MUMBAI BUSINESS PLAN: THE WAY FORWARD

JULY 2008

THE WORLD BANK

And a strength of 34m peopleAnd a strength of 34m people

A globally competitive cityA globally competitive city

With a well diversified economyWith a well diversified economy

Delivering world class urban services to its citizensDelivering world class urban services to its citizens

MUMBAI IN 2030…MUMBAI IN 2030… A GLOBAL METROPOLITAN REGIONA GLOBAL METROPOLITAN REGION

On The Agenda…

Vision Mumbai: 2030

Investment Planning - Housing - Transport - Civic services - Finance

Institutional Considerations

Regional & Local Infrastructure - Regional infrastructure planning - Local infrastructure planning Investment Priorities

Financing Decisions - Metro-Rail - Roads - Water supply - Sewage and sanitation - Solid waste management

FinancingDecisions

Investment Planning

Regional &Local Infrastructure

Institutional Considerations

Investment Priorities

Way Forward:Vision Mumbai

2030

4.

Drivers of Mumbai in 2030

Bigger... Broader… Better…

Increased population double the current size

Rapid Growth: 2005 population of Mumbai is estimated at 21m. It is projected that the number of inhabitants will increase to 27m and 34m by 2021 and 2031 respectively.

Distribution between Greater Mumbai and MMR: Current population in MCGM stands at about 13m persons while that of Other Regions at 8m. It is estimated that by 2030 the population in MCGM will be between 16-18m and employment will vary between 7.2- 9.7m.

Polycentric growth with spatial restructuring

Spatial specialization in commerce: Though Greater Mumbai still retains 50% of the financial activity, MMR is now witnessing a clear development of 12 CBDs. Malad, Powai, Bandra and Andheri are fast growing commercial areas.

Outward expansion of the City due to: • Specialized centers of commerce• Escalating property prices in established areas• Expansion of rail corridor/other transport means (like Trans Harbor Link) resulting in easier access to Island City.

Progressive socio-economic characteristics

Increased household income: The current mean household income is Rs. 8,100. By 2030, this is expected to increase 4 times in real terms.

Workforce participation rate: The current rate is .37 and is projected at .45 for 2030; large part being due to increase in female participation.

Other trends: • Higher education levels• Smaller family formations• Frequent changes in job but not homes• Formal jobs replacing lower paid informal work

5.

And Wealthier…

Macroeconomic Drivers Microeconomic Drivers

The expected growth rate for Mumbai in the coming years is 12% per annum.

The NNDP of MMR from 2007-21would be USD 1,472 bn at 2004-05 prices. Total infrastructure needs during this period is estimated to be USD 70 bn or 5% of NDDP and thus feasible.

Mumbai will continue to be the financial capital and the population growth rate will be above the natural rate.

Between 2016 and 2021, the population continues to grow in Greater Mumbai but the employment stabilizes.

Rise in per capita & household disposal incomes will lead to significant changes in lifestyle such as:

Increase in personal vehicles Demand for housing Demand for civic services (water, electricity, sanitation etc.) Demand for amenities such as green spaces, recreation facilities, shopping complexes

City demographic is likely to incline more towards the working age group

FinancingDecisions

Investment Planning

Regional &Local Infrastructure

Institutional Considerations

Investment Priorities

Way Forward:Vision Mumbai

2030

7.

Making It Happen (Investment Planning)

Housing: From 50% population living in slums to 75% in apartments

Transport: From overwhelmed to efficient multi-modal

Current (2005)

Slums estimated to be housing 50%* of Mumbai’s population.

% of 1 room households in MMR is 59% compared to India’s average of 35%

Household occupancy rate is at 4.4 persons.

Projected (2030)

75% of MMR population will live in apartments

19m persons will be relocated. Over next 25 years:

• Type I slums will reduce by 20-25%• 90% of Type II slums will be relocated

Household occupancy rate will be at 4.1 persons.

* For Greater Mumbai; MMR average being 41%

Current (2005)

On an average working day 28m person trips are made everyday. Out of this 52% are by walk.

About 4.75m motorized trips are made in peak hours (6.00 am to 11.00 am). Split between modes is:

•PV (Car & TW) : 13%•IPT (Auto, Taxi) : 9%•PT (Train, Bus, Metro) : 78%

Rehabilitation & market development Planning and land use controls Accelerated greenfield development outside Greater Mumbai

Projected (2030)

Only 25-30% of the trips will be by walk

About 10m motorized trips are estimated in peak hours (6.00 am to 11.00 am). Split between modes is:

•PV (Car & TW) : 24%•IPT (Auto, Taxi) : 5%•PT (Train, Bus, Metro) : 71%

Charge SEZ developers for external links Plough back road user charges to maintain system Increase user charges for private modes of transport

8.

Making It Happen (Investment Planning)

Civic Services: Increased and efficient supply of water, sanitation and other services

Demand

Estimated at 3530m cum by 2031

Estimated at 5395 mld by 2021

Municipal waste estimated at 17207 tones per day requiring 628 Ha for landfills till 2021

XXX and XXX primary and secondary schools required respectively till 2021. XXX hospital beds required till 2021.

Implications

About 7870m cum is available at 95% dependability from river valleys. Critical is timely development of sources.

Current coverage is at 60% for Greater Mumbai. Absence of underground systems in many ULBs. Alternate facilities to address immediate needs and additional upgradation

Water

Sewerage

SWM

Health, Education

9.

Finance: Large CAPEX requirement generated by an organized business plan

Investment needs (2005-2021)

Total investment of about USD 70bn is estimated.

• 11% of this is to finance national level infrastructure

• 75% metropolitan• 10% municipal• 4% for land and housing.

Metropolitan/municipal investment split: (USD 50 bn* approx.)

Suggested financing mechanisms

Transit: 56%Highways,: 26%Terminals

Water, Sanitation: 15%

Health, Education, Others: 3%

* Without power and housing

New development charge @ 10% of of sale value on first sale of built up real estate or property

Target ULBs Target ULBs to access more market based financing ie. US$ 1-2 bn on annual basis

Others:• Reforming property tax • ULBs/regional entities preparing 5 year budget plans• Unlocking land value

Making It Happen (Investment Planning)

FinancingDecisions

Investment Planning

Regional &Local Infrastructure

Institutional Considerations

Investment Priorities

Vision Mumbai: 2030

11.

Current Institutional Setup in MMR Infrastructure Development

GoM

MMR

Illustrative

Industries Urban Dev. Urban Dev.Water Supply Housing

Public Works Home Enviornment

MSEB CIDCO

MMRDA

MCGB MJP MHADA MSRDC MSRTC Traffic MPCB

Nalasopara, Navgarh-Manikpur, Vasai, Ambernath, Badlapur, Uran, Panvel, Karjat, Matheran,Pen, Alibagh, Khapoli

MCGM, Thane, Navi Mumbai, Kalyan-Dombivilli, Ulhasnagar,Mira- Bhayandar

Municipal Councils Municipal Corporations

12.

Key Takeaways

Institutional Bottlenecks Way Forward

Multiciplicity of institutions in infrastructure delivery resulting in: - lack of inter-sectoral and institutional coordination - difficulty in coordination of experience - lack of responsibilities and consequent undermining of accountability

Absence of single window clearing system

Overwelming occupation in day-to-day activities

Capacity and knowledge development

To be filled

FinancingDecisions

Investment Planning

Regional & Local

Infrastructure

Institutional Considerations

Investment Priorities

Way Forward:Vision Mumbai

2030

14.

The Context for Regional and Local Infrastructure

Quantum of investments:

Current funding potential:

The short term(2012) and long term(2021) investments needs for MMR are US$ 12.3 bn and US$ 51 bn respectively The regional short term infrastructure projects are estimated at US$ 10.8 bn and the municipal at US$ 3.5 bn

Current financing sources/instruments (including PPPs and land bank sales) are inadequate to meet the financing needs Short-fall ranges from 30% in regional investments needs to about 50% in municipal investments requiredCurrent sources of finance:

Regional Municipal

Land bank sales (MMRDA and CIDCO) Budgetary contributions from GoM and GoI, including via entities like MJP Limited market based borrowings (municipal bonds, commercial banks etc.) Multilateral borrowings

Own resources/internal accruals Borrowings by ULBs (MMRDA, GoM, Multilateral) GoI (JNNURM Program) Direct project investments by MMRDA (MUIP)/MSRDC

15.

Financing Regional Level Infrastructure…Current Scenario

Highways (10 corridors excluding MTHL)

Surburban rail (4 corridors)

Metro lines (10 corridors, excluding under PPP)

Water source development (6 projects)

Total

Estimated requirement and sources of funds in the short term (2012) ; USD billion

Project Requirement Likely Source of Funds

1.67

1.63

5.55

1.96

10.81

PPP (18%)Land sale proceeds (37%)

GoI (50%)GoM (13%)Land sale proceeds (37%)

Real estate development (5%)GoI (25%)GoM (5%)Land sale proceeeds (37%)

Borrowings/user charges (20%)Land sale proceeds (37%)

Note: Proceeds from MMRDA land sales have been divided in a ratio equavilant to cost of project/total infrastructure requirements.

16.

Financing Regional Level Infrastructure…Key Takeaways

Some of the financing gap can be met through multilateral/bilateral borrowings (range of US$2 bn). This could be constrained by GoM’s fiscal position, notably due to the impact of Sixth Pay Commission and rising interest rates.

The gap would become much wider over the long term as MMRDA exhausts its land bank. Developing new land banks might be risky and cyclical in nature.

Despite an assumption of generous contribution by GoI towards urban transport, the financing short fall would be over US$ 22 bn (total investment US$ 41bn) in regional infrastructure till 2021.

17.

Financing Municipal Level Infrastructure…Current Scenario

JNNURM projects

BRIMSTOWAS

Mithi river development

Bandra-Worli sealink

Regular/ongoing works

Other works

Total

Estimated requirement of funds in the short term (2012) ; USD billion

Project Requirement Likely Source of Funds

0.9

0.3

0.3

0.4

1.0

0.6

10.81

XXX

XXX

XXX

XXX

XXX

XXX

Mr Phatak

18.

Financing Municipal Level Infrastructure…Key Takeaways

Immediate financing gap can be met through MMRDA only. Actions for the long term are:

Nudge ULBs towards commercial borrowings. Target US$ 0.5 bn in next 2 years; eventually US$ 1-2 bn a year

Enhance finances through: a. Full cost recovery in WSS b. Reforming property tax system c. Tapping into real estate values

Main sources of funds for ULBs are internal accruals, borrowings from GoI/GoM, MMRDA and limited private market sources. They largely depend on MMRDA for borrowings.

Aggregate annual surplus is about US$ 0.6 bn (2004-05). Current borrowing capacity in “business as usual scenario” is about US$ 0.6 bn. ULBs appear well positioned to finance projects and put US$ 1.5 bn as counterpart financing for JNNURM/on-going capital works.

FinancingDecisions

Investment Planning

Regional &Local Infrastructure

Institutional Considerations

Investment Priorities

Way Forward:Vision Mumbai

2030

20.

Infrastructure Investment Priorities (1/3)

Overview

Business Plan indicates broad assessment of investment needs for 2011, 2016 and 2021.

Given time required for detailed project preparation and various clearances etc. 2016 appears to be a more reasonable target.

Prioritization to meet infrastructure needs must take into account: Time required for technical project preparation and design Time required for enviornment and social assessment Time required for project execution Significance for achieving strategic objectives

21.

Infrastructure Investment Priorities till 2016 (2/3)

Water

Highways

Metro

Suburban Rail

Source Cost (Rs Cr.)

Pinjal 2,038Shai 1,740Gargai 878Kalu 1,655Poshir 1,536Susri Phase 304Total 8,151

Link Cost (Rs Cr.)

Inner-Ring Kaman Bhiwandi 396Inner-Ring Bhiwandi Panvel 612 Thane Ghdbundar 289Radial 3 Bhiwandi Bypass (EBL) 162Radial 3 Bhiwandi Bypass 253Radial 5 Chembur Vashi Tajola 268Nahur Airoli Nijale Badlapur 608Middle Ring Nathen Panvel 639Ghatkopar Koprakhairabe Bridge 801Western Freeway Bandra Versova 2,640 Total 6,668

Link Cost (Rs Cr.)

Andheri-Dhahisat 2,194Ghatkopar Mulund 1,711 Mankhund Vashi Nathen Kalyan 6,573 Thane Bhiwandi 2,199 Thane Ghodbundar Dahisar 3,182 Charkop Dahisar 1,035 Total 16,894

Link Cost (Rs Cr.)

Rajanpanda Seawood 834Diva Bhiwandi Vasai road 2,406 Panvel Uran 1,614Panvel Karjat 1,656 Total 6,510

Projects Across Sectors

22.

Investment Priorities- Key Takeaways

Issues To Be Resolved

Water: May involve forest submergence and involuntary displacement. EIA procedures may require 3 years. Project needs to be commenced with “factor of safety”.

Suburban rail: Prabhadevi-Sewree-Kharkopar is significant. Not on high priority in CTS due to high cost. Given its importance and complexity it is desirable to begin its planning on priority.

Financing: Which of the priority projects are potential candidates for private investment and thus eligible for VGF?

Financing: Will a general development charge or use of sale of FSI and land be adopted for raising public resources?

FinancingDecisions

Investment Planning

Regional &Local Infrastructure

Institutional Considerations

Investment Priorities

Way Forward:Vision Mumbai

2030

24.

Metro-Rail Infrastructure in MMR

Reviewing the Consultant’s cost estimations

The Consultant has recommended an investment of about Rs 150,000 crores (USD 37.5 bn) till 2021 in transport. Immediate needs for Metro-Rail is estimated at Rs 15,000 crores.

Transport Infrastructure Short Term Medium Term Long Term Transit System 20,169 34,754 44,940 Suburban 10,579 10,412 8,481 Metro 9,110 24,342 36,459

Caveats

Ambitious infrastructure requirements: The proposal adds 514 km of metro and 241 of suburban rail (current 404 km) besides BRT to serve a population of 33 m. New York has 468 km of metro, 60km of PATH and 150 km of Long Island Transit serving a population of 18 mn.

High unit cost The unit cost assumed for metro and suburban lines is on the higher side when compared to costs incurred in Delhi metro based on contracts awarded in 2006.

25.

Metro-Rail Infrastructure in MMR

Principles of financing strategy for Metro-Rail

Capture land value gain created to cover capital costs

Increased land value around stations have been recorded all over the world. Sao Paulo’s metro is selling addional FSI in growth pole centers around plannned metro stations.

Plan for densification require higher FSI around stations.

Reinforce economic and planning objectives

Increased density around metro and rail stations is critical to increasepublic transport use. Metro use is greatest when: - abundant work destinations are within 800m of station/can be reached by foot - home/destination is within 800m and can be reached by interconnected rail/bus

Is is important to plan job and housing development around metro/rail stations.

26.

Potential financing strategies for Metro-Rail (1/3)

Joint development around station locations

Undertake land development around stations with private developers.

Government acquisition of land around metro should be explored. The land could be developed by partnerships with metro contributing land and the private agency the capital. This would generate financial resources as well as help in densification near stations. Land could be acquired for “public use” at pre-metro prices.

The Hong Kong metro (MTR) has been conveyed land around around stations at “pre metro” value. MTR contributes this land to joint development ventures where private developers contribute capital and undertake risk. Metro reaps land value by selling its share. In 2007 MTR earned US$2.0 bn pre- tax profit from property sales and US$ 1.1 bn plus in valuations gains from property held.

Description

Existing Example

Implementationin Mumbai

Key Risk

Risk Resolution

Delay/problems in government acquisition of land from private parties to support re-development. Insufficient revenue raised from property development.

Design laws facilitating easier acquisition of land. Construction of large stations enabling leasing of commercial property inside.

27.

Potential financing strategies for Metro-Rail (2/3)

Sale of FSI and land around stations

Sale of additional FSI by State government to generate revenue upfront before development takes place.

Precedent for FSI sale in Mumbai has been established in April 2008 by raising FSI from 1.0 to 1.33 and offering the additional FSI for sale to developers at ReadyReckoner values.

Sao Paulo has designated certain areas termed as “growth poles” within the metropolitan area. The Faria Lima Urban Operation established a pool of 2.25mil sq. m of additional space over normal limit within a 410 hec. development area and have sold development rights for as much as US$ 630 per sq. m.

Description

Existing Example

Implementationin Mumbai

Key Risk

Risk Resolution

Objection to densification due to additional infrastructure needs to support it. Proceeds from the sale disappearing into general ministry budgets.

Allocating half of proceeds of FSI sale for infrastructure development. Require to sell FSI parcels within designated time periods and dedicating funds for capital improvement purposes only.

28.

Potential financing strategies for Metro-Rail (3/3)

Concessionaire financing of rolling stock

A structure in which the government builds the metro and then awards a concession for O&M through competitive bidding. The concessioaire pays for rolling stock, signalling equipment and other equipment.

XXXXXXX

Sao Paulo Line 4 (under construction) involves a concessioning agreement, under which the concessionaire will incur capital expense for 29 trains involving an estimated US$ 394m financed primarily through American Development Bank.

Description

Existing Example

Implementationin Mumbai

Key Risk

Risk Resolution

Protecting concessionaire from future inflation and political decisions about fare levels.

Automatic fare adjustment mechanism by which fares are adjusted annualy by the average of cost-of-living and increase in wage levels partially offset by productivity gains. Example. Hong Kong

Not in note. To be filled

29.

Road Infrastructure

The Consultant has recommended an investment of about Rs 150,000 crores (USD 37.5 bn) till 2021 in transport. This includes the infrastrcuture costs required to serve the upcoming SEZs in MMR. Immediate needs for highways has been estimated at Rs 2,200 crores.

Transport Infrastructure (Rs cr.) Short Term Medium Term Long Term Transit System 20,169 34,754 44,940 Highways 9,473 16,665 21,502

Investment Plan

Key Issues/Risks

Issue/Risk Resolution

25% of the additional transport cost is of linking SEZs to the new airport. SEZs are exempt from various taxes. Division of user charges proceeds between financing maintainance of roads/highways and infrastrcuture investment. Increasing use of private mode of transportation.

The foregone taxes of the developers should be compared with the benefits arising from the transport infrastructure and a charge should belevied on the developers. As per MMRDA, in 2002-03 user charges including taxes on motor spirit were about Rs 25,000 cr./annum and will go upto Rs 35,000 cr./annum by 2010-11 compared to a need of Rs 3000 cr. on maintainance. Even if 50% of revenue is ploughed back most funding requirements for the proposed infrastructure would be met. A car uses almost 8-12 times more road space per person than a bus. It also uses costly parking space. A study must be under-taken to estimate user cost and the appropraiate user charges must be determined.

29.

Water Supply

The total water demand in MMR by 2031 is projected at 3,520 mn cum. As against, a projection of 7,870 mn cum of water available at 95% dependability from these valleys. Thus, there is no intrinsic problem of surface water availability for MMR.

Financing for water sources (Business Plan for MMR): Mechanism Water Source Development Water Supply (Rs. Cr) (Regional Level) (ULB Level) Inter-government transfers 4,411 216 Own resources/Development charges 4,411 346 Borrowings 5,881 303

Total 14,703

865

Investment Plan

Key Issues/Risks

Issue/Risk Resolution

Timely development of water source Long term funds with reasonable moratorium which are difficult to mobilize No single agency devoted to development of water sources

Prioritize development sources. Actions must be initiated taking into account time required for various phases and also factor in a “margin of safety”.

Any suggestions?

29.

The coverage of sewerage system in urban based local bodies of MMR is considerably low. It stands at: - 60%: Greater Mumbai - 70%: Ulhasnagar - 25%: Kalyan-Dombivilli - 17%: Thane - 57%: Navi Mumbai

Planned financing (Rs crore) till 2021: - Inter-governmental trasfers 1,983 - Own resources/development charges 3,172 - Borrowing 2,776

Total 7,931

Investment Plan

Key Issues/Risks

Issue/Risk Resolution

An underground sewerage is totally absent in the remaining ULBs other than ones mentioned above Apart from MCGM, only 5 other corporations and 1 council have some kind of treatment and disposal facility.

100% coverage of region through an underground system is the long term aim towards which a phased approach is undertaken Alternative approaches will be worked out to address immediate needs and existing facilities upgraded

Any suggestions?

Sewerage and Sanitation

29.

MMR at present generates an average municipal solid waste of about 11,000 TPD of which MCGM accounts 73%. The region presently does not have an efficient SWM system and there exists a wide variation amongst the 12 ULBs in handling of solid waste.

Planned financing (Rs crore) till 2021: - Inter-governmental trasfers 153 - Own resources/development charges 245 - Borrowing 214

Total 612

Investment Plan

Key Issues/Risks

Issue/Risk Resolution

Insufficient number of land fills. Management of waste generated and disposal practices.

XXXX

Any suggestions?

Solid Waste Management

35.

The Way Forward- Strengthening Financial Capacity (1/2)

Prospective sources of finance till 2021 for investments in MMR US$ Bn

Development charge (cumulative flows) 30 GoM budgetary support, including multilateral/bilateral borrowings 6 GoI 8 Market based (ULB borrrowings backed by reforms) 4 PPPs (assumed only for highways) 2 Real estate development around Metro 1 Total 51

Current Scenario: Regional infrastructure financing largely dependent on land banks of MMRDA and CIDCO

Current Scenario: Regional infrastructure financing largely dependent on land banks of MMRDA and CIDCO

Implication: Financing gap cannot be met without looking at new finance instruments and reforms.

Implication: Financing gap cannot be met without looking at new finance instruments and reforms.

36.

The Way Forward- Strengthening Financial Capacity (2/2)

Introduce a new “development charge” @ 10% of sale value on first sale of built up real estate/property

Ring fence DC receipts in a “Mumbai Development Fund” which can be used for: - Direct capital funding of MMR projects - Secure/repayment of borrowings - Credit enhancement for mrkt. borrowing - Fund “annuity” based PPP models - Provide viability gap funding for PPPs

Evolve tax sharing formula between regional and local levels

Target ULBs to access more market based financing ie. US$ 1-2 bn on annual basis Actions to facilitate this are: - Providing credit enhancement support with a defined framework - Technical assistance mainly in form of appointing “transaction advisors” for specific projects - Operate MMRDA municipal funds on commercial lines and as a separate entity over time

Reform the property tax, tariff regimes at municipal level

Unlock municipal land asset values

All ULBs as well as regional entities to prepare 5 year rolling capital plans/budgets

Financing gap to be met by a 4 pronged approach of new public instruments, market financing & reforming current instruments.

Other Reforms

Development Charges

Market Financing

Identify annuity based contracts for larger projects

Structure contracts as performance based maintainance contracts

Establish independent mechanism to set user fees

PPP