The Rs 125 crore collected by India's first municipal bond will finally be used to finance city infrastructure projects.
The Bangalore City Corporation (BCC) has called for tenders for the `permanent improvement' of 220 km of municipal roads. The project is to be implemented in 15 months, and will initially be for 2/3rd of the total bond amount.
The bond issue was floated by BCC in November 1997. It was the first of its kind in India and the whole South Asian region. "We thought of a bond issue," said BCC additional commissioner Subhash Kuntiah,"to finance heavy capital investment projects like one-off infrastructure projects
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"We had initially planned a Rs 100 crore issue, but the public response forced us to increase the amount. We issued the bonds at 13 per cent interest, which was the lowest rate among the issues at that time. Ahmedabad City Corporation had its bond issue in February 1998 at a much higher rate of interest, but could still collect only Rs 100 crore," he said.
Due to the success of the November issue, BCC is bullish on more bond issues for projects like solid waste management system, though no decision has been taken yet. The bonds were for a seven-year period with interest being paid half-yearly. BCC had invested the money with banks in the interim period so that the money does not remain idle.
"If it had been in the Corporation's treasury it would have been wasted. It takes time for a decision to be taken in a monolithic organisation like this."
We have to put out tenders and follow certain procedures, so there is a lot of time wasted," he said.
BCC was able to get 17 per cent initially, but has been able to get just 11 per cent in recent months. "But, this has not adversely affected us. Hopefully, we should be able to disburse the money in the next two months," said Mr Kuntiah
Municipal bonds are the preferred instrument of city bodies to finance capital investment in Europe and America. "We feel that bonds an be the normal way of financing such investments, as it is impossible to find money for these projects in regular budgets. It is also a much cheaper and affordable method. HUDCO charges us 18.5 per cent for the Megacity project loan," he said.
"In the last 10 years, population of the city and the number of vehicles have increased dramatically. There are more than six lakh vehicles on the road. The roads are not able to cope with this large volume of traffic. If we do the repair work properly with the bond money, asphalt roads can be maintenance free for the next eight years and cement roads for 30 years."
Money from property tax and government grants will be earmarked for servicing the bond. The real pay back from the bond will be that the BCC will be able to spend a huge amount of money at one shot to improve the roads, and will therefore need not spend on roads again.
Under the integrated project, side drains, footpath, street lights, and bus bays will be provided. Kadiyali Associates and CKS Rao were the consultants for the project. They designed the project and will ensure quality by supervising the work.