| Country: India |
| Sector: Street-lighting |
| Name of Project: Bhubaneswar Street-lighting Project |
| Contracting agency: Bhubaneswar Municipal Corporation |
| Agency type: Sub-national entity - urban local body |
| Type of PPP: Performance based operation and management contract |
| Contract term: 10 years |
| Construction period: 8 months from effective date of contract |
| Bid Parameter: technical qualifications and energy savings committed by the bidder with a minimum of 30% |
| Total cost of project: $4.8 million |
| Total Population served: The project covers all the streetlights of the city numbering about 20000. The population of the city is over 0.8 million. |
| Per unit cost: NA |
| Basic specifications: Meter based billing, remote switching, use of energy efficient bulbs |
| Stage of project: The agreement was signed in October 2013. The project is operational. |
| Time taken for processing project from concept to contract execution: 24 months |
| Local or foreign investor: Local investors, Shah Investments, Developments & Consultants Private Limited (An Energy Savings Company or ESCO) |
| Applicable legislation: Odisha PPP Policy |
| Approving authority: Bhubaneswar Municipal Corporation |
| Is the approval process the same as for other projects: Approval Process followed was as per Odisha PPP policy i.e., approvals were sought at the ULB, Department (Housing & Urban Development) and Empowered Committee on Infrastructure |
| Role of Private Party: Finance and install luminaire retrofits, operate and maintain the city's street-lighting system by way of a remote control center |
| Role of Public Authority: Setting standards and specifications, monitoring and verification of performance and contract management |
| Financing: DevCo financing, equity financing |
| Payment Mechanism: Payments made by the Bhubaneswar Municipal Corporation based on the savings realized. ESCO to receive 90% of energy savings realized plus an Operation and Maintenance fee for each light pole that is taken over by the ESCO under the contract |
| Tariff: NA |
| Comparison to existing rates: NA |
| Government Support: Monthly payments made to the private party out of the energy savings realized plus operation and maintenance fee |
| Other advantages : Annual savings to government of $100000 by way of decreased energy consumption and operation and maintenance costs and emissions savings |
| Contingent liabilities created: Fiscal commitments are created but overall there are net benefits as compared to the situation prior to the project in terms of savings in energy that cover the payments of the provider fully and leave a net benefit to the municipal corporation in addition |
| Risks: Project non-viability, payment risk, performance risk |
| Level of risk: Low |
| Key risk mitigating features: Advance payments using escrow accounts and automatic approval of 75% of operator invoices; detailed performance targets against indicators; covering all streetlights in the city for a viable project size |
| Factors affecting decisions on the size of project or population serviced by the project: The project needs to be large enough to be viable and to realize sufficient savings in energy to the municipal corporation to enable payments to the provider from the savings realized. |
| Lessons learned: • Policy framework is not required for projects in this sector, however standardizing documents could help scale up the projects; • There is less precedence for these projects and these are less known by lenders; therefore, there is less appetite for lending to such projects. Lenders in general do not have lending products for these projects. So projects are mostly financed by 100% equity • There is only lender in India that has specific clean energy lending products; i.e., Tata Cleantech Capital Limited (TCCL), which is a JV of the Tata Capital Limited and IFC. • In addition, lenders do not have appraisal skills for such projects; upstream work is required on how to appraise such projects for financing; • Partial risk facilities may need to be created. BEE has created such a facility in India • BEE grades companies for energy efficiency projects based on financial capacity. However many companies are too small, with Grade A companies having a net worth of Rs. 1 crore or approximately $0.5 million • Wholesaling with projects in multiple cities being packaged could work well from the point of view of project structuring and financing, but such efforts have failed in the past due to multi- jurisdictional issues and enhanced risk profile of projects arising from this reason • There are capacity issues at local body level both in the public sector as well as the local equity investors/ service providers/ financiers |