Nanded Waghala City Municipal Corporation

The investment sustenance capacity of NWCMC is assessed based on projection of operating / revenue surplus of the municipal fund prior to investments. The projection of the revenue account of the municipal fund is carried out based on certain assumptions of revenue realization and expenditures. These assumptions are generally trend based or on revenue base and basis, collection efficiencies and revenue enhancement plans of the Municipal Corporation.

The investment sustenance is ascertained considering projected revenue surplus available to service additional debt for capital investment, operate and maintain new assets created and revenue realizations from the new investments.

1.1. Projection of Municipal Fund Without Proposed Investments

The projected municipal fund (2005-06 to 2029-30) and the underlying assumptions are presented in “Annexure V-A – Financial Operating Plan”. Some of the key assumptions with regards items of income and expenditure under the revenue account, and their basis are elucidated in the following tables.

In case of capital account, it is assumed that the Central Finance Commission Grant and other scheme-based capital grants will grow at 5 per cent per annum, and that these grants would be utilized as part of the larger / city-wide capital investment plan, rather than on ad hoc small projects in isolation.

Table 29: Assumptions in Projection of Revenue Income

Sl.	Description	Assumption	Remark / Basis
1	Octroi and Transit Fee	§ Octroi: 30% increase in 2006-07 and a 8% annual increase thereafter § Transit Fee: 35% increase in 2006-07 and a 8% annual increase thereafter	§ NWCMC has increase its Octroi rates on several commodities w.e.f March 07, 2006 § NWCMC has increased the transit fee from Rs. 35 per vehicle to Rs. 50 per vehicle, w.e.f March 07, 2006
2	Property Tax	§ 5% annual increase in assessments from 2005-06 to 2009-10 and a 3 per cent annual thereafter § Periodic revision in ARV once in 4 years – 100% in 20050-06; 50% increase in 2009-10 and 20% increase every 4 years thereafter § 3% increase in ARV of new assessments every year § Gradual increase in collection efficiency from current 34 per cent to 85% by 2009-10 § Tax rate at current levels	§ NWCMC has carried out a fresh assessment of all properties, and has estimated a 5% increase for 2005-06. This growth is expected to be sustained for at least five years due to special drives proposed by NWCMC to broaden the tax base and compliance to building permission rules § NWCMC has proposed to revise the ARV by over 100%, but expects to settle for a 60% increase; and have committed to increase the ARV by at least 50% again in 2009-10 in order to bring them to near-market rates § Nominal increase linked to market trends in rental increase § Based on NWCMC’s revenue enhancement plan, including enforcing compliance and facilitating remittance through specific drives and setting up of zonal collection centers
3	Other ARV-based taxes / cess	§ Same as Property Tax § Tax rates at current levels	§ Same as Property Tax
4	Water Charges / Special Water Tax	§ 70% increase in water assessments in 2005-06, and an increase of 1000 connections per annum till 2009-10, after which it stagnates at 35,365 assessments § Levy of Rs. 1,500 on new connections as connection fee § 10% increase in water charges in 2005-06 and a 15% increase every third year thereafter § Increase in collection efficiency from the current 54% to 80% by 2013-14	§ About 11,000 water assessments from the CIDCO/HUDCO layouts in South Nanded are being transferred to NWCMC in 2005-06. Also, NWCMC would be regularizing unauthorized connections and issuing connections to new properties. The ceiling of 35,365 connections is based on the capacity of the current system to supply water at 110 lpcd, after allowing for 25%system losses and about 4,000 public stand posts § Nominal increase linked to inflation § Based on NWCMC’s revenue enhancement plan and commitment as part of JNNURM requirement. Fresh investments in the sector are expected to result in improved service levels and hence better compliance by consumers
5	Sewerage Charges / Special Sanitation Tax	§ Stagnation in the number of assessments at current level of 23,120 seats § 100% increase in sewerage charges in 2005-06 and a 15% increase every third year thereafter § Increase in collection efficiency from the current 42% to 80% by 2013-14	§ The capacity of the existing sewerage system is constrained; and most parts are not functional, hence no new connections are assumed for the projections § NWCMC has doubled the sewerage charge w.e.f 2005-06 § Based on NWCMC’s revenue enhancement plan and commitment as part of JNNURM requirement. Fresh investments in the sector are expected to result in improved service levels and hence better compliance by consumers
6	Other income from municipal property and services	§ Based on past trends, subject to a minimum of 2% to a maximum of 12% per annum	§ Past trends and in consultation with municipal officials
7	Additional Revenue Sources	§ About Rs. 50 crore to be raised in the next three years through regularization of unauthorized “Gunthewaari” Layouts – 20% in 2006-07, 30% in 2007-08 and 50% in 2008-09	§ It is estimated that there are at least about 700 ha of unauthorized in the city. NWCMC plans to devise and implement a scheme for regularization of these layouts – it has already commenced a survey of such layouts. It is expected that atleast 500 ha would be regularized in the next three years – the fee for regularization as per NWCMC rules is Rs. 250 per sq.m
8	Revenue Grants	§ Per Capita Road Grant: at Rs. 75.68 lakh per annum § Teachers Salary Grant: 50% of salary expenditure of regular education staff § Library Grant: Rs. 4.75 lakh per annum § Other Grants: 5% increase per annum	§ Based on per capita formula § As per GoM rules § As per GoM rules § Nominal increase assumed
9	Growth in Total Revenue Income	§ 9.55 per cent per annum	§ Derived based on above assumptions

Table 30: Assumptions in Projection of Revenue Expenditure

Sl.	Description	Assumption	Remark / Basis
1	Establishment Expenditure	§ 9% annual increase in establishment expenses pertaining to regular staff § 2% annual increase in establishment expenses pertaining to temporary staff	§ Based on past trends (9.11%) § Nominal growth assumed (past trend is < 1%)
2	O&M Expenditure	§ Nominal growth rates based on past trends, subject to a minimum of 5% per annum to a maximum of 10% per annum	§ Based on past trends and in consultation with municipal officials
3	Clearing of non-debt liability	§ Rs. 1.54 crore of dues to GoM to be cleared out of cash reserves in 2006-07 § Rs. 7.19 crore of V Pay Commission Arrears to be cleared out of proposed borrowings at 12% interest for 10 years – 7 years interest payment and 3 year bullet repayment in the end	§ Based on discussion with municipal officials
4	Debt Servicing Expenditure	§ Outstanding debt of Rs. 50.81 crore to be cleared under the Nirbhay Yojana of GoM – which allows for a waiver of 70% of penal interest amounting to a rebate of Rs. 14.66 crore; balance amount of Rs. 36.15 crore to be settled through proposed borrowings at same terms as above	§ Based on discussion with municipal officials (already implemented)
5	Growth in Total Revenue Expenditure	§ 8.88 per cent per annum	§ Derived based on above assumptions

Based on the above assumptions, the operating surplus of NWCMC without any additional investment, is expected to increase from Rs. 7.5 crore realized in 2004-05 to Rs. 10.5 crore in 2005-06 and to 110.5 crore by 2029-30. The average annual revenue surplus works out to Rs. 54.70 crore at current prices. The NPV of the future net cash flows (surplus) works out to Rs. 460 crore at a discounting rate of 8percent.

1.2. Projection of Municipal Fund With Proposed Investments

The phased investment requirements – Rs. 2,325 crore (see Table 28) – and the resultant cash flows (additional revenues, O&M expenses and debt servicing expenses) are loaded onto the projected municipal cash flow without the proposed investments, to ascertain the impact of the investments on the municipal fund.

The assumptions pertaining to funding sources, additional revenues, O&M expenses and debt servicing are presented in the following tables. While projecting the municipal cash flows, the mandatory contribution (as per JNNURM guidelines) to a State level Revolving Fund (equivalent to 25 percent of the GoI grants received) has also been factored.

Table 31: Assumptions for Additional O&M expenditure due to Proposed Investments

Sl.	Sector / Project	O&M Cost as % of Capital Investment
1	Heritage Development & Conservation	2.50%
2	Riverfront Development Project	2.50%
3	Water Supply - New	2.50%
4	Water Supply - System Rehabilitation	1.00%
5	Sewerage & Sanitation	3.00%
6	Storm Water Drainage	1.00%
7	Solid Waste Management	10.00%
8	Roads & Street Lighting - New	2.00%
9	Road Widening & structures	2.00%
10	Public/ Commercial Transportation Infrastructure	5.00%
11	Fire Services	5.00%
12	Slum & EWS Housing	0.00%
13	Other Projects	2.00%

Table 32: Assumptions for Additional Revenues as a result of Proposed Investments

Sl.	Sector / Project	% of O&M Expense Recovered
1	Heritage Development & Conservation	0.00%
2	Riverfront Development Project	50.00%
3	Water Supply - New	100.00%
4	Water Supply - System Rehabilitation	75.00%
5	Sewerage & Sanitation	100.00%
6	Storm Water Drainage	0.00%
7	Solid Waste Management	0.00%
8	Roads & Street Lighting - New	10.00%
9	Road Widening & structures	10.00%
10	Public/ Commercial Transportation Infrastructure	100.00%
11	Fire Services	0.00%
12	Slum & EWS Housing	2.00% of Project Cost
13	Other Projects	100.00%

Table 33: Assumed Sector-wise Funding Pattern

Sl.	Sector / Project	GoI- JNNURM Grant	GoM- JNNURM Loan	NWCMC- Contribution	NWCMC Borrowings	GoI JNNURM- UBSP	Donations / Contributions / PPP	Total
1	Heritage Development & Conservation	80%	10%	2%	8%	0%	0%	100%
2	Riverfront Development Project	80%	10%	2%	8%	0%	0%	100%
3	Water Supply - New	80%	10%	2%	8%	0%	0%	100%
4	Water Supply - System Rehabilitation	80%	10%	2%	8%	0%	0%	100%
5	Sewerage & Sanitation	80%	10%	2%	8%	0%	0%	100%
6	Storm Water Drainage	80%	10%	2%	8%	0%	0%	100%
7	Solid Waste Management	80%	10%	2%	8%	0%	0%	100%
8	Roads & Street Lighting - New	80%	10%	2%	8%	0%	0%	100%
9	Road Widening & structures	80%	10%	2%	8%	0%	0%	100%
10	Public/ Commercial Transportation Infrastructure	0%	0%