3 Replies Latest reply: Apr 4, 2017 2:36 AM by raghuraman RSS

    I am looking for examples successful or otherwise, where government has used land use rights and or right of way including e.g. utilities and connecting infrastructure as equity contribution in a SPV.  What would be the implications?  Appreciate it very m

    427204 C4D Explorer
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      I am looking for examples successful or otherwise, where government has used land use rights and or right of way including e.g. utilities and connecting infrastructure as equity contribution in a SPV.  What would be the implications?  Appreciate it very much. 

       

        • Re: I am looking for examples successful or otherwise, where government has used land use rights and or right of way including e.g. utilities and connecting infrastructure as equity contribution in a SPV.  What would be the implications?  Appreciate it ve
          raghuraman C4D Explorer

          All the PPPs are based on the recognition of Government set the land or right of way as its contribution to the development of infrastructure projects. India is a pioneer in developing the PPP model and sustaining it across infrastructure segments and utilities. e.g Privatisation of Delhi and Mumbai Airport where 26% equity is set off against the land that is leased to the SPV. Also in the green field airports of Hyderabad, Bengaluru, and Cochin, the equity contribution came in the form of transferring the land to the SPV  and assigning 13% stake as Government's ownership in the SPV.  Also, many of the road projects under National Highways Authority of India as well as State roads were executed through PPP with a right to use a portion of the land for developing motel/food court and related activities and the revenue generated is entire to the developer. Same in the case of Water distribution in some major cities.

           

          Globally, UK was the pioneer in the privatisation of infrastructure- be it Airports, Railways or roads. Now many countries adopted it.

           

          The Implications are:

          1. Appreciation of the fact that the Private developer could utilize its expertise in monetizing better the use of the land and generate revenues thereby less dependency on user fees or tariffs to support the loan repayments.

          2. The private developer could use the legal recourse faster to remove the encroachment of public land than the Government, the actions of its executive arm is saddled with the socio-political considerations.

          3. By monetizing the land effectively, the dependency on Government grant or aid is eliminated altogether thereby these resources could be effectively transferred to some other sectors where it could be used to bring in human development.

          Reality:

          1. Since the cost of monetizing the land is entire to the private developer, cyclical and locational causes will impact the revenue generation and he may have to fall upon raising the user tariffs thereby defeating the very purpose of giving the land free of cost.

          2. Not every piece of land could be freely developed as Government links such development to socio-economic causes and as such, there is limited freedom in the monetization of the land tying the hands of the developer.

          3. Since the monetization of the land is subject to developer executing and operationalising the project first, any delays or causes that have financial implications to the developer have a greater bearing on the utilization of the land and in many cases, it is evident that the land was left as it is due financial constraints. The government has to step in to provide additional grants/aids which go against the very tenet of the PPP.

          There are many successes and an equal number of failures. One needs to analyze it as per sector to understand it deeper.

          • Re: I am looking for examples successful or otherwise, where government has used land use rights and or right of way including e.g. utilities and connecting infrastructure as equity contribution in a SPV.  What would be the implications?  Appreciate it ve
            427204 C4D Explorer

            thanks Raguraman,

             

            could you please share greenfield SPV structures where government contributed equity using land?  How does the private company incorporate with the public?  how do they share the operation and management responsibility?  what about the call for capital?  was there independent land valuation at tender?

             

            Normally we see this in privatizations but not in new infra with a project finance type structures, and private company is quite reluctant to form a SPV.

             

            Good to get these examples. 

              • Re: I am looking for examples successful or otherwise, where government has used land use rights and or right of way including e.g. utilities and connecting infrastructure as equity contribution in a SPV.  What would be the implications?  Appreciate it ve
                raghuraman C4D Explorer

                Nice to see your quick revert.

                 

                In the case of greenfield ventures like Hyderabad and Bengaluru, the respective infrastructure development arm i.e APIDC/KPIDC  converted the land which it acquired as its equity equivalent to 13% stake in the SPV. Being state government driven project, central government (as the entity controlling Indian aviation) pitched in through Airports Authority of India (its airport arm) by subscribing another 13% ( non-cash, pure air traffic control, and management role). When the tender was bid out the concession agreement factored these equity holdings by Govt. For the private developer, this 74% became the actual 100% for raising the loan and for execution of the project for stipulated period of 30 years extendable by another 30 years. No additional cash subsidy was to be provided by any of the two entities of Govt and no additional contribution will be done for future development too. The obligation for the developer is 100% in the SPV and rights are equivalent to 74% only.  The cost of the land is at the purchase value of the land by the Government Agency and the circle rate or guidance value of the property in the revenue books of the govt for that locality/villages/area, published from time to time. No independent valuation deemed necessary.

                 

                Further, for the land earmarked for monetization and to develop it, no further equity will be provided by Govt.  However, part of the revenues generated will be included in the SPV so as to reduce the user tariffs or keep it lower. There are multiple models like Single Till/Hybrid Till and Dual Till. But now it has been universally accepted to adopt Hybrid Till for better monetization and to provide incentive to the developer for 100% project financing the development on his own.