Since the launch of the Smart Cities Mission, Rs 99.39 billion has been released by the Government of India. Against this, 753 projects worth Rs 245.11 billion have been completed or started work on-ground. Further, about 287 projects worth Rs 142.96 billion are in tendering stage and the works on-ground is expected to start very soon. The government claims this is one of the fastest progress demonstrated in the urban sector considering the scale and novelty of the mission.
Moreover, the progress depends on the date of the selection of the smart city. After selection, it takes around 18 months in setting up an SPV, procuring project management consultant (PMC) firm, hiring human resources, preparing detailed project reports (DPRs) and then call for tenders. For cities selected in Round 1 (January 2016), where 18 months have lapsed, about 51 per cent of the projects have either been tendered or are under implementation.
Here, the SPV needs to identify bankable projects to attract private investment. The challenge is to mitigate funding as well as keep it self-sufficient to generate revenue from various available sources for sustainability. Currently, SPVs are in comfortable position. Reason, assured funds from both the State and Centre for launching projects. However, as soon as the first few billion spent on envisaged projects, SPV becomes paranoid where the rest of the money will come from.
In such cases, Bhopal Smart City has set an example. But to an extent, the state government is also equally supportive. Chandramauli Shukla, CEO of Bhopal Smart City, said that the SPV has been lucky enough to receive 342 acre land from state government, which, if developed and marketed properly, can monetise around Rs 60 to 70 billion.
Prakash Gaur, CEO, Andhra Pradesh Urban Infrastructure Asset Management (APUIAML), explains the next-gen financial reforms, where the authorities need to look beyond their comfort zones. APUIAML, in a joint venture with IL&FS, plans to raise CAT 2 fund, which is quite similar to NIIF. Interestingly, six months ago, this entity has raised Rs 50 billion for the urban development work in Andhra Pradesh including four smart cities.
T Ravinder Reddy, Partner, Grant Thornton India is of the opinion that monetisation of several projects is possible in cities where there is a lot of commercial sense to that particular project, but the same may not be applicable to a different city elsewhere. For instance, a city can monetise projects such as smart poles, which are assets erected in public areas. These poles can be commercially exploited with additional services like Wi-Fi, surveillance, solar panels, etc. Reddy added: “A lot of telecom companies are interested in doing such projects because that is the revenue generation asset and entity for them. And they are going to monetise it and make it profitable and share the revenue with SPV as well. Such projects are popular.”
Are such projects popular in all cities? Reddy says, “Maybe not. Cities with commercial sense will taste the success of monetising such projects, unlike rural hinterland or tier 2 or 3 cities. Because it will be difficult to find buyers in those places.”