SPV - Special Purpose Vehicle

SPV – Special Purpose Vehicle

 

Key Takeaways

ü  Separate legal entity

ü  To achieve specific objectives/goals

ü  Isolated from the firm

ü  Can leverage future earnings to raise funds

Salient features

·         Definition of SPV – A fenced organization having limited predefined purposes and a legal personality.

·          Also called as SPE – Special Purpose Entity (in USA) or SPC – Special Purpose Corporation or FVC – Financial Vehicle Corporation

·         A legal entity created to fulfil single, well defined and narrow objective/purpose.

·         Typically used by firms to isolate the firm from financial risk

·        ·          Primarily, a business association of persons or entities eligible to participate in the association.

·          Usually formed to raise funds from the market by collateralizing future receivables.

·         It is independent of members subscribing to the shares of SPV.

·         Concept: Usually, a sponsoring firm hives off or transfers its assets or activities from the rest of the company into an SPV. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent company; hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPV will be subject to fewer risks and thus provide greater comfort to the lenders.

·         Basically, a company can leverage future earnings to raise funds.

 

Advantages:

 

ü  Separating the risk.

ü  Protected against risks like insolvency.

ü  Best suited for Project financing.

 

 

Examples of SPVs in India

1.       NHSRC - National High Speed Rail Corporation. The Company has been modelled as ‘Special Purpose Vehicle’ in the joint sector with equity participation by Central Government through Ministry of Railways and two State Governments viz. Government of Gujarat and Government of Maharashtra.

2.       LTMRHL – Larsen & Toubro Metro Rail Hyderabad Limited (for Hyderabad Metro)

3.       IRSDC - Indian Railways Station Development Corporation ltd (by RLDA & IRCON)

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BIBEK DEBROY COMMITTEE REPORT

 

·         Full name is "Committee for mobilization of resources for major Railway projects and restructuring of Railway Ministry and Railway Board".

 

·         Terms of reference of the committee:

                                i.            Re organization of Railway Board.

                              ii.            Promote exchange of Officers between the Railways and other Departments.

                            iii.            Estimate financial needs and ensure the proper resources from internal & external to meet the future Railway needs.

                             iv.            Setting of Railway Regulator.

 

·         Constituted in September, 2014.

 

·         Interim Report submitted on 31.03.2015 and Full Report submitted to the Railway Board in June, 2015.

 

·         Consists of Chairman (Shri Bibek Debroy, Member, Niti Ayog) and seven Members. 

 

·          Popularly called as Debroy Committee.

   

·         Time frame for Restructuring for Indian Railways  - 5 years.  Hence it recommends three building blocks/pillars namely,

 

1)      Commercial accounting

2)      Changes in HR  and

3)      an Independent Regulator.

 

·          Recommendations of the Debroy Committee in  brief are :

 

1.      To hive off the non core activities like Hospitals, Security, Construction & maintenance of Quarters, Schools, Catering & manufacture of locos, coaches and wagons.

 

2.      Choice to GMs/DRMs  - Either  A) to persuade State Governments to bear 100 % cost of GRP - Government Railway Police ( at present 50 % ) or  B) GMs/DRMs should have freedom to choose Private Security agencies or RPF for security on the trains.

 

3.      Not recommended of privatization of Indian Railways. Prefers use of the word Liberalization.

 

4.      Schools & Colleges - Subsidizing children education at alternative schools like KVs - Kendriya Vidyalayas  &  Private schools.

 

5.      Medical facilities - a) given choice to staff for opting Railway Hospitals or private empanelled practitioners  or CGHS - Central Govt Health Services.

 

6.      Construction organizations  - Bringing out all zonal construction organisations under umbrella of one or more PSUs like IRCON or RVNL etc.

 

7.      Rationalization of More Zonal Railways/Divisions.  That means contained to optimum number of Zones/Divisions from the present number.

 

8.      DRMs to be more powerful by recommending the followings ones.

A.      Financial powers should be inflation indexed.

B.      Re appropriation of funds between Plan Heads, if earnings target is achieved. 

C.      Portion of earnings should be retained in Division for specific use.

D.     Have power to sanction new posts in lieu of surrendered posts.

E.      Finance must be completely under DRM

F.       Option to choose between RPF & Security Agencies.  

 

9.      Railway Stations - Recommends Gazetted Station Managers for A 1 & A Stations.  Supervisors at Station should report their Officers through Station Manager only.

 

10.  Railway Board should be re organized  as 

a) Member (Traction & Rolling Stock)

 b) Member ( Passenger & Freight business)

 c) Member (HR & Stores)   - Need not be from Railways

d) Member (Finance & PPP) - Need not be from Railways

 e) Member (Infrastructure)

 

11.  Accounting reforms - introduction of Accrual accounting in Indian Railways.

 

12.  Reduction of number of Group A services in Indian Railways. 

 

13.  Merging of Group A Services in two broad groups.  i) Indian Railways Technical Services

( IRSME, IRSE, IRSEE, IRSSE, IRSS ) ii) Indian Railways Logistics Service (IRTS, IRAS & IRPS)

 

14.  Lateral inflow of talent from outside, such as Chartered Accountants, Cost Accountants, Bankers, Scientists on Deputation.  Similar way, Railway staff allowed to go on deputation to other Central Govt. departments.

 

15.  Phasing out separate presentation of Railway Budget and merger the same with General Budget.  

 

16.  Establish non-fungible or non-lapsable safety fund (with funding as surcharge and matching grant from Govt. )

 

17.  Encourage on - board catering through large food chains and local restaurants.

 

18.  Setting up of Independent Regulator - RRAI - Railway Regulatory Authority of India.

 

19.  IRMC - Indian Railway Manufacturing Company  -   All production units such as ICF, CLW etc brought under the control of IRMC.

 

20.  General Managers - GMs - should have more powers of Re Appropriation of funds.

 

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Single Tender in Works Contracts

Single Tender in Works Contracts

·         Sources: 1214-A of Engineering Code (Railway Board letter no. 97/CE.I/CT/32 dated 19.01.2000)

 

·         Awarded under the following situations:

 

1.       Accidents, breaches involving dislocation to traffic.

2.       Works of specialized nature (subject to personal approval of GM/CAO(C) with prior concurrence of FA&CAO/PFA(C) . For works of specialized nature pertaining to Open line, personal approval of GM is required with prior concurrence of FA&CAO.

3.       Any other situation, inescapable to call for single Tenders /single quotation subject to GM's Personal Sanction with PFA's concurrence.

4.       AMC - Annual Maintenance Contract for equipment incl: small track machines on OEMs - Original Equipment Manufacturers / Authorised dealers of OEMs with AGM's approval.

5.       Works pertaining to doubling, Traffic facility, New lines, gauge conversion and railway electrification projects, which are targeted for completion in the current financial year subject to:

A.      CAO/C & CAO/RE - Up to Rs. 5 Crores

B.      Personal concurrence of FA&CAO/C

C.      Tender Committee should be at least at SAG Level

D.      As per instructions of Railway Board for specific financial year.

 

Note: These powers may be delegated by GMs in consultation with PFA to PHODs/DRMs up to a maximum of Rs. 5 Lakhs per item per annum.  On re-delegation, these powers would be exercised by PHODs/DRMs in consultation with associate finance.

 

·         The Tender Committee composition and the accepting authority should be at least one step higher than the members nominated in case of Open Tenders/Limited Tenders except where G.M. is the accepting authority.

 

·         The following points are to be bear in mind before resorting the Single Tender:

1.        It is in the public interest.

2.       The Demand is urgent.

3.       No other suitable contractor is available to execute the work.

4.       Reasons should be recorded as to why single Tender is being resorted to in preference to limited Tenders.

5.       To be operated in times of cyclone, floods, accidents, sabotage, enemy action, explosions, cases of extreme urgency such as works or supplies necessary to safeguard life or property or repair damage to track caused by flood breaches, washaways, accidents or other unforeseen contingency so as to maintain through communication.

6.       Lighting, transhipment, hiring of plant, machinery, and equipment (including communication equipment) in cases listed above under item No. 5.

7.       Report to GM is necessary for incorporating it in the annexure to the PCDO

8.       The discretion to classify any item of work as one of extreme urgency for the purpose should be exercised personally by the DRMs.

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Debit and Minus Credit

Debit and Minus Credit

§      Minus Credit or Minus Debit is the Unique feature of Indian Railways Accounting system.

§      Probably, nowhere in the World, the Minus Debit or Minus Credit is operated.

§      Let's go into the necessity/object of operation of the Minus Credit.

Minus Credit:

§       When an employee goes on transfer, one unit transfers the Civil Grant of an employee to another unit.

§       In this case, Minus Credit is operated in the Journal entries instead of Debit.  The object is to avoid budgeting effect.  Let's check the transactions

§      Example: Unit 'A' transfer the HBA Debit balance Rs.1,00,000/- of employee X to Unit 'B' on his transfer.

Journal entry in the books of Outward Unit 'A':

Credit - HBA head - Rs. 1,00,000

Minus Credit - Transfer Divisional Unit 'B' - Rs. 1,00,000

(Transferring employee X's HBA Debit balance Rs. 1,00,000 to unit B)

Journal entry in the books of Inward Unit 'B'

Credit - Transfer Divisional Unit 'A'   - Rs. 1,00,000

Minus Credit  - HBA head - Rs. 1,00,000

(Accepting the Debit balance of HBA of Mr X in his books)  

§      With the above transactions, Debit balance of HBA in the books of Unit 'A' is reduced and to that extent, debit balance of HBA in the books of Unit 'B' is added.

§      Though, it is a Debit balance, the transactions are effected through minus credit to avoid budgeting effect twice (one at Grant of HBA at unit A and another at accepting the Debit at Unit B)

Some More examples of operation of Minus Debit and Minus Credit

1.       Clearance of Cheques & Bills  - Minus Credit

2.       Clearance of Remittance Into Bank - Minus Debit

3.       Intra Railway Transfer Transactions among Divisions in a Zonal Railway - Transfer Divisional head operated  - Minus Debit and Minus Credit

4. Rectification of errors in accountal of transactions before closure of Books. 

5. Write back adjustments

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Cut Motion

Cut Motion

 

≠     Part of Parliamentary control over Railway Finances.  

      Motion means Proposal /suggestion ( to the Parliament)

 

≠     A special power vested in Members of Lok Sabha to reduce any Demand for Grant

 

≠     Exercised while discussing the Demands for Grants

 

≠     Consequence:  If the Cut Motion is adopted, it amounts to no-confidence Vote. If the Govt fails to jot up the numbers in Lok Sabha, it is obliged to resign according to the norms of House.

 

≠     The decision to accept a Cut Motion relies solely on the Speaker of the Lok Sabha as per Rules in force.

 

≠     Members can also table notices in electronic form through e-portal specially developed for the purpose.

 

≠     Types:

 

1.    Disapproval of Policy Cut: Demand is reduced to Rupee One.

 

2.    Economic Cut: Reduction of Demand for Grant to a specific amount.

 

3.    Token Cut: The amount of the Demand is reduced by just Rs. 100. This is to ventilate the specific grievance /displeasure.

 

≠     Examples:

 

Type of Cut	Demand for Grant proposed	Amount of  Cut	Demand for Grant passed	Remarks
Disapproval Policy Cut	Rs. 1,00,000	Rs. 99,999	Re 1	Here agreeing the amount always Re 1 only.
Economic Cut	Rs. 1,00,000	Rs. 30,000	Rs. 70,000	Any amount of cut.  That is either Rs. 30,000  or any specific amount within Rs. 1,00,000
Token Cut	Rs. 1,00,000	Rs. 100	Rs. 99,900	Here, the amount of cut  always Rs. 100 being Token.

 

 

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Integrated Budget

Integrated Budget

 

Integrated Budget

=

Revenue Budget

+

Works Budget

+

Earnings Budget

 

·         Source: Para 622 E (Engineering Code)

 

·         Object: In order to co-relate the decisions relating to Investment decisions, a consolidated Budget called Integrated Budget including Revenue Budget, Works Programme and the Machinery and Rolling Stock Programmes should be submitted by the Railways along with the preliminary Works Programme.

 

·         Prepared under the personal guidance of GM and with the assistance of PFA.

 

·          The Integrated Budget includes:

 

1.    Projections of Traffic and Earnings

2.    Works expenditure

3.    Revenue Working Expenses

4.    Estimated financial Results for the ensuing/ following year

5.    The projected Operating Ratio

6.    Rolling stock requirements on account of Replacement and Addition Account

 

·          Covering Note to the Integrated Budget:  Bring out the effect of Budget proposals on the efficiency of operations as indicated by the Operating Ratio and the financial viability of the system as revealed by the financial returns on Capital investment.

 

·         Revised Integrated Budget:  After discussion of the PWP – Preliminary Works Programme, a revised Integrated Budget should be submitted alongwith FWP – Final Works Programme duly taking into account the changes that might have taken place in the meantime.

 

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