karnataka urban infrastructure development & finance corporation working towards better urban...

30- Sept-2004 1 IADF Presentation

Karnataka Urban Infrastructure Development & Finance Corporation

Working towards better urban living

Financing Municipalities and Sub National Governments

The Role of Specialized Local Funds and Financial intermediaries

Regional Roundtable Breakout Sessions: Current experience, innovations and opportunities in Asia

Experience of KUIDFCBy Dr.K.P.Krishnan ([email protected])




Structure of presentation

• Urban India: An overview (slides 3-6)

• Urban Karnataka: An overview (slides 7-14)

• Karnataka Urban Infrastructure Development Finance

Corporation (slide 15)

• Greater Bangalore Water and Sewerage Project

(slides 16-20)

• Other projects (slide 21)




• 35 provinces with land area of 3 million sq. kms

• 2001 population of 1.02 billion growing @ 2% p.a.

• 27% of this i.e. 285 million live in 5161 urban areas

• Growing at 2.75% p.a. & expected to touch 50% by

2020

• India’s urban population exceeds the total population of

most countries

• 423 cities with 100000+, account for 62% of urban

population & 35 cities with more than a million people

Urban India: A bird’s eye view




Status of municipal services

• Urban India suffers from tremendous infrastructure deficiencies & a major problem is the absence of reliable data on most services

• In 1995 about 15% of India’s total urban population had no access to safe drinking water

• Coverage figures indicate only accessibility, adequacy and distribution fall short of norms

• In water supply physical losses are typically high, ranging from 25% to over 50%

• About 30-40% of garbage is left on the city streets uncollected

• Of the total waste water generated in the metro cities, hardly 30% receives even primary treatment




Investments required(Estimated by a Government of India Committee)

Sector Amount (Rs. Crores) /US$

Water supply 28359.60 (US$ 6.16 bn.)

Sanitation & Sewerage 21057.30 (US$ 4.57 bn.)

Drainage 25981.00 (US$ 5.65 bn.)

Solid Waste Management 2458.10 (US$ 0.54 bn.)

Total 77856.00 (US$ 16.92 bn.)




Responsibility for UI services

Government of India

• Provide policy advisory and some funding for UI asset creation

State Governments

• Legislative & administrative control over Urban Local Bodies

• De-facto control over user charges, control over UI asset creation through para-statal agencies

• Primary responsibility for funding of most UI creation

Urban Local Bodies

• Complete responsibility for O&M of most UI services including collection of user charges




Karnataka-A bird’s eye view

• Eighth largest state in India (Area of 192000 sq kms)

• Population of 52.73 million (Census 2001)

• Has 5.8% of land area and 5.13% of population of the country

• Share of Urban population to total population is 33.98% against all India average of 27.78%

• It is third among the most urbanized states of India after Tamil Nadu and Maharashtra

• One of the fastest growing states in India GSDP growth was 7.3% during the nineties (2nd highest) and 8.3% during the second half of the nineties (highest)




Urban services in Karnataka

• Water supply and sewerage• Water supply Coverage- 71% in Bangalore, 76% in rest

of urban Karnataka• Per capita water supply – 100 lpcd in Bangalore, 78

lpcd in rest of urban Karnataka• Absence of asset mapping, high NRW (estimated @

30-50%)• Quality testing facilities not available in all ULBs,

treatment plants only in 114 ULBs• Waste water treatment coverage – 76% in Bangalore,

24% in rest of urban Karnataka




Urban services in Karnataka (contd...)

• Solid waste management• No accurate estimates of generation, estimated @

6500 TPD• Door to door collection only in few ULBs, average

collection efficiency as stated by ULBs –77% • Understaffing of conservancy staff, estimated

shortage of nearly 4500 persons• Treatment plants present only in Bangalore and

Mysore, scientific landfills being developed in Bangalore




Urban services in Karnataka (contd...)

• Municipal roads • Per capita road length of 1.6 mts. • More than a third are mud roads• Estimated requirement of 53% over existing road

length• Strom water drains

• Only 33% of road length covered • Improper maintenance and irregular desilting resulting

in frequent clogging of drains and flooding




Karnataka state finances

Year Fiscal Deficit as % of NSDP

Guarantees for urban infrastructure loans as % of total guarantees

FY 1990 ------ 9.80%

FY 1995 3.70% 5.27%

FY 1998 3.50% 6.56%

FY 1999 4.90% 5.25%

FY 2000 4.50% 5.92%

FY 2001 5.20% 5.76%

FY 2002 5.80% 5.65%

• The two major traditional sources of funding for UI are:• Budgetary support from GoK• Borrowings with government guarantees




Karnataka state finances (contd...)

0

2

4

6

8

10

12

1990 1995 1998 1999 2000 2001 2002

Fiscaldeficit as %of NSDP

Guaranteesfor UI as %of Total




Karnataka-fiscal consolidation

• Fiscal Responsibility Act 2002• Reduce Revenue deficit to zero and fiscal deficit to 3%

by 2005-2006• Debt not to exceed 25% of GSDP by 2014-2015

• Ceiling on Guarantees Act 1999• Outstanding guarantees cannot exceed 80% of revenue

receipts of the second preceding year• Karnataka Local Fund Authorities Fiscal

Responsibility Act 2003• Fiscal and managerial reforms of ULBs• Budget, accounting & audit reforms




Need for a new approach

Traditional Problem Areas New Approach

Low coverage and collection of property tax, finances stretched

GIS mapping, rationalization of tax structure, collect user charge for all services

Water tariff does not meet O&M costs

Volumetric pricing, addressing the concern for the poor

Dependence on government for funding, guarantees

Market orientation, substitute escrow for guarantees

Lack of skills Capacity building

Low efficiency & consumer orientation

Private sector participation (PSP)




• Established as a PSU of the Govt. of Karnataka in 1993 for• Formulation/appraisal of Urban Infrastructure Projects• Financial/technical assistance to ULBs

• Mobilization of funds from different sources

• Project monitoring and implementation

• Capacity building for ULBs

• Assist in Municipal Sector Reforms

• Implementing at present• A number of EAPs in the sector

• Two municipal funds for the state

Financial intermediary as Change Agent




GBWASP- innovative financing

Greater Bangalore Water & Sanitation Project

Area Profile Eight cities around Bangalore220 sq kms. area1.20 mn populationHub of IT, BT etc. and high capacity to pay20 lpcd of water supplied at presentGround water as sourcePoor quality and irregular

Cost of project For water supply US$ 74 mn.For sewerage US$ 70 mn.Total US$ 144 mn.




GBWASP- innovative financing (contd...)

Financial structuringWater supply Citizen Contribution US$ 26 mn.(35%)

Government Grants US$ 16 mn. (22%)Municipal Bonds US$ 22 mn. (30%)Subordinated Loans US$ 10 mn. (13%)Total US$ 74 mn.

Sewerage Government grants US$ 17 mn. (25%)External Assistance US$ 52 mn. (75%)Total US$ 70 mn.

Debt/Equity ratio for water supply project is 0.76.




GBWASP- innovative financing (contd…)

• Citizen Participation• Detailed assessment of demand, coping costs and

willingness to pay for improved services done• MOU with JANAAGRAHA (September 04) for

structured participation• US$ 26 mn. to be collected by upfront (Jan.05) as

beneficiary capital contribution assuming 50% coverage over a household size of over 200000

• Citizen committees at ward/ULB/state levels to play role in implementation in order to monitor quality and time schedules in construction

• Over 1000 citizens to participate as volunteers




GBWASP- innovative financing (contd...)

• Municipal Bonds• KUIDFC to pool the borrowing requirements of 8 ULBs &

raise US$22mn. without government guarantee from market for 15 years maturity

• Rated as AA (investment grade) by ICRA a recognized credit rating agency (likely to be upgraded to AAA)

• Credit enhancement • Upfront cash collateral 25%• Guarantee (50%) by USAID• 50% likely by a FI• Escrow- 40% of revenue surplus of 8 ULBs• State intercept in the event of failure• DSCR of 1.50




GBWASP-innovative financing (contd…)

• PSP• Upon completion of construction water supply O&M

(and possibly under ground drainage network) to be done by a private operator through a management contract

• STPs O&M to be outsourced• IFC likely to be transaction adviser for appointing

the Management Contractor • Legal framework to be amended




Mainstreaming municipal reforms

• World Bank assisted KUWASIP• Urban water sector policy reform

• Demonstration of PSP in O&M

• World Bank assisted KMRP• Scale up municipal sector reforms

• State-ULB fiscal & financial relations framework

• ADB assisted NKUIDP• Move away from asset creation to service orientation

• Performance based deferred payment structures

• KUIDFC to play the role of a true financial intermediary




THANK YOUTHANK YOU

karnataka urban infrastructure development & finance corporation working towards better urban...

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