Climate-focused Project Preparation and Bid-process Management Facility for Cities

Vivek Chandran, June 10, 2024

Indian cities require an estimated capital investment of USD 840 billion in urban infrastructure and services in the next 15 years (till 2036)[1]. Urban areas account for a significant portion (more than 70% as per IPCC estimates[2]) of carbon emissions, and modeling indicates that 54 percent of India’s urban abatement potential up to 2050 lies in cities with populations of less than a million, while a further quarter is in cities with over 5 million population[3]. With a significant portion of India’s infrastructure (approximately 70%) yet to be built[4] and a further $3.6 trillion in incremental investments required by 2050[5] to meet targets, it is imperative that the predominantly funded by intergovernmental fiscal transfers within government be augmented by private finance. Investments in climate infrastructure are likely to give good returns in the long term, making it more attractive for private investors.

Barring a few, most cities in India are unable to tap into private sources of funding primarily due to the lack of capacity and knowledge within city governments to leverage these. To address these challenges, a Climate Project Preparation Facility (CPPF) is being set up to boost private sector involvement in developing climate-focused urban infrastructure with the potential for GHG mitigation. The facility is being set up at the National Institute of Urban Affairs (NIUA) and will leverage both NIUA’s and Shakti’s expertise and networks to offer specialized advisory services to Urban Local Bodies (ULBs) to nurture and build their capacity to create and attract finance for mitigation-focused projects. The facility will focus on the sectors of Transportation, Buildings, Renewable Energy, and Waste (Solid and Liquid) management. Within these sectors, the facility will take up project typologies with a high potential for GHG mitigation and those with a potential for attracting private funding. For these projects, the CPPF will facilitate the development of innovative project structuring to attract financing through Public-Private Partnerships (PPP) or direct private investments.

The PPF will work in a collaborative manner with the cities that express interest in developing projects aligned with facilities’ focus areas through the PPP route. The facility will provide handholding support to the cities in all phases of the project development up until the start of the project implementation. As part of this support, the CPPF will also appoint a transaction Advisor (TA) to carry out detailed transaction advisory services, including economic, financial, environmental, and social due diligence for the project. Parallelly, the facility would require continued financial commitments, budgetary allocations, and project approvals from the city during various stages of the proposal development. This would also include the payment of a nominal fee (~ ₹4 lakh) to the facility to increase the city’s ownership of these projects.

The PPF serves a critical need in the ecosystem by addressing the gap in private-sector investment in climate projects and enhancing cities’ capacity to absorb and utilize financial resources effectively. By combining the technical expertise of NIUA, including C-Cube partners, and the Shakti Foundation, the PPF aims to transfer expert knowledge on designing, constructing, and operating climate-focused infrastructure. Ultimately, it seeks to significantly increase private sector investments in climate change initiatives in India and ensure the sustainable development of urban infrastructure, promoting environmentally friendly, inclusive, and resilient projects while aligning with the country’s Nationally Determined Contributions (NDCs).