Infrastructure

Project Structuring and Financing

Project Structuring is very essential to plan a successful and viable project. Often projects fail to take off due to faulty structuring and lack of adequate financial planning regarding the modes of financing for the project. Project financing implies the financing of long-term infrastructure, industrial projects and public services based on either a non-recourse or limited recourse financial structure. The debt and equity used to finance the project are paid back from the cash flow generated by the project. Traditionally, most of the projects have been financed through budgetary provisions and generating revenue from projects has not been a focus area. But over the years, the State has been severely constrained in terms of finding adequate resources for financing infrastructure projects from budgetary sources.

Capital expenditure in the State has been very low which is reflected in the poor quality of infrastructure in the State. Compared to other States where the capital expenditure is around 5 to 7 per cent, in Kerala it hovers around less than 2 per cent.(Table 5.19)

Table 5.19
CAPEX/GSDP ratios for 2013-14

Source: White Paper on State Finances, June 2016

Capital expenditure in the State as a per centage of GSDP has been less than two per cent. Capital expenditure as a per cent of GSDP from 2007-08 is shown in Table 5.20.
Capital spending by the State as a proportion of State income is one of the lowest among the states. For many other States the proportion is over five times of Kerala. Further, there is a widening gap between the trends in the State vis-à-vis all states capital outlay affecting adversely the GSDP growth of the State and in turn affecting infrastructure development.

Table 5.20
Capital expenditure as a percentage of GSDP from 2007-08 to 2016-17

Source: Budget Documents, Finance Department, Government of Kerala

Table 5.21 points out to the huge deficit in capital expenditure that the State has had year after year.

Table 5.21
Capital expenditure in the State from 2001 to 2016

Source: White Paper on State Finances, June 2016

It is to be noted that around 40-50 per cent of the grants to local self-governments is spent on capital works, even though it is booked under revenue expenditure in State accounts. Even if this is accounted for, the infrastructure deficit in the state is very high. Even if the state tries to target a rate at the average of the CAPEX/GSDP ratios of the neighbouring states, Kerala would have to invest about 4 per cent of its GSDP in capital works which amounts to a CAPEX outlay of 24, 000 crore in 2016 itself. As there are budgetary constraints, there will be a limit to the quantum of capital expenditure that can be made from the budget. Mobilizing off budgetary resources through the various financial and infrastructure institutions in the State is required for taking up and completing the major infrastructure projects. Bridging the infrastructure deficit and finding innovative means of financing is one of the foremost critical priorities of the Government.

Kerala Infrastructure Investment Fund Board

Revamping of Kerala Infrastructure Investment Fund board (KIIFB) is a major step taken by the Government in facilitating investment for infrastructure projects. KIIFB was constituted under Finance Department of Kerala for raising funds both in the medium and long term to finance critical and large infrastructure projects in the state. It came into existence on 11.11.1999 under the Kerala Infrastructure Investment Fund Act 1999 (Act 4 of 2000) to manage the Kerala Infrastructure Investment Fund. The main intention of the Fund was to provide investment for critical and large infrastructure projects in the State of Kerala. The Board had mobilized funds to the tune of 1023.71 crore through issue of three series of Redeemable and Non-convertible Non statutory Lending Rate (Non SLR) bonds by private placement fully backed by State Government Guarantee.

KIIFB has been reconstituted by Government, through an amendment Ordinance in August 2016, as a Body Corporate having perpetual succession consisting of the Chief Minister as Chairman and Minister for Finance as Vice- Chairman. The Members of the Board include Chief Secretary to Government, Vice-Chairman State Planning Board, Secretary (Law), Secretary (Finance), Secretary (Finance Resources) and seven independent members who are experts, who have worked in an institution of national repute in one or more of the areas of Finance, Banking, Economics. Additional Chief Secretary (Finance) is the CEO and Member Secretary of the Board.

It is envisaged to execute the major infrastructure projects planned under the anti –recession package announced in the budget and to raise funds to the tune of 50,000 crore outside the budget for taking up infrastructure projects. KIIFB is expected to leverage the financial resources for infrastructure development. 10 per cent of the motor vehicle tax and 1 per cent of the petrol cess will go to KIIFB. Also the Fund Trustee and Advisory Commission will ensure that all investment of the fund serves the purpose and intent of the legislation and that there is no diversion of funds of the Board.

KIIFB will assist the Government and its agencies in the various aspects pertaining to infrastructure development and will act as the nodal agency for scrutinizing, approving and funding major infrastructure projects including PPP projects, with the main objective of providing investment for projects in the State of Kerala in sectors like Transport, Water Sanitation, Energy, Social and Commercial Infrastructure, and IT and Telecommunication. Detailed guidelines for availing financial resources from KIIFB have been issued by the Government.

KIIFB has approved a plan to issue General Obligation Bonds against unconditional Government guarantee and Revenue Bonds with structured payment mechanism for medium term requirement and has initiated steps to raise funds to meet long term requirements through Alternative Investment Funds (AIF), Infrastructure Investment Trust (InVIT), Infrastructure Debt Fund (IDF) and build the institutional framework needed for this. It also decided to set up an Infrastructure Fund Management Corporation (IFMC) to mobilize resources through advanced financial instruments approved by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).In the first board meeting held on November 7, 2016, 48 projects costing 4,004.86 crore have been approved.

Project Financing Cell, Kerala State Planning Board

In order to address the resource constraint in the infrastructure sector, the Project Financing Cell (PFC) was constituted in the State Planning Board in 2012 to help in structuring the projects for attracting financial resources from private sector. The objective of PFC includes examining the possibility of extra budgetary resources, including Public Private Partnership for all projects of the State. PFC is also mandated to examine the technical as well as financial feasibility of all projects above an outlay of 5 crore. Since its inception, PFC has been appraising project proposals and providing the structuring framework for investment mobilization from extra budgetary resources. PFC also provides information to Government regarding the new policy announcements and schemes to enable the departments to avail the assistance offered under various Central Government programmes and policies.

Development of Model Projects

Project Financing Cell has been undertaking development of model projects which can be taken up on PPP mode and replicated in various parts of the State. PFC has undertaken two feasibility studies through M/s INKEL Ltd during 2016 -17- Development of Model Ladies Short Stay Hostel through PPP mode and Development of Multilevel Car Parking Facility in PPP mode in Thiruvananthapuram Medical College.

Development of Model Ladies Short Stay Hostel envisages creation of safe and secure stay facility for ladies for short period with all modern facilities such as pick and drop, gym and Wi-Fi. The feasibility report explores the possibility of setting up Ladies Short Stay Hostel in the six municipal corporations of the State focusing on Thrissur Municipal Corporation. It suggests two modes of the implementation (i) Land plus Annuity or (ii) Land plus Viability Gap Funding (VGF) model. Development of Multilevel Car Parking Facility in PPP mode in Thiruvananthapuram Medical College examines the possibility of setting up parking facility in the premises of Medical College. The feasibility report suggests two locations in the campus for setting up parking facilities on BOT (Build, Operate and Transfer) Model.

Public Private Partnership Projects

Development of roads, ports and urban infrastructure projects are now increasingly being taken up on Public Private Partnership (PPP) mode. Some of the important PPP projects in the State include the Thiruvananthapuram City Road Improvement project on PPP (Annuity) mode, Vizhinjam project on DBFOT mode and Kariavattom Green Field Stadium on DBOT mode. However, the number of PPP projects in the State compared to other States is very less and concerted efforts are required to attract private investment to the State.