1. Tamilnadu Urban Development Fund (TNUDF)
A Presentation
January 2003

2. Scheme of Presentation
Introduction
Purpose of the fund
Objectives
Eligible borrowers / sectors
Lending policies and procedures
Project Prototypes

3. 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

4. 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.

5. 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)

6. 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.

7. 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

8. 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.

9. 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

10. 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.

11. TNUDF Experience - Project Proto types
Commercial and Non-commercial
Three fold categorisation indicates on the demand side certain types of urban infrastructure such as toll bridges, markets and bye-passes can be supported by reliance on project cash flows to service debt.
Projects such as stand alone commercial complexes and office space which rarely recover debt service from rentals are not worth investing in and do not constitute infrastructure in any real sense.
Second, environmental infrastructure namely water supply, sanitation and solid waste need a mixture of debt and grant financing and should attempt to recover appropriate user charges.
Third, other municipal infrastructure such as internal roads, parks, crematoriums etc would have to rely solely on general revenues to service debt.

12. TNUDF Experience - Commercial
KARUR 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.

13. Toll Fixation Criteria
The tolls are as follows:
Vehicle Type Single Multiple Monthly
Pass (Rs.) Pass (Rs.) Pass(Rs.)
Car/Jeep/Van
LCV, Tractors
Trucks
Bus
Multi-axle trucks, Cranes,
Earth-moving machines &
similar heavy vehicles

14. KARUR BRIDGE

15. TNUDF Experience - Commercial
MADURAI BYE PASS
Madurai the second largest city in Tamilnadu, is a Corporation with an area of sq.kms and a population of 9.4 lacs (1991 census). It is a major commercial and religious centre in the Southern region, linking important trade and tourist flows within Tamilnadu.
The scheme is the construction of a 2 lane Inner Ring Road (IRR) of 27.2 kms between Kanyakumari Road and Melur Road; for which land acquisition has been completed. The IRR would also include construction of 2 Railway Over Bridges (ROB), one each at Ramnad road and Tirunelveli road, and a high level bridge across the Vaigai River.

16. TNUDF Experience - Commercial
MADURAI BYE PASS
Madurai replaced its traditional borrowings in the form of long term loan by its own debt paper. Madurai is the first municipal corporation in Tamil Nadu, which has issued debentures for its project refinancing viz., the Inner Ring Road. The servicing of the bonds would be met out of the toll collections arising out of the traffic on the road. This issue resulted in a flat cost saving of about 2.50 to 3.00 percentage points to the corporation.

17. Madurai Toll Collection

18. TNUDF Experience
Commercial - Madurai Bye pass

19. TNUDF Experience
Loan Grant Blending - Storm Water Drain in Valasaravakkam

20. TNUDF Experience - Commercial
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.

21. Public - Private Partnerships
TNUDF Experience
Public - Private Partnerships
ALANDUR MODEL
15,000 Households out of 17,000 have contributed Rs.5000/- per household representing one third of Project Cost of Rs.34 crores.
Initial tariff in Alandur fixed at Rs.150 per house per month.
Private Participation in that the private sector has invested equity in the STP.

22. Public - Private Partnerships
TNUDF Experience
Public - Private Partnerships
ALANDUR MODEL

23. 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.
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.

24. Resources
1) As a part of its vision raising exercise, TNUDF raised Rs crores from the capital market during September - November 2000, by way of issue of unsecured non convertible debentures of Rs.1,00,000/- each. This is the first non-guaranteed, unsecured bond issue by a financial intermediary in India, with urban municipal cash flow as its base.
2) The terms of the issue are as follows:

25. Way Forward - Water Sanitation Fund
Urban Infrastructure, especially water and sanitation investments require long term debt on account of externalities over time and space, severe fiscal constraints on the supply of equity from State and local Governments for new investments and substantial low income population constraining the ability to pay for high financing costs.
Consequently, the need to link city infrastructure financing requirements with domestic capital markets is well understood.
Debt finance is a pre-requisite for undertaking essential civic investments, and in the long run, domestic savings through capital markets would have to be, predominant source of supply.
The need for an institutionalised mechanism to raise low cost funds for water and sanitation is clear cut with the US Bond Bank as a potential model.

26. Linking Markets & Cities with Intended Use Plans
WAY FORWARD
Linking Markets & Cities with Intended Use Plans
Creation of a revolving fund by GoI - States
Tax concessions for municipal bonds by GoI
Structure a statutory framework to manage the fund
Borrowing eligibility criteria to be established
Project implementation procedures including rational & quick procurement
Framework for tariff setting - through a democratic process
Fixation of rational levels of upfront contribution by the community / local body
Capacity building for the raters/Merchant Bankers

27. Resources – Water and Sanitation Pooled Fund
A Pooled entity namely, a Trust called Water and Sanitation Pooled Fund (WSPF) has been registered.
The initial contribution of the trust is Rs.10,000/-
Objective is to link civic financing needs with the capital market

28. Resources – Water and Sanitation Pooled Fund
The terms of the issue are as follows:
Issue
Water and Sanitation Pooled Fund
Tenor
15 years
Put / call option
At the end of 10th year
Redemption
In 15 equal annual instalments
Interest payment
Annually in diminishing balance
Face Value of a Bond
Rs.1,00,000/-
Credit Rating
AA (SO) by ICRA,
Ind AA (SO) by Fitch Ratings
Guarantee
50% of the principal guaranteed by USAID and GoTN has undertaken to top up the shortfall through interception of State Finance Commission Devolution
Debt Service Reserve Fund
Rs.6.90 crores to be invested in highly secured and liquid investments in the name of Bond Service Fund.

29. Resources – Water and Sanitation Pooled Fund
The subscribers include Banks and Provident Fund Trust. The sectorwise subscription of the bonds is as follows:
Sector
Rs. (crs)
Banks
30.25
Provident Fund Trust
0.16
30.41

30. Resources – Water and Sanitation Pooled Fund
LIST OF POOLED PROJECTS
Rs. In lakhs
S.No.
Particulars
Project Cost
Loan amt
Loan
Sanctioned
Disbursed
Water Supply Schemes: 1
Ambattur Municipality
336.56
67.32 2
Tambaram Municipality
182.00
109.20 3
Madhavaram Municipality
325.00
195.00
105.75 4
Rajapalayam Municipality
85.00
51.00
Adjacent Urban Areas - AUA 5
(I) Alandur Municipality
427.00
403.00 6
(ii) Pammal Municipality
378.00
357.00 7
(iii) Ankapathur Town Panchayat
188.00
178.00 8
(iv) Ullagaram Town Panchayat
298.00
281.00 9
(v) Porur Town Panchayat
579.00
547.00 10
(vi) Maduravoyal Town Panchayat
146.00
138.00 11
(vii) Valsaravakkam Town Panchayat
189.00
179.00 12
(viii) Meenambakkam Town Panchayat
17.00
16.00
Under Ground Drainage: 13
Madurai Corporation
500.00

31. TNUDF - Institutional Positioning