Special Purpose Vehicle In Smart Cities

Special Purpose Vehicle also known as Special Purpose Entity (SPE) is a separate legal entity which is created by the parent company. SPV is separate from the parent company as it has its own assets and liabilities and also having its own legal status.

SPV is created for a special object to isolate the financial risk. It secures the parent company in case the parent company is bankrupt. SPV is mostly created so that the parent company could take risky projects.

In other case SPV is created for securitization, Asset transfer & property sale. As the SPV is a separate legal entity its financial will not appear on the balance sheet of the parent company instead its assets and liability will be recorded in its own balance sheet therefore, it is essential for the investor to check both the balance sheet before investing.

The SPV must have promoters or sponsors same as the company and these sponsoring companies makes difference in the assets or activity of SPV. As these assets or activities are different from the parent company hence the performance of new entity will not be affected by the ups and downs of the parent company and because of which the SPV will be at less risk and it will be +beneficial for the lenders.

There is no specific definition of smart city, it varies from city to city and country to country and it only depends on the level of development and the willingness to change and reform.

Smart City contains a wish list of infrastructure and services that describes his or her level of aspiration. To provide for the aspirations and needs of the citizens, urban planners ideally aim at developing the entire urban eco-system, which is represented by the four pillars of comprehensive development- institutional, physical, social and economic infrastructure.

The government has a mission known as smart cities mission, the main object of this mission is to provide good infrastructure, quality of life and clean and sustainable environment

SMART CITIES MISSION

The Ministry of Housing and urban affair have a mission for smart cities and the implementation of the mission at the city level will be done by SPV which is created for this purpose only. The purpose of the SPV is to plan appraise, approve, release funds, implement, manage, operate, monitor and evaluate the Smart City development projects. The government has decided that each city will have a SPV which will be headed by full time CEO and the nominees of Central Government, State Government and ULB on its Board.

STAGE I- ESTABLISHMENT

The SPV shall be incorporated under the companies Act 2013, wherein the State/UT and Urban Local Bodies ( ULB’s) shall be the promoters having 50:50 equity shareholding. The private sector or financial institutions could be considered for taking equity stake in the SPV, provided the shareholding pattern of 50:50 of the State/UT and the ULB is maintained and the State/UT and the ULB together have majority shareholding and control of the SPV.

Funds shall be provided by the government in form of tied grant and kept in a special grant fund and will only be use for the purpose for which grant has been given.

To ensure a minimum capital base for the SPV, the paid up capital of the SPV should be such that the ULB’s share is at least equal to Rs.100 crore with an option to increase it to the full amount of the first installment of Funds provided by GoI (Rs.194 crore). With a matching equity contribution by State/ULB, the initial paid up capital of the SPV will thus be Rs. 200 crore (Rs. 100 crore of GoI contribution and Rs. 100 crore of State/UT share). Since the initial GoI contribution is Rs.194 crore, along with the matching contribution of the State Government, the initial paid up capital can go up to Rs.384 crore at the option of the SPV. The paid up capital may be enhanced in the subsequent years as per project requirements, with the provision mentioned above ensuring that ULB is enabled to match its shareholding in the SPV with that of the State/UT

STAGE II- IMPLEMENTATION

After selecting the cities which comes under this mission next stage is for implementation of SPV. The SPV will be given complete flexibility to implement and manage the smart cities. For implementation, SPV can appoint Project Management Consultants (PMC) for designing, developing, managing and implementing area-based projects.

Assistance can be taken from the empanelled consulting firm and the list of these firms is prepared by the MoUD and other handholding agencies. The procedure prescribed by the state/ULB financial to be followed for procurement of goods and services. Model frameworks as developed by MoUD may also be used for Smart City projects.

Duties of Central/State/ Urban Local Bodies (ULB)

That the State/ULB’s will make a check that sufficient revenue is been provided to the SPV so that it is self-sustainable and have credit worth and thereafter can raise additional resources from the market.

The contribution made by the government for smart cities will be for creating infrastructure having public benefits.

The State Government and the ULB will determine the paid up capital requirements of the SPV depending upon the size of the business.

SPV Board

The Chairperson of the SPV will be the Divisional Commissioner/collector/ Municipal Commissioner/ Chief Executive of the Urban Development Authority as decided by the State Government. The representative of the Central Government will be a Director on the Board of the SPV and will be appointed by the MoUD. CEO of the SPV will be appointed only after the approval of MoUD.

The Independent Directors will be selected from the data bank(s) maintained by the Ministry of Corporate Affairs and preference will be given to those who have served as independent directors in the Board of Companies fulfilling Clause 49 of the listing agreement of Securities and Exchange Board of India (SEBI).

SPV in Smart Cities

List of some of the smart cities:

KERALA

In Kerala Smart city Thiruvananthapuram Limited was incorporated on 13 August 2017 under the companies Act, 2013. The mission was implemented with the authorized capital of 100 cr and paid up capital of 1 cr.

As per the guidelines the government has made list of Board of Directors-

There is Chief Secretary, Secretariat, Kerala & Chairman – SCTL, Mayor, Municipal Corporation, Chief Executive Municipal Corporation, Principal Secretary LSGD- Urban, District Collector Secretary, Finance (Expenditure), Secretariat, Managing Director Kerala Water Authority, Additional Secretary Local Self Govt Department, Secretary Municipal Corporation, Secretary Vigilance, Secretary TRIDA& Secretary Public Works Departments.

Karnataka

The government of India has allotted 7 cities in Karnataka as smart cities

Belagavi January 2016
Davanagere January 2016
Hubballi-Dharwad October 2016
Mangaluru October 2016
Shivamogga October 2016
Tumkuru October 2016
Bangalore June 2017

The project proposed by SCM consist of 2 major components i.e. Area based development and Pan city development.

In Area based development the government has used 3 strategies

Retrofitting which means development of the existing area greater than 500 acres.

Re-development : Replace existing built environment in an area of more than 50 acres and enable co-creation of a new layout, especially enhanced infrastructure, mixed land use and increased density.

Greenfield: Develop a previously vacant area of more than 250 acres using innovative planning, plan financing and plan implementation tools with provision for affordable housing, especially for the poor.

The government of Karnataka has 423 projects and the costing of those projects is of Rs. 6,363 crore. Out of the 432 projects 67 projects are completed and 204 are going on, 77 tendered, 63 are at detailed projects report (DPR) stage, 12 at concept stage.

According to the government following are the report as per each city[1]:

Belgavi Smart City Ltd: Total number of projects is 81 at a cost of Rs 885.45 crore. Out of which, 14 were completed. 45 are ongoing. 12 were tendered. Eight are in detailed project report (DPR) stage. Two are concept stage.
Davanagere Smart City Ltd: Total number of projects is 69 at a cost of Rs 903.85 crore. Out of which 12 were completed. 43 are ongoing. Eight were tendered. Six are at DPR stage.

Hubbali Dharwad Smart City Ltd: Total number of projects is 53 at a cost of Rs 922.63 crore. Six were completed. 23 are ongoing. 16 were tendered. Eight are at DPR stage

Mangaluru Smart City Ltd: Total number of projects is 46 at a cost of Rs 894.83 crore. 17 are ongoing. Five were tendered. 20 are at DPR stage. Four are at concept stage.

Shivamogga Smart City Ltd: Total number of projects is 52 at a cost of Rs 876.71 crore. Two were completed. 27 are ongoing. 11 were tendered. Six are at DPR stage. Six are at concept stage.

Tumakuru Smart City Ltd: Total number of projects is 115 at a cost of Rs 952.08 crore. 33 were completed. 47 are ongoing. 24 were tendered. 11 are at DPR stage.

Bengaluru Smart City Ltd: Total number of projects is 7 at a cost of Rs 927.51 crore. Two are ongoing. One was tendered. Four are at DPR stage.

Bengaluru Smart City Limited was incorporated on 3rd January 2018 and was classified as non-government company. The company is having authorized share capital of Rs. Rs. 2,000,000,000 and its paid up capital is Rs. 2,000,000,000

UTTARAKHAND

For Dehradun smart city project, Dehradun Smart city limited (DSCL) has been incorporated as a special purpose vehicle under the Indian companies Act 2013, The DSCL receive funds from government of India and government of Uttarakhand.

MAHARASHTRA

Pune Smart City Development Corporation Limited (PSCDCL)” was incorporated on 23rd March 2016 as a Special Purpose Vehicle (SPV) under Smart City Mission for implementation of Smart City Projects in Pune.

The future plan is based on econometric analysis and financial modeling, Pune municipal corporation (PMC) will require around 2500 cr per year up to 2030 to completely overhaul and fix its infrastructure.

Beside long-term goals the city has 5 years plan in which they want to fix the infrastructure as much as it is possible.

The funding has also been decided and the PSCDCL will require Rs. 2,500 cr of opex + capex every year for next 15 years .

PMC has created a detailed roadmap consisting of current capex plan (1400 cr per year), land monetization (1250-1450 cr per year), other government missions (500-700 cr per year), debt and PPP (1000-1200 cr per year)

The SPV (PSCDCL) will have CEO who will be the convener of the smart city Advisory forum and both the CEO and the HOD’s will have power to handle implementation

ODISHA

The government of Odisha constituted a Special Purpose Vehicle (SPV) company named “Bhubaneswar Smart City Limited” for implementation of Smart City Proposal of Bhubaneswar selected under Smart City Mission programme.

Bhubaneswar’s Strategic Plan is built on 5 strategic pillars- Responsive Governance, Transit Oriented Development (TOD) Based Planning and Design, Fiscal Sustainability, Infrastructure and Socio-Economic Development.

The SPV functions under the directions of a Board having 13 directors from Government of Odisha along with 5 independent directors out of which 7 directors are women. The SPV is further advised by a City Level Advisory Forum headed by the Mayor of Bhubaneswar and having other members from city leaders i.e. members of Parliament, Members of Legislative Assembly, youth representatives, resident welfare housing association, etc.

Author: Aishani Singh, Litigation Associate at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at aishani@khuranaandkhurana.com.

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