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PPPs in water sector

PPPs in water sector. Ramanujam S.R Director – Urban Practice February 26, 2009. Contents. Need for PPP - taking urban space as an example Forms of PPP that are relevant Learnings from experience. Indian water sector. Water services are provided by local Governments or

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PPPs in water sector

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  1. PPPs in water sector Ramanujam S.R Director – 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

  4. Service levels are inadequate Cost recovery and continuity of supply are poor Source: Benchmarking of utilities by WSP and Utility Data Book by ADB

  5. Sample of Class I Cities in a State

  6. Need for PPP Taking urban space as an example

  7. Annual Revenue Rs 636 Crores Annual Surplus Rs 47 Crores 1. The financing gap Required Investment Rs 6700 Crores Investment requirements for water supply and underground drainage for 128 towns with total population of 1.1 Crores

  8. 2. Skill and strength gap Sample of towns with a population of above 1 lakh in a State. Only gaps in key functions are summarised.

  9. 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.

  10. 3. Accountability gap Combined revenue efficiency of 43 % 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.

  11. Around 2000 Mid decade Now Mid to Late 90s Way Ahead? PPP timelines in water Signs of success A few projects grounded Momentum subsided Onset of pessimism First initiatives High international interest Poor results Many ongoing initiatives Waiting for first commercial results PPP interest at tipping point Efforts to prepare PPP projects High NGO opposition High profile projects run aground

  12. Mid 1990s, Failed projects Pune Hyderabad Goa Bangalore

  13. Around 2000, Momentum subsides Sonia Vihar TP Sangli Bangalore DMA

  14. Mid decade, High profile projects run aground DJB Pilot Circle Mumbai K East BWSSB Project

  15. Around the same time early successes emerge Salt Lake Haldia Chandrapur Nagpur Pilot Bhiwandi Latur Chennai desal KUWASIP Mysore Madurai

  16. Key Characteristics Placeholder for your own sub headline

  17. Current successes – Scope of the PPPs Nagpur pilot Rehab Haldia Mysore Madurai, Salt Lake Distr.n KUWASIP Latur, Chandrapur Treatment Chennai desal Bulk water Bhiwandi Investment Design Construction O & M Collection Tariff

  18. Around 2000 Mid decade Now Mid to Late 90s PPP timelines in water – Change is visible Water sector is seeing increased success with PPPs PPP concepts failed in the water sector

  19. 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?

  20. 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

  21. 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)

  22. 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

  23. Many initiatives are in the pipeline Ajmer Gujarat Nagpur Scale up Naya Raipur Nashik, Aurangabad KUWASIP Scale up Mangalore

  24. 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 What are key issues to be considered?

  25. Around 2000 Mid decade Now Mid to Late 90s Way Ahead? PPP momentum is at tipping point in water sector Signs of success A few projects grounded Momentum subsided Onset of pessimism First initiatives High international interest Poor results Many ongoing initiatives Waiting for first commercial results PPP interest at tipping point Efforts to prepare PPP projects High NGO opposition High profile projects run aground

  26. 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

  27. Thank You sramanujam@crisil.com +91 99202 28448

  28. www.crisil.com www.standardandpoors.com

  29. Crisil Infrastructure Advisory PPP experience in water sector

  30. Ratings Research Infrastructure Advisory Risk Solutions • Corporate Sector • Financial Sector • Infrastructure Sector • Micro-Finance Institutions • Corporate Governance IREVNA • CRISIL Infrastructure Advisory • Risk Solutions and Models • Credit Risk • Market Risk • Operational Risk • Investment Risk • Investment Management Services • CRISIL Research • Economy • Industry • Company • Mutual Funds • SMEs • Executive Training • Global Analytical Centre CRISIL Businesses and CRISIL Infrastructure Advisory

  31. PPP Projects -- For Developers Demand and Project risk assessment for a concession in West Bengal • Assisted successful bidder in assessing demand and project risks • Concession for water supply and wastewater collection in a large institutional area dominated by IT industries Demand assessment for a concession in West Bengal • Assisted successful bidder in assessing the demand for an industrial water supply project in West Bengal Demand assessment for a new township in Chattisgarh • Assisting a developer in assessing water demand for a new township • Bidding in progress • A 10 year concession for water supply to a new township Due diligence on a Management Contract opportunity • Assisted a developer on commercial assessment of a potential opportunity • Vetting of the project structure and financial model

  32. PPP Projects -- For Government Project structuring and contract design for a Lease contract in Latur • Assisted a Government agency to structure a lease contract for 300,000 population in Latur, Maharashtra • First city scale domestic PPP interface in India • Bidding and contracting successful Transaction advisor for two water projects in Maharashtra • Transaction in design stage • Project structuring and transaction management for PPP in two large cities (million plus population) in Maharashtra Project structuring and process management for a DBO project (2001-02) • A 630 mld water treatment plant in Sonia Vihar, Delhi • Project successfully commissioned Structuring a developer conference for a management contract (2001-02) • Assisted a large city utility in structuring a developer conference to pursue PPP options

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