Assignment TakenTo Prepare a Self Sufficient Financial Model with Government Support requirements for the Project being taken by Green Wealth Pvt. Ltd. and timeline to becoming self-sufficient and operation Plan.

Case UnderstandingSwachh Bharat Mission (SBM) is implemented by Ministry of Urban Development, SBM emanates from the vision of the Government to ensure hygiene, proper waste management, and sanitation across the nation and aims for a Clean India under a collaborative framework of multiple stake holders. The Key objectives of Swachh Bharat Mission is to develop a modern and scientific municipal waste management system through which waste can be utilized for wealth creation. Urban India produces about 42.0 million tons of municipal solid waste annually that is 1.15 lakh metric tons per day (TPD), out of which 83,378 TPD is generated in 423 Class-I cities. With rapid urbanisation and economic growth and an increase in per capita waste generation, annual municipal solid waste generation is estimated to grow more than five-fold. Even though the quantity of waste generated is expected to grow significantly, service levels in the MSWM space continue to be below par. The major gaps exist in the coverage of collection services, scientific processing and disposal of the waste. The role and intervention of private sector in municipal solid waste management is growing rapidly in the country. To be prepared for future & achieve sustainable growth, Government of Madhya Pradesh is promoting Public Private Partnership Scheme across Urban Infrastructure development sectors. Aimed at achieving operational efficiency gains with managerial capability of private sector, however it was limited to specific components of collection, transportation and road sweeping in the entire MSWM value chain.The urban local bodies (ULBs) gradually realised the imperatives of processing/recycling solid waste to reduce the burden on landfills. Current waste management practices has become inefficient and financially nonviable, due to excessive cost as well as non-availability of land in smaller ULB’s. Government wants to make waste management processes to become efficient & financially viable and thus plan to establish region wise Integrated waste management facilities covering nearby ULB’s. Project involves primary and secondary collection of Municipal Solid Waste (MSW) generated within Urban local bodies. Though Municipal Solid Waste Management is an essential and obligatory function of the Urban Local Bodies, service levels in MSWM continues to fall short of desired levels. Apart from the above, a range of other GoI initiatives to support SWM and PPP in SWM were introduced including the Bio-medical Waste Handling Rules.

Phases of the case - Segregation, Wealth creation, less wastage.

BCS Solution SummaryThe assessment of the financial feasibility for an identified set of components which form the Project is imperative to determine if the proposed project offers reasonable returns on the investments, hence, evincing sufficient interest for private sector participation in the project. Our big idea at Green Wealth revolves around enabling integrated waste management, along with wealth creation for the key stakeholders - government, citizens and the company. We are basically targeting the Triple Bottom Line, i.e. People, Planet and Profit. Steps in Financial Feasibility evaluation:- Step 1 Determine Financial Sources (project revenues & capital funds) Step 2 Determine Project Costs (capital & revenues expenditures) Step 3 Evaluate Project Viability Step 4 Determine Financial Support Requirement Determine Financial Sources 1.Revenue Streams • SWM Cess/Earmarking of Property Tax • Levy User Charges • Sale of By-products from Processing/Treatment of MSW Grants from GoI Schemes • Finance Commission Grants • Jawaharlal Nehru Urban Renewal Mission (JNNURM) • Fiscal Incentives Tax Holiday for the Project Entity for SWM Tax Exemption of Certain Bonds Issued by Local Authorities Tax Exemption for Income of Infrastructure Capital Funds/Companies. Determine Project Cost The Project Costs broadly encompasses the capital investment requirement for setting up of the project facility. Including plant & machinery cost and/or investment required in procuring equipment, vehicles, and machinery for collection & transportation of MSW within the project area, and recurring expenses for smooth operations of the project including manpower requirement, operating expenses for utility usage, miscellaneous expenses like insurance, and also the maintenance cost for equipment, vehicles, plant & machinery relating to the project. 1. Capital Investments Capital Investments include Waste segregation Machine, IoT module deployment, Incinerators for Toxic waste, Pavement Block making Machine, Composting unit, Collection and Transportation, Secondary Storage, Landfill Development. 2. Operations and Management Costs Operations and Management costs include Manpower Costs, Waste sorting staff, Management Team, Utility charges including power, water etc., consumables, Administrative expenses, Licenses and approvals, legal and Auditing, supplies and Maintenance costs. Determining Project Viability Income Statement Balance Sheet.

Solution

The detailed Solution is attached below as a PDF File.

Municipal Solid Waste Management is an essential and obligatory function of the Urban Local Bodies, service levels in MSWM continues to fall short of desired levels. With rapid urbanisation and economic growth and an increase in per capita waste generation, annual municipal solid waste generation is estimated to grow more than five-fold from the current level of 70 million tons to reach 370 million tons by 2030 (source; McKinsey Global Institute). Even though the quantity of waste generated is expected to grow significantly, service levels in the MSWM space continue to be below par. The major gaps exist in the coverage of collection services, scientific processing and disposal of the waste. The issues and challenges in the sector are outlined below:

• Institutional and financing policy related issues includes low investment requirement. Coping informal solutions in waste disposal.
• Policy related challenges include land acquisition, Developing ‘Regional’ approach to processing & disposal for smaller cities, Lack of willingness to charge user fees.
• Segregation
• Project development related challenges include manpower relocation, Need to develop SWM Master Plan considering PPP options.

The PPP Model Public-Private Partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

Financial Modelling includes –

Step 1 - Determine Financial Sources (project revenues & capital funds)

The assumptions included in the revenue streams are:-

1. Levy User Charges is the fee based on the solid waste, creating an economic incentive to reduce waste generation and encorage recycling.

2. A nominal service charge of Rs.100 per annum per household as SWM Cess for MSWM activities is collected along with Property Tax.

3. Government Agencies Grants and Schemes.

The finance commission which is responsible for devolution of funds to state governments every five years had allocated total of around Rs.25000 crore. (Rs.20 crores for panchayats and 5 crores for municipalities) for supplementing the resources of the ULBs for improving urban infrastructure, out of this 5 crores, 50% was allocated for solid waste management alone, to be passed through urban local bodies for the period of 5 years. Under the 12th finance commission, an award of Rs. 2500 crore was made to ULBs of all 423 Class I citiesin the country.

5000 crores*0.5 = 2500 crores For 5 years

For 1 year 2500 crores/5 = 500 crores for 423 cities

For 1 City Bhopal = Rs. 11820330 which is further divided into Cllection and Transportation, Waste Processing (Compost Plants), Sanitary Landfill Development.

Collection and Transportation equipment and Machinery - 16.67% - 1970055

Waste Processing - 50% - 5910165

Sanitary Landfill Development - 33.33% - 3940110

(ii) Jawaharlal Nehru Urban Renewal Mission (JNNURM).

JNNURM is a programme which is administered by the Ministry of Urban Development to improve the urban infrastructure in major cities across India.

(iii) Subsidy by GOI for Compost Plant and Waste to energy projects - The ministry of Non- conventional Energy Sources (MNES) has been promoting waste to energy plants, refused derived fuel, biomethanation, biogas and gasification. The purpose of the subsidies has been to promote technologies which might otherwise not be taken up financially.

1. Project Cost

The assumptions included in Capital Investment Model are:-

Revenue from Deposits for the project is 60 crores divided into 4 quarters for 1 Financial Year.

Revenue from other sources as per desaggregation of Revenue is Rs.14652101 per month from tax levies and Government Grants.

Expenses include:-

Waste Segregation Machine – 2 units @ 26 lac yearly.

IoT Module Deployment -5 @ 35k per drone.

Incinerators for Toxic Waste -3 @ 11.5 lac yearly.

Pavement Block Making Machine – 10 lac

Composting Unit- 34.5 lac

IT Team Salary – 2 @ 1 lac per quarter

App developer’s salary – 90k per quarter

Profit = Total Revenues – Total Expenses.

 

 

Operations and Maintenance Costs

Waste Sorting Staff – 10 @ 20k monthly = 200k per quarterly

Management Team (Same as Industrial Waste Team) – 6 lac per quarter

Utility charges such as power, Water etc – 4 lac per quarter

Incinerators for toxic waste – 3 units @ 11.5 lac (one time cost)

Administrative expenses

Licenses and approvals – 40000 yearly I.e 10000 quarterly

Legal and Auditing – 800 per quarter

Supplies – 4500 per quarter

Incinerator Maintenance costs (fixed) – 2 units @125000.

 

Other miscellaneous costs- Costs of Tieups and the CSR initiatives taken by the company.

Future operations and Business Expansion Plan

The assumptions included are:-

1. Revenue Streams

Average number of Households/entities served daily are increased by 15% every quarter from the previous quarter.

Charges for Waste collection service per quarter is Rs. 90 per quarter (fixed)

Revenue from purchases per quarter is increased by 15% every quarter than the previous quarter.

Revenue from compost sale – 7 tonnes daily @ Rs.3 per Kg (Fixed)

Revenue from the sale of scraps is increased by 20% after 1st FY and then by 25% after 2nd FY.

 

1. Cost Streams

In every quarter company increased 2% more than the previous quarter in Digital marketing and Promotional Material Costs.

Domain and Server hosting costs are 3000 per quarter (Fixed).

IT Team Salary – 2 @ 1 lac per quarter increased by 20% after 1st Financial Year.

Android app development – (one time) 30000

Google Developer subscriptions – Rs.1975 (one- time)

Ios development cost (one time) – Rs.30000

App developer’s salary- 90k per quarter.

Waste segregation machine – 2 units @ 26 lac

IoT module deployment – 5 @ 35k per drone

Incinerator maintenance – 2 units @ Rs. 125000

Pavement Block Making machine – 1 lac

Composting unit – 34.5 lac

Miscellaneous expenses:-

Waste Sorting Staff – 10 @ 20k monthly

Management Team – 6 lac

Licenses and approvals – 10k monthly

Legal and audit charges – 800 per quarter

Supplies – 4500 per quarter

Others- Rs. 75k per quarter.

NPV was calculated at 4%.

Management Principles:

Triple Bottom Line – We are impacting People’s lives through efficient waste management, generating Profits through the production and sale of recycled/upcycled products and also contributing towards the cause of Planet through our sustainability programs.

ConclusionThe above mentioned interventions helped the company in becoming operationally profitable and the company’s budget shows that the company would not go into a loss after that. Hence the interventions were successful in making the company generate a surplus. This surplus could now be used to invest in the company’s expansion plans and the company’s timeline shows that company will reach its self sufficient point through operational plans by the year 2023.To achieve sustainable growth PPP model is introduced. The recyclables are not sold out instead the materials of recyclables were used to create infrastructure so as to create wealth.