Improving Water & Sanitation Services:

The ADB – GOI PPP Initiative

1

Anouj Mehta

Head PPPs and Finance Unit (India), ADB

Status & Needs Huge Urbanisation Pressures

286 million urban population

35 Cities (1 million plus population) in 2001 to

50 cities in 2011

Estimated to grow to 38% or 600 million 2031

43 million - 640 cities – slum populations

Cities needed as engines of growth

Huge Rural Pressures also

Over 70% of India in rural areas

Growing pressures – industrialisation,

water usage

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Pressures on Water & Sanitation Systems

QUALITY OF

WATER ISSUES

INCREASING

RELIANCE ON

GROUND

WATER

SEWERAGE

CONNECTIONS

VARY 45%-

70%

LESS THAN

20%

WASTEWATER

TREATED

NO CITY 100%

SEWERAGE

CONNECTIONS

2.9 HRS WATER

SUPPLY PER

DAY AVERAGE

40-60% NON

REVENUE

WATER LEVELS

Current Service Delivery levels

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Parameter Description

Coverage 64% of urban population is covered by individual connections and standposts

China – 91%, South Africa – 86% and Brazil – 80%

Duration Ranges from 1 hour to 6 hours

Brazil and China – 24 hours and Vietnam – 22 hours

Per capita supply Ranges from 37 lpcd to 298 lpcd for a limited duration

Paris - 150 lpcd continuously and Mexico 171 lpcd for 21 hours a day

Metering Most cities do not have metering for residential water connections

Non-revenue water Accounts for 50% of water production, compared with 5% in Singapore

Transmission losses Leakage during transmission substantial as most of the cities need to source

water from long distances (50 to 200 km)

Cost recovery Water utilities typically recover only 30-35% of the O&M cost.

While tariffs are low, cost of production is high considering the distance of source

of raw water.

In the Philippines and Cambodia, most water utilities recover the full O&M cost.

Even in Bangladesh, water utilities recover about 64% of their O&M cost.

Challenges Funds Requirements are HUGE

Many estimates for urban

infrastructure investments over a 20-

year period

$ 784 billion - 20 years

$ 163 billion shorter period - JNNURM

Water and Sanitation

~ USD 115 billion towards

capital investment, ~USD 160

billion towards O&M expenses

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Critically, the efficient management of

assets is perhaps an even bigger

problem

ULB capacities

No. of officials and knowledge on

finance, institutional issues

ULB finances

Reliance on balance sheet financing

12 to 13 rated corporations only

Low focus on sustainable projects on

their own merit, accounting etc

Need for PPPs

Many models and solutions can be

prepared

Tariffs need not be an issue

Focus should be on efficiencies in

management rather than just

investment

Allows a focus on LIFECYCLE

COSTS - Operation and Maintenance

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PPPs

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THE GOI-ADB PPP INITIATIVE, Mainstreaming PPPs in India

An Overview

Since 2006

In partnership with DEA, MOF

The largest PPP initiative across

any region and MDB

CAPACITY

BUILDING

TOOLKITS AND

GUIDELINES

22 PPP CELLS

KNOWLEDGE

DISSEMINATION

PILOT PROJECTS INITIATIVE - CRITICAL

FOR DEMONSTRATING

- PRIVATE SECTOR PARTICIPATION

- MODELS

- CONFIDENCE

TRANSACTION

ADVISORY

PANEL

PROJECT

DEVELOPMENT

FUNDS

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Pilot Projects being structured in

several cities

Aurangabad Water

Panjim Water

Indore Water

Bhopal Water

Kolhapur Sanitation

Rajasthan 4 Cities

Karnataka 3 Cities

Guwahati Water

Hardwar Solid Waste

A Recent Impact Story

Problem

Case Study: KMC

•Construction of 76 MLD STP to improve environment compliance •DPR Prepared •Grant obtained from National River Conservation Directorate (NRCD)- Rs. 52 Cr. (70% of estimated DPR cost)

Need

BUT •FUNDS CRUNCH – FOR CAPEX & FOR OPEX

•NEED FOR LATEST TECHNOLOGY

•NEED FOR EFFICIENT MANAGEMENT OF RESOURCES

THE GOI-ADB PPP INITIATIVE Need for a PPP Solution

• Untreated sewage dumped in river ( against the norms) •Water pollution > allowable limits: dead fish, epidemic break out etc •PCB issued a notice to KMC to control the quality of sewage

Case Study: Kolhapur

Initiative’s Assistance • PPP Approach Paper & Discussions

• Engagement of a TRANSACTION ADVISOR

•Financial Modelling •PPP Structure •Environment & Social Impacts

•Stakeholder Communications

•Bid Process Management – 2 Stage (RfQ and RfP)

Project Status

•RFQ Floated end 2009 16 bids received – 11 shortlisted

– India and overseas

•RFP Floated mid-2010 6 bids received

Winning Bidder Awarded

•Legal Documentation

PPP trends Signs of success

A few projects grounded

Around

2000

Mid

decade

Now

Way

Ahead?

Mid to

Late 90s

Momentum subsided

Onset of pessimism

Efforts to prepare PPP projects

High NGO opposition

High profile projects in Delhi,

Mumbai, Failed

Successful projects also emerge

Many ongoing initiatives

Waiting for first commercial results

PPP interest at tipping point

First initiatives

High international

interest

Poor results

Pune, Hyd, Goa,

Bangalore Bulk water

– USD 20-60 million

Failed

Sonia Vihar, Delhi,

Sangli – Bulk water

Bangalore – Rehab,

O&M

~USD 100 million

Failed

Focus Area of Ongoing PPPs…

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17

12

3

0

5

10

15

20

25

30

PPP projects attempted Contracts awarded Under Implementation Operational

PPP Sector Snapshot

Parameters 1990s 2000-04 2005 Onward

Attempted 5 8 13

Awarded 1 3 13

Current status 1 operational 2 operational Under implementation - 12

Model Bulk supply

augmentation

•75% distribution, 25 %

bulk water & treatment

• 60% - distribution , 30% - bulk

water, 10% - combined

PPP model 100% BOT/BOOT 75% mgmt. contracts, 25%

BOT/BOOT

• 38% management contracts

• 62% BOT/DBFOT and similar

Private

Operator mix

100%

international

65% international, 35%

domestic

• 80% domestic

• 20% international

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List of Bidders is limited ….

1. Jindal Water Infrastructure Ltd

2. Nagarjuna Construction Co.ltd

3. CASCAL-EA

4. Manila Water

5. Thames Water

6. Veolia

7. JUSCO

8. Suez Environnment

9. Ramky Infrastructure Ltd

10. Subhash Projects and Marketing Ltd.

11. Jain Irrigation

Response to Bids

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Bids received – 5 to 6

Financial bids – 1 or 2

545

220

34

185

41

470

407

8 8 4 6 11 10 4 0

100

200

300

400

500

600

Number ofQueries Raised

Number ofBidders

Government

• Huge investments

• Profit motives of private sector overrides the social objectives

• Sense of loss of control

• Resistance to increase tariff

• Ownership of asset

• Is there a substantial change in performance?

Civic society

• Tariff implications – especially on under privileged sector?

• Water a public good – cannot be privatized

• Is demanding a “fundamental right to water”

Private Developer

• Lack of reliable baseline information

• Haste in bidding projects

• Inadequate technical studies undertaken while preparing DPRs

• Has impacted the due diligence exercise prior to bidding

• Payment guarantee

• Tariff risks

• Unrealsitic performance standards

• Political Will

Key Issues

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Key Factors to enable investments

Strong political will

Adequate project development of PPP projects

Balanced sharing of risks

Strong public finding

Institutionalizing

Suggest appropriate regulatory and policy framework

Amend the existing rules and regulations to accommodate PPP projects

Capacity building and training of government staff to manage the contracts

Tariff Determination

Establishing a financially viable business model

Development of model contracts

PPP Desirability Assessment

What is the premise for private sector involvement?

How do we establish the value for money principles?

How do we get stakeholder buy-in and how do we sustain the same?

Establishing Greater Transparency

Open books – technical & capital investment

Information systems with central control unit?

Strengthening of Public Authority

Skills and information to enable decisions

Responsibility for renewal of networks, investments

Access to information - higher quality monitoring?

Establishing Greater Accountability

Measurable and verifiable performance standards, periodic public disclosure

Performance based payments based on improvements in efficiencies and reduction in costs

Elements of Strategy & Projects

Performance Targets- PPP Projects

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Performance Criteria Performance Standards

Unit Target

Number of connections with 24x7 % 100

Revenue Water % 85

Collection Efficiency % 90

Resolution of Complaints % 95

Leakage levels L/c/d/m 31

Quality compliance % 100

Pressure compliance % 98

Total

Service Level Benchmarks Performance Criterion Nagpur Water Aurangabad Water KUWASIP 5 towns Latur Water Supply

Coverage and reach

24x7 water supply in 5 years, currently 2-12 hours supply per day 100% coverage in 5 years

100% coverage from 1st year post COD 24x7 water supply

24x7 water supply in 2 years

NRW targets

Technical efficiency from 66% to 75% (2014 onwards)

Maximum 25% in Year 4 and to be brought down to 15% in Year 6 from 50% currently

Loss : 20 litres/connection/day/meter

Loss: 80 litres/day/connection by year 4 from 137 litres loss currently

Metering and billing

Collection efficiency from 76% to 98% (2016 onwards)

Installing 100% meters by 3rd year

100% metering and billing 100% metering

Tariff changes To be set by NMC

Shift from flat annual rate to volumetric tariff and fix it for 20 years. Fixed by Municipality

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User fee in Aurangabad project

Concession Period Water charges for household consumers

Year 1to3 Pipe diameter in ½ inch Rs 1800/annum

Year 4 to 6 Water consumption, KL/connection/month

Rate, Rs/KL

0-8 9.00

8-17 15.00

17-23 23.00

Above 23 30.00

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The User Fee in the Service Area shall be fixed for the first 3 years of Concession Period and Concessionaire shall be in position to charge telescopic User Fee only after Commercial operation date Operation Date.

GOI-ADB PPP Initiative • ADB has been assisting the Government of India (GOI) in its efforts to improve the PPP

enabling environment in a programmatic manner since 2007.

• PPP projects have mostly been in roads, ports

• Direct ADB/DEA structuring for challenging sectors

Quick response modality

Complete hand holding of project sponsors from concept to bid closure

Project development expenses- ADB + IIPDF (25%/75%)

ADB Panel of ten expert transaction advisory teams in place

• Initial projects across key sectors

Water Supply & Sanitation

Primary Education

Healthcare

Urban Transport

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•Massive Response For Direct Assistance

• Over 30 Projects in pipeline

• Commenced in 2008

•Tremendous Need for Developing PPP Models

•Initial aim was for only 23 Projects to be developed

Indore Water Bhopal Water Gwalior Water Aurangabad Water Panjim Water Jaipur Water Kota Water Kolhapur STP Karnataka 4 towns

Water and sanitation pilot projects

Thank You anoujmehta@adb.org

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