Presentation to APIIC on Business Model by 8CuFyj

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									 Government of Andhra Pradesh

  Integrated Special Economic Zone


Presentation on role options for GoAP

           January 25, 2001




                  1
      Agenda



 SEZ Model – Government’s perspective

 International examples of development models and
  government intervention

 Role options for GoAP

 Quantifying GoAP support

 Next steps / imperatives


                             2
     SEZ – a “bundle” of Multi-service concessions


                              Land, land development



                  Land bank                         Internal core infrastructure




                                                   Roads,           Power, water,
Industrial      Residential    Commercial
                                                  Social infra.    telecom, utilities


               Access infrastructure – port, airport, roads, railways

             “Plug-and-Play” facilities – water, power, telecom, utilities


 GoAP can play an enabling role across each of these “bundles”

                                         3
         Governments have assumed different roles …

 Governments have intervened through a combination of fund based and non-
  fund based mechanisms to develop such zones

 Governments have offered direct fund based support in developing land,
  connectivity infrastructure and specific infrastructure components of the zones

 Non-fund based support includes “bankability enhancers” such as revenue
  support guarantees, securitisation support and exchange rate protection

 Governments have structured private sector participation through
  infrastructure concessions, real estate, residential/commercial developments

 A key non-fund based intervention has been through an enabling policy

Governments have “shared” risks in developing such zones. GoAP will also have
            to share specific risks to attract developers for the SEZ

                                       4
        Some of the international examples for today’s
        discussion are …



       China          : Suzhou, Zhuhai, Pudong, Shenzhen

       Philippines     : CIP, Subic Bay, Clarke

       Thailand        : TS21

       Indonesia       : Batam




We have examined the development models and the role played by governments
                    in successfully developing such zones

                                    5
    Examples of development strategy - China


 “Seven connections and one levelling” provided by government
     Levelled land
     Power, water, Telecom, Sewerage, Rain water drainage, Road, Gas
 “Rolling over” model
     Developing plots and using the proceeds to develop infrastructure
 Facilitating commercialisation of infrastructure i.e.. concessioning out specific
   components to make them “self financing” and “bankable”
 Government funding support (5% to 15% of SEZ development cost)
 Preferential policies and incentives
 Flexible labour laws
 Devolution of economic decision making authority


                                      6
       Examples of development strategy – China …

      Suzhou Industrial Park (SIP), China (800 Ha)

Role of government                      Role of private sector
   Bulk power from provincial             Land development expenses
    utility
                                           Initial power (2 X 20 MW DG)
   Bulk water by provincial
    authority                              Internal power distribution,
                                            steam, LPG supply
   External connectivity, access
    roads, expressway and                  Developing and maintaining
    telecom                                 drainage and sewerage system

   These works have been                  Developing /concessioning
    undertaken by various                   industrial, residential,
    government agencies                     commercial plots

                                           Social infrastructure

                                    7
        Examples of development strategy - China

       Zhuhai SEZ, China (121 Ha)

Role of government                          Role of private sector
   Utilities provided by local                Port and 2 industrial parks
    municipal committee                         developed by Gladhover- an
                                                investor
   Initial residential & commercial
    development and services incurred          Land reclamation and industrial
    by Zhuhai Development Company               park developer by Everbright - an
                                                investor
   Government helped develop
    highways linking the SEZ –
    funding, revenue support
    guarantee, foreign exchange
    guarantee, securitisation support
    through special purpose vehicles
    (CITIC, GITIC, Zhuhai Highway
    Company)

                                        8
       Examples of development strategy - Philippines

    Subic Bay Special Economic and Free Port Zone, Philippines (16,200 Ha)

Role of government                      Role of private sector
   Subic Bay Development and              Water Supply – Biwater
    Management Corporation                  International Limited
    (SBDMC) formed as a JV
    among Subic Bay Metropolitan           Electric Power – Enron Subic
    Authority (SBMA), China                 Power Corporation
    Development Corporation (a
    private Taiwanese company)             Telecommunications – Subic
    and century Development                 Telecom
    Corporation for a 12 Ha Subic
    Bay Taiwanese Industrial Park


                                    9
       Examples of development strategy - Philippines

      Clarke Special Economic Zone, Philippines (28,041 Ha)

Role of government                       Role of private sector
   Land development by Clarke              35 MLD, 50 year Water
    Development Corporation                  concession – Clarke Water &
    (CDC)                                    Sewerage Co. Inc (a JV among
   Basic infrastructure backbone            CDC, Kemaman Terminal One
   Social infrastructure base               Sdn Bhd. (Malaysia) and
                                             Ciriaco Corp. (Philippines)




                                    10
       Examples of development strategy - Philippines

      Carmelray Industrial Park II, Philippines (145 Ha)

Role of government                          Role of private sector
   Land availability                          Captive power generated
                                                through an MoU with a private
   Policy & procedural facilitation
                                                investor
                                               Land development expenses
                                                incurred by developer
                                                consortium
                                               Ready Built Factories (RBF)
                                                offered initially by the
                                                developer




                                       11
       Examples of development strategy - Indonesia

       Batam Special Bonded Zone (715 sq Km)

Role of government                       Role of private sector
   88 MW electricity supplied by           Telecom services provided by 4
    state power utility                      concessionaires (Singapore
                                             Telecom, Perumtel (Indonesia)
   Government (BIDA) along with             and Telecom Australia
    international companies has
    created drinking water
    infrastructure for the zone

   Government (BIDA)
    responsible for sea access
    including ferry terminals

                                    12
        Examples of development strategy - Thailand

        Thailand Singapore 21 (TS 21) (1546 Ha)

Role of government                             Role of private sector
   Government (IEAT) guarantees                  Development, marketing, operation
    infrastructure improvements through            and maintenance of the park
    a “Sinking Fund”                              Sub-concessioning specific
                                                   components
   IEAT/Government mediation in
    formalising contracts between
    developers and state run utility
    agencies for assured supply and
    maintenance of utility supplies

   Government guaranteed protection on
    rights and benefits, including
    assurance on the maintenance and up-
    keep of basic utilities and facilities

                                          13
Other forms of intervention by governments


              “Free Trade Zones Establishment and
                Development Fund”

                 Mobilised through fees from operating permits
 Turkey
                  and licenses
                 To establish, develop and maintain FTZs
                 Construction of social infrastructure




Mauritius                    EPZ Labour Welfare Fund




                        14
        Examples of government investments …

 Over US$ 2.7 billion investment by government for capital
  construction in Shenzhen SEZ (327 Sq Km) till 1993

 “Pudong Bonds” by Shanghai Municipality for developing Pudong
  New Area (350 Sq Km)

 20 year plan of Zhuhai Municipality to spend Rmb 60 billion to
  develop Zhuhai SEZ (121 Sq Km)

 Investment of fixed assets of Rmb 8.752 billion by Xiamen Municipal
  Government to develop Xiamen SEZ (131 Sq Km)


  Clearly, “infrastructure led development” has been the underlying theme in
  developing these zones and governments have taken the lead by investing in
                                    infrastructure
                                    15
     To summarise, governments have played different
     roles as follows …

                                       Developing land, connectivity
                     Fund based        infrastructure and specific infrastructure
                                       components of the zones
Government
                                       “Bankability enhancers” such as
                     Non – Fund        revenue support guarantees,
                       based           securitisation support and exchange
                                       rate protection; enabling policies




                                       Infrastructure concessions, real estate
Private sector                         and residential / commercial
                                       developments


          … sharing risks and rewards with the private sector
                                  16
         And governments’ efforts have yielded significant
         results …

 Contribution to GDP

 Increase in industrial output

 Exports and international trade

 Employment generation

 Foreign exchange earnings

 Direct and indirect economic multiplier effect

 International competitiveness




                                       17
                                           PPP Options – Multi-service concessions …

                                       HIGH                                  Structuring involvement of other key
Degree of investment, risk sharing




                                                                             stakeholders e.g. tenants industries
 and ownership by private sector




                                       LOW

                                                 Govt. ownership        JV         BOT/BOOT            BOO

                                                                                GoAP
                                                                             Intervention          Policy support,
                                     Entirely fund based intervention                           external infrastructure
                                                                                               non-fund based support

                                                                             18
            Key considerations in evaluating role options

     Scope/possibility of concessioning out specific components on “user
      pays” basis or through annual revenue charges

     Acceptability and attractiveness to potential stakeholders - co-developers,
      lenders, investors

     Funds to be infused by GoAP/GoAP

     Any contingent liability on GoAP/GoAP

     Lock-in period of investment for GoAP



Finally, GoAP’s intervention has to be in a manner as to enhance the attractiveness and
                             bankability for private developers

                                          19
   Role options for GoAP

                                           Core         External access /
                   Land & Land
                                      infrastructure      connectivity
                   development
                                      within the zone    infrastructure




 Fund based




Non-fund based



Policy & other
interventions



  …across different components and of various types will have to be
       examined to make the proposition attractive to investors

                                 20
       Role options for GoAP …

                                             Core          External access /
                     Land & Land
                                        infrastructure       connectivity
                     development
                                        within the zone     infrastructure


                 Land for equity        Fund core          Develop all
                                        infrastructure     critical access /
 Fund based
                                        components         “plug-in”
                                                           infrastructure
                    Land acquisition      Third party       Third party
                    Clearances             Concessions        Concessions
Non-fund based
                    Approvals             “Bankability      “Bankability
                                            enhancers”         enhancers”


Policy & other   As per the current and proposed SEZ Policy of
interventions    Government of India


     …across different components and of various types will have to be
          examined to make the proposition attractive to investors

                                            21
       Role options for GoAP …

                                             Core          External access /
                     Land & Land
                                        infrastructure       connectivity
                     development
                                        within the zone     infrastructure


                 Land for equity        Fund core          Develop all
                                        infrastructure     critical access /
 Fund based
                                        components         “plug-in”
                                                           infrastructure
                    Land acquisition      Third party       Third party
                    Clearances             Concessions        Concessions
Non-fund based
                    Approvals             “Bankability      “Bankability
                                            enhancers”         enhancers”


Policy & other   As per the current and proposed SEZ Policy of
interventions    Government of India


     …across different components and of various types will have to be
          examined to make the proposition attractive to investors

                                            22
  Role options for GoAP …


                         Undertake specific components of the SEZ e.g.
                          Power, water transmission

                         Provide soft loans, subordinate debt, raise
                          project specific bonds for funding
                          infrastructure development
Development
                         Set up social infrastructure and amenities -
risk mitigation
                          ‘non-paying’ components

                         Would reduce development cost and
                          development risk for promoters

                         Could also demonstrate government
                          commitment to the project


                  …Jebel Ali, SAIF, Suzhou, CIP, Batam
                                  23
  Role options for GoAP …



                          Time-bound completion of all critical
                           access and connectivity infrastructure
                           leading up to the zone – power, roads,
                           railways, water transmission, gas
                           pipelines, telecom
Development
risk mitigation           Can significantly reduce the
                           development risks to private investors

                          The underlying logic - Developers
                           should not be burdened with with the
                           risks of external connectivity



            …Suzhou, Shenzhen, Batam, Zhuhai, Kulim
                              24
   Role options for GoAP …


                           “Take-or-Pay” guarantee for utilities
                            such as power e.g.. guaranteed off-take
                            of any surplus power by APTRANSCO
                            in the initial years

Partial demand             “Wheeling & banking” arrangement for
 risk mitigation,           surplus power with APTRANSCO /
especially in the           APDISCO
   initial years
                           “Take-or-pay” arrangement for water
                            (VCMC) and other such utilities
                            produced within the zone

                           Permit third party sale (outside the
                            zone) of surplus power, water and such
                            services without any additional duties
          …TS21, Batam, Shenzhen, Zhuhai,

                              25
     Role options for GoAP …

                              Partial revenue shortfall support

                              State government guarantee for “take-
                               or-pay” commitments

                              Exchange rate protection
      Credit                  Government guarantee for debt
   enhancement                 repayment
    measures
                              “Securitisation” of future receivables
                               from specific projects within the zone.
                               Repayment from state sales tax / stamp
                               duty receipts

                              Creating an SEZ Fund through cess or
                               other such levy for contingency and
                               credit enhancement of specific projects
…Turkey, Mauritius, Suzhou     within the SEZ
                                 26
  Role options for GoAP …




                                      Time bound “parallel
                                       concessioning” of critical
                                       external infrastructure
                                       projects
Development
risk mitigation                       Provide credit enhancement
                                       support necessary to help
                                       bankability of these projects




                  …Suzhou, Shenzhen, Zhuhai, Kulim

                                27
 Role options for GoAP - Recap

                                              Core          External access /
                      Land & Land
                                         infrastructure       connectivity
                      development
                                         within the zone     infrastructure


                  Land for equity        Fund core          Develop all
                                         infrastructure     critical access /
 Fund based
                                         components         “plug-in”
                                                            infrastructure
                     Land acquisition      Third party       Third party
                     Clearances             Concessions        Concessions
Non-fund based
                     Approvals             “Bankability      “Bankability
                                             enhancers”         enhancers”


Policy & other    As per the current and proposed SEZ Policy of
interventions     Government of India


…across different components and of various types will have to be
     examined to make the proposition attractive to investors

                                    28

								
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