implemented in such areas is needed irrespective of whether there are positive or adverse
sub-project safeguards impacts; and (iii) specific procedures for “Take-Out Financing”.
The adjustments in terms of substance and content have been agreed with IIFCL, which
has proposed a two-step approach to achieve the full integration of those corrections into
a new document. In order to immediately remediate the 2013 ESSF and as a first of these
steps, IIFCL has agreed to reflect the required adjustments as an addendum to the
amendment letter for the restructuring of the Project. These adjustments will apply
immediately to all IIFCL’s operations under the Project and have been disclosed in the
Bank’s Infoshop with an annex spelling out the substantive changes. As a second step,
IIFCL requested a three (3) months period from the date of countersignature to conclude
the compilation and re-disclosure of the corrected ESSF; which time IIFCL will use to
get the document consulted upon and agreed before being re-disclosed locally on its
website.
17. Although IIFCL would continue to be a relative late entrant in the financing cycle,
the safeguards gaps would be more contained and relatively more manageable since the
impacts will be smaller and the developer is expected to be willing to address such gaps,
if any exist.4 The Bank will review sample of such sub-projects during the six monthly
implementation support missions and appropriate adjustments can be made if required.
18. For Take Out, the financing is akin to post-COD refinancing of a lender as it does
not finance any construction stage activities, and differs considerably from typical project
financing. It contributes to improving (through reduced debt service burden and reduced
interest rate) funding for the operation and maintenance activities (including debt
servicing) without financing any new capital assets, any construction, or any purchase of
land, etc. Therefore, the Take Out would not lead to any direct safeguards impacts.
Nonetheless, the possibility of residual risks and/or risks of association with the
developer and the sub-project cannot be ruled out. In this context, a sectoral gap analysis
4 The Bank Team observed during the recent field visits that the strengthening and maintenance road
projects in Madhya Pradesh have relatively minor environmental and social impacts which can be easily be
mitigated through actions identified as part of IIFCL's due diligence process.
11
has been undertaken by the Bank and IIFCL will report on compliance during the
construction stage with applicable national laws in its ESDD report (see Annex 2). For
the operations stage, Bank policies will apply.
Fiduciary
19. The Financial Management (FM) and procurement policies will continue as
before for the most part, albeit with a shift to ex-post rather than ex-ante reviews and with
greater reliance on IIFCL’s strengthened capacity on these matters.5 The streamlined
procurement approach issued as a guidance note by the Bank in May 2013 has been
agreed with IIFCL and is being used. This has also been reflected in the updated
Operations Manual. For Components 1 and 2, existing procurement procedures are
working well, and IIFCL’s enhancement of its procurement capacity in-house, including
engagement of a seasoned procurement consultant, has led to good progress in recent
months. Procurement arrangements as agreed for Component 1 will be applicable for the
Take Out product as well.
20. Further on FM, on long term financing and capacity building initiatives
(Component 1 and 2), the approach of mainstreaming with IIFCL’ due diligence process
has now stabilized and going forward a shift to ex-post reviews will be made. IIFCL’s
present systems including appraisal of Take Out Financing (part of Component 1) was
assessed and observed to be satisfactory. It was agreed that FM due diligence would be
predicated on IIFCL’s own procedures. The reporting formats (including the Interim
Financial Reports, IFR) have been amended and included in the Operations Manual. The
monitoring parameters on the components are specified in Annex 3 and the Operations
Manual has been updated by IIFCL to reflect this.
21. Presently there are no overdue audit reports.
22. Fund flow and disbursement arrangements: Disbursements arrangements on
different components are as stated below:
Component 1-Direct financing and Component 2-Capacity building:
Reimbursement will be based on IFR following existing arrangements.
Component 1-Take Out Financing: Disbursement request will follow after
IIFCL’s own actual disbursement to the exiting bankers. IIFCL will submit agreed
IFRs to request each disbursement.
Financing
Cancelation
23. Given the background discussed above it is clear that the current allocation to
Component 1 (Long-Term Finance to Infrastructure Projects) is too large and will not be
utilized in support for the PPP program. It is therefore, proposed to cancel US$1 billion
out of the total loan amount of US$ 1,195 million. While it is clear that India’s PPP
5 IIFCL has identified and designated a nodal procurement and a nodal financial management expert for the
Bank Project.
12
financing needs are large, it is also clear that a realistic projection of eligible projects that
meet Bank guidelines will need to be pruned to a much more realistic level. The approach
under the proposed restructuring is to continue to engage on this mutually learning
process, while utilizing instruments that can support IIFCL’s efforts to contribute to PPP
financing.
Project costs
24. The updated Project costs table reflecting the new components is as follows:
Project component Original Project
Allocation (US$
million)
Restructured Project
Allocation (US$ million)
Long term financing 1,195 195*
Capacity Building (CB) Up to 5 Up to 5
Total 1,195 + up to 5 for CB 195 + up to 5 for CB * Within long term direct financing, US$23 million is already disbursed, and an additional US$13 million might be
disbursed soon.
25. For the Project component allocation, the tentative pipeline of potential sub-
projects has been reviewed for Component 1. Initial estimates of such sub-projects
provide a reason for cautious optimism, partly since IIFCL's loan book has grown
significantly and there appear to be sub-projects in Category B and C that are well
prepared and expected to fit with project requirements. The direct financing sub-projects
include nine sub-projects of roads strengthening (all in Madhya Pradesh) that are all
Category B sub-projects and total around US$43 million. In addition, there are two sub-
projects in the ports terminals sector, one of which has an IIFCL contribution of US$25
million and has undergone safeguards field review by the Bank and IIFCL team. While
classified as Category A, issues identified can be addressed. The other ports sub-project
(~US$13 million) is yet to be visited and categorized. A sample of these sub-projects was
also visited by the Bank team to explore their potential compliance with the project
requirements and to formulate a more realistic estimate of project pipeline. Based on this
assessment, the pipeline assessment shows an existing portfolio on IIFCL’s books of
around US$81 million in Category B and C sub-projects6. This is over and above the
existing disbursement of US$23 million (power transmission) and an expected
disbursement of US$13 million on a solar sub-project.7 The balance amount is expected
to be in the form of either new similar profile direct financing sub-projects that come up
or Take Out finance sub-projects mostly in the roads sector (but also one in the ports
sector) – the long list for which is over US$200 million. Whilst IIFCL has already
committed lines to these projects, it is possible that some of these sub-projects may not
prove feasible for Bank funding, and also new sub-projects would be added, given that
IIFCL’s loan portfolio has been steadily increasing. IIFCL indicated that they have
confidence in the robustness of the pipeline.
26. On Component 2, it may be mentioned that several other donors are looking at
provision of Technical Assistance to IIFCL.8 In such an event, while potential sources of
6 Assuming the second port sub-project falls in this category. In addition to this pipeline, new solar sub-
projects or roads strengthening sub-projects that come up, can also be considered. 7 This refers to a Category B solar sub-project worth around US$13 million reviewed by IIFCL and the
Bank team; the ESDD has been submitted to the Bank for review. 8 Including Department for International Development of the United Kingdom.
13
mobilizing grant resources would diminish, the capacity building need gap also reduces
as such proposed donor assistance could address some needs. Therefore, the Project
component will try and assess only residual needs, while coordinating with donors and
IIFCL and maintaining close discussions with multi-lateral and bilateral donors and
trying to raise grant funds for either recipient executed or Bank executed activities.
ANNEX 1:
Results Framework and Monitoring
INDIA: FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN INFRASTRUCTURE THROUGH SUPPORT TO THE
INDIA INFRASTRUCTURE FINANCE COMPANY LTD
Project Development Objective (PDO): The Project’s objective is to strengthen IIFCL’s capacity for infrastructure PPP financing through piloting new instruments and implementation approaches
PDO Level
Results
Indicators*
Co
re
D=Dropped
C=Continue
N= New
R=Revised
Unit of Measure
Baseline
(March 31,
2013)
Cumulative Target Values**
Frequency Data Source/
Methodology
Responsibility
for Data
Collection YR 1 YR 2
Indicator One:
N Total size of sub-projects
(project costs) supported
by IIFCL under the
Project (US$m).
140 300 650
Semiannual Reports from
IIFCL
IIFCL as
implementing
and monitoring
agency
Indicator Two:
N Cumulative amount of
Take-Out financing
provided by IIFCL
(US$m).
1,310
1,450 1,700 Semiannual Financial
Statements of
IIFCL
IIFCL as
implementing
and monitoring
agency
Indicator Three:
N IIFCL’s safeguards
management capacity is
enhanced
Sufficient
only for
Category B
and C
Enhanced
further
Strong
safeguards
management
capacity
Annual Bank
implementation
support missions
and IIFCL data
Bank and IIFCL
Indicator Four:
N IIFCL’s fiduciary
management capacity is
enhanced
Moderate Enhanced
further
Strong
fiduciary
management
capacity
Annual Bank
implementation
support missions
and IIFCL data
Bank and IIFCL
INTERMEDIATE RESULTS
Intermediate Result (Component One): Long-term financing to eligible sub-projects
Intermediate
Result indicator
One:
R Number of infrastructure
sub-projects that receive
Bank funding support
through IIFCL (both Take
Out and direct financing)
1
5
10 Semiannual Reports from
IIFCL, Bank
supervision
missions and
progress reports
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
two:
R % of the loan disbursed
through IIFCL to selected
infrastructure sub-projects
0% 30%
100% Semiannual Reports from
IIFCL, Bank
supervision
missions and
IIFCL as
implementing
and monitoring
agency
15
progress reports
Intermediate
Result indicator
three:
N % of sub-projects under
Take Out that benefit from
at least 75 basis points
cost efficiency
0% 35% 60% Semiannual Reports from
IIFCL, Bank
supervision
missions and
progress reports
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
four:
C Increase in the amount of
private capital available
for infrastructure projects
US$66.4
billion
US$75
billion
US$85 billion Semiannual Reports from
IIFCL, Bank
supervision
missions and
progress reports
IIFCL as
implementing
and monitoring
agency
Intermediate Result (Component Two): Capacity building of IIFCL
Intermediate
Result indicator
One:
N Number of IIFCL person-
days participated in
training and capacity-
building events.
0 100 200 Semiannual IIFCL data,
supervision
missions, audit
reports
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
Two:
N Development and
implementation of IPL
business plan.
No IPL
business
plan
IPL business
plan
delivered
Implementation
of business plan
launched
Semiannual Reports from
IIFCL, Bank
supervision
missions, annual
audit reports,
progress reports
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
Three:
N Implementation of
Integrated Risk
Management (IRM)
system
IRM plan
approved
IRM
implementati
on plan Y1
implemented
IRM
implementation
plan beyond
year 1 activities
initiated
Semiannual Reports from
IIFCL, Bank
supervision
missions, annual
audit reports,
progress reports
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
Four:
N Implementation of HR
strategy and policy
manual
HR
strategy
and policy
manual
approved
HR Training
program
implemented
HR strategy and
policy manual
fully
implemented.
Semiannual IIFCL data,
supervision
missions, annual
audit reports,
progress reports
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
Five:
N Size of IIFCL’s
safeguards team (regular
staff)
2 4 5 Annual Reports from
IIFCL
IIFCL as
implementing
and monitoring
agency
16
Intermediate
Result indicator
Six:
N Safeguards approach for
Take Out financing
adopted and implemented
by IIFCL
None Yes Yes Annual Reports from
IIFCL and
implementation
support missions
IIFCL as
implementing
and monitoring
agency
Intermediate
Result indicator
Seven:
N Procurement approach
adopted and implemented
by IIFCL
None Yes Yes Annual Reports from
IIFCL and
implementation
support missions
IIFCL as
implementing
and monitoring
agency
Annex 2: Update on Safeguards Arrangements
Guidance for ESDD for (a) Direct Financing; and (b) Take Out
Background on IIFCL’s safeguards management capacity
IIFCL has – through the Project’s capacity building support and its experience of
working with the Bank and other multi-lateral institutions – steadily enhanced its capacity
on safeguards management and in line with the Project agreement. It has a well-
functioning five member ESMU, supplemented by external consultant support on a ‘as-
needed’ basis. Over the years, the ESMU has carried out Environment and Social (E&S)
Due Diligence (ESDD) for several sub-projects including in the highways, hydro, ports,
transmission, and solar sectors. The ESMU has also conducted four major consultation
workshops for banks and financial institutions on the Project’s ESSF approach for
addressing safeguards issues in infrastructure sector for PPP projects. In addition, good
practice studies are in progress and the findings will be shared with all stakeholders
involved with PPP projects. Through these experiences, the ESMU has gained experience
on safeguards management and familiarity and comfort of the Bank’s safeguards
approach.
With support from the Project’s capacity building component, IIFCL is maintaining an
ESMU with five specialists, which will increased to seven by end of year 2014. It is
proposed that the capacity building on safeguards aspects using trust/grant fund sources
will continue to focus on sensitization for integrating E&S measures to minimize the sub-
project risks through: (i) continued capacity building of IIFCL and its consortium
partners; (ii) documentation of case studies on benefits of mainstreaming safeguards; and
(iii) advocacy with banks and financial institutions through workshops and dissemination
notes led by IIFCL. IIFCL has expressed interest in such continued assistance and has
requested for Bank support to raise resources for such further capacity building.
(a) Direct financing
1. For Component 1 direct financing, a segregated approach will be deployed based
on the risks of the sub-project.
2. In the (rare) event that any Category A sub-projects are proposed for financing
under the Project, the on-going approach of a prior safeguards review by the Bank for
each sub-project proposed for Bank financing using a robust Environmental and Social
Due Diligence (ESDD) process to determine the eligibility of sub-projects, will continue.
The Bank’s prior review will include the Bank team’s visit to the site and a review by
appropriate Bank experts before endorsement by the Bank for inclusion under the Project.
In such cases, the due diligence reports needs to be disclosed by IIFCL and the sub-
project developer.
3. Given IIFCL’s capacity enhancement over the years, the environment and social
due diligence (ESDD) for Category B and C direct financing sub-projects, which will be
a key focus of the restructured project, will be delegated to IIFCL with appropriate due
diligence mechanisms and protocols for review, clearance, disclosure and monitoring
within IIFCL management structure. This approach reflects an update to the existing
18
ESSF and to the safeguards management process as reflected in the Operations Manual.
Under this approach, the sub-project developer will be asked to address any gaps
identified in the mitigation of safeguard impacts, such as top-ups in extending
compensation and assistance to the affected people; improving the environment, health
and safety measures during construction period; minor environmental enhancement or
development measures for the communities around the sub-project, etc. It is expected that
the developers would be willing to take up such measures since IIFCL will offer 25 basis
points concession in the interest rates to the ‘safeguards responsive’ sub-projects that
would be sought to be financed under the loan, where developers will be willing to spend
part of the savings due to the lower lending rates. The Bank will review a sample of such
sub-projects during the six monthly implementation support missions and appropriate
adjustments can be made if required.
4. The following due diligence process will be followed for carrying out the due
diligence for determining the eligibility to financing under the Bank’s loan.
A preference will be for those sub-projects which are under preparation or are at an
early stage of implementation.
For each sub-project, IIFCL will assess the level and magnitude of impacts in these
projects through an ESDD report9 based on available information, site visit and
appropriate consultations with the concerned stakeholders.
Based on the outcome of such due diligence, appropriate mitigation measures will be
proposed for those impacts where no mitigation measures are proposed or proposed
measures are in-adequate, in line with the Bank's operational policy provisions. For
example, the gaps could include sensitive receptors, regulatory clearances, forest
diversions, Environmental Impact Assessment (EIA) clearance and Pollution Control
Board’s consent from the environmental side; and compensation and Relied and
Rehabilitation (R&R) assistance on the social side. The costs for any identified
measures will be borne by the developer, which could use IIFCL’s 25 basis point
concession for sub-projects financed out of the Bank’s loan proceeds.
In case of projects located in Tribal areas, particular attention will be paid to explain
the project to the Tribal villagers and also propose certain improvements in those
villages based on the needs of those villages. In case of sub-projects located in
Natural Habitats (such as wildlife sanctuaries, national parks, etc.) these will be
screened out and not financed by the Project.
The ESDD reports to be prepared for a sample (first set) of road sub-projects in
Madhya Pradesh, which will be prior reviewed by the Bank, will become basis for
subsequent due diligence reports to be prepared by IIFCL which will be post
reviewed by the Bank on a sample basis and adjustments be made if required based
on the Bank’s post review findings. For these sub-projects, it has been observed that
environmental and social impacts are minimal as land acquisition is minimal, and
therefore no substantive issues are expected and the mitigation measures for these
minor impacts will be covered in ESDD.
9 The level of due of due diligence will vary according to nature and magnitude of safeguards impacts of sub-projects
under review. If there are very few impacts, such as for road strengthening, solar or transmission sub-projects, then the
level of due diligence will be proportionately simpler.
19
IIFCL has finalized the appropriate arrangements for review and preparation of the
due diligence reports. This specifies that the IIFCL specialist/s/consultants will carry
out the due diligence. The Head of the ESMU will review and make a
recommendation to the Chief General Manager for approval of due diligence report
and mitigation plan for any identified gaps prepared and implemented by the
concerned developer with advice from IIFCL.
If relevant, disbursement linked actions will be identified and factored into decision-
making for accepting those sub-projects to be financed out of Bank’s loan proceeds.
The ESDD report prepared and endorsed by IIFCL and owned by the developer will
be disclosed respectively by IIFCL and the developer in their websites.
IIFCL will undertake monitoring to oversee the implementation of mitigation
measures proposed as part of due diligence reports and also agreed to have annual
third party audits as necessary.
(b) Take Out
The discussions with IIFCL and a sample review of Take Out in IIFCL’s portfolio reveals
that the safeguards issues are largely addressed during the construction period in line with
the applicable laws and the Project will focus on those Take Out cases where there are no
substantive outstanding issues/risks. For Take Out, the focus would be on risks mostly
related to any unresolved issues, if any, during sub-project implementation for roads and
port terminal sectors.10
The following approach will be used:
(i) Gaps documentation: As the Bank is not associated in the construction phase, there is
a possibility of gaps between practices followed and Bank policies. While in the
construction stage, the compliance that will be sought is with national laws, such sectoral
gaps that exist for the roads and port terminal sectors have been studied and are as
follows: Gaps that exist in the roads sector projects between national policies and Bank
policies exist mainly on replacement cost, relief and rehabilitation (R&R) assistance and
livelihood restoration support. These include differential (lower) compensation to replace
land that is acquired, non-availability of formal support to those who do not have legal
title to their land and houses, inadequate documentation and disclosure and project level
grievance redressal mechanisms (national practice is to rely on the court/legal system).
Going forward, India’s new Right to Fair Compensation and Transparency in Land
Acquisition Rehabilitation and Resettlement Act 2013 provides provisions for addressing
most of these gaps.11
On Environmental impacts, the EIA requirement is in place since
1994 under Environmental Protection Act, 1986 and has been revised during 2006. The
EIA requirements are applicable for new projects or activities and/or expansion and
modernization of existing projects. The EIA process including public hearing and
disclosure is by and large is in line with the intent of Bank’s environmental safeguard
policies. In addition, irrespective of the EIA requirements, mandatory clearances are
required, wherever applicable, in respect of: wildlife protection, conservation of sensitive
10
If any other sectors are proposed for Take Out financing, this will need to be discussed and the approach
for determining eligibility of those sector/s will need to be agreed with the Bank. 11
Sub-projects bided before implementation of this Act will be guided by earlier regulations.
20
coastal zone areas, forest and natural habitat conservation, prevention and control of
water and air pollution, regulation and control of noise pollution, etc. While there are no
differences in the processing of Environmental Assessment, the gaps may exist for
smaller/strengthening road development projects in terms of the EIA not being
mandatory for such sub-projects. However, even where the EIA is not applicable many of
the above referred mandatory clearances are applicable for all roads irrespective of size
and nature of road. In case of port projects, the gaps are minor in nature. In terms of
enforcement of EIA clearance conditions, and implementation of Environmental
Management Plans, the compliance record is mixed and the monitoring and reporting
mechanisms are weak. On port terminals, the safeguards gaps that exist are mainly
compensation related if land acquisition is involved (not all port terminals require land
acquisition) and the issue of local employment.
(ii) For the due diligence of the compliance with national laws and residual risks, IIFCL
will prepare12
an ESDD using publically available information, discussions and
information collection from the developer and due diligence based on field visits to
assess any E&S related risks, if any and determine nature and level of such risks.
Accordingly, to deal with such risks, IIFCL will propose only low risk sub-projects or
sub-projects where issues have been resolved for Bank financing using Take Out product.
The due diligence report will confirm if the sub-project is in compliance with applicable
national social and environmental laws; and confirm that there are no significant residual
risks due to unresolved environmental and social safeguards issues, and/or significant
risks for either the Bank or IIFCL with the association with the developer or the sub-
project. For the post-COD stage, Bank policies will apply. The due diligence reports will
be disclosed in both IIFCL and the developer’s websites. The Bank will prior review the
due diligence process for the first case under each sector (road and port terminal)
considered under take out financing. Subsequently, subject to ongoing satisfaction with
the due diligence process, the Bank team will undertake a review of a sample of such
sub-project cases financed by the Project under Take Out as part of its six monthly
implementation support activities. In addition, IIFCL will pursue with developers the
preparation of consultatively developed Community Development Plans consisting of
environmental enhancements and improvements in basic amenities in the sub-project
area.
12
Through an independent consultant initially.
21
Annex 3: Agreed Financial Management monitoring parameters
Components FM Due diligence
Records evidencing
payment Audit mechanism
Component 1:
Long term PPP
financing.
a) Checklist agreed as
per Operations
Manual - Declaration
of compliance by
IIFCL on agreed
aspects
b) IFR
a) Filled Checklist
evidencing adherence to
the agreed parameters
before each
reimbursement.
b) RTGS receipts/IIFCL
bank statements
evidencing
payment/payout.
a) Assurance by auditor
that terms of consortium
loan agreement has been
complied.
b) Project component
audit report.
Component 1:
Take Out
a) Separate disclosure in
audited annual accounts
of IIFCL.
Component 2:
Capacity
building and
implementation
support
a)IFR a) Separate dedicated bank
account- bank statement
a) Project component
audit report.
b) IFR as an annex to
annual accounts of
IIFCL.