National monetization pipeline - WAREHOUSES

National monetization pipeline - WAREHOUSES

1. REAL ESTATE MANAGEMENT NATIONAL MONETIZATION PIPELINE WAREHOUSING ASSET CASE STUDY Building Engineering and Management SPA-DELHI GROUP 6 ANUPAM | MATHESH | SWADESH | VIDUSHI

2. 01. POTENTIAL ASSET BASE IN WAREHOUSING FOR NMP: 02. FACTORS INFLUENCING MONETISATION OF WAREHOUSES 03. CHALLENGES OF WAREHOUSE OPERATION AND MAINTENANCE 04. MONETISATION MODELS FOR WAREHOUSING ASSETS AS PER NMP: 04.A. InvIT model. (Infrastructure Investment Trusts) 05.A.1. Indicative transaction structure. 05.A.2. Monetisation process 04.B. OMD model. (Operate, Manage and Develop based PPP model). 05.B.1. Indicative transaction structure. 05.B.2. Parts of the concessionaire agreement. 05. CENTRAL WAREHOUSE CORPORATION (CWC)- AN INTRODUCTION 06. CASE OF ASSET MONETISATION OF RSWC (RAJASTHAN STATE WAREHOUSE CORP) WAREHOUSES 07. STUDY OF ASSET MONETISATION OF DELHI NCR WAREHOUSES 07.A. CWC Warehouses, Delhi-NCR: Present Scenario 07.B. Application of NMP framework to selected case of CWC Delhi NCR warehouses CONTENTS OF PRESENTATION

3. POTENTIAL ASSET BASE IN WAREHOUSING FOR NMP: The potential assets for monetisation are owned warehouses of FCI and CWC Storage Depots, warehouses under central agencies (FCI and CWC operating under the aegis of Department of Food & Public Distribution) FOOD CORPORATION OF INDIA (FCI) (and agencies) 755 LMT (Lakh Metric Tonne) CENTRAL WAREHOUSING CORPORATION (CWC) 422 operated warehouses with a capacity of 109.72 LMT 343 LMT State owned 412 LMT FCI owned 70% Hired through CWC, SWC and pvt sector 30% Owned by FCI This includes custom bonded warehouses, container freight stations, inland clearance depots, air cargo complexes, etc The aggregate storage capacity– FCI and CWC ~521 LMT (~412 LMT with FCI & 109 LMT with CWC). Out of the FCI available asset base, FCI owned storage infrastructure i.e. about 123 LMT is amenable for monetisation as the facilities have a strong potential for augmentation and capacity expansion. CWC’s entire capacity of ~110 LMT is amenable for monetisation as it has a revenue stream (in form of storage charges from FCI & other users) and also a strong commercial potential for augmentation, capacity expansion and O&M Development of 175 lakh tonnes of wheat silos by FCI Development of 35 lakh tonnes silos at 45 locations by CWC Development of cold storage facilities in 190 locations by CWC Development of 1.16 lakh tonnes storage capacity by Central Railside Warehouse Company Ltd. Source: National Monetisation Pipeline, NITI AAYOG

4. The total value of assets considered for monetisation is estimated at Rs 28,900 crore for FY 2022 to 2025, and phased as follows Indicative Value of assets and phasing In case of warehouses, the assets considered for monetisation have been taken based on preliminary pipeline information provided by the Department of Food & Public distribution (DoFPD). The pipeline presently consists of storage infrastructure assets with need of significant augmentation in infrastructure and rehabilitation. Accordingly, the key project interventions have been identified by the line ministry. Hence the monetisation value has been considered in form of private sector investment towards augmentation of these assets. The indicative monetisation value has been arrived at based on the ‘Capex approach’. The capex for all the projects has been based on high level estimates provided by the DoFPD as part of the pipeline. The cost assumptions are as follows: (i) capex per LMT for silos has been estimated at Rs 100 crore per LMT, (ii) cost per cold storage facility has been considered at Rs 40 crore per location.

5. Assets Considered Under National Monetization Pipeline Development of 175 lakh tonnes of wheat silos by FCI Development of 35 lakh tonnes silos at 45 locations by CWC Development of cold storage facilities in 190 locations by CWC Development of 1.16 lakh tonnes storage capacity by Central Railside Warehouse Company Ltd.

6. CENTRAL WAREHOUSE CORPORATION (CWC) MISSION To provide reliable, cost-effective, value-added and integrated warehousing and logistics solutions in a socially responsible and environment friendly manner. OBJECTIVES To be a major player in providing pest control services using environment friendly methods . To assist in implementation of Warehousing (Development & Regulation) Act, 2007 with a view to expand credit potential of Warehoused goods through banking institutions and NBFCs . To plan and diversify across the logistics value chain, through forward and backward integration in areas such as port handling, procurement and distribution, cold chain, warehousing financing, 3PL, consultancy services, multi – modal transport etc . To achieve global presence in the warehousing and logistics field . To plan and implement Human Resource Development programmes to improve commitment, motivation and productivity of employees for achieving customer satisfaction. To reduce losses during warehousing, handling and distribution. To meet changing needs of agriculture, trade, industry and other sectors by providing scientific warehousing and related infrastructural facilities. VISION To emerge as a leading market facilitator by providing integrated warehousing infrastructure and other logistics services, supporting India’s growing economy with emphasis on stakeholder satisfaction.

7. Factors influencing Monetisation of warehouses Growth in e-commerce space The expanding e-commerce space offers a new set of opportunities for the warehousing and logistics players . FCI and CWC have a sizeable number of underutilised warehouses near urban centres . Considering the potential growth in demand for warehouses due to e-commerce growth, monetisation of such assets is expected to bring in significant value from the private sector . Established track record of agencies in private sector engagement FCI and CWC have an established track record in dealing with private sector players over the years. Hence, the institutional understanding as well as the regulatory framework for engagement is successfully in place in these firms. One of the landmark private sector engagement initiatives is the Private Entrepreneurs Guarantee (PEG) Scheme for augmenting the storage capacity of FCI in PPP mode . Under this scheme, storage capacity is created by private parties under an assured capacity offtake arrangement by FCI. A total of 153 LMT of storage capacity has been initiated under the scheme as of February 2021. Value maximisation Most of the warehouses that were planned and constructed between 1980 and 1990 are located in prime locations and in proximity to city centres that have now become part of the urban landscape. Thus, these land parcels can be leveraged for augmenting the quality as well as capacity of storage infrastructure . The private sector can be mandated to undertake the task of redevelopment/ refurbishment of assets while ensuring minimal operational disruption and incremental cost for the authority . Capacity rationalisation and operational efficiencies Peak stock requirement during the normal procurement season for central pool food grains in the country is ~650 lakh MT. Against this, the total storage capacity available with FCI, CWC, and the state agencies (both owned and hired capacity, including CAP) is 875.09 lakh MT at a pan India level. Thus, it is imperative to optimally rationalise the existing capacity, while ensuring high operational efficiency by leveraging the strength of specialised firms. Source: National Monetisation Pipeline, NITI AAYOG

8. Poor and old facilities leading to low storage capacity, inadequacies in long term storage and under utilization of storage capacities. Poor security provisions Lack of computerization leading to poor management, non-transparency and accounting delays The managers being government employees lacked interest and initiative towards effective functioning of warehouses The maintenance quality was lacking for long term storage of produce resulting in customer’s inflexibility to buy and sell as per market prices. Challenges of Warehouse Operation and Maintenance Lack of synchronization between the storage capacities and the inflow of goods. Shortfall of demand and supply regarding quality, modern warehouses which are necessary to keep pace with the demand. Under-utilization of capacity and infrastructure available Barring some major warehouses operated by corporates, majority of Indian warehouses, still lack in desired automation. Some of the key challenges faced by the current Days .

9. Monetisation Models for warehousing assets as per NMP: InvIT-based monetisation: InvIT-based monetisation of SPV with long-term contracted rights to earn storage charges from FCI and other third party users. This structure may entail creating an SPV with requisite revenue rights. Independent investment manager and specialist professional project managers are key to this InvIT based monetisation. Tenure: 25-30 years with transfer back to the Authority / Sponsor at the end. Other features: Assured storage capacity for FCI’s captive use and storage needs. Professional management and key performance indicators (KPIs; handling losses, etc) FCI and / or CWC could be co-sponsors of the InvIT Since investors look at scale, region-wise clusters may be formed. InvIT-based monetisation of SPV (north/ west/ east zone-wise) with long-term contracted rights to earn storage charges from FCI/ CWC. Multiple structures to monetisation have been evaluated and is done two ways such as InvIT model. (Infrastructure Investment Trusts) OMD model. ( Operate, Manage and Develop based PPP model) . A typical structure of transaction is as follows: Source: National Monetisation Pipeline, NITI AAYOG

10. Indicative transaction structure: for InvIT model. Trustee 3 rd party facility users SPV 1 FCI/CWS/ Sponsor of InvIT Investors InvIT Project manager Investment manager <85% holding Allocation of units and Dividends <15% holding Upfront consideration Storage charges Assured capacity offtake Net distributable Cash flow s (NDCF) Revenue Source: National Monetisation Pipeline, NITI AAYOG

11. InvITs are established are trusts under the Indian Trust Act, 1882 and regulated under the SEBI (Infrastructure Investment Trusts) Regulations, 2014. The steps in a InvIT transaction are represented in the figure below. M onetisation process for InvIT: Asset identification and stakeholders Key stakeholders include - CWC/FDI - Merchant banker, - Investment manager - Trustee - Project manager Registering the InvIT Application for registration with SEBI as per the format laid out in Schedule I of the SEBI regulations. Structuring the transaction Technical/ legal/ regulatory/financial assessment, projection of cashflows, valuation and completion of transfer of assets to the InvIT Pre-issuance process Approval for listing and trading in warehouses. Filing of placement memorandum/draft offer document. Issuance and listing Issue process of allotment of units. Listing agreement between InvIT and stock exchange. Source: National Monetisation Pipeline, NITI AAYOG

12. OMD for brownfield warehousing assets with rights to add additional capacity/ augment existing infrastructure and at vacant land. Tenure: 25-30 years with transfer at the end of the concession period. Revenue model: Storage and handling charges paid by FCI (assured capacity) and third parties (surplus capacity). Other features: Strict Key Performance Indicators (handling losses, etc) and mandatory investments may be specified. Benefits to Investors: Strategic locations: surplus production areas or in the consumption areas. Presence of trunk infrastructure: Access to transport (e.g. roads, pathways, ferry terminals and bus stops) stormwater (e.g. pipes and water quality treatment devices) water supply and wastewater (e.g. reservoirs, pipes and sewage treatment plants), etc. Reduced gestational time. Professional management and investment in mechanisation. 2. Operate, Manage and Develop (OMD) based PPP model: Source: National Monetisation Pipeline, NITI AAYOG

13. Indicative transaction structure: for OMD model. Lenders FCI/ CWC/ Authority Private Concessionaire Equity investors Assured capacity (30 years) Additional capacity (30 years) FCI 3 rd party users Right to earn storage from third parties Right to earn storage charges Storage charges Storage charges Grant of OMDA Concession [Revenue share] (bid variable) Source: National Monetisation Pipeline, NITI AAYOG ( Operation Management and Development Agreement)

14. the respective rights and obligations of the Parties under this Agreement shall be subject to the satisfaction in full of the ‘The conditions precedent’. For example procured for the Concessionaire the Right of Way to the Licensed Premises, procured Applicable Permits, obtained the required permission from Railway authorities for building a Railway Siding. Scope of the Project - procurement of the Storage Facility - operation and maintenance of the Storage Facility- Investment manager - storage and preservation of Foodgrains. -performance and fulfilment of all other obligations Grant of concession grants to the Concessionaire the concession set forth herein including the exclusive right, licence and authority to construct, operate and maintain the Project and provide Storage Services (the “Concession”) for a period of 30 (thirty) years Conditions Precedent Obligations of the concessionaire and authority the Concessionaire shall, at its own cost and expense, procure finance, install, operate and maintain the Storage Facility in accordance with the Specifications and Standards and the Maintenance Requirements as per the agreement. Representations and Warranties The Concessionaire’s responsibilities and warrants to the Authority certain agreements. Parts of the concessionaire agreement as per the OMD model: Source: National Monetisation Pipeline, NITI AAYOG

15. The key challenges faced in Govt. Warehouses Accidental redundancy Lack of well organization of handing, the same operation is being accidentally performed more than once. These redundancies increase labor costs and take up extra time Messy warehouse layout The average warehouse capacity utilized by manufacturers was only around 68%. Not having enough storage because of ineffective use of space is still a common pain point in warehouses. A solution is to invest in technology, such as a modern warehouse execution system (WES), that will help automate the processes that are prone to redundancy in warehouse. For instance, to help reduce redundancy in order picking, this could use barcode technology to scan the products that have been picked for the order and have the system notify the user of any duplicates. The technology that can help you organise your warehouse’s layout, such as a warehouse management system (WMS). Some WMSs can offer you a 3D model of the most optimal arrangement, if given the dimensions and measurements of your warehouse and inventory. also consider an automated storage and retrieval system (AS/RS), which is a network of several computer-controlled pieces of equipment that automates your putaway and picking processes. Poor damage control Damage is unfortunately a common issue in warehouses, especially ones that deal with a large amount of inventory and heavy-duty equipment. Set up Accumulation conveyor systems will help you protect your employees, equipment, and inventory and also prevent accidents in the workplace. Conduct strict regular inspections throughout to look for early signs of damage or any unwanted measures .

16. The key challenges faced in Govt. Warehouses Unsatisfactory order management Most of the govt. Warehouse can see the poor order conveyance management, due to no appropriate arrange framework authority unable to provide client satisfaction . Order management is one of the foremost vital operations in a stockroom, it is additionally the one that reports the foremost mistakes. Adopting an order management system. This can help you manage your overall order management and fulfillment processes, including shipping, customer notifications, and depending on the type of solution you choose, even inventory management. In addition to saving time, high order fulfillment accuracy rates can also help your profitability. Employment issues The government employees are not that intrigued and activity towards viable working of distribution centers. Also many of them are not skilled to handle modern equipments , operating computer . Provide Logistics Skills Training Program that will give essential skills for the mechanical division to labours with obstructions to works Hands-on training for standard warehouse equipment including forklifts, pallet jack and tipper ,Loading and unloading trucks Shipping and receiving, inventory Order fulfillment Technology training with electronic waste Material handling and safety practices

17. Lack of synchronization between the storage capacities and the inflow of goods. Shortfall of demand and supply regarding quality, modern warehouses which are necessary to keep pace with the demand. Underutilization of capacity and infrastructure available Barring some major warehouses operated by corporates, majority of Indian warehouses, still lack in desired automation. Agreat upsurge in the manufacturing and retail industry Rising incomes have led to more purchasing power and domestic consumption of goods International trade is on the rise Government has been simplifying norms leading to ‘ease of doing business’ Alongside the challenges, there are also a lot of growth drivers that present a positive outlook for the warehousing industry’s future. Some of the key challenges faced by the current Days .

18. CENTRAL WAREHOUSE CORPORATION (CWC) The authorised capital and total paid up capital of CWC are Rs. 100 crore and Rs. 68.02 crore respectively. During 2018-19, the turnover of CWC was Rs. 1604.62 crore , its Profit Before Tax was Rs. 225.42 crore and its Profit After Tax was Rs. 163.61 crore. CWC has paid a total dividend of Rs 49.08 crore for the year 2018-19 to its shareholders. As a premier Warehousing Agency, CWC is operating 415 warehouses as on 31.12.2019 with a total storage capacity of 101.44 lakh MT including 25 Container Freight Stations (CFSs)/ Inland Clearance Depots (ICDs), 3 Air Cargo Complexes (ACCs), 2 Inland Check Posts (ICPs) at Petrapole and Attari and 3 Temperature Controlled Warehouses . Warehousing activities of CWC includes food grain warehouses, industrial warehousing, custom bonded warehouses, container freight stations, inland clearance depots and air cargo complexes . Apart from storage and handling, CWC also provides services in the area of clearing & forwarding, handling & transportation, disinfestation, fumigation etc . CWC also offers consultancy services/ training to different agencies for construction of warehousing infrastructure . CWC has 19 State Warehousing Corporations (SWCs) as its associates . Central Warehousing Corporation is 50% shareholder in the equity capital of the SWCs . The total investment of CWC in SWCs is Rs. 61.79 Crore . As on 31.12.2019, these SWCs were operating 2055 warehouses with a total storage capacity of 354.85 lakh MT . A Schedule ‘A’-Mini Ratna, Category – 1 Central Public Sector Enterprise (CPSE) is a statutory body which was established under ‘The Warehousing Corporations Act, 1962’. Its aim is to provide reliable, cost-effective, value-added, integrated warehousing and logistics solution in a socially responsible and environment friendly manner.