What’s so special about a Special Purpose Vehicle?

By Morgan Campbell

Loaded Tata truck drives along a dusty roadColloquially, special purpose vehicles in India bring to mind the hundreds of bright Tata, Ashok Leyland, and Mahindra vehicles that dominate the road space thanks to their size and bulk. Beautifully hand-painted messages such as Special goods carrier and Horn ok reinforce this specialness.

Since 2015, however, the term Special Purpose Vehicle (SPV) has started to be used in a much different context; the vehicle through which Smart City projects will be delivered.

During the 2014 national elections, the future Prime Minister, Narenda Modi announced the launch of 100 new Smart Cities under the BJP party. The party’s election manifesto included references to growing PPP models of financing – renamed as People Public Private Partnerships by the party – egovernance, and the deployment of 100 cities.

We will initiate building 100 new cities; enabled with the latest in technology and infrastructure…and focused on specialized domains. (Emphasis supplied)[i]

The idea was revised in 2015 and became the Smart Cities Mission (SCM), a mission to deliver smart area- and pan-city-based development in order to create ‘smarter’ infrastructure and governance to citizens.

In India, the SCM has had its fair share of concern[ii] and criticism[iii]. Much of this arises from an overall confusion about what Smart City means in the Indian context and what it would look like on the ground. Although Prime Minister Modi has alluded to some characteristics of what he feels a smart city should be and do (a city which is two steps ahead of its citizen’s needs),[iv] the comprehensive smart city document created under Modi’s government explicitly states:

“there is no universally accepted definition…Even in India, there is no one way of defining a Smart City.”[v]

Despite a lack of clarity as to what India’s smart cities will look like at the end of the Mission’s five-year term, we do know that SPVs are the form in which projects will be manifested or implemented.

Like the Greek god Hermes, the SPV in the context of SCM can be seen as both a messenger (telling the country that this new way of doing urban development will not be business as usual) and manifestation of transport (the transport sector is where the SCM will direct most attention and spending). Let us not forget, Hermes is also the patron of trade and commerce—two financial arenas the SCM hopes to address and stimulate.

SPVs are well known within finance communities[vi]. They are often created as subsidiaries of larger companies; task-specific agencies with the benefit of being able to take on high-risk investment without causing bankruptcy to the parent company. They have also been used by governments to form a kind of bypass through multinational agreements such as trade bans, seen recently in the example of Europe creating an SPV to bypass US sanctions against trade with Iran.[vii]

Similar to a special goods carrier, the Smart City SPV can be understood as a vehicle created and functioning for the specific task it needs to fulfil. Comprised of a full time CEO, members of Central Government, State Government, and the Urban Local Body (ULB), the SPV is tasked with planning, appraising, approving, funding, implementing, managing, operating, monitoring, and evaluating each of the city-based SC development projects. If this seems like a lot, it’s probably because it is.

So what makes this organization different from say, existing institutions at the state and city level? What is so ‘special’ about the Smart City SPV? Those are among the questions that this project will be seeking to answer.

One thing we do know is that both the structure of the advisory committee and how the SPV is funded are what makes it special – or at least different from previous initiatives. SPVs are set up to be financially self-sufficient, initiating a revenue stream that gives either a payback or greater return to those funding implementation.

City area-based projects that are undertaken are designed to be ‘special’ so that they attract attention from investors who see such projects as credit-lending worthy. Successful delivery of one project literally paves the road for more to come. The goal is to attract resources (e.g. financial capital) from the market so that additional projects of this nature can be initiated. Unlike previous central government-sponsored urban development schemes (i.e. JNNURM and Mega Cities), central government does not directly fund the specific projects.

Of course the other special feature of the SCM is that it is designed to deliver urban competitiveness: competition between states, cities, projects initiated, tenders issued, consultants and contractors hired and so on.  While special is not an inherently superlative adjective, it can have a superlative effect. The elephant in the room relates to two questions; whether the special formation, funding, and delivery of the SC project will create good, better, and best pockets of the city, and; who will be able to access these spaces and benefit from these services?

Photo credit: joakant via Pixabay

[i] https://www.bjp.org/images/pdf_2014/full_manifesto_english_07.04.2014.pdf

[ii] https://www.business-standard.com/article/economy-policy/here-s-how-bjp-s-flagship-smart-cities-mission-echoes-failures-of-upa-govt-118040300112_1.html

[iii] https://scroll.in/article/848933/what-exactly-is-a-smart-city-the-indian-government-does-not-want-you-to-know

[iv] https://www.thehindubusinessline.com/economy/pm-launches-smart-cities-amrut-housing-for-all-by-2022-schemes/article7353663.ece

[v] http://smartcities.gov.in/upload/uploadfiles/files/SmartCityGuidelines(1).pdf

[vi] https://www.wallstreetoasis.com/finance-dictionary/what-is-a-special-purpose-vehicle-spv

[vii] https://www.al-monitor.com/pulse/originals/2018/10/iran-spv-eu-sanctions-jcpoa-trump-special-purpose-vehicle.html

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