C O N T E N T

Q u a r t e r l y J o u r n a l o f K e r a l a S u s t a i n a b l e U r b a n D e v e l o p m e n t P r o j e c t

Volume 1 Issue 2 December 2008

w w w . k s u d p . o r gLocal Self Government Department

Government of Kerala

Clean Development Mechanism (CDM)Applicability to KSUDP

The Kyoto Protocol to the United NationsFramework Convention on Climate

Change (UNFCCC) sets targets onindustrialised countries for the reduction ofgreenhouse gas (GHG) emissions1, whichbecame legally binding in February 2005. Thepurpose of CDM is: (i) to assist developingcountry Parties in achieving sustainabledevelopment, thereby contributing to theultimate objective of the Protocol2; and (ii) toassist developed country Parties in achievingcompliance with part of their quantifiedemission limitation and reduction

commitments under Article 3. The CDM wascreated as one of three market mechanisms tomitigate global climate change under theProtocol.

The CDM in a nutshell will

allow industrialised countries to invest indeveloping country projects and acquire GHGemission reduction (ER) credits3 that they canthen use to meet their GHG reduction targetsunder the Protocol; and

mobilise additional financial resources fordeveloping countries to implement projects

Clean Development Mechanism(CDM) Applicability to KSUDP

Financial Intermediary andMunicipal FinancePart-1

Best PracticesVijayawada MunicipalityStreet lighting Made EnergyEfficient

Manual forDevelopment ofMunicipal EnergyEfficiency Projects

LSGD Officials VisitCoimbatore Corporation

AutoDCRBuilding Permits ApprovalSimplified

ThroughProject Cities

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Any project involving clean energy orother measures that reduce or sequesterGHG emissions, can qualify forconsideration as a CDM Project

2 December 2008

that reduce GHGs and promotesustainable development.India ratified the Kyoto Protocol inAugust 2002, and subsequentlyestablished the National CleanDevelopment Mechanism Authority4

(NCDMA), in the Ministry ofEnvironment and Forests (MoEF).India is the sixth largest emitter ofglobal GHGs, contributing anestimated 1 billion tonnes of carbondioxide emissions equivalent (tCO2e)annually. India’s per capita GHGemission (about 1.2 tCO2e) is one fifthof the global average.With the procedures and guidelineslaid down for the CDM activities, anyproject involving clean energy orother measures that reduce orsequester GHG emissions, can qualifyfor consideration as a CDM Project.Examples of CDM Projects are:conversion to renewable energy,energy efficiency improvements,conversion to clean coal, conversionof buses to fuel cells, fuel efficiency

improvements, modal shift frombuses to trains, methane collection forenergy generation, and utilisation ofwaste for agriculture.In order to be eligible forconsideration as a CDM Project, theproposed project should qualify fortwo conditions: (i) EmissionAdditionality - the project should leadto real, measurable and additionalreduction in GHG that would haveoccurred without the project; and (ii)Financial Additionality – theprocurement of CERs should not befrom Official Development Assistance.NCDMA will govern nationalprocesses for CDM projects in India. Ithas policy development, regulatory,and promotional roles to create anenabling environment for acompetitive CDM market. Theauthority has set up an efficient,streamlined process for considerationand approval of Project DesignDocuments (PDDs) within 60 days ofsubmission.

NCDMA specifies the followingaspects to be considered whiledesigning a CDM project activity:

Social well being: The CDM projectactivity should lead to alleviation ofpoverty by generating additionalemployment, removal of socialdisparities and contribution toprovision of basic amenities to peopleleading to improvement in quality oflife of people.

Economic well being: The CDMproject activity should bring inadditional investment consistent withthe needs of the people.

Environmental well being: TheCDM Project should consider theimpact on resource sustainability andresource degradation, if any, due toproposed activity; bio-diversityfriendliness; impact on human health;and reduction of levels of pollution ingeneral.

Technological well being: The CDMproject activity should lead to

Table: 1. Solid Waste Projects Approved by NCDMAProject Title State Current Status

Methane avoidance by MSW processing Registered with CDMEB; yet toin Chandigarh Punjab receive carbon credits6.6 MW Municipal Solid Waste to ElectricityGeneration Project in Hyderabad, Andhra Pradesh, Andhra Pradesh Not knownIndia by Selco International LimitedEmission reduction through partial substitutionof fossil fuel with alternative fuels like agricultural Registered with CDMEB; yet toby-products & Municipal Solid Waste (MSW) in Madhya Pradesh receive carbon creditsthe Manufacturing of Portland Cement at Neemuch,Madhya Pradesh by M/s. Vikram CementEmission reduction through partial substitution offossil fuel with alternative fuels like agricultural Issues Carbon Credits (22,290by-products, tyres and municipal solid waste (MSW) Tamil Nadu tCO2e) in December 2006in the manufacturing if Portland cement, atGrasim South Cement (GS), Tamil NaduIntegrated waste to energy project in Delhi,the Timarpur-Okha Waste Management Delhi Requested for registration withCompany Pvt. Ltd. CDMEBMunicipal Solid Waste processing (MSW)in the city if Rajkot, India Gujarat Not knownTimarpur-Okha Waste Management CompanyPvt. Ltd. (TCWMCL) integrated waste processing Uttar Pradesh Not knowncomplex cum 16 MW waste to energy project atTimarpur and Okhla, DelhiSESL 6 MW Municipal Solid Waste based powerProject at Vijayawada and Guntur, Andhra Pradesh Andhra Pradesh Not knownby M/s. Shriram Energy Systems LimitedMunicipal Solid Waste processing cum powergeneration plant at Lucknow (UP) by Uttar Pradesh Not knownAsia Bio-energy Limited (ABIL)

Source: NCDMA, India

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transfer of environmentally safe andsound technologies that arecomparable to best practices in orderto assist in upgrading technologicalbase. The transfer of technology canbe within the country as well fromother countries.International Financial Institutionslike World Bank, International FinanceCorporation, and ADB have enteredthe CDM market with various CarbonFunds. The CDM Facility of ADB hasthe focus on bridging gaps in theevolving carbon market in Asia andthe Pacific regions. The CDM Facilitywill assist in CDM project activityidentification, development, valida-tion and registration. The CDMFacility does not purchase ERs, butrather plays the role of a facilitator inthe carbon market.Potential CDM Projects inUrban SectorWith the procedures and guidelineslaid down for the CDM activities, anyproject involving clean energy orother measures that reduce orsequester GHG emissions, can qualifyfor consideration as a CDM Project.In India, the focus of the CDM activitieshas been in the following Sectors:

have registered for CDM but are yetto issue Carbon Credits. Most of theseare MSW processing facilitiesproducing Refuse Derived Fuel (RDF),and generating electricity in acogeneration power plant with RDFas main fuel and materials like ricehusk as auxiliary fuel. Capturing andutilising/flaring the methanegenerated from the landfill is anotheractivity that has been increasinglyapproaching for CERs. (Table 1)As the table illustrates, only SWMprojects approached NCDMA for itsapproval as CDM project. LocalGovernments in other countries haveaccessed Carbon Credits through theprojects that focus on energy demandmanagement through efficiencyimprovement in services like watersupply distribution and pumping. InIndia, construction projects arepotential candidates for CarbonCredits through energy demandmanagement. The energy efficiencymeasures comprise built-in design,construction and operation of thefacilities thus reducing GHGemissions.Potential of KSUDPSub-projects for CDMThe Kerala Sustainable UrbanDevelopment Project (KSUDP) willfacilitate economic growth in townsof Kerala State and cause urbandevelopment through equitabledistribution of urban basic servicesin an environmentally sound andoperationally sustainable manner.The Project will assist theGovernment rehabilitate andconstruct urban infrastructureservices including water supplysystems, sewerage systems, drainage,solid waste collection and disposalfacilities, and urban roadimprovements; it also has asubstantial focus on povertyreduction. Some of the subprojectsimplemented under the Project havethe potential to reduce GHGemissions and benefit from the use ofthe CDM.The KSUDP comprises: (i) sewerageand sanitation, which includesrehabilitation of the existing systems(i.e., sewer networks, sewagepumping stations, and sewagetreatment plants), and construction/expansion of new systems; (ii)integrated solid waste collection and

(i) Energy Efficiency; (ii) Fuel Switch-ing; (iii) Industrial Process; (iv) Renew-able Energy; and (v) Solid Waste.CDM activities are mostly dominatedby renewable energy projects,followed by industrial processes andactivities, both in private sector andpublic sector entities. In the urbansector the projects that aim at financialsavings through energy and fuelefficiency, green space preservation,air pollution reduction, trafficcongestion improvements, efficientlow emission public transport,community livability/quality of lifeimprovement have potential toreduce GHGs. With spurt inpopulation growth and demand forbasic infrastructure services in theurban areas, ULBs face large gapbetween resource availability anddemand to create infrastructure, asthey are unable to mobilise requiredresources. The CDM provides an aptopportunity to generate additionalrevenues.World over, Municipal Solid WasteManagement (MSWM) activities havebeen increasingly qualified for theCDM and issued Carbon Credits. Alimited number of projects in India

KSUDP’s integrated solid waste management (SWM)sub-projects have the highest potential to reduceemissions of GHGs and utilise the CDM to generateadditional financial revenue. The proceduralrequirements to benefit from CDM are moststraightforward for SWM sub-projects.

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disposal systems, which includescollection and transportationequipment, aerobic compostingfacilities and environmentally-soundlandfills; (iii) urban drainage, whichincludes improvements to primaryand secondary drains, and (iv) roadsand transportation. The Project’sintegrated solid waste management(SWM) subprojects have the highestpotential to reduce emissions of GHGsand utilise the CDM to generateadditional financial revenue. Theprocedural requirements to benefitfrom CDM are most straightforwardfor SWM sub-projects. The potentialof other components needs to beevaluated in detail.Source of GHG Reduction inSWM ProjectsThe proposed SWM sub-projects willdevelop integrated compost plant andlandfill facilities. Aerobic compostingtechnology is proposed. Currently,solid waste is left in open dumpswhere it degrades anaerobically, andresults in methane emissions beingreleased to the atmosphere. Throughaerobic composting, methaneemissions are avoided leaving onlycarbon dioxide emissions.Methane is a very potent GHG. Underthe Kyoto Protocol, one ton ofmethane has the global warmingpotential (GWP) equivalent to 21tonne of carbon dioxide. Sanitarylandfills, confirming to the design andoperational standards specified by theMunicipal Solid Waste (Managementand Handling) Rules, 2000, areproposed. Installation of landfill gas

control system including gascapturing and flaring system will bemade at landfill site to prevent off-sitemigration of gases. Methane is themain constituent of the landfill gas,and therefore this subproject hashighest potential to reduce GHGemissions, and therefore can benefitfrom the CDM.Table 2 presents a preliminaryassessment of the proposed sub-

projects against the key eligibilitycriteria for CDM projects. It indicatesthat the proposed SWM subprojectsare likely to meet all relevant CDMeligibility criteria.Application of CDM to the proposedSWM subprojects has potential togenerate revenue from carbon creditsales. These additional revenues canbe channelled to investment prorates.In addition, the application of CDMwill also provide incentives for betterproject performance as follows:

proper commissioning andinstallation of SWM facilities since aproper facility is required for reducedmethane emissions;

improved waste collectionefficiency, since the amount ofmethane emissions reduction isrelated to the amount of wastecollected and composted;

environmental and public healthbenefits associated with improvedSWM compared with currentdumping and low efficiency collectionleading to uncollected solid waste;

Reduce greenhouse gas emission,and

Increase environmental awareness.

Table: 2. Eligibility Criteria Compliance ofProposed SWM Sub-projects

Eligibility Criteria ResultBasic CriteriaInvolve GHG covered under the Kyoto Protocol YesHost country is a party to the KP YesMeasurable emission reductions YesProject type YesEligible organisation YesAdditionality CriteriaEmission Additionality LikelyFinancial Additionality Meets “Non diversion

of ODA” criteriaSustainable Development ObjectivesSocial Well Being LikelyEconomic Well Being LikelyEnvironmental Well Being LikelyTechnological Well Being Likely

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JNNURM Sector-wise details of projects sanctioned and funds released (31 October,2008)Rs Million

Sector No. of % of all Cost of % cost of all Funds % of allprojects projects projects projects Released funds

sanctioned sanctioned sanctioned releasedStorm Water Drainage 38 10.83 33,861.23 10.08 4,721.69 9.37Roads/Flyovers 68 19.37 28,387.54 8.45 5,146.51 10.21Water Supply 106 30.20 122,864.51 36.56 20,608.49 40.88Sewerage 69 19.66 83,365.19 24.81 10,497.13 20.82Urban renewal 9 2.56 4,451.83 1.32 370.15 0.73Mass rapid transport system 16 4.56 40,845.87 12.16 6227.51 12.35Other urban transport 12 3.42 5,947.35 1.77 358.36 0.71SWM 31 8.83 15,821.54 4.71 2,220.72 4.40Development of heritage areas 1 0.28 431.31 0.13 258.79 0.51Preservation of water bodies 1 0.28 43.10 0.01 5.39 0.01Total 351 100.00 336,019.46 100.00 50,414.73 100.00

Source: Ministry of Urban Development Cited in Indian Infrastructure, November 2008 issue

List of Identified Cities Eligible for JNNURMCategory A Category B Category C*

Mega Cities/UAs Million plus Cities/UAs Cities/UAs with less thanone million population

1. Delhi 1. Patna 1. Guwahati2. Greater Mumbai 2. Faridabad 2. Itanagar3. Ahmedabad 3. Bhopal 3. Jammu4. Bangalore 4. Ludhiana 4. Raipur5. Chennai 5. Jaipur 5. Panaji6. Kolkota 6. Lucknow 6. Shimla7. Hyderabad 7. Madurai 7. Ranchi

8. Nashik 8. Thiruvananthapuram9. Pune 9. Imphal10. Kochi 10. Shillong11. Varanasi 11. Aizwal12. Agra 12. Kohima13. Amritsar 13. Bhubaneshwar14. Vishakhapatnam 14. Gangtok15. Vadodara 15. Agartala16. Surat 16. Dehradun17. Kanpur 17. Bodhgaya18. Nagpur 18. Ujjain19. Coimbatore 19. Puri20. Meerut 20. Ajmer-Pushkar21. Jabalpur 21. Nainital22. Jamshedpur 22. Mysore23. Asansol 23. Pondicherry24. Allahabad 24. Chandigarh25. Vijayawada 25. Srinagar26. Rajkot 26. Mathura27. Dhanbad 27. Haridwar

Way ForwardThe immediate step for CDM is toreview procedures at the NCDMA forSWM in Kollam, Thrissur, andKozhikode and prepare for accessingCarbon Credits. Efficiencyimprovement in water supply anddevelopment of sewage treatmentplants also hold potential for CarbonCredits. Potentials for accessingCarbon Credits will be identifiedearly during the ongoing systemdesigning.1 Greenhouse gases covered by the KyotoProtocol are Carbon dioxide (CO2),Methane (CH4), Nitrous oxide (N2O),Hydrofluorocarbons (HFCs),Perfluorocarbons (PFCs), and Sulphurhexafluoride (SF6).2 The objective of the Protocol is the“stabilisation of greenhouse gasconcentrations in the atmosphere at a levelthat would prevent dangerousanthropogenic interference with the climatesystem3 Commonly called Emission Reductions(ER) or Carbon Credits4 The Seventh Conference of Parties (COP-7) to the UNFCCC decided that Partiesparticipating in CDM should designate aNational Authority for the CDM and asper the CDM project cycle, a projectproposal should include written approvalof voluntary participation from theDesignated National Authority of eachcountry and confirmation that the projectactivity assists the host country inachieving sustainable development. * The National Steering Group may consider addition or deletion of cities/UAs/towns

under Category C (other than State capitals) based on the suggestions received from StateGovernments. The total no. of cities under the Mission shall, however, remain around 60.

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Krishnarajan V V

Table 1: Trends in Urbanisation in IndiaYear Urban % of Urban Decadal Contribution

Population Population to Growth of Urban Sector(Crore) Total Population to GDP

1981 15.95 23.34 46.1 471991 21.76 25.71 36.4 552001 30.69 27.78 46.0 60

Source: Census of India 2001

Nineties witnessed significantprogress in local governance and

decentralisation in India. Majorfactors that caused devolving powersand functions to the local bodiesinclude:

74th Constitutional AmendmentAct (Decentralisation Act), 1992;New Economic Policy, pursuedsince the 1991 macroeconomiccrisis;Financial sector reformprogramme since 1990s to developdomestic bond markets; andIncreasing trends in urbanisation

India has 3682 urban local bodiescomprising of 96 Municipalcorporations for larger urban areasand 1494 Municipalities for smallerurban areas; the rest is NagarPanchayats for rural-urban transitionareas. Institutional capacity of UrbanLocal Bodies (ULBs) had weakenedconsiderably due to systematicwithdrawal of functions and powers,resulting in a shrunk local resourcebase and fiscal capabilities. The 74thConstitutional Amendment was

meant to demarcate the functions andfinancial powers of the localgovernments.UrbanisationThe focus on decentralisation andurban governance in India has alsobeen an offshoot of the increasingurban population and concentrationof major activities in the cities. Indiahas an urban population of 306.9million or 27.78 per cent of the totalpopulation (Census of India, 2001).Total population was increased byabout 21.34 per cent during 1991-2001, whereas urban population grewby 46 per cent during the same period.The Technical Group of the PlanningCommission on Urban Perspectivesand Policies had projected the urbanpopulation at 38 per cent of the total

population by 2006-‘07. The increasein urban population over the decadeshas been owing to natural rise inpopulation, and reclassification ofnew towns and rural-urbanmigration.India has 35 million plus cities, whichhave stronger institutionalarrangements, better access toresources, and infrastructure. Theselarger urban agglomerations have thenecessary resources for development,and some of them have the capacityto access capital markets fromdomestic as well as internationalsources. These cities have attractedmost of the emerging business andeconomic activity during the pastdecade of liberalisation, leaving thesmaller towns with extremely limited

FinancialIntermediary andMunicipal Finance

FinancialIntermediary andMunicipal FinancePart-1

7December 2008

financial and human resources to lagbehind.State of Local Government FinanceThe resource base of the urban localbodies consists of own tax and non-tax revenues, grants as defined by theFinance Commission, grants andloans from the higher level ofgovernments, and marketborrowings. Indian constitutionspecifies about the taxes that are to bedivided between Union and Stategovernments (Chapter I of part XII).Although the 74th Amendment is notvery specific about the type of taxesthe ULBs should have, the respectivestate governments provide for thesources of their tax revenue, themethods of their mobilisation in thestatutes of respective ULBs, and thefunctions and devolution mechani-sms as defined by the State FinanceCommissions (SFCs). Wide differencesexist among the local bodies in taxjurisdiction, degree of control exerci-sed by the State government in termsof fixation of tax base, and tax ratesand tax exemptions. The efficiencywith which the taxes are administeredand enforced varies from State toState. Most important sources of taxesare property tax and Octroi. Revenuesas proportion of the expenditures arehigher for property tax and Octroi - alevy on goods brought into the city.Revenues as proportion of theexpenditures are higher for smallerurban areas such as NagarPanchayats and for Municipalitiesthat are higher than Municipalcorporations. It occurs due to theinability of the smaller urban areasto expand their expenditure farbeyond the revenue capacity ratherthan any sign of self-sufficiency.Revenue from user charges is thelowest for all urban areas. States,which have started commerciali-sation and private sector particip-ation in the areas of basic serviceswith necessary regulatory reforms,have benefited from higher revenuegeneration. Some municipalities haveeven leased out roads and bridges toprivate players under special schemessuch as Build-Operate-Transfer bymodifying the State toll acts. States likeAndhra Pradesh have gained inrevenues by successfully introducinguser charges such as betterment levy,impact fees, etc.

No detailed breakdown of theaggregate expenditure of localgovernment is available in India. Abroad indication is that about two-third is being spent on core services(water supply, sanitation, streetlighting, roads, burials, and burialgrounds) and the balance on non-coreservices, including generaladministration. On the aggregate, theper capita expenditure of themunicipalities is on the rise at a timewhen the per capita revenue receiptsare not increasing as much as, thuswidening the resource gap of the localbodies.

statutory boards, leaving the localgovernments to do only operation andmaintenance (O&M) functions. Theexamples are Chennai MetropolitanWater Supply and Sewerage Board inTamil Nadu (CWSSB), BangaloreWater Supply and Sewerage Board inKarnataka (BWSSB), and Delhi JalBoard in New Delhi. In States likeHaryana and Rajasthan, the Statepublic health and engineeringdepartments undertake both capitalinvestments and O&M activities. Inrecent years, the municipalcorporations of Ahmedabad, Pune,

Table 2: Institutional Structure in Indian Financial MarketsOperations Name Activity

All-India FIs ICICI, IDBI, IFCI Lending to Corporate SectorSIDBI Small-scale IndustriesIIBI Companies referred to BIFRBanks Lending to households &

Corporate SectorSpecialised FIs EXIM BANK Export-Import Financing

IL&FS Infrastructure, financial servicesHUDCO Housing and Urban InfrastructureIDFC Infrastructure Development &

FinancingRefinance FIs NABARD Agriculture Sector

NHB Housing SectorInvestment FIs UTI Mutual Funds

LIC InsuranceGIC Non-life Insurance

State-level FIs SFCs Lending to Medium andsmall-scale companies

SIDC Industrial andInfrastructure companies

Urban infrastructure financingUrban planning and development isa State subject. The State governmentsand the local bodies are required tomake provision for the basic urbaninfrastructure and civic services suchas water supply, sewerage anddrainage facilities, solid wastemanagement, street lighting, and roadtransport facilities. The involvementof states and local bodies in servicedelivery and infrastructure develop-ment depends to a great extent on theorganisational and policy regimesconfronting the states. Most of theState governments undertake theprovision of urban infrastructurethrough the public health andengineering departments. In a fewstates, the governments undertakecapital investments through

Nasik, and Mumbai undertake bothcapital investments and O&Mactivities.The central government also makesdirect investments in urbaninfrastructure apart from providingproject-specific grants to state andlocal governments, under plan andnon-plan schemes. The projects maycome under either Centralgovernment-sponsored schemes orschemes of State governments. Someof the central governments schemesinclude (i) Jawaharlal Nehru NationalUrban Renewal Mission (ii) Mega cityscheme; (iii) schemes for the NationalCapital Region Planning Board(NCRPB), (iv) Accelerated UrbanWater Supply Programme (v) LowCost Sanitation scheme, and (vi)Urban Transport.

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Most of the provision forinfrastructure and civic services hasbeen met by pooling multiple sources– revenue from state and localgovernments augmented by the fundsfrom the central ministries, includingexternal sources. Such arrangementshave inherent flaws: fund transferfrom higher-level of governmentsoften depends on resources of the localbodies, making the transferredamount highly unreliable. This hasalso affected planning andimplementation of projects, resultingin inordinate delays.External AssistanceMultilateral agencies such as WorldBank, Japan Exim Bank, and OverseasDevelopment Administration of theGovernment of UK (ODA-UK) havebeen involved in funding urbaninfrastructure projects. Themultilateral agencies offer line ofcredit to Indian financial institutionslike IDFC, IL&FS, and HUDCO whichare involved in funding urbaninfrastructure projects. Fundallotment stipulates that equalamount should be contributed by thefinancial institutions.

Financial Markets andLocal Government FinanceThe Indian financial system ischaracterised by a large network ofcommercial banks, developmentfinancial institutions (DFIs),investment institutions like LIC andGIC, state-level financial institutions,national-level refinance institutions,and specialised financial institutionscreated for financing infrastructureand urban services such as housing.Private sector has 12,500 non-bankingfinancial companies catering to thefinancing needs of the corporatesector. Financial sector reforms sinceearly 1990s have changed theoperating environment of thefinancial intermediaries. Resourcemobilisation by corporate sector anddevelopment financial institutions

from the capital markets, and mostimportantly from the bond marketshas registered increase.Commercial Banks: The bankingsector, the primary form of financialintermediary in India, is the largestconduit for the mobilisation ofdomestic savings, the main source ofexternal credit to the households andfirms. Traditionally the ULBs havelittle connection with the bankingsystem; their monetary operations areexclusively carried out by thegovernment treasury. Bank lending toinfrastructure is very low, and theirinvolvement in financing of urbaninfrastructure has been rathernegligible. Recently, banks have begunto participate in urban finance. Oneof the innovations has been ‘take-out’

The larger urban agglomerations have the necessaryresources for development, and some of them havethe capacity to access capital markets from domestic aswell as international sources. These cities haveattracted most of the emerging business and economicactivity during the past decade of liberalisation,leaving the smaller towns with extremely limitedfinancial and human resources to lag behind.

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financing arrangement or financingwith ‘mezzanine’ structure. Aspecialised financial intermediaryinvolves the commercial banks infinancing urban infrastructure,whereby the banks can take up theearlier maturities while theintermediary takes up the later ones.Thus commercial banks can use theirshort maturity deposits by pullingout their investments after the end ofa specified period. This opened up awindow for involvement of banks ininfrastructure with co-financingarrangement.Commercialisation andPrivate Sector ParticipationCommercialisation and private sectorparticipation in power, telecom, roadsand ports have progressedsignificantly in India, attracting largeinvestments. These were essentiallynational- level efforts to improve thebasic infrastructure facilities and toattract foreign direct investments.These sectors also offered attractivereturns as against investments inurban infrastructure. Power andtelecom sectors attracted largenumber of domestic as well asinternational companies. Roads andbridges were offered to privateplayers on long-term lease to build,operate and maintain by collectinguser charges in the form of toll. Theconcession agreement with thegovernment also prescribed theminimum guaranteed traffic.Power and telecom sectors witnessedpolicy reforms by union governmentto accommodate private players andcommercialisation. Apart fromindependent regulatory agencies,government’s sops to the lenders andthe promoters in the form ofguarantee for minimum demand,repayment by state governmentagencies, and number of competitorshave ensured success in these sectors.In spite of the rather late emergence,private participation andcommercialisation of urbaninfrastructure have been successful infew cases. The sector is found suitablefor private-public partnerships andcommercialisation in various formssuch as management contract, leasecontract, contracts such as Build-Own-Operate (BOO), Build-Operate-Transfer (BOT), and Build-Operate-Lease-Transfer (BOLT). Support by

state governments through equityparticipation, concessions in terms ofland/water supply, dedicated revenuestreams for loan repayments, andtransparent regulatory frameworkhave turned highly encouraging.Many State governments have beensuccessful in urban infrastructuredevelopment through the projectfinance routes, by creating specialpurpose vehicles (SPVs). SPVs havebeen successful in issuing bonds/debentures of 3-7 years’ maturity.SPVs are formed as a company underthe Companies Act 1956, with equitycontribution from State governmentsor sponsors as the seed capital. Theliabilities of the promoters arerestricted only to the specific projectand would not have adverse impacton the promoter’s (mostly, one of thepromoter is a government entity)original business. Lending for theproject is done without any recourseto the promoters. The benefits of SPVsinclude financing as well as ability toproject execution.Private sector participation and co-financing from financial institutions

traditional budgetary provision andsubsidy based to the one based onprivate financing from capitalmarkets. The increasing number ofULBs getting credit rated, issuance ofbonds by a few municipalities,enabling environment such asprivate-public participation of urbanservice delivery are the few enablerstowards this. This has to beaccompanied by the necessarychanges in legal and regulatoryenvironment facilitating privatesector participation. Some of therecent initiatives of the Centralgovernment are:

Jawaharlal Nehru National UrbanRenewal Mission (JnNURM)JnNURM, a recent initiative of theGovernment of India, aims toencourage cities to initiate steps tobring about improvement in theexisting service levels in a financiallysustainable manner. JnNURMconsists of two sub-missions (1)Urban infrastructure and Governanceand (2) Basic Services to the UrbanPoor. The JnNURM in the first phaseextend to 63 cities – one million-plus

The focus on financing of urban infrastructure hasshifted from the traditional budgetary provision andsubsidy based to the one based on private financingfrom capital markets. The increasing number ofULBs getting credit rated, issuance of bonds by a fewmunicipalities, enabling environment such as private-public participation of urban service delivery are thefew enablers towards this.

were consequences of considerableoperational restructuring by theULBs. It required supportive politicalenvironment and regulatory changesin terms of user charges. Stategovernment support through equityfinancing made significant difference,as promoter is one of the primaryconcerns of lenders. The thrust of thereforms should be to sustain andenhance cash flow generatingcapacity, rather than subsidies andguarantees by the higher levels ofgovernments. Deregulation of Statelaws, reduction in process time forclearances, independent regulator fortariff setting, and initial equityparticipation by state/central bodieswould facilitate such financing.The focus on financing of urbaninfrastructure has shifted from the

population cities, State capitals, andcities of religious and tourist import.With an estimated provision of Rs50,000 crore for a seven-year period,to be given as grant-in-aid this is thelargest central government initiativein the urban sector with a reformagenda.Infrastructure Equity Fund:Infrastructure equity fund, to bemanaged by IDFC with an initialcorpus of Rs 1000 crore, is to be set upto provide equity investment ininfrastructure projects. The initialcontribution would come from thepublic sector insurance companies,financial institutions, andcommercial banks. An institutionalmechanism will be set up to co-ordinate debt financing ininfrastructure projects larger than Rs250 crore.

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Figure 1: Bond Issuance Structure by ULBs

the pooled finance mechanism wouldfacilitate mobilisation of funds forimplementation. This facilitatespublic private partnership improvingefficiency in service delivery.Municipal BondsMunicipal bond issuance in India is ofrecent origin. BangaloreMahanagarapalika made the issuancein 1997 – Rs 100 crore; 13 percentcoupon rate. Ahmedabad MunicipalCorporation made the public offeringin January 1998 raising Rs 1 billion at14 percent coupon. Over 30 majorcities have obtained credit rating fromagencies such as CRISIL, ICRA, andCARE for entering the bond market.The municipal bonds generally aresecuritised instruments, providingfuture revenue flows as collateral(Figure 1). The ULB making the bondofferings would surrender the rightsof its future revenues, in order toservice the bond issued. This revenueflows would comprise octroi, usercharges collected from water supplyand sewerage, state governmentgrants and property tax, toll collectedfrom the vehicles, and the grantsreceived from governments. In casewhere the future revenues areconsidered insufficient to meet theservice obligations, third partyguarantee from State government anddebt service reserve funds is created.The motivation therefore is to obtainan investment grade rating for theissuer that has no track record incapital markets.

The MUD&PA guideline stipulates theissuers will undertake to maintain theDebt Service Coverage Ratio of at least1.25 throughout the tenure of thebond. The over-collateralisation andprovision of debt service reserveaccount serve as additional creditenhancement that reduces the risk tothe investors.Borrowing Powers: The powers ofState governments to borrow aresubject to Article 293 (3) of theConstitution with the approval ofCentral Government. Article 293 (4)further provides, while givingconsent, the Central Government mayimpose conditions restricting theborrowing. This is a standardrequirement of a lender, though atransparent framework laying downthe factors governing such consent isnot in place now. The governmentborrowings are consideredborrowing against the security of theconsolidated funds of India or of therespective states. In addition, the Stategovernment provides guarantees onborrowings by the State enterprisesand statutory boards, which can betreated as debt having the potentialof ultimately falling on it. While a fewStates have passed laws onguarantees, none has passed a law onborrowings.The policy environment and legalframework governing borrowingpowers of local bodies are defined bythe Local Authorities Loans Act(1914). Subject to the Act, the Stategovernments are free to lay down theframework within which their localauthorities can raise loans. The salientfeatures of the Act are:

A local authority may, subject tothe prescribed conditions, borrowon the security of its funds or anyportion thereof for any of thepurposes specifically mentionedtherein. These purposes includepublic welfare activities like givingof relief and the establishment andmaintenance of relief works,prevention of outbreak or spreadof dangerous diseases, etc.;The relevant state Governmentmay make rules consistent withthe said Act, in respect of, inter alia,(i) the nature of the funds on thesecurity of which money may beborrowed; (ii) the works for whichmoney may be borrowed; and

Urban Reform IncentiveFund (URIFURIF with an initial contribution ofRs 500 crore would provide reform-linked assistance to the States. Theassistance may be extended to Stategovernments to implement reformson Rent Control Act (RCA), repeal ofUrban Land Ceiling Act (ULCRA),rationalising stamp duties, enablinglaws for speedy approval of contracts,levy of reasonable user charges,revision of municipal laws in linewith the model laws prepared by theMinistry of Urban Development andPoverty Alleviation (MUD&PA).City Challenge Fund (CCF)City challenge fund would assist themunicipal corporations by partialfinancing for the reform measuresundertaken.Pooled Finance Development FundThe Pooled Finance DevelopmentFund (PFDF), to be set up byGovernment of India, would providesupport through equity for DebtService Reserve Fund. It will facilitateinstitutional strengthening, financialcapacity building, and improvementof credit worthiness of ULBs. TheGovernment support aims to provideassistance for credit enhancement andreforms of the ULBs to facilitate pooledfinance borrowings by small andmedium ULBs through a State-levelintermediary. Apart from prioritisingand executing projects for municipalreforms of small and medium ULBs,

11December 2008

VijayawadaMunicipalityStreet lightingMade Energy Efficient

The Vijayawada MunicipalCorporation (VMC) is incurring

an expenditure of Rs One cr/monthtowards energy bills for water supply,street lighting, drainage pumpingstations, and buildings. As part of itssilver jubilee celebrations from June2006 to May 2007, the VMC has setitself the objective of becoming thecountry’s first energy efficient city. Anenergy audit of the Corporation hasalready been done, and differentcomponents of the EnergyConservation Action Plan have beeninitiated. Energy saving technologieswere proposed to be introduced intostreet lighting. As a precursor toinstalling energy saving technologyacross the city, a small area wasselected and the technology piloted.In June-July, 2005, energy saverdevices were installed in theSambamurthy Road central roadlighting. Results from trial showed 35per cent saving in powerconsumption. The VMC engineersvisited Bangalore and studied thetechnology implemented in the Outer

Ring Road Energy Saving Project,initiated by the BangaloreDevelopment Authority through anEnergy Saving Company (ESCO).After studying the utility andconvenience of these systems, theVMC decided to implement EnergySaving Project for street lightingthrough an ESCO. Open bids werecalled for implementation of EnergySaving Project for Municipal StreetLighting, as a full-fledged Operationand Maintenance (O&M) contractthrough an ESCO, on 30.9.2005.ESCO ProjectAn Energy Service Company (ESCO)is a business company that develops,installs and finances projects designedto improve energy efficiency andreduce the maintenance costs forfacilities for a period of time. ESCOgenerally acts as a ProjectDevelopment Company for a widerange of tasks and assumes thetechnical and performance riskassociated with the project. Typically,they offer the following services:

(iii) the manner of makingapplications for permission toborrow money; (iv) the mannerand time of making or raisingloans; (v) the sum to be chargedagainst the funds which are toform the security for the loan, as

costs in effecting the loan; (vi) theattachment of such funds, and themanner of disposing of orcollecting them; and (vii) theaccounts to be kept in respect ofloans.

The acts governing local authorities’

borrowing powers are outdated andrequire amendment. Maharashtrahad amended the act throughBombay Provincial MunicipalCorporation Act (BPMC, 1949). Keralais in the process of amending the Act.

Based on a paper presented at AdministrativeStaff College of India, Hyderabad.

PRACTICESBest

12 December 2008

1) Develop, design, and finance energyefficiency projects2) Install and maintain the energyefficient equipment3) Assume that the project will savethe amount of energy guaranteedThese services are included in theProject’s cost and are to be met fromthe saving generated. The mainfeatures of the project besides savingof energy include installation of acentral computerised control roomthrough which control boxes could beoperated remotely and theinformation of switched off lights,energy readings of different centralboxes can be known.VMC TendersVMC floated open bids forimplementation of energy savingproject for Municipal Street Lighting,by inviting ESCO operators, with acontract period of 5 years in January,2006. This Operation & Maintenance(O&M) contract invited experiencedand qualified bidders to run the streetlighting network in the entire city. Thesuccessful bidder quoted for 41.5 percent saving of energy and out of it, thefirm offered to take 92.7 per cent as itsshare towards cost of installationsand maintenance of street lightingand to transfer 7.3 per cent to VMC.The VMC is presently spending Rs 60lakh annually towards maintenanceof street lighting.Contract EconomicsDuring the contract period, the VMCwill get Rs 12 lakh per annum as itsshare in savings and also save Rs 53lakh in maintenance per annum.Therefore every year, the VMC wouldget a saving of Rs 65 lakh per annum.During the five-year contract period,the VMC will save Rs 3.25 cr. Inaddition, after the contract period,VMC will be left with the energysaving equipment worth Rs 3 cr. Atthe end of five years, VMC will gettotal benefit of Rs 6.25 cr. Further, afterthe contract period, the VMC will getannual saving of Rs 170 lakh incurrent charges for street lighting.Besides, for savings over and abovethe assured 42.7 per cent, the VMCwill get 75 per cent share and the ESCOwill get the remaining 25 per cent.O&M ProblemsOne of the major problems associated

with finalising the contract was theneed to get the Council to approve thesame. The Council was wary of suchprivatisation, and was repeatedlypointing to the failed service contractof street lighting in 2002-‘03. Then thestreet lighting in certain zones in thecity was handed over to a labourcontractor to operate and maintain.The labour contract obliged thecontractor to maintain and replace theconsumables, for a period of one year,in return for a tender determined unitmaintenance rate for each category oflight. This contract failed, with thecontractor not having made anyinvestment and hence no stake in thesystem.The successful bidder had no previousexperience, and had undercut the rivalbidders by quoting very low rates. Heultimately pulled out, not being ableto bear the maintenance expenditure.This highlights the perils associatedwith a badly designed or implementedO&M contract, whose legacy liveslong after its failure, bringing

disrepute to the entire process itself.Risk Allocation MatrixThe entire street lighting system, withlabour, maintenance requirements,and consumables was bundled intoone package and was proposed to beoutsourced, so that the inter-relatedrisks are with the operator and notshared between different agencies.Under this model the contractor isalso committed to making hisinvestment upfront, in installingpower saving devices in all the lightsand also networking them, therebybackloading his profits. This wouldensure that the operator has stake inthe long-term success of the projectand would discourage all fly-by-nightoperators, out to make a quick profit.Being a pioneering experiment, andgiven the huge potential of thismarket, the operator would havegreat stake in the success of theproject. The financial savings for VMCare substantial for it to have a hugestake in the success of the project. Therights and obligations of both the

Salient featuresof the project

Total number of lights 26,968Number of Control Boxes 427Total present load of street lighting 2660 KWAverage working hours/day 11 hoursAnnual energy consumption 106.80 lakh unitsAnnual expenditure on CC charges 106.80 x Rs 3.85 (= Rs411.18 lakh)Present annual expenditure on Rs 53.04 lakh maintenance of StreetlightingAnnual saving on C.C.Charges Rs 411.18 x 41.5% (Assuming min 41.5%saving) (= Rs 170.64 lakh)Annual share of savings of 92.7% of Rs 170.64 lakh CC charges to theESCO (= Rs 158.18 lakh)Annual share amount to VMC 7.3% of Rs 170.64 lakh (= Rs12.46 lakh)Contract period 5 yearsNet annual savings of VMC Rs 12.46 lakh+Rs 53.04 lakh (Savings share+ Maintenance (=Rs 65.50 lakh) Expenditure)Total savings in 5 years Rs 327.5 lakhAfter 5 years, the energy savings equipment, worth Rs 3 cr will be leftwith VMC. With depreciation, it will be worth Rs 2 crTherefore at the end of 5 years, VMC will get a total benefit of Rs 6.25 crAfter 5 years, VMC will get annual savings of Rs 170.64 lakh in CCcharges for street lighting

13December 2008

parties were clearly specified and veryclear performance parameters linkedto incentives and penalties werespecified in the contract. The use oftechnology, by way of networking allthe junction boxes, helps in easymonitoring of all the outputs. Theeasily measurable nature of theoutputs – the power consumption, thetotal lux of all the lights in each boxetc – helps in reducing ambiguity inspecifying performance standards.Bid finalisation processAn Empowered Committee wasconstituted for selection of the ESCOand in identifying the appropriatetechnology for the VMC and inscrutinising the same. This committeewas authorised to recommend themost suitable proposal, and consistedof inter-departmental personnel.Before giving approval, a team ofCorporators from all parties in theCouncil, headed by the Mayor visitedNasik Municipal Corporation on 17May 2006 to study the performanceof Energy Saving Project. Afterstudying the performance of EnergySaving Project in Nasik MunicipalCorporation, the Council in itsResolution No.61, on 29 May 2006,approved the energy saving projectfor municipal street lighting

including maintenance in city area. Itapproved the bid with the followingconditions.1. To enhance performance guarantee

from Rs 15 Lakh to Rs 50 Lakh.2. To implement pilot project for a

period of three months in oneselected area and after satisfactoryperformance only the contractwill be extended.

3. To install all equipment in one yearperiod and arrange computerisedcontrol room and to maintainedstreet lighting system with remotecontrol. 4. If the 41.50 per centsaving is achieved, in that 75 percent share should be given to VMCand 25 per cent to the company.

5. The materials used formaintenance are of high qualityand those approved by officialsonly.

6. Not to make any inconvenience to

the public by implementing thisEnergy Saving Project.

Vijayawada Municipal Corporationalso gave order for energy auditing ofwater works and office building. Aftergetting audit report, VijayawadaMunicipal Corporation willimplement energy saving project forpump sets and in offices as well.The contract was finally implementedfrom 1 December 2006, more than ayear after the tenders were called andsix months after the tenders wereapproved by the Council. In theGovernment itself, it took nearly sixmonths and approval by sevendifferent Secretariat Departmentsbefore the project could beoperationalised. This unduly longdelay again highlights the problem ofbureaucracy associated withimplementing such reforms ingovernment.

The entire street lighting system, with labour,maintenance requirements, and consumableswas bundled into one package and wasproposed to be outsourced, so that the inter-related risks are with the operator and notshared between different agencies.

14 December 2008

To facilitate market transformationand replication of Municipal

Energy Efficiency Projects on a largescale in India, IFC, a member of theWorld Bank Group, the Bureau ofEnergy Efficiency, and the Alliance toSave Energy have jointly developedthe Manual for the Development ofMunicipal Energy Efficiency Projectsin India for use by all stakeholders,including Municipalities, EnergyService Companies (ESCOs), EnergyEquipment Suppliers, and FinancialInstitutions. The Bureau of EnergyEfficiency has endorsed this Manualas a standard reference document forUrban Local Bodies (ULBs) and otherstakeholders to implement MunicipalEnergy Efficiency Programmes inwater supply systems, seweragesystems, street lighting, andmunicipal buildings.India’s urban system is the secondlargest in the world with an urbanpopulation of 28 per cent of the totalpopulation. According to the ‘Reporton Seventh Electric Power Survey’,Public Water Works in Indiaconsumes more than 12000 MUs andPublic Lighting consumes 5000 MUsof electricity. Energy audits in Indiahave determined that energy costsaccount for 40 to 60 per cent of theoperating expense of supplying water.By becoming energy efficient, eachULB can reap energy savings of 25 to40 percent at a minimum. Thistranslates to at least 4000 MUs ofenergy savings that can avoid therequirement for an additionalcapacity of 600 MW.

Manual forDevelopment ofMunicipal EnergyEfficiency Projects

Municipalities are spending largeamounts of their revenue onpurchasing energy for providing localpublic services such as street lightingand water supply. Through cost-effective actions, energy andmonetary savings of at least 25 percent can be achieved in water systemsalone. Municipal energy efficiencysaves scarce commodities andstretches tight budgets, givingcitizens improved access to electricity,water, heat and air conditioning.Energy efficiency in municipal watersupply systems can save water andenergy while reducing costs andimprove service at the same time. Forthose bearing the financialresponsibility for local public services,efficiency in the provision of energyand water is one of the few cost-effective options available for meetinggrowing demands for vital servicessuch as electricity, water andwastewater treatment. The budgetsfor these services often lack funds toinvest in improvements, and publicentities are looking for ways to financeenergy efficiency projects. Amongmany possible options, performancecontracting offers a mechanism formunicipalities and public utilities tofinance efficiency improvementprojects without upfront investment.Performance contracting becamepopular because the goods andservices associated with the projectare paid from the savings accruedfrom it, which allows municipalitiesto finance the improvements.Performance contracts are inherently

flexible and can be structured to bestfit the needs of the involved parties.Performance contracts often involvean Energy Service Company (ESCO)but sometimes the services can beprovided by engineering firms, suchas water engineering companies incase of efficiency project involvingwater supply. However, ESCOparticipation in the project isbeneficial because such companieshave managerial, technical and turn-key project implementation skills thatoften are lacking at the municipalities,combined with the ability to structureproject financing. Based on themunicipalities’ needs, the ESCOs canfinance EE implementation and collecttheir dues from shared or guaranteedsavings accruing from the EE project.Purpose of ManualAlthough the financial, environme-ntal and social benefits of municipalenergy and water efficiency arereadily demonstrated andincreasingly understood, many of theplayers who need to make suchprojects a reality are not familiar withthe process for doing so. This manualserves as a practical tool for anyoneinterested in being a part in thedevelopment, financing and/orimplementation of a municipal energyefficiency project using a performancecontract. Therefore the primaryaudience for this manual consists ofmunicipalities, ESCOs and other typesof efficiency service providers, andfinancial institutions. Municipalitiesand utilities are generally not wellversed in project development and

15December 2008

finance; ESCOs are often not familiarwith how to adapt their trade fromthe industrial to the municipal sector;and financial institutions view ashigh risk all processes and projectsthat are not part of their usualportfolio, which is often a variation ofasset-based financing, with the assetsused as collateral.The manual is intended for publicsector decision makers and layaudiences who want to survey theproject design process in the wholewithout the technical details, as wellas for those who need a detailedreference to guide them through theproject development process. Itprovides a step by step methodologyfor developing and packaging amunicipal efficiency project forperformance contracting. Section Aconsists of a set of guidelines that walkthrough the details of the projectdevelopment process, while Section Bprovides examples of procurementand contracting documents that canbe used as templates in thepreparation of documents needed toidentify an efficiency service providerand secure financing. Although theinformation contained in the manualcan be readily adapted around theworld, it was written for the Indiancontext. The general process forcontracting with ESCOs is outlinedbelow.Steps for Developing a MunicipalEnergy Efficiency Project1) Self assessment to choose the bestfit option for undertaking EnergyEfficiency (EE) program to identifythe reasons for undertaking energyefficiency projects. Once it has beenestablished that EE project is apriority, the Municipality shouldselect the most suited type of contractand financing option for movingforward with EE project.2) Collect energy usage data bycarrying out a preliminary (walk-through) audit. The Municipalityshould gather basic energy usage andother relevant data, such asmentioned in section B (in theinformation sheet to be provided bythe Municipality) and internallyassess the low cost and no cost optionsthat can be implement using its ownoperation and maintenance (O&M)funds. The Municipality can then do aself assessment, and, based on theresults, go to step 3.

3) Develop and issue a request forExpressions of Interest (EOI) forconducting an investment gradeenergy audit and implementing anefficiency project in the targetsector(s), such as water, wastewater,street lighting and municipalbuildings. The EOI contains a briefdescription of the scope of work andbasic information on the municipalinstallations to be audited, andrequests information on the technicaland financial capabilities of servicefirms including their personnel, auditinstrumentation, and relevantexperience.4) Issue a Request for Proposal (RFP)to all viable firms who submittedEOIs. The RFP describes the facility’senergy use, equipment, operatingschedule, maintenance problems, andequipment replacement or renovationplans, as well as the utility bill history

performance contract between theMunicipality and ESCO, identifyingall feasible short- medium- and long-term energy saving measures andtheir payback periods, and providingthe baseline data to be used duringmonitoring and verification.8) Package the documentation forthird party financing, if necessary. Theparty taking on the financing (be it theMunicipality or ESCO) puts togethera package of information on theproject, including the IGA report, forreview by financial institutions. Thefinancially relevant informationcontained in the IGA report is criticalat this stage for convincing a financialinstitution to provide a loan.9) Enter into the performance contract.The contract sets the terms andconditions, by which the ESCOimplements the energy efficiencymeasures, including theresponsibilities of the ESCO andMunicipality, the compensationschedule for the ESCO, financingconditions, maintenance, personneltraining, monitoring and verificationprocedures, risks and a risk mitigationplan, and the definition of the baselineand possible adjustments to it. Thereare two distinct types of performancecontract: shared savings, where thefinancial risk lies with the ESCO andthe savings are shared between theESCO and Municipality for anegotiated period of time; andguaranteed savings, where the ESCOguarantees loan repayment and acertain amount of excess savings.10) Monitoring and Verification(M&V) of results is performedaccording to the procedures in theperformance contract. M&Vdetermines the actual savings over theperiod of the contract and ensuresthat all parties are getting full valuefrom the energy performance contract,including compensation for the ESCO.It includes approval of equipmentinstallation based on the contractspecifications, and involves regularcommunication between the ESCOand Municipality to monitorsuccessful implementation of theenergy saving measures. Often, M&Vcan be performed by an independentthird party expert(s).

The complete Manual is availablefor download @ www.ifc.com

for the past three years. It isrecommended that a site visit beorganized for interested ESCOs to tourthe facility and interview facility staffbefore submitting their responses tothe RFP.5) Evaluate the proposals accordingto the terms of the RFP.6) Finalize ESCO selection based onits expertise and relevant experience,making sure to match the skills of theESCO with the needs of theMunicipality.7) Award the Investment Grade Audit(IGA) contract, which is an agreementwith the ESCO to develop a projectconcept, and perform the IGA. The IGAreport forms the basis for the energy

Municipal energyefficiency saves scarce

commodities andstretches tight budgets,

giving citizensimproved access to

electricity, water, heatand air conditioning.Energy efficiency in

municipal water supplysystems can savewater and energy

while reducing costsand improve service at

the same time.

16 December 2008

Ateam of 11 members fromGovernment of Kerala led by S

M Vijayanand, Principal Secretary,Department of Local Self Government,Government of Kerala, visitedCoimbatore Municipal Corporationon 14 November 2008 to observe theimplementation of the unique e-prod-uct AutoDCR/BPAMS (DevelopmentControl Regulation/Building PlanApproval & Management System).The software has been used in theCoimbatore Municipal Corporationto streamline the sanction of build-ing plan permits. The visit wasbased on the case study on AutoDCR of Coimbatore Municipalityshared by ASCI, Hyderabadthrough its Urban Resource Link.(Please See Page — for the Details ofAutoDCR).The team comprised of AnandSingh, Director, KSUDP, Eapen

LSGD Officials VisitCoimbatore Corporation

AutoDCRBuilding Permits Approval Simplified

Authority to the drawing entities. Thesoftware automates the lengthy andcumbersome manual process ofchecking the development regulations.A major step in the terrain ofexpanding e-governance initiatives,the AutoDCR was implemented bythe city of Pune in November 2005.Pune has won the prestigious World

Leadership Award for AutoDCR in2007.The following cities/urban localbodies have been utilising the system:Urban Development Authorities ofAhmedabad and Surat, MunicipalCorporations of Ahmedabad,Aurangabad, Chennai, Coimbatore,Greater Mumbai, Hubli-Dharwar,Kolhapur, Mira-Bhayendar, andThane.The software reads the buildingentities from drawings, geometricallymaps each and every entity bycorresponding with complex andinterlinked rules. It reduced theprocess of approval of building plansto one week to a fortnight andeliminated the present delay of

AutoDCR (Automatic Scrutiny ofDevelopment Control Rules) is a

unique and innovative way toautomate scrutiny of buildingproposal by reading CAD drawings.The system reads CAD drawing andproduces scrutiny reports in fewminutes, mapping all thedevelopment control rules of the

16

Varghese, Chief Town Planner,representatives from JnNURM ProjectManagement Unit, two engineers eachfrom Corporations of Thiruvanantha-puram and Kochi, and two membersfrom Information Kerala Mission,Thiruvananthapuram.Objective

To familiarise the concept of AutoDCR adopted by the Corporationof Coimbatore

To hold discussion with thestakeholders on AutoDCR tounderstand the merits andchallengesTo make an on-the-spot study ofthe best practices undertaken bythe Corporation of Coimbatorewith regard to Solid WasteManagement and BSUP underJnNURM

The Resource Team of CoimbatoreMunicipal Corporation presentedthe features and usage of DPR/BPAMS. The presentation wasfollowed by a discussion facilitatedby S M Vijayanand on the practicalissues and adaptability of the samesystem for the State of Kerala.HighlightsAuto CDR was developed with theobjective of supporting the reformagenda of JnNURM to apply IT

Building plan approval procedure defined throughAutoDCR is highly process-oriented and the progressof the file movement can be seen by departmentofficials, architects and citizens at any point of time.The subjective decision of Plan approval process istotally eliminated and clear reasons are stated forapproval or rejections.

December 2008

17December 2008

effectively to improve the standard ofservices rendered.Project CostTotal cost of implementation was Rs29 lakhCoimbatore Municipal Corporationprovided Rs 9 lakhThe balance amount was mobilisedlocally from the Private Builders /AssociationsVisit to Land Fill SiteManagement of Solid Waste was aburning issue in Corporation of

Coimbatore. For the last four to fivedecades, the waste generated in themunicipality was dumped into 36acres of land in the nearby place,‘Kounter Palayam’. The city wastewas causing cross-media pollution –air, water, and land. The people in thevicinity were protesting repeatedlyagainst the waste disposal.The JnNURM and its provision forPublic Private Partnership (PPP)provided a platform for the MunicipalCorporation to think of completingthe landfill as per the MSW Act 2000.

The PPP with a Delhi-based agencywas initiated for this purpose. In thisregard, a designated team from theagency visited the site and provideda proposal for Rs 70 lakh forcompleting the land fill andsimultaneously constructing analternate plant for the waste disposal.Initially the Corporation authoritieswere reluctant to take up the PPP dueto lack of knowledge and the fear oflosing ownership. However, the con-tinued discussion and presentation onthe project motivated the council toinitiate the proposal under JnNURM.About 30 per cent of the expense wascontributed by the private firm, forwhich the Corporation agreed to pro-vide 500 metric tonne of waste per day.The revenue from the waste will bethe source of income for the contribu-tion of the private firm.

anywhere between three months andover a year. It produces relevantreports embedded in drawings aswell as in printed format. Thus thesystem reduces paper work, valuabletime and effort of both the architectsand the officials, and helps instandardising the building drawingplan process.Plans will be submitted to theCorporation in a compact disc (CD).The entire process will be paperless.Only the original print of the approvedplan and the non-digitised site-relateddocuments will be in hard copy.The software enables checking everyaspect of a building plan with rules. Ifany portion of the plan was rejected,the AutoDCR would specify whichrule it did not conform to. Theprocessing of applications would bedone with the Building PlanApplications Management System.The system would eliminateinterpretation errors, manipulations,and ensure transparency in scrutiny

and approval. First, the paper workwould be reduced and theneliminated. The only hard copy wouldbe the print of the approved plan thatshould bear the signature and seal ofthe approving authority.As for cross-checking at the site ofconstruction at a later date, theCorporation field engineers would beprovided with a personal digitalassistant (PDA). It would contain allthe points that needed to be verified.Whether the construction conforms torules could be made a note of againsteach of the criterion loaded in the PDA.Even a photograph of the structurecould be taken and uploaded in theCorporation’s system.The system itself would alert theofficials on the date and time of sitevisits. An automatic alert would besounded and the message wouldreach both the engineer and thepromoter, so that they were both atthe spot at the fixed time. The systemwould provide customised reports to

various sections, such as LocalPlanning Authority, Corporation orthe office of the Commissioner ofMunicipal Administration.The earlier system, which was mostlymanual, malpractices wereunavoidable due to lack ofstandardisation. Moreover, due to thecomplex nature of developmentcontrol rules, most of the authorities’time was spent on interpreting therules and mundane matters.Features• Web-based Application• User-friendly interface• Work Flow Management• Mobile Integration• PDA Integration• Facility for Online Payment• Multi-lingual ReportAdvantagesTransparency: Building planapproval procedure defined throughAutoDCR is highly process oriented

17

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Initially the Corporation authorities were reluctant totake up the PPP due to lack of knowledge and the fearof losing ownership. However, the continueddiscussion and presentation on the project motivatedthe council to initiate the proposal under JnNURM.

December 2008

18 December 2008

and the progress of the file movementcan be seen by department officials,Architects and citizens at any pointof time. The subjective decision of Planapproval process is totally eliminatedand clear reasons are stated forapproval or rejections.Accountability: Every process has afixed accountability with time limitis set. It could be seen at any point oftime why the proposals are delayed,if any, the reason thereof and personresponsible, issues if any are alsostated by the system. Early alerts viaSMS or Web interface are sent to thehigher officers on undue delays.Responsiveness: The proposals areacknowledged and site visit dates andfurther approval schedule is given tothe architects on the spot. An SMS isalso sent to architect and concernedinspectors.Consistency: The approval is based onengine of development control rulesbuild as a part of the system. This

brings absolute consistency in theapproval process. Reduction in theArchitect’s/Authority’s effort fordrawing and calculations. Eliminatesthe Human Errors & Manipulationand produces accurate reports.Uniformity & Standardisation:Approval procedure is brought to auniform & easy understandableprocess wherein all officials &stakeholders follow same processbringing uniformity &standardisation. Everyone follows apreset of rules & regulations as leviedby the authority bringing in thestandardisation.Transformation of Administration:The method of working has broughtinnovative approach in the approvalprocess of building plans.Simplification of Procedure &Process: Complex Byelaws areautomatically scrutinised bysoftware eradicating theinterpretation variance & difference

Under PPP, construction of theenvisaged land fill started in fouracres of land in the existing wasteland of 36 acres. The land fill wascompleted in three moths’ timesurprising the municipal authorities.Now the remaining 32 acres of landbecame useful for residential/commercial purpose. Further, thevalue of waste land rose to Rs 320 crfrom a land value of zero rupee. Now,the municipal stakeholders admitthat the PPP was the basic instrumentto find a quick solution to the longpending issue of solid waste in such ashort span of time.Visit to BSUP construction siteThe team visited the slums in thecorporation were the BSUP scheme onbuilding constructions initiated. Anamount of Rs 1,15,000 was given as

grant from BSUP to the urban poorand the remaining amount waspooled as beneficiary contribution.The amount was given in fourinstalments to the poor.Four options of plans were given tothe beneficiaries to select a planaccording the space available. Theownership of construction washanded over to the beneficiaries,which resulted in completing the

of opinion thus bringing the simplifiedprocedureShowcasing of Best Practices:Minimise procedural time, visibleprocess, Thorough Checking,reduction of corrupt practices.Better Quality of Service: DigitisedData Management, Timely delivery,Standard Procedures. Architects neednot keep on moving from desk to deskfor understanding the status of the file.If there is any cancellation on site visitthey well informed through SMS toavoid unnecessary wastage of time.Tremendously reduce the time cycleof approval.Good Governance: Regular MISreport & evaluation of workforceefficiency. Monitoring of citizenfacilities & Engineering excellence.Creating productive assets of LastingNature: All digitised data records arestored and archived. The scanneddocuments are stored for easy accessat later date.

18

works in four to five months’ timewith the active participation ofbeneficiaries. The constriction workhas been initiated in all the slums ofthe Corporation. Expectation is thatby the end of the year no urban poorin the city will be left without properhousing and sanitation.Lessons learned

The successful implementation ofAutoDCR should be an eye-opener

December 2008

19December 2008

to Kerala - the pioneerin devolution ofpowers to local bodies,towards making IT-enabled servicedelivery.The support providedby the elected council tothe initiatives underJnNURM and toofficials is encouraging.Readiness of Coimba-tore Municipal Corpor-ation to undertake PPPand the willingness toface the challenges inthe service delivery isa welcome step to bemodelled.The Auto CDR systemmay be replicated inThiruvananthapuramCorporation on a pilotbasis with a few addi-tional provisions like1. Space for placing

the complaints/grievances of public.

2. Modified softwarewith provision togive even thecompletion certifi-cate as the Coimba-tore model providesonly the approvalcertificate.

Coimbatore Model wassuccessful as the entireprocess was executedby SoftTech, a privatefirm and theyemployed staff in themunicipal corporationfor the first threemonths to give inten-sive onsite training tothe staff. It would beideal if Kerala Govern-ment also initiate in thesame spirit.A joint initiative bySoftTech and the localtechnical solution unitmay also be emulatedin Kerala, provided thecapacity of the localinstitute to beconfirmed. C

IF

Description of Package Award Amt. (Rs)Community Infrastructure FundThiruvananthapuram4 Works 1,512,572.00Kollam6 Works 6,132,215.00Kochi6 Works 5,138,447.00Thrissur3 Works 2,210,115.00Kozhikode1 Work 926,665.00Total 15,920,014.00

Tenders Awarded under KSUDPDescription of Package Package No. Award Amt. (Rs)

ThiruvananthapuramRoad Improvement Works to TVM-RT-01-B 123,003,322.00Thiruvananthapuram – Part IITotal 123,003,322.00KollamSolid Waste Management Works –Compost Plant KLM-SW-01-A 47,900,000.00Solid Waste Management Works-Landfill KLM-SW-01-B 20,257,335.00Solid Waste Management Works-Infrastructure KLM-SW-01-C 28,897,898.18Solid Waste Management Works – KLM-SW-P1-E2 11,115,000.00Vehicles – Auto TippersRoads and Transportation ImprovementRoad Up-gradation and Junction KLM-RT-01-A 152,143,629.00Improvement – Part 1Total 260,313,862.18KochiSolid Waste Management ImprovementProcurement of Primary Storage KCH-SW-P1-E1 15,600,000.00Equipment for SWMProcurement of Primary Collection KCH-SW-P1-E2 13,582,865.00Equipment for SWMProcurement of Secondary Storage and KCH-SW-P1-E3 10,253,262.00Transportation EquipmentRoad and Transportation ImprovementNew Bridge at SA Road – Kochi KCH-RT-01-C 35,047,269.25Total 74,483,396.25ThrissurSolid Waste Management ImprovementSolid Waste Management – Compost Plant, TSR-SW-01 49,239,711.00 Landfill andContainer PlatformsRoads& Transportation ImprovementRoad Improvement Works TSR-RT-01 282,747,265.00Total 331,986,976.00KozhikodeSolid Waste Management ImprovementSolid Waste Management – Compost Plant, KZD-SW-01 33,010,760.00Landfill andContainer platformsProcurement of Primary Collection KZD-SW-P1-E2 4,426,726.00Equipment for SWMRoads and Transportation ImprovementRoad and bridge improvement works KZD-RT-01 330,145,066.00Total 367,582,552.00Grand Total 1,157,370,108.43

20 December 2008

Construction activities ofArayidathupalam Flyover andMini Bypass from Arayidathupalamto Eranjipalam are on in KozhikodeCorporation as part of the KeralaSustainable Urban DevelopmentProject

ThroughProject Cities

21December 2008

Construction of subway at Paramekkavu in Thrissur Corporation is on.The subway is of 5 m width and 2.5 m height.

On the bottom is the visual of re-engineered landfill and new landfill;road formation around landfill is also seen

22 December 2008

The Minister for Local SelfGovernment Department Paloli

Mohammed Kutty held a reviewmeeting of various projects and issuesrelated to the urban sector. Part of aseries of regular sessions to overviewthe progress of projects, majorbottlenecks faced during theimplementation of the projects, andsuggesting solutions to them are thechief objectives of the meeting.The Minister asked the ULBs toexecute efficiently the EMS HousingScheme which aims to provide homesfor all homeless families. Steps shouldbe taken to ensure that only theeligible are getting the assistance.Funds for the welfare of ScheduledCastes and Scheduled Tribes shouldbe utilised without wastage forfinding a solution to the housing issue.If necessary, the funds for this sectormay be utilised entirely for houseconstruction.Although the share for productivesector is less in the projects of ULBS,they should focus on agricultureproduction taking into considering thespecific context of Kerala. Apart fromthe target of self sufficiency invegetable cultivation, the potentialfor paddy farming should also beexplored. The Minister asked to learn

LSG Minister Holds Review Meeting

from the many successful models inthis sector.The Minister reminded that solidwaste management was theinevitable responsibility of ULBs. Hepointed out that often ULBs whichcould not intervene effectively in theissue had to face adverse observationsof both the courts and theombudsman. Wherever the issue washandled with genuine commitmentthe solution was made possible. Nolaxity should be shown in fining thosewho throw waste in public places.The implementation of ban on plasticswhich was efficient in the initial stagewas found lagging nowadays. Whilesome ULBs are conducting regularraids in shops some others aredisplaying large-scale neglect.The Minister said the steps againstillegal building construction shouldbe strengthened. The delay andcorruption in sanctioning buildingpermit should be put to an endwithout delay. All assistance shouldbe provided to those who approachthe ULBs for building permits. Thedelay in allotting number to thefinished buildings should be avoided.The Minister suggested that a frontoffice arrangement with all modernamenities should be in place in all the

ULBs. It is the responsibility of the ULBchairpersons to ensure that the all theservices to the people are providedwithout failure.The Minister asked all ULBs to keepwritten accounts as per the rules. TheDCB statement should be preparedevery year and the documents shouldbe kept prepared without failure. EachULB should make sure that theincome due to it is collected; theyshould strive to be on a selfsustainable mode. More people shouldbe brought into the tax net. Incollecting taxes, not even a single rupeeshould be spared.The Minister reminded that thoughthe decentralised planning attained 12years of age, efforts are still needed tomake it perfect. The practice ofwaiting till end of the financial yearfor completing the Plan work was notdesirable.The participants included Local SelfGovernment Department PrincipalSecretary S M Vijayanand, UrbanAffairs Director K R Muraleedharan,Kudumbashree Executive DirectorSarada Muraleedharan, KSUDPProject Director Anand Singh, PrivateSecretary to the Minister Prof. P KRaveendran, and other officials.

ThroughProject Cities

23December 2008

Citiscape ReleasedMinister for Local Self Government Department Paloli Mohammed Kutty releasing the inauguralissue of Sustainable Citiscape, the quarterly journal of Kerala Sustainable Urban Development,at his Chamber. LSGD Principal Secretary S M Vijayanand, KSUDP Project Director AnandSingh, KSUDP Deputy Project Director Krishnarajan V V, Technical Officer (Roads) Tomy Cyriac,and Prof. P K Raveendran, Private Secretary to the Minister are also present.

BSUP House ConstructionBegins in KochiProf. Mercy Williams, Mayor, Corporation of Kochi, laidthe foundation stone for the house construction beinginitiated under Basic Services for Urban Poor (BSUP)component of the Jawaharlal Nehru National UrbanRenewal Mission (JnNURM).As per the plan, 889 houses will be constructed in twophases. The scheme will be implemented in the followingcolonies: Mundamveli Colony, Chirackal Colony,Pattathipparambu Colony, Chilavannur Colony, AdragePrambu Colony, and Panayappilli Colony.The scheme envisages clusters of houses with three floors.The estimate for a unit with 400 sq. ft area is Rs 3 Lakh. TheJnNURM share is Rs 1,17,834. The Kerala Builders Forum,the organisation of builders in Kerala, has agreed to poolthe balance amount.

Solid WasteBye-law Being FinalisedThiruvananthapuram Corporation is in the process ofgiving final touches to the Solid Waste Bye-law. The bye-law has been formulated according to the provisions ofthe Municipality Act thus giving a fillip to the efforts ofthe Corporation to take efficient steps in Municipal SolidWaste Management.The draft bye-law was presented before the generalpublic and other organisations at a workshop. Thesuggestions were considered by the CorporationCouncil before placing it in the Council meeting.The bye-law envisages stringent punishment for thoseindividuals or institutions violating the rules and throwwaste in public places. Cess/tax/fee would be chargedfrom the offenders. The bye-law specifies various typesof fines for the violating the rules.

Road Works:Tender AwardedThe construction work of two stretches of road inThiruvananthapuram Corporation has been awarded.The roads are:1. Road from Poojappura Round to Thirumala (2.49 km);2. Road from Valiyavila to Peyad (2.54 km). The awardamount is Rs 12.3 Cr.

Insurance scheme forHealth workersCorporation of Kochi has decided to implement healthinsurance scheme for health workers under the Solid Wastecomponent of the JNNURM. This will benefit 1300 healthworkers. As part of Solid Waste Management activities, thehealth workers will be provided with masks and boots.Annual health check-up, subsidised treatment facility inthe hospitals in the city are envisaged as part of the scheme.

InfrastructureDevelopmentof ColoniesThe renovation works invarious slums of the KochiCorporation has beenprogressing. The constru-ction of common bathrooms,footpath, and drainage is onin Kochuparambu, Valiyap-arambu, and Banglavupara-mbu colonies of theCorporation. Total projectestimate is Rs 16.87 Lakh.Work started in MaliyekkalParambu Colony, KMP OilMill-Vyasapuram Colony aswell.Work for new pipeline tomitigate the drinking watershortage and construction offootpath and drainage in theMaliyekkal Colony has beenprogressing. For constru-cting drainage, drinkingwater facilities, street light,road construction in KMP OilMill-Vyasapuram Colony,Rs 10.23 Lakh would bespent.In all, 70 colonies ofCorporation of Kochi havebeen chosen for infrastru-cture development.

Published by Anand Singh IAS, Project Director, Kerala Sustainable Urban Development Project, Department of Local Self Government,5th Floor, Trans Towers, Vazhuthacaud, Thiruvananthapuram-14 Tele: 0471-2332858 / 2332856, Fax: 2332856

e-mail: iec@ksudp.org, iecksudp@gmail.com, pmuksudp@gmail.com website: http://www.ksudp.orgLayout: rash9846375041@gmail.com Printing: SB Press(P) Ltd., Statue, Thiruvananthapuram

SubwayConstructionInauguratedThrissur Mayor Prof.R Bindu inaugurated theconstruction ofParamekkavu subway atSwaraj Round, Thrissur.The subway is of threemetre width and 2.4 metreheight. The projectestimate is Rs 90 Lakh. Thefunction was attended bypeople’s representativesand project officials.

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NEW DELHI: In a move aimed atenabling infrastructure companies tomeet their increased fundingrequirements, the Government easedthe external commercial borrowing(ECB) norms to permit bringing in up to$500 million for rupee expenditure eachyear. The new norms will come intoeffect from the date of notification bythe Reserve Bank of India.Announcing the relaxation, an officialstatement said: “Considering the hugefunding requirements, particularly formeeting rupee expenditure, it has beendecided to enhance the existing limit of$100 million to $500 million forborrowers in the infrastructure sectorunder the approval route.”According to estimates, theinfrastructure sector would be in needof about $500 billion over the next fiveyears. The easing of ECB norms isexpected to raise the infrastructurecompanies’ access to overseasborrowings although it is not certainas to whether it would render it easierto mop up funds abroad in view of theongoing global crisis in the financialmarket. The official statement made itclear that borrowings by companies inexcess of $100 million should have aminimum average maturity period of

ECB Norms Relaxed forInfrastructure Companies

seven years. Also, the overall cap of $500million per company each year underthe automatic route has been retained.Alongside, owing to the wide creditspreads now prevailing in globalfinancial markets, the Finance Ministryhas also decided to allow companies topay higher interest rates on suchborrowings with a maturity of overseven years. Under the liberalisednorms, corporates have now beenpermitted to pay up to 4.5 per cent overthe six-month LIBOR (London interbank offered rate) as against the earliercap of 3.5 per cent. At present, the six-month LIBOR is pegged at 3.016 percent.However, for companies going for ECBswith a maturity of three to five years,the interest rate has been leftunchanged at up to two per cent aboveLIBOR.Likewise, the interest rate ceiling onoverseas borrowings of more than fiveyears and up to seven years has alsobeen pegged at 3.5 per cent aboveLIBOR.For companies other than theinfrastructure sector, the existing ECBnorms will continue to be in operation.

23 September 2008, The Hindu

December 2008