| Cityscapes
2008 : Convention on Urban Infrastructure
April
16, 2008, New Delhi Speech by Mr M Ramachandran,
Secretary, Ministry of Urban Development - The timing for the conference
is highly appropriate. On one hand PPPs and private sector role in infrastructure
has been a mixed experience so far. In certain sectors of infrastructure the role
of private sector is now well-established (for eg. Telecom and aviation services);
in sectors such as energy and highways PPPs have begun to take off; while we have
had only limited success so far in sectors such as urban infrastructure. -
On the other, Indian corporate sector is experiencing growth both within the country
and is finding opportunities for spreading its wings globally. It is therefore
time to reflect on how we can leverage the capability, growth appetite, expertise
and competitiveness of India's corporate sector and build stronger and bigger
partnerships in the infrastructure sector. - 'Partnerships' by its very
meaning implies working together, where each player has an equally important role.
PPP in infrastructure may be seen and understood as bringing in private sector
management, efficiency and expertise; and private sector investments to the extent
feasible. Private sector efficiency and expertise can be dovetailed in public
services through robust and balanced contractual arrangements. Private sector
brings in some competencies that are as much applicable in public services, such
as - customer orientation, application of management principles, financial discipline
and cost competitiveness. At the same time, for meaningful partnerships, the private
sector too needs to develop competencies required for delivering public services. -
The government has already under some policy measures for bringing in PPP, such
as: GOI has formulated PPP Guidelines on Urban Infrastructure,
particularly Water supply and sanitation - circulated to States on 23rd March,
2004. Technical Assistance facility by ADB provided for promoting
PPP at State level - In the past few years, energy
and transport sectors have demonstrated successes in PPPs. The journey of making
these sectors attractive for private participation has been a long one. Appropriate
regulatory regime, improved efficiency of utilities, consumer awareness, and transparent
tariff structures - reforms are underway in a number of areas to make the sectors
attractive for private participation. It has been a long and hard journey - and
a journey traversed together by both government and the private sector. -
With respect to PPPs, the urban infrastructure sector is the most complex, has
high levels of externalities and presents major challenges. Municipalities and
urban agencies are engaged in delivery of 'local public goods'. -Public
investment therefore needs to take the lead. In cognizance of this, Government
of India has launched about a year ago India's largest urban development and renewal
programme - the Jawaharlal Nehru National Renewal Mission (JNNURM). - The
advent of the ambitious JNNURM to cater to the yawning gap in the urban infrastructure
of the major cities of the country is a step anticipated in the right direction
to make the cities, other than the metro cities, as a potential and viable option
for migration and for industries development. - From current estimates based
on city development plans prepared under JNNURM, Urban infrastructure investment
requirement is approximately Rs. 3,35,000 Crore for the 63 Mission Cities alone.
Of this an investment of about Rs. 57,000 Crore is envisaged by 43 cities in the
sectors of water supply, sewerage and drainage. If the total urban infrastructure
investment requirement is scaled up to country level the figures are mammoth Rs.
800,000 Crore for 5161 towns and cities. - Under the JNNURM, it is envisaged
to invest Rs. 50,000 Crore for urban infrastructure. The Mission share should
help leverage more then similar amount of contribution from States and Cities.
JNNURM, with reform driven and part-grant finance at the macro level and at the
micro level with projects, is congenial for PPP in urban sector. - JNNURM
grants may be used for tariff reforms, escrow structures good debt-equity structures,
creation of SPVs and for shadow tariffs. - About Rs. 47,500 Crore worth
of projects have been sanctioned by both the Sub-Mission under the Mission for
63 cities. Bulk of these investments are for core urban services, such as water
supply, sewerage and sanitation, drainage, roads and urban transport, housing
for the poor and basic services for the poor. - The Mission is cognizant
of the fact that there is a large disparity in the capacities of municipal bodies
across the country. Recognizing the significant constraints in project implementation
capacity at the city level, the Mission is undertaking a number of steps, such
as strengthening monitoring systems through involving profession at independent
agencies. Appraisal of Projects and city plans by professional agencies, and Training
and capacity building programmes. - To enhance the financial capacities
of municipal bodies, the Ministry Of Urban Development is undertaking a number
of measure, such as launch of a Pooled Finance Development Fund to encourage raising
market debt through pooled finance instruments, Undertaking credit rating of municipal
bodies and placing emphasis on project viability and cost recovery in the process
of sanction of projects. - Humble but significant start has been made under
the Mission in terms of encouraging PPP, which needs to be sustained. PPP projects
under JNNURM - a total of 22 projects have been sanctioned which envisage PPP
3 Projects in Water Supply worth Rs. 246 Cr (bringing in private investment) 1
Project in Sewerage worth Rs. 32 Cr (bringing in private investment) 1
MRTS project (bringing in private investment) 17 Solid Waste Management
projects (PPP envisaged in O&M) - Given the pace and scale
of this Mission, significant role will need to be played by the private sector.
Partnerships will be required from the private sector and non-government sector
not just in terms of contracting capacity for project implementation; but also
in the area of implementation of urban sector reforms that goes hand-in-hand with
project implementation. - The challenges in making this happen are many.
While we need to build capacity of our municipal bodies, private sector capacities
also need to be developed in delivering public services. Private agencies in delivery
of public services will need to work in an environment of public scrutiny and
wide-spread transparency. They will need to work towards balancing their profitability
goals with the public's willingness and ability to pay for the services. They
will need to build systems to serve all classes of citizens, and not any preferred
segment. - The session may explore the factors affecting the PPP in sectors
like Solid Waste Management, Sanitation, etc., - The above functions being
obligatory on the part of the cities under the 74th constitutional amendment. -
Challenges to financing urban sector projects - (i) to address the 'real' cost
of operations of urban infrastructure services, (ii) development of financial
models that can provide some assured return on investment - Ways to increase
the efficiency levels of these sectors by introducing reforms in the processes -
poor understanding in structuring PPP models - by the ULB and private sector operators -
Corporatization and induction of private sector management -
People-to-People processes, like complaint redressal system and collection and
payment services through common facilitation centers, may be the areas for PPP
to establish and emulate service delivery models, followed in the sectors like
IT and Telecom - Rationalizing the charges for service delivery, may be
attempted, like in the electricity and telecom sector, by creating regulatory
authorities. - Cities may explore the Swiss challenge type contracts -
Some thoughts on defining way forward for the Central government and the State
government - The Central government may take up the role of
a facilitator. It can support the process by measures like Encouraging
FDI Formulating policy for regulatory framework Facilitating
urban infrastructure institutions Increasing scope of definition
of 'Urban Infrastructure', under the Income Tax Act Providing Tax
holiday through encouraging tax free municipal bonds and Interest subsidy for
urban infrastructure development funds Creation of dedicated Pooled
fund mechanism for PPP projects at the Central level. -
At the same time, the State government should respond through:
Enactment of model municipal law to enable PPP Setting
up regulatory authorities Creating State level urban infrastructure
institutions Creation of cadre of professional city management
functionaries | 
