Financing, Structure of the SRFDCL and Development Management
 

The SRFD Project
The SRFD Project is a more complex project than most similar sized public works projects. In addition to embankment and reclamation works, construction of major level?one roads, and installation of infrastructure (water, sewer, storm drainage) networks it also includes resettlement and rehabilitation works, the construction of relatively sophisticated promenades and gardens, maintenance of public spaces during the life of the project, development of urban design guidelines, strategic planning, reconciliation of property rights, management of unclear legal issues and, promotion and marketing of a portion of the reclaimed land. The project has been planned as a self?financing project. Revenues from the sale of a portion of the reclaimed land at current prices are estimated at approximately Rs 458.54 Crores. This is roughly equivalent to the total cost of the project after the estimated base costs of Rs 360.94 Crores are spread over the projected 5 year construction period, adjusted for inflation and i nterest costs are added. In short, the SRFD Project is a relatively large infrastructure, public amenities and land development project which is dependent on the sale of land to finance the project. Three issues are important to the successful implementation the project: source of funds, structure of the SRFDCL and the establishment of an adequate mechanism for managing the implementation of the project.

Sources of Funds
  • Equity Capital - The AMC has committed to capitalize the SRFDCL. In addition, title to the land, which is to be created as a result of the project, must be vested in the SRDFCL.
  • Loan Funds - Due to the timing of expenditures (over a 5 year period) and revenues (over a 10 to 12 year period), it will be necessary to borrow funds to cover the difference between the equity capital available and the cash flow requirements of the project. Every available alternative should be explored including commercial bank loans, special infrastructure loan funds and direct borrowing from the capital market through a special bond issue.
  • Proceeds from Land Sales - If properly managed, the proceeds from the sale of land created by the project should cover the full cost of the project including the cost of interest paid on construction period loans and repayment of equity investments.
The Structure of the SRFDCL
The SRFDCL was established by the AMC as a distinct company registered under the Section 149 (3) of the Companies Act 1956. The AMC's intention was to create an autonomous entity (Special Purpose Vehicle), which can speedily and effectively implement the SRFD proposals. It is proposed that the structure of the SRFDCL should be reviewed (and modified if necessary) to ensure that it can effectively implement the proposals. Two issues are critical. The SRFDCL should be perceived as an autonomous company, which, beyond a point, is independent of changes in the political situation and, the SRFDCL should be able to develop an effective decision making system.

Options for Managing Implementation
The SRFD Project has a relatively short implementation period and demands a wide range of technical, financial and management skills to be successful (see the table below for a detailed list of conceptual planning, strategizing and coordination tasks required for implementing the project). For implementing the project, the SRFDCL can:
  1. Hire in-house staff,
  2. Enter into a partnership with a real-estate development firm or,
  3. Contract out for development management services.