India - Jharkhand PPP Affordable Housing

For a deal summary, the details of the tender are summarized as below : • The Government of Jharkhand has invited a tender on a PPP Mode for design, build, finance and transfer 40,000 affordable homes in 18 months. Under the terms of the tender, the Government would provide the land parcels needed in 41 towns and cities of Jharkhand for a financially and technically pre-qualified developer discovered as a result of a global tender to execute the Project. • The Government would not only provide clear title and land that could be mortgaged for development finance by the SPV and all approvals but also act as an aggregator of demand, offering in all possibility 40,000 homes at a subsidized cost in the State of Jharkhand. When acting as an aggregator of demand, the Govt. of Jharkhand shall invite applications from individuals and make allotments, based on income criteria. • The Developer selected under the tender would need to design, build, finance and transfer the 40,000 affordable homes with alternate technologies in a year and a half (18 months) post the delivery of sample block of 32 homes as a technology demonstrator in 4 months. • At the end of the construction phase, the developer would be paid for the development of the housing stock as below : • On Handover of completed Project • Cost of one dwelling unit less the Government of India and Government of Jharkhand Share amounting to Rs. 3.00 lakhs (Rupees Three Lakhs Only) by the beneficiary (i.e. to whom the dwelling unit would be allotted) • Subsequent to the Project Completion • An amount of 3 lakhs, which would include a subsidy component provided by the Government of Jharkhand valued at Rs. 1,50,000/-, PLUS • A subsidy component of Government of India valued at 1,50,000/- Only • The Government would also pay the developer an interest rate as quoted by the developer in the tender along with the cost of development of homes on a turnkey contract for the finance of the subsidy portion as described above for a term of 4 years to be provided by the developer (based on the interest rate quoted by the Selected Bidder) • The remaining amount shall be payable in 8 (eight) equated half yearly instalments ("Instalment Amount") payable in May and October every year, starting 3 months after the completion of any project. • The Developer acting alone or in the consortium with a funder to provide a loan or credit terms to the Government of Jharkhand for the remaining amount payable in the construction contract. The remaining amount in the construction contract payable in 8 equal half yearly installments with a coupon or a rate of interest over the next 4 years. • The amount payable under the Hybrid Annuity would be the total bid value of the contract minus Rs 3 lacs per apartment for the 40,000 apartments coming in as the State and Central Government Capital Subsidy for the affordable homes built and financed under the Hybrid Annuity Model in the PPP model. • Thus, as an example, if an individual home of 300 sq ft built up area is quoted at Rs 6,00,000/- per home, then the value of the contract for 40,000 homes would be Rs 2,400 Crs (USD 358 m), a sum of Rs 1200 Crs or Rs 3 lacs per apartment would be paid to the developer and the remaining Rs 1200 Crs or USD 179 m would be needed to be funded by the developer as deferred receivables from the Government, which would be paid as an annuity payment over a 4 year period. The developer has to quote an interest rate for the Government of Jharkhand along with the construction cost in a two bid tender. Thus, if the overseas offers us money at 8% pa as a fully hedged exposure, we can quote a 12% or more interest rate linked to the State Bank of India or Punjab National Bank Lending rate plus a premium for the time value of money due to the deferred payment model for the developer and the bid would be evaluated on both the criteria of the quote under the tendering process, ie the cost of the construction and the cost of the interest rate annuity for the developer, which would be discounted at a rate of 12% to calculate the Net Present Value of the Annuity Stream offered to the developer by the Government to arrive at the Lowest Cost Developer under the twin criteria.