India: Innovative Municipal Finance Sector Development Program for India

Sovereign Project | 48229-003 Status: Proposed

Summary

The objective of the proposed project is to support innovative financing instruments for catalyzing commercial financing to the urban sector. In the context of accessing finance, urban infrastructure funds (UIFs) or specialized infrastructure financing corporations (IFCs), will play a key role in leveraging financing from commercial financiers given the low capacity of ULBs. The market financing will require a commercial due diligence on UIFs and on the quality of underlying assets. This will demonstrate the extent of commercial viability of urban sector projects and the potential for leveraging private sector resources to fill the resources gap. The terms of commercial financing will also provide pricing benchmarks for the wider market and expand the viability of commercial financing instruments (including bond issuances).

Latest Project Documents

Consulting Notices See also: CMS

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Procurement Notices See also: Operational Procurement

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Procurement Documents

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Project Name Innovative Municipal Finance Sector Development Program for India
Project Number 48229-003
Country India
Project Status Proposed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan: Innovative Municipal Finance Sector Development Program for India
Ordinary capital resources US$ 150.00 million
Ordinary capital resources US$ 100.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Water and other urban infrastructure and services - Urban sanitation - Urban sewerage - Urban water supply

Gender Equity and Mainstreaming Some gender elements
Description

The objective of the proposed project is to support innovative financing instruments for catalyzing commercial financing to the urban sector. In the context of accessing finance, urban infrastructure funds (UIFs) or specialized infrastructure financing corporations (IFCs), will play a key role in leveraging financing from commercial financiers given the low capacity of ULBs. The market financing will require a commercial due diligence on UIFs and on the quality of underlying assets. This will demonstrate the extent of commercial viability of urban sector projects and the potential for leveraging private sector resources to fill the resources gap. The terms of commercial financing will also provide pricing benchmarks for the wider market and expand the viability of commercial financing instruments (including bond issuances). Accordingly, the proposed project will introduce and expand commercial financing to UIFs in a few Indian states that are pursuing reforms designed to enhance the commercial viability of ULBs.

The impact of the proposed project is improved urban service delivery. The outcome will be enhanced investment in viable urban sector project. This will be achieved through three outputs: (i) improved viability of commercial financing by ULBs, (ii) improved governance of ULBs, and (iii) improved project management and implementation capacity.

Project Rationale and Linkage to Country/Regional Strategy

Urbanization is a key policy and financing challenge in India. As urban infrastructure accelerates inclusive economic growth, supporting urban infrastructure is critical given the Twelfth Five-Year Plan s (FY2012 FY2017) focus on rapid and inclusive growth. Rapid and inclusive growth cannot be achieved in a sustained manner unless Indian cities become livable and competitive. This is especially true given the fact that almost 53 million poor live in the urban areas in FY2011, and the nature of urban poverty poses challenges for housing, water, sanitation, health, education, social security, livelihoods, and the special needs of vulnerable groups such as women, children, and the aging. Thus, effective delivery of public services plays a critical role in the context of human capital formation in urban areas and urban poverty alleviation. The urban local bodies (ULBs) established under the 12th Schedule in 74th constitutional amendment identified urban poverty alleviation as one of the functions of ULBs. Consequently, ULBs will need to continuously upgrade and maintain critical urban infrastructure to accomplish this goal.

The proposed project serves three purposes that are critical to meet urban infrastructure challenges at this juncture. First, the idea that while ULBs may not be able to access pure commercial loans but some of the ULBs could absorb blended commercial loans (semi-commercial) will be promoted and implemented under the project. Second, the proposed project will have an important demonstration effect to facilitate commercial financing of urban infrastructure (paradigm shift). Finally, the project will promote a culture of proactive urbanization as against reactive urbanization promoted by JnNURM. Finally, a key design element will be to focus resources on those ULBs that are directly responsible and empowered to undertake asset creation and service delivery.

Impact Improved urban service delivery in the participating states
Outcome Enhanced public and private investments in urban sector projects in participating states
Outputs

1. Improved viability of commercial financing by ULBs

2. Improved governance of ULBs

3. Improved project management and implementation capacity of EAs

Geographical Location

Safeguard Categories

Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI

Summary of Environmental and Social Aspects

Environmental Aspects One issue is developing an environmental safeguard framework for the EAs.
Involuntary Resettlement In developing infrastructure, the potential impacts on communities being displaced will have to be evaluated and the resettlement will have to be done in accordance with ADB and national norms.
Indigenous Peoples While there is a possibility, the impact, if any, is not known yet. However, these impacts will need to be evaluated and the resettlement will have to be done in accordance with ADB and national norms
Stakeholder Communication, Participation, and Consultation
During Project Design The main stakeholders are the Department of Economic Affairs, the Ministry of Urban Development, and the Department of Expenditure at the central government level; urban development departments and urban infrastructure funds at the states; officials from the state governments; nongovernmental organizations; academicians; and users of public services. There will be continuous consultations with the government officials. Participatory public consultations and targeted group discussions will be carried out.
During Project Implementation There will be focused consultation with the selected NGOs and users' association (to be identified later) on some issues relevant for the project

Business Opportunities

Consulting Services A 3-month staff consultancy is proposed in parallel with the processing of the proposed project. The objective of the staff consultancy would be to (i) identify the menu of reforms, including reforms to mobilize additional revenues, that the participating ULBs can or willing to implement to access the incentive funds; (ii) determine the level of commercial financing that can be absorbed by the ULBs and escrowing arrangements; (iii) finalize the list of subprojects to be financed under the project and the financing mix; and (iv) model the cashflows with respect to the costs of servicing the incremental blended debt and incremental revenues. An additional 2-month staff consultancy would be required to develop a safeguard framework acceptable to ADB and compliant with national norms, and to propose important gender-sensitive policy/reform actions.
Procurement The project will use country procurement systems as applicable to financial intermediaries.

Responsible Staff

Responsible ADB Officer Vivek Rao
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
West Bengal Infrastructure Dev't Finance Corp Ltd.
36A, Hemanta Basu Sarani
Kolkata 700 001 India
Odisha Urban Infrastructure Development Fund
Zone A/2. Fourth Floor, Fortune Towers,
Bhubaneswar 751 023

Timetable

Concept Clearance 24 Apr 2014
Fact Finding 02 May 2016 to 06 May 2016
MRM 16 May 2016
Approval 29 Jul 2016
Last Review Mission -
Last PDS Update 21 Mar 2016
Title Document Type Document Date
Innovative Municipal Financing Facility for India Initial Poverty and Social Analysis Apr 2014

Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

None currently available.


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