Public-Private Partnership Stories India: Bhubaneswar Affordable Housing Odisha, a low-income state in India, with a population of over 43 million has witnessed an annual urban growth of 27% per annum over the last decade. This rapid urbanization has posed a number of challenges for the city, including an estimated shortage of 410,000 homes. With approximately 23% of people in the state residing in slums in the capital city of Bhubaneswar, there is an estimated shortage of 80,000 housing units, specifically for low income families. With a view to bridging this gap, the Bhubaneshwar Development Authority (BDA) formulated the “Policy on Housing for All in Urban Areas” and asked IFC to provide transaction advisory assistance for the country’s first ever Public Private Partnership (PPP) for Affordable Housing. In December 2016, the consortium of Shyam Indus Power Solutions Private Limited and GSBA Builders Private Limited was awarded the project after offering the lowest government subsidy to build the affordable housing. The consortium incorporated a special purpose vehicle (SPV) named Paramitra Smart Infra Private Limited and signed an eight-year Development Agreement with BDA. This series provides an overview of public-private partnership stories in various infrastructure sectors, where IFC was the lead advisor. The project was implemented with the financial support of DevCo, a multi-donor facility affiliated with the Private Infrastructure Development Group. DevCo provides critical IFC financial support for important infrastructure transactions in the poorest countries, helping Public-Private Partnerships boost economic growth and combat poverty. DevCo is funded by the UK’s Department for 2121 Pennsylvania Ave. NW International Development (DFID), the Austrian Development Agency, the Dutch Ministry Washington D.C. 20433 of Foreign Affairs, the Swedish International Development Agency, and IFC. ifc.org/ppp BACKGROUND Another feature of the transaction structure is the requirement of India has a severe shortage of affordable urban housing, a sector the Developer to address any structural deficiencies in the with very little private sector participation, especially for families affordable housing units identified within 5 years from the date with an annual income of under $4,600. This has led to severe of handback, and simultaneously creating a maintenance account shortages of quality housing for the economically weaker with $500,000, interest income from which would be used later sections (EWS) of the population, who are often forced to live in to undertake ongoing maintenance of the affordable housing slums or slum like conditions. The State of Odisha launched its units. This ensured that the project would not be a mere “Policy for Housing for All in Urban Areas” in 2015 to develop construction contract and that the Concessionaire would be affordable housing units for low-income groups (LIG) and EWS obligated even after project handover to ensure the quality of its under various models, including Public-Private Partnerships construction. (PPP). Through this, the Government of Odisha aims to develop Lastly, IFC studied various international cases and saw that 410,000 affordable housing units, of which 80,000 would be in housing finance was a key requirement for success. Even though Bhubaneswar, with the BDA planning to create 10,000 units by the EWS beneficiaries were getting part subsidy from the 2020. Government of India, they would still be required to secure loans from financing institutions. To overcome this obstacle, IFC IFC’S ROLE consulted various housing finance institutions for inputs, helped IFC carried out technical, commercial, and legal due diligence, line up potential lenders, and required the Developer to organize designed the transaction structure, drafted bid documents, and loan fairs to ensure that adequate support is provided to EWS assisted throughout the bidding process. IFC also analyzed beneficiaries to access the financing they need to purchase their similar projects in India and across the world to identify best homes. practices and potential impediments and integrated the findings The bid documents drafted by IFC for this project have now been in the project design. Over the course of IFC’s support for BDA standardized by the BDA and GoO to implement similar projects. (2013-2017), the project saw three major changes, the first related to the housing policy. The GoO already had a housing policy in BIDDING place when the project started. During project structuring, IFC identified several gaps in the framework and advised on On December 15, 2016 a single stage bidding process was modifications that led to important changes and a re-release of the commenced by the BDA. Three bids were received and the “Policy for Housing for All in Urban Areas” in 2015. Secondly, consortium of Shyam Indus Power Solutions Private Limited and the project site was changed midway in the project, which GSBA Builders Private Limited quoted the lowest subsidy and necessitated new technical studies and revisions to the bid was awarded the Project. documents. Thirdly, the transaction structure had to be aligned with a new act (Real Estate Regulation Act, 2016) notified by the Government of India. EXPECTED POST-TENDER RESULTS TRANSACTION STRUCTURE • 2,600 affordable housing units built for families The project was one of the first real estate PPPs to be structured earning less than US $2,800 per year. under the “Real Estate Regulatory Authority Act” (RERA), • Improvement in the living conditions of which was enacted in 2016 to regulate the real estate market. With approximately 10,000 persons belonging to the EWS no precedent of aligning PPPs to RERA, IFC conducted extensive category. stakeholder consultations and legal review to ensure that the project was in complete alignment with this landmark act. • $70 million in private sector investment in Odisha’s affordable housing stock; The project site is a total of 20.21 acres. Under the PPP, the Developer will design, finance, construct and handback 2,600 affordable housing units on 13.71 acres free of cost to BDA. This will be done over a period of 36 months, with an interim requirement to handback at least 800 units within 24 months. In lieu, the Concessionaire would be given free hold rights on the balance of 6.5 acres, with the transfer of this land also being done in two phases in proportion to completion of affordable housing units. The Concessionaire would have a right to construct a commercial project on this land (like high income residential housing) to recover its investments. The project also integrates financial assistance available to the EWS beneficiaries under national government scheme (Pradhan Mantri Awas Yojna), under which the affordable housing units will be offered to beneficiaries at a subsidized cost of $2,300.