India: Accelerating Infrastructure Investment Facility in India

Sovereign Project | 47083-001

Summary

The proposed multitranche financing facility, namely Accelerating Infrastructure Investment Facility in India (AIIFI), involves a sovereign loan of $700 million to India Infrastructure Financing Company (IIFCL) to support the renewed effort of the Government of India' in accelerating infrastructure growth through increased private sector investment.

The objective of the facility is, therefore, to accelerate infrastructure growth by catalyzing private sector investment. This is necessary as reliable and high quality infrastructure is a critical determinant of productivity to support sustained economic growth and poverty reduction. The impact of the facility would be increased availability of infrastructure. The outcome would be facilitated private sector investment in infrastructure public-private partnerships (PPP).

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Project Name Accelerating Infrastructure Investment Facility in India
Project Number 47083-001
Country India
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
MFF Facility Concept 0077-IND: Accelerating Infrastructure Investment Facility in India
Ordinary capital resources US$ 700.00 million
Strategic Agendas
Drivers of Change Private sector development
Sector / Subsector

Finance - Infrastructure finance and investment funds

Gender Equity and Mainstreaming No gender elements
Description

The proposed multitranche financing facility, namely Accelerating Infrastructure Investment Facility in India (AIIFI), involves a sovereign loan of $700 million to India Infrastructure Financing Company (IIFCL) to support the renewed effort of the Government of India' in accelerating infrastructure growth through increased private sector investment.

The objective of the facility is, therefore, to accelerate infrastructure growth by catalyzing private sector investment. This is necessary as reliable and high quality infrastructure is a critical determinant of productivity to support sustained economic growth and poverty reduction. The impact of the facility would be increased availability of infrastructure. The outcome would be facilitated private sector investment in infrastructure public-private partnerships (PPP).

AIIFI will involve a financial intermediary loan to IIFCL to support PPP infrastructure projects in road, power including clean and renewable energy, airport, and water supply and sanitation through (i) direct lending; (ii) take-out financing; and (iii) subordinate debt, all in line with the IIFCL's operational mandate.

Project Rationale and Linkage to Country/Regional Strategy

Infrastructure deficit of India is arguably the critical development challenge facing the country. The weak state of infrastructure represents a drag on higher, sustainable gross domestic product (GDP) growth reflecting supply side constraints and stymies economic development, and with it, poverty alleviation efforts. In order to meet the growing aspirations of its citizens including better service delivery, India will have to identify new means to expand infrastructure financing given limits on fiscal space, external commercial borrowing, and bank balance sheets. The solution to overcoming these limits lies in part on increasingly leveraging private capital. To achieve the targeted real GDP growth rate of 8.4% in the Twelfth Five-Year Plan, the government estimates required infrastructure investment at around $1 trillion. Of this amount, approximately 47% is targeted to come from private capital as compared to around 38% under the Eleventh Five-Year Plan and 22% under the Tenth Five-Year Plan. It is also estimated that the infrastructure investment funding gap during the Twelfth Five-Year Plan would be about $113 billion. The shortfall is projected to be sourced from the private sector.

The government has identified the need for further reforms to enhance private sector participation in infrastructure. These include strengthening PPP support, promoting project finance schemes in infrastructure development, and developing new sources of take-out, project bond financing including infrastructure debt funds. With these reforms in place, the government plans to accelerate the infrastructure investment to above 9% of GDP during the Twelfth Plan compared with 7% during the Eleventh Plan. The government has targeted IIFCL, an apex organization established for promoting PPP projects, to play a larger role in the infrastructure financing space.

ADB India Country Partnership Strategy (CPS) for 2009-2012 emphasizes infrastructure development and is based on four pillars namely (i) inclusive and environmentally sustainable growth, (ii) catalyzing investment, (iii) increasing results orientation and knowledge solutions, and (iv) regional cooperation. AIIFI supports all pillars given the link between growth and infrastructure development and the need to mobilize financing. The CPS supports the role of financial intermediaries for providing long-term infrastructure financing and supports the PPP modality. This is consistent with the strategy envisaged under the draft CPS for 2013 -2017.

Impact Increased availability of infrastructure
Project Outcome
Description of Outcome Facilitated private sector investment in infrastructure PPPs
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

1. Enhanced availability of long-term finance for PPP projects

2. Improved project management

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design

This is a sequel to two earlier facilities - India Infrastructure Project Financing Facility I and II. This is in response to the vast infrastructure needs of India estimated at around $1 trillion and a continuing need to develop new models for infrastructure financing suitable to the Indian context and to further strengthen existing modalities. This facility will continue the success of the two earlier facilities while piloting new modalities for infrastructure financing through loan proceeds.

This facility will support public-private partnership (PPP) in infrastructure under (i) direct on-lending in the form of senior and subordinate debt to subprojects in line with IIFCL's mandate ("Scheme") and (ii) take-out financing. This will also broaden the scope from the previous facilities which, aside from take-out financing would also include renewable and clean energy projects and initiatives in the lagging states. This aspect will support the government's efforts in meeting growth targets, expand PPP initiatives and foster inclusive growth.

During Project Implementation

ADB will, at its discretion, conduct reviews of the management, financial, and operational performance of the borrower and subprojects financed under the AIIFI initially after the closing of withdrawals. The review will include procurement procedures utilized by the AIIFI-financed infrastructure projects.

The performance of AIIFI will be reviewed periodically at three levels - by IIFCL, (through the PMU on a quarterly basis), semi-annually by IIFCL's Board of Directors, and annually by ADB, and at the tripartite review meetings among GOI, ADB, and IIFCL. The review of performance for each quarter by the PMU will be completed by the 10th day of the month following the quarterly review. IIFCL's Board of Directors will review the performance semi-annually and will forward the semi-annual progress reports to ADB by the 10th day of the month following the semi-annual review. ADB will review the quarterly progress and semi-annual reports during the annual review missions and during the tripartite reviews chaired by the Government. In addition, a midterm review of the investment program will be conducted in FY2013-FY2018. The review will cover contract awards and disbursement, implementation progress including progress against institutional development and capacity building milestones, social and environmental aspects, and the status of the IPPMS. The midterm review will identify problems or weaknesses in the implementation arrangements, suggest nominal changes in scope, outputs, and due diligence, and agree on suggested changes.

Responsible ADB Officer Vivek Rao
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
India Infrastructure Finance Company Limited8th Floor, Hindustan Times Building
Kasturba Gandhi Marg
New Delhi, India 110001
Timetable
Concept Clearance 03 Jun 2013
Fact Finding 22 May 2013 to 06 Jun 2013
MRM 09 Aug 2013
Approval 21 Oct 2013
Last Review Mission -
Last PDS Update 12 Mar 2015

MFF Facility Concept 0077-IND

Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 700.00 Cumulative Contract Awards
ADB 700.00 - 0.00 0.00 %
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 - 0.00 0.00 %

Safeguard Documents

See also: Safeguards
Title Document Type Document Date
Accelerating Infrastructure Investment Facility in India Environment and Social Safeguards Frameworks Jul 2013

Evaluation Documents

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