After the fanfare surrounding the maiden issue of municipal bonds by the Pune Municipal Corporation (PMC), which was touted as the way forward for India’s cities, has come an anti-climax: the authorities putting on hold the project for which the Rs 200 crore was raised.
After the fanfare surrounding the maiden issue of municipal bonds by the Pune Municipal Corporation (PMC), which was touted as the way forward for India’s cities, has come an anti-climax: the authorities putting on hold the project for which the Rs 200 crore was raised. The development highlights the need for adequate preparedness before funds are raised through the route. In June this year, the PMC had floated municipal bonds to raise the first tranche of Rs 200 crore for a 24X7 water supply project in the city. The project tenders have since been scrapped, with allegations being levelled against the tendering process. There is another dimension to the issue as the civic administration had envisaged laying fibre optics through ducts along with the new water pipeline network. This has added to the costs, led to a turf war between agencies and means further delay is inevitable.
As per the plan, PMC has to mobilise Rs 2,264 crore through munibonds in five years. The water supply project is estimated to cost `2,818 crore. The Pune Muni Bonds issue was made at a rate of 7.59%. Since the PMC’s revenues go into an escrow account, the debt servicing schedule would not be impacted because of the delay. But it may not be good news for Pune’s taxpayers. For, revenues that should have been used to fund infrastructure and civic services would now service debt raised for a delayed project. To cut losses, the PMC has parked the money raised through bonds in a bank fixed deposit. While scrapping the tender on August 3, PMC Commissioner Kunal Kumar had said re-tendering would be done in a month. Kumar did not respond to queries on when the fresh tendering process could be completed and the impact the delay would have on the remaining money being raised.
Chetan Tupe, head of the opposition Nationalist Congress Party in the civic body, says the tendering process was not conducted in a transparent manner. Questioning the need to float bonds when the work order for the project was not ready, Tupe alleges it was done to please Prime Minister Narendra Modi who has been pushing urban projects. “Now we are servicing the bond at a rate of 7.59%, as against our bank deposit earning 5-6%,” he says, claiming the PMC was quite capable of funding the project through its own budget.
Sunil Kumar Sinha, principal economist and director, public finance, India Ratings and Research, is more positive on the matter. With fund-raising of this kind being a novel thing in India, teething problems are bound to arise, he reasons. “It can be seen as a part of the learning process.” In fact, by entering the market in June this year, the PMC was able to raise funds at lower rates, which have gone up since, he points out.
He does not anticipate any problem in the bond being serviced as PMC is a cash-rich organisation. However, the PMC would face an impact and a re-rating if the project got dragged endlessly. Civic bodies need to be extremely transparent, sure of processes and have checks and balances in place while opting for bond issuances, especially since unlike central and state governments, it is a new domain for them, Sinha says. “With public projects being far more vulnerable than private ones, other cities need to learn from Pune’s maiden experience and not reinvent the wheel,” he sums up.