Theme Paper - TN Water Summit

8/8/2019 Theme Paper - TN Water Summit

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Water Sector in Tamil Nadu – Status, Issues and Opportunities

Contents

1. INTRODUCTION .................................................................................................................................... 1

2. WATER RESOURCES IN TAMIL NADU ..................................................................................................... 2

3. POLICY RESPONSE AND INSTITUTIONAL FRAMEWORK .......................................................................... 7

4. SELECT PROJECT LEVEL INITIATIVES ..................................................................................................... 14

5. PUBLIC PRIVATE PARTNERSHIPS AND INNOVATIVE PROJECTS ............................................................. 18

6. SECTOR IMPERATIVES AND ACTION AGENDA ...................................................................................... 23



Water Sector in Tamil Nadu – Status, Issues and Opportunities i

Executive Summary

1. The status of Water, as a renewable asset, is under threat in Tamil Nadu aswell as in most parts of India.

While demand for fresh water in India is expected to grow rapidly in view of the growth inpopulation, availability and access are likely to be strained due to escalated demandfrom multiple sources having high economic growth, supply side constraints and reducedavailability of fresh water owing to pollution and inadequate investment in water resourcemanagement. The impacts attributable to climate change including erratic precipitationcould seriously exacerbate the already challenging scenario with regards to stability inavailability of fresh water sources.

2. With a lower per capita water availability vis-à-vis the national average,Tamil Nadu faces some serious challenges. Rapid industrialization andurbanization without commensurate planning for water management isleading to industrial pollution and over-exploitation of ground watersources which are further amplifying the demand-supply deficit in water.

With 4% of India’s land area and 6% of population, Tamil Nadu has 3 % of waterresources of the country. Per capita water availability of the State is only 800 cubicmeters vis-a-vis national average of 2300 cubic meters. Annual rainfall is around 792mm in a normal year, again significantly lower than the all-India (normal) rainfall of 1250mm. The water availability potential of the State including surface and ground water isassessed at 1643 TMC per annum, while the estimated annual demand was 1921 TMC

in 2001 and estimated to increase to 2039 TMC by the year 2050. Industrial pollution,ground water depletion and dependence on water allocation from river basins byneighboring states are the main factors straining the already precarious demand-supplysituation of water in Tamil Nadu.

3. Government of Tamil Nadu has pronounced a progressive policy, acoherent institutional framework, and innovative project interventions totackle the challenges arising from water shortage head-on.

A slew of enactments over the past decade, including the Farmers’ Management ofIrrigation Systems Act (2000), Chennai Metropolitan Area Ground Water (Regulation)Amendment Act, 2002, Tamil Nadu Ground Water Development and Management Act(2003), Tamil Nadu Protection of Tanks and eviction of encroachment Act, 2007 havecontributed to an improved policy environment in Tamil Nadu. We see a good beginningbut this needs to be backed by meticulous enforcement.

The Institutional framework to manage water in Tamil Nadu is largely in place but needsto be continually supported with appropriate capacity building and skill developmentprograms. The apex level Water Resources Control and Review Council is chaired bythe Chief Minister, while the Water Resources Organisation is charged withimplementation of the policy. The Institute of Water Studies is the nodal agencyresponsible for water planning while the Irrigation Management Training Institute impartstraining to farmers and officials. Domestic water supply schemes are executed by the

Tamil Nadu Water Supply and Drainage Board (TWAD) for the entire state other than inthe Chennai Metropolitan Area, where Chennai Metro Water Supply and Sewerage



Water Sector in Tamil Nadu – Status, Issues and Opportunities ii

Board (CMWSSB) is the implementing agency. Industrial water pollution is regulated bythe Tamil Nadu Pollution Control Board and management of water quality andenvironmental aspects of rivers/water bodies is done by the Department of Environment.

A number of innovative and signature projects have been undertaken in Tamil Nadu; theTirupur water supply project was one of the first under the public-private-partnershipmode in the country, the Alandur Sewerage project provided a successful model forimplementing sewerage schemes with public participation, Chennai Metrowater hasshown foresight in undertaking large-scale desalination projects to meet the growingwater needs of the city, while the Hogenakkal and Ramanathapuram water supplyschemes demonstrate the state’s ability to conceive and implement large scale watersupply projects. Further, Tamil Nadu is one of the few states to focus on sewagemanagement in the small and medium towns with sewerage schemes either having beencompleted or under implementation across 60 towns.

4. While initiatives to further improve coverage of safe water supply andsanitation are underway, a greater thrust on quality of service delivery,institutional strengthening and financial sustainability are critical forfinancial and operational sustainability.

About 90% of the rural habitations (82554 out of 92689) are reported to have fullcoverage of safe drinking water supply. In urban areas, all the nine MunicipalCorporations, 80% of municipalities and 55% of town panchayats get a per capita supplyof more than 70 LPCD. However, there is scope to improve ‘quality of access’. Urbanwater supply systems should move towards 24x7 water supply, loss audits/reduction andmetered connections, while sewerage schemes should be backed by waste-waterrecycling initiatives. Tamil Nadu has a distinction of implementing sewerage schemeswith public deposits/user charges through the ‘Alandur model’. This experience shouldbe leveraged to articulate a progressive state level water and sewerage tariff policy toachieve 100% O&M Cost recovery as a minimum benchmark, while using telescopictariffs, transparent subsidies and ‘lifeline supply’ for the poor at affordable rates.

5. While Tamil Nadu has embarked on the journey towards securing wateraccess to its citizens, there is a need to escalate policy attention andintensify the pace of implementation.

Management of water resources and provision of equitable water and sanitation servicesis intrinsically linked to achieving economic prosperity and social well-being. CII outlines

a 6-point action agenda in this regard as follows:

i) Set and achieve aspirational targets. Illustratively, these could be:

o Ensure 100% safe drinking water supply and sanitation access to all

habitations by 2012.

o Achieve service level benchmarks in water supply (135 LPCD, 24x7 water

supply and metered connections) and sewerage (100% coverage and

treatment) in cities with population greater than 500,000 by 2015 and all

district headquarters by 2018.

o Achieve 30% waste-water re-use in cities with population greater than

500,000 by 2015.



Water Sector in Tamil Nadu – Status, Issues and Opportunities iii

o Achieve a) O&M cost recovery in urban areas by 2012 and in rural areas

by 2017 and b) Full cost recovery in cities with population greater than

500,000 by 2020.

ii) Improve water efficiency in agriculture and industry

o Incentivize adoption of water efficient practices such as drip irrigation and

thrust on water shed programs and protection/restoration of water bodies

o Progressively improve irrigation coverage and shift to consistent power

supply. Rationalize power tariffs to prevent ground water exploitation and

wastage.

o Incentivize waste-water re-use and zero discharge practices in industry

iii) Enforce industrial pollution control measures on priorityo Work with industry bodies to implement and enforce industrial pollution

control standards

o Focus on industrial clusters covered under the recent environment

assessment undertaken by CPCB namely, Coimbatore, Cuddalore, Erode,

Manali, Mettur, Tirupur and Vellore. Of these, Manali and Vellore were

classified as critically polluted areas.

iv) Tackle Institutional Strengthening and Capacity Building

challenges on priority

o Capture and disseminate information on a) Water resources and

availability b) water consumption and c) waste-water generation, treatment

and re-use;

o Improve operational excellence through skill development initiatives and

process improvements in financial management systems, e-governance

and consumer centricity.

v) Build institutional capacity on mission mode to implement water

projects in PPP mode to leapfrog on service levels

o Leverage PPPs to improve service delivery and bring in system efficienciesbesides seeking to bring in private capital into the sector

vi) Undertake 3 or 4 ‘signature’ projects that could potentially trigger

sector wide momentum. Illustratively these could be1:

o Coovum River Restoration and Waterfront development project

o 24x7 Water Supply for Chennai Metropolitan Area

1 Some of these projects are already under discussion



Water Sector in Tamil Nadu – Status Issues and Opportunities 1

1. Introduction

1.1. Background

Water has emerged as one of the primary environmental concerns for the 21st century. The

growing concern is that very soon the demand for water will outpace supply capability,

largely because the decreasing availability, declining quality and growing demand for water

are creating significant challenges to industry, agriculture, residents, communities, flora and

fauna, and society at large.

For industry, water related risks and climate change will further reduce the availability of

reliable and high quality water impacting productivity, costs, revenues, public goodwill and

reputation. Despite these looming challenges, businesses and investors are largely unaware

of water related risks or how climate change will intensify and impact them.

Tamil Nadu is one of the few states with a positive socio-economic progression, contributing

to a substantial inclusive growth index in the country. It is one of the few states to initiate

water reclamation projects including sea water desalination. With an increased emphasis

laid on growth in tier II and tier III towns across the state, a concentrated plan of action to

improve the infrastructure and water reforms needs to be evolved.

The Tamil Nadu Water Summit 2010 is a platform for vision development with an emphasis

on promoting awareness and understanding of the underlying factors behind the water

scarcity scenario and to ideate the way forward to overcome the challenges in the years to

come. A delegation from the Public Utilities Board (PUB) Singapore is being invited toparticipate and address in the summit.

1.2. Report structure and contents

• Section 2 Water Resources in Tamil Nadu provides an overview of the water

resources in Tamil Nadu and an overview of consumption across various segments.

• Section 3 Policy Response and Institutional framework outlines recent policy actions

and presents the prevailing institutional framework for water sector in Tamil Nadu

• Section 4 Infrastructure Baseline and opportunities presents an overview of the

prevailing infrastructure and service levels in water supply and waste water management

in the state.

• Section 5 Private Sector Participation – initiatives and opportunities outlines the

PPP initiatives taken in Tamil Nadu in the water sector. The section reviews recent

developments in water sector PPPs globally and outlines possible approaches for private

sector participation in Tamil Nadu.

• Section 6. Sector Imperatives and Action agenda summarises key priorities in the

water sector, critical transformation themes and a possible action agenda.



Water Sector in Tamil Nadu – Status Issues and Opportunities 2 Source: IMD Chennai.

962 959 912 912 912

1079

1304

860

1165

1023

0

500

1000

2005 2006 2007 2008 2009

R a i n f a l i n m m

Rainfall in Tamil Nadu ‐ last 5 years

Normal Actual

2. Water Resources in Tamil Nadu

2.1. Introduction

India’s demand for water is growing at an alarmingly high rate today. India’s rapidly growing

population is likely to exert increasing strain on its limited water resources. A fast growing

economy and substantial water consumption by the agricultural sector (required for food

security and for sustaining a majority of its people) stretch India’s water resources. Even as

the demand for water grows, India faces other supply side constraints and concerns relating

to availability of fresh water primarily owing to pollution and inadequate investment in water

resource management. Climate change impacts including erratic precipitation and the

possibility of accelerated glacial melt could seriously exacerbate the already challenging

scenario in several parts of India. A snapshot of the current and future demand-supply

scenario and the composition of this demand are presented below. With increasedurbanization and industrialization there is likely to be a substantial increase in the per capita

demand for water along with a growing aspiration for significantly better access of water

supply.

India - Water Demand-Supply scenario

Source: Ministry of Water Resources GoI 2.2. Water Sources and availability

Rainfall

With 4% of India’s land area and 6% of population,

Tamil Nadu has only 3% of water resources of the

country. Per capita water availability of the State is

800 cubic meters which is lower than the National

average of 2300 cubic meters. Annual normal rainfall

is around 792 mm, again significantly lower than the

National normal rainfall of 1250 mm. A large part of

the state is located in the rain shadow region of theWestern Ghats and hence receives limited rainfall




Source: www.tn.gov.in/spc. Presentation by Water resources organization

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35

70

137

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8

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80

160

Over‐Ex ploit ed C rit ic al Se mi‐Critical Safe Saline

N u m b e r o f B l o c k s

Change in

block

wise

Groundwater

status

19 98 20 03

from the south-west monsoon. The State gets relatively more rainfall during north-east

monsoon, especially, in the coastal regions. The normal rainfall is around 912 mm, which is

lower than the all-India normal rainfall of 1250 mm.

Surface Sources

The total surface water potential of the state is 36 km or 24,864 million.cu. m. There are 17

major river basins in the State with 61 reservoirs and about 41,948 tanks. Of the annual

water potential of 46,540 million cubic metres (MCM), surface flows account for about half.

Most of the surface water has already been tapped, primarily for irrigation which is the

largest user. About 24 lakh hectares are irrigated by surface water through major, medium

and minor schemes. The utilisation of surface water for irrigation is about 90%.

Ground water

The utilisable ground waterrecharge is 22,423 MCM. The

current level of utilisation

expressed as net ground water

draft of 13.558 MCM is about 60 %

of the available recharge, while

8875 MCM (40 percent) is the

balance available for use.

Safe blocks declined from 137 to

97 during 1998 to 2003 whileOver-exploitation has already

occurred in more than a third of

the blocks while eight blocks (2 percent) have turned saline.

2.3. Demand-supply trend and sector wise consumption pattern

As per the State Framework Water Resource Plan of Tamil Nadu prepared by the Water

Resources Organisation, the annual water potential of the State including surface and

ground water is assessed as 46,540 MCM (1643 TMC), while the estimated demand is likely

to go up from 54,395 MCM (1921 TMC) in 2001 to 57,725 MCM (2039 TMC) in 2050.

Sl.No.

CategoryYear Increase

(2001-50)

Share (% of Total)

2001 2010 2025 2050 2001 2050

1 Domestic 78 86 99 122 56% 4% 6%

2 Irrigation 1,765 1,765 1,765 1,765 - 92% 87%

3 Industries 55 58 62 70 28% 3% 3%

4 Power 4 5 6 6 53% 0% 0%

5 Others 18 18 47 75 308% 1% 4%

Total 1,921 1,932 1,978 2,038 100% 100%

Source: www.tn.gov.in/spc. Presentation by Water resources organization




Agriculture

Agricultural consumption accounted for nearly 90% of the water consumption in the state in

the 2001 and even with growth in agricultural production, demand for water in the sector isexpected to remain constant after factoring in potential improvements in water efficiency in

this sector.

Nearly 54% (30 lakh hectares out of net sown area of 56 lakh hectares) in Tamil Nadu is

irrigated. Canals account for nearly 29% while tanks and wells account for another 21% and

50% of the net irrigated area respectively. Surface irrigation potential has largely been

exhausted and area under canal irrigation has remained almost stagnant since the 1960s at

8.5 lakh hectares. Efficiency of canal systems has declined due to seepage and silting.

Similarly, area under tank irrigation fell by a third from 9 lakh hectares in 1960s to about 6.3

lakh hectares in 1999-2000.

Wells have become the predominant source of irrigation accounting for nearly half of the

irrigated area with the total number of wells estimated to have more than trebled between

1970 and 2000. Free power supply to farmers in recent years has led to more than 90% of

the wells being energised. However, growing incidence of well failure is indicative of over-

extraction of ground water in a number of areas. As mentioned earlier, more than a third of

the blocks in the state are over-exploited and this is a serious cause for concern.

Given that 45 per cent of the net sown area is not irrigated, watershed management and in

situ water harvesting are critical to ensure relative availability of water. There are an

estimated 19,330 micro-watersheds in the State where watershed development can be

taken up. Check dams, percolation ponds, contour bunding and other soil and water

conservation measures can be implemented. Recharge of ground water is particularly

important given the heavy dependence on wells. A number of programmes including the

Drought Prone Area Programme (DPAP), Integrated Watershed Development Programme

(IWDP) and the National Watershed Development Programme for Rainfed Areas

(NWDPRA) provide funding for watershed management.

Domestic use

Although population growth has slowed down, Tamil Nadu is urbanising rapidly.

Consequently, the domestic water requirements are projected to increase by more than 50

per cent from 2222 MCM in 2001 to 3460 MCM in 2050.

A habitation is smaller than a village and includes hamlets/clusters of households which

have a common water source. A fully covered habitation means that the entire population

has access to safe assured drinking water at the level of 40 litres per capita per day (LPCD).

The source should be within a distance of 1.6 kilometres of the habitation for plain areas and

within an elevation of 100 metres in the case of hilly areas. Partially covered habitations

provide potable water but at levels less than 40 LPCD. Non-covered habitations have no

potable supply accessible to the habitation. As per the policy notes of the Municipal

Administration and Water Supply Department Government of Tamil Nadu 2010-11, 90% of

the habitations (82554 out of 92689) are reported to have full coverage of safe drinkingwater supply with the remaining having partial coverage.




Industry

The State Framework Resource Plan estimates Industrial water demand to increase only by

28% from 1555 MCM in 2001 to 1985 MCM by 2050, as it is likely that users in this segmentwould adopt zero discharge initiatives and waste-water recycling in the future.

Thermal power plants account for the highest proportion of water use (in the industrial

segment). Other industries include chemicals, distilleries, oil refinery, textile dyeing, steel,

fertilisers, pharmaceuticals, petrochemicals, paper and pulp, sugar, electroplating etc. Most

industries pay a user charge to the Government if they draw water from rivers and lakes.

Industries which receive municipal supply pay a water tariff to the concerned local body.

Since the availability of water is limited, many industries have on their own initiative adopted

conservation and recycling measures. Two industries in Chennai, CPCL and MFL purchase

and treat sewage from Metrowater to meet their water requirements. Recently, CPCL hasset up a desalination plant to meet its water needs. Given the long coastline, this could

become a viable alternative for industrial clusters along coastal areas in Tamil Nadu.

2.4. Key issues and challenges

Some of the critical issues and challenges faced in the water sector include the following:

a) Surface water pollution - Over 3000 industrial units in Tamil Nadu which have been

classified under the highly polluting or "red" category with an estimated effluent

generation of about 6 lakh litres per day. Direct discharge of effluents by several of these

units into rivers and water bodies is a cause for concern, particularly the effluentsemanating from the tanneries located in Vellore, Kancheepuram, Dindigul and Erode

districts and from the textile dyeing units in Tirupur, Erode, and Karur. Further the large

industrial complexes in Tami Nadu, namely those in Manali, Ennore, Ranipet, Cuddalore,

Mettur and Tuticorin have chemical, petro-chemical and other industries and become

environmental hotspots.

b) Groundwater pollution/ over exploitation - With greater utilisation of water for

industrial and domestic use and also due to the increased use of agricultural chemicals,

groundwater quality is deteriorating rapidly in the State. Diminished water quality also

means that the quantum of fresh water available for particular uses is reduced, or thatthe water can be used only after treatment. Problems of water quality can be due to

natural causes like geological formations or due to sea water intrusion. It is estimated

that over a third of blocks in the state are classed over-exploited in terms of their

groundwater status

c) Catchment degradation and siltation in river basins – Intensive farming in river

basins and siltation in reservoirs are emerging as serious concern areas as they lead to

catchment degradation and reduction in storage capacity.

d) Eutrophication and aquatic weeds - Eutrophication is the ecological degradation of the

surface waters with plant nutrients. Eutrophication results from the excessive levels of




nutrients like phosphorous and nitrogen compounds. Agriculture is a major factor in

eutrophication of surface water sources.

e) Inadequate focus on rural sanitation – The level of sanitation is poor in Tamil Nadu.Less than 35% of households have access to toilets. The Department of Rural

Development has been implementing the 'Restructured Central Rural Sanitation

Programme' since 1999. The components include the construction of individual toilets,

sanitary complexes for women, school sanitation and rural sanitary marts. They have

also initiated the 'Total Sanitation Campaign' (TSC) in phases in many of the districts of

Tamil Nadu. TSC emphasises Information, Education and Communication, Human

Resource Development and Capacity Development activities to increase awareness.

f) Access versus quality of access in urban areas – While the level of access and

coverage of water supply and sanitation in urban areas is relatively better, the quality ofaccess indicates scope for improvement. Weak local capacity for managing O&M

coupled with weak adoption of modern maintenance practices lead to dilapidated

networks, inconsistent supply and inefficient water supply distribution




3. Policy response and Institutional framework

3.1. Policy initiatives at National level

Under the Constitution of India, Water is a State subject, and the role of the central

government is limited to defining norms for the sector through the Central Public Health

Environment and Engineering Organization (CPHEEO), Ministry of Urban Development

(MoUD), Government of India, and providing guidelines and technical assistance to the

states. The Central Government also intervenes through some centrally funded special

programmes of the MoUD, such as mega-city schemes or programmes on sanitation. The

Planning Commission plays a role in evaluating the financial requirements for the Five Year

Plans and has an advisory role in policy-making for the Water sector.

The responsibility for the Urban Water Supply and Sanitation (UWSS) sector in India is

divided between the Central Government and State Governments. The Central Government

is responsible for the regulation and development of inter-state rivers and river basins to the

extent that such regulation is in public interest. The Central Government also establishes the

policy framework for the management of water resources and provides funds for WSS

projects through budgetary allocations. The Ministry of Urban Development (MoUD) is the

principal department of the Central Government that coordinates urban WSS sector

activities, with the Central Public Health and Environmental Engineering Organization

(CPHEEO) being its technical arm. The MoUD receives assistance from the Ministry of

Health and Family Welfare, Ministry of Water Resources (MoWR), Ministry of Environment

and Forests (MoEF), and the Planning Commission.Apart from above described functions, all matters relating to the UWSS sector are within the

functional domain of State governments which lay down policies for the allocation of water

for different purposes, and establish institutional systems for their development and

management. Institutional arrangements in Tamil Nadu are detailed subsequently in this

section

National Water Policy 2002

The National Water Policy 2002 lays down general guidelines in preparing basin-wise

master plan, priorities for water use, inter-basin transfer, etc. The National Water Policy

articulated by the Government of India in 1987 was further updated and adopted by National

Water Resources Council in April 2002,

The National Water Policy recognises water as a prime natural resource, a basic human

need and a precious national asset. It has recommended that resource planning in the case

of water has to be done for a hydrological unit such as a drainage basin as a whole or for a

sub-basin. It has further emphasised that special multi-disciplinary units should be set up in

each state to prepare comprehensive plans taking into account the needs of not only

irrigation, but also various other water uses so that the available water can be put to

optimum use.

The National Water Policy accorded top priority to drinking water over competing water uses

and advocated private participation and access to external finance for development of urban




water supply system. It also states - ”Private sector participation should be encouraged in

planning, development and management of water resources projects for diverse uses,

wherever feasible. Private sector participation may help in introducing innovating ideas,

financial resources and introduce corporate management and improving efficiency and

accountability to users. Depending upon the specific situations, various combinations of

private sector participation, in building, owning, operating, leasing and transferring of water

resources facilities, may be considered”.

Integrated Scheme on Ground Water Management and Regulation

This scheme was approved in August 2008 by the Cabinet Committee on Economic Affairs

(CCEA) to strengthen the ground water management system, develop area specific Rain

Water Harvesting (RWH) techniques and create a web-based ground water information

system, capacity building of scientists, planners and other stakeholders and strengthening of

co-ordination and synergy amongst all other stakeholders. The scheme will be implemented

with an outlay of Rs. 460 crore. The proposed activities under the scheme during 11th Five

Year Plan include Ground Water Management Studies over 7.5 lakh square km. area;

Exploration of new aquifer areas through drilling of 4000 wells; and Monitoring of ground

water levels and quality from country-wide network of 15,500 observation wells. It also

include carrying out of about 1500 water supply investigations for Defence, Urban and other

organizations, carrying out of 75 demonstrative artificial recharge and rain water harvesting

studies in different States; besides regulating Ground Water Development and Management

in critical areas and the preparation of reports/maps on the availability of ground water by

District/States. The union government also launched a Rs 60 billion scheme for rehabilitating

23,000 surface water bodies across India. Further, rainwater harvesting is now mandatory in

new buildings in Aizwal, Bangalore, Delhi, Goa, Lucknow and Mizoram. The Ground Water

Management and Regulation Scheme will be implemented through CGWB, CGWA and

other agencies identified by the Government from time to time.

Reform-linked JNNURM scheme

The Central Government launched Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) is an initiative directed at effecting substantive improvement in urban

infrastructure and governance. JNNURM aims at the development of 65 identified cities (35

cities with a million-plus population, capital city in every state, and a small number of other

cities of historical, religious or tourist importance) with an objective of encouraging reforms

and fast track planned development of the concerned cities. The focus of the scheme is on

improving efficiency in urban infrastructure and service delivery mechanisms, community

participation, and enhancing accountability of Urban Local Bodies (ULBs)/ Parastatal

agencies towards citizens. The thrust of the JNNURM is to ensure improvement in urban

governance and service delivery so that ULBs become financially sound and sustainable for

undertaking new programmes. It is also envisaged that, with the charter of reforms that are

followed by the State governments and ULBs, a stage will be set for PPP projects.

Mandatory reforms at the level of ULBs and Parastatal Agencies include levy of “reasonable

user charges by ULBs and Parastatals with the objective that the full cost of O&M orrecurring cost is collected” but also specify “Provision of basic services to the urban poor




including security of tenure at affordable prices, improved housing, water supply and

sanitation.”

Research & Development (R&D) Programme in Water Sector

In terms of Capacity Building, the Cabinet Committee on Economic Affairs (CCEA) has

approved a Rs. 295 crore scheme on research and development programme in the water

sector. The main objective of the scheme is to undertake and promote research activity for

addressing challenges in water sector by adopting modern techniques and technology and

upgrading the existing facilities. Besides, the scheme envisages to actively involve research

institutions of the State Government (such as engineering / irrigation research institutions,

water and land management institutes) and various academic institutions and other research

centres in water sector. The scheme will be beneficial in development of technology with aview to improving the efficiency of the water resources systems, reducing risk / hazard in

water resources projects and adopting economic design of water resources projects. It will

also help in preparing manuals, guidelines and updation of BIS Codes in the light of research

findings.

3.2. Policy response and initiatives in Tamil Nadu

Tamil Nadu adopted a State Water Policy in 1994 along the lines of the National Water

Policy of 1987. Subsequently, the National Water Policy was revised in 2002. The Tamil

Nadu Government is in the process of revising the State Policy to include various current

concerns. Some of the major aspects of the policy including the following:

o Importance of water resources in the development of the State.

o Need for considering socio-economic aspects of water resource projects.

o Need for basin wide planning for equitable water use.

o Priorities for water use in the State.

o Management and development of ground water resources.

o Watershed management in rain-fed areas.

o Increase in demand for non-agricultural uses.

o Management of water quality and environmental aspects.

o Need for a hydrological database for planning and management.o Stakeholder participation in management e.g. water user associations.

o Need for proper pricing of water in different sectors.

Some of the important legislation governing management of water and water pollution are

detailed below:

Participatory Irrigation Management

The Government of Tamil Nadu is advocating the participatory irrigation management

programme with the objective of ensuring equitable distribution and optimum utilization of

water for irrigation by the farmers involving them in the operation and maintenance of

irrigation systems and inculcating a sense of ownership of irrigation system in them.




An Act namely the “The Tamil Nadu Farmers’ Management of Irrigation Systems Act, 2000”

was enacted. The rules for giving effect to the provisions of the Act have been framed in

2002 and the rules for elections have been framed in 2003. The Act has been brought into

force in 30 Districts of the State except the Nilgiris and Chennai, where there is no ayacut.

Initially, the Act was implemented only in the 20 Districts where the then Water Resources

Consolidation Project was implemented, with effect from 01.10.2002. Subsequently, the Act

has been extended to rest of the districts also, with effect from 7 th May 2007. The Act

envisages for constitution of farmers’ organizations in the entire command area of all

irrigation systems under the management of Water Resources Department.

Ground water regulation

The Tamil Nadu legislature passed the Ground Water (Development and Management) Act

and the Act came into force after receiving the assent of the President in March 2003. The

Act is applicable to the whole State of Tamil Nadu except the Chennai Metropolitan Area

which is governed by a separate Act. A Tamil Nadu Ground Water Authority has been set up

to direct and regulate the development and management of the ground water resources of

the State. The Authority has the power to notify areas for regulation. Every use in the notified

area will have to obtain the permission of the Authority to extract ground water. Wells cannot

be sunk and transport of ground water by lorries, tankers, etc. cannot be done in a notified

area without obtaining a permit. Electricity cannot be provided for energising wells which

have been set up in contravention of the Act. All new wells sunk in the State even in non-

notified areas have to be registered. The Authority may lay down or adopt standards for

water quality depending on the kinds of water use.

The Tamil Nadu Ground Water Act is in consonance with the rules under the Environment

Protection Act, 1986 by which a Central Ground Water Authority was constituted. The

Central Ground Water Board functions in conjunction with the CGWA.

Industrial Effluent Pollution control

The Government of India and the Government of Tamil Nadu have enacted acts for water

pollution prevention and control. The Tamil Nadu Pollution Control Board is responsible for

enforcing the legislation and rules pertaining to Industrial water pollution.

Some of the important water pollution related legislation that is enforced by TNPCB including

o The Water (Prevention and Control of Pollution) Act, 1974 as amended in 1978 and

1988.

o The Tamil Nadu Water (Prevention and Control of Pollution) Rules, 1983.

o The Water (Prevention and Control of Pollution) Cess Act, 1977 as amended in 1991.

o The Water (Prevention and Control of Pollution) Cess Rules, 1978. as amended in 1992

o The Environment (Protection) Act, 1986.

o The Environment (Protection) Rules, 1986.

o The Environmental Impact Assessment Notifications, 2006 (Now notification inforce)

o The National Environment Appellate Authority Act, 1997

o The National Environment Appellate Authority (Appeal) Rules, 1997




The system relies exclusively on the downstream control by fixing effluent standards for the

discharge of effluents into water bodies. Regulations were framed to monitor and control the

discharge of effluents into water bodies. Regulations were framed to monitor and control the

discharge of effluent from each industry and specifications were laid down for the quality of

effluents to be discharged on land or into water bodies after treatments. The State

Government has taken several measures to prevent and control pollution of waterways. The

Government has passed orders banning the operation of highly polluting industries within 1

km from the embankment of rivers and reservoirs. The Government has also passed orders

imposing total ban of setting up of any of highly polluting new industries within 5 km from the

rivers of Cauvery and its tributaries, namely Pennaiyar, Palar, Vaigai and Tambirabarani.

The Water (Prevention and Control of Pollution) Cess Act of 1977 empowers the State

Pollution Control Boards to levy a cess on industries based on their water consumption. If

they comply with the provisions of the Water Pollution Act of 1974 and the EnvironmentProtection Act 1986, the cess is correspondingly reduced. In Tamil Nadu, the cess is levied

by the Tamil Nadu Pollution Control Board on water consuming industries. The water cess

rates were revised in 2003 because they were considered to be too low to act as a

disincentive for industries to conserve the use of water and hence reduce the volume of

pollution. However, even the revised rates remain quite low compared to the cost of fresh

water.

3.3. Institution al Framework in Tamil Nadu

The apex institution in the State at the policy level is the Water Resources Control and

Review Council, chaired by the Chief Minister.

Water Resources Department

The primary agency charged with implementation of the policy is the Water Resources

Organisation. The Water Resources Department functions on river basin framework. The

state has been subdivided into four regions, each headed by a Chief Engineer, located in

Chennai, Trichy, Madurai and Coimbatore. These Chief Engineers are the Basin Managers

for the defined basin boundaries in their jurisdiction. Apart from this, three Chief Engineers

stationed in Chennai carry out specialized functions, designated as Plan Formulation;

Operation and Maintenance; Design, Research and Construction Support.

The Institute of Water Studies is the nodal agency responsible for water planning while the

Irrigation Management Training Institute imparts training to farmers and officials. Domestic

water supply (urban and rural) schemes are executed by the Tamil Nadu Water Supply and

Drainage Board (TWAD) for the entire State except Chennai Metropolitan Area where

Metrowater is the implementing agency. TWAD executes capital projects which are handed

over to the concerned local bodies for operation and maintenance. Industrial water pollution

is regulated by the Tamil Nadu Pollution Control Board. Management of water quality and

environmental aspects of rivers and water bodies is being monitored and coordinated by the

Department of Environment.

The Irrigation Management Training Institute was established in the year 1984 to impart

training to all those involved in irrigated agriculture. Training Programmes on Participatory




Irrigation Management (PIM), Computer applications in Irrigation Management,

Geographical Information System (GIS), Remote sensing, AUTOCAD and human resources

development are conducted by the Institute. In addition, farmers are exposed to modern

irrigation techniques and action research programmes are encouraged.

Municipal Administration and Water Supply

The department of Municipal Administration and Water Supply administers urban local

bodies and also implements development programmes for the Urban Local Bodies (ULBs) in

the state. The department is also responsible for planning and implementing water supply

and underground sewerage schemes in both rural and urban areas in the state. There are

10 Municipal Corporations and 148 Municipalities under the administrative control of the

Commissioner of Municipal Administration. In addition there are 561 Town Panchayats

which come under the Directorate of Town Panchayats

Tamil Nadu Water and Drainage Board Tamil Nadu Water Supply and Drainage Board (TWAD Board), a statutory body formed by

the Government of Tamil Nadu, vested with the twin task of providing water supply and

sewerage facilities to the entire state of Tamil Nadu except Chennai Metropolitan Area,

came into existence on 14th April 1971. The activities of TWAD Board are guided and

monitored by the Board of Directors and senior officials of the Government of Tamil Nadu.

Headed by a senior IAS Officer as its Managing Director, TWAD has four Regional Chief

Engineers placed at Vellore for Northern Region, Thanjavur for Eastern Region, Coimbatore

for Western Region and Madurai for Southern Region. TWAD executes capital projects

which are handed over to the concerned local bodies for operation and maintenance. In case

of combined water schemes, TWAD also handles maintenance of head works and trunk

transmission and pumping infrastructure used to supply water to multiple rural and urban

habitations

Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB)

The CMWSSB was constituted as a statutory body in August 1978 for exclusively attending

to the growing need of, and for planned development and appropriate regulation of water

supply and sewerage services in the Chennai Metropolitan Area with particular reference to

the protection of Public Health and for all matters connected thereto. The CMWSSB is

vested with the responsibility of planning, construction, operation and maintenance of water

supply and sewerage system in Chennai Metropolitan Area (CMA). Though its operation is

limited to Chennai Municipal Corporation Area in general, the Board is also extending its

services to the surrounding urban local bodies (with about 7.88 sq.km. in extension areas

and Manali New Town) and has already initiated measures to provide services for the entire

Metropolitan Area

Urban Local Bodies

Other than the Chennai Corporation and parts of Chennai Metropolitan Area, the water

supply function is handled by the Urban Local Bodies after the physical infrastructure is set

up and developed by the Tamil Nadu Water and Drainage Board.




In recent years, many of the projects are financed by the Urban Local Bodies through a

combination of loans and grants from financing agencies like the Tamil Nadu Urban

Infrastructure Finance and Development Corporation Limited (TUFIDCO) and Tamil Nadu

Urban Infrastructure Financial Services Limited (TNUDF). The Urban Local Bodies are

responsible for levy and collection of user charges for water supply and sewerage systems

operated by them.

3.4. Summary

A slew of enactments over the past decade, including the Farmers’ Management of Irrigation

Systems Act (2000), Chennai Metropolitan Area Ground Water (Regulation) Amendment

Act, 2002, Tamil Nadu Ground Water Development and Management Act (2003), Tamil

Nadu Protection of Tanks and eviction of encroachment Act, 2007 have contributed to an

improved policy environment in Tamil Nadu. We see a good beginning, but this needs to bebacked by meticulous enforcement.

The Institutional framework to manage water in Tamil Nadu is largely in place but needs to

be continually supported with appropriate capacity building and skill development programs.

The apex level Water Resources Control and Review Council is chaired by the Chief

Minister, while the Water Resources Organisation is charged with implementation of the

policy. The Institute of Water Studies is the nodal agency responsible for water planning

while the Irrigation Management Training Institute imparts training to farmers and officials.

Domestic water supply schemes are executed by the Tamil Nadu Water Supply and

Drainage Board (TWAD) for the entire state other than in the Chennai Metropolitan Area,

where Chennai Metro Water Supply and Sewerage Board (CMWSSB) is the implementing

agency. Industrial water pollution is regulated by the Tamil Nadu Pollution Control Board and

management of water quality and environmental aspects of rivers/water bodies is done by

the Department of Environment.




4. Select project level initiatives

4.1. Water Supply schemes

Over 48 water supply projects are under various stages of implementation with financial

assistance from various funding agencies as given below:

Financing assistance / Program Number of

Projects

Project size

(Rs. crore)

Tamil Nadu Urban Development Project

(TNUDP-III)

8 390

Jawaharlal Nehru National Urban Renewal

Mission (JNNURM)

7 911

Urban Infrastructure Development Scheme for

Small and Medium Towns (UIDSSMT)

25 340

Japanese International Cooperation Agency 1 143

KfW Germany 1 22

While implementation of many of these schemes continue to be supported by the Tamil

Nadu Water and Drainage Board and the Chennai Metropolitan Water Supply and Sewerage

Board, 10 Urban Local Bodies namely, Coimbatore Corporation, Bodinayakanur, Pollachi,

Devakottai, Karur, Gobichettipalayam, Coimbatore, Erode, Thanjavur and Salem have

initiated implementation of these schemes on their own; an indication of improving capacity

at the local level.

Other projects executed by TWAD

In addition, the Tamil Nadu Water Supply and Drainage Board and CMWSSB are

undertaking a study to implement water supply schemes in Town Panchayats to provide a

minimum of 70 LPCD in Town Panchayats.

4.2. Projects under execution by CMWSSB

o Desalination plant on BOT basis at Minjur – A 100 MLD Desalination plant is being

executed at Minjur through a BOT PPP arrangement by a Special Purpose Vehicle

formed by a consortium comprising Befesa Aqua and IVRCL Infrastructure Limited

o Second Desalination Plant at Nemmeli – In addition to the above, another 100 MLD

Desalination plant is being executed with assistance from Government of India

o Expansion of Sewage Treatment Capacity – In addition to expansion of Sewage

Treatment Plants at Perungudi and Nesapakkam to increase Sewage Treatment

Capacity from 486 MLD to 600 MLD, CMWSSB is also undertaking a feasibility study to

set up another 120 MLD Sewage Treatment Plant at Koyambedu.

o Water Supply and Sewerage schemes under JNNURM – CMWSSB is implementing

28 water supply schemes sanctioned under JNNURM at an outlay of Rs. 2032 crore




o Water Supply and Sewerage schemes under TNUDP III – In addition CMWSSB is

also implementing water supply and sewerage schemes in Ambattur, Tiruvottiyur,

Pallavaram and Madhavaram.

4.3. Projects under execution by TWAD

o Rural Water Supply - TWAD Board gets financial assistance from the Government of

Tamil Nadu under the Minimum needs Program of the State Government and from the

National Rural Drinking Water Progam of the Central Government. As per the policy

notes of the Municipal Administration and Water Supply Department Government of

Tamil Nadu 2010-11, 90% of the habitations (82554 out of 92689) are reported to have

full coverage of safe drinking water supply with the remaining having partial coverage.

o Combined Water Supply schemes – Such schemes are developed and operated by

TWAD when a single source is being used to service requirements of multiple towns /habitations. In 2009-10, thirty such schemes were taken up by TWAD Board

o Special Projects – I – Ramanathapuram Combined Water supply scheme –

Ramanathapuram District, situated in the South-East of Tamil Nadu, is drought prone

and among the backward districts in the state. It comprises four Municipalities, seven

Town Panchayats and 2332 rural habitations. The district used to suffer from scarcity of

potable water due to salinity and brackishness. The water supply was formulated to

cover five Municipalities, 11 Town Panchayats and 3163 rural habitations in 18

Panchayat unions of Ramnathapuram, Sivaganga and Pudukottai Districts benefiting

present population of over 15 lakh people. This scheme was funded with assistance fromGovernment of India’s Urban Infrastructure Development Schemes for Small and

Medium Towns (UIDSSMT) of Rs.282 crore and Rs.273 crore from National Agricultural

Bank for Rural Development (NABARD) and was completed ahead of the planned period

of three years.

o Special Projects – II – Hogenakal Combined Water supply scheme – The Scheme is

aimed at providing potable Water Supply to Dharmapuri and Krishnagiri Districts in Tamil

Nadu which comprises three Municipalities, 17 Town Panchayats and 6,755 rural

habitations in 18 Panchayat Unions apart from mitigating the fluorosis. At present Water

Supply is provided through various Combined Water Supply Schemes and Individual

Power Pump schemes using local sources to the people of these areas. The water

quality analysis reports exhibit concentration of fluoride in ground water in many parts of

these Districts ranging from 1.5 mg/l to 12.4 mg/l which is in excess to the permissible

limit of 1.5 mg/l as specified in Central Public Health and Environmental Engineering

Organization (CPHEEO) Manual. Due to the consumption of fluoride contaminated

water over a prolonged period, people in the above two Districts tend to suffer from

Skeletal Fluorosis, dental Fluorosis, non-skeletal manifestation or combination of the

above. The project is currently under execution and trial runs are expected to be started

by December 2012.




4.4. Waste Water management

The Alandur Sewerage project (refer Box 4.1) provided a successful model for implementing

sewerage schemes with public participation in smaller and medium towns. Followingimplementation of this project, the Government of Tamil Nadu announced its intent to

implement sewerage schemes in all district headquarters. Later this initiative has been

extended to cover more towns.

Box 4.1 Alandur Sewerage Project

The Alandur sewerage project initiated in 1996, is the first such project in India using a PPP

framework (BOT format) and presents a unique case in the area of public-private partnership in the

urban sanitation sector. Alandur municipality falls under the Kanchipuram district and has a population

of approximately 1.25 Lakh, with one-fourth of them living in slums. Alandur has developed mainly as

a residential suburb of Chennai. The proposed sewerage system was to be developed for the

targeted population of about 3 Lakh persons and has the following components: A sewerage networkconsisting of the main sewer line, branch sewer line and manholes, construction of a sewage

pumping station, a sewage treatment plant; and Low cost sanitation.

The work of the project was carried out in two phases. The first phase (initial two and half year period)

involved development of 50 per cent of the branch sewers, main sewers, pump house including

installation of machinery, pumping main and one 12 MLD capacity sewage treatment plant with the

remaining part of the sewer system developed in Phase II. The construction of underground sewerage

system was done through an EPC Contract and the sewerage treatment plant was constructed on a

BOT basis. The operation and maintenance of the sewerage system including sewer lines, pump

houses, pumping plants, will be carried out by the municipality. However, the BOT contractor will

operate and maintain the sewage treatment plant during the lease period of 14 years and hand overthe STP to the municipality at the end of the lease period. The project was awarded to the IVRCL

Infrastructure & Projects Ltd. in joint venture with Balcke- Durr and Wabag technologies Ltd. based at

Hyderabad in February 2000 and the agreement was signed in March 2000.

The project was estimated to cost Rs 35 crore. The collection and pumping system were financed by

debt of Rs20 crore and grant of Rs3 crore. Tamil Nadu Urban Infrastructure Development Corporation

(TUFIDCO) financed nearly 50% of the project cost through loans and grants. GoTN provided bridge

financing in the sewer account during the life of the project, after providing for operations and

maintenance (O&M) expenses, debt servicing and contribution to the sinking fund. GoTN would pay

an amount of Rs 30 per month/ sewer connection in order to balance the revenue account budget of

sewerage. The project also mobilised one-time deposits in the form of connection charges from the

citizens of Alandur. Public awareness and support was sought through an extensive communication

campaign. More than 15,000 households have contributed Rs 5,000 per household representing one

third of the project cost.

A notable feature is the tariff structure, developed on full user charge recovery with cross

subsidies for the poor. The municipality collects sewer maintenance charges initially fixed at Rs 150

per month per connection from domestic users, Rs 450 per month per connection from commercial

users and Rs 750 per month from industrial users While the project has faced a number of

challenges, including delays in operator selection for O&M, miscommunication on separate upfront

payment and connection fee etc. (The municipality has also been forced to consider reduction in

monthly maintenance charges last year as against annual escalation envisaged initially), it

demonstrates the scope for implementing sanitation schemes through PPP.




At present sewerage schemes for nearly 58 towns have been identified for implementation

under various schemes including the following:

•

National River Conservation Program (NRCP) – 8 towns• Tamil Nadu Urban Development Project (TNUDP-III) – 25 towns

• Jawaharlal Nehru National Urban Renewal Mission (JNNURM) – 7 towns

• Urban Infrastructure Development Scheme for Small and Medium Towns – 10 towns

• Japanese International Cooperation Agency (JICA) assistance – 3 towns

• KfW Germany assistance – 2 towns

In addition, Detailed Project Reports are under preparation to implement sewerage schemes

in other Urban Local Bodies in a phased manner.

4.5. Water conservation and rainwater harvesting

Through an ordinance titled the Tamil Nadu Municipal Laws Ordinance, 2003, the

Government of Tamil Nadu made rainwater harvesting mandatory for all the buildings, both

public and private, in the state. The deadline to construct rainwater harvesting structures

was August 31, 2003.

The Municipal Administration and Water Supply Department through a Government Order

dated November 2002, assigned Municipal Administration and Water Supply Department as

the Nodal Department for RWH and proposed setting up of State level and District Level

Coordination Committees and propagated RWH in Government Buildings.

The Government Order made it mandatory for Chennai Metropolitan Development Authority,

all MCs, and Municipalities to sanction building plans only after implementation of RWH.

Water and sewer connection would not be given to new buildings without RWH plans.

Further, RWH has been made mandatory in three storied buildings irrespective of the size of

rooftop area




5. Public Private Partnerships and innovative projects

5.1. PPPs and innovative projects – experience till date

Tamil Nadu has been a pioneer in executing some very challenging projects in the past

through innovative structures and leveraging private sector participation. Details of a few

such projects that have been executed as novel experiments are provided below:

Alandur Sewerage System

The Alandur sewerage project is the first such project

in India using a PPP framework (BOT format) to provide

underground sewerage to a town of 125,000 people

near Chennai. Public awareness and support was

sought through an extensive communication campaign.Some 15,000 households out of 17,000 have contributed

Rs. 5,000 per household representing one third of the

project cost. A notable feature is the tariff structure,

developed on full user charge recovery with cross subsidies for the poor. The first

community participation project, has also suffered a number of set backs due to some lack of

forward planning, i.e. delays in selection of an operator for O&M of the sewerage scheme;

miscommunication on the distinction between upfront payment of capital cost through

community participation and a separate connection fee to each house to be levied

separately. These are lessons, which can be incorporated in repeat or scaling up projects.

Tirupur Water Supply

The Tirupur Water Supply Scheme, the first water sector related project developed

under the PPP framework in India. After a gestation period of almost 10 years,

Government of Tamil Nadu (GoTN) accelerated and completed legal, financial and

management agreements between July 2001 and March 2003. A total of Rs.45 crore equity

and subordinated debt financing from GoTN has leveraged additional equity financing of

Rs.217 crore and leveraged a debt of Rs.700 crore including financing from Tirupur

Exporters Association and foreign investors. The project supplies water to the fast-growing

garment export industry in Tirupur, domestic consumers in Tirupur Municipality and

surrounding villages, as well as a sewerage system for the Tirupur Municipality and onsite

sanitation facilities for slums. User charges are based on cost recovery with cross subsidies

between industrial and domestic consumers.

100 MLD Desalination Plant on BOT in Chennai

The project involves setting up of a 100 MLD sea water Desalination Plant on 60 acres land

leased by CMWSSB to CWDL at Kattupalli village in Minjur, 35 km north of Chennai. The

project is being executed by a Special Purpose Vehicle formed by a consortium comprising

Befesa Agua Spain and IVRCL Infrastructure Limited India, selected on the basis of lowest

levelized Tariff rate quoted for 1 KL for supplying desalinated water during the 25 years ofoperations. The project will supply 100 MLD of potable quality water to the CMWSSB in bulk.




In addition to this project, the CMWSSB is implementing another 100 MLD Desalination

project through an EPC route in Nemmeli, 50 km south of Chennai.

Pooled Bond program for financing water projectsThe first pooled bond financing of water projects in the country was undertaken in Tamil

Nadu. One of the state level urban finance intermediaries, the Tamil Nadu Urban

Infrastructure Financial Services Limited (TNUIFSL) floated in the year 2002 by combining

13 ULBs in a size of INR 304 million at an interest rate of 9.20% with a tenure of 15 years

and equal annual repayment. The funds mobilized by issue of bonds were utilized to swap

the high cost borrowings taken earlier at an interest of 16% by the assisted ULBs. TNUIFSL

has received assistance from KfW Germany to scale up its pooled financing initiatives to

finance water supply and sanitation projects

5.2. Recent international perspective on PPPs

Box 5.1 captures some key insights and findings from a recent publication ‘Public Private

Partnerships for Urban Water Utilities – a review of experience in developing countries’ of

the World Bank and PPIAF. The document which provides insights into models used for

PPPs in developing countries re-affirms our view that public funding at least partly, is critical

to establish early-stage viability and success of the proposed PPP.

Box 5.1: Insights and findings from international experience.

Excerpts from a recent report on “Public Private Partnerships for Urban Water Utilities – a review of experience in developing countries” by World Bank and PPIAF.

Spread of PPPs in urban water supply

Since 1990, governments in developing and emerging countries have signed more than 260 PPPcontracts in the sector and it is estimated that by 2007, PPP projects were supplying water to morethan 160 million people in these countries. Nonetheless, the market share of water PPP projects indeveloping and emerging countries stood at only about 7 percent of the total urban population, upfrom less than 1 percent in 1997 and about 4 percent in 2002.

PPP philosophy / models

A large proportion of the PPPs awarded during the 1990s, particularly in Latin America, focused onattracting private funding and adopted the concession scheme. The early termination of many ofthese concessions demonstrated the inherent vulnerability of this approach in the volatile economicenvironment of developing countries.

Colombia was the first to depart from the standard concession approach, using the mixed-ownershipcompanies approach or providing public grants to private concessionaires to accelerate investment.Many of these hybrid PPPs had positive results. Several countries experimented with long-term PPPsthat combined private operation with public investment, such as leases-affermages, mixed-ownershipcompanies, and management contracts.

More and more countries are adopting a PPP model in which investment is largely funded by publicmoney, with the private operator focusing on improving service and operational efficiency. In thechallenging environment of many developing countries, the main focus of water PPP should not beabout attracting direct private investment, but rather about using private operators to improveservice quality and efficiency.

In practice, funding for investment under these mixed-financing PPP projects comes from a

combination of direct cash flows from revenues, with a variable mix of government and privatesources that tend to make the traditional dichotomy between leases-affermages andconcessions increasingly obsolete. Several successful approaches have been developed:




• Concessions that rely largely on revenue cash flow for investment, with cross-subsidies fromelectricity sales (Gabon), tariff surcharges (Côte d’Ivoire), or both (Morocco).

• Affermages, as developed in Western Africa, bolstered by enhanced incentives for operational

efficiency, a program of subsidized connections to expand coverage for the poor, and a gradualmove to full cost recovery through tariffs (Senegal, Niger, and now Cameroon).

• Mixed-ownership companies , as used in Latin America (Colombia, La Havana in Cuba, andSaltillo in Mexico) and several countries of Eastern Europe (the Czech Republic and Hungary).

• Concessions with public grants for investments to spearhead access expansion orrehabilitation while minimizing the impact on tariffs. This is typified by the PPPs in Colombiadesigned under that country’s Programade Modernización de Empresas (PME); a similarapproach has been adopted in Guayaquil in Ecuador and in a few concessions in Argentina(Cordoba and Salta).

Analysis of overall performance under various models.

In many international cases, water PPP projects have improved service quality, especially by reducingwater rationing. A good illustration is provided by the case in Colombia, where private operators haveconsistently succeeded in improving service continuity in many cities and towns, often starting fromhighly deteriorated systems. Private operators also have a good track record of reducing waterrationing in Western Africa.. Several management contracts also achieved notable progress despitetheir short duration.

This study found that many private operators succeeded in reducing water losses, notably in WesternAfrica, Brazil, Colombia, Morocco, and Eastern Manila in the Philippines. In some cases, privateoperators even reduced nonrevenue water (NRW) to less than 15 percent, a rate similar to that insome of the best-performing utilities in developed countries.

Operational efficiency appears to be the area in which the positive contribution of private operatorshas been the most consistent.

• The overall efficiency of concessionaires is hard to judge, because they are responsible for bothoperations and investment. In the case of Manila, a detailed analysis by the regulator showed thatthe concessionaire in the Eastern zone had significantly improved operational efficiency, while theone in the Western zone had not. In the case of Argentina, it is not clear whether concessionairesachieved much improvement in efficiency.

• In leases-affermages, the efficiency of private operators is easier to assess, because theresponsibility for operation and that for investment are separated between the private and publicpartners. Detailed information available for such projects in Senegal and Cartagena (Colombia)showed that clear gains in operational efficiency were achieved, which were passed to consumersover time through tariff reductions in real terms.

• Management contracts entail only a limited transfer of responsibility to private operators, givingthem limited control over a utility’s labor force. Efficiency improvements under managementcontracts—measured using the global efficiency index (the ratio of water billed and paid for towater produced, a measure that combines water loss reduction and improved bill collection)—were significant in most cases under review.

As seen from the above, a number of possible approaches to PPP transaction emerge.

a) Concessions or longer contract arrangements (longer than 20 years) where a

substantial investment responsibility, demand risk and tariff setting is passed on to the

private operator. Concessions have encountered difficulties with tariff setting and cost

recovery wherever the baseline tariff levels have been very low. Managing a Concession

requires a significant oversight and regulatory institutional structures. However, a well

structured concession passes on greater risk and investment obligation to the private

operator and tends to be suitable when the state requires a substantial portion of the




investment to come from the private sector and when it is possible rationalise user

charges to meet this objective.

b) Management contract structures (6-15 years) focus primarily on managing

construction and rehabilitation and improving service levels with the operators getting

compensated on a fee based annuity structure without investment obligations and

demand risk, though the billing and collection responsibility is passed on. Tariff setting is

retained with the contracting authority. Such contracts have been relatively easier to

structure and execute vis-a-vis concessions.

c) Affermages or a hybrid form of contracting (15 years) is becoming increasingly

popular and has been used across Africa and a number of developing countries,

particularly in projects requiring a longer phased out rehabilitation component. Here the

operator does not make upfront investment in the initial capital program and this is

typically brought in by the Contracting authority. However, there is often an obligation for

investment by the operator typically with respect to pipe rehabilitation / replacement overa period of time. Here again the operator is compensated by the Contracting authority

which retains the tariff setting and regulation. Typically the operator is compensated

through a volumetric approach (for eg., volume of water supplied x Operator tariff per KL

x Network efficiency x Collection efficiency). Thereby, the compensation is more tightly

linked to service levels and collection efficiency and the operator bears a part of the

demand risk.

5.3. Pre-requisites for successful PPPs

Tariff setting philosophy is a critical element in determining the range of PPP interventions

possible in the urban water supply systems. For instance, if the tariff philosophy is to recoveronly the O&M costs in full, implementation of projects using PPP models involving

investment commitment (such as BOT) from the private operator would require investment

servicing financing to be met from resources of ULBs other than user charges (municipal

revenue surplus from other revenue streams such as property taxes and Grants and

devolution income from the Government).

PPP models including management contracts / service contracts (without an investment

commitment from private operators) are feasible, even within the realms of an O&M cost

recovery approach. However, there are three areas of interventions to improve the enabling

environment and meet the pre-conditions for PPP:a) City level water sector strategy and Project Development focus – Articulating a city

wide investment plan and creating a shelf of projects for PPP interventions is really the

starting point for wider PPP intervention. We believe that the cities would require the

state government’s support in this regard in the form of technical assistance and project

development support.

b) Healthy Municipal Finances and clarity on Tariff direction – PPP is not a substitute

to good municipal financial management and governance. A PPP project becomes more

attractive and feasible if the municipal bodies send out strong signals of their

commitment to financial reform. Clarity on tax rates and pragmatic tariff reform including

timely and transparent revision of taxes and user charges is a critical pre-condition to




widen the scope of PPP interventions in O&M cost recovery in the short term and to

attract investment in projects over the long term.

c) Clarity on Institutional and legal framework – Having a well-articulated PPP policy /

legislation at the state level provides a useful enabling condition for implementing PPP

projects in the water sector. Given that responsibility for water supply in Tamil Nadu cuts

across state and local levels, it is important to have a seamless coordination between the

state government and local body for effective implementation.

We summarise below a key set of imperatives for successful project development through

PPP;

o Independent evaluation of project feasibility with a clear analysis of the socio -

economic benefits and environmental /sustainability issues that are linked to the project

o Guidelines/criteria for project selection for implementation through an appropriate PPP

modeo Reasonable assessment of ‘viability gap’ and mechanisms to fund the same

o Appropriate allocation of risks based on who is best equipped to manage the same

o Create competitive conditions wherever feasible and desirable

o Appropriate bidding mechanism to select the best party.

o Mechanisms for achieving efficiencies in both asset creation and quality of service

delivery

o Evaluate scope for user charge recovery through appropriate ‘willingness to pay’

analysis

o Clarity and comprehensiveness of contracts backed by legal framework and

regulatory oversight.

5.4. Potential areas for PPPs in water sector in Tamil Nadu

As seen above there are multiple modes in which PPP projects can be structured. A few

areas in which PPPs could potentially be used to implement projects include the following:

a) BOT structures for undertaking Tertiary Treatment of Secondary Treated Sewage from

Sewage Treatment Plants for supply of Industrial Grade Water.

b) Affermage Contracts for water supply distribution covering loss reduction, network

rehabilitation and provision of continuous piped water supply in select zones / areas in

large cities.

c) BOT structures for design, construction, operation and maintenance of large bulk water

and waste water treatment plants.

d) Rehabilitation, Operation and Maintenance contracts for old Treatment facilities for water

as well as waste-water that are in need of expansion or rehabilitation.




6. Sector imperatives and action agenda

6.1. Water Sector imperatives for Tamil Nadu

The status of Water, as a renewable asset, is under threat in Tamil Nadu as well as in most

parts of India. With a lower per capita water availability vis-à-vis the national average, Tamil

Nadu faces some serious challenges in the area of water management. Rapid

industrialization and urbanization without commensurate planning for water management is

leading to industrial pollution and over-exploitation of ground water sources which are further

amplifying the demand-supply deficit in water. The Confederation of Indian Industry (CII)

recognises the need to act decisively in the face of the growing concerns on Tamil Nadu’s

water security, even as its economy marches ahead, creating more pressures. In this

context, the effort by CII in conducting the TN Water Summit 2010 is to provide a platform to

discuss the issues highlighted here and to escalate water management to the top of thestate government’s policy agenda

The Government of Tamil Nadu has pronounced a progressive policy, coherent institutional

strengthening measures, and some innovative project interventions to tackle these

challenges head on. A slew of enactments over the past decade, including the Farmers’

Management of Irrigation Systems Act (2000), Chennai Metropolitan Area Ground Water

(Regulation) Amendment Act, 2002, Tamil Nadu Ground Water Development and

Management Act (2003), Tamil Nadu Protection of Tanks and eviction of encroachment Act,

2007 have contributed to an improved policy environment in Tamil Nadu. We see a good

beginning but this needs to be backed by meticulous enforcement. Similarly, the Institutionalframework to manage water is largely in place but needs to be continually supported with

appropriate capacity building and skill development programs.

While initiatives to further improve coverage of safe water supply and sanitation are

underway, a greater thrust on quality of service delivery, institutional strengthening and

financial sustainability are critical for financial and operational sustainability. CII believes that

industry could contribute in large measure to a number of these initiatives and that there is

potentially to significantly scale up its contribution through a range of innovative Public

Private Partnerships across various parts of the Water Value Chain in Tamil Nadu.

6.2. Action agenda

Management of water resources and provision of equitable water and sanitation services is

intrinsically linked to achieving GoTN’s goals of economic prosperity and social well-being

for its citizens. CII outlines a 6-point action agenda in this regard as follows:

i. Set and achieve aspirational targets. Illustratively, these would be:

o Ensure 100% safe drinking water supply and sanitation access to all habitations by

2012.

o Achieve service level benchmarks in water supply (135 LPCD, 24x7 water supply

and metered connections) and sewerage (100% coverage and treatment) in citieswith population greater than 500,000 by 2015 and all district headquarters by 2018.




o Achieve 30% waste-water re-use in cities with population greater than 500,000 by

2015.

o Achieve a) O&M cost recovery in urban areas by 2012 and rural areas by 2017 and

b) Full cost recovery in cities with population greater than 500,000 by 2020.

ii. Improve water efficiency in agriculture and industry

o Incentivize adoption of water efficient practices such as drip irrigation and thrust on

water shed programs and protection/restoration of water bodies

o Progressively improve irrigation coverage and shift to consistent power supply.

Rationalize power tariffs to prevent ground water exploitation and wastage.

o Incentivize waste-water re-use.and zero discharge practices in industry

iii. Enforce industrial pollution control measures on priority

o Work with industry bodies to implement and enforce industrial pollution control

standards

o Focus on industrial clusters covered under the recent environment assessment

undertaken by CPCB namely, Coimbatore, Cuddalore, Erode, Manali, Mettur,

Tirupur and Vellore. Of these, Manali and Vellore were classified as critically

polluted areas.

iv. Tackle Institutional Strengthening and Capacity Building challenges on priority

o Capture and disseminate information on a) Water resources and availability b)

water consumption and c) waste-water generation, treatment and re-use;o Improve operational excellence through skill development initiatives and process

improvements in financial management systems, e-governance and consumer

centricity.

v. Implement Public Private Partnerships as a means to leapfrog on service levels

o Leverage PPPs to improve service delivery and bring in system efficiencies rather

than to bring in capital investment.

vi. Undertake 3 or 4 ‘signature’ projects that could potentially trigger sector wide

momentum. Illustratively these could beo Coovum River Restoration and Waterfront development project

o 24x7 Water Supply for Chennai Metropolitan Area

o Development and Implementation of 2 new district level water supply schemes on

the lines of Hogenakal Water Supply Scheme with international aid assistance

o Restoration and creation of recreational facilities in 50 large water bodies within 2-3

years

o A river basin wide agricultural water efficiency improvement program

o Clean up Manali and Vellore clusters (identified as industrial pollution hotspots by

CPCB) within the next 3 years




List of References

1. Policy Notes of Departments of Government of Tamil Nadu 2010-11

a. Public Works Department

b. Municipal Administration and Water Supply

c. Rural Development

d. Industries

e. Environment and Forests

f. Agriculture

2. www.envfor.nic.in/soer/ state /SoE%20report%20of%20Tamilnadu.pdf. State of

Environment Report of Tamil Nadu.

3. http://www.environment.tn.nic.in/soe/ . State of Environment Report of Tamil Nadu 2005.

4. www.chennaimetrowater.com

5. www.twadboard.gov.in



Disclaimer

This publication has been prepared by ICRA Management Consulting Services Limited (IMaCS) for

the Confederation of Indian Industry (CII). All information contained in this document has been

obtained from sources believed by IMaCS to be accurate and reliable. While due care has been taken

in the preparation and compilation of this document to ensure that the contents are correct, neither CII

nor IMaCS guarantee the accuracy of data or information provided herein. Users are advised to

exercise their own due diligence and to seek independent professional advice in the use of any data

or information from this document. Neither CII nor IMaCS shall be liable for any financial loss or any

other damage that any user may claim from the use of the contents of this document.

Theme Paper - TN Water Summit

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