Country: India

Sector: Multi-sectoral Infrastructure Services

Name of Project: Thirurangadi Provision of Urban Amenities in Rural Areas (PURA) Project

Contracting agency: Thirurangadi Gram Panchayat

Agency type: Sub-national entity - gram panchayat (village council)

Type of PPP: Concession, BOT

Contract term: 13 years including construction period of 3 years

Construction period: 3 years

Bid Parameter: Technical proposal, lowest PURA grant required

Total cost of project: $25.6 million

Total Population served: The project serves an area of 17.73 sq. km with a population of 59612 and 8525 households

Per unit cost: NA

Basic specifications: The works are undertaken based on technical parameters set by government under the PURA and the other associated MoRD and non-MoRD schemes undertaken under each individual PURA project

Stage of project: The agreement was signed on February 22, 2012. The project is operational

Time taken for processing project from concept to contract execution: 22 months

Local or foreign investor: Local investors, the SPV for the project-which constitutes the Concessionaire consists of the Lead Member, Infrastructure Kerala (INKEL) Limited with 51% equity and Kerala Industrial Infrastructure Development Corporation (KINFRA) with 49%.

Applicable legislation: PURA, A PPP Scheme - Guidelines issued by MoRD

Approving authority: Ministry of Rural Development, Government of India, Inter-Ministerial Empowered Committee

Is the approval process the same as for other projects: PURA projects have a special approval process; they do not need to go through the PPPAC process used for other national PPP projects or the PPP approval process for state government projects; however, since PURA is composed of several existing small infrastructure development schemes of various ministries as well as some central schemes executed by the state government, based on the schemes included in the particular project various kinds of associated approvals of the specific scheme are required at central Ministries as well as state government. In addition, a resolution of the Gram Panchayat concerned is required.

Brief Description of Project:

This project is a multi-sectoral infrastructure project consisting of the following sub-projects:

MoRD schemes

(i) New road construction of 1.3 km length with full drainage

(ii) Increase in water supply coverage to all households, and embankment protection and desilting of 6 common ponds

(iii) Establishment of 7 solid waste collection centers.

(iv) Establishment of a Skill Development Center with courses such as mobile technology, catering, tailoring, etc.

Non-MoRD schemes

(v) Coverage of 23 km roads with street lighting

(vi) Setting up of a rural BPO

(vii) Strengthening of Marketing Infrastructure

(viii) Provision of a meat processing and cold storage facility

(ix) Treatment plant for Solid Waste

(x) Establishment of an Emergency Care Center at the Taluk Hospital

(xi) Establishment of a Coconut Processing Unit

(xii) Establishment of an Export Promotion Rural Apparel Park providing infrastructure facilities for the

apparel industry

Income-generating activities

(xiii) Development of Boating Club

(xiv) Development of Bus Terminal cum Commercial Complex

Role of Private Party: The Concessionaire's role is to design, engineer, finance, procure, construct, operate and maintain facilities under the MoRD and non-MoRD schemes, and the Add-on Economic Facilities under the project.

Role of Public Authority: Various public authorities are intimately involved in the PURA process. The Gram Panchayat is responsible for providing access to land, for MoRD and non-MoRD activities, and help in obtaining permits, clearances and approvals. The District Rural Development Agency (DRDA) sets up a dedicated bank account for the flow of various government grants to the Concessionaire as provided. The MoRD undertakes procurement and ensures timely release of PURA grant as well as grants under the MoRD schemes into the dedicated account as provided in the agreement. The State Government pays its share of grants for MoRD and non-MoRD schemes into the dedicated account. Setting standards and specifications, performance and contract management are other activities jointly performed by the Gram Panchayat and the MoRD.

Financing: Upfront PURA grant, equity and debt by the Concessionaire for income generating activities, government funding from various ministries. Financing of Thirurangadi PURA project is given in the table below:

Payment Mechanism: All government installment payments are made into an account opened by the District Rural Development Agency. The DRDA routes the payments to the concessionaire on receipt of the report of the independent engineer. All payments are made during the first three years of the contract during the construction period.

Tariff: There is provision for user charges under PURA. However, this specific project has no user charges. If user charges are to be levied these would have to be fixed by the Gram Panchayat following the normal applicable rules for tariff setting.

Comparison to existing rates: NA

Government Support: The program is fully supported by government through the PURA grant and capital investments by the concerned ministries. The PURA grant covers the present value of the 10-year O& M expenditure on the MoRD and Non-MoRD projects, RoI annuitized at 15% on the Concessionaire's investment in the MoRD and non-MoRD projects, management fee at 1% of the capital expenditure on MoRD, non-MoRD and add-on activities and the payments made to the independent engineer for his services; and is capped at 35% of the capital expenditure on the project, which is itself capped at Rs. 120 crore (approximately $25 million).

Other advantages: The program brings together several existing schemes of the government for integrated implementation in a small geographic area. Upgrading multiple types of infrastructure simultaneously has positive economic benefits. In addition, under the existing schemes there was no provision for continuing maintenance and operational costs; the PURA grant makes provisions for this over a period of 13 years.

Contingent liabilities created: Fiscal commitments are created as the grants are paid in installments during construction in the first three years of the contract

Risks: project non-viability, payment risk, performance risk

Level of risk: Low

Key risk mitigating features:

• Payments are made six months in advance of the date of the installment payment as agreed under the contract into the DRDA account at district level.

• The interest on the moneys deposited into the DRDA account is used for the purpose of establishing a risk fund to honor any contingent commitments that might arise.

• The risk of non-viability is basically limited to the income generating activities that the private party is expected to invest in.

• To reduce this risk, the concessionaire has the choice to suggest the project site or Gram Panchayat where the project will be implemented. The location of this specific project has been chosen by the concessionaire based on a market study of viability of the specific activities undertaken, which reduces the risk of non-viability considerably.

• Performance risk could be high in a project where all moneys are essentially paid up front; i.e., during construction. However, this risk is covered through project life by requiring pre-agreed levels of performance guarantees from the concessionaire through project life.

Factors affecting decisions on the size of project or population serviced by the project:

• The government has fixed a cap of Rs. 120 crore (approximately $25 million) for the capital investment in the project that will be considered for payment of subsidies.

Lessons learned:

• There was a 13 month slippage in the first two projects in which contracts were executed. In all other 7 projects that were put to tender, there is no information to date. Government has now gone on to the second phase of the PURA where they have advertised many more projects with slight changes in the guidelines based on lessons learned in the first phase

• Initial Detailed Project Reports (DPRs) submitted by the bidders were faulty due to lack of detailed manual of procedures and processes and lack of detailed instructions on the type of information required to be included in the technical and financial proposal

• Requirement of state government approval for the DPR due to the presence of state executed projects resulted in some part of the delay

• The upstream approval processes from each ministry are cumbersome and numerous resulting in additional delays

• All project sites chosen by the concessionaires were in peri-urban areas; i.e., outside the municipal limits but near to the city rather than remote areas. The inclusion of mandatory income generating activities for investment by the Concessionaire has resulted in this selection of areas where there is likely to be greater demand or less demand/ revenue risk

• The level of penalties has not been set scientifically and appears to be very low; there may be incentives to the concessionaire to not fulfill some of the targets for indicators and pay penalties instead.

• There is lack of capacity in the gram panchayats to negotiate and manage the contract. The MoRD has found a temporary solution through splitting the concession agreement into three parts of which Concession Agreement 1 is signed by the GP and remains in the possession of the GP, the second part is heavy with the legal requirements and is negotiated and remains in the possession of the MoRD. But as the number of projects keeps growing, it will not be feasible for the MoRD to play the detailed / micro-level role it is trying to play in the projects.