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Financing Municipalities and Sub National Governments

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 KUIDFC By Dr.K.P.Krishnan (kpkrishnan@kuidfc.com).

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Financing Municipalities and Sub National Governments

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  1. 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 KUIDFC By Dr.K.P.Krishnan (kpkrishnan@kuidfc.com) IADF Presentation

  2. 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) IADF Presentation

  3. Urban India: A bird’s eye view • 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 IADF Presentation

  4. 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 Status of municipal services IADF Presentation

  5. Investments required(Estimated by a Government of India Committee) IADF Presentation

  6. Responsibility for UI services IADF Presentation

  7. 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) Karnataka-A bird’s eye view IADF Presentation

  8. 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 IADF Presentation

  9. 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...) IADF Presentation

  10. 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 Urban services in Karnataka(contd...) IADF Presentation

  11. Karnataka state finances • The two major traditional sources of funding for UI are: • Budgetary support from GoK • Borrowings with government guarantees IADF Presentation

  12. Karnataka state finances (contd...) IADF Presentation

  13. 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 Karnataka-fiscal consolidation IADF Presentation

  14. Need for a new approach IADF Presentation

  15. Financial intermediary as Change Agent • 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 IADF Presentation

  16. GBWASP- innovative financing Greater Bangalore Water & Sanitation Project Area Profile Eight cities around Bangalore 220 sq kms. area 1.20 mn population Hub of IT, BT etc. and high capacity to pay 20 lpcd of water supplied at present Ground water as source Poor quality and irregular Cost of project For water supply US$ 74 mn. For sewerage US$ 70 mn. Total US$ 144 mn. IADF Presentation

  17. GBWASP- innovative financing(contd...) Financial structuring Water 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. IADF Presentation

  18. GBWASP- innovative financing(contd…) • Citizen Participation • Detailed assessment of demand, coping costs and willingness to pay for improved services done • MOU withJANAAGRAHA (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 IADF Presentation

  19. 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 IADF Presentation

  20. 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 IADF Presentation

  21. 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 IADF Presentation

  22. THANK YOU IADF Presentation

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