SPV Case Study - Konkan Railway !

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Commuter RailPublic Transport

These days I am in search of information on working of Special Purpose Vehicle. In this pursuit I have come across many pieces of info available on Internet.

One such is the story of Konkan Railway from his own words of E. Sreedharan. Really eyeopening and excellent read to appreciate the end product called "Konkan Railway". A really a master piece executed and completed in recent times (post Independence).

This report/lecture has insights into many aspects of a large infrastructure projects:

  1. Conceiving a Project
  2. Political Support
  3. Project Management
  4. Engineering execution

The interesting point in this lecture is how Sreedharan with the help of bureaucrats got Chief Ministers and political class on board for the project. This testify to the fact that many of us believe that if bureaucrats has the will and vision, they can even get the political bosses agree to the ideas and projects.

Let us analyze this further and come up with ideas on how Namma Railu SPV should be modeled and conceived. Attached are some documents on Konkan Railway SPV.

AttachmentSize
The-Story-of-Toughest-Konkan-Railways-Project-India-by-Its-Project-Director-E-Shreedharan.pdf135.81 KB
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PWC's report on Konkan railway!

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Another Report on KR from PWC.

http://www.atrilab.com/files/Finalreport10.06PWCgray.pdf

From wikipedia!

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Cortsey - http://en.wikipedia.org/w...

Definition:

A special purpose entity (SPE) (sometimes, especially in Europe, "special purpose vehicle" or simply SPV) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. SPE's are typically used by companies to isolate the firm from financial risk. A company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk. SPEs are also commonly used in complex financings to separate different layers of equity infusion. In addition, they are commonly used to own a single asset and associated permits and contract rights (such as an apartment building or a power plant), to allow for easier transfer of that asset.

A special purpose entity may be owned by one or more other entities and certain jurisdictions may require ownership by certain parties in specific percentages. Often it is important that the SPE not be owned by the entity on whose behalf the SPE is being set up (the sponsor). For example, in the context of a loan securitization, if the SPE securitisation vehicle were owned or controlled by the bank whose loans were to be secured, the SPE would be consolidated with the rest of the bank's group for regulatory, accounting, and bankruptcy purposes, which would defeat the point of the securitisation. Therefore many SPEs are set up as 'orphan' companies with their shares settled on charitable trust and with professional directors provided by an administration company to ensure that there is no connection with the sponsor.

Uses

Some of the reasons for creating special purpose entities are:

  • Securitization: SPEs are commonly used to securitise loans (or other receivables). For example, a bank may wish to issue a mortgage-backed security whose payments come from a pool of loans. However, to ensure that the holders of the mortgage-back securities have the first priority right to receive payments on the loans, these loans need to be legally separated from the other obligations of the bank. This is done by creating an SPE, and then transferring the loans from the bank to the SPE.
  • Risk sharing: Corporates may use SPEs to legally isolate a high risk project/asset from the parent company and to allow other investors to take a share of the risk.
  • Finance: Multi-tiered SPEs allow multiple tiers of investment and debt.
  • Asset transfer: Many permits required to operate certain assets (such as power plants) are either non-transferable or difficult to transfer. By having an SPE own the asset and all the permits, the SPE can be sold as a self-contained package, rather than attempting to assign over numerous permits.
  • For competitive reasons: For example, when Intel and Hewlett-Packard started developing IA-64 (Itanium) processor architecture, they created a special purpose entity which owned the intellectual technology behind the processor. This was done to prevent competitors like AMD accessing the technology through pre-existing licensing deals.[citation needed]
  • Financial engineering: SPEs are often used in financial engineering schemes which have, as their main goal, the avoidance of tax or the manipulation of financial statements. The Enron case is possibly the most famous example of a company using SPEs to achieve the latter goal.
  • Regulatory reasons: A special purpose entity can sometimes be set up within an orphan structure to circumvent regulatory restrictions, such as regulations relating to nationality of ownership of specific assets.
  • Property investing: Some countries have different tax rates for capital gains and gains from property sales. For tax reasons, letting each property be owned by a separate company can be a good thing. These companies can then be sold and bought instead of the actual properties, effectively converting property sale gains into capital gains for tax purposes.

 

SPV just got easier

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 Sub: Single Window for receipt of all Infrastructure Investment proposals.

Ministry of Railways have decided to operate a Single Window for receipt of all Infrastructure Investment proposals connected with the Indian Railways. Individuals/Organisations who are interested may submit the proposals in 3 copies to Secretary, Railway Board, Ministry of Railways, Room No.229, Rail Bhavan, New Delhi 110001 during office hours.

Source

No excuses like... oh PPP is only on paper, RVNL guidelines are hogwash, SPV is not for real etc etc. If this single window, isnt clear enough, I dont know what is!

UMTA

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 The National Urban Transport Policy (NUTP), 2006 formulated by the central government envisages setting up of unified metropolitan transport agency (UMTA) in all million plus cities.

The minister said so far no city or sate has sought any funding from the centre.

Source

Shouldnt UMTA be the nodal agency to coordinate transportation projects? Why is there so much laxity on this? In case of Karnataka it should be the DULT

Further presentation on UMTA here