Mayiladuthurai Municipality

Municipal Services - Status assessment, gaps and actions being taken

Exhibit 1 presents a summary of service levels and status with respect to select indicators in Water Supply, Sanitation, Transportation, Street lights and Solid Waste Management.

Exhibit 1 - Status of Municipal services

Sl. no Parameter / Indicator Value Issues and Gaps A. Water Supply 1 Total Water Supply (MLD) 7.5 • Demand – Supply – MyM’s supply of 7.5 MLD 2 Water Connections - nos. ~ 6300 corresponds to 90 LPCD which is in line with municipal norms. 3 Public Fountains - nos. ~ 180 • Pumping equipment requires upgrade from 120 4 Daily Per Capita Supply (LPCD) 90 kVA to 180 KVA. Additional borewells are also 5 Storage Capacity / Daily Supply (%) 63% required to augment capacity. • 6 Pipe length / Road Length (%) 100% Scope for adding water connections – Water connections account for only about 37 % of the 7 Water connections / properties (%) 37% number of properties assessed and indicate the scope for adding more connections. • Poor collection efficiency - Current collection efficiency was only 65 % in FY 2005 and is a major cause for concern. • Other issues - Uneven distribution and low pressure supply complaints prevail in select wards in the town. B. Sanitation 8 UGD network (Yes/No/In progress) In • MyM is currently implementing an Underground progress sewerage system with assistance under NRCP. About 31 km of additional areas uncovered 9 Households with septic tanks ~ 12000 under the initial scheme has been identified to 10 Number of Public conveniences 31 be covered at an outlay of Rs. 4 crore. 11 Length of Storm drains (km) 43 • Storm water drains are provided only in 12 Est. access to sanitation (%) 85% approximately 10 % of the total road length within MyM limits and require significant 13 Storm Drains - % of road length 10% improvement C. Roads, Transportation and Street Lights 14 Total Length of Roads 107 • MyM maintains a road network of nearly 87.5 15 Total number of Street Lights ~ 3100 km of which surfaced roads (both B.T. and CC) constitute 87 %. In addition, nearly 20 km of 16 BT + CC roads / Road length (%) 93% highway roads traverses the MyM area. The 17 Road length per Street Light (m) 28 m road network requires significant upgradation in view of the ongoing UGD scheme. • Nearly 76 % of the lights are tube lights and 24 % are sodium vapour lamps. Average spacing between the lights (~ 28 m) is in line with the municipal norm of 30m • MyM proposes to develop a new Class A bus stand at Thennamara salai at an outlay of Rs. 6.5 crore

Conversion of CCP to BP - Mayiladuthurai Municipality

D. Solid Waste Management 18 Total Waste Generation (MT) 38 • MyM is in the process of implementing a project 19 Collection - % of waste generated 92% at an outlay of Rs. 53 lakh to improve its solid waste management handling infrastructure 20 Compost yard area -available 4.62 21 Compost yard - required (Acres) 8.8 22 Compost Yard - Gap - Acres (4.15)

Analysis of financial performance

Exhibit 2 provides a summary of the financials of MYM, along with a) an analysis of the growth and b) change in composition of various revenue and expenditure heads. Key highlights are summarised below:

• A 10 % growth in operating surplus and a 8 % CAGR in revenue and by keeping costs in check. Tax income has grown at a CAGR of 5 % over the last five years in spite of no revision in Average Rental Value (ARV) since 1998. User charges have grown by a healthy 30 %, aided by increased in collection of water charges and other fee income including sewerage deposits The share of user charges/fees has increased from 12 % of revenue to 25 % of revenue over the last five years. Grants / Contributions from state have been the biggest revenue driver and have doubled in the last five years. They contribute to nearly 23% of income. Expenditure has remained flat over the last few years, showed an increasing trend till FY 2003 and marginally declining over the next two years. Salaries have marginally declined due to reduction in staff, while Operating expenditure has grown at 13 %. Overall, revenue expenditure appears to have been in control. Interest expenditure has shown a steep increase, up from 2% of income in 2001 to 12% of income in 2005.

Capital Investment Plan

We have compiled the felt needs of the city under various service areas, based on

• Review of projects recommended in the City Corporate Plan • Status and progress on projects identified as part of the Vision Plan (2004-09) • Consultations with stakeholders and • Discussion with officials

Conversion of CCP to BP - Mayiladuthurai Municipality

Exhibit 2 - Financial analysis

2001 2002 2003 2004 2005 CAGR % INCOME Own Income 295 300 377 526 382 7% Property tax 155 164 177 182 187 5% Professional tax 16 16 19 19 23 10% Water charges 19 13 36 109 89 47% Sewerage charges 1 5 38 121 49 214% Service Charges and fees 36 33 44 41 18 -16% Other Income 68 70 65 54 16 -30% Assigned Revenue 87 38 147 154 92 1% Devolution and Grants 73 77 144 200 144 18% Prior Period - 34 3 1 - Total 456 449 671 880 618 8% EXPENDITURE Staff and terminal benefits 261 254 361 270 249 -1% O & M 50 55 66 84 81 13% Program - - - - - Admin 10 126 59 34 31 32% Prior Period - 8 3 1 0 Operating Expenditure 321 443 490 389 361 3% Operating surplus 134 6 181 492 258 18% Finance charges 9 - 12 49 76 69% Depreciation 7 13 104 81 30 46% Cash surplus 125 6 169 443 182 10% Overall surplus 118 (8) 64 362 152 6%

Exhibit 3 provides a summary of the CIP for MYM.

Exhibit 3 Capital Investment Plan

Outlay as given in Outlay reqd.* Segment Vision Remarks on ongoing projects/Projects envisaged CCP SFC 2006-15 Plan • Roads require significant upgradation in view of Roads 1052 350 1,125 2000 the ongoing UGD scheme Storm Water • CCP highlights significant gaps in storm water 1100 120 325 1000 Drains drains • Comprehensive water supply project undertaken. • Outlay required for distribution gaps, pumping Water Supply 30 130 200 system upgradation, additional borewells and providing new connections • Immediate outlay for procuring equipment (Tipper Solid Waste 18 170 81 150 lorry / Dumper place bins) for upgrading primary Management collection and secondary collection • Installation of timers / energy saving timers and Street Lights 64 12 30 30 additional lamps Bus stands and • Bus stand at an outlay of Rs. 6.5 crore and other 200 712 671 1000 rem.enterprises market developments at an outlay of 92 lakh Education 70 50 100 • Development of school infrastructure

Conversion of CCP to BP - Mayiladuthurai Municipality

Outlay as given in Outlay reqd.* Segment Vision Remarks on ongoing projects/Projects envisaged CCP SFC 2006-15 Plan • Completion of remaining part of UGD scheme Sewerage and 4216 4280 622 650 • Coverage of additional areas of approx. 31 kms to Sanitation be covered Others 82 316 1,054 100 • Health centres, burial ground etc, Tourism projects TOTAL 6732 6060 4,184 5130 List of priority projects

Priority projects identified by the municipality are listed below. These projects and the capital expenditure estimates given above have been arrived at based on projects identified in the City Corporate Plan prepared earlier and based on discussion with Chairperson, Commissioner and municipal officials. Select projects identified by MyM are identified below

• Completion of ongoing UGD scheme. Additional areas left out in the current scheme of approximately 31 km of roads as identified by MyM also need to be taken up. • Restoration and upgradation of roads in view of the poor condition following implementation of UGD scheme and heavy rains last year. • Development of new Bus stand. This could be taken up on BOT basis to reduce pressure on financials of the municipality. • Remunerative projects on a BOT basis, specifically relating to tourism development. There is a proposal to develop a Theme park on a BOT basis at Chitarkadu, where 6 acres of municipal land is available. Reform Agenda

ULB level MYM could potentially increase its own income to Rs. 550 lakh by 2010 through focused interventions in the following areas: 1. Property tax : – through revision in ARV, widening assessee base and closer scrutiny. 2. Professional tax – sustaining a growth in assessments of 5 % in the assessments through widening tax base among traders and self-employed professionals 3. User charges - MYM should target achieving another 4000 water connections even by FY 2010. Implementation of UGD scheme structured partly on public deposits and user charges could also add to revenues and investment capacity. 4. PPP / remunerative projects - MYM also needs to explore land development as a revenue enhancement mechanism and should focus on attracting private sector participation through appropriate BOT/ SPV structures for implementing remunerative projects. There is a proposal to develop a Theme park on a BOT basis at Chitarkadu, where 6 acres of municipal land is available. 5. Energy costs - A savings of 10-15% reduction in energy costs appears imminently achievable. A comprehensive energy audit is required in this regards. 6. Collection Efficiencies - MyM’s collection efficiency is very low across all its revenue heads namely, property tax, professional tax and user charges and needs significant improvement from

Conversion of CCP to BP - Mayiladuthurai Municipality

current levels. MyM should consider a) a focused one-time drive to clear up its dues and b) strengthening of its collection process and organisation to ensure that the overall levels of efficiency in order to improve and sustain its collection efficiencies. 7. NGOs / Corporate participation - Intensify focus on attracting NGOs/advertising revenue for city beautification projects. Actions from GoTN and GoTN agencies 1. Initiate action to complete ongoing updation of land use and master plan for Mayiladuthurai municipality on priority to guide future growth of the town in an orderly manner. 2. Revise ARV for property taxes, pending since 1998 at the earliest. 3. Develop model concessions / formats for involving Private sector in various areas including Solid waste, STP O&M, street light maintenance and remunerative projects 4. Incentivise energy conservation and implementation of SWM guidelines through specific grants 5. GoTN should continue its thrust on e-governance, accounting systems and capacity building/training. Specific actions on this have been identified in the report. FOP, borrowing capacity and investment capacity

While the borrowing capacity computed as the minimum of NPV of operating surplus, 30% of revenues during the projection period works out to Rs. 464 lakh, actual projections reveal that Mayiladuthurai faces a severe Debt Service Coverage issue even at this level of borrowing. This is due to the strain of repayments on its existing loans which stood at nearly 13 crore in FY 2006. Therefore, Mayiladuthurai borrowing capacity is negligible even with improvements.

Exhibit 4 Summary of key results

Summary of FOP results Revenues – FY 2006 (Rs. Lakh) 467 Revenues – FY 2015 (Rs. Lakh) 799 Revenue CAGR % - FY 2006-15 6.14 Avg. Op. Surplus (Rs. Lakh) (53) Avg. Cash Operating Surplus 41 Avg. TE (excluding depreciation)/TR (%) 94% Average Debt Servicing/TR (%) 26% Borrowing Capacity as a minimum of NPV of NPV of 50% of Cash Surplus (without new loans) 80 NPV of 30% of Revenue 1,239 Borrowing Capacity 80 Investment Capacity 612 Investment Requirement 3,767 IC/ IR 16% Some drastic measures including restructuring of its existing loans is required for Mayiladuthurai municipality to improve its investment capacity. Otherwise, MyM would need to utilize Grants from schemes like UIDSSMT and IHSDP to undertake its investments. Further, MyM could also consider involvement of private sector in implementing remunerative projects including bus-stands, markets and slaughter houses etc.

Conversion of CCP to BP - Mayiladuthurai Municipality

1. Introduction

1.1 Background to the study

Mayiladuthurai is a selection grade Municipal Town and taluk headquarters of the Nagapattinam District in Tamil Nadu. Under the Tamil Nadu Urban Development Project - II (TNUDP-II), a City Corporate Plan (CCP) was prepared for Mayiladuthurai Municipality (MyM) in 2004. The objective of the CCP was to outline a vision for development of the city and to identify strategies and tasks to be carried out by MyM. Subsequently, MyM has also developed a 5-year Vision Plan (2004-09), identifying various projects that it plans to undertake during this period. In order to enable effective implementation of projects envisaged in its CCP and Vision Plan, The Tamil Nadu Urban Infrastructure Financial Services (TNUIFSL) mandated ICRA Management Consulting Services (IMaCS) for conversion of City Corporate Plan (CCP) into a Business Plan (BP).

1.2 Scope of work

The scope of work for the study covered a) assessment of the financial and operating aspects, b) Review issues relating to revenue realisation and cost management and identification of improvement (revenue enhancement and cost reduction) measures and c) Development of a Financial and Operating Plan (FOP), taking into account potential revenue enhancement and cost reduction measures.

1.3 IMaCS approach to the study

Exhibit 1.1 gives a snapshot of IMaCS’ approach to the study.

Exhibit 1.1 IMaCS approach to the study

DIAGNOSIS EVALUATION OF DEVELOP FINANCIAL & CHOICES OPERATING PLAN

CCP Clarify ULB priorities on projects /schemes Base Case Business Plan Vision Plan Demands on ULB for various services Analysis of likely trends in Existing proposals Sensitivity analysis on key revenue and cost drivers of the ULB business drivers

Critical operational Understanding of Areas and scope for outcomes to be achieved context in which revenue and cost the ULB operates improvement Steps to be taken by ULB/ GoTN /TNUIFSL towards Assessment of achieving the Business Past Financials plan milestones and targets Review of ULB performance Underlying Operational indicators and service delivery

Clarity on ‘As-is’ state of the ULB in Crystallize Strategic Choices Translate options into tangible terms of financial and operating going forward and measurable projections performance

Conversion of CCP to BP - Mayiladuthurai Municipality 1

1.3.1 Step I – Diagnostic review

The diagnostic review involved an assessment of the current status of MyM, its activities and financial performance, review of the City Corporate Plan (CCP) and discussions with TNUIFSL and MyM. We had the opportunity to interact with the Commissioner along with their team and had extensive interactions during our field visits.

We collected relevant information on the performance (operational and financial) from MyM. Our review was focused on the following areas:

• Financial position • Operational performance • Demands on urban services in the town/municipality The diagnostic review was directed towards achieving a clear understanding of the operating and financial performance of MyM.

1.3.2 Step II – Evaluation of options for financial improvement and projects

Based on the diagnostic review, we crystallised the options for MyM covering a) analysis of areas for revenue enhancement and cost management and b) Felt needs in terms of projects and estimate of capital outlay.

1.3.3 Step III –Projection of financial statements and estimation of investment and borrowing capacity

We have projected financial statements for MyM under two scenarios namely, a) base case and b) with potential improvements. Under both scenarios, the optimum borrowing capacity and sustainable investment capacity have been computed.

The Draft Final Report for the study was presented to the office of CMA, officials of Trichy Corporation and TNUIFSL in April 2006. Subsequently, the report was presented to Chairperson and select council members. This was followed by a review of the report at TNUIFSL by officials of TNUIFSL, CMA and MyM. This report incorporates the suggestions from these consultations.

1.4 Structure of the report

This report is organised as follows:

• Section 1 Introduction • Section 2 Mayiladuthurai - a brief profile • Section 3 Review of operating performance • Section 4 Analysis of financial performance • Section 5 Potential areas for improvement • Section 6 Business plan projections and investment capacity

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2. Mayiladuthurai - a brief profile

2.1 Location and connectivity

Mayiladuthurai is a selection grade Municipal Town and taluk headquarters of the Nagapattinam District in Tamil Nadu. Mayiladuthurai is located at a distance of 281 kms from Chennai and is well connected to all major towns in Tamil Nadu by road and rails. Mayiladuthurai is home to the famous ‘Mayuranathar’ Shiva temple and the historic tourist centres, Suriyanar Temple, Theralandur and Thirunallar are situated near to the town. The river Cauvery traverses through this town.

2.2 Social and demographic characteristics

Mayiladuthurai with a total land area of 11.26 sq. km had a population of 84,290 in 2001.

Exhibit 2.1 Population trend

Population Decadal Year Population Variation Growth rate % 1951 43,436 10,766 32.95 % 1961 51,399 7,693 18.33 % 1971 60,196 8,797 17.12 % 1981 67,710 7,514 12.48 % 1991 76,837 9,332 13.78 % 2001 84,290 7,158 9.29 % Source: Census of India The CCP projects the population in the town to reach 92023 by 2013 and 99070 by 2023. Population density is higher in the core areas and lower in the peripheral areas of the city. But the CCP points out that there is outward movement of people to the periphery. Population density is more along the river palam Kaveri that run across the town from east to west in the southern part of the town. Low density areas are of new settlements that spread along the river banks at the periphery of the town. Due to the direction of the river and major roads being in the east west directions, developments are taking place in the same pattern.

Mayiladuthurai 1 recorded an overall literacy rate of 80.2 % with female literacy of 76.1 %, while the sex ratio was 1012 females per 1000 males. As per Census 2001, the slum population in Mayiladuthurai is 13% of the population. However, the municipal data shows an increase in slum population and this is a major concern area for the municipal corporation.

1 Source: http://gisd.tn.nic.in/census-paper2/TABLES/table-1c.htm

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2.3 Economic Development

2.3.1 Composition of workforce

The economic base of Mayiladuthurai is predominantly, tertiary sector activities with trading of agro products and cottage industries. Hence the participation rate is more in the tertiary sector.

As per census data of 1991, worker population is about 28.6% of the total population, which is low compared to the state figure. The economic based of the town is predominantly tertiary sector activities with trading in agri-products and cottage industries. Nearly 67 % of the workforce is engaged in the tertiary sector.

2.3.2 Economic activities

Industry Mayiladuthurai is an industrially backward town and there is no major industry in this town. There are about 79 small agro based and household industry spread over the entire developed area. There are few engineering industries, welding and lathe works, auto works, tri-cycle manufacturing works and a large number of agro based industries that accommodate larger portion of workers. Only 6.325 hectares are under industrial use, which is very low compared to the standard of 370 hectares use. Key industries include rice mills, engineering works, printing press and confectionery making. The CCP indicates that the proposed ITI could spur the growth of small scale industry. Additional areas that emerged based on consultation with Chairperson and select ward members on potential economic activities for the town include the need to create employment intensive investment including rice milling and tourism development. It was also suggested that the municipality along with the Tamil Nadu Slum Clearance Board should identify vacant/acquirable land areas within the municipal areas to create land parcels for industrial development and slum rehabilitation.

Heritage and tourism activities Being a temple town (the Mayuranathar Temple attracts pilgrims from other places), Mayiladuthurai a tourist centre. It is also strategically located in close proximity to the famous nine Navagraha temples. A number of important tourist places including Poompuhar, Mayuram, Tanquebar and Therazendur are in close proximity to the town. Since Mayiladuthurai has a good road and rail system, it acts as a halting junction for pilgrimages. The CCP points out that there is good scope for exploiting tourist potential and substantially increasing the economic growth of the town.

Trade and commerce In terms of commercial activity, there are weekly markets and daily markets and an Uzhavar Sandhai functioning at present in Mayiladuthurai. The Municipality runs the commercial complex with 11 shops in the Kittapa Commercial complex. Apart from these, there are flower and vegetable markets from where goods are exported to other cities. The town is an aggregation centre for a special variety of mangoes called ‘Pathiri’ got from the surrounding villages. Milk production is also an important activity around the town.

Conversion of CCP to BP - Mayiladuthurai Municipality 4

2.4 Land use management

Mayiladuthurai Municipality covers an extent of 11.27 sq. km. The CCP observes that the developments extend from the core of the town along the main roads as ribbon developments. High density residential areas are in the older parts of the town. Mayiladuthurai is located amidst a fairly large agricultural belt and trading in agricultural products thus forms an important activity in the town.

2.4.1 Issues in land-use

Mayiladuthurai municipal area has been declared as Mayiladuthurai Local Planning area. The member of the council form members of the planning area as well. Exhibit 2.2 provides details of land use. The urbanised area constitutes 620 hectares out of the total 1137 hectares. About 44.9% of the total area comes under undeveloped / non-urbanised land. The land use pattern in 1996 is as given below:

Exhibit 2.2 Land-use - 1996 and 2011 (proposed)

Sl. No Type 1996 Provided in master plan (2011) Land (ha) % of total Land (ha) % of total 1 Residential 498.84 44.27 892.20 79.2 2 Commercial 68.87 6.11 78 6.9 3 Industrial 6.33 0.56 12 1.1 4 Educational 22.35 1.98 45 4.0 5 Public and semi-public 24.27 2.16 25 2.2 6 Agricultural and others 506.35 44.92 74.5 6.6 Total 1127 100 `1127 100 Residential areas proposed include Pattamangalam, Koradadu, Sithakadu, Mayuram, Tiruvillandu and Vellalagaram village parts with low-medium densities. The residential areas are divided into primary residential and mixed residential. The primary residential area has been zoned on newly developed areas and the central part of the town has been designated as mixed residential. The majority of commercial activity is spread around the existing bus stand area. Commercial areas have been proposed in the centre of the town around the bus stand between Mahathanapuram road and hospital road. Commerical areas are also proposed along the major highways including Kumbakonam road and Avoor road. An ITI is provided for as part of the master plan as part of the Industrial area, for which 12 acres have been allocated.

2.5 Strategy for development

The CCP outlines the following strategies for development:

• Provision of food processing centre for fruit and milk products • Improvement of agro-processing industries around the town that have direct and indirect impact on employment opportunities • Improvement of linkages of the town to other urban centres • Provision of better facilities including lodging and boarding facilities for tourists.

Conversion of CCP to BP - Mayiladuthurai Municipality 5

Additional areas that emerged based on consultation with Chairperson and select ward members on potential economic activities for the town include the need to create employment intensive investment including rice milling and tourism development. It was also suggested that the municipality should identify vacant/acquirable land areas within the municipal areas to create land parcels for industrial development and other economic activities.

Conversion of CCP to BP - Mayiladuthurai Municipality 6

3. Review of operating performance

This section presents a review of the status of infrastructure development undertaken by MyM

3.1 Water Supply

Water Supply to Mayiladuthurai town is through two water supply schemes of TWAD and hand pumps

• Scheme I – This was initiated in 1969 to provide protected water supply to the town and was designed to cater to ultimate population of 62000 at a per capita supply of 70 litres per day (LPCD). However the carrying capacity has been reduced to 55 LPCD. • Scheme II – TWAD has implemented an augmentation project at a cost of Rs. 11.25 crore including construction of a collector well and a pumping main of length of 20.2 km. Water supply is effected through three additional service reservoirs and a new distribution system of 45.8 km. • Hand pumps - 296 hand pumps have been installed at various places in the town. The new water supply scheme was designed to meet the intermediate stage (2011) and ultimate stage (2026) requirement of water supply, worked out to 103.5 lakh litres and 139.5 lakh litres respectively. Hence the water supply scheme is expected to satisfy the present and future demand of water for the projected population.

Exhibit 3.1 Water supply

Source I Source 2 Source 2 Supply Source Location Sitharkadu Gandhi Nagar Mamarathu medai Daily intake (Lakh litres) 27 6 9 Transmission type Pumping Pumping Pumping Location of Head works Vennar Coleroon Avg. per capita supply 90 LPCD Distribution Distribution main (km) 99.47 km % of road length covered 99.8% Storage Storage Capacity Existing capacity 4 OHTs with capacity of 4.75 million litres Norm 3.7 Million Litres 3.1.1 Key issues

Some of the key issues with respect to water supply are highlighted below:

• Demand – Supply – MyM’s supply of 7.5 MLD corresponds to 90 LPCD which is in line with municipal norms. • Scope for adding water connections – Water connections account for only about 37 % of the number of properties assessed and indicate the scope for adding more connections. However, the high proportion of slum population and availability of water fountains constrain the ability to add more connections. Further, availability of ground water for households also deters people from taking household connections.

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• Poor collection efficiency - Current collection efficiency was only 65 % in FY 2005. Overall collection efficiency is even lower due to poor arrears collection ( 40 % efficiency) and is a major cause for concern, especially considering the significant debt servicing obligation that MyM has. • Other issues - Uneven distribution and low pressure supply complaints prevail in select wards in the town. Also certain extended areas of the town need to be provided with distribution main. There has been no formal leakage audit and this initiative could enable improve the efficiency of water supply.

3.2 Sanitation

3.2.1 Under Ground Drainage (UGD)

Mayiladuthurai is currently implementing an Underground sewerage system with assistance under the National River Conservation Program (NRCP)

Mayiladuthurai is in the process of implementing comprehensive Underground drainage scheme with assistance from NRCD at an outlay of Rs. 42 crore. Nearly 80 % of the pipeline work for the project has been completed. When completed the project is expected to be ready to serve more than 13000 house service connections. The project would have 8 pumping stations with 1 sewerage treatment plant. The UGD scheme is expected to be completed during the course of the next two years. Exhibit 3.3 provides details of the existing sanitation facilities in Mayiladuthurai.

Exhibit 3.3 Sanitation facilities –

% of households Households 16070 Septic tanks 12535 Low cost sanitation 1562 Public conveniences (usable) 12 Public conveniences (non usable) 19 Source: CCP Cost of additional areas covering 31 km which were not covered by the above project is estimated at Rs. 4 crore. MyM is keen to implement the same upon completion of the existing project

3.3 Storm water drains

Storm water drains are provided in approximately 10 % of the total road length within MyM limits. Exhibit 3.4 provides the details.

Conversion of CCP to BP - Mayiladuthurai Municipality 8

Exhibit 3.4 Storm water drain network

De tails Length in km % coverage Open pucca / surfaced 39 36% Kutcha / unlined 4 4% Total Drains (km) 43 40% Roads without drains 64 60% Total Road Length (km) 107 100% Source: SFC Questionnaire Jun 2005 3.4 Solid Waste Management

Mayiladuthurai generates nearly 104 MT of solid waste per day, while collection is estimated about 85 MT per day (implying nearly 80% collection). Exhibit 3.5 gives the current status of solid waste generation and management system of MyM.

Exhibit 3.5 Solid Waste Management - current status

Generation / day 38 MT Collection / day 35 MT Door - to - door collection All wards Privatisation of door-to-door collection 39 streets Compost Yard area 4.62 acres

MyM’s vision plan has identified deficiencies in terms of compost yards and transportation infrastructure. MyM is in the process of implementing a project at an outlay of Rs. 53 lakh to improve its solid waste management handling infrastructure. 3.5 Roads

Exhibit 3.6 provides details of the road network under the jurisdiction of MyM.

Exhibit 3.6 Road network

Type Municipal Roads Highways km % km % Cement Concrete pavement 5.617 6% BT. Roads 75.784 87% 20.854 100% W.B.M roads 3.457 4% Earthen Roads 2.685 3% Total 87.543 100.00% 20.854 100

MyM maintains a road network of nearly 87.5 km of which surfaced roads (both B.T. and CC) constitute 87 %. In addition, nearly 20 km of highway roads traverses the MyM area. The road network requires significant upgradation in view of the ongoing UGD scheme.

Conversion of CCP to BP - Mayiladuthurai Municipality 9

3.6 Street lights

Exhibit 1 provides details of provision of street lights by MyM. Nearly 76 % of the lights are tube lights and 24 % are sodium vapour lamps. Average spacing between the lights (~ 28 m) is in line with the municipal norm of 30m. Exhibit 3.7 provides the details.

Exhibit 3.7 Existing Street Lighting Facilities

Type Nos. Tube lights 2334 Sodium Vapour Lamps 708 Mercury Lamps - High Mast /Others 3 Total 3045 3.7 Bus stands

The existing bus stand in Mayiladuthurai is on the Kumbakonam Sirkazhi road. It is a class B bus stand with about 12 bus bays. The CCP observes that the bus stand is highly saturated. MyM has proposed to develop a Class A bus stand to the 8.74 acre site at Thenamara salai. The proposed bus stand is to developed at an outlay of Rs. 7 crore and would have 51 bus bays and all required amenities.

3.8 Capital Investment Plan

We have compiled the felt needs of the city under various service areas, based on

• Review of projects recommended in the City Corporate Plan prepared earlier under TNUDP - II • Status and progress on projects identified as part of the Vision Plan (2004-09) prepared by MyM • Discussion with MyM officials Priority projects as identified by MyM are listed below 1. Completion of ongoing UGD scheme. Additional areas left out in the current scheme of approximately 31 km of roads as identified by MyM also need to be taken up. 2. Restoration and upgradation of roads in view of the poor condition following implementation of UGD scheme and heavy rains last year. 3. Development of new Bus stand. This could be taken up on BOT basis to reduce pressure on financials of the municipality. 4. Storm Water Drains 5. Remunerative projects on a BOT basis, specifically relating to tourism development. There is a proposal to develop a Theme park on a BOT basis at Chitarkadu, where 6 acres of municipal land is available.

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Exhibit 3.8 provides a brief snapshot of the felt needs of MyM over the next ten years for various services and the estimated outlay for implementing these projects.

Exhibit 3.8 MyM - Felt needs (2006-15)

Outlay as given in Outlay reqd.* Segment Vision Remarks on ongoing projects/Projects envisaged CCP SFC 2006-15 Plan • Roads require significant upgradation in view of the Roads 1052 350 1,125 2000 ongoing UGD scheme Storm Water 1100 120 325 1000 • CCP highlights significant gaps in storm water drains Drains • Comprehensive water supply project undertaken. • Outlay required for distribution gaps, pumping system Water Supply 30 130 200 upgradation, additional borewells and providing new connections • Immediate outlay for procuring equipment (Tipper lorry Solid Waste 18 170 81 150 / Dumper place bins) for upgrading primary collection Management and secondary collection • Installation of timers / energy saving timers and Street Lights 64 12 30 30 additional lamps Bus stands and • Bus stand at an outlay of Rs. 6.5 crore and other 200 712 671 1000 rem.enterprises market developments at an outlay of 92 lakh Education 70 50 100 • Development of school infrastructure • Completion of remaining part of UGD scheme Sewerage and 4216 4280 622 650 • Coverage of additional areas of approx. 31 kms to be Sanitation covered Others 82 316 1,054 100 • Health centres, burial ground etc, Tourism projects TOTAL 6732 6060 4,184 5130

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4. Analysis of financial performance

This section provides a summary analysis of the financial performance of MyM.

4.1 Income and Expenditure summary of MyM

Exhibit 4.1 provides a summary of the income and expenditure of MyM. This summary has been prepared based on information provided by MyM2.

Exhibit 4.1 Income and Expenditure of MyM - Last five years

4.2 Revenue streams of ULB in Tamil Nadu

Revenue of ULBs in Tamil Nadu can be categorised along three areas:

• Own Revenue - comprising taxes (property tax and professional tax), user charges (water, sewerage, solid waste etc.) and other non-tax income (lease and rents, sale & hire charges etc) • Assigned Revenue - Income generated revenues shared with the ULB • Grants and Contributions - Grants and transfers made by GoTN

2 We have received the audited accounts from MyM for FY 2001 to FY 2004 and information on FY 2005 (as in the case of DCB statements)

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Exhibit 4.2 provides a detailed classification of the revenue streams.

Exhibit 4.2 Revenue streams - ULBs in Tamil Nadu

ULB-Income

Assigned Transfer from Own Income Revenue Govt

Entertainment Non- Tax Income Tax Income Devolution Fund Tax

Grants and Stamp Duty Contribution Property Tax Water Charges

Profession Tax Other Charges

Other Taxes Other Income

4.3 Revenues

Exhibit 4.3 provides details of revenue of MyM along various heads between FY 2001 and FY 2005.

Exhibit 4.3 Revenue trend

Figures in Rs. Lakh 1000 55 200 68 16 154 500 144 144 68 104 92 73 147 77 271 87 38 118 156 56 51 171 180 195 201 210 0 2001 2002 2003 2004 2005 Taxes User charges Assigned Revenue Devolution and Grants Others

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4.3.1 Tax Income

Tax income has grown at a CAGR of 5 % over the last five years. Share of taxes have declined from 37% to 34 % of income.

Property Tax

Property tax alone accounted for a 30 % of income of MyM in FY 2005 and is an important contributor of revenues to MyM. Following are the key issues / observations with respect to property tax. Exhibit 4.4 provides a summary.

Exhibit 4.4 Property tax - analysis of key revenue drivers

Collection Efficiency Properties Year Arrears Current Total Numbers Tax/property Growth % 2000-01 18% 79% 56% 15737 1054 na 2001-02 20% 81% 57% 15827 1090 1% 2002-03 19% 81% 55% 15938 1142 1% 2003-04 16% 69% 47% 16163 1146 1% 2004-05 42% 82% 67% 16373 1095 1%

a) Decline in share of property tax - Even though the property tax has increased in absolute terms, its share in total income has declined from 34% to 30 % over the last five years. b) Low assessments growth - Assessments have grown at just 1% and the average tax per assessment has also been stagnant. The quinquennial revision of Annual Rental Value (ARV) due in 2003 has not been undertaken as of date. c) Low collection efficiencies - Collection efficiency is a cause for concern. While collection efficiency in current demand has been around 82 % in 2005, efficiency in overall collection has been very low (47% - 67% in the last 5 years). Overall efficiency has improved to 67 % in FY 2005, but needs significant improvement. d) Aging of arrears - Growth in arrears in the last 5 years is a disturbing trend and needs to be arrested. e) Break-up of assesses - Residential segment contributes 71 % of the total assessments, but only 58% of the total property tax demand. The municipality must take steps to increase property tax from this category. Exhibit 4.5 below gives the detailed break-up of assesses for property tax.

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Exhibit 4.5 Property Tax - breakup of assessees

Category of Property Number of % Tax Demand % Assessments 2005 - Rs. lakh Residential 11618 71% 105 58% Commercial 4433 27% 45 25% Industrial 84 1% 24 13% State Government Properties 309 2% 7 4% Public Sector Undertakings 2 0% 1 1% Total 16446 100.00% 182

Professional tax

Exhibit 4.6 provides an analysis of key drivers for professional tax revenue.

Exhibit 4.6 Professional Tax - revenue drivers

Collection Efficiency Assessments Year Arrears Current Total Numbers Tax/assessment Growth % 2000-01 3% 90% 26% 3140 503 na 2001-02 1% 88% 23% 3142 498 0% 2002-03 0% 84% 24% 1840 1009 -41% 2003-04 1% 85% 25% 1562 1240 -15% 2004-05 3% 87% 29% 1505 1552 -4%

a) Share of professional tax in total income has increased from 3% to 4% b) Demand per assessment was Rs. 1552 per assessee in FY 2005. c) Collection efficiency has been very low While a current collection has been more than 85%, arrears collection is negligible. d) Composition of professional tax assessments - Exhibit 4.7 below shows the composition of assessments.

Exhibit 4.7 Professional Tax – assessee break up

Category Number of % Annual Tax % Assessments demand State/Central/Quasi Govt. 69 5% 1820 78% Employees Traders 1362 90% 421 18% Self-employed professionals 42 3% 52 2% Private employers/ 13 1% 20 1% Companies Private employees 19 1% 24 1% Total 1505 2337 100%

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4.3.2 User Charges / Fees

User charges have also grown by a healthy 30%, aided by 47% increase in collection of water charges and initiation of collection of deposits for sewerage connections. As a result, the share of user charges/fees has doubled from 12% of revenue to 25 % of revenue over the last five years.

Exhibit 4.8 provides an analysis of key drivers for water charges.

Exhibit 4.8 Water charges - revenue drivers

Collection Efficiency Connections Charges/ Growth Year Arrears Current Total Numbers connection rate 2000-01 17% 70% 42% 5131 245 na 2001-02 24% 85% 51% 5204 242 1% 2002-03 30% 81% 62% 5439 428 5% 2003-04 27% 52% 45% 5674 705 4% 2004-05 40% 66% 55% 6131 701 8%

a) No. of connections - There has been an increase in the number of connections from 245 in FY 2001 to more than 701 connections in FY 2005. Water connections account for about 37 % of properties assessed, indicating scope for increasing the number of connections. The low penetration is also due to the availability of water fountains in several areas (covering nearly 35% of population) which lead to loss of revenue for MyM. b) Water tariff / connection has increased from about Rs. 245 per year per connection to Rs.701 per connection in FY 2005. c) While 80% of the water connections are metered , water billing is being done on a flat (monthly) basis . Refer exhibit 4.9 for details of type of connections and water charges. MyM is considering collections on the basis of meter readings. d) Collection efficiency - Current collection efficiencies have ranged from a low of 63% (FY 2004) to a high of 75% (FY 2005) and have not shown a linear trend. Arrears collection efficiency has been very low and has ranged between 21% and 33%. The overall collection efficiency of 55% is quite low and needs significant improvement.

Exhibit 4.9 Water charges - category wise connections and tariff

Connections Metered Un -metered Total % Billing system Domestic 6098 - 6098 97% Flat rate Commercial 183 - 183 3% Flat rate Total 6281 - 6281 100%

Connection Type Flat rate Per KL Domestic Minimum Rs. 70 /-PM Rs.5/- Commercial Minimum Rs. 122/-PM Rs. 10/-

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4.3.3 Assigned Revenue

Assigned Revenue (which includes transfers of stamp duty and entertainment tax) has grown from Rs. 87 lakh to Rs. 92 lakh over the last five years, but its share in total income has declined from 19% to 15%.

4.3.4 Grants/Contributions

Grants / Contributions from state have one of the biggest revenue drivers and have doubled during FY 2001-05. They contributed to nearly 23 % of revenues of MyM in FY 2004.

4.4 Analysis of Costs

Exhibit 4.10 provides details of costs of MyM along various heads between FY 2001 and FY 2005. Total expenditure has shown an increasing trend till FY 2003, before decreased over the next two years. Salary expenditure has declined, while O&M and finance charges have shown an increase.

Exhibit 4.10 Costs - FY 2001 and FY 2004

1000

12 500 0 62 49 9 134 66 76 10 35 31 50 55 84 81 361 261 254 270 249 0 2001 2002 2003 2004 2005 Staff O & M Admin Finance charges

4.4.1 Salary and wages

While salary and wages account for the highest expenditure (more than 40%% of total expenditure), it has shown a declining trend during FY 2001 to FY 2004. This has been due to the lack of addition in staff over the last few years and a number of posts remaining vacant. As of March 2005, the number of employees was 343.

4.4.2 Operations and Maintenance

O & M forms the other major component of total expenditure. In absolute terms, this expenditure has been around 10-13% of total income during this period.

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Power costs

Exhibit 4.11 gives the details of power costs out of the total repair and maintenance expenditure relating to Water & Sewerage and Street lights. Power costs have grown at a CAGR of 13%, driven primarily by a steep increase in power costs for street lights.

Exhibit 4.11 Power costs - Water & Sewerage and Street Lights

Power costs FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Water & Sewerage (WS) 6 7 10 20 25 % of total W&S 29% 29% 49% 50% 51% Street lights 21 23 43 41 42 % of total Street light 65% 63% 83% 79% 76% Total 27 30 53 61 67 Source: SFC questionnaire Power costs account for nearly 51 % of repair & maintenance costs of water and sewerage and t76% of operating street lights.

Power costs have gone up from 19 % of O& M expenditure in FY 2001 to nearly 29 % of O&M expenditure in FY 2005.

4.4.3 Operations and Maintenance

Exhibit 4.12 gives the details of outstanding loans of MyM at the end of last five years.

Exhibit 4.12 Loan Statement

Total loan repaid as on Repayment Outstanding Amount of Year of Interest 30.9.2005 Lending Agency period loan amount Loan drawal Rate % (years) Principal Interest Total (3-9+13+14)

2 3 4 5 6 9 10 11 16

Govt. Loan 76.65 1998 13.5% 20 35.76 7.16 42.92 40.89 1) Roads & 29.19 9.01 Drainage 17.79 1994 8.75% 20 8.66 20.53 2) Construction of 30.77 11.96 Shops 20.06 1995 8.75% 15 8.12 22.65 3) Special Roads 89.65 2003 9.05% 13 - 8.62 8.62 89.65 1) Water Supply 367.06 2003 9.05% 15 - 74.30 74.30 367.06 Water Supply 850.60 2004 8.20% 9 33.36 34.96 68.32 817.24 Total 1421.81 85.90 168.22 254.12 1335.81

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To summarise,

MyM’s financial position has improved from an cash surplus of Rs. 125 lakh in FY 2001 to a cash surplus of Rs. 182 lakh in FY 2005, though its outstanding debt (Outstanding loan of Rs. 13 crore) is high. Key highlights are summarised below:

• A 8 % CAGR in revenue and by keeping costs in check. Tax income has grown at a CAGR of 5 % over the last five years in spite of no revision in Average Rental Value (ARV) since 1998. User charges have grown by a healthy 30 %, aided by increased in collection of water charges and other fee income including sewerage deposits The share of user charges/fees has increased from 12 % of revenue to 25 % of revenue over the last five years. Grants / Contributions from state have been the biggest revenue driver and have doubled in the last five years. They contribute to nearly 23% of income.

• Expenditure has remained flat over the last few years, showed an increasing trend till FY 2003 and marginally declining over the next two years. Salaries have marginally declined due to reduction in staff, while Operating expenditure has grown at 13 %. Overall, revenue expenditure appears to have been in control. • Interest expenditure has shown a steep increase, up from 2% of income in 2001 to 12% of income in 2005.

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5. Potential areas for improvement

5.1 Public private partnerships (PPP)

MyM should consider handling the operations and maintenance of the Sewerage Treatment Plant of the ongoing UGD scheme and implementation of the proposed slaughter house project through private sector participation. MyM should explore more areas to augment its own resources through use of PPPs. PPPs have been found to be very effective in addressing efficiency and asset management (through pre-defined service levels and accountability for operations and maintenance) aspects of infrastructure development. In this regard,

1. CMA, GoTN should develop a framework for PPP including specific policies and guidelines.

2. MyM should explore use of private sector participation in undertaking any remunerative projects in areas such as slaughter house, market development etc., through public private partnerships. To start with, MyM should explore developing the proposed new bus-stand and the amusement park at Chittarkadu through BOT / PPP structure.

3. Being part of an heritage circuit, MyM should actively pursue projects that improve the tourist experience in the town. Several initiatives relating to tourism development can be pursued in partnership with private sector investment / corporate donations and NGO/Self Help Group partnerships. In Mayiladuthurai, MyM should pursue the following

• Encourage corporate / NGO partnerships for heritage preservation and city beautification projects, including development and maintenance of parks. • Consider addition of more identified parking zones and pay-and-use toilets in the town. These could be maintained through Self-Help Groups. • Explore the feasibility of provision of integrated concrete roads with ducts for underground cabling and storm water drains around important heritage/tourist areas and align traffic movement to ensure ease of tourist movement during festivals. This would also enable better tourist experience and better maintenance of heritage centres. 4. TNUIFSL should provide assistance covering necessary capacity building (in terms of evaluating mechanisms - BOT, SPV etc) and financing for developing projects through private sector participation.

5.2 Potential for revenue enhancement

5.2.1 Property Tax

Exhibit 5.1 highlights the key issues and recommended interventions with respect to property tax. While a substantial improvement in property tax is contingent upon implementation of ARV revision (due in 2003), there are other interventions that would enable effective property tax realisation.

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Exhibit 5.1 Key issues and suggested measures

Issues Recommended Interventions Agency Revision of Annual rental Value (ARV) 5. GOTN should implement the SFC GoTN has fallen due in 2003. The revision is recommendation of revision of property yet to be implemented. tax every three years, linked to inflation. This is will ensure gradual and stable increase, rather than the existing quinquennial revision. In 1998 when the ARV scheme for 6. All assesses should be taxed on the GoTN / MyM assessing property tax was introduced, same basis through a uniform and the old assesses were allowed to pay transparent approach to property tax taxes based on capital value with assessment. Existing anomalies need to marginal increase, leading to be removed at the earliest. distortions and non-uniform rates. Survey of properties happens only 7. Initiate a one -time survey to pre pare a Ku when the ARV revision takes place. comprehensive database of properties available with it with updated information Apart from addition in properties on the area / type and property tax details without getting assessed, addition to 8. Institutionalise a mechanism for area in existing properties or conducting surprise checks on a sample conversion of property from residential basis in all wards on an ongoing basis to commercial category also goes and mandatory re-assessment of unnoticed leading to revenue loss properties every five years. 9. Streamline procedures for assessment/ approvals of new properties / expansion of existing properties to encourage self- disclosure of property development / modification 10. Computerise and web-enable property tax assessment and billing processes 11. Develop a GIS based system for effective data capture and monitoring On an absolute basis, property tax 12. Launch a focused drive on existing GoTN/MyM arrears have shown an increasing arrears trend. 13. Conduct one time settlement scheme for old arrears and incentivise payments through marginal rebates for arrears pending for more than 5 years. 14. Work with GOTN to moot creation of a special tribunal for speedy disposal of properties under litigation 15. Make provisions for the debtors and take steps for writing off bad debts While Property tax is payable on a 16. Implement Payment Due Date along with GoTN/MyM semi-annual basis, no interest /penal a 90 day grace period during which charges are levied on late payment. payments would involve a nominal interest payment. 17. Payments beyond the grace period should include a steep penal charge to encourage payments on time.

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Issues Recommended Interventions Agency Tax Dispute cases where the assessee 18. In case of disputed prope rty tax, the GoTN / MyM approaches legal recourse without assessee should first pay the tax under paying any tax. protest as in the case of excise or customs and then take the necessary legal recourse. The Act should be modified in such a way that no legal recourse should be available to the assessee without paying the tax under protest. Blanket Exemptions to institutions 19. Exemptions from tax should be provided GoTN / MyM reduce the property tax potential only to needy institutions. For example blanket exemption to educational institutions (including large self-funded private residential schools) should be reviewed. 20. All exemptions lead to a revenue loss to the ULBs and should be compensated by GoTN.

5.2.2 Professional Tax

Professional tax income has grown at a CAGR of 3 % over the last five years. Specifically,

21. MyM should focus on widening its professional tax base by bringing more traders and independent professionals within the ambit of professional tax . Specifically, MyM should consider tapping into databases of potential professional tax assesses including

• Professional associations including Institute of Chartered Accountants of India (ICAI), the Bar Council, Medical Council etc. • Commercial Taxes Department, GoTN to get details of sales tax registrations (existing and new) within MyM.

5.2.3 User charges

MyM has been fairly successful in progressively increasing user charges, as reflected in the increase in the average water charges per collection and could augment its revenues through focused interventions including the following.

22. Increase penetration of connections for water supply. Currently MyM’s water connections account for only 37 % of the properties assessed. MyM should target achieving at least 10,000 connections over the next five years. Introducing staggered payment of deposits (in instalments) instead of one-time payment may encourage additional connections and should be explored.

23. Provide water fountains only in areas with a predominantly low-income population to minimise revenue loss. Consider providing connections to groups of households and charge a nominal monthly user charge for the same.

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24. Improve revenue per connection through implementation of either a graded water tariff scheme (as is being considered by CMA, GoTN) or a metering based tariff. While the metering based system would a better system in principle (charges on the basis of usage) and in terms of incentivising water conservation, ULBs have faced resistance in implementation of metered tariffs.

25. Consider implementing user charges for door-to-door collection of Solid Waste.

26. Adopt measures to improve collection efficiency. Overall collection efficiencies in water charges are very low and needs to be improved. MyM should consider stiff penalties for non- payment of user charges. Specifically MyM should consider implementation of late payment fines and in case of extreme overdue situations, disconnecting supply.

5.2.4 Measures to improve collection efficiency

27. MyM’s collection efficiency is very low across all its revenue heads namely, property tax, professional tax and user charges and needs significant improvement from current levels. MyM should consider a) a focused one-time drive to clear up its dues and b) strengthening of its collection process and organisation to ensure that the overall levels of efficiency in order to improve and sustain its collection efficiencies.

5.3 Measures for cost management

5.3.1 Energy efficiency

MyM needs to take steps to address its power costs, which comprise nearly 60% of its operations and maintenance costs. The following steps are needed in this direction:

28. MyM should conduct a comprehensive energy audit to identify areas for reducing power consumption and related costs. As envisaged in its Vision Plan, MyM should implement automatic time based dimmers on street light network and ensure that all pumps / motors are energy efficient.

29. GoTN should also consider a specific grant / capital subsidy scheme to incentivise energy conservation initiatives for not just MyM, but for all ULBs.

30. CMA, GoTN and TNUDF should develop and implement minimum standards related to energy conservation including installation of energy efficient motors, right sized pumps etc.

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5.4 Other measures / interventions

5.4.1 Accounting /Audit

While all ULBs in GoTN have implemented a double entry accounting system, most of the ULBs including MyM require significant improvement in their accounting practices. Several ULBs have redundant systems involving manual and computerised book keeping and errors often creep into MIS. Often, the MIS in the form of DCB statements and information provided in accounting statements are not reconciled.

31. CMA, GoTN should consider an outlay for technical assistance to ULBs to improve their accounting systems and practices and to provide adequate training to staff on the concepts of double entry book keeping.

32. Property tax system has been computerised but the software for accounting developed seems to have some errors. TNUDF should take steps to eliminate these teething problems in the accounting software.

33. GoTN should issue an order for phasing out manual books like the property tax DCB registers as the same data is being maintained both manually and also in computer database.

34. The LFA should also be given training in auditing through computer so that the manual books can be avoided in future.

35. GoTN should insist and implement closing of accounts and audit of the same within a fixed time period subsequent to the completion of financial year. The government should continue to provide for the payment of common accountants and computer assistant to work in the ULB which it was providing till date. GoTN should also evaluate the option of employing a local CA firm to give guidance and training to ULB staff on a regular basis. CMA,

36. TNUDF should consider a grading system to categorise ULBs on the basis of accounting and reporting practices

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6. Business plan projections and investment capacity of MyM

6.1 Financial and Operating Plan – time horizon and scenarios

The FOP has been prepared for a ten-year period i.e., FY 2006-2015 for 2 different scenarios as given below:

• Scenario I - Base projections • Scenario II – Projections with ‘potential improvements’ The basis and assumptions underlying income and expenditure projections for the FOP are detailed in section 6.2

6.2 Basis and assumptions

6.3 Revenues

Property tax

Property tax projections has been arrived at as a product of average tax per assessment and the number of properties assessed. Assumptions on these revenue drivers are given below:

• Scenario I –Base case Assessments growth – 1.00% per annum (in line with the CAGR over the last five years), with a cap on the number of assessments at 20,000 properties. The base number of assessments has been taken as 16,373 properties. Average tax per property - Rs. 1095 per property assessed, in line with the average tax per property collected in FY 2005. Arrears collection efficiency - 42 % for FY 2006 (maximum during FY 2001-05) in FY 2005 and assumed to increase by 2 % every year (44% in FY 2007 and so on) Current collection efficiency - 82 % for FY 2006 (maximum during FY 2001-05) in FY 2005 and assumed to increase by 1 % every year (83% in FY 2007 and so on)

• Scenario II – with improvements Assessments growth – 8% per annum, with a cap on the number of assessments at 32,000 properties. Average tax per property - Rs. 1095 per property assessed in FY 2006 with a one-time upward revision of 25% in FY 2007 Collection efficiency are kept at the same levels as Scenario I Profession tax

Profession tax has been arrived at as a product of average tax per assessee and the number of assessments. Assumptions on these revenue drivers are given below:

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• Scenario I –Base case Assessments growth – 4.00% per annum (assumed as the CAGR over the last five years is negative), with a cap on the number of assessments at 4,000. The base number of assessments has been taken as 3140 assessments. Average tax per assessment - Rs. 1552 per assessment, in line with the average in FY 2005. No revision has been assumed for the base case. Arrears collection efficiency – 3% for FY 2006 (maximum during FY 2001-05) in FY 2005 and assumed to increase by 5 % every year (8% in FY 2007 and so on) Current collection efficiency –90 % for FY 2006 (maximum during FY 2001-05) in FY 2001 and assumed to increase by 1% every year (91% in FY 2007 and so on).

• Scenario II – with improvements Assessments growth – 5 % per annum, with a cap on the number of assessments at 4,000 Average tax per assessment - Rs. 1552 per assessment, in line with the average in FY 2005. Collection efficiency are kept at the same levels as Scenario I Water Charges

Water charges have been arrived at as a product of average water charges per connection and the number of connections. Assessments growth – 4.55 % per (in line with the CAGR over the last five years), with a cap on the number of assessments at 10,000. The base number of assessments has been taken as 6131 assessments. Average tax per assessment - Rs. 701 per assessment, in line with the average in FY 2005. No revision has been assumed for the base case. Arrears collection efficiency – 40% for FY 2006 (maximum during FY 2001-05) in FY 2005 and assumed to increase by 2 % every year (42% in FY 2007 and so on) Current collection efficiency –85 % for FY 2006 (maximum during FY 2001-05) in FY 2002 and assumed to increase by 1% every year (86% in FY 2007 and so on).

• Scenario II – with improvements Assessments growth – 5 % per annum (in line with the CAGR over the last five years), with a cap on the number of assessments at 10,000. Average tax per assessment - Rs. 701 per assessment, in line with the average in FY 2005, with a tariff increase of 5% every three years. Collection efficiency are kept at the same levels as Scenario I Other income

The base amount for all the items listed below are taken on the average of the past five years. The other assumptions made in case of other income is summarised in the table below:

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Exhibit 6.1 Assumptions for other income

Base Amount Growth Item Assumptions (in Lakhs) (CAGR %) Sewerage Charges 42.69 214.4% CAGR of 4% on the base amount for FY 2005. Service Charges & Fees 34.44 Negative CAGR of 3.7% on the base amount for FY 2005. Growth Other income 54.63 Negative CAGR of 1% on the base amount for FY 2005. Growth Assigned Revenue 103.39 1.5% CAGR of 5% on the base amount for FY 2005 . Devolution Fund 161.28 19.6% CAGR of 5% on the base amount for FY 2005. (average of last 3 years) Grants & Contributions 2.34 Negative CAGR of 5% on the base amount for FY 2005 . Growth Assumptions - Expenditure

The major assumption adopted for projection in revenue expenditure based on the past performance is as follows:

Exhibit 6.2 Expenditure

Base Amount Growth Item Assumptions (in Lakhs) (CAGR %) Salaries 249.03 Negative CAGR of 3% with cost of FY 2005 as the base Growth Operating Expenses 80.80 12.9% The expenditure has been assumed as 2% of the gross block of fixed assets (in line with the average over the last five years). An inflation of 5% has also been considered. Administrative Expenses 30.69 32.1% The growth rate has been assumed at a nominal rate of 5% and has been applied on the base amount, which is for the year 2004-2005. Depreciation - - Expenditure assumed as 1% of the gross block of fixed assets Finance Expenses - - Refer 6.2.3 below.

Assumptions - Assets and liabilities

Since figures for the year 2004-05 were not given, the figures for the year 2003-04 were taken as the figures for the same. The major assumption adopted for projection of assets and liabilities is given below:

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Other assets

Exhibit 6.3 Assumptions - Assets

Asset Head Assumptions Stock Account The closing balance as given in the last balance sheet by the ULB has been taken as the base figure for projection. It has been assumed that the stock will be 95% of the last year balance Debtors This head represents the debtors for the three heads property tax, profession tax and water charges. As they form the major portion of revenue their debtors also have been grouped separately. The calculation of debtors has been done based on the current demand under each category of income and the collection efficiency for each of the category Other Receivables The closing balance as given in the last balance sheet by the ULB has been taken as the base figure for projection. It has been assumed that other receivables will be 95% of the last year balance. Bank Account This account is the balance based on the cash flows for particular year

The detailed projections for each of the 4 cases are provided in section 6.3.

Loans

All loans taken by the ULB are long-term. The ULB has a loan outstanding of Rs.1335.81 lakhs and the scheduling of these loans and interest has been taken into account in the FOP.

Exhibit 6.4: Loan Statement as on 30.09.2005 (Rs in lakhs)

S.No Lending Agency Amount Year of Interest Repay Total loan repaid Outstandi of Loan drawal Rate % ment ng loan period amount (years) Principal Interest Total 1 Govt. Loan 76.65 1998 13.5% 20 35.76 7.16 42.92 40.89 2 Roads & Drainage 17.79 1994 8.75% 20 8.66 20.53 29.19 9.01 3 Construction of 20.06 1995 8.75% 15 8.12 22.65 30.77 11.96 Shops 4 Special Roads 89.65 2003 9.05% 13 - 8.62 8.62 89.65 5 Water Supply 367.06 2003 9.05% 15 - 74.30 74.30 367.06 6 Water Supply 850.60 2004 8.20% 9 33.36 34.96 68.32 817.24 Total 2571.48 85.90 168.22 254.12 1335.81

In case of the TUFIDCO loans for Rs 1700 lakhs we have assumed the moratorium period of 3 years.

New Loans

The requirement of new loans is related to capital expenditure (Capex) the ULB wants to execute. The loans has been taken as 60% of the total Capex while the grants is assumed at 30% and the own

Conversion of CCP to BP - Mayiladuthurai Municipality 28

contribution by the ULB is pegged at 10% of the total Capex. The terms of the new loans is assumed as follows:

Exhibit 6.5 New loans

Particulars Assumptions Rate of Interest on new loan 8% p.a. Repayment Period of new loan 15 years (inclusive of moratorium) Princip al moratorium period 2 years Other liabilities

Exhibit 6.6 Other Liabilities

Liabilities Assumptions Grants Closing balance as given in FY 2005 has been taken as the base figure. Grants assumed at 30% of the Capital expenditure, which would be added to g rants balance every year. Current Liabilities Closing balance as given in FY 2005 has been taken as the base figure. Current Liabilities assumed at 90% of the previous year’s balance. Accumulated depreciation Closing balance as given in FY 2005 has been taken as the base figure. Every years depreciation has been added to the balance of the accumulated depreciation Accumulated Surplus Closing balance as given in the FY 2005 has been taken as the base figure. Every year the cash surplus is added to this account while the contribution for the project from its own funds are deducted from the accumulated surplus.

6.4 Financial projections

6.4.1 Income and expenditure projections

Exhibit 6.8 captures the Income and Expenditure projections for FY 2006-15 with potential improvements and sustainable borrowings.

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Exhibit 6.8 Income and Expenditure projections

Income 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Property Tax 142.16 146.43 150.82 155.34 160.00 164.80 169.75 174.84 180.08 185.49 Profession Tax 10.30 11.13 12.02 12.98 14.02 15.14 16.35 17.66 19.07 20.60 Water Charges 46.70 49.04 51.49 54.07 56.77 59.61 62.59 65.72 69.00 72.45 Sewerage Charges - - 60.00 63.00 66.15 69.46 72.93 76.58 80.41 84.43 Service Charges & Fees 29.43 30.32 31.23 32.16 33.13 34.12 35.15 36.20 37.29 38.40 Sale & Hire Charges ------Other Income 65.20 67.16 69.18 71.25 73.39 75.59 77.86 80.19 82.60 85.08 Assigned Revenue 91.58 94.33 97.16 100.08 103.08 106.17 109.36 112.64 116.02 119.50 Devolution Fund 82.02 90.22 99.24 109.17 120.08 132.09 145.30 159.83 175.81 193.39 Grants & Contributions ------Total Income 467.41 488.62 571.13 598.04 626.62 656.98 689.28 723.65 760.28 799.34 Expenditure Salaries 267.69 281.07 295.13 309.88 325.38 341.65 358.73 376.67 395.50 415.27 Operating Expenses 128.96 135.41 142.18 149.29 156.75 164.59 172.82 181.46 190.53 200.06 Repairs & Maintenance ------Programme Expenses 3.14 3.29 3.46 3.63 3.81 4.00 4.20 4.41 4.64 4.87 Administrative Expenses 11.84 12.43 13.06 13.71 14.39 15.11 15.87 16.66 17.50 18.37 Finance charges 124.93 115.45 106.57 98.35 91.63 86.31 81.44 77.09 73.24 45.77 Depreciation 81.15 81.15 81.15 82.44 85.30 89.67 95.51 102.92 111.96 122.71 Total Expenditure 617.71 628.81 641.54 657.30 677.26 701.33 728.57 759.22 793.36 807.04 Operating Surplus (150.30) (140.19) (70.41) (59.26) (50.64) (44.35) (39.30) (35.56) (33.08) (7.71) Cash Operating Surplus (69.15) (59.04) 10.74 23.18 34.66 45.32 56.22 67.36 78.88 115.00

6.5 Key results

While the borrowing capacity computed as the minimum of NPV of operating surplus, 30% of revenues during the projection period works out to Rs. 556 lakh, actual projections reveal that Mayiladuthurai faces a severe Debt Service Coverage issue even at this level of borrowing. This is due to the strain of repayments on its existing loans which stood at nearly 13 crore in FY 2006. Therefore, Mayiladuthurai borrowing capacity is negligible even with improvements.

Exhibit 6.9 Summary of key results

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Some drastic measures including restructuring of its existing loans is required for Mayiladuthurai municipality to improve its investment capacity. Otherwise, MyM would need to utilize Grants from schemes like UIDSSMT and IHSDP to undertake its investments. Further, MyM could also consider involvement of private sector in implementing remunerative projects including bus-stands, markets and slaughter houses etc.

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Conversion of CCP to BP - Mayiladuthurai Municipality