TAMIL NADU URBAN DEVELOPMENT FUND

Municipal Development Funds provide a much needed link between civic infrastructure financing needs and domestic capital markets. The urban financing challenge for Tamilnadu, given the high urbanisation trends and undersupply of civic infrastructure is self-evident.

Since 1988, Government of Tamil Nadu has been implementing the Tamil Nadu Urban Development Project (TNUDP) which was financed by International Development Agency (IDA) of World Bank, of which one of the components was the Municipal Urban Development Fund (MUDF).

The successful track record of MUDF encouraged Government of Tamil Nadu to broaden the scope of the Fund, with a view to attracting private capital into urban infrastructure and facilitate better performing ULBs to access capital markets.

TNUDF was established on November 29, 1996, as a trust under The Indian Trust Act 1882., for development of urban infrastructure in the state of Tamilnadu. TNUDF was formed by conversion of Municipal Urban Development Fund (MUDF), with contribution from Government of Tamil Nadu along with all India financial institutions viz., ICICI Bank Limited (formerly ICICI Ltd), Housing Development Finance Corporation Limited and Infrastructure Leasing and Financial Services Limited. TNUDF is the first public-private partnership providing long term debt for civic infrastructure on a non-guarantee mode. TNUDF is managed by a Corporate Trustee viz., Tamil Nadu Urban Infrastructure Trustee Company Limited (TNUITCL). The Board of Trustees periodically review the lending policies and procedures.

Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL) is the Fund Manager of TNUDF.

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 partnership
• Operate a complementary window, the Grant Fund, to assist in addressing the problems of the urban poor
• Improve the financial management of urban local bodies enabling them to access debt finance from markets

ELIGIBLE BORROWERS

• Urban Local bodies (Corporations, Municipalities & Town Panchayats)
• Any Private Institutions who creates urban infrastructures.

RESOURCES

A sum of Rs.1441.85 crores is available with TNUDF for providing financial assistance for implementation urban infrastructure projects:

Sl.No.	Sources	Available ( Rs. in crores )	Availed ( Rs. in crores )
1.	Units	199.60	199.60
2.	World Bank - TNUDP II	166.08	166.08
3	World Bank – TNUDP III	602.60	381.82
4.	JICA - TNUIP	198.25	75.60
5	KfW – SMIF - TN	295.00	91.00
	Total	1419.98	914.10

Tamil Nadu Urban Development Project – III (TNUDP-III) assisted by World Bank

TNUDP III was launched on 19 th October 2005. The objectives of TNUDP III are as follows:

• To develop Tamil Nadu Urban Development Fund as financial intermediary to provide financing for infrastructure to ULBs on a sustainable basis.
• To strengthen urban reforms and consolidate the achievements under TNUDP-II in institutional strengthening and capacity building.
• To provide a grant to the Chennai Metropolitan Development Authority (CMDA) to take up traffic and transportation sub-projects in the Chennai Metropolitan Area.

The total outlay of the project is US $ 434 mn (equivalent to about Rs.1996 crores), of which World Bank line of credit is US $ 300 mn (equivalent to about Rs.1380 crores). The Project consists of two components namely (i) Institutional Development Component (IDC) managed by Commissionerate of Municipal Administration and (ii) Urban Investment Component (UIC) managed by TNUIFSL. The funds under IDC provides for technical assistance and training needed to build capacity to further the devolution process, where as the funds under UIC is used to finance sustainable urban projects implemented by ULBs.

TNUDP-III was restructured during the financial year 2009-10 and the quantum of financial assistance under investment component to ULBs has been increased to US $ 307.50 mn (Loan of US $ 131 mn. and Grant of US $ 176.5 mn) from US $ 204.5 mn. Consequently, funding assistance available under TNUDP III to ULBs will be Rs.1414.50 crores (Rs.602.60 crores in the form of loan and Rs.811.90 crores in the form of capital grant). A sum of Rs.1364.06 crores (term loan of Rs.564.05 crores and capital grant of Rs.800.01 crores) has been committed for 101 projects, of which 72 projects are completed and 29 projects are in progress. The balance fund available is Rs.50.44 crores (loan of Rs.38.55 crores and grant of Rs.11.89 crores). The total funds disbursed to sub-projects up to 31st March 2011 is Rs.697.26 crores (Rs.328.75 crores as term loan and Rs.368.51 crores as capital grant), based on the progress of the sub-projects.

The project completion period TNUDP III is 31st March 2012. However, some of the sub-projects under implementation may require time up to 31st March 2014 for completion. In view of the above, Government of Tamil Nadu has approved the extension of time up to 31st March 2014 and forwarded the proposal to Government of India for onward transmission to World Bank requesting for extension of time for TNUDP-III up to 31st March 2014.

Tamil Nadu Urban Infrastructure Project (TNUIP) assisted by Japan International Co-operation Agency (JICA)

TNUIP was launched on 25th March 2008. The Project implementation period is five years. The objective of the Project is to provide safe and reliable water supply and sewerage services in ULBs by providing long-term financial assistance to construct and improve water supply and sewerage facilities, thereby contributing to improvement of living conditions of local residents in the concerned areas.

The total outlay of the Project is JPY 9824 million (equivalent to about Rs.345 crores), of which JICA’s line of credit is JPY 8551 million (equivalent to about Rs.300.04 crores). The line of credit consists of Rs.283.23 crores towards implementation of water and sewerage projects and Rs.16.81 crores towards technical assistance.

The project envisages funding for water supply and sewerage sectors. Considering the field difficulties in implementing the sewerage schemes within the project completion period (June 2013), it was decided to utilize the entire funds for water supply sector. Accordingly, the funds were committed for implementation of six Water Supply Improvement Schemes (viz. Trichy Corporation, Madhavaram, Palani, Coonoor, Idappadi and Devakottai Municipalities). The Government of Tamil Nadu has approved the proposal of reallocation of the entire funds to water supply sector and forwarded the proposal to Government of India / JICA for reallocation.

As of 31st March 2011, the entire amount of Rs.283.23 crores has been committed (loan of Rs.180.50 crores and grant of Rs.102.73 crores) for six water supply projects and all the projects are under implementation / various stages of procurement. A sum of Rs.107.95 crores (Rs.83.30 crores as loan and Rs.24.65 crores as grant) has been disbursed up to 31.03.2011.

Sustainable Municipal Infrastructure Financing – Tamil Nadu (SMIF-TN) assisted by KfW

SMIF-TN was launched with the assistance of KfW and the loan documents have been executed on 9th July 2008. The objective of the Project is to promote municipal infrastructure projects with positive environmental effects in Tamil Nadu, to promote private financing for urban infrastructure projects and to develop municipal bond market through Master Financing Indenture (MFI).

The total outlay is Euro 77 million (equivalent to about Rs.500 crores) consisting of Euro 65 million (equivalent to about Rs.422 crores) for financing urban infrastructure projects (Rs.271.20 crores in the form loan and Rs.150.80 crores in the form of capital grant), Euro 10 million (equivalent to about Rs.65 crores) as loan to Water and Sanitation Pooled Fund for development of municipal bond market, and Euro 2 million (equivalent to about Rs.13 crores) towards grant for strengthening the technical capabilities.

As of 31st March 2011, a sum of Rs.421.89 crores (term loan of Rs.271.09 crores and capital grant of Rs.150.80 crores) funds have been committed for 14 sub-projects. The balance fund available is Rs.0.11 crores as loan. All the 14 sub-projects funded under this scheme are under implementation. A sum of Rs.145.66 crores (Rs.92.15 crores as term loan and Rs.53.51 crores as capital grant) has been disbursed up to 31.03.2011.

MONITORING & RECOVERY

As for monitoring and recovery, efforts are made to assess the credit risk and concentration of credit. Wherever undue delay is noticed in repayment of dues, close follow-up action is being pursued. Necessary provision has been included in the loan agreement to escrow the collections of ULBs and / or to maintain a Debt Service Reserve Fund as the case may be. TNUDF has achieved record 100% collection efficiency continuously for the past seven financial years. As on 31.03.2011, there are no non-performing assets.