The Hindu : Front Page : VMC to tap ADB for Rs. 200-cr loan

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Thursday, Jul 24, 2008
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VMC to tap ADB for Rs. 200-cr loan

G.V.R. Subba Rao

VIJAYAWADA: The Vijayawada Municipal Corporation is all set to take a loan of Rs. 200 crores from the Asian Development Bank to maintain the momentum of the developmental works taken up under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

As one of the conditions for extending the loan, the ADB has asked the corporation to escrow its revenues generated through realisation of charges for water supply and underground drainage schemes in the city.

And, the VMC too is ready to pledge to the ADB its revenues generated through water supply and underground drainage for a period of 15 years.

The VMC is now receiving more than Rs. 15 crores every year under these two heads. The tariffs and charges on water supply and underground drainage services would be around Rs. 10 crores, while donations and other one-time payments would be around Rs. 5 crores a year, official sources say.

Projects

The corporation has already taken up a series of projects, including water supply and underground drainage, under JNNURM.

For various reasons, there is considerable escalation in the cost of these projects for which the estimates were prepared in 2004.

As there is no provision for meeting cost escalation under JNNURM, the corporation needs to “find some resources” to bridge the gap, officials argue.

Deputy Mayor Samanthapudi Narasaraju explains that the rate of interest on the ADB loan will be far less compared to what is levied on the loans by commercial banks. The repayment period will also be more, as the ADB loan could be cleared in 15 years as compared to the 10-year period insisted on by the commercial banks.

The ADB will also not insist on counter guarantee from either State or Central governments for sanctioning the gap funding loan, he says.

The ADB loan, which is popularly known as ‘gap funding’ or ‘sub-sovereign lending’ is aimed at bridging the gap between availability of funds and project cost.

Financial health

A team of officials from the ADB visited the VMC some time ago to study the “financial health” of the corporation, and they reportedly expressed satisfaction over the corporation’s fiscal status.

They estimated that the VMC is eligible for a loan of Rs. 300 crores, while the corporation’s requirement would be around Rs. 50 crores to Rs. 60 crores a year over the next two to three years, officials say.

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