Purpose of the innovative and very successful Approach, TNUDF, is to improve the level of investments in environmental-related urban infrastructure. Ultimate aim of this project is to improve the environment, the preservation of natural resources and the living conditions of the urban population in the state of Tamil Nadu.
TNUDF, the Tamil Nadu Urban Development Fund, is the first investment of KfW in the field of environmental-related urban development. The fund was originally launched by the state government of Tamil Nadu in 1996, with support of the World Bank. The aim of the project is the development of urban regions in the southern state of Tamil Nadu.
In fact, cities in Tamil Nadu – being one of the most urbanized states in India - face enormous challenges to provide their citizen with basic urban services such as water supply, sewerage and waste disposal. The existing level of infrastructure is already not meeting current demand, not to speak of the high migration rates into the urban areas which we experience today. Despite of that, the possibilities of the international and national capital markets to provide the much needed financing for this gap are falling awfully short.
For this reason, TNUDFs major goal is to establish a much needed link between the substantial infrastructure financing needs and the domestic and international capital markets. This goal is achieved by its institutional set up as an independent financial intermediary (trust fund) which is majority owned by the Government of Tamil Nadu. The fact that three private financial institutions, namely ICICI Bank Limited, Housing Development Finance Corporation Limited and Infrastructure Leasing and Financial Services Limited are minority shareholder of the fund, renders the TNUDF the first public-private partnership in India, that provides long term debt for civic infrastructure in a non-guarantee mode. As such, TNUDF is in a good position to acquire long term debt funding on national and international capital markets. Endowed with this capability and resources, TNUDF promotes the region in the following way:
- Funding of urban infrastructure projects in the state of Tamil Nadu, which improve the environmental situation and efficient use of natural resources - and by that the living standards of the urban population in the region;
- Promotion of private sector participation in infrastructure through facilitation of joint ventures and public-private partnerships;
- Improving the financial management of urban local bodies enabling them to access debt finance from markets;
- Improving the planning and implementation capabilities of urban local bodies so that the infrastructure projects are realized in a manner they are sustainable and beneficial for the local community.
Based on this setting, KfW – on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) – for the first time provided funding to TNUDF in the year of 2008. Channeled through the Government of India and the Government to Tamil Nadu the funding provided by KfW to TNUDF is splitted into three elements:
- A EUR 65 million loan, which interest is subsidized with funds from the BMZ. This loan is utilized to refinance environmentally relevant projects, mainly in the areas of water supply, sewerage and waste disposal.
- In addition, an IDA loan of EUR 10 million out of BMZ funds is provided. These funds are deployed as credit enhancement for pooled municipal bonds (gebündelte Kommunalanleihen). Via the platform WSPF, a particularly innovative component of TNUDF, municipal bonds are bundled and issued on the capital markets. The value added is that those municipal bonds – for a variety of reasons - would have not found investors on a stand alone basis. Due to that approach, urban local bodies can increase their access to financing for urban infrastructure.
- In addition, BMZ provided grant funds in the amount of EUR 2 million. These funds are being used for an accompanying measure which supports the TNUDF and the municipalities / cities in the development and implementation of projects, to conduct feasibility studies/regional plans of different kinds and to promote the institutional development of TNUDF itself.
Based on the excellent cooperation and achievements resulted out of that, KfW and TNUDF in the year 2012 signed a follow up agreement of 80 mln EUR reduced interest loan.