Document of

The World Bank

Report No: 82677-IN

RESTRUCTURING PAPER

ON A

PROPOSAL TO RESTRUCTURE

THE LOAN TO THE

INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED

WITH THE GUARANTEE OF THE REPUBLIC OF INDIA

FOR THE

FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP)

IN INFRASTRUCTURE THROUGH SUPPORT TO THE

INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED PROJECT

LOAN NO. 7613-IN

(Board Approval: September 22, 2009)

November 14, 2013

South Asia Finance and Private Sector Development Unit

India Country Management Unit

South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official

duties. Its contents may not otherwise be disclosed without World Bank authorization.

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2

ABBREVIATIONS AND ACRONYMS

COD

EIA

E&S

Commercial Operation Date

Environment Impact Assessment

Environment & Social

ESMU

ESDD

Environment and Social Safeguards Management Unit

Environment and Social Due Diligence

ESSF

FM

Environmental and Social Safeguards Framework

Financial Management

HR Human Resources

IBRD International Bank for Reconstruction and Development

IFR

IIFCL

IPL

IRM

Interim Financial Report

India Infrastructure Finance Company Limited

IIFCL Projects Limited

Integrated Risk Management

PDO Project Development Objective

PPPs Public Private Partnerships

R&R Relief and Rehabilitation

Regional Vice President: Philippe H. Le Houerou

Country Director: Onno Ruhl

Sector Director / Manager: Sujata Lamba/Henry Bagazonzya

Task Team Leader: Niraj Verma

3

IAINDIAdfjasdkfjskdP102771

INDIA

FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN

INFRASTRUCTURE THROUGH SUPPORT TO THE INDIA

INFRASTRUCTURE FINANCE COMPANY LTD (IIFCL PROJECT)

CONTENTS

Page

A. SUMMARY ........................................................................................................................... 6 B. PROJECT STATUS .............................................................................................................. 7 C. PROPOSED CHANGES ...................................................................................................... 8 ANNEX 1: Results Framework and Monitoring ........................................................... 14 ANNEX 2: Update to safeguards arrangements ........................................................... 17 ANNEX 3: Agreed Financial Management Monitoring Parameters ...................... 21

4

DATA SHEET

INDIA

FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN

INFRASTRUCTURE THROUGH SUPPORT TO THE INDIA

INFRASTRUCTURE FINANCE COMPANY LTD (IIFCL PROJECT)

South Asia Finance and Private Sector Development Unit

South Asia Region

1. Basic Information Project ID & Name P102771: IN: IIFCL - India Infrastructure Finance Co Ltd

Country India

Task Team Leader Niraj Verma

Sector Director/Manager Sujata Lamba/Henry Bagazonzya

Country Director Onno Ruhl

Original Board Approval Date 09/22/2009

Original Closing Date: 09/30/2015

Current Closing Date 09/30/2015

Proposed Closing Date [if applicable]

EA Category F-Financial Intermediary Assessment

Revised EA Category F-Financial Intermediary Assessment

EA Completion Date

Revised EA Completion Date

2. Revised Financing Plan (US$m) Source Original Revised

Borrower 0.00 0.00

IBRD 1195.00 195.00

Total 1,195.00 195.00

3. Borrower Organization Department Location

India Infrastructure Finance

Company Limited (IIFCL)

India

4. Implementing Agency Organization Department Location

India Infrastructure Finance

Company Ltd

Dr. Harsh Kumar Bhanwala India

5

5. Disbursement Estimates (US$m) Actual amount disbursed as of 11/14/2013 22.9

Fiscal Year Annual Cumulative

2013 0.00 22.90

2014 45.00 67.90

2015 127.10 195.00

Total 195.00

6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N

Does the restructured project trigger any new safeguard policies? If yes, please select from

the checklist below and update ISDS accordingly before submitting the package.

N

7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes

The projects objective is to increase the availability of long-term financing for infrastructure PPP projects

in India. This will be achieved by supporting IIFCL in its role to catalyze private financing for

infrastructure PPPs and stimulate the development of a long-term local currency debt financing market for

infrastructure in India. Key performance indicators will include, inter alia, the following: (a) Increase in

the number of PPPs achieving financial closure through long-term debt financing from IIFCL (at least 200

new PPPs will achieve financial closure through IIFCL s support over the life of the project); and (b)

Increase in the amount of private capital (including long-term debt and equity) available for infrastructure

projects (a targeted four-fold increase in private capital for infrastructure projects over the life of the

project).

7b. Revised Project Development Objectives/Outcomes

The proposed revised objective of the Project is “to strengthen IIFCL’s capacity for infrastructure PPP

financing through piloting new instruments and implementation approaches.”

6

FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN

INFRASTRUCTURE THROUGH SUPPORT TO THE INDIA

INFRASTRUCTURE FINANCE COMPANY LTD (IIFCL PROJECT)

RESTRUCTURING PAPER

A. SUMMARY

1. India’s infrastructure financing needs are very large. The investment requirements

for India’s Twelfth Five Year Plan (2012-2017) are estimated in the region of US$1

trillion. This needs to be financed through roughly an equal contribution of public and

private investments, including through PPPs which need to play an important role in this.

2. The IIFCL Project was designed in 2009 to finance PPPs through an International

Bank for Reconstruction and Development (IBRD) Loan of US$1,195 million to the

India Infrastructure Finance Company Ltd (IIFCL), with the objective of increasing the

availability of long-term financing for infrastructure PPP projects in India. This was a

first of its kind operation for the Bank in India. It was approved on September 22, 2009,

became effective on November 5, 2009 and is scheduled to close on September 30, 2015.

The Project includes a capacity building component for which IIFCL requested recipient-

executed grant funds, and the Bank stated its commitment to provide such funds to the

extent of US$5 million. After about four years of implementation, the Project has

disbursed only US$22.9 million (~2%) and is therefore, rated Unsatisfactory both on

progress towards achieving Project Development Outcomes (PDOs) and Implementation

Progress. On the other hand, progress in implementing the capacity building component

has been satisfactory.

3. Despite considerable management and team attention to the Project on both the

client and the Bank side, initial estimates made during project preparation of eligible sub-

loans that could be provided by IIFCL (the borrower) to sub-borrowers for the purpose of

financing sub-projects have turned out to be optimistic and overall progress has been

extremely slow. The lack of progress primarily stemmed from some divergence between

the Project’s guidelines for safeguards and current practices in India which were difficult

to bridge especially for Category A sub-projects. As IIFCL is: (i) not the ‘lead financier’;

(ii) not expected to carry out independent credit assessment; (iii) a minor financing

partner; and (iv) a late entrant (typically ‘last mile’ financier) in a large consortium of

financiers, its leverage is limited. This is particularly true in large Category A sub-

projects where its share is a fraction of the overall sub-project cost. Further, sub-projects

proposed for IIFCL financing are already procured. This made it difficult to access

documentation and IIFCL’s late intervention makes retrofitting of the Bank requirements

difficult.

4. Against the backdrop of the Bank’s resources for India being constrained due to

the single borrower exposure limit, the slow disbursal of the Project crowds out other

potential development initiatives. Government of India, in agreement with IIFCL, thus

requested a restructuring of the Project, including a cancelation of US$1 billion, which

would enable the amount freed up to be allocated to other infrastructure projects (the

proposed second Dedicated Freight Corridor Project expected to be considered by the

7

Board later in the fiscal year). Given the importance of PPPs in India, the balance loan

amount of US$195 million would remain with IIFCL. This would enable financing for

PPPs alongside a mutual learning process on financial, fiduciary and safeguards

arrangements for the Bank and IIFCL.

5. To effectively restructure the Project, while the Project components remain as

before, the key proposed changes are: (i) a reduction of the loan size to US$195 million;

(ii) a revision of the Project Development Objective (PDO) to reflect the proposed

piloting and learning approach; (iii) focus on identification of more ready sub-projects,

on Category B and C direct financing sub-projects and on ‘Take-Out’ financing (loan

book re-assignment that helps improve sub-project viability); and (iv) enhanced reliance

on IIFCL’s fiduciary and safeguards capacity. These changes help address the barriers

that hindered progress in the past and are discussed in more detail in the sections below.

B. PROJECT STATUS

6. After about four years of implementation, the Project has disbursed around US$23

million (~2%) out of the US$1,195 million loan. Except for one transmission sub-project,

no other sub-projects have materialized for Bank financing for the reasons identified

above. However, progress on the capacity building component has been better. The Bank

mobilized around US$2 million in grants. Support for, amongst others, the development

of an integrated risk management (IRM) system, a management and information system

for managing safeguards risks, and a human resources (HR) strategy has been provided.

Critically, IIFCL’s capacity on safeguards and procurement aspects has improved

substantively from its growing operational experience of PPP financing and working with

the Bank and other multi-lateral institutions, including through support of the capacity

building component under the Project. The capacity building has yielded strong results

with IIFCL now having specialized staff and capacity on these aspects that few other

banks can compare with. For instance, IIFCL’s procurement capacity now provides

sufficient comfort for the Bank to rely on its due diligence to confirm consistency of the

concessioning authority procedures and underlying transactions with applicable Bank

procurement guidelines. Procurement review of several sub-projects confirms this. And

on safeguards, recent due diligence reports prepared by the Environment and Social

Safeguards Management Unit (ESMU) are of good quality and adequately address

safeguards concerns.

7. Given the lack of progress in disbursing the loan and for the reasons discussed in

the previous section, the Government has requested a restructuring of the Project. The

proposed approach for the restructured Project is to pilot: (i) innovative financial products

that build IIFCL’s financial capacity and (ii) new implementation approaches that rely

more substantively on IIFCL’s operational capacity which has evolved substantively over

the last few years. This approach is consistent with the Bank’s reform process regarding

the implementation of its procurement and safeguards requirements. Although IIFCL’s

leverage in financial transactions in PPP sub-projects is limited, IIFCL – through this

restructured Project – can evolve as a demonstration platform of good practice by

8

facilitating the adaptation of good practices in lending in sub-projects that it finances and

by utilizing its enhanced capacity on safeguards and fiduciary aspects.1

C. PROPOSED CHANGES

Project Development Objective (PDO)

8. The proposed revised objective of the Project is “to strengthen IIFCL’s capacity

for infrastructure PPP financing through piloting new instruments and implementation

approaches.”

Results Indicators

9. The revised/updated results indicators reflecting the objectives of the restructured

project are described in Annex 1.

Project Components2

Component 1: Long-Term Finance to Infrastructure Projects (IBRD financing: US$195

million)

10. The component would continue and would include, as before, funding that is

undertaken directly by IIFCL to developers during the construction stage of the

infrastructure asset being built. In the restructured Project, this direct financing would

focus primarily on Category B and C sub-projects. Sectors where PPP sub-projects may

be supported through direct financing are expected to include power transmission, solar,

roads and port terminal sub-projects.

11. In addition this component will include, post-construction refinancing, also called

Take Out financing. This product provides post-construction stage ‘loan book re-

assignment’ between a commercial bank/lender to a PPP sub-project and IIFCL.3 Take

Out fully supports the Project Development Objective of increasing the availability of

long term financing for infrastructure PPP projects through new instruments. Such

financing facilitates improved sub-project viability and longer term loans at more

attractive interest rates as the construction stage risks are largely addressed. In the

absence of such a product, sub-projects are typically unable to get banks to re-price the

loans to reflect the lower risks of the operations stage, relative to the construction stage.

IIFCL’s product therefore helps the developer access funding at a cost reflective of the

risks. Further, as such determination of risks involves a credit rating exercise this creates

valuable credit information on the sub-project. The rating also supports use of tools that

1 Keeping this engagement also gains significance in light of the recent passing of the Indian Parliament of

the Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act

2013. As implementation of this Act begins, country practices on safeguards in PPPs are expected to

improve. IIFCL’s role in demonstrating how to incorporate safeguards good practices into sub-projects,

thereby could have a positive impact in this process of evolving safeguards practices. 2 Implementation arrangements for all components and products are described below.

3 In the unlikely event that IIFCL transfers to a third financier, IIFCL will repay such amounts to the Bank.

9

can help support risk differentiation and create asset sub-classes that could play an

important role in developing the market for secondary transactions and for investments

by other institutional forms which are otherwise reluctant to support the higher stage

construction finance PPP. Therefore, financial market deepening and improved price

discovery is also facilitated.

12. The Take Out product also helps IIFCL enhance its institutional capacity by

undertaking independent assessment of this post construction stage ‘loan reassignment’.

Cases financed since January 2012 will be eligible. Two sectors have been pre-identified

and agreed for this Project – namely roads and port terminals – and inclusion of other

sectors, if any are proposed, will need to be agreed with the Bank.

Component 2: Capacity Building and Implementation Support (Resources from

grants/trust funds to be mobilized; up to US$5 million)

13. As before, this component will continue to support Capacity Building and

Implementation Support through recipient executed grant funds would complement

Project components. Activities under this component will be contingent upon the

mobilization of trust funds for grant financing and capacity building needs. Capacity

building support to the Infrastructure Debt Fund established by IIFCL and to the IIFCL

Projects Limited (IPL), both IIFCL subsidiaries, can be included as before. Existing areas

of support, including on procurement, safeguards and risk management, would continue.

The support to new product development and research would be a particular focus. This

can help IIFCL become a catalyst in spurring innovations in the infrastructure finance

market through introducing such products as subordinated debt, credit enhancement,

development of secondary markets, etc.

Implementation arrangements

Safeguards

14. For Component 1 direct financing, a segregated approach will be deployed based

on the risks of the sub-project. In the (rare) event that any Category A sub-projects are

proposed for financing under the Project, the current safeguards approach involving Bank

prior review will continue (see Annex 2 for details).

15. Given IIFCL’s substantive capacity enhancement over the years with a well-

functioning ESMU (see Annex 2), the environment and social due diligence (ESDD) for

Category B and C direct financing sub-projects, which will be a key focus of the

restructured project, will be delegated to IIFCL with appropriate due diligence

mechanisms and protocols for review, clearance disclosure and monitoring within the

IIFCL management structure. This approach is described in Annex 2 and reflects an

update to the existing Environmental and Social Safeguards Framework (ESSF) which

includes the safeguards management process that is also described in the Operations

Manual.

16. IIFCL has several investors/partners, including other international financial

institutions such as the Asian Development Bank (ADB) and Kredit fur Wiederaufbau

10

(KFW) with committed lines of long-term low cost credit. The Bank’s commitment in

this regard is relatively less significant than that of the ADB both in terms of the overall

share and the rate of disbursement. At the time of approval of the original project, IIFCL

had an ESSF which set out the environmental and social safeguard requirements

associated with projects that it finances. The original Project relied on the 2008 ESSF but

included a covenant that IIFCL would update, adopt and re-disclose an ESSF fully

consistent with the Bank’s policies. During 2013, IIFCL updated the 2008 ESSF

applicable to the Project as per its negotiations with its other partners and this updated

ESSF was re-disclosed in July 2013. The Bank was not involved in this process. After a

review of the 2013 ESSF by the Bank during recent supervision missions, the Bank

concluded that further adjustments were required to bring the 2013 ESSF fully in line

with Bank policy and to reflect the safeguards management process for the restructured

project. Among the key areas of focus for the adjustments were: (i) the requirement that

Bank safeguards in direct financing and post Commercial Operations Date (COD) stage

of Take Out cases also apply to Category B and C sub-projects; (ii) clarity that

consultations with groups in designated tribal areas in case sub-projects are to be

implemented in such areas is needed irrespective of whether there are positive or adverse

sub-project safeguards impacts; and (iii) specific procedures for “Take-Out Financing”.

The adjustments in terms of substance and content have been agreed with IIFCL, which

has proposed a two-step approach to achieve the full integration of those corrections into

a new document. In order to immediately remediate the 2013 ESSF and as a first of these

steps, IIFCL has agreed to reflect the required adjustments as an addendum to the

amendment letter for the restructuring of the Project. These adjustments will apply

immediately to all IIFCL’s operations under the Project and have been disclosed in the

Bank’s Infoshop with an annex spelling out the substantive changes. As a second step,

IIFCL requested a three (3) months period from the date of countersignature to conclude

the compilation and re-disclosure of the corrected ESSF; which time IIFCL will use to

get the document consulted upon and agreed before being re-disclosed locally on its

website.

17. Although IIFCL would continue to be a relative late entrant in the financing cycle,

the safeguards gaps would be more contained and relatively more manageable since the

impacts will be smaller and the developer is expected to be willing to address such gaps,

if any exist.4 The Bank will review sample of such sub-projects during the six monthly

implementation support missions and appropriate adjustments can be made if required.

18. For Take Out, the financing is akin to post-COD refinancing of a lender as it does

not finance any construction stage activities, and differs considerably from typical project

financing. It contributes to improving (through reduced debt service burden and reduced

interest rate) funding for the operation and maintenance activities (including debt

servicing) without financing any new capital assets, any construction, or any purchase of

land, etc. Therefore, the Take Out would not lead to any direct safeguards impacts.

Nonetheless, the possibility of residual risks and/or risks of association with the

developer and the sub-project cannot be ruled out. In this context, a sectoral gap analysis

4 The Bank Team observed during the recent field visits that the strengthening and maintenance road

projects in Madhya Pradesh have relatively minor environmental and social impacts which can be easily be

mitigated through actions identified as part of IIFCL's due diligence process.

11

has been undertaken by the Bank and IIFCL will report on compliance during the

construction stage with applicable national laws in its ESDD report (see Annex 2). For

the operations stage, Bank policies will apply.

Fiduciary

19. The Financial Management (FM) and procurement policies will continue as

before for the most part, albeit with a shift to ex-post rather than ex-ante reviews and with

greater reliance on IIFCL’s strengthened capacity on these matters.5 The streamlined

procurement approach issued as a guidance note by the Bank in May 2013 has been

agreed with IIFCL and is being used. This has also been reflected in the updated

Operations Manual. For Components 1 and 2, existing procurement procedures are

working well, and IIFCL’s enhancement of its procurement capacity in-house, including

engagement of a seasoned procurement consultant, has led to good progress in recent

months. Procurement arrangements as agreed for Component 1 will be applicable for the

Take Out product as well.

20. Further on FM, on long term financing and capacity building initiatives

(Component 1 and 2), the approach of mainstreaming with IIFCL’ due diligence process

has now stabilized and going forward a shift to ex-post reviews will be made. IIFCL’s

present systems including appraisal of Take Out Financing (part of Component 1) was

assessed and observed to be satisfactory. It was agreed that FM due diligence would be

predicated on IIFCL’s own procedures. The reporting formats (including the Interim

Financial Reports, IFR) have been amended and included in the Operations Manual. The

monitoring parameters on the components are specified in Annex 3 and the Operations

Manual has been updated by IIFCL to reflect this.

21. Presently there are no overdue audit reports.

22. Fund flow and disbursement arrangements: Disbursements arrangements on

different components are as stated below:

Component 1-Direct financing and Component 2-Capacity building:

Reimbursement will be based on IFR following existing arrangements.

Component 1-Take Out Financing: Disbursement request will follow after

IIFCL’s own actual disbursement to the exiting bankers. IIFCL will submit agreed

IFRs to request each disbursement.

Financing

Cancelation

23. Given the background discussed above it is clear that the current allocation to

Component 1 (Long-Term Finance to Infrastructure Projects) is too large and will not be

utilized in support for the PPP program. It is therefore, proposed to cancel US$1 billion

out of the total loan amount of US$ 1,195 million. While it is clear that India’s PPP

5 IIFCL has identified and designated a nodal procurement and a nodal financial management expert for the

Bank Project.

12

financing needs are large, it is also clear that a realistic projection of eligible projects that

meet Bank guidelines will need to be pruned to a much more realistic level. The approach

under the proposed restructuring is to continue to engage on this mutually learning

process, while utilizing instruments that can support IIFCL’s efforts to contribute to PPP

financing.

Project costs

24. The updated Project costs table reflecting the new components is as follows:

Project component Original Project

Allocation (US$

million)

Restructured Project

Allocation (US$ million)

Long term financing 1,195 195*

Capacity Building (CB) Up to 5 Up to 5

Total 1,195 + up to 5 for CB 195 + up to 5 for CB * Within long term direct financing, US$23 million is already disbursed, and an additional US$13 million might be

disbursed soon.

25. For the Project component allocation, the tentative pipeline of potential sub-

projects has been reviewed for Component 1. Initial estimates of such sub-projects

provide a reason for cautious optimism, partly since IIFCL's loan book has grown

significantly and there appear to be sub-projects in Category B and C that are well

prepared and expected to fit with project requirements. The direct financing sub-projects

include nine sub-projects of roads strengthening (all in Madhya Pradesh) that are all

Category B sub-projects and total around US$43 million. In addition, there are two sub-

projects in the ports terminals sector, one of which has an IIFCL contribution of US$25

million and has undergone safeguards field review by the Bank and IIFCL team. While

classified as Category A, issues identified can be addressed. The other ports sub-project

(~US$13 million) is yet to be visited and categorized. A sample of these sub-projects was

also visited by the Bank team to explore their potential compliance with the project

requirements and to formulate a more realistic estimate of project pipeline. Based on this

assessment, the pipeline assessment shows an existing portfolio on IIFCL’s books of

around US$81 million in Category B and C sub-projects6. This is over and above the

existing disbursement of US$23 million (power transmission) and an expected

disbursement of US$13 million on a solar sub-project.7 The balance amount is expected

to be in the form of either new similar profile direct financing sub-projects that come up

or Take Out finance sub-projects mostly in the roads sector (but also one in the ports

sector) – the long list for which is over US$200 million. Whilst IIFCL has already

committed lines to these projects, it is possible that some of these sub-projects may not

prove feasible for Bank funding, and also new sub-projects would be added, given that

IIFCL’s loan portfolio has been steadily increasing. IIFCL indicated that they have

confidence in the robustness of the pipeline.

26. On Component 2, it may be mentioned that several other donors are looking at

provision of Technical Assistance to IIFCL.8 In such an event, while potential sources of

6 Assuming the second port sub-project falls in this category. In addition to this pipeline, new solar sub-

projects or roads strengthening sub-projects that come up, can also be considered. 7 This refers to a Category B solar sub-project worth around US$13 million reviewed by IIFCL and the

Bank team; the ESDD has been submitted to the Bank for review. 8 Including Department for International Development of the United Kingdom.

13

mobilizing grant resources would diminish, the capacity building need gap also reduces

as such proposed donor assistance could address some needs. Therefore, the Project

component will try and assess only residual needs, while coordinating with donors and

IIFCL and maintaining close discussions with multi-lateral and bilateral donors and

trying to raise grant funds for either recipient executed or Bank executed activities.

ANNEX 1:

Results Framework and Monitoring

INDIA: FINANCING PUBLIC PRIVATE PARTNERSHIPS (PPP) IN INFRASTRUCTURE THROUGH SUPPORT TO THE

INDIA INFRASTRUCTURE FINANCE COMPANY LTD

Project Development Objective (PDO): The Project’s objective is to strengthen IIFCL’s capacity for infrastructure PPP financing through piloting new instruments and implementation approaches

PDO Level

Results

Indicators*

Co

re

D=Dropped

C=Continue

N= New

R=Revised

Unit of Measure

Baseline

(March 31,

2013)

Cumulative Target Values**

Frequency Data Source/

Methodology

Responsibility

for Data

Collection YR 1 YR 2

Indicator One:

N Total size of sub-projects

(project costs) supported

by IIFCL under the

Project (US$m).

140 300 650

Semiannual Reports from

IIFCL

IIFCL as

implementing

and monitoring

agency

Indicator Two:

N Cumulative amount of

Take-Out financing

provided by IIFCL

(US$m).

1,310

1,450 1,700 Semiannual Financial

Statements of

IIFCL

IIFCL as

implementing

and monitoring

agency

Indicator Three:

N IIFCL’s safeguards

management capacity is

enhanced

Sufficient

only for

Category B

and C

Enhanced

further

Strong

safeguards

management

capacity

Annual Bank

implementation

support missions

and IIFCL data

Bank and IIFCL

Indicator Four:

N IIFCL’s fiduciary

management capacity is

enhanced

Moderate Enhanced

further

Strong

fiduciary

management

capacity

Annual Bank

implementation

support missions

and IIFCL data

Bank and IIFCL

INTERMEDIATE RESULTS

Intermediate Result (Component One): Long-term financing to eligible sub-projects

Intermediate

Result indicator

One:

R Number of infrastructure

sub-projects that receive

Bank funding support

through IIFCL (both Take

Out and direct financing)

1

5

10 Semiannual Reports from

IIFCL, Bank

supervision

missions and

progress reports

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

two:

R % of the loan disbursed

through IIFCL to selected

infrastructure sub-projects

0% 30%

100% Semiannual Reports from

IIFCL, Bank

supervision

missions and

IIFCL as

implementing

and monitoring

agency

15

progress reports

Intermediate

Result indicator

three:

N % of sub-projects under

Take Out that benefit from

at least 75 basis points

cost efficiency

0% 35% 60% Semiannual Reports from

IIFCL, Bank

supervision

missions and

progress reports

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

four:

C Increase in the amount of

private capital available

for infrastructure projects

US$66.4

billion

US$75

billion

US$85 billion Semiannual Reports from

IIFCL, Bank

supervision

missions and

progress reports

IIFCL as

implementing

and monitoring

agency

Intermediate Result (Component Two): Capacity building of IIFCL

Intermediate

Result indicator

One:

N Number of IIFCL person-

days participated in

training and capacity-

building events.

0 100 200 Semiannual IIFCL data,

supervision

missions, audit

reports

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

Two:

N Development and

implementation of IPL

business plan.

No IPL

business

plan

IPL business

plan

delivered

Implementation

of business plan

launched

Semiannual Reports from

IIFCL, Bank

supervision

missions, annual

audit reports,

progress reports

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

Three:

N Implementation of

Integrated Risk

Management (IRM)

system

IRM plan

approved

IRM

implementati

on plan Y1

implemented

IRM

implementation

plan beyond

year 1 activities

initiated

Semiannual Reports from

IIFCL, Bank

supervision

missions, annual

audit reports,

progress reports

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

Four:

N Implementation of HR

strategy and policy

manual

HR

strategy

and policy

manual

approved

HR Training

program

implemented

HR strategy and

policy manual

fully

implemented.

Semiannual IIFCL data,

supervision

missions, annual

audit reports,

progress reports

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

Five:

N Size of IIFCL’s

safeguards team (regular

staff)

2 4 5 Annual Reports from

IIFCL

IIFCL as

implementing

and monitoring

agency

16

Intermediate

Result indicator

Six:

N Safeguards approach for

Take Out financing

adopted and implemented

by IIFCL

None Yes Yes Annual Reports from

IIFCL and

implementation

support missions

IIFCL as

implementing

and monitoring

agency

Intermediate

Result indicator

Seven:

N Procurement approach

adopted and implemented

by IIFCL

None Yes Yes Annual Reports from

IIFCL and

implementation

support missions

IIFCL as

implementing

and monitoring

agency

Annex 2: Update on Safeguards Arrangements

Guidance for ESDD for (a) Direct Financing; and (b) Take Out

Background on IIFCL’s safeguards management capacity

IIFCL has – through the Project’s capacity building support and its experience of

working with the Bank and other multi-lateral institutions – steadily enhanced its capacity

on safeguards management and in line with the Project agreement. It has a well-

functioning five member ESMU, supplemented by external consultant support on a ‘as-

needed’ basis. Over the years, the ESMU has carried out Environment and Social (E&S)

Due Diligence (ESDD) for several sub-projects including in the highways, hydro, ports,

transmission, and solar sectors. The ESMU has also conducted four major consultation

workshops for banks and financial institutions on the Project’s ESSF approach for

addressing safeguards issues in infrastructure sector for PPP projects. In addition, good

practice studies are in progress and the findings will be shared with all stakeholders

involved with PPP projects. Through these experiences, the ESMU has gained experience

on safeguards management and familiarity and comfort of the Bank’s safeguards

approach.

With support from the Project’s capacity building component, IIFCL is maintaining an

ESMU with five specialists, which will increased to seven by end of year 2014. It is

proposed that the capacity building on safeguards aspects using trust/grant fund sources

will continue to focus on sensitization for integrating E&S measures to minimize the sub-

project risks through: (i) continued capacity building of IIFCL and its consortium

partners; (ii) documentation of case studies on benefits of mainstreaming safeguards; and

(iii) advocacy with banks and financial institutions through workshops and dissemination

notes led by IIFCL. IIFCL has expressed interest in such continued assistance and has

requested for Bank support to raise resources for such further capacity building.

(a) Direct financing

1. For Component 1 direct financing, a segregated approach will be deployed based

on the risks of the sub-project.

2. In the (rare) event that any Category A sub-projects are proposed for financing

under the Project, the on-going approach of a prior safeguards review by the Bank for

each sub-project proposed for Bank financing using a robust Environmental and Social

Due Diligence (ESDD) process to determine the eligibility of sub-projects, will continue.

The Bank’s prior review will include the Bank team’s visit to the site and a review by

appropriate Bank experts before endorsement by the Bank for inclusion under the Project.

In such cases, the due diligence reports needs to be disclosed by IIFCL and the sub-

project developer.

3. Given IIFCL’s capacity enhancement over the years, the environment and social

due diligence (ESDD) for Category B and C direct financing sub-projects, which will be

a key focus of the restructured project, will be delegated to IIFCL with appropriate due

diligence mechanisms and protocols for review, clearance, disclosure and monitoring

within IIFCL management structure. This approach reflects an update to the existing

18

ESSF and to the safeguards management process as reflected in the Operations Manual.

Under this approach, the sub-project developer will be asked to address any gaps

identified in the mitigation of safeguard impacts, such as top-ups in extending

compensation and assistance to the affected people; improving the environment, health

and safety measures during construction period; minor environmental enhancement or

development measures for the communities around the sub-project, etc. It is expected that

the developers would be willing to take up such measures since IIFCL will offer 25 basis

points concession in the interest rates to the ‘safeguards responsive’ sub-projects that

would be sought to be financed under the loan, where developers will be willing to spend

part of the savings due to the lower lending rates. The Bank will review a sample of such

sub-projects during the six monthly implementation support missions and appropriate

adjustments can be made if required.

4. The following due diligence process will be followed for carrying out the due

diligence for determining the eligibility to financing under the Bank’s loan.

A preference will be for those sub-projects which are under preparation or are at an

early stage of implementation.

For each sub-project, IIFCL will assess the level and magnitude of impacts in these

projects through an ESDD report9 based on available information, site visit and

appropriate consultations with the concerned stakeholders.

Based on the outcome of such due diligence, appropriate mitigation measures will be

proposed for those impacts where no mitigation measures are proposed or proposed

measures are in-adequate, in line with the Bank's operational policy provisions. For

example, the gaps could include sensitive receptors, regulatory clearances, forest

diversions, Environmental Impact Assessment (EIA) clearance and Pollution Control

Board’s consent from the environmental side; and compensation and Relied and

Rehabilitation (R&R) assistance on the social side. The costs for any identified

measures will be borne by the developer, which could use IIFCL’s 25 basis point

concession for sub-projects financed out of the Bank’s loan proceeds.

In case of projects located in Tribal areas, particular attention will be paid to explain

the project to the Tribal villagers and also propose certain improvements in those

villages based on the needs of those villages. In case of sub-projects located in

Natural Habitats (such as wildlife sanctuaries, national parks, etc.) these will be

screened out and not financed by the Project.

The ESDD reports to be prepared for a sample (first set) of road sub-projects in

Madhya Pradesh, which will be prior reviewed by the Bank, will become basis for

subsequent due diligence reports to be prepared by IIFCL which will be post

reviewed by the Bank on a sample basis and adjustments be made if required based

on the Bank’s post review findings. For these sub-projects, it has been observed that

environmental and social impacts are minimal as land acquisition is minimal, and

therefore no substantive issues are expected and the mitigation measures for these

minor impacts will be covered in ESDD.

9 The level of due of due diligence will vary according to nature and magnitude of safeguards impacts of sub-projects

under review. If there are very few impacts, such as for road strengthening, solar or transmission sub-projects, then the

level of due diligence will be proportionately simpler.

19

IIFCL has finalized the appropriate arrangements for review and preparation of the

due diligence reports. This specifies that the IIFCL specialist/s/consultants will carry

out the due diligence. The Head of the ESMU will review and make a

recommendation to the Chief General Manager for approval of due diligence report

and mitigation plan for any identified gaps prepared and implemented by the

concerned developer with advice from IIFCL.

If relevant, disbursement linked actions will be identified and factored into decision-

making for accepting those sub-projects to be financed out of Bank’s loan proceeds.

The ESDD report prepared and endorsed by IIFCL and owned by the developer will

be disclosed respectively by IIFCL and the developer in their websites.

IIFCL will undertake monitoring to oversee the implementation of mitigation

measures proposed as part of due diligence reports and also agreed to have annual

third party audits as necessary.

(b) Take Out

The discussions with IIFCL and a sample review of Take Out in IIFCL’s portfolio reveals

that the safeguards issues are largely addressed during the construction period in line with

the applicable laws and the Project will focus on those Take Out cases where there are no

substantive outstanding issues/risks. For Take Out, the focus would be on risks mostly

related to any unresolved issues, if any, during sub-project implementation for roads and

port terminal sectors.10

The following approach will be used:

(i) Gaps documentation: As the Bank is not associated in the construction phase, there is

a possibility of gaps between practices followed and Bank policies. While in the

construction stage, the compliance that will be sought is with national laws, such sectoral

gaps that exist for the roads and port terminal sectors have been studied and are as

follows: Gaps that exist in the roads sector projects between national policies and Bank

policies exist mainly on replacement cost, relief and rehabilitation (R&R) assistance and

livelihood restoration support. These include differential (lower) compensation to replace

land that is acquired, non-availability of formal support to those who do not have legal

title to their land and houses, inadequate documentation and disclosure and project level

grievance redressal mechanisms (national practice is to rely on the court/legal system).

Going forward, India’s new Right to Fair Compensation and Transparency in Land

Acquisition Rehabilitation and Resettlement Act 2013 provides provisions for addressing

most of these gaps.11

On Environmental impacts, the EIA requirement is in place since

1994 under Environmental Protection Act, 1986 and has been revised during 2006. The

EIA requirements are applicable for new projects or activities and/or expansion and

modernization of existing projects. The EIA process including public hearing and

disclosure is by and large is in line with the intent of Bank’s environmental safeguard

policies. In addition, irrespective of the EIA requirements, mandatory clearances are

required, wherever applicable, in respect of: wildlife protection, conservation of sensitive

10

If any other sectors are proposed for Take Out financing, this will need to be discussed and the approach

for determining eligibility of those sector/s will need to be agreed with the Bank. 11

Sub-projects bided before implementation of this Act will be guided by earlier regulations.

20

coastal zone areas, forest and natural habitat conservation, prevention and control of

water and air pollution, regulation and control of noise pollution, etc. While there are no

differences in the processing of Environmental Assessment, the gaps may exist for

smaller/strengthening road development projects in terms of the EIA not being

mandatory for such sub-projects. However, even where the EIA is not applicable many of

the above referred mandatory clearances are applicable for all roads irrespective of size

and nature of road. In case of port projects, the gaps are minor in nature. In terms of

enforcement of EIA clearance conditions, and implementation of Environmental

Management Plans, the compliance record is mixed and the monitoring and reporting

mechanisms are weak. On port terminals, the safeguards gaps that exist are mainly

compensation related if land acquisition is involved (not all port terminals require land

acquisition) and the issue of local employment.

(ii) For the due diligence of the compliance with national laws and residual risks, IIFCL

will prepare12

an ESDD using publically available information, discussions and

information collection from the developer and due diligence based on field visits to

assess any E&S related risks, if any and determine nature and level of such risks.

Accordingly, to deal with such risks, IIFCL will propose only low risk sub-projects or

sub-projects where issues have been resolved for Bank financing using Take Out product.

The due diligence report will confirm if the sub-project is in compliance with applicable

national social and environmental laws; and confirm that there are no significant residual

risks due to unresolved environmental and social safeguards issues, and/or significant

risks for either the Bank or IIFCL with the association with the developer or the sub-

project. For the post-COD stage, Bank policies will apply. The due diligence reports will

be disclosed in both IIFCL and the developer’s websites. The Bank will prior review the

due diligence process for the first case under each sector (road and port terminal)

considered under take out financing. Subsequently, subject to ongoing satisfaction with

the due diligence process, the Bank team will undertake a review of a sample of such

sub-project cases financed by the Project under Take Out as part of its six monthly

implementation support activities. In addition, IIFCL will pursue with developers the

preparation of consultatively developed Community Development Plans consisting of

environmental enhancements and improvements in basic amenities in the sub-project

area.

12

Through an independent consultant initially.

21

Annex 3: Agreed Financial Management monitoring parameters

Components FM Due diligence

Records evidencing

payment Audit mechanism

Component 1:

Long term PPP

financing.

a) Checklist agreed as

per Operations

Manual - Declaration

of compliance by

IIFCL on agreed

aspects

b) IFR

a) Filled Checklist

evidencing adherence to

the agreed parameters

before each

reimbursement.

b) RTGS receipts/IIFCL

bank statements

evidencing

payment/payout.

a) Assurance by auditor

that terms of consortium

loan agreement has been

complied.

b) Project component

audit report.

Component 1:

Take Out

a) Separate disclosure in

audited annual accounts

of IIFCL.

Component 2:

Capacity

building and

implementation

support

a)IFR a) Separate dedicated bank

account- bank statement

a) Project component

audit report.

b) IFR as an annex to

annual accounts of

IIFCL.