The Pune Municipal Corporation building. (File Photo)
Written by Ajay Jadhav
Under criticism for raising Rs 200 crore by issuing municipal bonds for civic project, the Pune Municipal Corporation (PMC) is all set to gain from it and become the first civic body to get Union government incentives declared for municipalities raising funds through such bonds.
The PMC had successfully raised Rs 200 crore from municipal bonds in June last year and is set to become the first local civic body to do so after several years. It would be raising a total of Rs 2,264 crore in five years through municipal bonds for implementation of the 24X7 water supply project at a rate of 7.59 per cent and the first slab of Rs 200 crore was raised in June last year.
But the civic administration had come under attack for hastily raising funds through municipal bonds as the project implementation had not started. Thus, the PMC decided to deposit the amount in fixed deposit accounts in a bank to compensate for the loss of repayment of municipal bonds, despite not using the funds raised.
In its notification, dated March 23, the Union Housing and Urban Affairs Ministry said that the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) has a reform agenda that has 11 reforms comprising 54 milestones to be achieved by the civic body and credit rating of urban local bodies and floating municipal bonds is part of the reforms. The credit rating is a prerequisite for urban local bodies to raise money from capital markets and financial institutions and the urban local bodies with investment grade credit rating can float municipal bonds to strengthen their financial capabilities.
It said the municipal bond market, having potential in fulfilling the financial requirement of the urban sectors has been largely untapped. There have been requests from the urban local bodies for providing financial incentives for issuing municipal bonds.
In order to encourage urban local bodies to raise resources from the market, it has been decided to incentivise the urban local bodies that are covered under AMRUT and raise funds by issuing municipal bonds. The Union ministry would incentivise up to 10 urban local bodies in 2018-19 for issuing municipal bonds on a first-come-first-serve basis, based on the date of issue of bonds. The incentive amount would be limited to Rs 13 crore for every Rs 100 crore of bonds issues and up to a maximum of Rs 200 crore worth bonds per urban local body will be incentivised under this scheme.
It said the incentives would be awarded only after successful issue of municipal bonds by the urban local body and those who have issued the same in 2017-18 would be eligible for claiming the incentive under the scheme.
The urban local body, after obtaining approval from Securities and Exchange Board of India (SEBI) and after the issue of municipal bonds, needs to approach the Union Urban Development Ministry to claim the incentive under the scheme by submitting local body resolution to float bonds, a copy of credit rating and documentary evidence regarding issuance of municipal bonds.