Will funding projects through PPP or floating bonds be the ideal way to raise the required money to build smart?

01 Mar 2018 CW Team

Smart cities have been provided some seed money from the Centre and the state, with some to be generated from their own budget. But the financial requirement still remains huge, as a smart city plan has to benefit the entire city and is not just limited to the area identified for development. 'Funding-related challenges emanate from delay in disbursal of funds owing to non-adherence to the conditions, contribution of funds from state governments and no bidder interest from the potential concessionaires for PPP projects,' says Ravinder Reddy, Partner, Grant Thornton India LLP. 'This can be suitably addressed with robust fundraising programmes from the state and local governments at the ULB levels through better collection of taxes, bond-raising programmes backed by governments, and other bridge financing schemes.' To this, Ajay Saxena, PPP Expert and Senior Urban Financing Specialist, adds, 'Financing smart cities through PPP, bond or any other debt instrument is the ideal way forward; else, this initiative will go waste as depending on the Centre or state governments to fund all activities is impossible and incorrect.' Citing his experience in Pune, he says, 'Although Pune is not entirely a smart city, it has raised funds through bonds for a water project, which is a by-product of smart city thinking. Also, the PPP project to install LED lights on the streets of the city has been successful.' Funding projects through the PPP model continues to be an ideal and popular way to bridge the gap of funds or utilise funds optimally. 'Floating bonds at the SPV level would pose a challenge as it is dependent on grant funds and has limited revenue-generating sources at its level,' says Reddy. 'However, PPP funding is to be utilised selectively for big-ticket projects, where the revenue model is robust and project structures are appealing and attractive.' He says PPP projects have been envisaged in the smart cities of Thumakuru, Nagpur, Jalandhar and others in advanced stages of launch in the areas of affordable healthcare, solid waste, sports and affordable housing. If successful, the PPP option would pave the way for effective and efficient usage and saved funds may be used to build basic infrastructure projects. In line with the national Smart Cities mission, Andhra Pradesh has designed its own state mission with the aim to develop 13 more smart cities. This mission, which strives for pan-city development, was initiated in 2017 in six cities - Srikakulam, Eluru, Nellore, Ongole, Kurnool and Ananthapur (all in the population range of 2-6 lakh) - as Phase-1 with financial assistance of Rs 100 crore from the state government for three years. The state formed a JV with IL&FS Group  - Andhra Pradesh Urban Infrastructure Asset Management (APUIAML) - to raise funds for sustainable urban infrastructure projects. According to Prakash Gaur, CEO, Andhra Pradesh Urban Infrastructure Asset Management, 'As per the smart city plan prepared by APUIAML for these six cities, investment potential of over Rs 5,000 crore has been envisaged. Apart from state funding support, the cities are leveraging convergence from schemes, enhancing revenue streams, additional FSIs, asset monetisation, etc, to meet the funding requirements.' He adds that project-based financing from external and bilateral agencies, FIs and Andhra Pradesh Urban Development Fund (APUDF) are also in the process for the identified projects.