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Construction : Cover Story | April 2016 | Source : CW-India

Smart Cities Now

With the announcement of the 20 cities to be developed as smart, CW records the industry´s reactions on business opportunities and unveils the tendering, budget and SPV details of the selected cities.

And, the 20 selected cities are....
This is the day, and India transitions to its next level in the smart game. From December 2014, when the smart cities mission was declared; and August 2015, where in the first stage, 100 smart cities - identified to be developed in the next five years - started preparing their smart cities proposals (SCP); to January 2016, where based on the SCP, 20 cities have now been announced for Phase-I of funding. And, with the next 23 cities expected to be announced this month, India´s smart journey is ready to begin.

Industry reactions
The smart city mission, its momentum, and the government´s identification of the first 20 cities have been perceived as a breakthrough, and worthy of praise. Philip Bane, Executive Director, Smart Cities Council, says, ¨The selection of these 20 cities is a significant move because these have been reviewed and analysed by the Centre as financeable and mature projects. At the city level, it is important to be clear about what it takes to deliver projects that are commercially financeable or bankable.¨

¨The broad pillars are livability, workability and sustainability, adds Pratap Padode, Founder & Director, Smart Cities Council India. ¨Small impact in big cities will create curiosity; big impact in small cities will create opportunity,¨ he avers. He emphasises that discovering the needs of the citizens and then plugging the gaps is the biggest national service and smart cities is one such mission.

This is just the beginning of the process of building infrastructure, and Jagdish Salgaonkar, Senior Vice President, Civil & Infrastructure, AECOM, says, ¨MoUD´s 100 smart cities programme is geared primarily towards brownfield cities.¨ He speaks of other smart projects being built under the various industrial corridors such as the Delhi-Mumbai Industrial Corridor or the Mumbai-Bengaluru Economic Zone, and believes the new industrial townships will eventually be merged with the entire smart city programme. He sees these bringing tremendous opportunities for everyone including the consulting engineering and contracting community, and the equipment manufacturers.

Guy Perry, President-Cities & Strategy, Essel Infra, sees opportunity for businesses across sectors. He suggests, ¨We have to stay focused on real priorities, which is not about providing services or technology for the sake of it; the focus needs to be on enhancing people´s lives and sustaining one´s existence on the planet¨ by making cities smarter.

Lux Rao, Country Leader-HPE Future Cities & CTO-Technology Services, Hewlett Packard Enterprise (HPE), sees a new set of prospects for the ICT industry at large. ¨Cloud infrastructure, citizen services´ applications, a robust mobility platform, a network of sensors, aggregating platforms, connectivity, analytics, etc, form the bulwark of infrastructure on which smart cities are planned,¨ he says. ¨This is well complemented by core infrastructure that efficiently provides resources such as electricity, water, etc, along with solid waste management, to citizens.¨

Business opportunities
The industry, which has been waiting for the sector to pick up, is now watching and waiting for the right chance to offer its services.

For its part, Essel Infra is ready to offer an integrated solution. ¨We can actually help shape the city´s vision with local authorities and provide a number of facility distributions in water, power, etc,¨ affirms Perry. He adds that the company can help cities add to their own ideas in terms of what are more supportable and relevant, and how can one integrate other infrastructural upgrades over time. ¨While with AECOM, I had worked on Vizag and Ludhiana (among the selected 20), I look forward to contributing to other cities´ proposals in the near future.¨

With AECOM having prepared the proposals for Vizag and Ludhiana, Salgaonkar confirms, ¨The cities want us to continue helping them with the implementation of the downstream projects; the smart city proposal had ideas, not solutions.¨ Also, as many of these smart cities will have a multitude of projects, the momentum at present is to hire a programme management consulting firm with expertise across all disciplines such as water, transport, sewage, ICT, etc. ¨Advisory is a role we can fulfil as programme managers, and that´s a huge opportunity,¨ he adds.

Meanwhile, HPE has designed innovative ICT solutions especially for Indian cities that encompass, according to Rao, ¨Healthcare; education; skill development; city safety and surveillance; e-governance; emergency response; traffic, parking and resources metering; mobility platforms and mobile apps for new economy businesses, and more.¨ These innovations allow governments to stay connected with constituents while being much more efficient, agile, and resilient. ¨These help governments improve quality of life, drive economic growth and create sustainable communities to be ready for an ever-changing future,¨ he adds.

Also, Itron is reckoned for its smart city growth strategy and excellence in implementation. Pawan Mathur, Director, Itron, says, ¨We are committed to helping our customers fulfill their vision of a connected smart city in the areas of energy management, theft detection, non-revenue water reduction, solar energy, electric vehicle (EV) charging, big data analytics, and streetlight management.¨ He adds that as cities around the world face aging infrastructure, growing urban populations, government mandates and shrinking budgets, managing energy and water is critical to ongoing economic prosperity, resource conservation, and social well-being. Cisco is already working with a few cities including Pune and Ahmedabad, and is doing a pilot in Jaipur.

As Aamer Azeemi, past managing director, CISCO Systems, shares, ¨Cisco is working with these cities at various levels and has been in discussion with various other cities.¨

For a special purpose
The urban local bodies (ULBs) of the winning 20 smart cities are finalising the uphill task of forming special purpose vehicles (SPVs). Around 12 of 20 smart city winners have already formed SPVs, and the applications of the remaining eight are in different stages of approval from their respective state governments. (See page 50 onwards, for a complete status on these cities).

There are benefits attached to forming an SPV. Viewing this as the best solution for India, Azeemi says, ¨The SPV´s CEO has been given the authority and power to coordinate among stakeholders. If you ask a private company or a system integrator to run around seeking permissions from 15 different agencies, that will make things difficult for them.¨

Certainly, the SPV will enable the assembly of a new team with a clear objective that can be monitored and hopefully bridge the silos that often exist in urban management. To this, Perry adds, ¨Success clearly depends on the SPV´s goals and the city´s capacity to execute the same. Or else, one could again be bogged down by the same administrative challenges Indian cities face.¨

Rao agrees, saying, ¨The SPV is envisioned to remove bottlenecks in deciding, procuring, deploying and implementing city-wide projects. It remains to be seen how the working relationships between the SPVs and ULBs or government machineries will evolve into a collaborative relationship.¨ He lists areas where the SPV will play an active role:

  • Resource allocation: Keeping current operations going, as well as investing in the future.
  • Investment in infrastructure: Upgrading existing investments to extend their life and maximise their value and/or build new infrastructure.
  • Services: Deliver new services to underserved segments and/or improve the quality of services already being delivered, making tough choices between new services and shifting or shutting down some others.

Execution challenges
In the current scenario and for the foreseeable future, governments will have less money to deal with greater demands for public services. Citizens with instant access to consumer services over the Internet via their smartphones will demand similar dynamic and responsive services from local government bodies.

Rao identifies some of the challenges as ¨the reality of a growing population, increased demand for energy, depleting natural resources and ageing infrastructure which calls for better utilities, healthcare, education, etc.¨ And Perry sees specific challenges with every project, saying, ¨Initially, there are a lot of administrative hurdles that can be time-consuming.¨ However, with a strong concept and a series of common-sense principles, one can surpass all hurdles, buttressed by political, administrative and public support.

With his ¨try-fail-try again-fail-try again-fail-try again-succeed¨ approach, Bane believes, ¨You need to have a lot of projects on the ground and a lot of people trying, because failure and success is individual; if you don´t fail once or twice, you are not going to succeed.¨ He is clear that the challenges India will face could be similar to those of many developed countries. The questions to be asked are: Is the project mature? Does it deliver benefits? Is it financeable? Is there a team to execute it? India is uniquely positioned to be successful because it has some of the best entrepreneurs, IT and civil engineers and bankers in the world. ¨What needs to change is that these talented people need to work in their own country,¨ he adds. In the meanwhile, Rao offers some ICT solutions for specific challenges.

¨Government agencies operate in silos, and there is a compelling need to simplify, integrate, and orchestrate multiple government agencies to provide seamless services to the citizen,¨ he says. ¨As for multi-modality and volumes of data, making sense of the data to derive real-time and purpose-led insights are the key to drive citizen-oriented policies and programmes. Last, for skills and scale, transitioning legacy infrastructure needs to scale up via cloud. Skills are needed to enable a smooth harmonious transition.¨

Funds play a crucial role in India´s infrastructure story, and the smart cities mission is no different.

¨The government´s contribution in terms of finance is clearly not going to be sufficient,¨ points out Azeemi.

¨So, cities need to work on innovative business models for finance.¨ (See box on Smart Financing).

True transformation
Clearly, Indian cities have to cope with issues of stretched power, water, sewage, and transportation infrastructure as well as ensure safety and drive economic growth. But a concerted effort as part of the smart cities mission could lead to a transformation. Every city is to focus on development in two areas: Pan city and area-based. Pan-city development includes smart solutions such as technology, information and data and existing city-wide infrastructure, and covers sectors such as transport, governance, water, waste management, safety, energy and social infrastructure. Area-based development includes redevelopment, retrofit and greenfield. According to estimates by PwC, pan-city projects in Phase-I of the 20 cities will be worth $1.8 billion, or 23 per cent, while area-based development will comprise the remaining 77 per cent worth $5.6 billion. Padode believes that this mission is strategic as it lays emphasis on area-based development, which is envisioned to proliferate the entire city gradually.

¨The ambitious plan of 100 smart cities is well-conceived and the planned approach will create many business hubs across the country,¨ says Rao. He is certain that these cities, while opening up new opportunities, will also create safe, liveable, and vibrant environments for their citizens. ¨They will deliver high-quality education, healthcare, and other services to ensure all citizens meet their fullest potential,¨ he adds.

With this mission, Perry sees positive momentum being set in motion through competition. ¨Cities tend to have a natural tendency to compete with each other, and if this can be channelled towards making the city more liveable, sustainable and efficient, it will have an extremely positive, transformative effect,¨ he reasons. In Salgaonkar´s view, meanwhile, India is a difficult and complex country. ¨Policymaking in India is extremely tough,¨ he says. But he quickly adds, ¨In all wisdom, the government has decided to start with the smart cities and this might then trickle down to a smart village programme, because one goal is also to stop villages from migrating to cities.¨

In Rao´s lexicon, ¨future cities¨ always seek to improve and innovate around the needs of citizens and businesses by riding on a robust IT framework. ¨IT is a key enabler and will ensure the whole gamut of citizen engagement ranging from delivery of services, information for all and an on-going dialogue with citizens,¨ he says with confidence.

Thus, it appears that the initial apprehensions about the ambitious smart city mission seeing the light of day are gradually giving way to optimism and the expectation of action on the ground. ¨Smart cities is a journey, not a destination,¨ Padode says on a concluding note. And, the speed at which the government is unveiling its smart agenda is a clear sign that it means business - this, in turn, spells big business for the industry and a better life for Indians.

Quick Bytes

  • January 2016: 20 cities announced for Phase-I of funding.
  • Around 12 smart city winners have already formed SPVs.
  • Pan-city projects in Phase-I worth $1.8 bn.
  • Area-based development in Phase-I worth $5.6 bn.

India Readiness Guide
In early February, Smart Cities Council India launched the India Readiness Guide to help cities plan their blueprint better. Philip Bane, Executive Director, Smart Cities Council, says, ¨The first thing the guide shows is that success is possible. One has to raise the level of awareness, indicate the problem - congested traffic, polluted air, unclean water, poor management of waste - and then put forth a solution that is financeable and can deliver results. That makes a big difference for people trying to solve problems on the ground.¨ The guide is envisioned to help local governments and municipalities build an action plan for smart cities in India. As Bane explains, ¨The guide shows Indian administrators that everything is possible in India, too, though the country may have a tradition of bureaucracy.¨

In his view, one of the most important takeaways of the guide is that India is already successful - it´s just about scaling that success to other cities.

Setting timeframes
It´s a common refrain: ¨Two years have gone by and no smart city has come up.¨ But planning, designing and construction take time.

Jagdish Salgaonkar, Senior Vice President, Civil & Infrastructure, AECOM, estimates: ¨A greenfield city like Dholera could take anywhere from seven to ten years. In greenfield cities, you first need to create the master plan, which could take a year. The master plan then has to be approved. You will have six months of hearings because we are a democracy and have to go through farmers and local people and get their consent. After approval, the design has to be worked on, which takes about a year or a year-and-a-half. This complete process takes about three years, followed by another three to four years of construction.¨

Sharing his estimates for brownfield jobs, he adds, ¨We hope to see benefits within a year. Some projects could be quick-fix ones, such as creating an e-governance system, which would take about two months. Projects such as beach erosion and protection may take two years; traffic signalisation around six months; and fixing water supply system around four to five years. Overall, the average estimated timeframe could be one month to two years for these cities.¨

Smart financing
The winning cities certainly have their work cut out to find and manage the funds for the projects and ensure a transparent process that promises regulatory predictability and a line of sight on returns for investors. These cities will have to contend with state of affairs unique to India, including the lack of a mature secondary corporate bond market (with free entry and exit).

Although initial funding would come from the Centre and an equivalent amount from the state, other funding sources these cities can opt for include venture capital in the early stages, followed by project financing (five years) and long-term financing (10 years).

At the same time, as Ramakant Jha, CEO, IL&FS Ltd, suggests, ¨Cities must consider the basics of urban planning, infrastructure planning, development, institutional framework and tax structure before they launch any project.¨

Meanwhile, HSBC India, shares, ¨Among the current set of projects in India, which have most development proposed on EPC basis, the bank could assist through bid or performance bonds and trade financing facilities at first instance.¨ HSBC India is keen to engage with various stakeholders in providing cross-border expertise on financing solutions for BRT projects and municipal bonds, where the bank has significant experience. ¨Going forward, as PPP projects scale up, we would be keen to engage on PPP advisory or term financing opportunities too.¨

As the requirement for funding could be much larger than the Rs 500 billion over the next five years, there would be a need to tap other funding sources such as multilaterals and development finance institutions. Additionally, as the first round of projects are successful and further developments are underway, funding sources in the form of well-structured or credit-enhanced municipal bonds and PPPs would need to be a major vehicle for resource mobilisation to meet funding requirements. In such a case, for a city or ULB that is not well-rated, there could be merit in evaluating options for credit enhancement through which government-owned institutions notch up the credit rating for the offtaker payment obligations.

Ergo, after finalisation of DPRs, the first set of projects being awarded on EPC basis would assist in establishing a track record, setting the precedent for future developments. ¨This will help the risk allocation thereafter for PPP projects,¨ adds HSBC India.

 
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