Technical Assistance Consultant’s Report
Project Number: 44453 October 2014
India: Supporting the West Bengal Development Finance Program (Volume I) (Financed by the Technical Assistance Special Fund)
Prepared by: PricewaterhouseCoopers Private Limited Kolkata, India
For: Finance Department Government of West Bengal
This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.
www.pwc.com/in
Strengthening
Reforms
Supporting the West Bengal
Development Finance – 1 ADB TA 8203-IND Contract No. 104709- S52050
Final Report- Volume-1 October 2014
ADB TA 8203-IND: Supporting the West Bengal Development Finance – I (Contract No. 104709-S52050) Final Report
Table of Contents
1 Introduction ...... 7
1.1 Project Context ...... 7 1.1.1 Program Objectives ...... 8 1.1.2 Deliverables under the Technical Assistance (TA) ...... 8
2 Progress against Second Tranche Conditions ...... 9
2.1 Expenditure Rationalization Measures ...... 9 2.1.1 Approval of Medium-Term Fiscal Plan ...... 9 2.1.2 Actions taken for Subsidy Rationalization ...... 9 2.1.3 Development/Implementation of four modules of IFMS ...... 22 2.1.4 Preparation of MTEF for three select departments ...... 34 2.1.5 Implementation of Computerization of Salary Account (COSA) ...... 38 2.1.6 Operationalization of drug procurement processes through WBMSC ...... 41 2.1.7 Rationalization of salary growth for 2013-14 ...... 43 2.1.8 Database on employees and pensioners ...... 43 2.1.9 Increase in annual capital outlay to GSDP ratio in 2013-14 & 2014-15 ...... 46
2.2 Revenue Reform Measures ...... 46 2.2.1 Value Added Tax (VAT) ...... 46 2.2.2 Excise Management System ...... 55 2.2.3 Property Registration Management System ...... 58 2.2.4 Profession Tax ...... 62
2.3 Debt Management Measures ...... 63 2.3.1 Development/Implementation of Debt Database ...... 63
3 Impact of Program on State Finances ...... 64 4 Contribution of Technical Assistance ...... 66
4.1 Support in meeting tranche release policy actions ...... 66 4.2 Trainings for Government Officials...... 66 4.2.1 Domestic training on ‘Financial Systems, Management and Accountability in Government’ . 66 4.2.2 Domestic training on ‘Management of Indirect Taxes in India: VAT /CST /CENVAT /Services Tax /Customs and GST’ ...... 66 4.2.3 Foreign training on ‘Principles for International Tax Planning’ ...... 67 4.3 Project Appraisal Methodology/ Manual ...... 67 4.3.1 Activities pursued by the TA team ...... 67 4.3.2 Preparation of Operational Handbook for PPP projects in lieu of Project Appraisal Methodology & Manual ...... 67
4.4 Submission of a Memorandum before 14th Central Finance Commission...... 68
Annexure 1: MTEF for Departments of Health & Family Welfare, School Education and Public Works ...... 70
Department of Health and Family Welfare...... 70
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ADB TA 8203-IND: Supporting the West Bengal Development Finance – 1 (Contract No. 104709-S52050) Final Report
School Education Department ...... 70 Public Works Department ...... 71
Annexure 2: PPP Handbook ...... 72
List of Tables
Table 1: Medium-term Fiscal Plan for FY2014 to FY2017 ...... 9 Table 2: DDO-wise introduction of OSMS in the State for government-aided schools ...... 39 Table 3: Details of salary released to employees (including teachers) of govt-aided secondary schools in the state for the month of April 2014 through COSA-compliant OSMS ...... 40 Table 4: List of drugs procured by WBMSC in 2014 till date ...... 42 Table 5: List of 20 sub-registrar’s offices ...... 61 Table 6: Final MTEF estimates of DoH&FW (in Rs crores) ...... 70 Table 7: Final MTEF estimates for SED (Rs. crores)...... 70 Table 8: Final MTEF estimates for PWD (Rs crores) ...... 71 Table 9: Activities and Roles across Project Life Cycle ...... 78 Table 10: PPP Processes ...... 82 Table 11: Different contours of project feasibility analysis-an overview ...... 93 Table 12: Sources of debt and equity ...... 95 Table 13: NPV and IRR: Illustrative example ...... 98 Table 14: Nature and Implications of private participation ...... 112 Table 15: PPP implementation checklist –Key controls to face Challenges ...... 114
List of Figures
Figure 1: Implicit Subsidy rationalisation measures ...... 12 Figure 2: Subsidy rationalization measures ...... 13 Figure 3: Summary of GoWB’s response to its Action Plan on Implicit Subsidy Rationalisation (select examples only for illustration) ...... 14 Figure 4: Approaches for targeted and prioritised expenditure ...... 17 Figure 5: e-Payment through the GRIPS portal ...... 49 Figure 6: Barcoded e-Transit Declaration ...... 52 Figure 7: Barcoded e-Waybill ...... 53 Figure 8: Barcoded Annexure to e-Waybill ...... 54 Figure 9: Barcode Scanner in Sonakonya Checkpost (Odhisha- West Bengal) ...... 55 Figure 10: Plan and Non-Plan Expenditure (percentage of GSDP) ...... 65 Figure 11: PPP Process Overview ...... 81 Figure 12: From Public Sector Comparator to Value for Money: Key Steps ...... 91 Figure 13: Viability Gap Funding Process ...... 102 Figure 14: Organisation Structure of IIPFD ...... 103 Figure 15: Different forms of PPP models ...... 111
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List of Acronyms
Acronym Expansion Acronym Expansion ACA Additional Central Assistance NHAI National Highways Authority of India ACMOH Assistant Chief Medical Officer NHDP National Highways Development Project ADB Asian Development Bank NIC National Informatics Centre ADDA Asansol-Durgapur Development NIPFP National Institute of Public Finance and Authority Policy ANM Auxiliary Nurse cum Midwife NLEP National Leprosy Eradication Programme ASER Annual Status of Education Report NLRMP National Land Records Modernization Programme AT&C Aggregate technical and commercial NNMR Neo-Natal Mortal Rate AWP&B Annual Work Plan and Budget NPCB National Programme for Control of Blindness AYUSH Ayurveda, Yoga and Naturopathy, NPCDCS National Programme for Prevention and Unani, Siddha and Homoeopathy Control of Cancer, Diabetes, Cardiovascular diseases and Stroke BCC Behavioral Change and NPEGEL National Programme for Education of Communication Girls at Elementary Level BDA Burdwan Development Authority NPHCE National Programme for Health Care of the Elderly BE Budget Estimate NRHM National Rural Health Mission BOT Build, Operate and Transfer NSP New Sputum Positive BPL Below Poverty Line NSSF National Small Savings Funds BRGF Backward Regions Grant Fund NTFP Non-Timber Forest Produce BSSL Below Standard Single Lane OSMS Online Salary Management System CAGR Compound Annual Growth Rate OTR Own-Tax Revenue CBMS Centralised Budget Monitoring OR Ordinary Repairs System CBR Crude Birth Rate PAN Permanent Account Number CDP Cluster Development Project P&RD Panchayati and Rural Development Department CDR Crude Death Rate PDS Public Distribution System CHC Community Health Centre PE Primary Education CORD Computerization of Registration of PHC Primary Health Centre Documents COSA Computerisation of Salary Accounts PHE Public Health Engineering Department CPI Consumer Price Index PI Performance Indicator CS Country Spirit CSR Commissioner of Stamp Revenue PPO pension payment order CSS/ CS Centrally Sponsored Scheme PPP Public Private Partnership CSTC Calcutta State Transport PR Periodic Renewal Corporation CTC Calcutta Tramways Company CTS Centralised Treasury System PRAMC Planning and Road Asset Management Centre DA Dearness Allowance PRI Panchayati Raj Institution DCT Directorate of Commercial Taxes PS Primary School DDO Drawing and Disbursing Officers PTR Pupil Teacher Ratio DH District Hospital PTTI Primary Teachers Training Institute DI District Inspector PW (R ) Public Works (Roads)
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Acronym Expansion Acronym Expansion DIET District Institute of Education and PWD Public Works Department Training DLHS District Level Household and Facility PWD Public Works Department Survey DoAA Directorate of Accounts and Audit RE Revised Estimate DoHFW Department of Health and Family RFD Results Framework Document Welfare DPR Detailed Project Report RHEL Red Hat Enterprise Linux DPSC District Primary School Council RIDF Rural Infrastructure Development Fund DRS District Reserve Stores RMSA Rashtriya Madhyamik Shiksha Abhiyan DRSR Directorate of Registration & Stamp RNTCP Revised National TB Control Programme Revenue DSE Directorate of School Education RSBY Rashtriya Swasthya Bima Yojana DTA Directorate of Treasuries and RTE Right To Education Accounts EAP Externally Aided Project SAO Sub Allotting Officers ECS Electronic Clearing System SBI State Bank of India EDL Essential Drugs List SAP Special Activity Plan EP Employee & Pensioner SBSTC South Bengal State Transport Corporation ES Elementary School SC Sub-Centre EVC Excise Verification Certificate SC Schedule Caste FC Finance Commission SCERT State Council of Educational Research & Training FPMS Fair Price Medicine Shops SDC State Data Centre FPSS Fiscal Policy Strategy Statement SCP Special Component Plan FQC Final Quality Check SCR Student Classroom Ratio FRBMA Fiscal Responsibility and Budget SDCRL State Drugs Control and Research Management Act Laboratory SDH Sub-Divisional Hospital SDL Standard Double Lane GCS General Category States SE Secondary Education GER Gross Enrolment Ratio SECC Socio Economic and Caste Census GoWB Government of West Bengal SED School Education Department GPI Gender Parity Index SH State Highway GRIPS Government Receipt Portal System SMC School Management Committee GSDP Gross State Domestic Product SMIS Stores Management Information System HLEG High Level Expert Group SML Standard Multi-Lane HoI Head of Institution SP State Plan HRA House Rent Allowance SRS Software Requirements Specifications HRMS Human Resource Management SS Secondary School System HSS Higher Secondary School SSA Sarva Shiksha Abhiyan ICT Information & Communication SSL Standard Single Lane Technology IEC Institutional Ethics Committee ST Schedule Tribe IFMS Integrated Financial Management TA Technical Assistance System IGR Inspector General of Registration TFR Total Fertility Rate IMFL Indian Made Foreign Liquor TGR Trend Growth Rate
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Acronym Expansion Acronym Expansion IMPACT Information Management and TIMS Tax Information Management System Promotion of Administration in Commercial taxes IOB Indian Overseas Bank T&D Transmission and Distribution IP-RR Interest payments to revenue TSP Tribal Sub Plan receipts ratio ISD Information Systems Division UBI United Bank of India JSSK Janani-Shishu Surakshya Yojana UAT User Acceptance Test JSY Janani Surakshya Yojana UC Utilisation Certificates KGBV Kasturba Gandhi Balika Vidyalaya UPS Upper Primary School KoPT Kolkata Port Trust UT Union Territory KMDA Kolkata Metropolitan Development VRS Voluntary Retirement Scheme Authority LHT Local Health traditions WBBPE West Bengal Board of Primary Education LoC Letter of Credit WBBSE West Bengal Board of Secondary Education LVH Lady Visitor of Health WBCETF West Bengal Compensatory Entry Tax Fund LWE Left Wing Extremism WBCHSE West Bengal Council of Higher Secondary Education MERT Medical Education, Research and WBCROS West Bengal Council of Rabindra Open Training Schooling MH Maternal Health WBDFP West Bengal Development Finance Program MIS Management Information System WBLR West Bengal Land Reforms MMR Maternal Mortality Rate WBSEDCL West Bengal State Electricity Distribution Company Ltd MORTH Ministry of Roads, Transport and WBHDCL West Bengal Highway Development Highways Corporation Ltd. MPLS Multiprotocol label switching WBHIS West Bengal Health Insurance Scheme MTEF Medium Term Expenditure WBHRB West Bengal Health Recruitment Board Framework MTFPS Medium Term Fiscal Policy WBSSC West Bengal School Service Commission Statement NABL National Accreditation Board for WBSTC West Bengal State Transport Corporation Testing and Calibration Laboratories NBSTC North Bengal State Transport WBSWAN West Bengal State Wide Area Network Corporation NCTE National Council for Teacher WCD Women and Child Development Education ND Non Developmental WFACS Works and Forest Accounts Computerisation System NER Net Enrolment Ratio WPI Wholesale Price Index NH National Highway Xpert eXcise Programme for Effective Revenue Tracking
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1 Introduction
The West Bengal Development Finance Program (WBDFP)-1 supported by Asian Development Bank (ADB) consists of a policy-based loan of USD 400 million. This program seeks to facilitate implementation of a comprehensive fiscal consolidation program in West Bengal. Its logic hinges on the link between creating fiscal space as a means to augment and sustain development financing in the state and laying the groundwork for improvements in service delivery and development expenditures.
WBDFP-I loan consists of two-tranches of $200 million each. The first tranche of USD 200 million was disbursed upon loan effectiveness in November 2012. The second and final tranche has also been disbursed in August 2014. The piggy back Technical Assistance (TA) for supporting the implementation of WBDFP-I has been awarded to PricewaterhouseCoopers Private Limited, India (PwC). The PwC team was mobilized on March 8, 2013 in Kolkata.
The Final Report presents the compliance status achieved by GoWB towards meeting the second tranche conditions. It also documents the activities undertaken by the TA team towards supporting GoWB in meeting the second tranche conditions and details the other tasks undertaken by the TA team specified under the ToR. The content of the Final Report are organized as follows: Section 1 (this section) presents a brief background of the program, its objectives and deliverables Section 2 presents the policy actions completed by GoWB towards meeting the second tranche conditions
Section 3 presents impact of this loan program on State’s finances during FY2012-2014 Section 4 presents the contributory role of TA in providing assistance to the GoWB to achieve the policy tranche conditions and also in supporting activities during this phase which were beyond the scope of this Program 1.1 Project Context The densely populated state of West Bengal (fourth largest in India as per Census 2011) has had a relatively sluggish economic growth compared to the rest of India over the last decade. The contribution of the state to India’s GDP has declined from 7.2% in 2002-03 to 6.5% in 2010-11. All General Category States (GSC), except Punjab, had higher GSDP growth rates than West Bengal during the last 5 years. This low economic growth in turn, results in weak revenue base with its concomitant spiralling impact on deficit and debt. Thus, an upward pressure is exerted on debt to GSDP ratio, both through adverse effects on expenditure (numerator) and income (denominator). As a consequence, the debt situation in West Bengal has become a grave area of concern.
The debt burden of the state grew at CAGR of 10.99%, with a 2.56 times increase over the 10 year period from 2003-04 to 2012-13 RE. Despite the State Government’s visible efforts to contain its deficit, outstanding public debt is budgeted to reach around Rs 2,474 billion in 2013-14 with debt-GSDP ratio of 34%. While the overall debt-GSDP ratio has seen a secular decline from 2004-05 onwards, comparative analysis reveals that it has remained the most indebted state so far in the country among general category states (of late it has been surpassed by Uttar Pradesh by a negligible amount).
This debt burden has a serious implication in terms of interest payout each year. More than 30% (60%) of state’s revenue (own) receipts have been used to pay interest over the period 2002-10. Additionally, the implementation of state’s Fifth Pay Commission in 2009-10 further aggravated the overall impact on the total committed expenditure of the states which includes salaries and pension apart from interest payments.
When the program was being conceptualised in 2011-12, State’s own-tax revenue (OTR) to GSDP ratio stood at 4.2% (RE figures), whereas the same for GCS was 7.5%, with Karnataka leading at 10.5% in that year. The share of OTR in total tax revenues had also declined in the last ten years. This coupled with high levels of committed expenditure have adversely impacted the development agenda of the state, which was reflected in consistently low levels of capital outlay to GSDP ratio at less than 1% for the state. Further, the
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overall borrowing limits of the state, as specified under WB FRBMA, 2010, allowed the state with little scope to undertake capital spending on social and economic infrastructure. However, with substantial efforts and concrete action plans implemented in last two years, the data has shown significant improvement with State’s OTR collection at Rs 32,405 crore in 2012-13 RE. In fact, ratio of State’s OTR to GSDP crossed the 5% mark in 2012-13 for the first time in last 15 years. 1.1.1 Program Objectives The West Bengal Development Finance Program (WBDFP)-I supported by Asian Development Bank (ADB) has been structured to support the GoWB in fiscal consolidation by generating fiscal savings and thereby assist the state to augment and sustain growth-enhancing development financing (capital outlays). The objectives of the program are:
(i) Institute proper long-term expenditure planning for improved allocative and technical efficiency of total expenditure through the introduction of (a) project appraisal, monitoring and evaluation; (b) Medium Term Expenditure Framework (MTEF) in selected departments; (c) Integrated Financial Management System (IFMS); (d) better management of procurement of drugs and improved targeting of salary payments to teachers in the government aided secondary schools; and (e) subsidy rationalisation
(ii) Improve the state’s tax efforts by strengthening tax administration in commercial taxes, and stamp duty and registration fees, and rationalising profession tax brackets
(iii) Enhance debt management capacity so that there is better recording of data appertaining to overall debt and debt servicing payments, including government on-lending and guarantees.
The benefits of the WBDFP-I are expected to be reflected in (i) continued moderation in the key deficit targets, and (ii) progressive improvement in own revenue- GSDP ratio. This is expected to ensure availability of more resources, in a sustained manner, to invest in social and economic infrastructure, thereby enabling the GoWB to improve its Capital Outlay to GSDP ratio. 1.1.2 Deliverables under the Technical Assistance (TA) The deliverables under this TA along with their respective timeframes are as below:
Submission of Inception Report: Already submitted in July 2013
Submission of Interim Report: Already submitted in March 2014
Submission of Draft Final Report: Already submitted in October 2014
Submission of Final Report (this one): The report presents the compliance status achieved by the GoWB on second tranche conditions and also documents the output of TA support given under the program. The comments received on the Draft Final Report have been incorporated in this Final Report.
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2 Progress against Second Tranche Conditions
The progress made by the Government of West Bengal (GoWB) towards complying with the second tranche conditions of WBDFP-I loan program is documented in this section.
2.1 Expenditure Rationalization Measures 2.1.1 Approval of Medium-Term Fiscal Plan Policy Matrix Condition 1. Medium-term Fiscal Plan for FY20141 to FY2017 approved by GoWB Medium-term Fiscal Plan for FY2014 to FY2017 was approved by the GoWB on 17 Feb 2014, and the rolling targets contained in that Statement are presented below.
Table 1: Medium-term Fiscal Plan for FY2014 to FY2017
Item (as % of 2013-14 RE 2014-15 BE Targets for next years GSDP) 2015-16 2016-17 2017-18 Revenue Deficit 1.70 0 0 0 0 Fiscal Deficit 3.08 1.87 3.0 3.0 3.0 Total Debt Stock 35.33 33.73 34.3 34.3 34.3 Source: Relevant extract from the document “Medium Term Fiscal Policy Statement & Fiscal Policy Strategy Statement for 2014-15”, Finance Department, GoWB
Compliance Status: With GoWB approval of above presented MTFP for FY2014 to FY2017, this policy action has been complied with.
2.1.2 Actions taken for Subsidy Rationalization
Policy Matrix Condition 2. Actions taken by the Finance Department on the recommendations of the Action Plan on Subsidies In the subsequent paragraphs, we present the action taken by the Finance Department on Subsidies.
1 Fiscal Year (FY) before a calendar year denotes the year in which the fiscal year begins.
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ACTION TAKEN REPORT ON SUBSIDY RATIONALISATION
The Finance Department of Government of West Bengal (GoWB) had prepared an Action Plan on Subsidies in July 2012. The Action Plan attempted to bring out the significance of implicit nature of subsidies in government functioning, which are not as obvious as explicit subsidies quantified and reflected in state government accounts. After capturing and quantifying the volume of ‘implicit subsidies’ in different sectors/ sub-sectors based on an established theoretical framework (as substantiated in next sub- section), the plan proposed a path towards their rationalization with better targeting which essentially targeted at moving away from subsidies for Non-Merit category of goods and services and rationalising subsidies in Merit-II sectors (see below box for definitions). The various measures undertaken by the GoWB towards meeting this end is presented in this Action Taken Report on Subsidy Rationalisation.
Classification of goods and services
The standard classification of goods with key characteristics as mentioned in the ‘Action Plan on Subsidies’ is produced below:
Public goods: Non-excludable, non-rivalrous, possess externality Private goods: Excludable, rivalrous, no externality Merit sectors: Those which are considered a necessity for the society/ individuals irrespective of the society’s (or individual’s) ability or willingness to pay
With respect to the last category of goods, the Department of Economic Affairs of India* and then the National Institute of Public Finance and Policy (NIPFP) in 2003 further classified government services based on the variable needs and priorities for subsidisation:
Merit I sectors: Elementary education, primary health centres, prevention and control of diseases, social welfare and nutrition (includes subsides in food supplies), soil and water conservation, and ecology and environment. Merit II sectors: Education (other than elementary), sports and youth services, family welfare, urban development, forestry, agricultural research and education, other agricultural programmes, special programmes for rural development, land reforms, other rural development programmes, special programmes for north-eastern areas, flood control and drainage, non-conventional energy, village and small industries, ports and light houses, roads and bridges, inland water transport, atomic energy research, space research, oceanographic research, other scientific research, census surveys and statistics, meteorology. Non-Merit sectors: All others.
* Government of India (1997), Government Subsidies in India, Discussion Paper, Ministry of Finance, Department of Economic Affairs, May, New Delhi
Computation methodology of Implicit Subsidy Government subsidies indicate the difference between the cost to the Government for providing different types of services for the public and the receipt realization from the said service (this definition of subsidies discounts the efficiency criterion regarding the use of public funds for providing any kind of service). While the narrow definition focuses on the explicit portion of subsidy which is revealed either by budgetary provisions of subsidies or is evident from the gap between the actual recurring expenditure and receipt, the broader definition encompasses the hidden costs as well. For example – if a government provides transport services to public, then not only the operation and maintenance expenditure or expenditure on
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staff and personnel are the total costs, but also the expenditure by way of depreciation of capital asset value or the opportunity cost of capital invested in the sector are the hidden component of total cost. Governments often use subsidies in the form of welfare grants, loans or tax reductions/ exemptions to reduce financial burden on certain sectors, usually in the interest of public welfare. This provides the underlying rationale for taking cognizance of the actual, implicit subsidy burden of the State.
The Action Plan submitted on Subsidies followed the methodology adopted in the NIPFP study which relied upon the methodology for calculation of implicit subsidy suggested by Sudipto Mundle and M. Govinda Rao, in their paper “Volume and Composition of Government Subsidies in India, 1987-88”.
Subsidy as unrecovered cost of any category was calculated as:
S = RX + i*(K+L) + d* K – RR – R - T where,
S is the implicit subsidy; RX is the variable cost or revenue expenditure on the service; K is the capital stock in the sector; L is the stock of investments outside government by the sector in the form of loans or equity. i is an imputed interest rate representing the opportunity cost of money for government. d is the depreciation rate RR is the revenue receipts by the sector R is income by way of interest or dividend on loans and equity; and T is a transfer payment from the sector to individual agents.
While the variable cost of a service is considered in the revenue expenditure, the fixed cost element is included by taking the imputed interest cost of cumulative capital expenditure by the sector. This interest cost and depreciation rate together constitute the element of fixed cost associated with the current level of service. So, the implicit subsidy computed as above is essentially the sum of variable and fixed cost for the current level of service net of any of this cost recovered in the form of revenue receipt, interest, dividend or transfer payment.
Broad areas of Rationalisation of Subsidies As the global experience bears out, governments often resort to fiscal prudence measures to tackle its burgeoning budgetary deficits. Subsidy rationalisation reforms are essential to improve their impact on poverty reduction while reducing their budgetary costs. Usually, subsidy rationalization is attempted keeping the following factors in mind: a) It would directly affect consumer spending; b) A dent in consumer spending would adversely affect headline growth; c) Removal of subsidies that affect the poor segments (merit I sectors, for example food subsidies) should be avoided or done gradually in a manner that doesn’t affect the poor; for example; adjusting labour wages in the same time frame as increase in food prices. As a matter of principle, generalised subsidies have to be reduced to a minimum, and targeted subsidies have to be emphasised.
Review of country reform experiences suggests that the following key elements are integral to increase the likelihood of any subsidy reform: (i) a comprehensive subsidy rationalisation plan; (ii) a far-reaching communications strategy, aided by improvements in transparency; (iii) appropriately phased product/ service price increases; (iv) improving the efficiency of production units to reduce producer subsidies; (v) targeted mitigating measures to protect the poor; and (vi) depoliticizing product/ service pricing to avoid the recurrence of subsidies.
In the context of above point (iv), it is crucial to note that subsidy rationalization measures find more acceptance when they are implemented along with mitigation measures to alleviate impacts to the groups
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most likely to be affected. For example, a hike in electricity tariff that is accompanied by clear cut guidelines to protect the low-income groups from the impacts of the hike. In other instances, subsidy reduction is accompanied by some form of compensation for the poorer sections of society. For example, there was an increase in minimum wages and salaries of low-paid government employees in Jordan after product prices soared following reduction in petrol subsidies in 2005 and 2008. Similarly, in Indonesia, a temporary cash transfer programme was introduced to benefit 19 million poor homes as fuel prices doubled in 2005.
The case of West Bengal West Bengal is the most indebted State in the country among the Non-Special Catgeory States (displaced from that rank by Uttar Pradesh lately only, and that too, with a negligible difference) in terms of debt to GSDP ratio. This has imposed significant constraints on the Government on account of a) interest obligations that amount to half of the State’s own revenue; b) insufficient funds for development activities with capital outlay to GSDP ratio being the lowest in the country (below 1%); c) future repayment pressure with current outstanding debt stock poised to reach unsustainable levels from 2017 onwards (since the State continues to finance its expenditures through borrowings subject to limits prescribed under its Fiscal responsibility and Budget Management Act, FRBMA); and d) non-achievement of revenue account targets set under the FRBMA. The deficit in the revenue account has been persisting with the figure peaking at almost 5% of GSDP in FY2010, which is in sharp contrast to the targets specified under FRBMA. The substantial interest outgo primarily explains this underachievement of revenue account targets as set under FRBMA.
In light of the above constraints, it became imperative for the State to take measures to contain the debt cycle and offset its consequences through various fiscal prudence measures that include a shift of focus on more durable and sustainable revenue-enhancing and expenditure compression measures. At the same time, to ensure that growth and development assistance help the poor segments of population only, the GoWB has been making efforts to enhance its expenditure on development by way of targeted spending on key areas of education, health, minority development, regional development, women and child development and infrastructure development. In continuation of these efforts, the GoWB is focusing on rationalisation of subsidies across various sectors of the state economy.
Figure 1 below depicts the three broad areas wherein measures towards subsidy rationalisation have been undertaken. The corresponding nature of actions under each of these is also highlighted.
Figure 1: Implicit Subsidy rationalisation measures
•Levying user fees and charges, A. Improved Cost Recovery commercialising use of public assets (e.g. land), improving enforcement mechanisms
•Targeted expenditure B. Targeted & prioritised •Prioirtised expenditure & curtailment of non-development expenditure expenditure •Expenditure rationalisation through improved process efficiencies
C. Higher economic performance •Focus on PPP initiatives •Greater investments, particulary in industry of State economy and infrastructure sectors
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A. Improved Cost Recovery: Cost Recovery essentially means charging the non-government sector for the provision of government goods, services or regulation. However, fair assessment is required while putting in place such cost recovery arrangements like costs incurred in levying such fees/ charges; assessment to identify target population on which such arrangements should be imposed; evaluating if there are no unintended, adverse incentives effects; sensitisation towards socio-cultural context of state economy under consideration.
B. Targeted and prioritised expenditure: Fiscal policies, through well-designed subsidies can address human development dimensions of the poverty problem. Thus, a significant component of budgetary policies have to be devoted to well-targeted and direct support/ transfer programmes that recognise such characteristics of the poverty profile of India as its increasing spatial concentration and urbanisation. It has been noted from various secondary reviews that access to subsidised services is limited for the poor because of (i) lack of access to information, (ii) private costs of accessing public services (transport, user charges, etc.), and (iii) pre-emptive exploitation of the subsidy by the non- poor. Hence, among the poverty reduction policies, targeting and prioritising expenditure become crucial aspects which apply not only to policies in the social sectors such as education, healthcare and nutrition, but concern infrastructure development, energy distribution and water supply services, and in a cross cutting manner, urban and rural development policies. The impact of well-targeted and prioritised interventions in reducing poverty not only increase the poverty reducing impact of fiscal policies considerably, but at the same time, help in reducing their budgetary costs.
C. Higher economic performance of the State economy: This is an indirect, yet a proven way that effectively reduces the implicit subsidy burden of the State government. Enhanced infrastructure investment in the State economy leads to broad based, well-targeted economic growth. This also creates large scale employment opportunities which also contribute in alleviating poverty, thereby obviating the need for budgetary subsidies for certain segments of population. The current emphasis of the Government in leveraging private investments through PPP initiatives also goes a long way in reducing the fiscal burden on the Government. Thus, any efforts aimed at encouraging greater investments into the state, own or through private sector, indirectly reduce the implicit subsidy burden of the State.
Rationalisation measures adopted/ implemented Subsequent to the approval of ‘Action Plan on Subsidies’ in 2012, the GoWB has made several attempts at reducing subsidy burden across sectors and sub-sectors. Figure 3 below provides the snapshot of the broad areas targeted by the GoWB in its response to this said Plan:
Figure 2: Subsidy rationalization measures
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Recovery of costs in non-merit & merit -II sectors • Hike in power tariff • Commercialising use of public assets (e.g. land) • Cost recovery through restructuring of select perpetual loss-making PSEs
Deploying resources in more deserving sectors
• Targeted expenditure in merit I sectors • Recruitment for filling vacant posts in health /education/Police • Rationalisation of non-development revenue expenditure
Formulating innovative solutions to sectoral problems in non-merit category • Tea tourism
Envisaging greater role of private sector in non-merit sectors • 8 tourism projects on PPP • PPP in Ports and Commercial housing
Reduction in costs of services by bringing operational efficiencies
• Eliminating bogus ration cards in public distribution system • VRS scheme for Employees of State-run Transport Corporations • E-governance reforms
Figure 3: Summary of GoWB’s response to its Action Plan on Implicit Subsidy Rationalisation (select examples only for illustration)
The Action Plan on Subsidy Rationalisation broadly suggested a three-pronged approach towards improving State finances in this respect– a) increasing the cost recovery rate across sectors through measures such as restructuring of loss making PSEs; b) expenditure rationalisation in non-merit and select merit-II sectors; and c) leveraging private investments in the State through PPP. The details of measures implemented/ adopted by the GoWB in the last two years are discussed in the following paragraphs.
A. Improved Cost Recovery Cost recovery from service sectors have been mainly through tariff hikes, introduction of user charges and associated measures to strengthen efficiency of existing systems so as to ensure increased cost recovery. West Bengal’s power sector discoms have set a commendable example in this context, making a significant turnaround in terms of performance that is reflected in the higher cost recovery in the sector and consequent trends towards achieving sustainability.
Turnaround in the Power Sector aided by regular revision in tariffs India's power distribution segment currently faces several challenges, including severe losses - Transmission and Distribution (T&D) Losses and Aggregate technical and commercial (AT&C) losses, mismatch between the power tariff and the cost of generating power, and subsidy dependence of Discoms. In October 2012, the Ministry of Power, GoI announced a scheme for Financial Restructuring of State Distribution Companies (Discoms) to ensure their financial viability. The scheme provides support to existing State Discoms through a transitional financial mechanism and enumerates State-government measures based on sound commercial principles for effecting a financial turnaround. Several States
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availed the financial restructuring package in their bid to cut further losses and achieve financial viability in the power sector. However, the case of State Discoms in West Bengal has been encouraging in contrast, given that they have been largely self-sufficient especially in view of their performance in the last two years of operation.
The West Bengal State Electricity Distribution Company Ltd (WBSEDCL) has been ranked by Ministry of Power as the 2nd best grade rating (A) utility in the country in terms of credit rating in 2012-132. WBSEDCL has been regular in filing tariff petitions before the state regulator (West Bengal Electricity Regulatory Commission) and has been able to get necessary revisions periodically. It is noteworthy to mention that: a) 33 lakh new consumers were added to WBSEDCL in the last two years, and b) the average consumer tariff for WBSEDCL was increased from 495.63 paisa/ KwHr to 606.90 paisa/KwHr between FY 2010-11 and FY 2012-13. In view of the improvement in financial performance therefore, GoWB was not required to avail the Central financial restructuring package.
Levying user fees and commercialising use of idle land Urban land assets: The Urban Development Department has made similar efforts for optimal utilisation of urban land assets through introduction of revenue generating measures such as levy of transfer fee for plot transfer in Salt Lake area and releasing public land for commercial use through abolition of special quota for land allotment (such as those reserved for elected representatives). The Department also plans to create more urban spaces for commercial land use through better landuse planning (for example, development of Gangasagar development area, expansion of Haldia Development Authority Planning Area, landuse plan for industrial zone in Raghunathpur and similar initiatives).
Commercialise use of Land with State Transport Undertakings (STUs): GoWB is also pursuing the potential of commercial utilisation of unutilised excess/ idle vacant land belonging to STUs and/or conferment of development rights on developers selected through transparent PPP routes. On 31st October 2013, the West Bengal Transport Department issued the RFP for long term lease (99 years) of 'excess' land in six Calcutta Tramways Company (CTC) depots in the metropolis, namely Tollygunge, Kalighat, Belgachia, Shyambazar, Galiff Street and Khidderpore. Bids have already been awared for 3 CTC depots, namely Kalighat, Galiff Street and Khidderpore early this year, and the bidding process is on for rest 3 depots.
Tea-tourism: In its efforts to leverage existing potential to increase revenues, the Land and Land Reforms Department, GoWB has come out with a “Tea Tourism” policy. The policy is aimed at promoting tourism in and around tea estates, allowing tea gardens to diversify and generate local employment and augment local income. The policy provides for recovery of salami and land revenue from tea estate owners and joint ventures who wish to undertake tea tourism, which is a step ahead towards increasing the Government revenue base through the tourism sector in the State.
Unlocking investments in loss-making Public Enterprises The State Government has already started the process of restructuring of the closed and perpetual loss- making concerns and monetising the assets of these. As an instance, consultants have already been selected by the Department of Public Enterprises to suggest restructuring options of 5 such PSEs, namely (i) Blood Bag Division of Electro-Medical & Allied Industries Ltd.; (ii) Durgapur Chemicals Ltd.; (iii) Lily Products Ltd.; (iv) Neo Pipes & Tubes Co. Ltd. and (v) National Iron & Steel Co. Ltd. At the same time, due attention will be paid to protect the full interests of employees of these concerns by way of redeployment in other government set ups and/ or through appropriate social safety net measures.
2 Source: Report on ‘First Annual Integrated Rating of State Distribution Utilities’, March 2013 by Ministry of Power, GoI
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Unlike other States where private sector occupies a sizeable chunk of public transport services, STUs play a very pivotal role in the public transport sector in West Bengal. STUs in the State have now been burdened with the mandate to provide transportation services at a rather low cost to lakhs of passengers, causing substantial subsidy burden on the State. In order to revive the financial health of STUs and reduce their dependence on the State exchequer, the Government of West Bengal has initiated a set of reforms towards optimising utilization and monetization of assets. An in-depth study has been initiated on the possibilities of mergers, amalgamation or integration with respect to Calcutta Tramways Company (CTC), West Bengal State Transport Corporation (WBSTC) and Calcutta State Transport Corporation (CSTC).
Leveraging land assets through Land Reforms Effective monetisation of public assets is a viable measure being adopted by several progressive States for increasing their revenue base. In a similar effort, the Land and Land Reforms Department, GoWB has announced a Land Allotment Policy in December 2012 in order to bring about uniformity, ensure transparency and rationalise allotment of public land assets for various uses. Among other implications, the land allotment policy clearly brings out the Government’s intent of optimally and judiciously utilising land assets in a manner that promote maximum revenue income from land assets, without jeopardising public interest at large.
Salient features of the land allotment policy
The policy indicates land meant for commercial use (offices, shops, shopping malls, cineplexes, theme parks, hospitals, educational institutes, housing not meant for EWS, LIG or the poor) shall invariably be auctioned to the highest bidder The policy makes provisions to remove bias in Reserve Price fixing so as to prevent implications of a low reserve price. Industrial development project proposals would be evaluated on parameters including potential tax revenue, employment potential, development of backward regions or disadvantaged communities, low pollution levels etc. Project proposals for private educational institutions and medical facilities will be deemed as commercial ventures unless set up by reputed public charitable trusts Power sector proposals would be evaluated on criteria such as lower tariffs, renewable and green energy, etc.
Improving enforcement mechanisms in collection- Fire Safety A Fire Safety Audit Committee has been operational since 2012 to monitor the implementation of fire safety norms in high rise buildings and public places. As part of the monitoring exercise, the committee inspected 40 hospitals and issued NOC to 23 hospitals for completing necessary actions for compliance to fire safety norms. Revenue collected by Fire Department from issuance of NOC and Fire License amounts to Rs 12.63 crore.
New, Innovative Solutions of recovering costs GoWB is striving to identify new revenue sources and maximize existing revenue potential in its various departments. For examples in the Forestry sector – Revenue generating activities included:
a) Timber auction with gross sale value of Rs 255.3 crore in the last two years,
a) Procuring honey from Sunderbans and selling under the brand name ‘Mouban’,
b) 17 New products launched by Non-Timber Forest Produce (NTFP) division,
c) Ecotourism activities launched by WBFDCL in 20 resorts, with gross revenue from forestry-led ecotourism amounting to Rs 6.54 crore.
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B. Targeted and Prioritised Expenditure Fiscal policies benefit the poor directly through the budget supported subsidies and transfer expenditures of the government, and indirectly, through their impact on the extent and nature of economic growth. Thus, a significant component of budgetary policies have to be devoted to well-targeted and direct support programmes that recognise such characteristics of the poverty profile of state as its increasing spatial concentration and urbanisation.
Targeted and prioritised expenditure thus becomes the key tool which is employed by Governments to rationalise the impact of subsidies on its finances. This can be achieved through following three approaches:
Figure 4: Approaches for targeted and prioritised expenditure
•When governments identify the most and least efficient and effective expenditure policies and programs, and target expenditure changes accordingly. This essentially Changes by program and policy involves measures such as reduction in unproductive expenditures and moving toward output/ outcome-oriented budgeting •While support to certain sectors of importance could be Changes by individual ministry/ expanded, necessary reductions can be targeted elsewhere; department for example, in cases where line departments/spending agencies have a record of poor expenditure control •Adjustments based on economic classification involves economic analyses of expenditure patterns and prescription, and can be targeted at wider expenditure Changes by economic category policy objectives, such as reducing the wage bill or the number of civil servants, reining in travel costs, or cutting back generalized price subsidies to consumers or subsidies to industry
B.1 Targeted Expenditure One of the major reasons often cited for adding to the implicit subsidy burden of governments more than what was envisaged is the significant leakage which usually results from mistargeting and mis- administration of the subsidies. In this respect, the GoWB has undertaken certain measures to prevent the leakage of subsidy like (i) taking technological advantages to ensure that subsidy/ resources reaches the targeted beneficiary; (ii) addressing gaps in implementation of its schemes along with (iii) improved targeted mechanisms in its activities/ policies. Key among them are listed below:
Introduction of Computerisation of Salary Accounts (COSA) software: COSA is expected to facilitate payment of salary to employees of the State Government and those of autonomous bodies through Electronic Clearing System (ECS) with an eye at expenditure tracking and efficiency gains.
Public Distribution System (PDS): In order to reduce operational costs in food security measures, GoWB embarked on measures for decentralisation of PDS, as well as improvements in the administration and efficiency of the PDS to reduce the financial burden on the State. Digitisation of ration cards, construction of godowns for procured food grains and eliminating bogus ration cards are some of the efforts made towards revamping of the PDS in the State. A total of 77.25 lakh bogus ration cards have been identified and eliminated. Construction of godowns of a collective capacity to the tune of 4.255 Lakh Metric Tons is underway, in order to meet the existing shortfall of storage space and avoid wastage.
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Land Records Management: Implementation of Pilot Project under National Land Records Modernization Programme (NLRMP) for integration of registration offices with concerned land offices in Howrah. This is enabling the land department to process automated mutation formalities, and is expected to not only bring about transparency but also improve the efficiency of the departments through better record-keeping and resultant property tax collection.
Targeted recruitment in key areas of Governance, e.g. Power, Health, Education, Police personnel keeping in view low police- public ratio
Voluntary Retirement Scheme (VRS) in Transport sector: In December 2012, the State Transport Department announced a VRS for employees aged above 50 years and below 60 years in the four State-run transport corporations, namely, Calcutta State Transport Corporation (CSTC), Calcutta Tramways Company (CTC), South Bengal State Transport Corporation (SBSTC) and North Bengal State Transport Corporation (NBSTC). The scheme is aimed at optimising manpower costs, and thereby reviving the financial health of the transport corporations and reducing the State’s subsidy to transport department. The scheme implementation is currently under progress. As on 31st May 2014, 861 employees have opted for the scheme.
B.2 Prioritised Expenditure Rationalisation of Salaries: A separate Health Service Recruitment Board has been constituted for direct recruitment of employees of the Health & Family Welfare Department. A new Staff Selection Commission has also been constituted for recruitments in various Group B and Group C categories. The GoWB has already taken the initiative of recruiting employees in Group-C category on probation basis for first three years on a consolidated pay comprising of only Basic Pay and Grade Pay. It intends to extend this to direct employment of Group-B and Group-D category employees as well in future.
Austerity in Non-Development Revenue Expenditure: The GoWB has undertaken various austerity measures in non-development revenue expenditure (except for salaries, pensions and interest payments) like limit on petrol bill, strict travel by economy class etc.
Focus on prioritised developmental expenditure: Few such examples being taken by the GoWB at present are produced below for demonstration purpose:
o ‘Kanyashree Prakalpa’ launched with total outlay of Rs.800 crore for scholarship & on-time financial support of Rs 25,000, introduced for unmarried girls below the age of 18 years to prevent child marriage, trafficking and school drop outs
o Implementation of “Krishak Bazars” in 91 blocks with cold storage facility targeted towards small and marginal farmers
o Effort is being made to increase the food storage capacity by 2.26 LMT under RIDF & other programs, at an estimated cost of Rs 341 crores
o 7 health districts have been set up and 35 super/ multi-specialty hospitals are coming up in 11 backward districts of the state.
In addition, Government of West Bengal introduced the legislation, Paschim Banga Lok Parisheba Adhikar Bill, 2013 (West Bengal Public Services Rights Bill, 2013) to ensure quality and timely delivery of public services in the state. This Act also has provisions for the administration to take action if complaints filed against employees are found to be true. A handbook on this Right to Services Act, 2013 was also released in December 2013. The handbook, prepared by the consumer affairs department, enlists services offered by government departments and agencies and the time frame within which each has to be completed. The list also mentions officials who would be made accountable for delays in specific tasks. This initiative is
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expected to go a long way in curtailing unwarranted delays in service delivery and thus, the associated wasteful expenditure of the State Government.
B.3 Expenditure rationalisation through process efficiencies in overall public financial management systems The State Government has taken key steps to improve public financial management systems and tightening internal processes, including introduction of e-reforms wherever possible, in order to cut down on leakages. Some of these initiatives taken by the State Government in the last two years are as follows:
Introduction of Integrated Financial Management System (IFMS) for efficient monitoring of Government funds and monitoring of government accounts
Introduction of an electronic version of a Letter of Credit (LoC) system for Public Works Department, Public Health Engineering and Forest departments meant for providing authorization for a certain amount of financial transaction from Banks by an authorized person
Introduction of a system of Financial Advisors in all the major departments which will pave the way for greater decentralization of powers and faster decision making
Decentralization of powers of re-appropriation from the Finance Department to the concerned Administrative Department by introducing an ‘On-line Re-appropriation System’ as an e-Governance activity with a view to establish accountability, transparency and uniformity in the system in a centralised manner
Implementation of centralized Government Receipts Portal System (GRIPS) to provide facilities for citizens and businesses to pay their tax electronically. The GRIPS system has been rolled out to cover all payments in the Directorate of Commercial Taxes, Directorate of Excise and Directorate of Registration & Stamp Revenues. Non-tax payments related to user charges, fees etc can also be paid through this portal
Mandatory system of e–tendering for any tender valued at or above Rs 5 lakhs
Strengthening its system for debt recording and management with a view to have an updated database that can generate more useful reports regarding terms of loans and date-wise debt servicing obligations
Launching of a File Tracking and Monitoring System in Finance Department, and a new decentralized Dispatch System to enhance speed and efficiency
Revamping of the procurement system for drugs and its distribution management with the introduction of a dedicated web-enabled software ‘Store Management Information System’ in all procuring units, to improve efficiency and enable transparency in the drug procurement.
C. Economic Performance of the State Economy As argued before, GoWB has been striving to enhance the State’s economic growth potential through several measures. Results of these efforts are evident from the fact that the State surpassed all-India growth rate in terms of industry and services in 2012-13– State’s Industrial growth rate was 6.24% while the country's growth rate stood at 3.12% in 2012-13. Similarly, growth rate in the Service sector has been 9.48% whereas corresponding all-India figures stood at 6.59%.
Key factor driving such economic performance has been the GoWB’s focus on ensuring greater investments into the State. Investment proposals worth Rs 1.12 lakh cr have been received by the Govt with employment potential of 3.14 lakh. Examples of upcoming industrial units include:
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Ceramic tile manufacturing unit with investment of 450 cr in Panagarh, Burdwan
PET resin and edible oil plants at Haldia worth Rs 400 cr
Infrastructure Logistics Unit at Haldia
Two cement units in Howrah and Hooghly (worth Rs 1500 cr)
Industrial parks in Kharagpur and Panagarh
Packaged food manufacturing unit in Howrah
These outcomes are a resultant of the following measures initiatives by the GoWB:
C.1 Focus on PPP initiatives The State continues to leverage private investments by experimenting with various models of PPP in different infrastructure sub-sectors. Efforts already initiated in this context are as follows: a) Policy measures including:
Amendments to the West Bengal Land Reforms (WBLR) Act, 1955 have been made Salient Features of the PPP Policy
to enable allotment of land for industrial The PPP policy aims to achieve the following: purposes beyond the ceiling limit along Create a conducive environment for PPP in the with single window scheme for faster state through clearances; and Support the State in leveraging private sector efficiencies at optimal cost Announcement of a Public Private Provide a framework for project identification, Partnership (PPP) policy on 21st June 2012 structuring, procuring and managing PPP projects by the State Government to facilitate Provide institutional framework for expeditious implementation of physical and social clearances infrastructure projects in the State in Create regulatory framework and dispute redressal mechanism partnership with the private sector. The policy provided for creation of a State level PPP Cell to provide direction and support for planning and implementation of PPP projects in various sectors, and a dedicated fund, West Bengal Infrastructure Development Fund (WBIDF) to assist project preparation, training and associated activities. According to the policy, GoWB is providing regulatory and administrative support critical for facilitating PPP projects - activities including project identification, project development, procurement, project implementation, and decision-making on PPP mode to be adopted. b) Institutional measures: Pursuant to PPP policy, the PPP Cell was set up in 2012 in the Finance Department of the State to steer the direction of PPP initiatives in the State. It has already approved few projects which are at different stages of development. c) Outreach mechanisms: An annual industrial summit initiative, “Bengal Leads” was launched since 2012 to reach out to the private sector d) Select PPP Investments as demonstration:
Housing and Commercial Infrastructure: Several successful projects such as Udayan - The Condoville, Hiland Park, and City Centre have been taken up with private sector participation. The Leather Complex project is being implemented by the Commerce & Industries Department of
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Government of West Bengal (Government of West Bengal) on Build, Operate and Transfer (BOT) basis through a private sector entity.
Urban Development: A number of initiatives with private sector participation are at various stages of progress in the sector:
o Kolkata Metropolitan Development Authority (KMDA) has successfully entered into joint ventures with respect to the residential cum commercial projects namely, City Centre at Bidhannagar and Highland Park at Baghajatin. Upcoming PPP ventures of KMDA include Kolkata West International City, a Stadium-based-Commercial Complex at Rajdanga, Kolkata Logistic Hub at Kona and beautification of Sector-V at Bidhannagar.
o Siliguri-Jalpaiguri Development Authority has initiated action in construction of a New Township near North Bengal Medical College and an Amusement Park at Dagapur with private sector participation.
o Asansol-Durgapur Development Authority (ADDA) has entered into joint ventures in constructing City Centre at Durgapur and the new Asansol township.
o Burdwan Development Authority (BDA) has taken up works of residential and commercial building at Jail Complex and Court Complex, bus-cum-truck terminal at Nabhabhat, Bus-cum- truck terminal at Alisha and Satellite township at Goda. BDA has also proposed setting up a health city with private participation.
o The Haldia Development Authority has entered into joint ventures to set up a Food Park complex and an Integrated Waste Management Complex.
Tourism: West Bengal is implementing India’s largest PPP Model for tourism infrastructure. In Phase-I, eight projects are being developed on PPP basis with a cumulative investment of Rs 3,280 crore. The Gajoldoba Tourism Park Project, with an investment of Rs 1,500 crore, is the biggest amongst these projects. It is being implemented on DBFOT basis and the bidding process is underway. RfPs have already been issued for Jharkhali project in Sundarban over 90 acre of land and Sylee Tea Tourism Project are ready for PPP Mode whereas several beach tourism projects in Digha-Tajpur- Mandarmani and Udaypur Beach Tourism Circuit are under active consideration by the Government.
Ports: The State Government has enacted the WB Maritime Board Act, which provides for securing private sector participation in development of Ports. As mentioned earlier in this report, the State has also initiated the process of setting up two deep sea ports at Sagar Island and Rosulpur on PPP mode in collaboration with the Railway, the state government and the Kolkata Port Trust (KoPT).
Health: The State Government has taken a major initiative to set up Fair Price Medicine Shops (FPMS) under PPP in all major medical colleges and district hospitals. Many Fair Price Medical Shops have already started functioning and new ones are getting added every week. The discounts available to the patients on the medicines sold from these shops range from 48 to 67 per cent of MRP. The Government has also issued an EoI for roping in private sector for establishment of medical colleges and hospitals through PPP. Also, 925 Nischay Yan ambulances were empanelled in the last two years for free referral transport facilities through networking mode under PPP.
Agriculture: The State proposes to set up integrated mini food parks through the PPP mode, Cluster Development Project (CDP) and Packaging Development Centre (PDC).
Higher Education: The State Government notified (NO. 142-Edn (U)/1U-95/12) policy and guidelines on establishment of Private Universities to provide a stable institutional framework and encourage private investment in the higher education sector. The State's first private university,
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Techno India University was set up in August 2012. Since then, the GoWB has been receiving increasing interest from prospective investors. Legislations were passed for two more private universities this February, namely Seacom Skills University in Birbhum to be set up by be set up by the Seacom Marine College Trust and the Adamas University in Barasat by the Sachis Kiron Roy Memorial Trust.
C.2 Infrastructure & Industrial Investments In order to promote large scale industries, Government of West Bengal has been facilitating investment in the infrastructure of roads, highways, bridges and ports for maximizing the benefits of the rich mineral base and surplus power position of the state. Few such initiatives include:
Establishment of West Bengal Highway Development Corporation (WBHDC) in 2012 for development, implementation and construction of State Highways and other important roads with the overall aim to lay emphasis on speedier execution of projects and attract more investments;
Integrated new terminal at Kolkata Airport commenced; development and upgradation of Bagdogra airport;
Targeted expenditure of Rs 12 crore has been made to improve attractiveness in the MSME sector through upgrading infrastructure in industrial estates in Durgapur and Udayan. Following are examples of recent initiatives in the MSME sector:
o 18500 new units have registered in micro and small scale sector
o 39 handloom cluster development projects are made operational
o Four urban haats and four rural haats are being set up
Between May 2011 and March 2013, 5 (five) new licenses for establishment of country spirit bottling plants have been issued by the Government.
Thus, the Government of West Bengal stands committed to reduce the subsidy burden, and will continue with its efforts to rationalise it in future as well.
Compliance Status: With this Action Taken Report on Subsidy Rationalization, this condition has been complied with. 2.1.3 Development/Implementation of four modules of IFMS
Policy Matrix Condition Following four modules under the Integrated Financial Management System (IFMS) developed and rolled out by the Finance Department: a. Drawing and Disbursement Module (bill preparation, submission, and management); b. Employees’ Database; c. Budget-Treasury Interface (e-allotment); and d. Government Revenue Receipt Portal System
The Finance Department awarded a contract for IFMS rollout to M/s CMC Limited (CMC) in November 2013. CMC is currently in the process of customization of the “IFMS Solution” in accordance to the requirements of Finance Department and other user departments of Government of West Bengal. The complete rollout of IFMS system is expected to be achieved by June 2015. The Finance Department has decided to rollout the modules in three stages - May 2014, November 2014 and March 2015.
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Drawing and Disbursement Module The GoWB has implemented an on line transaction processing system that provides the users the capability to carry out all the transactions possible in a treasury environment and churn out the desired outputs from the system. The system has been developed on Client Server Architectural platform which consists of a high-end server at the backend, serving as the repository of all transactional data, connected to the user terminals (clients) scattered across the working hall or, building, over a network. Clients serve as the front-ends that issue user requests to the server, validate the user fed data and also perform the preliminary processing tasks.
The functionalities covered under the module can be clubbed under four broad heads:
(i) DDO/ Front Office Activities (ii) Back Office Activities (iii) Printing (iv) Query and Reports
Each of these activities is mentioned in greater details as follows:
DDO/ Front Office Activities Drawing and Disbursing Officers (DDOs) can generate all types of Bills from an online system and use the same for online submission of the Bills to the Treasury. The system has the necessary interfaces with required databases for bill generation by the DDO and she/ he can also raise the bill amount based on available balance budget allocation. It should be noted here that the bill amount is matched with the balance available under the budget head and only in case the amount is less than the balance is the bill entry allowed. After successful submission of online bill, DDO is given a system generated token number which he can use for physical submission of the Bill along with necessary vouchers. The system also generates a unique bar code printout which the DDO prints and pastes on top of his bill. The DDO then forwards the bill along with the supporting vouchers to the relevant Treasury Office. Here, the Receiving Clerk / Front Office Assistant scans the bar code pasted upon the bill and verifies whether the same bill has been entered electronically. Upon matching of the two, the system records that the bill has been lodged and the bill is then put in a system-managed queue for subsequent processing.
Alternatively, in case the DDO is unable to submit the bill online, this activity can be performed by a Front Office Assistant in the Treasury offices. In such a scenario, the physical bill along with the necessary supporting vouchers is sent to the relevant Treasury by the DDO. This bill is received at treasury by a front office assistant and he encodes the bill data in the system through following menu: PaymentFront OfficeNew BillEntry. Here again, the bill amount is matched with the balance available under the budget head and only in case the amount is less than the balance is the bill entry allowed. After capturing the bill details, a token number is generated automatically by the system. The Front Office Assistant then passes on this token number to the DDO for future correspondence. The screen shot for the bill entry is depicted below:
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2.1.3.1.1 Back Office Activities The back office activities are taken up by the Treasury Officer or the Additional Treasury Officer. The steps here include the following:
Bill Distribution: The first step in the processing of the bill at the Treasury Office is the bill distribution to the dealing assistant. Once a Front Office Assistance confirms the lodging of a bill, it is put in a system- managed First in First out (FIFO) queue which is visible to the Treasury Officer. The Treasury Officer then sends the bill to one of the Dealing Assistants.
Bill Checking: As a part of this step, the Dealing Assistant examines the bill in terms of the propriety, validity and adequacy of the supporting vouchers as well as checks for mathematical errors. In case everything is found to be in order, the Dealing Assistant forwards the bill to the Treasury Officer for approval. Allotments are automatically checked and updated during bill checking. On clicking the button ‘Allotment’, system finds out if for that particular DDO Code and Account Code, sufficient allotment exists or not. If it is there, allotment details are shown. If sufficient allotment does not exist, then the message ‘Allotment amount is not sufficient’ is shown and objection is automatically raised and also inserted in the database by the system. This is referred to as ‘System Raised Objection’. The objection raised is displayed in the form of message (alert). In case any errors are detected, the system provides the Dealing Assistant with the opportunity to return the Bill to the DDO by raising a objections to the bill. These are known as “User Raised Objections”. A typical bill checking screen is depicted in the picture below:
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If some objection is raised by the treasury, the bill is returned back to the DDO account with a system generated “Return Memo” which clarifies the objections raised. The DDO can make the necessary changes in the bill to comply with the objection. Then, DDO resubmits the bill to the treasury. A new system generated treasury token number is assigned to the resubmitted bill.
Bill Modification: Bill Modification constitutes an important function, which is required very frequently at the treasuries. Even an already approved or, an objected bill can be modified through this option (by TO /ATO). Through this option erroneous data, if any, introduced during bill entry process, can be modified. Further, if a bill has been passed / objected by mistake, at the time of bill checking, can be rectified through this option. Modification of a bill may necessitate the modifications of the following fields:
o Bill Number
o Bill Date
o Bill Type
o DDO Code
o Account Head
o Gross Amount
o Net Amount
A bill modification may also encompass modification of the following items:
o By-transfer
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o Sub Detail Breakup
o Objections
o Transfer Detail
Bill Delete: This step may be taken only in case where the Treasury Officer agrees that there is a major mistake in any bill and the same needs to be returned with objection.
By-Transfer Modify: In case of transfer credit bill, to transfer any amount from say a District Magistrate, a Block Development Officer or a Panchayat Head of Account to some PL/LF operator’s account, user can click on the button ‘Transfer Ref’ to open a screen ‘Transfer Entry’ and can enter the transfer details therein. A screen related to this is depicted below:
2.1.3.1.2 Printing This step is used by the Check Printing Clerks for printing of cheques and pay orders. When a bill is passed, the corresponding pay order is generated by the system. The Check Printing assistants has to first retrieve the pay-order associated with the desired bill by selecting the bill through selecting its token number. Against the approved bill and pay order, cheques can be generated. Multiple cheques (for one bill or multiple bills) can be printed through a single print request. A key validation in this module is that a Check Printers can print a cheque only once against any bill through this option. Also, the Check Printers cannot print more than the number of cheques distributed to him in one lot.
If due to any reason printed cheque is not valid, and it has not been delivered through the system, then it can be rejected using a facility in this sub module. This can be achieved by giving the token number of the cheque to be rejected in the following menu:
PAYMENT--->BACK OFFICE--->BILL DELIVERABLES--->CHEQUE--->GENERAL--->REJECT.
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There is also an option for cancellation of cheque, if it has been delivered through the system and later on some errors have been observed in the cheque. A cheque may also be required to be cancelled in case its validity has expired. Cancellation of cheque through this option is possible only if the cheque has already been received for cancellation through the front office using the option ‘Front Office Activity Cancelled Cheque’.
This module also provides facilities for payment from Provident Fund (PF) of the school teachers under the School Education Department. The system maintains a school wise balance of the deposits of PF deductions from salaries of schools teachers. Any withdrawal from the same, for payment of PF to the staff, has to be approved by the Treasury Office. The Area Inspector of schools issues the cheque, which are deposited at the Treasury for payment to the respective school staff. The cheque can be approved through the system, if and only if there is sufficient balance in the respective school’s account to honor the cheque issued by the Area Inspector of schools. Otherwise, the cheque may be cancelled by the Treasury Officer.
Besides cheque printing, this sub module also provides the facilities for the various users to print other documents from the system including:
o Receipt
o Return Memo
o Nil Bill Statement (applicable for bill with Nil payment value).
o Advice
2.1.3.1.3 Query and Reports This sub-module contains various query options concerning the payment module. Queries are pre- designed and stored in the system. Users may feel the requirement to retrieve information regarding transactions, history, audit, report etc. on various treasury operation aspects. This feature provides a powerful tool to the user to provide a readymade answer to all those inquiries, based on which the user can form decision, and subsequently taking suitable actions. By clicking on ‘Query’ icon following menu options will be available.
o Bill
o Debit Scroll
o Cheque
o Sub-Allotment
Some of the reports which are available under this module include:
o Payments
o Reserve Bank Deposit / Deficit (RBD)
o List Of Payments
o Payment Subsidiary Register
o Payment Summary
o Plus Minus Memos
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o Paid Treasury Cheques
Some of the key features of the E-Billing module include:
o The module is work flow based. No user can modify any details until it is approved by some persons at the same or higher level. ‐ o The module provides the facilities for the upper level users to drill down the entire process.
o The module facilitates the user to enter the master detail to generate monthly accounts.
o The module is capable of validating the available allotment balance and various types of deposit balances during bill process.
o All transactions are time stamped and there is an audit trail available for ensuring that any attempt to improperly modify any data is trappable
This online transaction processing system for bill preparation, submission, and management is currently operational across all treasuries in the state. With the final rollout of IFMS, this module is going to be integrated with other modules involving additional functionalities.
Employees’ Database With a view to establish proper financial management, 13th Finance Commission advised the State Governments to create Centralized Pensioners and Employees Database. Following this directive from Finance Commission, it was decided to build needful infrastructure at Data Processing Centre, Writers’ Buildings so that monthly data collected from the DDOs through the Treasuries and Pension Disbursement Authorities can be stored centrally to generate appropriate MIS. With the intention of creation of the Employees’ Database, this Department vide Memorandum No. 1829-F(Y) dated 01.03.2012 directed all the Head of Offices/ Drawing & Disbursing Officers (DDOs) that the Salary Bills including Grant-in-Aid Salary Bills of the employees should be prepared only through Computerization of Salary Accounts (COSA) software package developed by NIC.
2.1.3.1.4 Key Features All 88 Treasury Offices and Directorate of Treasuries and Accounts (DTA) are connected through West Bengal State Wide Area Network and VPN- MPLS COSA has been rolled out in the offices of all Regular & Grant-in-Aid DDOs of the state Treasury Software is customized to capture COSA generated data from DDO Offices for forwarding it on monthly basis DDO Facilitation Desk is established in each Treasury to capture and reconcile COSA generated soft copies from DDOs Central EP (Employee & Pensioner) Server to store and process information on personal and salary/pension data to be collected from all DDOs through Treasuries (and Pension Disbursement Authorities) is in place at Finance Department, Data Processing Centre [DPC] at Nabanna Appropriate operating platform (Windows / SQL Server) in tune with COSA is created in EP Server. EP Server is connected with DTA Server located within 100 meters through dedicated network. All Employees have Unique Employee Code (Likewise all Pensioners have Unique Id. No.) Customization of COSA is made to process and generate MIS on Employee (& Pensioner) information. Data Replication mechanism is established in between EP Server and State Data Centre (SDC).
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2.1.3.1.5 Transactional Workflow In each month, DDOs submit 2 soft copies of data (in text formats) along with Pay Bill Hardcopies to the linked Treasuries. The 1st File comprises Pay Bill Data and the 2nd File contains Employee Personal Information along with Employee Salary Details to the linked Treasury.
Treasuries import the 1st File to its own database after necessary crosschecking with Pay Bill Hardcopies eliminating duplicate data entry works of existing bill processing system. Treasuries retain the 2nd Files from DDOs for forwarding it to the Directorate of Treasuries & Accounts (DTA) Server in batches on monthly basis.
The DTA Server in turn sends the received 2nd Files to the Employee / Pensioner Database Server at Nabanna.
MIS on Employee / Pensioner Central Database is made available to the decision making authorities of the state using COSA.
2.1.3.1.6 Implementation Process DDO Level:-
All DDOs are required to use COSA software for generation of monthly salary bills. DDOs submit salary bills in hard copies along with COSA generated soft copies of bills & employee data to Treasuries. Help Desk (facilitation centre) at Treasuries check Salary Bills and soft copies of the same. Help Desk (facilitation Centre) generate salary bills through COSA for DDOs who are unable to do so.
Treasury Level:-
DDO Facilitation Desk checks correctness of salary bill and reconciles it with soft copies of the bill submitted by DDO. After verification, soft copy of the bill is incorporated in Treasury System and the system will generate bill receipt (token) to DDO. DDO Facilitation Desk will generate Salary Bills through COSA for DDOs who do not have infrastructure at their own offices. If at any stage of bill processing, if bill is rejected, DDO will be informed. DDO will resubmit the salary bill along with soft copies generated through COSA, after due correction.
DTA Level:-
DTA Server checks monthly closing status of individual Treasuries and pulls the monthly data from Treasury as usual through WBSWAN. DTA server will accumulate monthly transaction data of all treasuries. When monthly transaction data from all 88 treasuries are collected at DTA server, a subset of data containing Salary and Employee is transferred to Central EP Server dedicated for Employee / Pensioner data management. DTA Server will retain monthly Employee / Pensioner related data for 3 months.
EP Server Level:-
EP Server processes the collected Employee / Pensioner data. EP Server can generate needful MIS using COSA for making it available over Finance Department LAN. EP Server will maintain live data up to 3 years before archiving. Storage shall be for data for a period of 50 years before archival.
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2.1.3.1.7 Current status All the DDOs of state government offices all over West Bengal have installed COSA software in their offices and are sending their employees’ data in electronic format to the Treasuries. The information captured in the Treasury is duly transferred to the EP Server located at Nabanna, Howrah. As on January 2014, the data from all 6505 DDOs representing the entire state government employees (3,46,075 employees as on January 2014) have been captured in this database. Details of the different fields captured in the EP database are provided in Memorandum no 1829-F(y) dated 1st march 2012 released by Finance Department GoWB.
In future, the COSA software will be integrated with the Human Resources Management System module of IFMS in the final rollout stage by September 2015
Budget-Treasury Interface (e-allotment) Integrated Financial Management System (IFMS) is an e-Governance initiative of Finance Department, Government of West Bengal for effective, accountable and transparent public financial management. IFMS has been conceptualized as an integrated system covering the different module related to accounting and financial management of government accounts and their integration. The main objective of IFMS is to achieve computerization of state wide financial transactions and efficient monitoring and facilitate data capture at source and interface across various modules whereby effective decision making will be possible for the various stakeholders related to their financial transactions. This system will make it convenient for the general payments to and from the government made convenient to the public using e-mode. The overall functionalities for IFMS have been covered under different modules viz:-
Centralised Treasury System (CTS)
Centralised Budget Monitoring System (CBMS)
-Bantan [e-Distribution of fund including LOC]
E-Pradan [Electronic Benefit Transfer (EBT)]
Human Resource Management System [HRMS]
GRIPS [e-Receipts]
Works and Forest Accounts Computerisation System (WFACS)
The e-bantan module of IFMS deals with the e-allotment process.
The IFMS software is a web based n-tier application. The underlying operating system is Red Hat Linux, the web server is Oracle WebCentre 10g, the application server is Oracle Application Server 10g and the data base is Oracle 11g. There are two servers separately serving the users related to the e-Bantan module in the State Data Centre where all the equipment for IFMS are installed. The total number of users has been initially placed at 2500 user but the system has the provisions to scale up to 15000 users in future. The servers in the Data Centre are operating in Load Balanced Service & Fail Over Services environment whereby the application continues to operate even if there is failure of any particular hardware. Each of the servers has 8-core CPU and Intel x86 64 bit architecture, 768 GiB RAM and SPECint_rate_base2006 performance of more than 1100. Further, the Department is planning to install an additional server in Disaster Recovery Site (to be situated at National Informatics Centre’s Data Centre at New Delhi). Load Balanced Service & Fail Over Service will also be activated between Data Centre & Disaster Recovery Centre.
The overall application architecture of IFMS is depicted in the picture below:
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The e- Bantan module of IFMS deals with the distribution of budget and also helps in the monitoring of fund allotted electronically. This module enables the Head of Departments/ Budget Control Officers of the various Departments / Directorates / etc. in distribution of funds to their respective offices under specific budget head. This activity has to be undertaken at the beginning of the financial year whereby all the sub ordinate offices and the Drawing & Disbursing Officers (DDOs) are provided with a budgetary allocation based on which they may incur their expenditure.
Before the implementation of the E-Bantan module under IFMS, the Finance Department already had two application softwares to address the requirements related to the budget distribution process:
Budget Fund Release Monitoring System for Group Offices: This application software was developed to monitor the File Movements in the Finance Department. There were 20 functional groups in the Finance Department, which looked after the release and monitoring of the budgetary funds under the state government budgetary head of accounts. Whenever a file was placed before the Finance Department by various Departments for releasing fund towards plan and non-plan expenditures, the key information were entered into the database for generation of a unique U. O. No. The software would then verify the
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admissibility of fund release through checking the Budget provision for the related matter. Depending upon the size of fund required, the file would then be sent to the higher official of the Finance Department for necessary approval before releasing the fund.
Re-Appropriation Monitoring System: This application software was developed to monitor the re-appropriation requests in the Finance Department. Sometimes, during a financial year, it was found necessary to allocate some more funds towards expenditure for a particular budget head. The concerned department would put up a file for Re-Appropriation of Budget Allocations to meet up the expenditure. The Budget Section of the Finance Department used to enter information in the system to verify and track such proposals. These systems are being discontinued since the entire functionality offered by them are now available through e-Bantan.
The e-Bantan has the following sub-modules:
DDO Management
Budget Distribution
The coverage of each of these sub modules are mentioned below:
2.1.3.1.8 DDO Management This sub module enables the users to create the identity of the various drawing and disbursing officers (including Cheque Drawing Officers) in line with the hierarchy of their departments. At first, the Admin User of the Departments needs to provide the DDO Detail for own Department. For this the user needs to select the Treasury Code for the DDO from the Treasury List of Values and select the applicable Treasury code. Next, the user needs to needs to select the DDO for the department by clicking on the DDO List of Values and select the relevant DDO code.
Thereafter, the user needs to enter the details of the Sub Allotting Officers (SAO) of Directorates (Head of Directorate or HoD) under her/ his jurisdiction. Once these SAO have been created, they in turn need to provide their own DDO details and provide the detail of the Sub Allotting Officers in Region Level and so on. In case any Department or Directorate does not have any Regional Office, details of Sub Allotting Officers in Divisional Offices have to be entered. Detail of all the Sub Allotting Officers have to be entered into the system by the higher level officers for them to be recognised in the system. Each user that is created through this process has to be provided with certain privileges based on their roles. There are two types of user roles for each Department/ Directorate/ other offices:
Operator – In this role the user can only Entry, Modify/Delete and view the reports. For these users, only “Upper Role” and Sub Allotting Officer Detail for that Upper Role has to be given by the user to save their details.
Approver – In this role the user can Entry, Modify/ Delete, Approve and view the reports. Here the officer has to be declared a DDO and then “Treasury Code” and “DDO Code” for the post has to be selected from the respective List of Values.
2.1.3.1.9 Budget Distribution This sub-module is utilised by the various departments / directorates and their lower level controlling officers to distribute the funds allocated to them to their subordinate DDOs. This includes LoC Distribution from PCCF/CE to Cheque Drawing Officers( i.e for Forest and Works Department). The process starts with the Departmental Admin User logging in to the e-Bantan Application of IFMS Portal for Sub Allotting the received budget allotments to the Directorates. The Head of Departments (HoD) thereafter enter the fund distribution for their lower level offices and so on. There are two types of user roles for the Application users namely ‘Operator’ and ‘Approver’. Operators are allowed to only enter the allotment detail, Head of Account (HOA) wise into the system for distributing to lower levels of offices.
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Also modification of allotment detail is possible by the Operator until the same has been approved by the Approver. The users with ‘Approver’ role can approve the allotment detail entered by the Operators. Upon entry and approval of any Allotment, a ‘Sanction Letter’ is generated by the System and can be downloaded by authorised users under ‘Reports’ menu of the system. The steps to be followed are similar to those observed under the DDO Management sub module. As a first step, the Operator at the Department level needs to identify the allotments made to them by the Finance Department either by entering the allotment id or by entering the Head of Account. The next step is to select a particular Head of Account / allotment id by clicking check box adjacent to it (the system also allows a Operator to select all the Heads of Account for simultaneous distribution). The operator should then activate the “Insert” button on the menu. The next menu allows the Operator to either sub allot funds to a DDO or a Sub Allotting Officer. In case the funds are to be allotted to a DDO, the Operator needs to select first the applicable Treasury code and next the DDO code, then enter the allotment amount and click on the “Save” button. On the other hand, if the funds are to be sub allotted to a Sub Allotting Officer, the Operator first needs to select the Department (could be Own Department or Other Department). The next step is to select the hierarchy level for the SAO from four options namely HoD (Directorate), RO (Regional Office), DO (Divisional Office) or SDO (Sub Divisional Office). Then the specific SAO has to be selected from a list of values provided under the menu. Then the Operator can enter the amount to be sub allotted and click on the “Save” button. Similar steps need to be followed for each of the SOAs under the Department. Once all entries are made, the Approver can log in and approve the entries whereby the system generates the Sanction Letter. The Operator and Approver at the Directorate and lower level offices need to follow similar step to complete the distribution on fund at the beginning of any financial year. These steps ensure that all funds available to DDOs are captured at source and as and when expenditure is made by the DDO, the balance can be check against the original Sanction Letter and the expenditure made prior to the last bill.
The e-Bantan module of IFMS has been operationalised from the current financial year. Training sessions for staff have also been arranged. Some relevant office orders related to e-Bantan is included in Notice no. FS-46/2014 released by Finance Department dated 11th March 2014 and Notice no. FS-47/2014 released by Finance Department dated 12th March 2014.
Government Revenue Receipt Portal System Finance Department issued a notification vide notification no. 8298-F(Y) dated 3 October 2012 notifying tax-payers that the Government of West Bengal payment (both tax and non-tax revenues) could be made through Government Receipts Portal System (GRIPS) portal. While persons making online payment can use either net banking facilities or debit cards of authorised Banks, those wanting to make off-line payments can deposit their cheques / drafts / cash at the authorised Bank branches that the Bank would credit the money into Government Accounts. The e-payment facilities have been introduced for VAT, CSR, Entry Tax, Professional Tax, Motor Vehicle Tax, Land Revenue, Stamp Duty and Earnest Money deposits. The GRIP portal in currently fully operations and a snapshot of the same the same is depicted below:
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Under this system, the payer directly logs in to the portal and chooses the type of payment viz tax or non tax, sub type of tax category, tax amount required to be paid along payment period, financial year, as well as predefined department with specific information like dealer number etc. A filled up e-challan with a unique Government Receipt Number (GRN) will be generated by the portal. The dealer can take a printout of this e-challan and can go to the designated bank/branch to make the payment. The bank will access the portal to confirm the details of the e-challan while accepting the payment from the dealer. Once the confirmation is done the bank will generate a Bank Reference Number (BRN) which will be shown in the challan receipt along with GRN and handed over to the dealer.
If the dealer opts for net banking facility, s/he will be redirected to the portal of the concerned bank where s/he enjoys net-banking facility. The same process as described earlier will be done online and the Bank Reference Number will be generated and captured in the e-challan receipt after confirmation of the payment. The dealer can take a printout of the challan receipt for keeping an official record of the transaction.
The GRIPS module is fully in operation and will be integrated with IFMS in the final rollout stage.
Compliance Status: This tranche condition has been complied with.
2.1.4 Preparation of MTEF for three select departments
Policy Matrix Condition Medium Term Expenditure Framework (MTEFs) for health, school education, and public works departments approved by the Finance Department The methodology adopted by the TA team in preparation of MTEF for the said departments is presented below:
Concept Medium Term Expenditure Framework (MTEF) is a public expenditure planning exercise that sets out future budget requirements for existing services, and assesses resource implications of future policy changes. The tool of MTEF provides linkages among policy, planning and budgeting over a medium-term
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period, usually spanning next 3-5 years. Thus, it is a tool designed to link planning, which has a medium to long term outlook with the annual budget exercise of governments, thereby linking budgetary expenditures more systematically with desired socio-economic goals. Its principal focus is on getting the government to allocate budgetary resources to programs, activities, and projects that promote the strategic priorities of the national/ sub-national governments.
As the 2010 World Bank report3 puts it, MTEF was pioneered by Australia in early 1980s with launching of “Forward Estimates” System which was followed by countries of Denmark, New Zealand, Netherlands and Norway adopting the same in early 1990s. MTEF gained prominence in late 1990s when some of African countries adopted. Based on global experience, three broad variants of MTEF with key features, in the order of increasing sophistication can be distinguished as below:
Medium Term Fiscal Framework (MTFF): (i) Resource Envelope; (ii) Agency Ceilings; (iii) Top Down, input based
Medium Term Budget Framework (MTBF): (i) National and sector strategies, forward estimates; (ii) Reconciliation with MTFF, agency/ program ceilings; (iii) Top Down & Bottom Up, primarily input based
Medium Term Performance Framework (MTPF): (i) Systematic use of quantitative performance information; (ii) Output/ Outcome based; (iii) Funding linked to results.
By the end of 2008, two-third of countries (132) had adopted MTEF: 71 MTFFs, 42 MTBFs and 19 MTPFs. Successful implementation and impact on budget management/ fiscal performance of MTEFs has varied widely.
In the context of an administrative department of a state government in India, MTEF bridges the crucial gap between long-term Five Year Plan and annual departmental budgeting exercise with sharp focus on result-oriented public expenditure in the manner as follows. A long term plan giving direction for a particular development pattern of the sector/ sub-sector in future provides inputs to the development of department MTEF. This is already in practice in the guise of the state’s Five Year Plan (FYP)4. Keeping in view the priorities and stated government goals/ objectives in the FYP, the MTEF provides the overall framework guiding the budgetary allocations towards implementing initiatives/ measures towards attaining those objectives/ goals over the medium-term. MTEF being a ‘multi-year rolling framework’ is required to be updated every year. Thus, when the concerned departments internally prepare their budget requests, they use the estimates for the first year of their rolling MTEFs as the baseline to prepare their annual budget requests. By this way, MTEF serves as a bridge between the long-term objectives for the sector and departmental annual budgeting exercise, and ensure that resources are channelised to realize defined objectives in a targeted manner.
3 ‘Beyond the Annual Budget, Global Experience with Medium Term Expenditure Frameworks, November 2010 4 State’s Five Year Plan indicates the state’s objectives aligned with national level objectives over a fixed five year term, and specifies sectoral targets to be achieved. Its formulation is coordinated by the state planning department in conjunction with the central planning authority, Planning Commission of India.
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Five Year Plan Millennium State with allocation/ Budgeting at
Development Development targets for Departmental Goals Priorities Development Level
Heads (sectoral)
Human Medium Term Development Expenditure Report Framework
It may be noted in this context that even the GoI has amended the clause (c) of section 3, sub-section (1) of its Fiscal Responsibility & Budget Management Act (FRBMA), 2003 which in addition to the three fiscal policy statements, requires a fourth statement on ‘Medium Term Expenditure Framework Statement’ to be laid before the Parliament. As stated therein, MTEF statement is to set forth a 3-year rolling target for prescribed expenditure indicators with specification of underlying assumptions and risks involved. Appropriate changes have been done in other clauses of the Act, by effecting amendments to sections 3, 4, 7A, and 85.
Overview of MTEF process MTEF has been prepared for the three departments for three years which includes the budget year as the first year (2014-15), and then estimates for the FY 2015-16 and FY 2016-17. FY 2015-16 and FY 2016-17 are referred to as the outer years of the three-year period of MTEF and the estimates for these years are technically called “forward estimates”.
MTEF can be broken down into two components:
‘Baseline Budget’ or ‘Trend Scenario’: This entails estimation of expenditure for maintaining current/ baseline level of performance in service delivery by an administrative department.
‘Above the Baseline Budget’ or ‘Reform Scenario’: Based on the assessment taken in the sector involving review of schemes, identifying issues in institutional delivery of the department, and performance gaps assessed in results of the department with other progressive states and national average/ norms, appropriate corrective actions and reform strategies are developed and costed for addressal of issues.
The three sub-processes of MTEF process followed under both scenarios are:
1. Bottom-Up Approach entailing estimation of costs of government policy interventions: This involves estimation of medium-term costs of existing programme/ project/ scheme under Trend Scenario. Under Reform Scenario, costs of suggested interventions/ measures are added to Trend Scenario bottom-up projections.
5 As per the Finance Bill, 2012 passed in the Lok Sabha on 8th May 2012
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2. Top-Down Approach entailing estimation of likely availability of finances over medium term. This involves factoring in the overall macro-fiscal objectives of the state into consideration.
3. Reconciliation and Re-prioritisation: This involves matching of estimated expenditure requirements under both Scenarios with anticipated resource availability, and if the resource constraint is binding, then suggesting prioritization of expenditure.
Snapshot of this methodology is depicted in the below schema:
Top Down Approach: Estimation of Resource Envelope
Plan Ceiling: Total State Plan Exp Ceiling (consistent with MTFP- Non-Plan Ceiling FRBMA) (historical trend) Sectoral Plan Ceiling from FYP (historical share) Dept Plan Exp Ceiling (historical share)
Reconciliation Reprioritization
Reform Scenario: Identification and costing of interventions in line with (1) Benchmarking Analysis based on the PIs identified in logframe, (2) Scheme Review based on logframe, (3) Institutional Review; (4) Past expenditure analysis of the departments. These interventions are then costed and added to Trend/ Baseline Projections
One-time log-frame preparation with periodic updates: Mapping outputs and outcomes at scheme level, and deriving targets for PIs defined at output and outcome levels
Trend Projections: Projections based on historical trend; approved future allocations projected based on past utilisation trend
BOTTOM UP APPROACH: Prioritized, Targeted Expenditure Requirements
Legend MTEF Baseline Scenario MTEF Reform Scenario added to Base Scenario
In an MTEF, the three-year departmental budget is continuously rolled over into the next (overlapping) three-year period. When year 2 comes along, it becomes the first year (year 1) in the next three-year period; year 3 becomes the second year (year 2) and year 4 is added as the third year (year 3). In sum, at any point in time, there are always three years for which budgets must be prepared or updated- an actual (proposed) budget for the first year and estimates budgets for the second year and third years. Estimated budgets are ‘rolled over’ into the next (overlapping) three-year period.
Thus, the way MTEF has been designed helps in achieving the three objectives of Public Expenditure Management (PEM)-oriented budgeted system in the following manner:
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Aggregate fiscal discipline by ensuring that the resource envelope developed is in line with macro- fiscal objectives of the State and targets committed under FRBMA
Allocation efficiency by clearly linking departmental budget with the sectoral priorities (both inter and intra sectoral resource allocation) of the State envisaged under its Five Year Plan and Annual Plans
Operational efficiency by explicit recognition of the medium term perspective in implementation of schemes/ programmes in deciding allocations and update of rolling MTEF allocations based on performance on identified indicators.
Compliance Status: The TA team provided the support to GoWB for the preparation and finalization of MTEF for the three departments. The summarized final MTEF estimates after reconciliation of top-down and bottom-up budgeting estimates for the 3 departments viz School Education Department, Public Works Department and Department for Health and Family Welfare is presented in Annexure 1. The full MTEF reports for all the three departments viz Health and Family Welfare,School Education. This tranche condition has been complied with. 2.1.5 Implementation of Computerization of Salary Account (COSA)
Policy Matrix Condition Payment of salary to the State government-aided secondary school teachers under COSA fully implemented by the Finance Department
Prior to the introduction of Computerization of Salary Accounts (COSA)-compliant Online Salary Management System (OSMS), payment of salary to the teachers of the state government-aided secondary schools in the state of West Bengal used to be a manual process. The Head of Institutions (billing authority) used to submit monthly salary bill (called requisition, teacher-wise) to the office of concerned District Inspector/ Additional District Inspector (DI/ADI). The DI / ADI office used to manually check the bill and prepare a consolidated bill (school-wise / fund-wise) and submit to concerned treasury. After clearance by the treasury, a consolidated cheque used to be issued by treasury to the lead bank (school- wise) for bank transfer to the concerned school’s bank account (called salary account). The school authority after getting the credit from lead bank used to pay by cash / transfer credit to its teacher employees. The entire process was time consuming and prone to errors.
The Beginnings of Computerised System (OSMS) After issuance of order vide Memo No 705(42)/DSE dated 30-05-2011, it became inevitable to develop a computerized system so that monthly salary may be transferred through NEFT (National Electronic Fund Transfer) to individual employee from DI / ADI concerned on 1st day of every month without delay efficiently. The first proposal came to develop a modern online system from DI, North 24 Parganas in July 2011. After lot of discussions, the then Commissioner of School Education requested National Informatics Centre (NIC) to develop such system as a pilot project for around 250 schools under Barasat Sub-Division of North 24 Parganas. The journey of Online Salary Management System (OSMS) thus started in January 2012, with 250 schools under Barasat Sub-Division.
OSMS is a web-based application software, developed by National Informatics Centre (NIC)-Kolkata with PHP as its frontend technology, PSQL as the backend technology and Red Hat Enterprise Linux (RHEL) as the Operating system. It is hosted at the National Data Centre. This system has in effect, also helped in facilitating creation of employees’ database (both teaching and non-teaching staff) of government-aided secondary schools at the DDO-level, based on the online requisition from such schools, finalisation and approval of the database at the DI of Schools level and generation of grants-in-aid salary bills at the DDO- level.
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Implementation of COSA-compliant OSMS The Finance Department vide Memorandum No. 1829-F(Y) dated 01.03.2012 had directed all the Head of Offices/ Drawing and Disbursing Officers (DDOs) that the salary bills including grant-in-aid salary bills of the employees be prepared only through Computerisation of Salary Accounts (COSA) software package developed by NIC.
During the meeting of Finance Department on COSA software on 31st December 2013, it was brought to the light by the School Education Department that the web-based software application (reference to OSMS) developed by NIC is already operational in 10 districts for capturing the data of teaching and non- teaching employees of secondary schools (including government aided schools). It was informed that the data of employees of those 10 districts would be available by January 2014 and the remaining districts would be taken up by thereafter and expected to be covered within March 2014. Due to reasons of greater operational efficiencies in using the online OSMS software application and the fact that it was already installed and being implemented in majority of districts of the state, it was decided to continue with its implementation, with necessary modification/ customisation to capture the data in the same identical format of COSA package.
Subsequent to that, certain modifications were carried out in OSMS application to make it compliant with COSA.
Current Status The DDO-wise timelines for introduction of OSMS as achieved in the state for government-aided schools is presented in Table 2 below
Table 2: DDO-wise introduction of OSMS in the State for government-aided schools
DIST ID District Name DDO ID Sub-Division Name Date of Introduction 1902 Jalpaiguri 19021 Alipurduar July - 2013 19022 Sadar July - 2013 1904 Uttar Dinajpur 19041 Raiganj October - 2013 19042 Islampur October - 2013 1905 Dakshin Dinajpur 19051 Sadar March - 2013 19052 Gangarampur March - 2013 1906 Maldah 19061 Chanchal March - 2014 19062 Sadar March - 2014 1907 Murshidabad 19072 Jangipur October - 2013 19073 Kandi October - 2013 19074 Lalbagh October - 2013 19075 Sadar October - 2013 1908 Birbhum 19081 Bolpur March - 2014 19082 Rampurhat March - 2014 19083 Sadar March - 2014 1909 Barddhaman 19091 Asansol March - 2014 19092 Durgapur March - 2014 19093 Kalna March - 2014 19094 Katwa March - 2014 19095 Sadar March - 2014 1910 Nadia 19101 Kalyani June - 2013 19102 Ranaghat May - 2013 19103 Tehatta August - 2013 19104 Sadar March - 2014 1911 North Twenty Four 19111 Barasat January - 2012 Pargana 19112 Barrackpore June - 2012
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DIST ID District Name DDO ID Sub-Division Name Date of Introduction 19113 Basirhat July - 2012 19115 Bongaon August - 2012 1912 Hugli 19121 Arambagh March - 2014 19122 Chandannagar March - 2014 19123 Sadar March - 2014 19124 Serampore March - 2014 1913 Bankura 19131 Bankura February - 2014 19132 Bishnupur March - 2014 19133 Khatra March - 2014 1914 Puruliya 19142 Sadar March - 2014 1916 Haora 19161 Sadar November - 2013 19162 Uluberia March - 2014 1917 Kolkata 19171 Kolkata March - 2014 1919 Purba Medinipur 19191 Contai March - 2014 19192 Egra March - 2014 19193 Haldia March - 2014 19194 Tamluk March - 2014 1920 Paschim Medinipur 19201 Jhargram March - 2014 19202 Kharagpur March - 2014 19203 Ghatal March - 2014 19204 Sadar March - 2014 1921 Siliguri 19211 Siliguri September - 2013 1903 Cooch Bihar 19031 Dinhata December - 2013 19032 Sadar September - 2013 19033 Mathabhanga August - 2013 19034 Mekliganj November - 2013 19035 Tufanganj November - 2013 1918 South Twenty Four 19181 Sadar March - 2013 Pargana 19182 Diamond Harbour March - 2013 19183 Canning March - 2013 19184 Kakdwip March - 2013 Compliance status: OSMS, compliant with COSA software output data is now fully functional. The salary for the pay month of April 2014 has been successfully disbursed and credited to individual accounts of teachers of government-aided secondary schools through the system on 2 May 2014 (since 1 May 2014 was a state holiday). This policy action has now been complied with.
Table 3: Details of salary released to employees (including teachers) of govt-aided secondary schools in the state for the month of April 2014 through COSA-compliant OSMS
S. District Total Amount No. of Teaching Non Total Staff No. (lakhs) Schools Staff Teaching Staff 1 Jalpaiguri 2,259.08 547 6,925 1,227 8,152 2 Uttar Dinajpur 1,563.80 356 4,895 723 5,618 3 Dakshin Dinajpur 1,257.41 271 3,967 704 4,671 4 Maldah 2,423.27 484 7,593 1,077 8,670 5 Murshidabad 4,060.47 826 13,661 2,095 15,756 6 Birbhum 2,353.57 583 7,350 1,198 8,548 7 Barddhaman 5,195.94 916 15,200 2,814 18,014 8 Nadia 3,459.42 615 11,259 1,884 13,143 9 North Twenty Four 7,014.35 1,094 21,131 3,653 24,784
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S. District Total Amount No. of Teaching Non Total Staff No. (lakhs) Schools Staff Teaching Staff Pargana 10 Hugli 4,365.22 719 12,611 2,206 14,817 11 Bankura 3,031.45 738 9,267 1,866 11,133 12 Puruliya 2,280.40 652 7,006 1,217 8,223 13 Haora 3,537.87 628 10,351 1,854 12,205 14 Kolkata 2,984.44 546 8,087 1,568 9,655 15 Purba Medinipur 4,149.25 898 12,601 2,221 14,822 16 Paschim Medinipur 5,066.87 1,205 15,293 2,710 18,003 17 Siliguri 683.51 96 2,101 355 2,456 18 Cooch Bihar 2,060.72 471 6,635 1,087 7,722 19 South Twenty Four 4,798.10 1,017 15,544 2,354 17,898 Pargana TOTAL 62,545.16 12,662 191,477 32,813 224,290
2.1.6 Operationalization of drug procurement processes through WBMSC
Policy Matrix Condition Procurement of medicines through the WBMSC fully operationalized Introduction West Bengal Medical Services Corporation Limited (WBMSCL), incorporated in the year 2008 is a Wholly Owned State Government Undertaking under the Depatrtment of Health & Family Welfare (DoHFW) of West Bengal. Its mandate is to ensure (a) efficient procurement and timely supply of quality drugs to hospitals; (b) efficient procurement of equipments and regular maintenance of the same including supply of chemicals and reagents etc. to all Hospitals and Medical Colleges; and (c) construction and maintenance of the health facilities.
In line with its mandate, WBMSCL has been undertaking several initiatives for enhancing health infrastructure in the state. Some of the recent tenders managed/under management by the Corporation include: (i) planning, design and construction of 14 (fourteen) Tertiary Heathcare Hospitals along with supply of medical equipments and hospital furniture in the state on Turnkey basis; (ii) Procurement of High End Diagnostic Equipments and Dialysis Services etc. Similarly, the Corporation has been regularly dealing with procurement of equipments as well. Examples of recent instances include: (i) supply of pulse generator in hospitals; and (ii) supply of high end diagnostic equipments [digital radiography (dr)] in and medical colleges of the Government of West Bengal (GoWB).
As regards procurement of medicines, WBMSC has been actively playing a complimentary role to the existing decentralized system in the state. Under the existing decentralized system, except rate determination and contracting by the Central Medical Stores (CMS) in Kolkata, the entire procurement related activities, namely indenting, warehousing, stock recording and payments for drugs in the state is decentralised with the District Reserve Store (DRS) serving as the key procurement unit in each district. However, there are several occasions in which the limitations of this decentralized system hinder this smooth process of drug procurement in the state. Sample of these instances include:
Situation in which the demand at select DRSs is too low for a vendor to find it profitable to supply drugs
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Procurement of very specialised drugs which is bound to be low at each DRS level, but substantial at an aggregate state level emphasising the need for centralised procurement Spells of peak demand requirements of certain drugs (e.g. outbreak of any disease) during the course of the year.
It is in these situations wherein the WBMSCL plays a crucial role in the drug procurement by handling high value or complicated drug procurements in the state, whereas the drugs under the Essential Drugs List (EDL) are procured by the CMS.
A snapshot of this year’s procurement of medicines by WBMSCL is given in below Table 4Table 4:
Table 4: List of drugs procured by WBMSC in 2014 till date
S.No. Name of Item Quantity Tender Reference Approx value of procurement (Rs) 1. IFA Caps 444016000 Purchased through Central 225000000 PSU after failure of 3 Tenders 2. Combined Stick (31068) & Drug 31068 WBMSCL/NIT01/2012-13, 3100000 Kit A (51785),Kit B (20714) & dt.24.08.2012 Urban Kit (9910) 3. Rapid Immunochromatographic 104 packets of WBMSC/DRUGS/ Cholera- 130000 Dipstick for Diagnosis of Cholera 10 test strip Kit/01/2013, dt. 14.01.13 4. Rate contract IV Fluid (Normal WBMSC/DRUG/IV Rate contract Saline, Dextrose, Ringer Lactate) Fluid/36/2012 5. Indelible Marker Pens 384000 WBMSCL/NIT-31/2013 6500000 Pulse Polio Programme dated 18.09.2013 6. Indelible Ink Marker Pens for 385500 WBMSCL/NIT-25/2014, 6600000 Pulse Polio Programme Dated - 21/03/2014 7. Diethyl Carbamazine Citrate 101867000 WBMSCL/NIT- 20000000 (DEC) - 100 mg for Mass Drug 28/2014,Dated - 25/04/2014 Administration 8. Anti Malarial and Anti Kala - azar 42872 WBMSCL/NIT-32/2014 37050000 medicine: Tab. ACT (Adult)-SP + WBMSCL/NIT-33/2014 Artesunate -10000 Cap. Miltefosine (50 mg) - 18872 Cap. Miltefosine (10 mg) – 8000
Processes in drug procurement The organizational set up of WBMSCL has two distinct wings, the Procurement Wing and the Engineering Wing. The Procurement Wing, responsible for procurement of both medicines and equipment is currently headed by one Officer on Special Duty (on deputation), and is staffed with professionals including one Procurement Manager, five Bio-Medical Engineers and two Pharmacists.
The current processess followed by the said wing in procurement of medicines are detailed below.
Bid Process Management: There is a Tender Committee for selection of vendor which comprises key officials of WBMSCL, Technical Experts from the relevant field nominated by the DoHFW, and representative(s) of the Indenting Authority. The procurement process of medicines is through an open tender. In exceptional circumstances like repeated failure of tender or compelling timelines, competitive quotations are sometimes invited from Central/ State PSUs.
The tenders are invited by generic name, and e-tendering is mandatory for all drug procurements valued at and above Rs. 5 lakhs. A standard tender document mentions the catalogue number, nomenclature of drugs along with quantity to be procured. The technical bids (Bid A and B) and financial bid (Bid C) are
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sealed in separate envelopes and financial bids are opened after the technical evaluation process is over on subsequent date. Finally, on selection of the successful technical and financial bidders based on L1 (lowest cost bidder) criteria, the vendor selected is published on the internet.
Quality Control System: WBMSCL gets the quality testing done on sampling basis for all drug procurements from National Accreditation Board for Testing and Calibration Laboratories (NABL) accredited or/and State Government Laboratories. As per the usual payment terms contained in the Tender, majority of the payment to the vendor is effected after WBMSCL satisfies itself that the goods have been delivered as per the specification of or requirements of the tender including packaging and labeling norms and successful quality certification. Further, the tender document condition of 2% deduction from every bill (exclusive of government tax and duties) of the vendor to meet drug testing and cost of handling charges ensures a system of transparency in quality commitments. A couple of recent instances includes quality testing of Rapid Immunochromatographic dip stick for detection of Cholera through the National Institute of Cholera and Enteric Diseases, Kolkata and of Iron Folic Acid Capsule (Ferrous Sulphate 150 mg & Folic Acid 0.5 mg) through State Drugs Control and Research Laboratory, GoWB.
Compliance status: As noted above, the WBMSCL is staffed with professionals and has standardized procurement process in place. The drug procurement through WBMSCL thus is fully operationalized and the Corporation plays an active complimentary role to the existing decentralized system through the DRS in the state by handling high value and/or complicated drug procurements.
This policy action has been complied with.
2.1.7 Rationalization of salary growth for 2013-14
Policy Matrix Condition GoWB’s annual growth in nominal salary bill does not exceed 7% in 2013–2014 Compliance Status: Nominal salary bill of the GoWB increased from Rs 283,434 million in 2012-13 to Rs 303,218 million as per the revised estimates of 2013-14, thereby registering an annual growth of 6.98% in 2013-14 (data source: Budget Publication No. 9 of GoWB for the budget year 2014-15).
This policy action has been complied with. 2.1.8 Database on employees and pensioners
Policy Matrix Condition Comprehensive database on GoWB employees and pensioners to facilitate rationalization of state government expenditures, prepared by the Finance Department
Comprehensive Database on Government Employees & Pensioners With a view to establish proper financial management, the 13th Finance Commission had advised the State Governments to create Centralized Pensioners and Employees Database. Following this directive from Finance Commission, it was decided to build needful infrastructure at Data Processing Centre, Nabanna Building so that monthly data collected from the all the Drawing & Disbursing Officers (DDOs) through the Treasuries and Pension Disbursement Authorities can be stored centrally to generate appropriate Management Information Support (MIS) reports. This is expected to provide the State government necessary access to the up-to-date picture of its financial liability for salary/ pension and projections of the same before taking any policy decision in this respect.
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Creation of database With the intention of creation of the Employees’ Database, the Government of West Bengal via the Memorandum No. 1829-F(Y) dated 01.03.2012 directed all the Head of Offices/ Drawing & Disbursing Officers (DDOs) that the Salary Bills including Grant-in-Aid Salary Bills of the employees should be prepared only through Computerization of Salary Accounts (COSA) software package developed by National Informatics Centre (NIC). Subsequently, it made the salary bill generation through COSA mandatory by issuing the Memo No. 9368 dated 20.11.2012.
With respect to pensioners’ database, the GoWB has the standard approach wherein the office of the Auditor-General (AG) issues the final pension payment order (PPO) which comes to Treasury (pension disbursing authority). PPO is retained at the Treasury and the information on pension to be released and credited to the pensioner's account is sent to bank on monthly basis based on which the pension is disbursed. The collection of monthly data from the Treasuries to the Finance Department is through a data compilation format developed by the NIC. Thus, the basic record of all pensioners is already being maintained at the Treasuries.
2.1.8.1.1 Key Features All 88 Treasury Offices and Directorate of Treasuries and Accounts (DTA) are connected through West Bengal State Wide Area Network (WBSWAN)
Treasury Software is customized to capture COSA generated data from DDO Offices for forwarding it on monthly basis
DDO Facilitation Desk is established in each Treasury to capture and reconcile COSA generated soft copies from DDOs
Central EP (Employee & Pensioner) Server to store and process information on personal and salary/pension data to be collected from all DDOs through Treasuries (and Pension Disbursement Authorities) is in place at Finance Department, Data Processing Centre [DPC] of Nabanna building
Appropriate operating platform (Windows / SQL Server) in tune with COSA is created in EP Server.
EP Server is connected with DTA Server located within 100 meters through dedicated network.
All employees have Unique Employee Code. Likewise all pensioners have Unique Id. Nos.
Customization of COSA is made to process and generate MIS on Employee and Pensioner information.
Data Replication mechanism is established in between EP Server and State Data Centre (SDC).
2.1.8.1.2 Transactional Workflow In each month, DDOs submit two soft copies of data (in text formats) along with Pay Bill Hardcopies to the linked Treasuries. The 1st File comprises Pay Bill Data and the 2nd File contains Employee Personal Information along with Employee Salary Details to the linked Treasury.
Treasuries import the 1st File to its own database after necessary crosschecking with Pay Bill Hardcopies eliminating duplicate data entry works of existing bill processing system. Treasuries retain the 2nd Files from DDOs for forwarding it to the Directorate of Treasuries & Accounts (DTA) Server in batches on monthly basis. For pensioners’ data too, Treasuries forward the pension bill data to the DTA on monthly basis.
The DTA Server in turn sends the received 2nd Files to the Employee / Pensioner Database Server of Nabanna Building.
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MIS from Central EP Database is then made available to the decision making authorities of the state. The pictorial flow of data from treasuries to the DTA and then to the Server located at Finance department of GoWB is shown below. Data at DTA will be stored for a maximum period of 3 months and up to 50 years at the storage facility at Finance Department.
Treasuries: For EP Server DDO Salary & DTA (in Finance Pension Dept)
through COSA Electronic Transfer Electronic Transfer
2.1.8.1.3 Implementation Process The workflow mentioned above is reflected in activities as substantiated below at each of the following nodal levels:
DDO Level:-
All DDOs are required to use COSA software for generation of monthly salary bills. DDOs submit salary bills in hard copies along with COSA generated soft copies of bills and employee data to Treasuries. Help Desk (facilitation centre) at Treasuries check Salary Bills and soft copies of the same. Help Desk (facilitation Centre) generate salary bills through COSA for DDOs who are unable to do so.
Treasury Level:-
DDO Facilitation Desk checks correctness of salary bill and reconciles it with soft copies of the bill submitted by DDO. After verification, soft copy of the bill is incorporated in Treasury System and the system will generate bill receipt (token) to DDO. DDO Facilitation Desk will generate Salary Bills through COSA for DDOs who do not have infrastructure at their own offices. If at any stage of bill processing, if bill is rejected, DDO will be informed. DDO will resubmit the salary bill along with soft copies generated through COSA, after due correction.
DTA Level:-
DTA Server checks monthly closing status of individual Treasuries and pulls the monthly data from Treasury as usual through WBSWAN. DTA server will accumulate monthly transaction data of all treasuries. When monthly transaction data from all 88 treasuries are collected at DTA server, a subset of data containing Salary and Employee is transferred to Central EP Server dedicated for Employee / Pensioner data management. DTA Server retains monthly Employee / Pensioner related data for 3 months.
EP Server Level:-
EP Server processes the collected Employee / Pensioner data. EP Server can generate needful MIS using COSA for making it available over Finance Department LAN. EP Server will maintain live data up to 3 years before archiving. Storage shall be for data for a period of 50 years before archival.
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Compliance status: All the DDOs of state government offices across the state of West Bengal have installed COSA software in their offices and are sending their employees’ data in electronic format to the Treasuries. The information captured of both salary/ pension data in the Treasury is duly transferred to the Central EP Server via DTA. As on January 2014, the data from all 6505 DDOs representing the entire 3,46,075 state government employees and of 5,35,371 pensioners have been captured in this Central EP database. This policy action has thus been complied with.
2.1.9 Increase in annual capital outlay to GSDP ratio in 2013-14 & 2014-15
Policy Matrix Condition Annual capital outlays to GSDP ratio increased by 0.5 percentage points during 2013–2014 and 2014– 2015 over the previous years The following table gives the status on increase in capital outlay to GSDP ratio.
2012-13 Actuals 2013-14 RE 2014-15 BE Total Capital Outlay (in Rs million) 45,473 92,334 151,207 GSDP at current prices (in Rs million) 6,222,630 7,100,330 8,158,020 Capital Outlay - GSDP ratio (%) 0.73% 1.30% 1.85% Percentage point increase in 0.57 0.55 Capital Outlay- GSDP ratio Source: Budget Publication No. 1, 2014-15 of GoWB for capital outlay; GSDP estimates from “Medium Term Fiscal Policy Statement & Fiscal Policy Strategy Statement for 2014-15”, Finance Department, GoWB
Compliance Status: Annual capital outlay to GSDP ratio increased by 0.57 percentage points during 2013-14 and 0.55 percentage points during 2014-15 over respective previous years as presented in below table. This policy action has been complied with. 2.2 Revenue Reform Measures 2.2.1 Value Added Tax (VAT) Enhancement of TIMS
Policy Matrix Condition TIMS further enhanced by the Finance Department by: a. Making the payment, recovery, and appeal modules fully operational b. Enabling interface between TIMS and state excise; and c. Introducing permanent account number-based registration numbers for better cross-checking of information.
The Directorate of Commercial Taxes (DCT) which works under Finance Department (revenue Branch), Government of West Bengal (GoWB) administers the following Acts:
The West Bengal Value Added Tax Act, 2003 The West Bengal Sales Tax Act, 1994 The Central Sales Tax Act , 1956 The West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979 The West Bengal Primary Education Act, 1973 The West Bengal Rural Employment and Production Act, 1976. The West Bengal Transport Infrastructure Development Fund Act, 2002.
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The DCT is the largest revenue earning set-up in the state, contributing around two-third of total own tax revenue of the State.
Since the last few years, several measures have been undertaken to better the services of DCT to dealers/ citizens. A major start was made by the DCT by developing a VAT compliant comprehensive application software package, “Information Management and Promotion of Administration in Commercial taxes (IMPACT)”, in association with National Informatics Centre (NIC), Kolkata. IMPACT provides online centralized database server and systems on web-based architecture, with disaster recovery site located in Salt Lake, Kolkata. The major objectives are twin-fold:
To improve revenue administration by making required information and crucial reports available to the respective administrative personnel and decision makers like tax analysis, import and export analysis, revenue profile and behavioural characteristics of individual dealers through greater use of data mining and business intelligence tools.
To improve service delivery to dealers by providing an IT interface for various activities like registration, waybill issue, filing of returns and other related activities.
Information Systems Division (ISD) is the nodal division responsible to plan and co-ordinate the mission critical e-services Commercial Taxes Directorate (CTD) of GoWB.
In this connection, the GoWB has taken further measures to enhance its Tax Information Management System (TIMS) (which exists in the form of comprehensive IMPACT application) by implementing and effecting following modules/ policy decisions.
Payment Module (for electronic payment of taxes) Under the erstwhile manual system, the dealer/ entity had to physically pay taxes through Challan at the select designated banks on each month within banking hours. This process was characterised with issues like higher turnaround time of payment of taxes which involved travel to the bank by the dealer plus the lengthy processes at Banks, Treasuries and the DCT for the reconciliation of tax related payments.. This in turn used to result in delayed refunds, as well as indifferent attitude of business houses in timely tax payment.
Recognising this, the Finance Department initiated the e-payment of commercial taxes (including profession tax) with effect from May 2008 under ‘on-line system of tax-receipts’ on a pilot basis. Thereafter, several measures were taken to expand the scope of payment module, like increasing the number of banks authorised to accept deposit of taxes electronically etc.
Subsequently, efforts were made to develop a common e-Portal for deposit of all taxes and other charges of the State Government in the form of Government Receipt Portal System (GRIPS). GRIPS thus was introduced as the centralized system for electronic receipt of all types of state government tax (VAT, CST, Entry Tax, professional Tax, Motor Vehicles, Land Revenue, Stamp Duty etc.), non-tax revenue, and other deposits via Notification no. 8298-F(Y) dated 3 October 2012. The Trade Circular No. 16/2012 issued thereafter on 1 November 2012 by the Directorate of Commercial Taxes made the e-payment of all commercial taxes compulsorily through GRIPS.
This ‘e-payment module’ to make payment of all Commercial Taxes online is available on the home page of the website of Directorate of Commercial Taxes, West Bengal at http://wbcomtax.nic.in (below).
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Link for accessing the e-Payment screen
Clicking on the above hyperlink brings the following screen of GRIP portal.
Integration of the GRIPS with Commercial Taxes e- payment
Through this facility, the dealer can pay all taxes being administered by the DCT using internet banking options. The list of bank branches who also accept e-Challan generated through Counter Payment system of GRIPS are:
State Bank of India (SBI) - All Branches in W.B. United Bank of India (UBI) - All Branches in W.B. HDFC Bank Indian Overseas Bank (IOB) Indian Bank Axis Bank Union Bank of India Bank of Baroda - All Branches in W.B. IDBI Bank - All Branches in W.B. UCO Bank ICICI Bank
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Since payment through GRIPS has been made compulsory for all e-Payments of Commercial Taxes, the Directorate is receiving e-Payment figures of all banks after reconciliation by RBI through a single window (GRIPS) on daily basis.
The process flow-map at various nodes in the process of e-payments, i.e. (i) taxpayer; (ii) GRIPS portal; (iii) Bank; and (iv)Assessing authority or officials of DCT is presented in Figure 5 below:
Figure 5: e-Payment through the GRIPS portal
Thus, the e-payment module available at http://wbcomtax.nic.in/e- Services/e_payment.htm is operational through internet net banking facility via GRIPS and is currently fully functional. This citizen-centric e-payment service has eased the process greatly and obviated the need for dealers to stand in long queues for payment of taxes.
Recovery Module If any amount of tax assessed or penalty imposed or interest determined or costs awarded (e.g. late fee) by the appropriate authorities remains unpaid for a specified period, the assessing authority refers such cases to the Certificate Organisation in the DCT. The Certificate Organisation in the DCT is headed by an Additional Commissioner. The courts are presided over by Senior Joint Commissioners and Joint Commissioners, known as Certificate Officer and Tax Recovery Officer who are specially empowered to recover certificate dues as arrear land revenue under the Bengal Public Demand Recovery Act, 1913; WB Sales Tax Act, 1994 and WB VAT Act, 2003. Nazirs, Assistant Nazirs and Process Servers assist the Tax Recovery Officers and Certificate Officers.
On receipt of certificate cases in different charge offices under the DCT and from certificate holders from different offices like Profession Tax, Amusement Tax and Agricultural Income Tax, Multi Building Tax, recovery proceedings are initiated by issuing notices to certificate debtors (form whom Public demand is due). Recovery proceedings continue till certificate dues, accrued interest and costs are realised.
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The various modes of recovery as exercised by the Certificate Officer/ Tax Recovery Officer are: Recover the dues through service of notice, as arrear of land revenue. Recover the dues through service of notice under special mode of recovery (garnishee proceedings). In garnishee proceeding on a person from whom money is due to the defaulting dealer, direction is given to person to deposit such amount (which should not exceed the demanded amount). Service of notice of certificate on the certificate-debtor Attachment and sale of movable as well as immovable properly of the certificate-debtor. Appointment of receiver for management of properties of the certificate debtor. Since the said module deals with recovery proceedings, it is an internal database for usage of the DCT and does not have any citizen interface. The Recovery Module available at http://10.153.10.30/wbct.html is fully operational in the State. Appeal Module When a dealer fails to furnish return, or furnishes return but fails to make payment of net tax, interest and late fee, or furnishes return but fails to make payment of the unpaid amount of net tax, interest and late fee and where the Commissioner has rejected his application for extension of date of payment, the Assessing Authority may proceed to assess the dealer provisionally for that period. However, no provisional assessment in respect of a return period is made following the expiry of six months from the prescribed date for furnishing such return. If, upon verification of return or upon any enquiry, or otherwise, the Commissioner is not satisfied that the return furnished by a registered dealer is correct and complete; or upon search or seizure of accounts, registers or documents, or of goods of a registered dealer, the Commissioner has reasons to believe that the registered dealer has not accounted for any turnover of sales or turnover of purchases in the return furnished by such dealer or in the accounts, registers or documents, the Assessing Authority, after giving a notice to such dealer, proceed for assessment.
Aggrieved by the assessment order, the dealer, as per provisions of the law, can file an appeal before the Appellate Authority against the order of assessment. Thus, an appeal lies against an order of assessment (including provisional assessment) only, which includes determination or assessment of tax, imposition of penalty, determination or redetermination of interest.
Instances were noted that the appeals were not being disposed off speedily resulting in piling of huge amount of litigation which otherwise would have augmented a lot of revenue for the Directorate. Keeping this in view, for speedy disposal of appeals and as part of the ongoing computerization process in the DCT, e-filing of appeal petitions has been introduced. This functionality enabled in IMPACT has reduced the hardship of the dealer to file appeal petition manually. Further, the Commercial Tax Authorities have an electronic dashboard to track of the appeals filed, the quantum of demand, the detail of the appeals and details of demand etc. and the eventual disposal of appeal.
To bring this change into effect, a change was brought in December 2013 in the procedure to submit appeal applications under section 84 of WBVAT Act, 2003 and section 9(2) of CST Act, 1956 for dealers registered under the same within the jurisdiction of Corporate Division which handles more than 65% of the directorate’s revenue. The concerned Trade Circular No. 14/2013 dated 5 December 2013 issued by the DCT notified this electronic filing of appeal petition (along with revision and review) to the appellate authority. With successful functioning of this appeal module for dealers of the Corporate Division, the DCT issued an addendum to the above Trade Circular on 26 March 2014 notifying the extension of the module to circles in the State. Accordingly, in the second phase of ongoing computerization process in the DCT, this electronic filing system of appeal petition (along with revision and review) has now been extended to the dealers registered under the WBVAT Act, 2003 and the CST Act, 1956 within the administrative jurisdiction of Kolkata (South) circle.
This online Appeal module available at http://wbcomtax.nic.in/e- Services/e_appeal_revision_review.htm is thus fully operational.
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Enabling Interface between TIMS and Excise Till recently, the excise licensees and/or importers used to apply for import permit-cum-pass from the Excise Directorate with a pre-issued waybill number from the DCT for alcohol and alcohol products. This system had the potential to result in revenue leakages. Since sales tax and excise duty are among the top three sources of own tax revenue generation of the Government of West Bengal (GoWB), effective monitoring of the movement of alcohol, inter-state and intra-state is crucial for state’s revenue collections.
Recognizing the potential for revenue leakages therein, a web-service has been developed by NIC, Kolkata to enable sharing of data in respect of alcohol and alcohol products between TIMS of DCT and xPERT (name of software application, ‘Excise program for effective revenue tracking’) of Excise Directorate.
Through this web interface, data pertaining to waybills and transit declarations in respect of alcohol and alcohol products is automatically pushed at 6 hours interval from the server of Commercial Tax to the web- server of the Excise Directorate. As a result, the Excise authority is enabled to reconcile the movement of alcohol vis-à-vis the Import passes issued, and accordingly inspect and do a physical verification of the tankers and/or importers at the checkposts to detect revenue leakages.
The web service, available at the state excise portal with the URL as http://wbexcise.gov.in/webservice/xpert_mmpct.asmx is fully operational.
Introducing PAN based Registration Permanent Account Number (PAN) is now a mandatory field for all electronic submission of applications for getting the registration under the VAT Act, 2003 or CST, Act 1956. No new registrations are being granted without submission of a valid PAN number. For old registrations, an exercise was carried out by the DCT wherein all dealers without a valid PAN number were notified to submit their PAN numbers. This data was thereafter sent to National Securities Depository Limited for validation before uploading in the database of DCT.
Since the registration process under the Central Acts like Central Excise and Service Tax is also PAN- based, effecting similar change with respect to registration under State VAT and CST Acts has provided the DCT the needed accessibility to verify the required information and data relating to production, dispatch, sale, and stock transfer from the excise as well as service tax authorities whenever required just by logging in with the PAN No. of the assessee and cross verify the concerned details. This is likely to increase the scope of detecting potential revenue leakages.
The User Manual for e-Application for VAT and CST Registration is uploaded on the home page of the website of Directorate of Commercial Taxes, West Bengal at http://wbcomtax.nic.in. The e-Registration Module available at http://wbcomtax.wb.nic.in/eRegistration/ereg.jsp mandates the necessary requirement of PAN as depicted in the below screenshot.
Implementation of proposed system of bar-coding of transit documents and linking of checkposts with TIMS
Policy Matrix Condition System of bar-coding of transit documents and linking of checkposts with TIMS to address tax leakages in transit of goods introduced by the Finance Department The Directorate of Commercial Taxes (DCT), headed by the Commissioner (CCT), works under Finance Department, Government of West Bengal (GoWB). The DCT is the largest revenue earning set-up in the state, contributing around two-third of total own tax revenue of the State. In the year 2012-13, collection of the DCT from the checkposts (located at the inter-state borders), ranges etc. amounted to Rs 575 crores.
To address tax leakages during the transit, a system of barcoding of transit documents has been introduced in the State wherein these documents are being endorsed by the officials of commercial tax checkposts
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using barcode scanners. The system is linked with the DCT central server which provides access to information on a real-time basis.
Barcoding of Transit documents Waybills are generated by dealers for import of taxable goods in West Bengal, while Transit declarations are generated by transporters/ dealers who use the state of West Bengal as the corridor before exiting the state to go to another state of India or a foreign country. Dematerialised generation and issuance of e- Transit Declaration (TD) and e-Waybills started in the State from November and December 2010 respectively. Further, a system of barcoding of these transit documents has also been introduced in the state for effective monitoring of the movement of consignments etc. through the IT enabled information management system.
Thus, the process of transit of goods has been made completely electronic wherein the transporter/ dealer generates barcoded e-Waybills and e-Transit Declarations through the DCT website (www.wbcomtax.gov.in) before entry of the goods vehicle in West Bengal.
The screenshots of a sample barcoded transit document and waybill is presented below.
Figure 6: Barcoded e-Transit Declaration
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Figure 7: Barcoded e-Waybill
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Figure 8: Barcoded Annexure to e-Waybill
Linking of checkposts with TIMS To effectively use these barcoded transit documents in controlling tax leakages during the transit of goods in the state, barcode scanners along with the necessary infrastructure have been introduced in the checkposts in the state. The system is fully operational in all the major checkposts, namely: Barobisha, Boxirhat, Chichira, Dalkhola, Duburdi, Jaigaon, Melli, More, Phansidewa, and Sonakanya checkposts. Multiprotocol label switching (MPLS) system connection and application software have also been provided in addition to barcode scanners to enable scanning of these documents. The system is linked with the Directorate of Commercial Taxes (DCT) central server which provides access to information on a real-time basis.
Screenshot of the said infrastructure in Sonakonya Checkpost is presented below.
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Figure 9: Barcode Scanner in Sonakonya Checkpost (Odhisha- West Bengal)
Compliance status: All policy conditions related to strengthening of TIMS have been complied with. 2.2.2 Excise Management System
Policy Matrix Condition Excise management system implemented by the Finance Department including for: a. online license renewal, b. product registration, c. issue of import passes for bulk spirit for industrial and medicinal purposes, d. a barcode-based supply chain management system, and e. single point duty on wholesale of IMFL
Online license renewal The Excise Directorate launched the process of online renewal of excise license in the year 2013 under xPERT as part of e-Governance initiatives. Given the multitude of licenses administered by the Excise Department, license management on an online platform has not only made the entire process simple to administer and supervise for the administration but has also ensured transparency and speedy renewal of licenses.
The website of Excise Directorate at http://www.wbexcise.gov.in/ provides links to online license renewal and the manual for the same is also loaded onto the website. The process of online license renewal is described in the diagram below based on the manual prepared by NIC:
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Online license renewal
Update the licensee master
Yes Enters Attach Clicks on the Downloads payment Generate document(For DEC logs into Prepare document Prepares the Change in details and application on licensee No Applicatio m-I/ xPERT ( Form-I/II) license form confirm behalf of information n ID II,Challan,IT payment from licensee return etc
Deputy ExciseDeputy Collector(DEC) GRIPS
Forwards to the Collector
Clicks on link to generate a Forwards the No objection Views forwarding letter to the certificate application Collector logs letter Generate onto xPERT respective received from and all other Yes addressed to license? system Police Police documents for Prints license Police for No jurisdiction scrutiny
Collector Collector Objection Record reasons for No refusal
Letter to Licensee Acknowledge licensee Renewed applies for ment handed informing license license over to reasons for document renewal licensee
Licensee non renewal before DEC
Product Registration Under the applicable laws, only those brands/ labels which are registered with the Excise authorities can be imported, exported or transported. Hence, all licensees are required to specify the names of the brands, the kind of liquor, the name of the manufacturer, the strength (i.e. alcohol content), the bottle capacity etc. for getting the labels registered with the Excise department.
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Under the e-governance initiatives, the entire process has been migrated to an IT based platform in 2013. The electronic facility for label (product) registration is available under the software application of xPERT. The process starts with the applicant submitting an e-registration form for Label Registration Certificate and paying the necessary fees online. All supporting documentation is scanned and uploaded in the system. Once the documentation is validated and a decision is taken to issue a Label Registration Certificate, it is communicated to the licensee who can download it from the web portal. In case it is decided not to issue the certificate, the reasons for the same are intimated to the licensee. The system is integrated with SMS Gateway. This e-Service, available on the home page of Excise Directorate at http://www.wbexcise.gov.in/ is made mandatory by the Government and it is being successfully running from 2013.
Issue of Import Passes for bulk spirit for industrial and medicinal purposes Import passes for bulk spirit are being issued online. The entire process has been described in the home page of the Excise Department website available at http://www.wbexcise.gov.in/Default.aspx and necessary manuals have also been prepared and uploaded for use by the licensees.
Bulk Spirit is imported from other states under-bond. To import Bulk Spirit, the intending importers, specifically the Distilleries, Manufacturers and Bottlers or the Special Section Licensees send requisition to the attached Bond Officer. The xPERT system ensures eligibility of putting requisition by checking the adequate balance in Bond Value Register, PL Account Register etc. The Bond Officer then acts on the requisition to forward it to the I/C (D&W Section) or I/C (Special Section) or I/C (FL Section) according to the license type of the intending importer. Then Import Permit-cum-Pass is generated online. Afterwards, when the consignment reaches from the outer state, xPERT facilitates Pre-Unload and Post-Unload checking as per Excise Rule towards generation of Excise Verification Certificate (EVC). The module is integrated with SMS Gateway.
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Barcode-based supply chain management system In an initiative to improve the system of supply chain management of packaged Indian Made Foreign Liquor (IMFL) and Country Spirit (CS) and to establish a mark of authenticity on the state produced and state imported bottled liquor, barcode-based supply chain management system has been developed and is functioning in the existing xPERT package of Excise Directorate. At present, 1D linear barcodes are being printed on import permits/ transport passes using xPERT software which enables the GoWB to track the production, distribution and sale of both IMFL and CS consignments. The barcode based supply chain management system is also linked with the inventory management system which automatically updates the stock position of CS/IMFL on real time basis. Extensive training has been imparted to all concerned and follow up training on requirement is being imparted continuously.
Single point duty on wholesale of IMFL There is always a possibility of leakage of excise revenues during the transportation from manufactory to the bonded warehouse. Recognising this, the GoWB has done away with the practice of excise revenue collection from the bonded warehouses, and has introduced single point duty at the manufactory itself. This has streamlined the system of collection of excise revenues and made tax compliance easier. The GoWB effected this policy action in the state from April 1, 2014 as per the Government Order no. 36-Ex dated January 16, 2014 the Gazette Notification ‘No. WB (Part-I)/2014/SAR-55’ dated January 21, 2014.
Compliance status:Thus in view of these major reform activities carried out to strengthen excise administration, the tranche policy conditions have been complied with. 2.2.3 Property Registration Management System
Policy Matrix Condition Property registration management system strengthened by the Finance Department by: a. Implementing e-stamps requirement; and b. Digitizing legacy deed data on a pilot basis in two sub-registrar’s offices and rolling-out the process of digitization of legacy deed data in at least 20 sub-registrar’s offices
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The Directorate of Registration & Stamp Revenue (DRSR), under the administrative control of Finance Department of the Government of West Bengal, is responsible for all registration and stamp revenue related matters in the State. Inspector General of Registration & Commissioner of Stamp Revenue (IGR & CSR) is the administrative head of the Directorate. At the Directorate level, IGR & CSR is assisted by Additional IGR, Additional CSR, Joint IGR, Joint CSR etc.
This Directorate is vested with the administration of Indian Stamp Act, 1899 and Registration Act, 1908 along with the relevant provisions of other allied Acts, such as U.L.C. Act, I.T. Act, T.P. Act etc.
The main functions performed by the Directorate are: Registration of deeds Market valuation of the property Providing facilities for search for issue of Non-encumbrance Certificate Collection of revenue in the form of stamp duty and registration fees Given the fact that the Directorate is the second highest revenue earning Directorate of the state, it becomes imperative that the Directorate realises the due stamp duty and registration fees. For the process, several measures have been taken in the past, like implementation of Computerization of Registration of Documents (CoRD) software for e-Registration, digitization of market value under which the market value of all plots in every mouja6 had been determined on the basis of the principles laid down in the West Bengal (Prevention of Under-Valuation of Instruments) Rules, 2001. E-stamping Rationale for e-Stamping
Stamp duty levied by the State legislature is a kind of tax on instruments (documents like affidavit, adoption deed, sale deed, gift deed, lease deed, mortgage, license, partition deed, settlement deed etc.). Generally, it is paid before or at the time of executing a document.
Under the former system, the manual way of paying and collecting stamp duty used to suffer from a variety of issues in the State. While the GoWB has explored and implemented other payment methods such as bank drafts, serialized authenticated bank receipt, treasury challan etc., these payment methods are not found foolproof and suffer from issues such as verification of the authenticity of the stamp duty paid, cumbersome cancellation process etc. Some of the other problems associated with stamping system are shortage of stamp paper of the required denomination, high administrative costs of procuring, transportation and distribution of stamp papers, difficulty in reconciliation of accounts etc. Also, there has been an increase in the number of fake stamp papers being used for payment of stamp duty causing a huge loss to the Government.
In view of above, and as part of its overall focus on e-governance initiatives, the Directorate of Registration & Stamp Revenue, GoWB introduced the process of e-stamping in the year 2012. E-stamping is a computer based application which generates the e-stamp certificate in place of physical stamps. It gives the convenience of paying stamp duty without the troubles involved in obtaining a stamp paper. The system is secure and reliable and ensures the stamp duty paid reaches the government account safely. The system also redresses the other problems as have been highlighted above. This way, this citizen-centric quality service has the potential of increasing revenue earning of the Government and realization of fees and stamp duties.
Introduction and implementation of E-Stamping E-stamping process was flagged off by the Hon’ble Finance Minister, GoWB on 19th November, 2012 through the inauguration of online and offline e-stamping system in ten (10) selected registration offices.
6 Mouja is a type of administrative unit, corresponding to a specific land area within which there may be one or more settlements
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Accordingly, amendments were made in the relevant provisions in the West Bengal Registration Rules, 1994 for introduction of e-Stamping which was then notified vide No. WB/ SC- 247 dated 27th November, 2012.
Appropriate amendments in the West Bengal Registration Rules have been made as per which the online e-stamping system was enabled for payment of stamp duty and registration fees above Rs. 5000/-. At present, online payment of Stamp Duty and Registration Fees can be made if the same payable is more than Rs 5,000/- and it is compulsory if stamp duty payable is Rs 5 lakhs or more.
E- Stamping is a web based application developed with ASP.NET3.5; SQL Server 2008 as the Backend Database which is hosted at State Data Centre with Disaster Recovery facilities at New Delhi and is accessible over Secure Socket Layer https:// www.wbregistration.gov.in. The server of Government Revenue Receipt Portal System (GRIPS) which has been developed as the centralized system for electronic receipt of all types of state government tax, non-tax revenues and deposits, has also been upgraded to take into consideration the increased transaction volumes. Reliance Communication Limited was selected by the Finance department through a tender process for implementing connectivity in all the 244 registration offices including the offices of District Registrar and Range DIGR's. All the registration offices have now been provided with Multiprotocol Label Switching System (MPLS) connectivity to implement e-stamping.
A broad overview of the process of e-stamping is as exhibited below. The registrant public fills an e- Requisition form containing the property to be transacted and Transferor and Transferee details of the proposed transaction using the web-site of the Directorate of Registration and Stamp Revenue, Government of West Bengal (https://www.wbregistration.gov.in) from anywhere anytime. System automatically generates an e-assessment slip informing required Stamp Duty and Registration Fee payable for Registration of deed. Registrant public can also fill printed Requisition form and submit it at Registration office and get assessment slip. Thereafter, registrant public is required to pay stamp duty and registration fee online using Net banking facility using Government Revenue Receipt Portal System (GRIPS) website https://wbfin.wb.nic.in/GRIPS/. After payment of these, registrant public presents the deed for Registration, which is delivered to the party.
Thus, the GoWB is implementing the process of e-stamping, with the said system fully functional already in 160 registration offices in the State. This policy action is thus complied with.
Digitisation of legacy deed data 2.2.3.1.1 Background Any prospective purchaser of property normally undertakes a deed search of past transactions and obtains the non-encumbrance certificates to establish the chain of title. For certainty of ownership every deed in the chain need to be established. To issue a non-encumbrance certificate, officials at the ADSR’s office are required to search the registers and indexes for past years and establish the chain. After the implementation of Computerisation of Registration of Documents (CoRD) project in all the registration offices in the year 2007, deed data has been successfully captured in the system. However, in order to issue non-encumbrance certificate, searching of data for further years in the past is required.
Since the data of prior years is not yet digitised, issuance of encumbrance certificate under normal circumstances, takes normally 1-5 days or more. This time consuming manual process results in great deal of inconvenience to the citizens. Also, observing the trend over last 5 years, the demand for encumbrance certificate has gone up significantly.
In view of these considerations, an initiative has been taken by the Government of West Bengal under the overarching National Land Records Modernization Program (NLRMP) to digitize the legacy data for better service delivery to the citizen. This initiative is expected to have following effects:
Improved service delivery in issuance of encumbrance certificate to the citizen
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Reduced inconvenience and harassment to the citizen Increase in revenue due to more demand for encumbrance certificates 2.2.3.1.2 Current Status Department of Land Revenue, Ministry of Rural Development, Government of India has sponsored the scheme of National Land Records Modernization Program (NLRMP) with the goal of providing conclusive title of the property in India.
Under this programme, following components and activities of the Directorate of Registration & Stamp Revenue (DRSR) have been included:
a) Computerisation of the Sub-Registrar's Office b) Data entry of valuation details c) Data Entry of Legacy Encumbrance Data d) Scanning and preservation of old documents
The components ‘a’ & ‘b’ above have already been completed by the Directorate. The Directorate has now embarked on the work under ‘c’ &‘d’, i.e. “Data Entry of Legacy Encumbrance Data”, “Scanning and preservation of old documents”. The Directorate has also undertaken and completed the work of data entry of legacy encumbrance data of two Registration Offices namely Diamond-Harbour and DSR-I Alipore under a pilot scheme as approved by the Finance (Revenue ) Department vide no. 427 FT Dt. 28.03.2012. New software products have been developed, namely (i) ‘Morut’ which has the facility of data entry of Legacy Encumbrance Data and (ii) ‘B-Zer’ which facilitates the scanning of old records. The software has been verified by NIC and it is als0 compatible with the existing mother software Computerization of Registration of Documents (CORD).
M/s Webel Technologies Limited was engaged to implement the scheme of digitization of legacy data. Orders were issued vide letter No 504- F.T dated 27th March 2014 for continuing with M/s Webel technologies Limited for implementing the digitization of Legacy encumbrance data in the offices of ARA I and ARA II in Kolkata, DSR Howrah, ADSR Bidhannagar and also in 20 other registration offices.
Digitizing legacy deed data in two pilot offices, namely Diamond Harbour and DSR -I South 24 Parganas have been completed for 4 years. The process is also being rolled out in following the 20 sub-registrar’s offices.
Table 5: List of 20 sub-registrar’s offices
S.N Name of the office Date of Computerisation Period of entry of Legacy o. data 1 ARA-III, Kolkata 10.11.2008 From 1.1.2001 to 9.11.2008 2 DSR-II, South 24 Parangas 23.02.2009 From 1.1.2000 to 22.2.2009 3 DSR-III, South 24 Parangas 23.02.2009 From 1.1.2000 to 22.02.2009 4 DSR-IV, South 24 Parangas 23.02.2009 From 1.1.2000 to 22.02.2009 5 ADSR, Alipore, South 24 8.12.2008 From 1.1.2001 to 7.12.2008 Parangas 6 ADSR, Behala, South 24 10.12.2007 From 1.1.2002 to 9.12.2007 Parangas 7 ADSR, Sealdah, South 24 6.11.2008 From 1.1.2001 to 5.11.2008 Parangas 8 DSR-I, North 24 Parangas Old System 2002, New System From 1.1.1999 upto 13.07.2009 Computerisation
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S.N Name of the office Date of Computerisation Period of entry of Legacy o. data 9 DSR-II, North 24 Parangas Old System 2002, New System From 1.1.1999 upto 08.02.2010 Computerisation 10 ADSR, Barasat, North 24 Old System 2002, New System From 1.1.1999 upto Parangas 13.07.2009 Computerisation 11 ADSR, Barrackpur, North 24 4.12.2007 From 1.1.2002 to 3.12.2007 Parangas 12 ADSR, Kadambagachhi, North 4.12.2007 From 1.1.2002 to 3.12.2007 24 Parangas 13 ADSR, Domjur 24.08.2007 From 1.1.2002 to 24.8.2007 14 ADSR, Howrah 24.08.2007 From 1.1.2002 to 23.8.2007 15 ADSR, Uluberia, Howrah 26.07.2007 From 1.1.2002 to 25.07.2007 16 ADSR, Serampur, Hooghly Old System 2003, New System From 1.1.2000 upto 14.07.2008 Computerisation 17 ADSR, Janai, Hooghly Old System 2003, New System From 1.1.2000 upto 07.07.2008 Computerisation 18 ADSR, Singur, Hooghly Old System 2003, New System From 1.1.2000 upto 07.07.2008 Computerisation 19 ADSR, Gazole, Malda 09.02.2007 From 1.1.2002 to 8.02.2007 20 ADSR, Bagdogra, Darjeeling 24.01.2008 From 1.1.2002 to 23.01.2008
Compliance status: This policy action related to (i)implementing e-stamping and (ii) digitization of legacy deed data on a pilot basis in two sub-registrar’s offices and rolling-out the process of digitization of legacy deed data in at least 20 sub-registrar’s offices have been complied with. 2.2.4 Profession Tax
Policy Matrix Condition Number of tax slabs under the profession tax rationalized The following changes have been included in the professional tax schedule in the Finance Act, 2014 of the State Government:
Consolidation of the tax slabs by removing first three tax slabs for 2 categories, viz. salaried employees and wage earners; and persons engaged in any profession (but not as employee, e.g. legal/ medical practitioners); and Streamlining of the entire tax schedule from 23 categories of persons and/or entities in FY2012 to 4 in FY2014.
Compliance status: These changes in profession tax strcuture has been duly notified in the Gazette. Thus this policy action has been complied with.
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2.3 Debt Management Measures 2.3.1 Development/Implementation of Debt Database Policy Matrix Condition A debt database with comprehensive and up to date information on all state government debt, including contingent liabilities, cost of funds, and maturity profile prepared by the Finance Department
An integrated Debt Management System (DMS) has been developed by National Informatics Centre (NIC) for the Finance Department, Government of West Bengal (GoWB). It is a standalone application. The DMS has been developed on DotNet framework. The Database is MS SQL and the web server is Microsoft IIS. The software code has been written in C++ and the operating system is Windows XP.
This integrated DMS of the GoWB is fully functional. Up to date data of all state government debt, namely market loans, National Small Savings Funds (NSSF) loans, central loans and other institutional loans (like that of West Bengal Infrastructure Development Finance Corporation Ltd., WBIDFC and Rural Infrastructure Development Fund, RIDF) have been captured into the system. Once the operator logs into the system using his login Id and password, a screen appears revealing the different menus available for the different types of loans. Each menu has different sub menus under which the details of loan particulars are recorded. System-generated reports over a long-term horizon can be obtained based on the current debt data including those on principal and interest payment obligations on yearly/monthly basis as well as maturity profiles of individual loans. The database can also generate these MIS report with respect to aggregate loan of the GoWB. There is provision for export of the details in pdf or excel format.
The integrated DMS has also been strengthened by adding the facility to record contingent liabilities of the state government as reflected in the Budget Publication number six (6). The software can provide sorted information on contingent liabilities across various borrowers and lenders. A manual has also been prepared alongside to serve as a guide and reference tool for standardization of processes.
Compliance status:This comprehensive debt database containing up to date information on all state debt including contingent liabilities is thus fully operational in the government. This is expected to strengthen institutional capacity of the Finance Department to manage the stock of GoWB’s debt effectively and improve its ability to reallocate resources from interest servicing towards its development agenda. Thus this tranche condition has been complied with.
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3 Impact of Program on State Finances
The improvement observed in key fiscal indicators of the State’s finances bears testimony to the fact that the Program contributed in realizing tangible positive results. While the turnaround is primarily driven by revenue-administration led fiscal consolidation program, the quality of expenditure and improved targeting of expenditure too has improved.
From a high level of 3.7% of GSDP in FY2010-11, current deficit is projected to reach 1.7% in FY2013- 14 RE
State’s Own Tax Revenues (OTR) mobilization has played the most important role in the reduction of the current deficit in FY2012-13 and again in FY2013-14. The relative performance is more prominent in FY2013, which was also a full program year. It is noteworthy that OTR to GSDP ratio of the State exceeded 5% in FY2012-13 for the first time in the last 15 years.
The FD relative to GSDP too experienced an improvement of 1.14 percentage points from a level of 4.23% in FY2010-11 to 3.08% in FY2013-14RE.
This increased ability to rein in the FD has gradually lessened public debt which has come down to 35.33% in FY2013-14RE from 40.54% of GSDP in FY2010-11. Further, the cash and liquidity situation of the state has also improved with a significant reduction in its utilization of off-budget ways and means advances from the Reserve Bank of India declining to 15 days in FY2013-14RE from 48 days in FY2012-13 and 113 days in FY2010-11. The state was in overdraft for only four times for 7 days in FY2013-14RE in contrast to seven such instances for 62 days in FY2010-11.
Indicators Before Program After Program FY2010-11 FY2011-12 FY2012-13 FY2013-14 RE FY2014-15 BE Own-tax revenue 4.57 4.68 5.27 5.51 5.57 Current expenditure 13.96 13.77 13.20 13.13 12.99 Current deficit 3.74 2.74 2.22 1.70 0.00 Capital outlay 0.48 0.52 0.73 1.30 1.85 Fiscal deficit 4.23 3.33 3.08 3.08 1.80 Source: Budget publications, Government of West Bengal
As mentioned earlier, the critical success factor in this recent turnaround in GoWB’s finances has been the strong increase in collection of OTR receipts. Average annual growth rate of OTR is expected at 22.9% for FY2011–FY2013 compared to 13.6% during FY2005–FY2010. This strong revenue collection has been driven by the virtuous cycle of investment-led broad based growth, as designed under the Program, and reflected in buoyant revenue collection across almost all taxes including the major ones of value-added tax (VAT), state excise, and stamps and registration fees. This upturn followed from the comprehensive tax reform strategy pursued by the GoWB with sharp focus on strengthening revenue administration, including systems and procedures and reducing compliance costs.
Further, aided by the Program’s strong focus on revenue reform and GoWB’s deep commitment to strengthening investment expenditure, capital outlay to GSDP ratio increased to 1.3% in FY2013 from 0.5% in FY2010 and is projected to increase to 1.9% in FY2014 (which is also related to one of the second tranche policy actions). It is noteworthy because the said ratio crossed 1% in FY2013 after remaining sub-one for almost a decade in the past.
Also, while containing non-plan expenditure, wherever possible, the state’s growth-oriented plan expenditure which witnessed a contraction in FY2010 has also been experiencing consistent improvements
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and registered annual growth of 19%, 35%, and 43% in FY2011, FY2012, and FY2013, respectively). Besides, the GoWB has undertaken certain expenditure restructuring exercises supported by the Program which have helped in reducing its subsidy burden, e.g. revamping of public distribution system, restructuring of select closed and/or perpetual loss-making state public sector undertakings.
Figure 10: Plan and Non-Plan Expenditure (percentage of GSDP)
18 16.8 16.4 15.0 16 14.2 14.0 14 12 10 Plan Expenditure 8 5.2 Non-Plan Expenditure 6 4.3 3.2 3.2 3.6 4 2 0 FY2010 FY2011 FY2012 FY2013 FY2014
Source: Budget publications, Government of West Bengal and staff estimates
Hence, as the number bear out, the impact of the Program loan has been felt positively on State’s finances with significant contributory role played by the revenue administration-led reforms that were envisaged.
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4 Contribution of Technical Assistance
The State Government has benefitted from the Technical Assistance (TA) provided under the Program in the following ways: 4.1 Support in meeting tranche release policy actions Several initiatives, important for meeting the tranche release policy actions were supported under the TA. These include, among others: providing inputs to the Finance Department towards making debt management database more comprehensive providing expertise during IFMS development and implementation thereby contributing towards strengthening capacity of the Finance Department during the process preparation of MTEFs for the three concerned departments and building capacity of the Finance department in the same documenting the various actions taken by GoWB towards subsidy rationalization.
4.2 Trainings for Government Officials 4.2.1 Domestic training on ‘Financial Systems, Management and Accountability in Government’ PwC facilitated and organised a training for five (5) officials of Government of West Bengal at Administrative Staff College of India (ASCI), Hyderabad from 23 - 27 September, 2013 on “Financial Systems, Management and Accountability in Government”. The names and designation of GoWB officials who participated in the training are as below:
1. Mr. Ranjan Jana, WBA&AS, Dy. Financial Advisor, I&W department, GoWB
2. Mr. Gopinath Ghosh, Dy. Financial Advisor, PWD department, GoWB
3. Dr. Anal Jyoti Chakrabarti, WBA&AS,L.R (Finance Audit department), working as Assistant Secretary, Finance Budget department, GoWB
4. Mrs. Radhika Agarwal, WBA& AS, A.O., Office of the F.A, P.H.E.Engg., GoWB
5. Mr. Partha Chakraborty, WBA&AS,L.R (Finance Audit department), working as Assistant Secretary, Finance Budget department, GoWB
4.2.2 Domestic training on ‘Management of Indirect Taxes in India: VAT /CST /CENVAT /Services Tax /Customs and GST’ PwC is currently assisting in organising the training program on ‘Management of Indirect Taxes in India: VAT/CST/CENVAT/Services Tax/Customs and GST’. The program is being offered by the Indian Institute of Management, Bangalore and scheduled from November 10-12, 2014.
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The Finance department has expressed its intent to send nominations of five (5) select GoWB officials from the Commercial Tax Directorate for the said program.
4.2.3 Foreign training on ‘Principles for International Tax Planning’ On request of the Finance Department, GoWB, foreign training courses on taxation to be organised were explored. After extensive dialogue, the course being offered by the International Bureau of Fiscal Documentation (IBFD) in Amsterdam, Netherlands on the subject ‘Principles for International Tax Planning’ has been finalised. The course is scheduled from November 10-14, 2014.
PwC is currently engaged in making arrangements for two (2) senior officials as mentioned below who will be particpating for the course:
1. Mr Binod Kumar Singh (IAS), Commissioner, Commercial Taxes, GoWB
2. Mr Anurag Srivastava (IAS), Joint Secretary, Finance Department, GoWB
4.3 Project Appraisal Methodology/ Manual The Terms of Reference (ToR) of the assignment with the TA consultants included:
Preparing a Project Evaluation Methodology
Preparing a Roadmap for introducing project evaluation for all new projects in a phased manner in the State
Conduct trainings of the selected Government employees. 4.3.1 Activities pursued by the TA team For the above purpose, the TA team conducted preliminary discussions with the Public Works Department (PWD)( both the Chief Engineer and Financial Advisor), since roads sector is one of the primary ones where the envisaged project appraisal methodology could have been found useful. Preliminary issues were identified in the investment appraisal process and accordingly and a framework for the Project Evaluation Manual was developed.
Discussions were also held with the head of FPMU of GoWB who incidentally also heads the PPP Cell. The primary users identified for the Manual thus were Financial Advisors of key administrative departments and their staff, PPP cell in Finance Department, Technical staff/Engineers involved in Project preparation, and FPMU/Finance department. 4.3.2 Preparation of Operational Handbook for PPP projects in lieu of Project Appraisal Methodology & Manual While the TA team started the process of preparing the Manual, however, following subsequent rounds of discussions, the FPMU expressed the need for having an Operational PPP Handbook in lieu of the project appraisal methodology, given the GoWB’s focus on the same. The TA team thus took up the preparation of the Handbook upon request from the FMPU and PPP Cell. This Operational Guide/Handbook is expected to provide a better understanding of the requirements of the PPP projects and provide a ready reference and a practical guide to GoWB for planning and execution of such projects. It may be noted here that project appraisal methodology is one of the many integral components of this Handbook. The handbook prepared by the TA team is included in Annexure-2.
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In addition, Finance Department also requested the TA team to provide support in conducting a workshop with different state government departments and undertakings for wider dissemination of PPP related concepts and inititatives. Towards this end, the TA team helped GoWB to conduct a day long workshop on 27 June 2014. The main objectives of the workshop were as follows:
To enhance understanding of key basic concepts underlying typical PPP projects To share practical guidance in building up a shelf of bankable projects To share select sector experiences, with relevant good practices adopted & implemented in other states in India
PPP projects in sectors like roads, agriculture and food processing, health and power sector were covered in greater details. The programme was attended by 41 senior level functionaries from different state government departments and various undertakings apart from senior officials from Department of Finance. 4.4 Submission of a Memorandum before 14th Central Finance Commission. The TA team provided extensive support in the form of research inputs to the GoWB in the preparation of a Memorandum that was submitted to the 14th Central Finance Commission. The specific inputs provided by the TA team covered the following topics:
Profile of West Bengal with focus on issues and constraints Documentation of the ongoing efforts of Govt of West Bengal on fiscal prudence and developmental agenda Demand for a special debt relief package Central assistance in funding infrastructure gap Vertical devolution- formulation of the strategic approach Horizontal devolution- formulation of the strategic approach Fiscal consolidation roadmap-analysis and observations Documentation of the demand schedule for state specific grant
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Annexes
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Annexure 1: MTEF for Departments of Health & Family Welfare, School Education and Public Works
Department of Health and Family Welfare The final MTEF estimates after reconciling top-down and bottom-up budgeting estimates is presented in below Table 6.
Table 6: Final MTEF estimates of DoH&FW (in Rs crores)
S. Head 2014-15 2015-16 2016-17 No. 1 Top-down budgeting: Departmental Resource 5,779.16 6,734.41 7,858.72 Ceiling 2 MTEF deficit (-)/ surplus (+)before re- (-) 356.75 68.8 466.66 prioritisation exercise 3 Resources released from existing schemes 104.48 114.80 126.18 4 Savings (+)/ additional expenditure burden (-) 254.01 (-) 127.01 (-) 127.01 on account of shifting of reform interventions 5 MTEF deficit (-)/ surplus (+) after re- 1.7378 56.60 465.84 prioitization exercise (2+3+4) 6 Final Reconciled MTEF Estimates (1+5) 5,780.90 6,791.01 8,324.56
School Education Department The final MTEF estimates after reconciling top-down and bottom-up budgeting estimates is presented in below Table 7.
Table 7: Final MTEF estimates for SED (Rs. crores)
S. Head 2014-15 2015-16 2016-17 No. 1 Top-down budgeting: Departmental 17,908.08 20,927.07 24,485.09 Resource Ceiling 2 Bottom-up budgeting: Trend Scenario 17,889.20 20,411.08 24,057.82 Expenditure Requirements 3 Trend deficit (-)/ surplus (+) with 18.88 427.27 respect to resource availability (1-2) 515.99 4 Bottom-up budgeting: Costed Reform 1,111.31 760.39 829.54 Interventions 5 MTEF deficit (-)/ surplus (+) before re- (-) 1,092.43 (-) 244.41 (-) 402.26 prioritisation exercise (1-2-4) 6 Final Reconciled MTEF Estimates 18,219.63 20,934.12 24,731.13 (1+5)
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Public Works Department The final realistic MTEF estimates for the Public Works Department for 2014-17 are presented in below Table 8.
Table 8: Final MTEF estimates for PWD (Rs crores)
S. Head 2014-15 2015-16 2016-17 No. 1 Top-down budgeting: Departmental Resource Ceiling 2,978.43 3,255.26 3,808.32 2 MTEF deficit (-)/ surplus (+)before re- prioritisation exercise (12.78) 156.22 376.38 3 Resources released from existing schemes 12.78 4 Postponing select reform interventions - 5 MTEF deficit (-)/ surplus (+) after re- prioitization exercise (2-3-4) - 6 Final Reconciled MTEF Estimates 2,978.43 3,411.48 4,184.70
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Annexure 2: PPP Handbook
List of Acronyms
ADB Asian Development Bank BOT Build Operate Transfer DBFOT Design Build Finance Operate Transfer DBO Design Build Operate DEA Department of Economic Affairs DPR Detailed Project Report ECOS Empowered Committee of Secretaries EOI Expression of Interest EPC Engineering, Procurement and Construction FDI Foreign Direct Investment FI Financial Institution FICCI Federation of Indian Chamber of Commerce and Industries FS Finance Secretary IIFCL India Infrastructure Finance Company Limited IIPDF India Infrastructure Project Development Fund IRR Internal Rate of Return JV Joint Venture MFC Memorandum for Consideration NPV Net Present Value PFR Pre Feasibility Report PIS Project Information Sheet PPP Public Private Partnership PSC Public Sector Comparators PSP Private Sector Participation RFP Request for Proposal SCIIE Standing Committee of the Cabinet on Industry, Infrastructure and Employment SPV Special Purpose Vehicle TA Transaction Advisor TPC Total Project Cost VFM Value for Money VGF Viability Gap Funding WBIDF West Bengal Infrastructure Development Fund
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Introduction
The demands on West Bengal infrastructure are considerable, especially taking into account its strategic location as a gateway to the north eastern states and neighbouring countries, the vast hinterland it serves and the increasing expectations of its people for economic and social development. The present rate of capital formation is low and only about 1.85% of gross state domestic product (GSDP) could be allocated for investment purposes as per the budgetary estimates of 2014-15.
The new Investment and Industrial Policy 2013 announced by the State Government has emphasised the creation of quality infrastructure and the direction of mega investments in sectors with high employment potential. The role of public private partnerships is seen to be important particularly in sectors such as industrial infrastructure, power, communication, roads and bridges, ports, airports, tourism and hospitality, health and education.
Attracting private capital in infrastructure is considered as a key strategy to meet resource deficit required for investment. In comparison to other modes of operation, Public Private Partnership (PPPs) offer a number of advantages in terms of enhancing the ability to consider a larger shelf of infrastructure investments, introducing sector expertise and cost reducing technology while bring in efficiencies in operation and maintenance. Therefore, Government of West Bengal envisages a substantive role for PPPs as a means for harnessing private sector investment and operational efficiencies in the provision of public assets and services.
While PPPs in various forms have evolved over time in certain sectors, they have never been institutionalised as an integral part of the development process. With the announcement of the PPP policy framework on 21st June 2012, the process was initiated for a clear and transparent system with an appropriate regulatory framework that will now form the foundation for doing infrastructure business with the private sector in the state.
Though ample literature is already available on the theoretical fundamentals of PPP projects and very informative websites of the Government of India , officials and various functionaries of State Governments and its agencies may find it challenging to extract what is relevant to them while negotiating through the complex processes of a typical project. The purpose of this operational guide is to present a summarised working reference tool that can be accessed at will to clarify concepts and facilitate the development, implementation and monitoring of PPP projects in the state. Objectives of the Handbook
Before explaining the objectives of this Handbook, it is noteworthy that this guide is not a substitute for the detailed circulars and guidelines issued from time to time by the Government of India and/or the Government of West Bengal and/or their agencies or independent statutory agencies.
Further, applicability of specific contents may undergo changes from time to time depending on policy/procedural revisions at the national or state level. In view of the above clarifications, the main objectives of the Handbook are:
To provide conceptual clarity of PPP concepts and to distinguish it from other modes of infrastructure service delivery; Explain the institutional structures and how they will operate as contemplated in the PPP policy; Provide details of the underlying processes that are an integral part of every PPP transaction;
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Clarify the entire project development cycle from project identification, stakeholder analysis, risk analysis and conduct of feasibility studies; Explain procurement chain including engagement of transaction advisors; Provide a background of relevant project evaluation and funding options available for such projects; and Elucidate on the implementation arrangements for PPP transactions including matters related to monitoring, controls and contract management. Public Provate Partnership-A conceptual framework
Public Private Partnership (PPP) refers to an arrangement between Government / Corporation / Government Organisation on one side and Private Sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity. In return, the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative.
Essential conditions in the definition are as under:
Arrangement with private sector entity: The asset and/or service under contractual arrangement will be provided by private sector entity to the users. This entity will have a majority non-governmental ownership, i.e., 51 percent or more, is construed as a Private Sector entity.
Public asset or service for public benefit: Facilities/ services being provided are traditionally provided by the Government, as a sovereign function, to the people. To better reflect this intent, two key concepts are elaborated below:
o “Public Services” are those services that the State is obligated to provide to its citizens or where the State has traditionally provided the services to its citizens.
o “Public Asset” is that asset the use of which is inextricably linked to the delivery of a Public Service, or, those assets that utilize or integrate sovereign assets to deliver Public Services. Ownership by Government need not necessarily imply that it is a PPP.
Investments being made by and/or management undertaken by the private sector entity: The arrangement could provide for financial investment and/or non-financial investment by the private sector; the intent of the arrangement is to harness the private sector efficiency in the delivery of quality services to the users.
Operations or management for a specified period: The arrangement cannot be in perpetuity. After a pre-determined time period, the arrangement with the private sector entity comes to a closure.
Risk sharing with the private sector: Mere outsourcing contracts are not PPPs.
Performance linked payments: The central focus is on performance and not merely provision of facility or service.
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Conformance to performance standards: The focus is on a strong element of service delivery aspect and compliance to pre-determined and measurable standards to be specified by the Sponsoring Authority.
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What is a PPP ?
With the objective to meet new and improved infrastructure requirements, governments (including various public entities) have found partnerships with private sector as an attractive alternative to increase and improve supply of infrastructure services. Partners in a Public Private Partnership (PPP) form an agreement to share responsibilities related to implementation and\or operation and management of an infrastructure project. This agreement is brought into effect through a legal binding contract. According to the contract, partnership between the parties is designed based on their individual area of expertise which meets clearly defined public needs through optimal allocation of resources, risks, responsibilities and rewards. The core elements of PPP generally include the following features:
Provision of facilities (including public assets) or services by a private sector entity
Private Investment and/or operation and management by the private agency
Sharing of risks between the government and the private partner
Well defined contractual arrangements for a determined tenure
Output based remuneration/user charges to the private sector (Not a mere provision of a facility of service but performance oriented based on defined outputs/quality of service specifications) What is not a PPP?
Clarity on transactions which are not PPP is necessary so that they are not confused with the core elements present in a private partnership with government. Some examples of non PPP arrangements are:
A general EPC contract where the contractor performs defined services and is paid on milestones with no obligation for long term maintenance of the assets constructed Contracts for outsourcing of services, hire/lease/rental of assets without the corresponding essential features of a PPP transaction. Mere private sector participation is not necessarily a PPP arrangement PPP to be distinguished from Privatisation - sale of shares or ownership in entities or operating assets/services owned by the public sector. PPP Models in India
In India, presently PPP models supported by State Government are those in which ownership of the contracted assets remains with private entity during the contract period and project ownership reverts back to public entity at the time of contract completion. However, the final decision on the type of PPP is determined after due analysis. Based on project objective and its execution mechanism, PPP projects have been primarily divided under three broad heads.
BOT (build-operate-transfer) model: The BOT form and its variants are the most common forms of PPP models used in India. They account for almost two-third of all PPP projects undertaken in India. Two major forms of BOT models used are as follows:
o User-fee based: This form is commonly used in medium-to large-scale PPPs. Its usage can be largely seen in energy and transport sub-sectors (roads, ports and airports).
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o Annuity-based: Under this form of PPP, user charges are not used and instead an annual payment mechanism is designed to remunerate the private partner. It is common in projects related to sectors such as rural and urban health and education.
Performance based management/maintenance contracts: Governments encourage private sector participation to improve efficiency of infrastructure services based on performance in accordance to pre-specified benchmarks. These PPP contracts are common in various sectors such as water supply, sanitation, solid waste management, road maintenance, operation and, maintenance of government properties such as resorts, tourism lodges etc.
Modified design-build (turnkey) contracts: This mechanism of PPP project execution yield benefits in form of time and cost savings. Under this model, payments to the private entity are linked to timelines- and deliverable- linked milestones with additional incentives and penalties. The Design- Build-Operate (DBO) where the risks of asset creation and operations are transferred to the private sector but the project is financed by the public entity. DBFOT is a step above DBO contract where additionally risks are passed on to the private partner in form of finacing project construction on one hand and tranfering its ownership to public entity after pre-determined contract tenure.
An overview of the various PPP options available to the government including the implications for each is shown in Appendix 3. Why are PPP projects beneficial to the government /public entities?
There are several factors responsible for the growing collaboration between governments and the private sector in developing and providing infrastructure services. PPP projects open up opportunities to focus on best options for infrastructure service delivery in many ways. Some of the key benefits are: Access to private sector efficiencies in areas of technology, design, construction, operation and maintenance; Transfer of key risks to the private partner with the public entity focussing on regulatory and , policy matters as well as the facilitating aspects of project implementation; Savings in budgetary resources by shifting the onus of financing to the private sector and freeing up/deferring cash outflows; Enhances availability of much needed infrastructure services at the best value for money. Ensures value for money. Institutional Structures for PPP
PPP policy announced by Department of Finance has laid down a clear institutional structure for facilitating PPP projects in the state and defined key roles of state government, finance department, administrative departments, PPP cell and Empowered Committees which would approve all such projects. An overview of the roles across the project life cycle as contemplated in the policy is shown in the table below:
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Table 9: Activities and Roles across Project Life Cycle Key Activities ECOS & Line Finance PPP Transaction Standing Departments/ depart cell7 Advisors/ Committee Corporations ment consultants8 Policy Framework, PPP notifications & Project √ √ Approvals Project Development √ √ √ Market engagement √ √ √ Bid Management & √ √ √ Monitoring, Reporting &
Contracts management √ √ √ Technical support, Coordination, hand
holding & Capacity √ building
Roles and responsibilities as contemplated by the PPP policy document are stated as follows:
State Government:
Provide legislative support as and when required and play a regulatory role in establishing policies for economic regulation, safety standards, social rights etc. to prevent economic and social exploitation (including sector specific incentives and mechanisms for tariffs, pricing etc.) Coordinate across sectors to encourage developement of sectoral plans Provide administrative support including facilitating the receipt of all Central and State Government clearances; assistance in rehabilitation and resettlement; provision of utilities such as power, water etc. at the project site Facilitate financial support through establishment of West Bengal Infrastructure Development Fund (WBIDF)
Finance Department:
Will be the Nodal department for all PPP projects in the State Finance Secretary(FS) will act as the Nodal Officer of the PPP cell created in Finance department. FS will be assisted by Special Secretary and experts in PPP, MIS, Finance, Public Finance, Legal/Regulatory and other support staff as required
PPP Cell:
Technical Support Functions: Provide direction and necessary hand holding support to the sponsoring departments proposing PPP
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projects Assist departments in project identification, and preparation of pre-feasibility and detailed project reports through transaction advisors/consultants Examine and evaluate PPP projects and place them for ECOS approval Coordinate efforts of all departments for furtherance of PPP policy objectives Assisting departments in processing of proposals and management of financing under Viability Gap funding and IIPDF schemes of GoI Capacity Building Functions: Nodal agency for capacity building for PPP Develop Model documents for different sectors with sector inputs from line departments Assist in development of transparent and effective tendering processes Develop processes for evaluation and selection of consultants and private sector partners Conduct workshops for training, capacity building to increase the deal flow of eligible projects. Use media to disseminate information on PPP
Departments/Government Organisation/Corporation:
Identify and conceptualise projects to be developed on PPP basis Prepare Concept note incorporating key project features/technical details required for engaging Transactions Advisors/consultants for Pre Feasibility studies, Detailed Project Report, Bid documents etc. Interact/Coordinate with PPP cell for engagement of Transaction Advisors/consultants and for obtaining the necessary approvals through ECOS Conduct detailed studies on technical marketing, legal and financial aspects of the project and Preparation of Pre Feasibility Reports, Detailed Project Reports and project bid documents (through Transaction advisors/consultants wherever required) Ensure that the outputs of project development activities, to the extent feasible, are made available to the potential bidders during the tendering process. Evaluate the technical deliverables of the consultants/advisors in consultation with PPP cell (particularly as regards financial analysis, legal/commercial stipulations, modalities proposed for sharing of risks and others as may be stipulated from time to time) Develop contractual frameworks covering sector specific requirements allowing for equitable sharing of risks between the contracting parties in coordination/consultation with PPP cell.
Empowered Committee of Secretaries (ECOS)/Standing Committee of the Cabinet on Industry, Infrastructure and Employment (SCIIE)9:
Policy framework: Formulate Policy Guidelines Recommend enactment of legislation for regulation of PPP projects and robust mechanisms for resolution of disputes and grievances Procurement: Standardize bid documents
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Advise on optimal procurement methods for such projects Issue Resolution: Resolution for inter departmental issues and others relating to PPP projects Approvals: Consider and recommend for approval all projects proposed on PPP basis Monitoring: Monitoring implementation of such projects
Government orders and notifications related to PPP projects
The GoWB has initiated a process of issuing orders/notifications etc. relating to PPP projects covering various aspects of such projects. Since this is a continuous process, individual orders have not been included in the main sections of this Handbook. However, all individual government orders related to PPP projects are appended as Appendix to this handbook for ease of reference.
It will be important for the line departments/other Government organisations to understand that while specific stipulations for PPP arrangements may be prescribed through specific orders, these do not supersede existing notifications/orders on matters such as delegation of financial and administrative powers, procurement of goods and services, amendments to West Bengal Financial rules unless specifically indicated.
Some of the key areas where orders/notifications on PPP in the State have been issued so far include:
PPP policy resolution of the State Government Finance Department designated as Nodal Dept. for PPP Constitution of Empowered Committee of Secretaries for PPP Creation of PPP cell in Finance Dept. Budget branch Panels of pre-qualified Transaction Advisers for PPP Process for seeking financial bids from empanelled TAs and preparation of project information sheet for proposed PPP projects Guideline and clarification for engagement of TA and delegation of financial power to pay TA’s professional service charge Legal vetting of the PPP documents by the TA Time-schedule for engagement of TA by departments
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Overview of PPP Project Cycle
An Overview of the key PPP processes in West Bengal is shown in the below figure.
Figure 11: PPP Process Overview
Project Conceptualisation and Preparatory Activities Project Identification Engagement of Transaction Advisors for Feasibility studies, and Partner Selection Monitoring and Facilitation Support, Technical
Pre Feasibility Studies Transaction Advisors assistance assistance Advisors Transaction Project Development
Detailed Project Report PPP CELL CELL PPP ------
Market Feedback
Bid Documents and Bid Market Engagement Management and Procurement
Contract Award
Implementation Monitoring Reporting and Management Contract management
Below table shows the various activities, responsibilities and outputs at each stage of the PPP process. This has been drawn up based on the PPP policy of the GoWB and takes into account generally accepted prevailing best practices followed for such projects. Appropriate comments have been added in the remarks column of the table explaining the rationale of key activities.
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Table 10: PPP Processes10 Sl Stages & Output Activities Responsibility Remarks No A PROJECT IDENTIFICATION 1. Stage: Project Identify projects Departments/Government Concept note can be used for Conceptualisation Provide ideas prima facie Organisations/Corporations (a) prima facie Administrative Output: Concept note amenable to PPP format Technical support/advice from PPP approval by dept for PPP Execute a preliminary needs cell (as may be required) format (b) incorporating and options analysis for the Project Details on the Project project Information Sheet (PIS) later Prepare basic Concept Note Concept note defines broad showing the rationale, key project parameters and helps activities involved, indicative for interaction of cost and viability and key Administrative Departments advantages of PPP with PPP cell upfront (if required) & avoids unnecessary early engagement of external consultants. B PROJECT DEVELOPMENT 2. Stage: Request for Pre Assess project potential Depts/Corporations/Govt. Copy of Requisition for Feasibility studies reflected in Concept note Organisations Financial bid to be given to Output: Completion of documents for Finance department for PIS invitation of financial bids for information Financial bid invitation Pre Feasibility studies documents Complete Project information TA Contract for PFR sheet requesting engagement of consultants/Transaction advisors 3. Stage: Completion of Pre- Drawing up Technical Departments/Govt. Pre Feasibility report Feasibility studies specifications based on, inter Organisation/Corporation establishes the prima facie Output: Pre Feasibility alia, engineering studies, In-house inputs from Finance viability of the project or Report (PFR) surveys, soil tests dept/PPP cell/Legal (if required) otherwise, identifies support Financial viability studies as necessary and confirms the including PPP modelling business case for amenability options, Value for money of the project on PPP format
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Sl Stages & Output Activities Responsibility Remarks No analysis, robustness of project PFR assessed by Department cash flows, potential need for and decision taken on changes viability gap support, in scoping, parameters of preliminary risk sharing project, way forward etc arrangements etc Environmental Impact studies/Assessments Legal comments on potential structuring and safeguards. 4. Stage: Request for Assess project potential Depts/Corporations/Govt. Copy of Requisition for Detailed Project Report reflected in PFR in factoring of Organisations Financial bid forwarded to Output: DPR requirements Finance dept for information. Financial bid invitation Completion of documents for documents invitation of financial bids for PIS DPR TA contract for DPR Complete Project information sheet requesting engagement of consultants/Transaction advisors 5. Stage: Preparation of DPR will, inter alia, contain Departments/Govt. DPR establishes the final Detailed Project Report final version of : Organisation/Corporation expected contours of the Output: Detailed Project All Technical specifications In-house inputs from Finance project and confirms its Report Demand analysis dept/PPP cell/Legal/Environmental technical and financial Project structuring including (as may be required) viability and identifies PPP model(s) that are viable support/safeguards as Expected Financial cash flows, necessary and conclusively their robustness confirms the business case for Risk sharing assumptions amenability of the project for Project returns for the private marketing on PPP format partner DPR assessed by dept and PPP Sensitivity analysis cell before commencement of the procurement process. Project clearances Social, legal and environmental assessments/costs. C MARKET ENGAGEMENT AND PROCUREMENT 6. Stage: Engagement of Decide which group of TAs to Depts/Corporations/Govt. Copy of Requisition for PwC Page 83 of 138
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Sl Stages & Output Activities Responsibility Remarks No Transaction Advisors for approach for quotes, in case Organisations Financial bid to be given to Bid management such information has not Finance dept for information Output: already been sought in the pre- PIS feasibility stage itself Invitation to quote Define scope of work, timelines Evaluation document and outputs of TAs Award of TA contract Issue invitation to quote Evaluate quotes Award of assignment for TA 7. Stage: Market Sounding Preparation of Brochures and Transaction advisors for preparation Purpose is to obtain indicative Output: Presentations on key project of marketing documents and feedback from the potential Marketing Brochures features conducting the briefing sessions developers/ market/PPP Presentations\Minutes Organising Briefing sessions Inputs from providers of the attractiveness of briefing sessions with potential PPP providers Departments/Corporations/PPP cell of the proposed project. Incorporating market feedback as required This stage does not specify any in bid documents to ensure element of partner selection or bidding interest and addressing evaluation nor any o f genuine concerns of PPP commitments from either side providers and is only a discrete interaction with the market 8. Stage: Bid Management Drawing up of bid documents Transaction advisors Nomenclature and nature of & Selection of Private for private participation Inputs from Departments & documents will depend on the Partner Approval of bid documents Corporations sectors and legal requirements Output: Issue of public advertisement Assistance from PPP cell as may be Bid documents and DPR to be EOI Pre bid conference required approved by ECOS & Standing RFP Receipt of bids Committee based on project Concession Agreement Evaluation of bids values as stipulated in PPP Shareholders Agreement Signing of contract policy Operation, Maintenance & Development agreement Technical operation greement Lease agreement Independent Engineers/Auditors
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Sl Stages & Output Activities Responsibility Remarks No agreement State support agreement Other documents as required
D MANAGING THE IMPLEMENTATION 9. Stage: Project Monitoring Establishes structures/nodal Departments/Govt. MIS reports to be those & Contracts management points for interface between Organisation/Corporation specified in government Output: service provider and the (particularly for technical progress orders/guidelines MIS reports on government during selection, and performance, events of defaults PPP cell to be focal point for monitoring construction, service and meeting of obligations) monitoring & submission of delivery/operations & closure PPP cell for project progress & reports to ECOS/Standing Monitor projects including for reporting to ECOS Committee financial closure, service quality, cost/time/quantity deviations, collection of user fees, disputes etc Prepare periodic reports/MIS for monitoring Take remedial actions for risk mitigation as required
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Development of PPP projects: Overview
During Project development stage factors such as (i) affordability to the government (ii) delivery of Value for Money and (iii) ablility to generate adequate market interest for competition is determined. These critically factor contribute to success of the project. Since sponsoring line departments/Corporations/Government entities proposing such projects are focal point of project preparation activities (assisted by the PPP cell and Transaction advisors as required), it is important for them to understand the implications of the development process. Some of the key questions that will have to be answered by the respective departments (not necessarily in the order indicated here) include the following:
How do we identify a potential PPP opportunity? Who are the key stakeholders in the PPP project? Have all related statutory clearances been obtained? What should be the risk sharing framework between GoWB and the PPP service vendor? How do we develop a prima facie business proposition for such project? Should we go for PPP at all? If so what is the nature of private partnership preferable? Should we develop the project in-house or take help of Transaction Advisors/Consultants? How do we fund the Project Development costs? Do Pre Feasibility studies establish the business case (including Value for Money) Does the Detailed Project Report document all detailed specifications, risks, caveats and establish bankability of the project? Identification of PPP opportunity
Every opportunity to involve the private sector cannot be necessarily a PPP opportunity. Sponsoring Departments/GoWB will go for PPP projects only where they offer better value for money rather than a conventional procurement through its existing processes. At the same time, projects identified for these purposes must be remunerative for the private player and ensure recovery of costs and a fair return. Therefore, apart from availability of revenue streams, a steady demand for services, and ability to cost for all project risks, following are some of the guiding factors in determining suitability on PPP format are:
Project Size & Nature – Scope to bring economies of scale and efficiencies of the private sector. If a project requires specialised inputs-technical, managerial, financial for public assets which the government is unable to provide, private participation may be beneficial.
Private partner capabilities –Competence and availability of multiple private players in the market will ensure bid support and the best possible deal Clarity in project outputs/outcomes-Measurable project performance in terms of results so that service expectations are clear will incentivise the private partner to innovate and bring in efficiencies. Flexibility to innovate- Eventual project structuring may allow room to the private partner to innovate and bring in technical and commercial efficiencies in project delivery Adequacy of lead time- PPP projects require time in concept design, structuring and offer opportunity to the private sector to propose improvements.
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Understanding the role of transactions advisors- To understand roles and responsibilties of TAs in terms of their job description. Complete dependence on TAs should be avoided and certain in-house capbility should be available to review and assess the recommendations made by them.. Stakeholder Analysis
PPP arrangements impact stakeholders and individuals who are affected by its benefits and/or spill over effects. Therefore project design and implementation has to take into account opinion of groups likely to be affected in the process. The overall objective of this exercise is to balance interest of all the stakeholders to ensure project sustainability. An illustrative example of key stakeholders in a typical PPP project is shown below:
Public Sector/Government Financier
Stakeholders
Private Partner People/Users
Each of the stakeholder groups have distinct interests and concerns which have to be protected by the PPP arrangement in the interest of project sustainability. The table below shows the main interests of the stakeholders:
Stakeholders Key interests Public Delivery of public services leveraging the expertise and competitive advantage of the Sector/Gover private sector and resulting in operational efficiencies and optimisation of costs nment Better Value for Money (e.g. by transferring onus of design, construction and financing responsibilities to the private partner) Optimal sharing of risks Becoming a buyer rather than a provider of services ensures focus on key roles of policy making and regulation Private Investment size is feasible, secure and within the competence of the vendor Partner Fair return on investment in relation to the risks assumed Exclusive use of asset during concession period Policy continuity and predictability in administrative and regulatory processes Financier Safety of capital Fair return on financing Overall bankability of the project People/Users Quality services at affordable cost Transparency in pricing for services Compensation for loss of assets/livelihood Fair rehabilitation and resettlement in line with government policies
Due to the inherent complexities sometimes involved in PPP projects, it is important to establish a mechanism with stakeholders early in the project cycle at the time of development. The internal stakeholders will include the the financial advisors and and technical officials within the line departments/agencies, administrative heads who will ensure compliance with government orders/ regulatory norms, the PPP cell for interactive advice, other government agencies/corporations responsible for implementation etc. Apart from these, interaction with PwC Page 87 of 138
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external stakeholders such as sector experts, potential private partners, other user groups/beneficiaries should be conducted early on in the project development cycle and certainly as a part of market testing so as to ensure that the project is economically feasible. Appropriate publicity and information sharing arrangements with the stakeholders (without compromising on confidentiality of bid information) helps in better project planning and design, building a sense of ownership among key potential beneficiaries and partners and is more likely to result in a PPP structure that is bankable. Risk Analysis
Exposure to risks is an integral part of infrastructure projects and one of the key benefits that PPP structures offer is the opportunity to share and allocate risks between the sponsoring authorities and the private partner resulting in overall benefits in operational performance. The process of risk analysis and management involves the following steps: o Identification of risks-this involves locating the factors that may affect project performance adversely o Assessment of probability of occurrence and their impact-This would entail assessments of the likelihood or probability of occurrence of the adverse events/factors and also a measurement of their likely impact (e.g. extent of time delays, cost over runs,) o Risk Mitigation –determine what should be done to avoid, reduce or retain the risks o Allocation of risks –shift the risks in such a way that the burden moves to the party that is best able to manage it and consequently is endowed with all the credit/losses associated with such risk assumptions. In the following table, we have shown illustrative examples of major categories of risks along with their inherent nature, possible mitigation measures and allocation over the proposed tenure of a project.
Categories of Nature of risk Mitigation Measure Possible Allocation risk Technical/ Insufficient preparatory Good feasibility study; Government/ Operational tasks and project planning institutional due diligence; and Implementing agency risk competent transaction advisor Usage of new technology Benchmark against experience Private whose performance cannot in use of such new technologies be easily assessed in other locations/countries or under similar circumstances Additional safeguards and closer scrutiny during project appraisal before award Closer technical monitoring of project during implementation Ability of private sponsor(s) Ensure technical competency; Private to deliver the project retainage; completion bond/performance guarantee; ; liquidated damages, penalty Environmental degradation Use of appropriate technologies Government/ Private in construction and Ensure obligation with operations environment related laws and PwC Page 88 of 138
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Categories of Nature of risk Mitigation Measure Possible Allocation risk regulations Commercial Lower demand and/or Realistic demand studies and Private/Government risk revenues than projected/ sensitivity analysis anticipated Long term off take contract Take or pay Inefficiency in / operation Committed supply contracts Private leading to higher / operating with fixed time and price cost O&M contract; Maintenance bond; and clear output specification Chances of unpredictable Contractual framework to with Private natural and man-made stand such periods events such as earthquake, Use of insurance facility flood, civil war, etc Financial risk Change in interest and Sensitivity analysis to test the Private currency exchange rates, robustness of financial return and/or tax laws Ensuring equitable return on equity Unable to repatriate capital Partial risk guarantee provided and profit, currency by some development banks convertibility and transfer Legal/ Change in legal/ regulatory Consult with experience Private regulatory regime lawyers risk Compliance with existing legal and regulatory system Political risk Change in government policy Build strong relationships with Private or action that affects all stakeholders of the project business case of the project Investment insurance/guarantees of multilateral agencies
It needs to be noted that the above is not an exhaustive list and the allocation as well as mitigation measures are not an indicator for all situations since the treatment of risks are project and situation specific. Value For Money
Concept and Rationale While savings in budgetary resources may often be the key consideration in going for the PPP route in developing countries such as ours, it may not always be the key reason under all circumstances. Partnership with the private sector entails certain additional costs such as (a) higher financing rates by lending institutions (b) transaction costs for structuring and implementing a PPP transactions (c) administrative costs of supervision and control (d) exposure to potential liabilities. Therefore unless the efficiency gains through access to improved technology, innovation, delivery and management outweigh these additional costs, PPP transactions may not be justified. Hence governments will have to ensure they are getting value for money by entering into such arrangements with the private partners. PwC Page 89 of 138
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Value for Money (VFM) is the optimum combination of whole life cost and quality (or fitness of purpose) to meet the users’ requirement11. In simple terms it means that lowest bid per se is not necessarily a criterion to judge the suitability of partnership with the private sector but the decision should be informative based on a consideration of total costs of such engagement and the resultant benefits to government. Some of the factors that may determine whether a project is giving VFM to the government (though these may vary depending on the particular department, sector or other strategic considerations) include: Lower whole life costs Better allocation of risks Enhanced quality of service Improved asset utilisation and unlocking of revenue streams Efficiency in project implementation In order to arrive at a comparative basis for determination of the effective cost of public delivery of services vis a vis that to be incurred through a PPP project it is important to develop reasonable public sector comparators. Public Sector Comparators A public sector comparator (PSC) provides the cost for the public sector/government to construct and operate the same project, with the same required outputs and levels of service. Development of a PSC requires:
a proposed project design that meets outputs, estimates of construction, financing and operating costs for the whole project life cycle The elements involved in development of PSCs are summarized below:
Determination of the Base Costs for the project:
This will be based initially on the historical information covering the entire cycle of project development, construction, operation, maintenance and management. It may require appropriate disaggregation of costs where items such as development, management, operating and other costs are consolidated in the general budget and financial statements of government.
Determination of the Risk Adjusted PSC: The base cost arrived at will have to be adjusted for the probabilities and impact of risks that the government assumes in such projects based on an objective historical analysis of factors such as (i) cost overruns (ii) completion delays (iii) higher operation costs (iv) other elements. Past projects and cost data would have to be computed to make these adjustments to the base cost and arrive at the risk adjusted costs of government delivery. The nature of risks to be considered in this exercise will be of two types:
Transferable Risk: These are the risks that will be transferred to the private partner. These will have to be included to make the computation cost of government delivery comparable to the bid received from the private partner Retained Risks: These are the risks that will remain with the government in spite of a PPP arrangement and will have to be included to ensure a full costing of the project delivered by government. Determination of adjustments for Competitive Neutrality
11 As defined in the Value for Money Assessment Guidance of HM, Treasury UK PwC Page 90 of 138
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In order to make the private costs of project delivery comparable, certain adjustments have to be made to eliminate advantages that accrue to a government/public body which is not available to private enterprise e.g. Payment of taxes and duties to arrive at the final comparable PSC with the PPP delivery.
Construction of the PPP reference model The reference model for comparison would be the whole life cycle costs of project delivery by the private sector keeping in mind requirements of project design and output requirements.
The overall framework of computation of PSCs and deriving VFM is summarized in Figure 2.
Figure 12: From Public Sector Comparator to Value for Money: Key Steps12
Public Sector Comparator Public-Private Partnership (PSC) (PPP)
Risk to be transferred Value for Money to the private sector
Adjustments to remove any competitive advantages/ Competitive Neutrality disadvantages to a public entity such as freedom from taxes and duties Cost of service payments (revenue Actual cost of providing the streams) service. Public sector Base Costs estimate of how much it will have to spend to build and maintain the asset
Those which will always rest with the public sector. Risks to be retained by Cost usually identical for Risks to be retained by the public sector public and private supplier the public sector
Some key factors to be noted in development of PSCs and VFM analysis
Outcomes of VFM assessments In order to assess the outcome of the VFM analysis it is necessary to first identify the factors that will determine if a particular project delivers such value. (e.g. savings in budgetary outlays, better safeguards for public assets and total value addition in terms of increase in economy and efficiency). Once this is done this should be factored in the design of the form/nature of PPP and its scope so as to derive the maximum benefit. Though the final results of whether a PPP project delivers better VFM can be obtained only after the conclusion of the tendering process
12 Source: D.Gimsey and M.K.Lewis, 2004. Public-Private-Partnership: The Worldwide Revolution in Infrastructure Provision Finance. Northampton, MA: Edward Elgar Publishing PwC Page 91 of 138
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and selection of the private partner, assessments of potential VFM will have to be made in various stages of the project development process.
Private sector potential for VFM Two of the common methods applied to assess potential of a PPP to deliver VFM are (i) Precedent review and (ii) Market Sounding. Precedent review considers similar experiences in past projects not necessarily within the same government but also those found successful in similar environments elsewhere (ii) Market sounding seeks to assess the levels of interest of developers, financiers and investors and assess their degree of comfort with the risk framework proposed for the project.
Basis for comparison of gains from private delivery The most common method of comparison used to work out the benefits of PPP enterprise over stand alone government delivery is the discounted cash flow technique. Under this, different cash outflows and inflows under both the alternative methods of project delivery are discounted at a determined rate to arrive at the net present values. (This is elaborated further in Section 7.1 of this handbook)
Challenges of VFM analysis There are however certain key limitations of computing VFM accurately which has to be understood by the governments/government organsations proposing PPP projects. These include (i) lack of consensus on the discount rate to be used to compare the cash flows of government vs private delivery (ii) inclusion of all risk factors in the costing for projects (iii) unreliability of data for meaningful comparison of costs of implementing by the public sector (e.g. obtaining objective historical data on actual costs of project delivery). Furthermore, detailed micro level analysis may be counterproductive in case of relatively smaller projects where benefits are clearly apparent and particularly a complex and involved exercise for projects where there are no PPP precedents or those of a pilot nature. It may be a good idea, where in –house resource constraints exist, to include VFM analysis as an integral part of the brief of transaction advisors. However, the departments and PPP cell have to be aware of this concept so that it is factored in the preliminary analysis during project development and is ensured at the time of financial closure as well as the project implementation framework..A VFM Indicator Tool and Users guide has been provided by the Ministry of Finance, Government of India and available in the PPP Toolkit in pppindia.com for reference. However the Toolkit recognizes the severe limitations of computing VFM in the present juncture in India due to limitations of obtaining accurate data on historical project costs and the difficulty of project sponsors to understand factors of risk and uncertainties and how to accommodate them in project assessments.
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Value for Money computation (Illustrative only) A public entity is contemplating engagement of a private partner for construction and running of a plant for 20 years and executing a VFM. The broad steps would be as follows A. Determination of Base Cost 1. Project construction costs Rs 1000 crores 2. Operating and Maintenance Costs Rs 300 cr (discounted to present value at 10%13) 3. Total Base Cost Rs 1300 cr 4. Cost of capital of government is 10%
B. Computation of Risk Adjusted PSC 1. Assume that based on historical records cost overrun accounts for additional Rs 400 cr and the probability of that occurring is 50%. Therefore the effective overrun costs would be estimated as 50% of 400 cr or an additional Rs 200 cr. 2. Assume further that time over runs generally by 2 years and the resultant incremental costs are another Rs 250 cr and the probability of that happening is 60%. Therefore the additional time costs would be 60% of Rs 250 cr or Rs 150 cr 3. Therefore the risk adjusted cost of public delivery of the project would be the Base cost of Rs 1300 cr +Cost overrun Rs 200 cr + Time overrun Rs 150 cr amounting in total to Rs 1650 cr
C. Comparison with the PPP reference model The result obtained in Para B will now be compared with the PPP delivery costs. For this purpose, usually at the pre procurement stage the comparison will be based on a shadow bid constructed with the help of transaction advisors estimating what the private sector would bid for a typical project proposed for PPP as drawn up by the agency/department. This will be refined further at the time of ascertainment of the final bid results. Assuming, in this example that the PPP option would result in a net cash outflow of Rs 1425 based on calculations of the winning bid. Therefore Value for Money would be the overall savings of Rs 225 cr (13.63%).
Feasibility Studies
During project development, proposed projects require an in-depth planning and feasibility study. Data and information for this study is collected from a variety of primary and secondary sources and is important in assessment of different physical components, their respective capacities, service requirements which the project needs to address and the likely costs to be incurred in a PPP partnership. The feasibility study will demonstrate project viability in terms of construction, management, operations and maintenance, costs and benefits and lay the ground for administrative and other approvals/ clearances for the project.
Feasibility study is generally based on a three-fold approach, consisting of evaluation of financial, technical and environment/social aspects of the project. The assessment includes examination of project bankability, nature and magnitude of government support required, technical basis for project implementation and, environment and social impact of the project. Table 3 represents basic contours of project assessment and corresponding areas of examination.
Table 11: Different contours of project feasibility analysis-an overview Technical Feasibility Financial Feasibility Environment/ Social Feasibility
Survey of the site Market surveys for demand Stakeholder Analysis and consultations Conceptual drawings analysis, present market Assessment of current level of services and
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Technical Feasibility Financial Feasibility Environment/ Social Feasibility
Technical feasibility conditions, paying capacities study of social compliance requirements for Estimated project cost etc. proposed facility/services. Estimated O&M costs Preparation of financial model Land acquisition Assessments Estimated construction Financial structuring of the Rehabilitation plan for the affected public period project –equity debt, VGF, etc. Employee relocation assessment etc. Existing site details Calculation of revenue streams Study of the Legal requirements for the Scope of work of the Calculation of Project IRR, project ( e.g. passing of new acts or proposed project Return on equity, DSCR, Cash amendment of by-laws for Urban Local Facilities required in the Flows, etc Bodies etc.) proposed project Sensitivity Analysis Environmental assessment plan detailing Standards and Fixation of concession period impact of the project on the environment Specifications to be based on financial returns Environmental clearance from the followed for the proposed Various options for project concerned authority project structure
As shown in the above table, technical feasibility section of the study elucidates key technical aspects of the project. This includes capacity of physical infrastructure, tentative timelines for execution, recommended technology options, surveys and facilities required prior to commencement and, standards and specification for different project dimensions. These details are essential for understanding scale and requirement of the project on one hand and on other hand examining competency of potential partners for developing the project.
The financial feasibility study focuses on the pattern and composition of project cash flows, their timing and structuring to ensure the least cost options as well as a fair return to the investors. In order to raise commercial resources for infrastructure projects, the project must exhibit requisite capacity to service investments. This study must establish the viability of the project to the extent that it is capable of standing up to commercial scrutiny. An appropriate financing mix will have to be planned based on determination of the proposed project's cash flows. A legal structure will also have to be designed to cater to the various contractual risks for both the government as well as the private partner. Environment and social concerns have become very significant in recent times and a thorough scrutiny of proposed projects in terms of their adverse effects on ecology and social life is an indispensable part of the project appraisal processes. . Under the assessment, suitable strategies are evolved to minimize effect of these impacts through appropriate risk mitigation measures and incorporate clauses into legal instruments that govern project implementation. This includes translating the obligations of different stakeholders into legally binding agreements. .
The responsibility to conduct a detailed feasibility analysis for all projects on PPP basis generally resides in the respective administrative departments who are proposing or sponsoring such projects. While initial prima facie feasibility studies may be conducted within departments through in-house technical resources, detailed studies may require assistance of Transaction advisors who, in consultation with the departments, would be in a position to examine the business case for PPP after a value for money analysis, conduct viability/feasibility studies and come up with options for PPP for consideration by the government/government owned entity before the project is bid out through tenders.
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Financial considerations in Project design
One of the key objectives of PPP projects is to leverage private sector efficiency and outputs in the delivery of infrastructure services. However, the private sector would only evince interest in proposals that are financially viable and sustainable. Hence it is important for the public entities/government to understand certain key factors that are taken into account by the private sector to determine whether investments are attractive for a particular PPP opportunity.
Sources of Financing The typical sources of project financing for PPP investments are debt, equity and grants. The sources of debt and equity are shown in the table below.
Table 12: Sources of debt and equity14
Forms Domestic sources International sources
Debt Domestic commercial banks International commercial banks Domestic term lending institutions Export credit agencies Domestic bond markets International bond markets Specialized infrastructure financing institutions Multilateral agencies Equity Domestic developers International developers Public utilities Equipment suppliers funds Other institutional investors Other international equity investors Multilateral agencies Debt financing: The nature of such financing mainly includes
(a) Commercial loans from banks and financial institutions
(b)Bridge finance which is an accommodation to tide over a particular period (e.g. construction or other project milestone) till more permanent long term arrangements can be made
(c)Bond issues by government, public sector entities, financial institutions, banks, corporate etc which are long term interest bearing instruments bought through the capital market or private placements
(d)Subordinate debt which is secondary or lower in ranking to commercial loans as regards claims on assets/income of the project and issued to increase comfort levels and reduce risks/exposure of the sponsor.
(e) External Commercial borrowings as a source is increasing in importance with liberalisation of norms by the government for such investments through the automatic route
Apart from the above, key sources for debt include Foreign Direct Investment (FDI), Foreign Institutional Lending and assistance from Multilateral agencies such as the ADB and World Bank.
Equity financing
Equity is contributed by the project promoters/sponsors, the government, market private investors and includes internally generated resources out of operating surplus.
14 Source: Accelerating Public Private Partnerships in India, FICCI, India PPP Summit 2012
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Grants
Grants have often become a major means to make PPP projects financially viable especially in difficult or uncharted sectors. The Viability Gap funding announced by the Government of India is a good example of such a support.
Financial structuring In order for a project to have the right mix of funds, proper structuring is essential. While debt carries fixed commitments in terms of interest and repayment schedules it also is economical due to the tax shield (e.g. by borrowing Rs 1 crore at 12% pa, the interest of 12 lacs is a deductible business expense for tax purposes). Equity has higher return expectations due to the higher risks and uncertainties but also offers incentives for the developers of PPP projects to invest for sustainable returns (profits, dividends and capital appreciation of SPVs)
Cost of Capital The developer/sponsor will have to ensure that he recovers his cost of capital on the PPP project and makes a fair return. Therefore cost of capital is an important consideration in the financial structuring of the project. The cost of debt is the borrowing rate charged by the banks/financial institutions. The cost of equity is the rate expected on alternative investments of similar risk profile. The total weighted average cost of capital for a project would be equal to: Rate of return on debt x % of debt in capital structure + rate of return on equity x % of equity in capital structure. The project sponsor will compare the financial returns from the project with the cost of capital to decide whether they adequately cover the risks before deciding to bid for a PPP opportunity. The government and its agencies on the other hand would be keen to ensure a fair return to the private partner but not one where he is able to make unjustified/exorbitant gains in delivery of public services.
Project Evaluation Methodologies There are proven project evaluation methods to assess the financial viability of a PPP opportunity. These will have to be factored in at the project development stage since they will be considered by the bidders while they judge the suitability and attractiveness of individual projects. An overview of some of the common tools used for such evaluation for infrastructure PPP projects and certain related concepts are discussed here. Two of the fundamental concepts necessary in relation to evaluation of projects are (i) Cash flows and (ii) Time Value of Money.
Cash Flows
Project cash flows are the life line and comprise a stream of outflows in the form of capital and operating expenditure and inflows comprising the revenues from the PPP enterprise and also the terminal values of assets on sale or transfer of assets at the close of the concession period. In effect, the profits after tax from a project is increased by depreciation and other non-cash book adjustments plus interest to arrive at the figure of relevant cash flows for purposes of analysis of project viability.15 The project sponsor takes into account various assumptions and parameters while estimating the cash flows and tests the financial model for sensitivities so as to gain the comfort level desired before deciding to go for the investment. The actual evaluation methodologies rely entirely on the pattern of such cash flows to arrive at the conclusions.
15 In actual practice the Net working capital changes will also be computed and adjusted with the cash flows to arrive at the total relevant cash flows for project analysis
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Time Value of Money
The timing of the cash inflows and outflows is important for the investor. This is because Re 1 received now is worth much more than Re 1 received after 1 or 2 years. Therefore the cash flows which do not happen immediately will have to be discounted. The rate at which they are discounted is generally the post tax cost of capital. Such discounted cash flows will only be taken into account for decision making during project assessment at the time of detailed project evaluation and development by the government entity and at the time of bidding by the private investor. Similarly these will also have to be considered by the transaction advisors/government/sponsoring agency at the time of project development.
Commonly used techniques for Project Evaluation
Though there are many techniques for evaluation of projects, two of the most commonly applied methods relevant for PPP decision making are the (i) Net Present Value (NPV) and (ii) Internal Rate of Return (IRR)
Net Present Value method The NPV method considers the discounted cash outflows and inflows and considers a project to be acceptable if the discounted benefits exceed the discounted costs. Therefore only projects with an NPV greater than zero are approved under this method. Since several PPP infrastructure projects would involve cash flows over medium to long term horizon the NPV offers a basis to make all such cash flows received or incurred in the distant future comparable by discounting them at a rate reflecting the time value of money (see above) to arrive at a basis for judgement on the financial viability of the project model. The NPV is the difference between the discounted project benefits (cash inflows) with the discounted project costs (outflows/investments). NPV can also be used to compare different projects as regards their financial results in terms of cash flows.
Internal Rate of Return The internal rate of return is that rate at which the difference between the project cash outflows and inflows would be zero (NPV=0). The utility of this rate which can be easily arrived at through a spreadsheet (e.g. Excel) is that it is considered by the project investor and compared with his cost of capital/borrowings to decide whether the project would yield sufficient returns or not. It is thus a cut off rate for determining the overall financial viability of a project and the investor will use this to determine whether the investment matches his expected levels of return (e.g. if IRR is 25% and the investors cost of borrowings are 12% it shows that the project cash flows are higher than the interest rates and there is adequate cover for his borrowing risks). IRR is also important for the government/sponsoring agency in understanding the actual returns that may be allowable for a typical project in a sector to induce the private partner to take up such projects and allowing him fair but not exorbitant returns. If a project fails to have an IRR at least to recover its borrowing costs it means that it will surely lose money and its NPV would also be negative.
The Project IRR explained above measures the returns on the project as a whole (i.e. for all sources of funds). The Equity IRR on the other hand denotes the returns for equity shareholders (viz after repayments of debt). It is computed as:
Profit after Tax +Depreciation+Book adjustments-Loan repayments +Terminal value of project assets = Cash inflows available for equity shareholders. This is compared with the amount of equity investment in the project to compute the equity IRR.
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Table 13: NPV and IRR: Illustrative example
(in Rs. '000) Outflow Inflow Disc. Rate Present Debt Free cash flow (12%) Value repayment to equity Year 0 -350016 0 1 -3500 -1500 Year 1 0 100 0.893 89 100 Year 2 0 200 0.797 159 200 Year 3 0 300 0.712 214 300 Year 4 0 500 0.636 318 500 Year 5 0 1000 0.567 567 1000 Year 6 0 1500 0.507 761 400 1100 Year 7 0 2000 0.452 904 400 1600 Year 8 0 2500 0.404 1009 400 2100 Year 9 0 3200 0.360 1153 400 2800 Year 10 0 3800 0.322 1223 400 3400 Present Value of inflows 6396 Equity IRR 36.51% Outflow -3500 Net Present Value 2896 Project IRR 21.97%
Financial Viability and Bankability These two expressions are sometimes used interchangeably in practice but may mean different things to different parties in a PPP project. While financial viability establishes the acceptability of the project from the perspective of the investor overall bankability may mean something more. The project should also be legally tenable and administratively implementable17. In India, what it would also imply is that the project conforms to the norms issued by the Reserve Bank of India, the term lending Banks and Financial Institutions for appraisals of infrastructure projects
Significance of NPV and IRR for the Government/Public Entities Concepts of NPV and IRR help the public bodies to:
(i) Understand to what extent PPP projects are feasible/profitable at the time of structuring or project development
(ii) Examine the models proposed by the transaction advisors to assess the degree to which benefits can be extended to the private partner
(iii) Assess the degree of benefits proposed by the private bidders at the time of bid evaluation and pave the way for seeking clarifications on assumptions/cash flows projected
(iv) Facilitate a more robust and competitive technical and financial closure of the PPP process.
16 Assuming project cost of Rs 3500, out of which debt amount is Rs 2000 and equity is Rs 1500. 17 A Guidebook on Public Private Partnership in Infrastructure: United Nations-Economic & Social Commission for Asia and the Pacific
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Viability Gap Funding by GoI
On July 25, 2005, Cabinet Committee on Economic Affairs approved the Scheme for support to Public Private Partnerships (PPP) in Infrastructure, also known as the Viability Gap Funding (VGF) Scheme18. Under this scheme, an Empowered Committee and Empowered Institution were constituted for approving financial assistance for PPP projects with the objective to make them commercially viable. The scheme is administered by the Department of Economic Affairs (DEA) under Ministry of Finance (MoF), Government of India (GoI).
In September 2006, DEA issued additional guidelines19 for forwarding proposals for financial support to Public Private Partnerships in infrastructure under the VGF Scheme. Under these guidelines, the Project Authority can submit its proposal to DEA before its presentation at the Empowered Institution. Upon recieving the proposal in the prescribed format, within seven days DEA is authorised to advice the Project Authority about feasibility of submission of proposal to the Empowered Institution for its examination for funding under VGF.
What is the Nature of VGF? Financial support is provided in the nature of a grant that is one time or deferred and is normally in the nature of a capital grant during the project construction period. Any other forms of assistance can be on a case to case basis and considered by the Empowered Committee for approval of the Finance Minister
Which sectors are eligible for VGF? The PPP Project should be from one of the following sectors: Roads and bridges, railways, seaports, airports, inland waterways; Power; Urban transport, water supply, sewerage, solid waste management; Other physical infrastructure in urban areas; Infrastructure projects in Special Economic Zones; and International convention centres and other tourism infrastructure projects The Empowered Committee has the authority to add or delete sectors/sub-sectors from the aforesaid list with approval of the Finance Minister. What are the minimum conditions required to be meet? For a project to be eligible for funding under this Scheme, it has to meet the following criteria: The project shall be implemented i.e. developed, financed, constructed, maintained and operated for the Project Term by a private sector company. This private sector company is to be selected by the Government or a statutory entity through an open competitive bidding process. However, in the case of railway projects that are not amenable to operation by a private sector company, the Empowered Committee may relax this eligibility criterion. The project under consideration should provide a service against payment of predetermined tariff or user charge. The concerned Government/statutory entity should state reasons, and clarify the following key issues: o Viability gap of the PPP cannot be reduced by increasing tariff/user charges; o Viability gap cannot be reduced by increasing project term; and
18 Notified by MoF Department of Economic Affairs vide OM No. 1/5/2005-PPP dt. January 12, 2006. 19 Annexure for scan copy of government order
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o The capital costs are reasonable and based on the standards and specifications normally applicable to such projects and that the capital costs cannot be further restricted for reducing the viability gap. Who are the authorities for approval? Project proposals consisting of requisite information necessary for satisfying the eligibility criteria specified above will be proposed by Government or the statutory entity which owns the underlying assets to the Empowered Institution. The Institution will prefer duly Government approved projects based on standardised/model documents. Within 30 days of receipt of a project proposal, upon checking for due compliance with eligibility criteria, the Institution shall inform the sponsoring Government/statutory entity regarding approval of financial assistance under this Scheme. In case the project is based on standalone documents this process may require an additional 60 days. In case, the Empowered Institution needs any clarifications or instructions relating to the eligibility of a project, it can refer to the Empowered Committee for appropriate directions.
Cabinet Committee on Economic Affairs decided to constitute an Empowered Committee and Empowered Institution for approving financial assistance to projects satisfying all eligibility criteria indicated in the Scheme. Composition of both of them are given below.
Composition of Empowered Committee Secretary (Economic Affairs) Secretary Secretary (Expenditure) Secretary of the line Ministry (Planning dealing with the subject Commission) Composition of Empowered Institution Additional Secretary Additional Representative Joint Joint Secretary, DEA - (Economic Affairs) Secretary of Planning Secretary Member Secretary (Expenditure) Commission in the not below the line rank of Ministry Joint dealing Secretary with the subject In cases where VGF is budgeted under any on-going Plan Scheme of the Central Government, the inter-se allocation between such on-going Plan Scheme and this Scheme shall be determined by the Empowered Committee.
What are the ceilings for approval? The total VGF assistance under this Scheme cannot exceed 20% of the Total Project Cost (TPC); however, the Government or statutory entity that owns the project may decide to provide an additional grant out of its budget not exceeding a further 20% of the TPC. According to the scheme guidelines by MoF, clearance of the Empowered Institution will suffice for VGF assistance of Rs.100 crore for each project. Upon exceeding Rs. 100 crore, additional clearance from the Empowered Committee will be required up to Rs. 200 crore for each project. Projects requiring amounts exceeding Rs. 200 crore will be sent to the Finance Minister for approval. When is a department/government agency likely to know that a project may need VGF assistance for viability? The Concept note and the prefeasibility study stage may provide the initial feedback of the project contours, likely revenue streams, major steps for sustainability and the viability gaps in the project cash flows. The detailed project report is likely to provide a degree of finality to the expected revenue streams, the demand analysis and
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likely extent of viability gap that may require to be funded. In cases of doubts for eligibility of a particular project for VGF funding, the departments/agencies may forward the Project Concept to the DEA who will respond within 7 days as to whether it can be put up to the Empowered Institution for consideration.
How does the department/entity go through the bidding process for a VGF transaction? Within four months, upon conveying eligibility of the project to concerned Government/statutory entity (extended able to two months at a time), the PPP project shall be awarded in accordance to the following procedures:
The Private Sector Company shall be awarded the project upon due selection through a transparent and open competitive bidding process organized by the state government /government departments/bodies. The criterion for bidding shall be the amount of VGF for implementing the project, based on all other comparable parameters. The bidding process will conform to the provisions of this Scheme keeping the Empowered Institution duly informed. How is VGF monitored? A Lead Financial Institution shall be responsible for regular monitoring and periodic evaluation of project compliance with agreed milestones and performance levels, particularly for the purpose of disbursement of VGF. It shall send quarterly progress reports to the Empowered Institution which will make a consolidated progress report once every quarter for review by the Empowered Committee.
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Figure 13: Viability Gap Funding Process
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India Infrastructure Project Development Fund (IIPDF)
In 2007-08, Union Finance Minister in his parliamentary budget speech announced setting up of a revolving fund with a corpus Rs. 100 Crore to accelerate the process of development of projects. Accordingly, a fund titled “India Infrastructure Project Development Fund” (IIPDF) has been created in Department of Economic Affairs (DEA), Ministry of Finance (MoF), Government of India (GoI). The primary objective of this fund is to enhance the quality and shelf of ‘bankable projects’ that are processed through central and state governments.
How and at what stage does a department know it needs IIPDF assistance? Cost of procuring project development activities related to achieving technical closure, particularly consultancy and Transaction Advisory (TA) services are significant. This cost accounts for a major portion of the total project development costs for the Sponsoring Authority. IIPDF has been designed as a mechanism to fund majority of these costs.
What are the eligibility criteria? To obtain assistance from IIPDF the Authority will apply to the PPP Cell in DEA through the Memorandum for Consideration (MFC)20. At the beginning, the PPP Cell will, inter alia, screen identified proposals for conducting detailed feasibility studies keeping in mind the aforesaid objectives. For this purpose, the Authority shall prepare a MFC with respect to each such proposal. For a proposal to avail IIPDF certain eligibility criterion have to be met, details of which are available at pppinindia.com/pdf/guideline_scheme_IIPDF.pdf
The decision of Empowered Institution about the eligibility of a project shall be final and would cover the entire gamut of PPP projects, including BOT (Toll), BOT (Annuity), long term management contracts etc. Upon EI’s approval for the MFC based on the prefeasibility study, funding will be provided by Authority for payment of TAs. The TAs will be paid according to fixed milestone deliverables.
Who are the authorities for approval? IIPDF is administered by the Empowered Institution (EI )21. The primary functions of EI will consists of selection of projects for which project development costs will be funded, setting terms and conditions under which the funding will be provided and recovered, and setting milestones for disbursing and recovering (where appropriate) the funding. PPP Cell of DEA, GoI provides support functions to the EI to examine applications received for assistance under IIPDF. Figure 14 illustrates the ogansation structure of IIPDF.
CHAIRPERSON Additional Secretary, Department of Economic Affairs
Additional Secretary Representative of Planning Joint Secretary MEMBER SECRETARY Department of Commission Line Ministry dealing Joint Secretary, Department of Expenditure Not below Joint Secretary with the subject Economics Affairs
Figure 14: Organisation Structure of IIPFD What are the ceilings for approval? IIPDF will assist upto 75 percent of the project development expenses to the Authority. Rest of the 25 percent which would include the cost of pre-feasibility study to determine project amenability to PPP would be funded by the Authority. IIPDF would recover its share from the successful bidder on completion of the bidding process. The Authority would be liable to refund the amount of assistance received, in case it does not conclude the bidding process for some reason or does not contract out the project after the bid
20 Details of the MFC are given in the sections below 21 Notified by DEA vide Notification No.2/10/2004-INF, dt. August 18, 2005
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process has been completed. Certain implications would follow in case EI relaxes the condition of co-funding by the Sponsoring Authority22.
How does the Authority go through the bidding process for a TA? These consultants and TAs can be appointed by the Authority either from the list of empanelled transaction advisers by DEA or through a transparent system of procurement under contract for services. However, it is necessary for the Authority to create and empower a PPP Cell to undertake project development activities and address larger policy and regulatory issues to seek financial assistance from the IIPDF. India Infrastructure Finance Company Limited (IIFCL)
India Infrastructure Finance Company Limited (IIFCL) was incorporated on January 5, 200623 under the Companies Act 1956, as a company wholly owned by the Government of India (GoI). IIFCL's primary objective is to provide long term finance to commercially viable infrastructure projects giving overriding priority to Public Private Partnership Projects and also supporting available long term debt resources.
Which sectors are eligible? IIFCL will finance commercially viable projects in sectors which focus on infrastructure development. These sectors include (i) Roads and bridges, railways, seaports, airports, inland waterways and other transportation projects; (ii) Power; (iii) Urban transport, water supply, sewage, solid waste management and other physical infrastructure in urban areas; (iv) Gas pipelines; (v) Infrastructure projects in Special Economic Zones; and (vi) International convention centres and other tourism infrastructure projects.
Under IIFCL a project shall be financed which is being implemented (i.e. developed, financed and operated for the Project Term) by either a public sector company or a private sector company selected under a PPP initiative by a competitive bidding process; or a private sector company. However in order to lend to private sector companies certain conditions are required to be fulfilled, details of which can be obtained from their official website, http://www.iifcl.co.in.
Who are the authorities for approval? Lead Bank refers to the Financial Institution (FI) that is funding the project and is designated by the Inter Institutional Group or consortium of financial institutions. The Lead Bank shall present its appraisal of the project for the consideration of IIFCL. Based on such appraisal, the IIFCL may consider and approve funding. The IIFCL is not normally required to carry out any independent appraisal of the project.
What are the ceilings for approval? Inclusive of direct lending plus the refinance business should not exceed 20% of the total lending by IIFCL in any accounting year. In addition for a particular project, IIFCL cannot fund more than 20% of the project cost.
How are projects funded by IIFCL monitored? The Lead Bank shall be responsible for regular monitoring and periodic evaluation of compliance of the project with agreed milestones and performance levels, particularly for purpose of disbursement of IIFCL funds. It shall send periodic progress reports in such form and at such times, as may be prescribed by IIFCL.
22 First, the Authority will have to commit funding to the feasibility study for preparing the Memorandum for Consideration (MFC). Second, the IIPDF will not pre-empt the decision of the feasibility study on whether a PPP is appropriate or not. 23 The scheme was notified by the Ministry of Finance, Department of Economic Affairs vide O.M. No. 10/12/2005-INF dated 4th January 2006
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Implementation of PPP projects: How to engage Transaction Advisors
With a view to to facilate PPP projects in the state, , GoWB has taken several initiatives to expedite the process of project development. One the major components of project development is recruitment of Transaction Advisors (TAs). With the objective to assit state department for appropriate advisory support, Finance Department has proactively issued government orders with respect to empanelment and engagement of TAs. A summary of these government orders is mentioned below in the Appenxdix: Notification No. FS-116(PPP Cell)/2012, Dt. 10.09.2012: In September 2012, the Finance Department presented a list of finalised panels of pre-qualified Transaction Advisers (TAs) to assist the Government departments and organizations. This facilitated departments and other organizations of the State Government to have access to appropriate advisory support for the implementation of PPP transactions. The empanelment consisted of details of sector related empanelled TAs and a general category along with appropriate point of contacts. This list is valid for a period of two years.
Notification No. 119/PPP-C, Dt. 04.10.2012: In October 2012, Finance Department had issued detailed information stating documentation format and process for seeking financial bids from empanelled Transaction Advisors and preparation of Project Information Sheet (PIS) for proposed PPP Projects. The objective of this exercise is to maintain uniformity in processing of information and provide equitable information to all empanelled firms taking part in Financial Bid submission.
Notification No. 8384-F(Y), Dt. 22.11.2013: Finance Department with intention to remove unnecessary delays for engagement of TAs carried out certain changes in Notofication No. FS-116(PPP Cell)/2012, Dt. 10.09.2012. Some of the key points in this orders included (i) confirmation of eligibility of minimum 2 bids from empanelled panel for consideration in engagement as TAs (ii) empowering state departments to engage TAs without reference to finance department in cases where departments are of the opinion that the exissting panel is not suitable for the propsoed project (c) use of existing TAs for advisory service in other non PPP areas such as disinvestment related work, exit from existing JV/PPP, and other projects of a complex nature. In addition, this order provided complete financial power to Additional Chief Secretary / Principal Secretary / Secretary of the Administrative Department to incur expenditure for payment of professional service charges / fees to TA out of fund available under object head of “28-payment of professional & special services-02- other charges” subordinate to the functional Major head of the department concerned.
Notification No. 8954-F(Y), Dt. 20.12.2013: This notification higlighted to all state departments to ensure that all PPP documents, such as, RFP, RFQ, Concession Agreements etc., prepared by the TAs are vetted by their respectice legal experts prior to finalisation.
Notification No. 2633-F(Y), Dt. 20.04.2014: With the objective to avoid unnecessary delays in engaging TAs, the Finance Department issued a stage-wise schedule to specify a time-period for various tasks with a stipulation of a maximum period of 4 months between engagement of TA and commencement of PPP project. However, taking into consideration that size and complexity would differ for different projects, the notification delegated power to Secretary of concerned department for revision of these timelines. Key Challenges in PPP implementation
India has made significant progress in development and implementation of PPP projects. However a number of challenges remain. Some of these arise due to the inherent nature of such projects and lack of safeguards to handle problem situations while others emanate from more fundamental issues such as planning and viability. An
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overview of the key challenges which need to be handled by all the PPP stakeholders including government is presented below which would be useful as a ready reference to the PPP practitioners in the state
Lack of institutional capacity-the absence or limited availability of expertise in the government to plan and design complex PPP projects, understand the work of the Transaction Advisors and monitor implementation
Inadequate Project Development-inability to have comprehensive feasibility studies done and options examined to avoid imbalances and credibility with the private sector resulting in lack of bid interest and problems in implementation. (e.g. Inadequate demand analysis, lack of attention to statutory clearances needed before execution, flawed business models, inappropriate risk sharing etc)
Need for a more robust regulatory environment-though regulatory bodies have been introduced in sectors such as power, telecom and airports and implementing agencies such as the National Highways Authority of India, much remains to be done for the other sectors to attract greater domestic and international financing
Limited Financing sources– commercial bank financing of infrastructure is limited by the sector exposure norms. Though mechanisms such as the Viability Gap funding and financing through apex institutions such as the Infrastructure Development Finance Co (IDFC) and India Infrastructure Finance Co (IIFCL) have been introduced, considering the phenomenal demands for investments a wider access to source of funds and instruments is necessary.
High PPP Transaction costs– Engaging transaction advisors and consultants for a medium to large size PPP project can be expensive and an assessment will be necessarily as to how far such costs are justified in terms of overall value for money and efficiencies that the project can generate.
Inflexible long term contracts– this is increasingly turning out to be one of the key areas of concern in India particularly where agreements do not stipulate clauses for renegotiations or resets. Ground conditions for PPP contracts of long tenure can change and without sufficient in-built flexibility for the private partner both performance and relationship can go downhill.
Management of contractual relationship– this is critical since in spite of good preparatory work, project design and structuring, relationships during implementation can fail. While a well drafted contract that takes into account all aspects of risk sharing can significantly reduce problems, it has to be backed up by a competent project management team with strong interpersonal skills and expertise that is able to monitor and manage expected performance levels and outputs. Monitoring of PPP projects
PPP projects involve delivery of a public service with the participation of a private player who is given access to certain public assets for a period for delivering outputs of agreed quality, quantity and at a determined cost and within agreed timelines. However government continues to remain accountable to the citizens for the delivery of such services to the users. Hence it is important that all such projects have appropriate institutional mechanisms for monitoring and control.
The Planning Commission of India has framed Guidelines for an Institutional Mechanism for Monitoring of PPP Projects which was issued on 8th August 2012 after Cabinet approval. The essence of the proposed monitoring framework envisaged under these Guidelines “requires the creation of a two-tier mechanism for monitoring PPP projects. A Monitoring Unit would be set up at the project level while a PPP Performance Review Unit would be constituted at the level of the Ministry or the State Government, as the case may be. Monitoring is to be carried out primarily through a reporting mechanism. The Monitoring Reports for each project would include compliance
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of contract terms, adherence to time lines, assessment of performance, remedial measures and imposition of penalties. Non-compliance with the terms of concession agreements would be reported by the respective Ministries to the Planning Commission and Finance Ministry once every quarter for preparing a consolidated report to be placed before the Cabinet Committee on Infrastructure.”
Though this framework directly applies to all central ministries, departments, statutory authorities, PSUs and all projects (including state projects) receiving Viability Gap assistance from the central government, the principles and rationale for continuous monitoring backed by regular monitoring reports are good practices for general adoption for PPP projects located anywhere. Details of these guidelines are available at http://infrastructure.gov.in.
General experience in many PPP situations has shown that while enough attention was given to project planning, bidding and procurement processes, adequate attention may have been missed out on questions related to contract management and execution. The PPP practitioner in West Bengal may consider the following aspects of contract management to be in built into the overall monitoring and reporting processes viz. Contract administration including handling of variations, financial terms and integrity of the contract Delivery management including management of project risks and performance management of the contractor/concessionaire Relationship management including promoting mutual understanding, transparency, and information sharing which are vital to build trust and confidence between the government and the private player
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Appendix 1. Useful references
http://www.pppinindia.com/ as on July 28, 2014 http://www.infrastructure.gov.in/ as on July 28, 2014 A Guidebook on Public-Private Partnership in Infrastructure, United Nations, Economic and Social Commission for Asia and the Pacific Public Private Partnership Handbook, Asian Development Bank Public Private Partnership Handbook, Ministry of Finance, Singapore Public Private Partnership Handbook for Uttarakhand, A Working Guide, Uttarakhand Public Private Partnership Cell (UPPPC) Public–Private Partnership, Operational Plan 2012–2020, Asian Development Bank Scheme and Guidelines for Financial Support to Public Private Partnerships in Infrastructure, Government of India, Ministry of Finance, Department of Economic Affairs Approach Paper on Defining Public Private Partnerships, Discussion Paper, Feb 2010, Government of India, Ministry of Finance, Department of Economic Affairs Public Private Partnerships: Creating an Enabling Environment for State Projects, Government of India, Ministry of Finance, Department of Economic Affairs Government of India, Ministry of Finance, Department of Economic Affairs Scheme and Guidelines for India Infrastructure Project Development Fund, Government of India, Ministry of Finance, Department of Economic Affairs http://india.gov.in/e-governance/national-e-governance-plan as on July 28, 2014 http://www.csi-sigegov.org/critical_pdf/22_194-206.pdf as on July 28, 2014 http://toolkit.pppinindia.com/pdf/urban-infrastructure.pdf as on July 28, 2014 http://www.crisil.com/infrastructure-advisory/public-private-partnerships.html as on July 28, 2014 http://www.tourism.gov.in/TourismDivision/AboutScheme.aspx?Name=Tourism%20Infrastructure%20 Development&CID=67&INO=6 as on July 28, 2014 http://www.steelguru.com/indian_news/Welspun_Energy_to_construct_50_MW_solar_project_in_M aharastra/343881.html as on July 28, 2014 http://timesofindia.indiatimes.com/home/environment/developmental-issues/Mahagencos-50-MW- solar-project-will-be-unique-PPP-model/articleshow/31424449.cms as on July 28, 2014 http://www.tatapower.com/cgpl-mundra/home.aspx as on July 28, 2014 http://articles.economictimes.indiatimes.com/2010-02-18/news/27567078_1_jal-mahal-resorts-man- sagar-lake-restoration as on July 28, 2014 http://www.business-standard.com/article/specials/experts-to-study-jal-mahal-project- 100050101014_1.html as on July 28, 2014 http://www.projectstoday.com/News/Bids-invited-for-Jal-Mahal-Tourism-Infrastructure-Project as on July 28, 2014
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Appendix 2. Glossary
Following are definitions for key terms used:
Lead Bank: Financial institution (FI) that is funding the infrastructure project by providing debt to an extent not less than 25 percent (twenty five percent) of the total project debt and designated as such by an inter-institutional group or consortium of financial institutions. Lead Financial Institution: Financial institution (Fl) that is funding the PPP project, and in case there is a consortium of FIs, the Fl designated as such by the consortium. Long Term Debt: Debt provided by the IIFCL to the Project Company where the average maturity for repayment exceeds 10 years. Memorandum for Consideration (MFC): The format in which information will be provided by the Sponsoring Authority while applying for IIPDF grant. Private Sector company/entity: Private Sector Company means a company in which 51% or more of the subscribed and paid up equity is owned and controlled by a private entity. Private sector entity means - In case of a Company, one that is not within the purview of Section 617 and 619 B of the Companies Act, 1956. For other entities, those which are not controlled by the Government (‘control’ means the ownership, directly or indirectly through subsidiary (ies), of more than one-half of the voting power of the enterprise). Project: A project in any of the infrastructure sectors identified by the EI for the purpose of this Scheme. Project Company: The company which is implementing the infrastructure project for which assistance is to be given by the IIFCL. Project Development Expenses: Expenses incurred by the Sponsoring Authority (as consultant’s fees etc.) in respect of development of each Project as per the budget approved by the Empowered Institution, which would include feasibility studies, financial structuring, legal reviews (including environment studies) and development of project documentation, including concession agreement, commercial assessment studies (including traffic studies, demand assessment, capacity to pay assessment) etc. required for achieving Technical Close of such projects, on individual or turnkey basis, but would not include expenses incurred by the Sponsoring Authority on its own staff etc. Project Term: The duration of the contract or concession agreement for the PPP project. Public Private Partnership (PPP): Partnership between a public sector entity (Sponsoring Authority) and a private sector entity (a legal entity in which 51 percent or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system. Public Private Partnership (PPP) Project: A project based on a contract or concession agreement, between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service. Public Sector Company: A company in which 51 percent or more of the subscribed and paid up equity is owned and controlled by the Central or a State Government, jointly or severally, and includes any undertaking designated as such by the Department of Public Enterprises and companies in which majority stake is held by Public Sector Companies other than financial institutions. Sponsoring Authority (ies): Central Government Ministries/Departments, State Governments, Municipal or Local Bodies, PSUs or any other statutory authority (such as the Delhi Development Authority). Technical Close: The stage of execution of concession agreement, between the private sector developer and the Sponsoring Authority or its agencies, subsequent to selection of the private sector developer through a bidding process.
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Total Project Cost: The lower of the total capital cost of the PPP Project: (a) as estimated by the government/statutory entity that owns the project, (b) as sanctioned by theLead Financial Institution, and (c) as actually expended; but does not in any case include the cost of land incurred by the Government/statutory entity. Transaction Advisers: Consultants hired through a transparent system of procurement by the sponsoring authorities to assist them in designing the project and/or providing technical, financial and legal input for the project design, and providing advice for the management of the process of procuring the private sector partner for the PPP project. Viability Gap Funding: Viability Gap Funding means a grant one-time or deferred provided under the Government of India’s Scheme for Financial Support to PPPs in Infrastructure, with the objective of making a project commercially viable.
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Appendix 3. Forms of PPP models
Various modes or options of engagement with the private sector are available to the government and its agencies. A broad overview of these is shown in the figure below:
Options for PPP Private Ownership
Concessions Private Sector Private
Leases
Investment Management Contracts Service Contracts Public Sector Public Risks, Obligations & Durations Public Sector Private Sector Adapted from “UN ESCAP: A Guidebook on Public Private Investment in Infrastructure”
Figure 15: Different forms of PPP models
The figure depicts the increasing levels of private participation, risks, time spans, and irreversibility in the various forms.
The table below gives a summary of the spectrum of private participation and its intricacies for a better understanding. The modes discussed are the forms generally prevalent in the country.
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Table 14: Nature and Implications of private participation
MODES / Asset PPP Capital Private partner Private Remarks OPTIONS ownership tenure investment & revenue risk partner roles during responsibility and contract compensation terms Service Here private sector involvement is solicited for performing specific tasks and the agreement generally is activity based. Contract Public agency retains ownership, overall responsibility for O&M and bears all commercial and operating risks Activity based Public Short to Public Low Performance of Contracting designated activities service medium (Lump sum, fixed specific allotted to the private sector. E.g. Billing, contracts term (3-4 fee, cost plus or tasks metering, collections for energy years) based on a physical parameter) Management Contractual arrangement for the management of a part or whole of a public facility or service by the private sector. Capital Contract investment is typically not the primary focus in such arrangements Operations & Public Short – Low Risk Management of Contracting to the private sector Management medium Public (Pre-determined all aspects of most or all of the O&M of a public Contracts (e.g. 3-5 fee, possibly with operation and facility or service. (e.g. yrs) performance maintenance performance based management incentives) contracts for highways, O&M of tourism properties) Leases Asset is leased, either by the public entity to the private partner or vice-versa.
General Lease Public Medium High Risk Management e.g. Leasing of retail outlets at contracts (e.g., 10- Public (Revenue from and railway stations by Indian 15 yrs) Operations) maintenance Railways Build Lease Private Medium Greenfield Low-medium risk Capex Involves designing, financing, Transfer (BLT) (Leased to the (e.g. 10-15 Private (Pre-set lease building a facility, leasing it to or Build-Own- government) yrs) rentals from the the Govt. and transferring the Lease-Transfer government.) facility after recovery of (BOLT) investment. (e.g. railway projects such as gauge conversion, port terminals, power plants). Build-Transfer- Public Medium Greenfield High Risk Capex and Involves building an asset, Lease (BTL) (e.g., 10- Private (Revenue from Operations transferring it to the Govt, and 15yrs) User Charges) leasing it back. Here the private sector delivers the service and collects user charges PwC Page 112 of 138
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MODES / Asset PPP Capital Private partner Private Remarks OPTIONS ownership tenure investment & revenue risk partner roles during responsibility and contract compensation terms Concessions Here the government or public entity grants a concession or franchise to a private player to design, construct, finance, operate and maintain assets for a certain period. Importantly, the operator is now responsible for all capital investment while the assets are publicly owned even during the concession period. The public sector’s role shifts from being the service provider to regulating the price and quality of service. There are various formats of such concessions and some of the common ones prevalent are discussed here
Design-Build- Public Long Greenfield/ High Design, finance, Most common form of BOT Finance- (e.g. 20- Brownfield (Tariff/User based construct, concession in India (e.g. in roads, Operate- 30 yrs) Private revenue) manage, container/bus terminals, metro Transfer maintain railways) (DBFOT)/Build- Operate- Transfer (BOT) Build-operate- Public Long Greenfield/ Low Design, finance, Earlier used for NHAI highway transfer (BOT) (e.g. 20- Brownfield (Annuity revenue construct, projects. This is the preferred Annuity 30 yrs) Private / unitary charge) manage, approach for socially relevant maintain projects where revenue potential is limited. Build-Own- Private Long Greenfield High Design, Most common form of BOOT Operate- (e.g. 20- Private Tariff revenue/ construct, own, concession in India. (e.g. Minor Transfer 30 yrs) Take or pay or manage, ports, solid waste concessions) (BOOT) user charges for maintain, solid waste transfer Adapted from PPP Toolkit of Ministry of Finance, Govt. of India
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Appendix 4. Checklist for addressing key PPP issues
Below table presents a checklist outlining enquiries for mitigating the key challenges.
Table 15: PPP implementation checklist –Key controls to face Challenges24
Sl Mitigating Key Challenges 1 Institutional Capacity Are there in house technical resources and skills in the administrative/ sponsoring departments and agencies for identifying projects and executing preliminary project development studies and analysis? Have any staffs been trained on the concepts and requirements of PPP transactions including the possible modes and options available? Has a PPP cell been formed as a repository of knowledge and capacity building? Are there internal capacities to understand the results of analysis of the project done by Transaction advisors to ensure that the benefits of the PPP transaction are more than its costs and overall there is assured value for money to the government? 2 Project Development Has a detailed analysis been carried out establishing whether the project is a fit case for a PPP arrangement, examining all available options and drawing up of the Project Brief/Concept note (note: This requires a preliminary analysis of project suitability vis a vis the general PPP modes/types available in the market and is to be backed up by a Pre- feasibility study which will determine whether the project should filter through to the project development stage at all) Has a Pre-feasibility study been undertaken to examine, inter alia, the following: a. Technical and Operational practicality b. Environmental and Social safeguards necessary c. Financial and Economic viability d. Value for money and suitability from the point of view of amenability to PPP format e. The different modes/modalities of private participation f. Action plan for the way forward Has a detailed feasibility study been executed once project has been approved in-principle including the following aspects: a. In depth analysis of all the matters examined in the pre feasibility stage b. Demand analysis for the services which the PPP partner will provide including traffic studies, tariffs, market acceptance, future projections of sensitivities c. Computation of not only the capital costs but maintenance and refurbishment costs across the entire life cycle of the infrastructure facility created d. Legal and regulatory issues e. Sharing of risks between the government and the private agency f. All implementation barriers/expected bottlenecks and how they can be managed/mitigated g. Any specific sector specialties/characteristics which need to be built into the project design h. Suitable financing options and their impact on project structuring for acceptability by the private sector i. Levels of government support necessary j. Service and Output specifications that the private partner is expected to ensure k. Terms and conditions of contract/concession agreement
24 This is a high level checklist only for some of the key challenges referred to in this handbook and does not cover the detailed processes across the PPP life cycle. The topics are arranged according to the key challenges mentioned in the handbook.
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Sl Mitigating Key Challenges 3 Regulatory Environment Is there a Regulatory Authority for the sector for which the PPP project is being planned? (e.g. Telecom Regulatory Authority of India, Central Electricity Regulatory Commission) Has the project design structure taken into account the legal requirements for the sector? Where there are no regulatory authorities and the general principles of common law and contracts apply what are the safeguards as regards irrevocability, certainty and enforceability of rights of the private partners? Is the project likely to be acceptable to the lenders from the regulatory perspective?
4 Financing sources Has the project structuring taken into account the potential sources of commercial funding available to the private sector and the exposure/prudential norms prescribed by the RBI? Have options available for Viability gap funding and those offered by term lending institutions such as IIFCL been considered? Is the Project and Equity IRR as revealed through the expected cash flows reasonable and (apart from serving the public purpose of the PPP venture) offer a fair and reasonable return that will make it amenable for financing by lenders? Are there any serious bottlenecks/barriers to raising financial resources by the private partner for the particular sector and if so, have they been taken care of by suitable government support in the project financial design? (e.g. annuity, deferred payments, tariff rates etc.) Are any credit enhancement options available to facilitate the raising of additional resources for the project? (e.g. credit guarantee for bonds issued for infrastructure projects?
5 PPP Transaction costs Have Transaction Advisors (TA) been selected from the approved list? Have departments/agencies ensured that only TAs with the requisite sector exposure and capabilities have been requested to quote? In case where the department feels there is a need to deviate from the prescribed list due the scope and nature of the project being not supported by empanelled TAs have fresh open tenders been invited to ensure transparency, competition and cost efficiency? Has the TA been selected early in the PPP project cycle to ensure a single point advice, accountability and interface from project identification to the signing of the contract? Is fragmentation of the TA tasks by engaging multiple agencies avoided to prevent conflicting work-streams, accountabilities and additional costs? Is there a clear written contract defining the TAs scope of work, timelines and outputs? Do the project team members meet the TAs frequently to ensure regular exchange of views/updates, interact for removal of bottlenecks and ensure project progress? Are the rates quoted by the TAs reasonable keeping in mind quotes for similar projects in other states? Since L1 is often the deciding criteria for empanelled TAs , has the lowest quote been examined closely and appropriate clarifications sought from the bidder where such quote differs materially from the others received for a particular project? Have TA engagement costs been factored in while assessing overall value for money at the initial stages of project development?
6 Contracting and Contract Management Success of PPP projects depends considerably on robust contracting procedures and post contracting project implementation arrangements.
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Sl Mitigating Key Challenges The Key elements of a sound contract for PPP includes several attributes which have already found a place in the model concession agreements for various sectors25. However, some of the key additional elements that will need to be enquired into as a matter of good practice may include: Are the rights ,responsibilities and obligations of the parties to the contract clearly defined Does the contract provide for sufficient flexibility through appropriate institutional structures to renegotiate or reset clauses in circumstances of material or significant changes to operating conditions which were not taken into account during the finalization of arrangements between the parties? Are the circumstances under which such renegotiation/variation permissible clearly documented in the original contract as also the decision structures that would finalise such revised arrangements? Are the processes of such resets/renegotiation clearly documented in the contract and implementation arrangements to mitigate such adverse circumstances arrived at in an objective, transparent manner and fully documented with necessary approvals?
PPP Contract Management Enquiries to mitigate the challenges in the post contracting environment would cover the aspects of Contract Administration, Delivery Management and Relationship Management.
Contract Administration Is there a dedicated cell to manage PPP contracts in the sponsoring agencies and departments? Is such a cell adequately staffed and draws upon experts from time to time as needed? Are there clear procedures on how this unit will work? If no such unit exists what alternative systems are in practice and how adequate are they? How are the following essential contract administration functions discharged? Management of contract variations Monitoring of project deliveries Maintaining the integrity of the contract (e.g. up to date documentation, storage, communication and understanding of obligations by all parties to ensure consistency, reliability and accessibility) Ensuring all obligations of the GoWB are discharged in time Documented processes to ensure prompt raising of bills and processing of payments Existence of an MIS to track performance indicators as contemplated in the contract Ensuring timely and quality reporting by the PPP partners on milestones, deliverables and variations
Delivery Management (this covers Risk and Performance management issues) Are there formal risk management structures in the department to identify, monitor and mitigate risks of high value PPP contracts? How are project risks captured, tracked, monitored and reported for timely actions? What is the extent of PPP projects with time and cost over runs? What are the results of analysis for such variations? (defective contracts, lack of timely variations, sub optimal performance etc.) Are adequate field visits made to directly validate contractual performance? Are third parties/experts engaged for performance monitoring and reviews of quality assurance as well as contract compliance? Are the comments of internal and external auditors on PPP contracting and management acted upon expeditiously?
25 Refer www.infrastructure.gov.in for an overview of some model concession agreements disseminated by the Secretariat for Infrastructure in the Planning Commission PwC Page 116 of 138
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Sl Mitigating Key Challenges Relationship Management How are structures for developing and maintaining professional relations with PPP service providers established? Do they foster exchange of ideas, open communications? Are such relationships sustainable at the strategic and operational levels based on feedback from current practices? Do formal grievance redress mechanisms exist? If so are they aligned with the expectations of PPP contracts? How many disputes are generally raised in a year and their nature? How many of them are pending as at a point of time and why? How many of them are matters of litigation? What is the assessment of the nature of disputes (e.g. ambiguity in contract terms, non- performance of obligations, poor structuring of contracts etc.). Are contracts clear on the means to resolve disputes? Are these usually in line with accepted general good practices (e.g. those used in funding agency contracts with the same or other departments?) How is it ensured that there are adequate measures of redress of complaints before the matters finally end up before the courts?
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Appendix 5. Select profiles of PPP projects in different states
Under this section, we have presented selected PPP projects in India both on national and state level in different sectors as shown in the table below.
Urban Water Management Contract - Source to Tap , Latur, Maharastra (2007) Infrastructure Integrated Solid Waste Management System, Hyderabad, Andhra Pradesh (2009)
Urban Kolkata Car Parking System (2007) Transportation Jalandhar City Bus Service (2008)o
Airports Delhi International Airport (P) Limited (2006)
NH 65, Andhra Pradesh (2012) Highways Ambala-Chandigarh highway, Punjab & Haryana (2006)
Tourism Jal Mahal Tourism Infrastructure Project (JTIP), Jaipur, Rajasthan (2010) Infrastructure
Total Management of Essential RCH & Primary Health Care, Andhra Pradesh Social Sector (2006) B. Braun Dialysis Centres, Andhra Pradesh, India (2010)
Solar Power Project, Baramati, Maharastra (2014) Power Sector Ultra Mega Power Project, Mundra (2006)
MCA21 e-Governance Project (2006) e-Governance Passport Seva Scheme (2008)
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Urban Infrastructure
Water Management Contract - Source to Tap , Latur, Maharashtra (2007) Public Sector Entity: Maharastra Jeevan Pradikaran (MJP) Sector: Urban Infrastructure- Water Supply Services Contracting parties: Subhash Projects & Marketing Ltd, UPL Environmental Engineers Limited and Hydro-Comp Enterprises. Nature of bidding: Two-stage bidding Evaluation criteria:Bidder with highest annual fee Implementation mode: An SPV named Latur Water Management Company Limited (LWMC) was created. It was formed by three companies Subhash Projects & Marketing Ltd, UPL Environmental Engineers Limited and Hydro-Comp Enterprises.
Key project features Brief project description This project was unique in India with an SPV executing an integrated contract from source to tap management. One of the differentiating features of this project was a three way partnership between utility (MJP), government nominated nodal service provider (Latur Municipal Corporation)) and private operator (LWMC). It operated on a clear framework on aspects of policy, legal, information dissemination, risk sharing and finance. Due to its long term nature and performance based agreement with concessionaire, this option has potential to assist municipalities to meet the infrastructural gap and make them commercially viable while maintaining operational efficiency in service delivery. PPP Model: Management Contract Concession period: 10 years Revenue model: Under legislation, MJP possesses the authority to charge water tariffs from the users to operate and maintain water supply in an optimum manner. Therefore, under the management contract, the operator shall pay to MJP a fixed monthly sum in return for extending the authority to charge and collect water tariffs, charges relating to water services like meter installation, extension of network and installations of connections during the term of agreement. Risk Allocation Summary One of the major objectives to execute a management contract has been transfer of majority of risk to the operator (SPV). Therefore, risk related to service delivery, technological/technical complexity of sub- projects, personnel acquisition, skill development and achieving customer acceptance of the deliverables has been the responsibility of the SPV (LWMC). Key Project Outcomes/ Lessons Key aspect of the project constituted operation, maintenance and repairs including metering, billing and collection with all investments by operator (SPV) on the fixed and variable costs for a period of 10 years starting in September 2007. The tender is a performance based contract covering the entire scheme and has the following key deliverables. Operations, maintenance and repairs of scheme by operator. Attending resident staff, key visiting experts including 70 people from Latur Municipal Corporation/ MJP. Implement modern distribution management with equitable water supply to 100% population with due pressure and quality of water. 100% metering and recovery of cost from consumer as per tariff fixed by Government of Maharashtra. Manage regularization of illegal connections, customer grievances and establish 24 by 7 toll free call centre. Leak detection, repairs and establishment of bench mark parameters, water audit, establishment of distribution zones and institutional strengthening. Implement 24 by 7 water management systems in 2 years. Develop a customer information system including operating a 24 by 7 call centre PwC Page 119 of 138
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Integrated Solid Waste Management System, Hyderabad, Andhra Pradesh (2009) Public Sector Entity: Greater Hyderabad Municipal Corporation (GHMC) Sector: Urban Infrastructure- Solid Waste Management Project Cost: Rs. 434.91 crores Grant under JnNURM Scheme of GOI (35%) – Rs 152.22 crore Grant share by Government of Andhra Pradesh (15%) – Rs. 65.24 crore Capital investment by Private Player (50%) – Rs 217.46crore Contracting parties: M/s Ramky Enviro Engineers Ltd. (REEL) Nature of bidding: Two-stage bidding Evaluation criteria:Bidder with lowest tipping fee Implementation mode (SPV –Yes/No): No Key project features Brief project description Being the first project of its kind in India for metro cities, this project comprehensively covered the entire scope of activities under waste management. This included door-to-door collection, transportation, processing and treatment of waste. PPP Model: DBFOT Concession period: 25 years Revenue model: The private partner shall be given milestone payments of the tipping fee in the following manner: Primary and secondary collection & transportation of waste up to transfer station – 40% of the quoted tipping fee Transfer station management and transportation of waste from transfer station to the processing facilities – 20% of the quoted tipping fee Treatment and disposal – 40% of the quoted tipping fee Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - Private player Financial risk - Equally divided between private player and by state government with GHMC providing land for a nominal fee Operations and Feasibility risk - Private player in terms of both Quantity & Quality Key Project Outcomes/ Lessons The objective of project is to integrate SWM value chain system of Hyderabad to enhance its operational efficiency. Therefore, the project focused on synchronizing the entire operational chain under a single entity. Apart from transferring responsibilities of primary and secondary waste collection and transportation to the private partner, the project further focused on other aspect of waste treatment. It mandated the private player to up-grade, operationalize and maintain existing transfer stations while developing new ones. The project also entailed development and maintenance of landfill facility while reclaiming/ reusing dumpsites. Following are the important outcomes of the project: Primary collection activity including door-to-door collection from all 5 (five) zones under GHMC area Secondary collection activity in East and West zones and transportation of the same to designated transfers stations Up-gradation, operation and maintenance and management of existing Transfer Stations including Fatullaguda (East Zone), Shamshiguda (West Zone) and Lower tank bund, Yousufguda, Imliban Development, operation and maintenance of additional transfer stations including Fathullaguda, Shamshiguda, Gandhamguda, Rajendranagar, Kapra. Development, operations and maintenance of landfill facility existing at Jawaharnagar (existing) and proposed at Choutuppal (Nalgonda District), Lakdaram, Patamcheru (Medak District) Transportation of MSW from all the transfer stations to the designated treatment & disposal facilities for the entire GHMC area Reclamation/ reuse of dumpsites at Jawarharnagar, Gandhamguda, Shamshiguda, Fatullaguda
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Urban Transportation
Kolkata Car Parking System (2007) Public Sector Entity: Kolkata Municipal Corporation (KMC) Sector: Urban Transportation Project Cost: Rs. 36 crores (borne by private player) Contracting parties: Simplex Pvt. Ltd. Nature of bidding: Competitive bidding Evaluation criteria: Based on technical and financial evaluation Implementation mode (SPV –Yes/No): No Key project features Brief project description: KMC decided to utilize its rights to underground space in order to address shortage of parking space at Lindsay Street in Central Kolkata. As a result, a parking project under PPP was undertaken to construct two levels of underground parking in the area. PPP Model: Build-Own-Operate-Transfer (BOOT) Model Concession period: 20 years Revenue model: KMC has authorised Simplex to impose and collect parking charges on a mutually agreed terms and conditions from vehicles parked in the facility. In return, Simplex pays the KMC, 5% of gross annual revenue earned from parking for the concession period. Risk Allocation Summary The allocation of risks between private and public player is as following: Technical Risk: Private Player Financial Risk: Private player, however, KMC has provided support by not permitting parking within 100 metres of the facility Operational and feasibility risk: Private player Key Project Outcomes/ Lessons Key outcomes of the project include: 250 parking slots have been constructed in the underground parking system at second level. Market complex with 200 shops on lease have been constructed at first level with the premium going to private player. A pedestrian plaza constructed is a bonus for the pedestrians. The facility has reduced hassle caused due to street parking.
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Jalandhar City Bus Service: Global Positioning System (GPS) Public Sector Entity: Jalandhar City Transport Service Limited (JCTSL) Sector: Urban Transportation Project Cost: Rs. 10 crores Contracting parties: M/s HCL Infosys Nature of bidding: Competitive bidding Evaluation criteria: Based on technical and financial evaluation Implementation mode (SPV –Yes/No): Yes Key project features Brief project description: The Department of Local Government undertook implementation of this project with the objective to improve the quality of Public Transport in cities by providing cheap, environment friendly, efficient and convenient public transport system. PPP Model: Build- Own-Operate-Transfer (BOOT) Model Revenue model: On mutually agreed terms and conditions JCTSL will be paying the private player for the GPS services. Risk Allocation Summary The allocation of risks between private and public player is as following: Technical Risk: Private Player Financial Risk: Public Player Operational and feasibility risk: Private player Key Project Outcomes/ Lessons Key outcomes of the project include: A control room for Online Tracking System (OTS) has been established which would be useful to detect deviation of buses from timing and assigned route. GPS is instrumental to monitor and relay information via Passenger Information System (PIS) installed on each vehicle thorough data transfer GPS based system can be useful tool to ascertain the service levels and identify scope for improvement
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Airports
Delhi International Airport (P) Limited (2006) Sector: Airports Project Cost: Rs. 12,800 crores Contracting parties: GMR Group, Airports Authority of India, and Fraport AG & Eraman Malaysia Nature of bidding: Competitive bidding Evaluation criteria: Technical and financial Evaluation Implementation mode (SPV –Yes/No): DIAL, joint venture consortium of GMR Group, Airports Authority of India, and Fraport AG & Eraman Malaysia Key project features Brief project description Apart from upgrading the existing terminals, DIAL commissioned a variety of facilities. These included a new runway, new domestic departure terminal (T1D) and facilities to increase capacity of domestic departures to 10 million passengers per annum. PPP Model: Operations, Management and Development Agreement (OMDA) Concession period: 30 years Revenue model: DIAL is a joint venture consortium of GMR Group (54%), Airports Authority of India (26%), and Fraport AG & Eraman Malaysia (10% each). GMR is the lead member of the consortium, Fraport AG is the airport operator and Eraman Malaysia is the retail advisor. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk: Shared between stakeholders, mainly GMR Financial risk: Shared between stakeholders Operational and feasibility risk: Majority of risk has been allocated to GMR Key Project Outcomes/ Lessons Major features of the airport include: Two tier terminal building featuring the departure complex on the upper level and the arrivals at the lower level. The roof of the building has stylized incisions to allow daylight and angled to protect the interior from direct sunlight creating an ambience maximizing the sense of volume, space and light inside Reduced dependence on artificial light through use of natural light in day time. Third runway is amongst the longest in Asia with capacity to handle an A380-size aircraft. Terminal 3 has state-of-the-art complex featuring Common Use Terminal Equipment (CUTE) Advanced 5 level in-line baggage handling system with explosives detection technology for greater efficiency and security. Over 168 counter in the check-in area to speed up check-in and security clearances unobtrusively. For International passengers more than 95 desks for fast and smooth immigration procedures. 78 aerobridges The arrival hall features both standard and wide-body baggage reclaims belts 4 piers provide access to the aircraft from the terminal.
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Highways
NH 65, Andhra Pradesh (2012) Public entity: National Highways Authority of India (NHAI) Sector: Highways Project Cost: Rs. 1,740 crores Contracting parties: GMR Infrastructure Limited Nature of bidding: Competitive bidding Evaluation criteria: Technical and financial Evaluation Implementation mode (SPV –Yes/No): SPV between NHAI and GMR Infrastructure Limited Key project features Brief project description The project measures 181 kms on NH-9, which is a four-six lane Hyderabad – Vijayawada section in the state of Andhra Pradesh. PPP Model: Build-Operate-Transfer (BOT) Concession period: 15 Years – for 4 lanes & 25 years – for 6 lanes Revenue model: The project follows a toll basis model, where the private player will charge mutually agreed toll for 4 lanes and 6 lane section of the highway. NHAI will be given a certain amount collected in form of toll. Risk Allocation Summary Under this project, the private player will be responsible for designing, engineering, financing, procuring, constructing, operating and maintaining the assigned section of the highway Key Project Outcomes/ Lessons One of the major outcomes of this project has been reduction in travel duration and increased safety for travellers.
Ambala-Chandigarh highway, Punjab & Haryana (2006) Public entity: National Highways Authority of India (NHAI) Sector: Highways Project Cost: Rs. 298 crores Contracting parties: GMR Infrastructure Limited Nature of bidding: Competitive bidding Evaluation criteria: Technical and financial Evaluation Implementation mode (SPV –Yes/No): No Key project features Brief project description The Ambala - Chandigarh stretch caters to vehicular traffic between Punjab, Haryana, Himachal Pradesh and New Delhi. The scope of the project included widening of the existing 2-lanes to 4-lanes and improvement, operation and maintenance, rehabilitation and strengthening of the existing road. PPP Model: Build-Operate-Transfer (BOT) Concession period: 20 years Revenue model: The project follows a toll basis model, where the private player will charge toll mutually agreed with NHAI. Risk Allocation Summary Under this project, the private player will be responsible for improvement, operation and maintenance, rehabilitation and strengthening of the existing road. Key Project Outcomes/ Lessons
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Ambala-Chandigarh highway, Punjab & Haryana (2006) The four laning of this road has decreased traffic congestion and provided boost to trade and commerce in the region. In addition, travel time has reduced and safety levels for travellers has enhanced. There is a 12-lane state of the art toll plaza for toll collection.
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Tourism Infrastructure and related facilities
Jal Mahal Tourism Infrastructure Project (JTIP), Jaipur, Rajasthan (2010) Public Sector Entity: Jaipur Municipal Corporation (JMC) Sector: Tourism Project Cost: Rs. 550 crores which includes cleaning the lake, recreating the ecosystem and restoring the dilapidated monument Contracting parties: Infrastructure Company Jal Mahal Resorts, Jaipur Implementation mode (SPV –Yes/No): No Key project features Brief project description The project includes archaeological conservation of Jal Mahal, ecological restoration of the Mansagar lake where the monument is located. In addition, development of tourism infrastructure facilities in and around the lake, on a commercial format is also part of the project. PPP Model: BOT Model Concession period: 99 years Revenue model: The private partner shall responsible for restoration of the assigned area under the contract. In return, it will be authorized to carry out commercial tourism related activities for a period of 99 years against a payment of Rs 2.52 crore per annum to the government. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - Private player with Public player providing support in terms of land and clearances Financial risk - Private Player Operations and Feasibility risk - Private player Key Project Outcomes/ Lessons The project will come up on 432-acre including the lake which is spread across 310-acre. The private player plans to come up with a luxury resort, an amphitheater, crafts markets, food courts, multi cuisine restaurants, museum, convention centre, ethnic village and promenade with Jal Mahal and Man Sagar in the back drop. Apart from these facilities following amenities are also being planned for inclusion in the project: Roof top café cum lounge at Jal Mahal Art gallery cum museum at Jal Mahal Boating in the lake Ethnic and Lake View restaurants Traditional Technology Park Sports and Sailing Club Resort Amusement park Heritage village Light and sound show
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Infrastructure in Social Sector
Total Management of Essential RCH & Primary Health Care, Andhra Pradesh (2006) Public Sector Entity: Ministry of Health and Family Welfare, Government of Karnataka Sector: Social Sector- Health Contracting parties: Karuna Trust (KT), Bangalore supported by Population Foundation of India (PFI), Delhi Implementation mode: An SPV between KT and PFI, Key project features Brief project description Major features of the project were to strengthen existing Government Primary Health Centres (PHCs) to model PHCs. It would optimize utilization of sub-centers under the concerned PHC area for delivering primary Reproductive and Child Health (RCH) & related health care services. This would influence and facilitate change for improved health seeking behavior in communities covered by the Model PHCs. The project's focus areas were the districts with poor socio-demographic indicators, namely - Bagalkot, Bellary, Bidar, Bijapur, Gulbarga and Raichur. PPP Model: Management based contract Concession period: 6 years Revenue model: Since KT is a non-profit NGO, the aim is to deliver quality health services. The government provides KT with funds under various administrative heads (mentioned below) to carry out its operations. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - Government provided PHC premises and, initial equipments and supplies. It also provided 75%- 90% staff salaries. However, staffing and recruitment was carried out by NGO Financial risk - Government provided Rs. 25,000 per annum as contingency and Rs. 75,000 per annum for drugs/ supplies. Operations and Feasibility risk - Private player (in this case NGO) was responsible for ensuring quality of facility being provided along with free health care to all patients. Key Project Outcomes/ Lessons Some of the significant takeaways from this project were the following: Improvement of health outcomes in Karnataka with infant mortality rate touching 19 per 1,000 live births within the state (significantly lower than the national average of 48), and maternal mortality rate has touched 81 (the national average is 254 per 100,000 live births). The model has been replicated in Andhra Pradesh, Odisha, Arunachal Pradesh, Manipur, Maharashtra, Meghalaya, Rajasthan and providing care to over 1 million people The model highlights the capabilities of non-government organisations in managing health centres at primary level, which is crucial in addressing the disease progression
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B. Braun Dialysis Centres, Andhra Pradesh, India (2010) Public Sector Entity: Government of Andhra Pradesh (GoAP) Sector: Social Sector- Health Project Cost: Rs. 4.5 crores as initial investment by private player to set up haemodialysis machines Nature of bidding: Based on competitive bidding Evaluation criteria: Quality based competitive selection process Contracting parties: B. Braun Medical (India) Pvt. Ltd., a subsidiary of B. Braun Melsungen AG, ImplementationGermany mode: Single Private player Key project features Brief project description GoAP has been providing basic medical treatment at no cost to patients living below poverty line through the Aarogyasri Health Insurance Scheme. However, due to limited or no capacity to perform dialysis in state run hospitals it was realized that a significant number of BPL patients were not being provided dialysis services. The project was executed to address this gap in the health care to BPL. PPP Model: BOT based Concession period: 7 years Revenue model: GoAP pays Rs. 1200 per each dialysis out of which Rs.1080 is paid to B. Braun and Rs.120 is paid to the respective hospital/medical college. Under the project the government also mobilizes patents, whereas the government hospitals provide space, uninterrupted power supply, water supply, clinical nephrologists, clinical responsibility for the patients, along with human resource support. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - B. Braun installed the centres with an investment of Rs.4.5 crore Financial risk - Government provided payments for services for each dialysis Operations and Feasibility risk - Since government hospital provides space and basic facilities, it ensures patients with operational feasibility Key Project Outcomes/ Lessons Some of the significant takeaways from this project were the following: Eleven dialysis centres have been set up in teaching hospitals and tertiary care centers in Hyderabad, Tirupati, Kurnool, Kakinada, Visakhapatnam and Guntur, Srikakulam, Anantapur and Vijayawada under this project. At the very inception of this project in 2010, 350 patients were registered and 7500 treatments performed under this project. Owing to its success several state governments are designing similar projects to address gaps in health services by using PPP as a formidable tool
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Power Sector
Solar Power Project, Baramati, Maharastra (2014) Public Sector Entity: Maharastra State Power Generation Company Limited (Mahagenco) Sector: Solar Power Sector Contracting parties: Welspun Energy Private Limited (WEPL) Nature of bidding: Based on competitive bidding Evaluation criteria:Bidder offering highest revenue share Implementation mode : Welspun is the only private partner with Mahagenco as the public player Key project features Brief project description: The project is based on PPP model, with the private partner responsible for part finance, design, engineering, manufacturing, supply, erection, testing and commissioning of solar power plant. The private player will also be responsible for operation and maintenance of this plant for the stipulated period. Any fall in generation will have to be compensated by the selected bidder to the public entity. PPP Model: DBFOT model Concession period: 25 years Revenue model: Welspun Energy will set up this project on a public-private partnership model with Mahagenco. WEPL will invest 60% of project cost and will be entitled to get 62% share in revenue at 19% Capacity Utilization Factor (CUF) annually. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - Private player and Public player providing land for construction Operations risk - Private player in terms of quality of service being provided Financial Risk- Private Player Key Project Outcomes/ Lessons This project will be installed and operationalised in two phases. In first phase, 36 MW solar capacity will be installed on 74 hectares government land already acquired by Mahagenco. Remaining 14 MW capacity of power will be installed after acquisition of balance 29.97 hectares of land.
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Ultra Mega Power Project (UMPP), Mundra (2006) Public Sector Entity: Maharastra Jeevan Pradikaran (MJP) Sector: Power Finance Corporation (PFC) Contracting parties: TATA Power Nature of bidding: Competitive process bidding Evaluation criteria: Based on technical and financial evaluation Implementation mode : Coastal Gujarat Power Limited (CGPL), Tata Power‘s wholly-owned subsidiary, is executing the project with no SPV being formed Key project features Brief project description The Ministry of Power (MoP) identified 16 UMPPs since 2005, out of which Mundra was the first project to be awarded. The project aims to supply power to five states, namely Gujarat and Maharashtra in Western India and Haryana, Rajasthan and Punjab in Northern India, because of severe shortage of electricity. It will provide power at competitive rates and help meet these states growing demand for electricity. PPP Model: BOO Model Concession period: 25 years Revenue model: Under the agreed terms and conditions between PFC and TATA power, the latter through its subsidiary CGPL will charge states for supplied power. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Government‘s responsibility: Provide land, water, coal blocks, environmental clearances and tie-up for power sale Private developer‘s responsibility: Arrange funding, technological tie-ups, place orders for key equipment, execute and operate the project Key Project Outcomes/ Lessons Key aspect of the project are the following: Most energy efficient plant in India with lower Green House Gas (GHS) emissions vis-à-vis existing plants India’s first 4000 MW private power project near Mundra Port, Kutch District of Gujarat India’s first 800 MW unit thermal power plant using supercritical technology Main power generation equipment sourced from Korea and Japan Creation of 5000 construction jobs and 700 operations oriented jobs Once complete, the Mundra project will meet 2% of India’s power needs CGPL has commissioned 800 MW sized Unit 1 and Unit 2. Work on Units 3, 4 and 5 of the project is on track and progressing well.
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e-Governance
MCA21 e-Governance Project (2006) Public Sector Entity: Ministry of Corporate Affairs (MCA), Government of India Sector: E-governance Contracting parties: Tata Consulting Group (TCS) Nature of bidding: Competitive Bidding Evaluation criteria: Based on both financial and technical aspects Implementation mode : With TCS as a single contracting private party Key project features Brief project description Ministry of Corporate Affairs (MCA) is responsible for regulating functioning of corporate sector in India. It overlooks the implementation of Companies Act, 1956, other allied Acts and Rules & Regulations framed in accordance to law. The project provided key stakeholders such as corporate bodies, professionals (Chartered Accountants and Company Secretaries) who are authorized signatories or employees of companies, citizens and investors across the country - with convenient and secure online access to all services provided by MCA. PPP Model: BOOT model Concession period: 6 years Revenue model: According to the agreement between TCS and MCA, the former was remunerated by the ministry based on various services provided. TCS was not authorized to charge users for its services in any format. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - Private player Operations risk - Private player in terms of quality of service being provided Financial Risk- Public Player Key Project Outcomes/ Lessons The project involved digitizing of old records (45 million pages), automating the internal office processes of the Ministry, computerization of the entire payroll and administration functions, training the Ministry staff and the creation of a portal providing 24×7 access to stakeholders. In additions, the project also offered following facilities: Multiple payment options including electronic payments – credit card, internet banking Digital signature-based governance – ensuring validity of documents in court of law Payment of stamp duty electronically through the system through e-Stamp. Unique identification of companies through the Company Identification Number (CIN) Migration of 45 million historical documents into the electronic repository Electronic workflow-driven paperless back office for faster and easier processing Contractual enforcement of service levels, including a system of incentives and penalties as part of the commercial terms.
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Passport Seva Scheme (2008) Public Sector Entity: Ministry of External Affairs (MEA), Government of India Sector: E-governance Contracting parties: Tata Consulting Group (TCS) Nature of bidding: Competitive Bidding Evaluation criteria: Based on both financial and technical aspects Implementation mode: With TCS as a single contracting private partner . Key project features Brief project description Passport Seva scheme is a unique project under the National e-Governance Plan (NeGP). Under this project, the entire process of passport applications was re-engineered and digitalized. One of the key features of the project is the joint management of passport centers by government officials and the private sector, along clearly defined process steps with isolated and secured information flows. At the same time, the project reduced costs by leveraging processing and integration with external stakeholders such as the police and the Indian Post. It was able to achieve flagship status through its sheer scale and subsequent strong media attention. PPP Model: Transaction-based pricing Concession period: 6 years (two-year option for extension, time for implementation) Revenue model: According to the agreement between TCS and MEA, the former was remunerated by the ministry based on various services and transaction carried out. TCS was not authorized to charge users for its services in any format. Risk Allocation Summary Under this project, key risk factors have been allocated in the following manner: Construction/Development risk - Private player Operations risk - Shared between public and private player. Front office is managed by private player including processing of online application, while back office is managed by public player including verification and delivery of final letter to applicant Financial Risk- Public Player Key Project Outcomes/ Lessons The project introduced digital photographs and signatures as part of passport applications reducing fraud and time delays caused by intermediaries. In addition, use of biometrics has ensured accountability and enhanced process security. It has also enabled applicants to securely log in from any device, allowing them to check the status of their applications on a real time basis. This has drastically reduced time duration to handle an application, and has helped the government to manage its resources. some additional features of the project include: 77 passport centers rolled out 90 million records migrated from legacy systems More than 13 million passports issued to date 40,000+ applicants handled every day 19,000+ calls daily 17 languages supported
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Appendix 6. Select profiles of PPP projects in West Bengal
Following is the list of select PPP projects in West Bengal followed by respective profiles.
Urban Design Engineering Finance Construction and Operation and Maintenance of Infrastructure Elevated Road between Jhinjirabazar and Batanagar on Budge Budge Trunk Road, Kolkata (2013) Health Care Operation of Bhutni Deara PHC at Manikchak, Malda (2014) Establishment of Medical College and Hospital, Bhangore, Dhubulia and Coochbehar (2014) Tourism Development of Kolkata Giant Wheel at Millennium Park, Kolkata (2014) Infrastructure
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Urban Infrastructure
Design Engineering Finance Construction and Operation and Maintenance of Elevated Road between Jhinjirabazar and Batanagar on Budge Budge Trunk Road, Kolkata (2013) Location (State/District/City): Kolkata Sector: Urban Infrastructure- Transport Project Cost (Approximate): Rs 259.46 crore GoI grant under JNNURM (33.45%)- Rs 86.8 crore Contingency liability of GoWB only in case of non-receipt of the full GoI share under non- compliance of terms and conditions Capital investment of the private partner towards construction (66.55%)- Rs 172.66 crore
Contracting Parties: Riverbank Holding (p)Ltd Evaluation criteria , Maximum revenues) etc): Bidder offering the highest annual concession feeImplementation mode (SPV –Yes/No) : No Key project features Brief project description The project aims at construction and extending urban infrastructure in Kolkata at Budge Budge Trunk Road. PPP model: DBFOT Concession period: 32 years Revenue model: The financial arrangement is as follows: A one-time annual development fee will be paid by the private player to the government The private partner to contribute and spend at least 80% of the total equity required to be provided as part of the total project cost. The private partner would be entitled to the following: o Revenue from user charge levied in the form of toll o Revenue from advertisement along elevated corridor
Risk Allocation Summary Risk involved in the project are as follows: Development/Construction Risk: Private Player, Public player is supporting funding through JnNURM Technical Risk: Private player O&M Risk: Private player Key Project Outcomes This project involves construction of a 7.4 km-long 2-laned elevated road with a width of 7.5 m and 0.5 m for crash barrier over the existing Budge Budge Trunk Road Widening of the existing 2-laned road by addition of 2-lane at-grade 5.5m road on both sides of the elevated fly-over Construction of a 1.5 m footpath at the side of at-grade road and construction of a toll plaza
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Health Care
Operation of Bhutni Deara PHC at Manikchak, Malda (2014) Location (State/District/City): Malda Sector: Health Nature of bidding: Competitive Bidding Evaluation criteria : Lowest grant bid Implementation mode (SPV –Yes/No). No Key project features Brief project description: This project involves provision of full-scale health services at the PHC infrastructure existent at Bhutni Deara, an isolated area with no road communication and with a catchment area with around 75,000 people. PPP model: O&M (Annuity model) Concession period: 5 Years (renewal) Revenue model Given that the government PHC is already in existence, the project would not entail any further capital investment. However, GoWB would provide physical infrastructure including machinery and equipment at its own cost for use by the private partner and a yearly grant, 90% of which would be paid up front. The private partner would pay a security deposit, the rate of which would be determined by the Administrative Department. Risk Allocation Summary Risk involved in the project are as follows: Development/Construction Risk: Public player is providing infrastructure including machinery and equipments Financial Risk: Public player will provide mutually agreed grant to the private player on an annual basis O&M Risk: Private player Key Project Outcomes/Benefits Key outputs are expected to be Providing emergency health service on a 24*7 basis, OPD service on 6 days/ week, indoor patient service with a minimum of 6-bed strength and facilities for 24-hour delivery, child care, medical investigation and transportation of patients to the nearest referral hospital at Manikchak RH in line with standard operating procedures Providing requisite number of qualified medical, technical and other competent personnel for service delivery Providing medicines, consumables, reagents, diets etc Operating and maintaining the healthcare facility and infrastructure Providing bio-medical waste management service
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Establishment of Medical College and Hospital, Bhangore, Dhubulia and Coochbehar Location(2014) : South 24 Parganas, Nadia and Coochbehar Sector: Health Contracting partners: (i) Techno India for Medical College at Bhangore (ii) Multiple Education & Manpower Development Trust- Camellia Group of Companies for Medical Colleges at Dhubulia and Coochbehar Evaluation criteria Maximum revenues) etc): Bidder paying the highest concession amount Implementation mode (SPV –Yes/No). name of the SPV: No Key project features Brief project description This project involves building and operating medical colleges and hospitals in three locations for undergraduate medical education and indoor and outdoor healthcare treatment to patients. PPP model: DBOFT model Concession period: 3 years Revenue model: The concession to be given to the private partners include the following: 20 acre of government land free of cost Private parties free to charge fees for MBBS seats other than those offered to the government for admission through entrance examination, at the rate fixed by them without government intervention 75% of the revenue earned through indoor medical treatment Risk Allocation Summary Risk involved in the project are as follows: Development/Construction Risk: Public player is providing existing infrastructure while improvements/additions have to be made by private player Financial Risk: Private player will be responsible for maintaining financial feasibility of the facility, post allocations of seats in medical colleges to the government and medical facilities to certain sections of the society. O&M Risk: Private player Key Project Outcomes Value for Money (VfM) assessment for the concession given by the government includes the following criteria: A percentage of MBBS seats would be offered by the private party to the government for admission through entrance examination o Bhangore- 72% MBBS seats offered to the government for admission through Joint Entrance Examination o Dhubulia- 70% MBBS seats offered to the government for admission through Joint Entrance Examination o Coochbehar- 54% MBBS seats offered to the government for admission through Joint Entrance Examination The private party would pay the concession fee to the government in the form of 25% of revenue earned through indoor medical treatment or 25% of total hospital beds as reserved beds for poor patients for indoor treatment free of cost
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Tourism Infrastructure
Development of Kolkata Giant Wheel at Millennium Park, Kolkata (2014) Public Sector entity: Kolkata Municipal Corporation Location (State/District/City): Kolkata Sector: Tourism Project Cost : Rs 300.80 crore Contracting parties: Consortium of Sun Consulting & Investments Evaluation criteria (QCBS, Least cost, Maximum revenues) etc): Lowest grant bid (of Rs 81.21 crore, 27% of project cost) Implementation mode (SPV –Yes/No). No Key project features Brief project description: This project involves installation of a ferris wheel with a minimum height of 100m and diameter of 90m and development of amenities for tourism purposes on a 2-acre plot leased out by the Kolkata Port Trust (KoPT) along the Hooghly River. and operation of the wheel PPP model: DBFOT Concession period: 30 years Revenue model: The financial arrangement is as follows: The private concessionaire would pay: o An upfront fee of Rs 15.52 crore to the KoPT o An annual concession fee of Rs 1 lakh in the first accounting year, subject to an escalation at the rate of 5% per annum over the last paid concession fee o Occupier’s share of tax and cess to the concessioning authority o 7% of the annual gross revenue to the concessioning authority The state government to pay the grant quoted by the selected bidder as a one-time concession Risk Allocation Summary Risk has been allocated in the following manner: Development/Construction Risk: Private Player, Public player is supporting funding through VGF Technical Risk: Private player O&M Risk: Private player Key Project Outcomes (key successes/failures if any) As part of the river-front beautification project, the giant wheel would be a tourist attraction, the first of its kind in size and magnitude in India , with an expected capacity of 6400 footfall per day at 100% capacity
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The primary purpose of this Final Report is to present compliance status of second tranche conditions of the West Bengal Development Finance Program– I (Contract No. 104709-S52050) and document the progress made by the Government of West Bengal (GoWB) in achieving the same since the Inception Phase.
The contents of this report are based on the facts, assumptions and representations stated herein. Our assessment and opinions are based on the facts and circumstances provided/collected during our meetings with the officials of various concerned departments/ agencies of GoWB in the state. If any of these facts, assumptions or representations is not entirely complete or accurate, the conclusions drawn therein could undergo material change and the incompleteness or inaccuracy could cause us to change our opinions. The assertions and conclusions are based on the information available at the time of writing this report and PwC will not be responsible to rework any such assertion or conclusion if new or updated information is made available. It may be noted that the contents of this report are not in the nature of an Assurance service.
PwC disclaims all liability to any third party who may place reliance on this report and therefore does not assume responsibility for any loss or damage suffered by any such third party in reliance thereon. This report is provided on the basis that it is for the use of Finance Department, GoWB, and ADB only and that it will not be copied or disclosed to any third party or otherwise quoted or referred to, in whole or in part, without PwC’s prior written consent. Furthermore, PwC will not be bound to discuss, explain or reply to queries raised by any agency other than the intended recipients of this report.
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