Financial Daily from THE HINDU group of publications
Thursday, Mar 28, 2002
Money & Banking
Industry & Economy - Infrastructure
Orissa plans civic bond route to raise Rs 250 cr
KOLKATA, March 27
THE Orissa Government is taking up major sewerage improvement and institutional strengthening projects at Bhubaneswar, Puri, Cuttack, Paradip and Sambalpur.
In this regard, it is planning to raise Rs 250 crore from the market for the funding of these urban infrastructure development projects.
The money will be raised through the issue of tax-free municipal bonds by Orissa Water Supply and Sewerage Board (OWSSB).
The plan is to raise Rs 50 crore for each of the five urban development projects.
This is part of a larger project of resource mobilisation, capacity-building and institutional strengthening of these sewerage boards, entailing a total investment of Rs 500 crore.
In the Budget for 2002-03, the Union Finance Minister, Mr Yashwant Sinha, had proposed to raise the ceiling of floating tax-free municipal bonds for developing urban infrastructure to Rs 500 crore from the existing Rs 200 crore.
Srei Capital Markets, a member of the Srei group of companies, has already made a preliminary technical presentation to the State Government, alongwith Shristi Infrastructure Development Corporation Ltd of West Bengal, for getting the mandate to raise the resources.
Sources told Business Line that the company has already submitted a concept paper, and a final presentation is now expected to be made before the State Government officials within 2-3 weeks.
The fund raising for the project may include participation by international lending agencies, it is pointed out.
Capacity-building and institutional strengthening, according to State Government sources, will entail upgradation of existing management systems, including financial management, asset management, and maintenance and training.
They added that the bonds would require obtaining an irrevocable guarantee from the State Government, evolving an escrow mechanism whereby the State Government's current account can be debited and the annuity amounts for repayment of principal transferred to the designated principal payment account maintained by the trustee bank/bankers.
The cut-off interest rate for the 7-year bonds is likely to go up to 10.5 per cent, and the ceiling on amount of tax-free bonds at 33.3 per cent of the project cost or Rs 50 crore, whichever is less.
It is likely that there will be a contribution of 20 per cent of the project cost either from internal sources and/or grants received.
The other requirements are said to be compulsory credit rating from an RBI-approved rating agency and approval from the Department of Economic Affairs (DEA).
The Ministry of Urban Development Authority and Poverty Alleviation will be the nodal agency for processing the proposal for the tax-free bonds.
Shrishti and its other associates, who will aid Srei Capital in the project, have already worked on similar projects for development of sewerage, water and other infrastructure.
A unique feature of the paper by Srei Capital is the introduction of a "shadow tolling'' concept, and ecological advance procured through multilateral institutions such as ADB, Manila.
`Shadow tolling' is an indirect kind of cess not felt by the payer and applied equally on all users of State-provided services like transport (road or rail), flyovers, etc.
An illustrative example of `shadow tolling' is followed in Singapore for cars entering busy restricted zones.
Cars display a pre-paid charge card which calibrates the rates once they traverse the selected areas in the central business district of the island nation.
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