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, 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 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
Sanctioned
Disbursed
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 crores and approved loans of Rs crores upto September 30, 1999.

24. Status of Projects as on 30.09.99
Rs. in Crores
Stage Cost Loan Grant
Applications received
Closed
Sanctioned
Loan agreements signed
Disbursed
Ratio of sanctions to applications %
Ratio of disbursement to sanctions %

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 lacs
Construction of Storm Water Drains - Rs 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 to to to
Total Income
Net Interest Income
Profit before tax

48. Prospects

49. Infrastructure Demand situation in Tamilnadu

50. Urban Tamilnadu : Existing Situation
Demography and Urbanisation
In 1991, Tamilnadu had a population of 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.

51. Urban Tamilnadu : Existing Situation
Demography and Urbanisation
Compared to other major States, such as Maharashtra and West Bengal, the urban population in Tamilnadu is more evenly spread out among various size classes of urban agglomerations and towns.
Chennai had a population of 5 million in 1991 accounting for 20% of State’s urban population of millions. Other major agglomerations in the States are Coimbatore (9.89%), Madurai (8.15%), Trichy (5.78%) and Salem (5.94%).

52. Urban Tamilnadu : Existing Situation
Demography and Urbanisation
The pattern of urbanisation also seems to be related to large scale industrialisation as a thin belt across the northern part of the State, consisting of large urban agglomerations like Madras, Vellore, Salem, and Coimbatore which accounts for the bulk of the urban population of the State.
On the other hand, the State has dry, backward areas where the degree of urbanisation and the process of urbanisation appears to be a reflection of recurring distress conditions in poor and unstable agricultural regions.

53. Institutional Framework
The 74th Constitution (Amendments) Act, 1992 has paved the way for significant devolution of powers to the ULBs. The spirit of the amendment seeks to achieve a paradigm shift in the role of a ULB from that of a constrained and indifferent service provider to a freer and more responsive developer of urban infrastructure.

54. Institutional Framework
This amendment seeks to make municipalities focal institutions in the provision of urban infrastructure through participation of people at the local level and by endowing it with authority commensurate with responsibility.
In practical terms an annual statutory devolution of about Rs.200 crores to all ULBs has been put in place. This implies an opportunity to leverage resources for substantive upgradation of basic civic services.

55. Urban Tamilnadu : Existing Situation
Primary Infrastructure Requirement
Water supplies vary from 34 lpcd in Town Panchayats to 74 lpcd in Corporations, significantly below the state norm of 90 lpcd.
Only 57% of population in Corporation areas, 32% in Municipalities and 16% in Panchayats have access to sanitation.
Although 70% of Solid Waste generated is collected, must local bodies do not have organised disposal facilities.
Less than 50% of the roads are provided with Storm Water Drains.

56. Urban Tamilnadu : Existing Situation
Financial Implication
Investment needs by Local Body type
Local Body Rs. in crores
Corporations
Municipalities
Town Panchayats
Total
Sector wise break up of investment needs indicates that 64% of the requirement is for water and sanitation sector, followed by 31% for roads, drains & lighting.

57. Urban Tamilnadu : Existing Situation
Financial Implications (Sectoral Investment requirements)
Rs. in crores
Local Body Corporations Municipalities Town Total %
Panchayat
Water Supply
Sewerage &
sanitation
Solid waste mgmt
storm water drains
Roads
Lighting
TOTAL
Source : State Finance Commission, 1996
Note : Price Escalation - 12% p.a.

58. Urban Tamilnadu : Existing Situation
Urban Local Body - Finance Gap
Estimates of Finance Gap Rs. in crores
Local Body Investment Investment Borrowing Gap
Class needs needs end Capacity
costs 2002
Corporations
Municipalities
Total

59. Financial projections for the plan period 1999-00 to 2002-03

60. Lending Volumes & Profits

61. Evolution of TNUDF’s portfolio
March 31, 2003

62. TNUDF’s sanction’s as on 30.9.99

63. TNUDF’s disbursements as on 30.9.99

64. Financials Projected Balance Sheets Rs. in Crores
As on March 31,
Total contribution
Term debt
Loans and advances
Investments
Debt-equity
Ownership pattern
- GoTN % % % %
- FIs % % % %

65. Financials Projected Profit and Loss Statement Rs. in crores
For the year
Income
- Operations
Total Income
Net profit
Net profit /
Networth % % % %

66. Assumptions
The projected financial assumes a primary source of long tenure finance as a line of credit from IBRD of US$ 80 million.
It is assumed that the entire drawal in a year is disbursed to sub-borrowers in the same year.
The entire share of GoTN profit is assumed to be transferred to the grant fund while the entire share of the FI profits is ploughed back into the trust fund.
As on March 31, 2003 the debt equity ratio of the entity would be satisfactory at 2.86 and GoTN would hold 56.5% of the paid up contribution whereas the FIs would hold 43.5%.

67. The total income of the Fund would increase from Rs. 30
The total income of the Fund would increase from Rs.30.7 crores in to Rs crores in
The profits of the Fund would increase from Rs.23.6 crores to Rs.84.8 crores during the same period.
The loan outstanding of TNUDF as on March 31, 2003 would be Rs.908 crores:

68. Vision

69. 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.
Preparation for Pool Finance Structure would commence by year 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.

70. TNUDF - Institutional Positioning
Partial Credit Guarantee
MLA
Umbrella Crd
Enchanc.
Technical Assistance
Co-finance
Sov. Govt.
Transfer
Payments
Sov. .
Grant
Bonds
TNUDF
Investors
Funds
Market Rate
Long term
Reserve
Account
Local
Govt.
Project
Local
Govt.
Project
Local
Govt.
Project
Revenue
Intercept
Trustee
Principal & Interest payments
If necessary
If necessary