PPPs in water sector

Ramanujam S.RDirector – Urban Practice

February 26, 2009

2.

Contents

• Need for PPP - taking urban space as an example

• Forms of PPP that are relevant

• Learnings from experience

3.

Indian water sector

• Water services are provided by

– local Governments or

– agencies reporting to regional Governments

• Capital investments have been largely funded by

– Revenue surplus (in very few cities)

– Regional Government budget support and

– Donor projects

5.

Service levels are inadequate

Source: Benchmarking of utilities by WSP and Utility Data Book by ADB

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Coverage

Supply Quantity

Hours of Supply

NRW

Cost Recovery (No oftowns)

Service Levels

Cost recovery and continuity of supply are poor

6.

Sample of Class I Cities in a State

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

     Coverageof watersupply

connections

      Per capitasupply of

water

      Extent ofmetering of

waterconnections

      Extent ofNon-Revenue

Water

      Continuityof watersupply

      Efficiencyin redressal of

customercomplaints

      Quality ofwater supplied

     Costrecovery in

water supplyservices

     Efficiencyin collection ofwater supply

relatedcharges

Need for PPP

Taking urban space as an example

8.

1. The financing gap

Required Investment Rs 6700 Crores

Annual Surplus Rs 47 Crores

Investment requirements for water supply and underground drainage for 128 towns with total population of 1.1 Crores

Annual Revenue Rs 636 Crores

9.

2. Skill and strength gap

Gap in key skills for a sample state

0% 20% 40% 60% 80% 100%

Commissioners

Accounting

Revenue

Water and sanitation

Engineering

Availability Gap

Sample of towns with a population of above 1 lakh in a State. Only gaps in key functions are summarised.

10.

Many technologies are new to local bodies

Sewage treatment plants

< 25 %

Solid waste disposal

< 10 %

Less than 25% of the towns in the sample state have sewage treatment plants. Less than 10% of the towns have scientific facilities for solid waste disposal. As a result these towns are not familiar with these technologies.

11.

3. Accountability gap

Combined revenue efficiency of 43 %

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Coverage Reading Billing Collection

Data from a sample town of population around 9 lakhs. Most of the legal connections are metered. The actual percentage of functioning meters is not known.

12.

Signs of success

A few projects grounded

Around 2000

Mid decade

Now

Way Ahead?

PPP timelines in water

Mid to Late 90s

First initiatives

High international interest

Poor results

Momentum subsided

Onset of pessimism

Efforts to prepare PPP projects

High NGO opposition

High profile projects run aground

Many ongoing initiatives

Waiting for first commercial results

PPP interest at tipping point

13.

Mid 1990s, Failed projects

Pune

Goa

Hyderabad

Bangalore

18.

Around 2000, Momentum subsides

Sangli

Bangalore DMA

Sonia Vihar TP

22.

Mid decade, High profile projects run aground

BWSSB Project

DJB Pilot Circle

Mumbai K East

23.

Around the same time early successes emerge

Salt LakeHaldiaChandrapur

Nagpur Pilot

Latur

Bhiwandi

Chennai desalKUWASIP

Mysore

Madurai

31.

Key Characteristics

Placeholder for your own sub headline

Project Operator Size Duration Scope

Chandrapur Gurukripa 3 lakh popl 10 years O & M of city network

Latur Hydro Comp 3.5 lakh popl 10 years O & M of city network

KUWASIP Veolia 18,000 conn 3.5 yearsUpgradation and O &

M

Nagpur Veolia 10,000 conn 5 yearsUpgradatation and O

& M

Salt Lake JUSCO 14 mld 30 years BOT (WS & S)

Haldia JUSCO 230 mld 25 years BOT

Madurai Hydro Comp 10,000 connUpgradation and O &

M

Mysore JUSCO 9 Lakh popln 6 yearsUpgradation and O &

M

Chennai desal IVRCL-Befasa 100 mld 25 years Bulk water BOT

Bhiwandi SPML 6 lakh popln 30 years Bulk water + mgmt

32.

Current successes – Scope of the PPPs

Investment Design Construction O & M Collection Tariff

Bulk water

Treatment

Distr.n

Rehab

Bhiwandi

Chennai desal

KUWASIP Latur, Chandrapur

MysoreMadurai, Salt Lake

Nagpur pilot

Haldia

33.

Water sector is seeing increased success with PPPs

Around 2000

Mid decade

Now

PPP timelines in water – Change is visible

Mid to Late 90s

PPP concepts failed in the water sector

34.

What has possibly changed

• Projects are increasingly focussing on distribution improvements

– Unlike in the earlier years when capacity addition and bulk water was the focus

– Hardly any pure bulk water project (with the exception of desal)

– The expectation is more on service delivery improvement, not capital infusion

from private sector

– Ready made PPP concepts failed to work when applied in water sector

– Bottom up efforts by water sector through PPPs are showing better results

• Is it finally a case of the dog wagging the tail?

35.

What has possibly changed….2

• Domestic operator interest and success is high

– Atleast five Indian operators are common bidders in many projects

– International operators are aligning with domestic operators

– More comfortable with collection risks, generally have a higher

commercial risk appetite

– Gain higher political acceptability

– NGO activism less vocal as compared to international operators

36.

What have been the key enablers

• Macro level - Strong public funding

– JnNURM support has been critical (Salt Lake, Mysore, potentially

Madurai)

– Public funding in other cases (KUWASIP, Latur)

• Ground level – Attention to detail

– Government of Maharashtra has a volumetric tariff policy, had financed

water audits and energy audits

– Karnataka had spent adequate time on preparation

– Balanced approach in contract design (Salt Lake, KUWASIP, Latur)

37.

Still a question mark

• Which operator model will work?

– Wide range being tested in the early projects.

– Mysore – “ Build at near fixed budget” and “Operate”

– KUWASIP – “Construction Manager” and “Operator”

– Bhiwandi and Haldia – “Invest” and “Operate”

• Each model has varying characters of Investor, Construction Manager and Operator

38.

Many initiatives are in the pipeline

Mangalore

KUWASIP Scale up

Nagpur Scale up

Naya Raipur

Gujarat

Ajmer

Nashik, Aurangabad

39.

What are key issues to be considered?

• Policy level changes

– Public funding is necessary

– Operator model to be flexible, still no

conclusion on what will work

– Government should invest in surveys

and preparatory work (or) partner with

operator in a discovery phase

– Metering and volumetric tariff policy

should be in place

– Tariff revision is preferable, but not

necessary

– But tariff clarity is a must

• Project level support

– Invest in survey – water audit,

energy audit, household survey

– Decide level of support (and)

choice of contract model based on

sound financial analysis

– Consistent pre-qualification criteria

– Provide for a wide range of

consortia structure – International

operators may not always want to

come in as Lead (or) in Joint

Venture

40.

Signs of success

A few projects grounded

Around 2000

Mid decade

Now

Way Ahead?

PPP momentum is at tipping point in water sector

Mid to Late 90s

First initiatives

High international interest

Poor results

Momentum subsided

Onset of pessimism

Efforts to prepare PPP projects

High NGO opposition

High profile projects run aground

Many ongoing initiatives

Waiting for first commercial results

PPP interest at tipping point

41.

In Summary

• PPP momentum is at tipping point

– Early successes, many initiatives in pipeline

• Palpable interest from domestic operators, aligned with international operators

• Projects are deciding PPP scope, not the other way around

• Public funding, focus on distribution and volumetric tariff are key requirements for success

• Operator model still evolving

Thank You

sramanujam@crisil.com+91 99202 28448

43.

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Crisil Infrastructure Advisory

PPP experience in water sector

45.

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46.

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47.

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population) in Maharashtra

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A 630 mld water treatment plant in Sonia Vihar, Delhi Project successfully commissioned

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First city scale domestic PPP interface in India Bidding and contracting successful

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