A special purpose vehicle is a legal entity that has been established to separate an asset, subsidiary, or financial transaction from a larger corporation or government agency. A special purpose vehicle (SPV) is typically created for a limited task to help isolate risk with a transaction or an asset.
A Special Purpose Vehicle (SPV) is a legal entity created for a specific purpose or project, often to isolate financial risk and protect other assets from potential losses. SPVs are commonly used in structured finance transactions, such as securitization of assets or infrastructure projects, as well as in public-private partnerships (PPPs) and other complex financial arrangements.
The primary function of an SPV is to provide a ring-fenced structure that separates the assets and liabilities of a project or transaction from those of its sponsors or other stakeholders. This can help to reduce the credit risk associated with the project and make it more attractive to investors.
Some of the key features of an SPV include:
- Limited liability: The liability of the SPV is limited to its own assets and operations, which can protect the sponsors and investors from potential losses.
- Independent legal status: An SPV is typically created as a separate legal entity, with its own board of directors, management team, and governance structure.
- Asset segregation: The assets and liabilities of the SPV are typically separated from those of its sponsors or other stakeholders, which can help to insulate them from risks associated with other projects or transactions.
- Tax efficiency: SPVs are often structured in a tax-efficient manner, with the goal of minimizing tax liabilities and maximizing returns for investors.
- Simplified management: An SPV can be managed by a third-party service provider, which can simplify the management and administration of the project or transaction.
The implementation of the Smart cities Mission will be done by a Special Purpose Vehicle (SPV) created at city level.
The SPV will plan, appraise, approve, release funds, implement, manage, operate, monitor and evaluate the Smart City development projects.
Each smart city will have a SPV which will be headed by a full time CEO and have nominees of Central Government, State Government and ULB on its Board.
The States/ULBs shall ensure that, a)a dedicated and substantial revenue stream is made available to the SPV so as to make it self-sustainable and could evolve its own credit worthiness for raising additional resources from the market and b)Government contribution for Smart City is used only to create infrastructure that has public benefit outcomes. The execution of projects may be done through joint ventures, subsidiaries, public-private partnership (PPP), turnkey contracts, etc suitably dovetailed with revenue streams.
Structure of the SPV :
The City level SPV will be established as a Limited Company under the Companies Act, 2013 and will be promoted by the State/UT and the ULB jointly, both having 50:50 equity shareholding.
The private sector or financial institutions could be considered for taking equity stake in the SPV, provided the State/UT and the ULB share are equal to each other, and together the State/UT and ULB have majority shareholding and control of the SPV (e.g. State/UT : ULB : Private sector shareholding can be in the ratio 40:40:20 or 30:30:40.
Key functions and responsibilities of the SPV are to:
- Approve and sanction the projects including their technical appraisal.
- Execute the Smart City Proposal with complete operational freedom.
- Take measures to comply with the requirements of MoUD with respect to the implementation of the Smart Cities programme.
- Mobilize resources within timelines and take measures necessary for the mobilisation of resources.
- Approve and act upon the reports of a third party Review and Monitoring Agency.
- Overview Capacity Building activities.
- Develop and benefit from inter-linkages of academic institutions and organizations.
- Ensure timely completion of projects according to set timelines.
- Undertake review of activities of the Mission including budget, implementation of projects, and preparation of SCP and co-ordination with other missions / schemes and activities of various ministries.
- Monitor and review quality control related matters and act upon issues arising there of.
- Incorporate joint ventures and subsidiaries and enter into Public Private Partnerships as may be required for the implementation of the smart cities programme
- Enter into contracts, partnerships and service delivery arrangements as may be required for the implementation of the Smart Cities Mission.
- Determine and collect user charges as authorized by the ULB
- Collect taxes, surcharges etc. as authorized by the ULB
Overall, SPVs can provide a flexible and efficient way to structure complex financial transactions and mitigate risk for investors. However, they also require careful planning and management to ensure that they are structured in a responsible and sustainable manner.
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