Towards an Integrated Solution for India s Water Needs by A K Jindal Larsen Toubro Limited Mumbai

1. "Towards an Integrated Solution for India�s Water Needs"byA K Jindal Larsen & Toubro LimitedMumbai

2. Outline Water Overview - India National water use & GDP Water market � India analysis Indian water utilities Key Issues Need for PPCP L&T experience in water PPP projects Past experience � lessons Conclusions

3. Water Overview - India Acute water Scarcity 30 percent of the population less than the basic service level (40 lit / capita / day) Contaminated Water Sources About 80 percent of all water sources are contaminated with pathogenic micro-organisms About 30 percent of total water sources - contaminated by heavy metals

4. Industrial Water Use Industrial water use is closely linked to the economy of a country As GDP increases, so will industrial water consumption

5. Global Industrial Water Use

6. India: National Water Use

7. Urban Water Supply 300 Hundred million urban residents face water problem 20 % of household - no access to safe drinking water On an average only 4 hours water supply to 80 % of urban population About 40 to 50 percent of the water is wasted through distribution system Shrinking surface & ground water sources Quality of water under question Funds for Urban Infrastructure development fall short by more than 10 times the requirement

9. Summary of 20 Indian Utilities

10. Water Consumption - The Need Economical and optimal use Prevention of wastage Prevention of leakage Multiple Usage (reuse and recycling)

11. Indian Utilities Problems The public body does not have a mandate or incentive to be responsive to the public needs Commercial viability is not a concern Expenditure is biased towards capital works rather than O & M

12. Water Market - India Analysis Market Value industry grew by 4.2% in 2005 to reach� $ 20bn Forecast - $ 25 billion in 2010, 23.2% increase since 2005 Market Volume grew by 0.9% in 2005 to reach � 675 km3/year Forecast - 710 km3/year in 2010, 4.5 % increase since 2005 Market Segmentation Domestic users account for � 53 % of the industry's value India accounts for � 21 % of the Asia Pacific industry value

13. Water Sector � Funding Requirements Projections made by the MoUD The requirement of funds for 100 percent coverage of the urban population under safe water supply and sanitation services by the year 2021 at Rs.172,905 crores per year (US$ 35 billion/year)

14. Key Issues Poverty and Water Respond to Changes and emerging Political will Environment Water Resources Management Water and Gender Water and Food Security Water Governance and Infrastructure

15. Need for PPCP PPCP is sought to essentially bring in: Private capital Private management New & better technology Community participation The modality of PPCP critically depends on exact objectives sought to be achieved

19. Visakhapatnam Water Supply Project First BOT Industrial Water Supply Project In India Record time of completion The 2.6m dia. Godavari Pipeline, largest of it kind in India (Rs. 450 cr.) implemented in a record time of 12 months (including land acquisition) to bring Godavari water to Visakhapatnam Public Private Partnership The Project is Jointly developed by Public Institutions (APIIC, RINL, VMC and NTPC) with L&T as private contributor

20. Unique concept of direct subsidy by Government to reduce impact of initial fixed charge burden repayable back as a commercial loan Unique concept of Water Price Review by an Independent Committee Project deliverables monitored by an Independent Engineer Project financials scrutinised by an Independent Auditor Visakhapatnam Water Supply Project

21. Implemented by a SPV called VIWSCo with L&T consortium 51% AP Industrial Infrastructure Corporation (APIIC) 33% VMC 16% Debt funded mainly by the beneficiaries Visakhapatnam Water Supply Project

22. Tirupur Water Supply & Sewerage Project Implemented through a SPV New Tirupur Area Development Corporation (NTADC) & promoted by Infrastructure Leasing & Financing Services(IL&FS) Tiruppur Exporter�s Association (TEA) TamilNadu Corporation for Industrial Infrastructure Development (TACID) Project execution EPC contract by L&T and others O&M contract to consortium of Mahindra & Mahindra+United Utilities International, North West Water +Bechtel

24. Past Experience - Lessons Reasons for failure attributable to one or more of the following: Inadequate framework for PSP Insufficient project preparation & development Failure to address concerns of all stakeholders

25. Framework for PPP Clarity in objectives of PPP Institutional restructuring to coincide with PPP initiatives Regulatory framework to be put in place Managing political risk, affordability and willingness to pay issues Lack of clarity in objectives of PSP *PSP aimed at attracting capital & curtailing public sector employment rather than increasing efficeincy and effectiveness of service delivery *Undue emphasis on new source development rather than improving distribution systems and operational management Lack of city-wide scope *Scale efficiency on outsourcing can be achieved (in operational tasks like transportation of water & solid waste( through municipality-wide schemes rather than restricted to certain limited areas. Institutional restructuring *Despite 74th Constitutional Amendment Act which vests water supply & sanitation services with local / municipal authorities there is no clear link among investments, costs & revenues *Political intervention *Skewed tariff policies *promote corporatisation of water providing agencies as a step towards profit centre concept Regulatory framework To specify service standards, quality & tariff issues, balance industry & consumer interests Impact on poor Impact of different PPP approaches on employment conditions and on access to services for the poor Lack of clarity in objectives of PSP *PSP aimed at attracting capital & curtailing public sector employment rather than increasing efficeincy and effectiveness of service delivery *Undue emphasis on new source development rather than improving distribution systems and operational management Lack of city-wide scope *Scale efficiency on outsourcing can be achieved (in operational tasks like transportation of water & solid waste( through municipality-wide schemes rather than restricted to certain limited areas. Institutional restructuring *Despite 74th Constitutional Amendment Act which vests water supply & sanitation services with local / municipal authorities there is no clear link among investments, costs & revenues *Political intervention *Skewed tariff policies *promote corporatisation of water providing agencies as a step towards profit centre concept Regulatory framework To specify service standards, quality & tariff issues, balance industry & consumer interests Impact on poor Impact of different PPP approaches on employment conditions and on access to services for the poor

26. Project Preparation & Development Co-ordination issues: Identification of nodal agency and defining roles of other agencies Establishing independent commercial viability of the project: demand, revenues & costs Identification of risks, allocation & mitigation Project structuring & role of private sector Comprehensive information memorandum covering studies & draft contract agreements Designing transparent competitive bidding process Transparent & fair procurement process

27. Stakeholder Concerns Capacity building of government / public agencies Interest and capacity among private sector operators Building awareness for �pay for use� principle among consumers and communities within society Addressing financing issues of lenders and investors Ensuring adequacy of services at affordable rates to the urban poor Capacity of public agencies Many local initiatives have failed due either to inadequate understanding and preparation or due to political reasons Interest and capacity among private sector operators The number of operators is limited in this sector. Hence capacity building among these operators is required Capacity of consumers is important in influencing the initial design decision through articulation of local demand as well as monitoring operator performance Capacity of public agencies Many local initiatives have failed due either to inadequate understanding and preparation or due to political reasons Interest and capacity among private sector operators The number of operators is limited in this sector. Hence capacity building among these operators is required Capacity of consumers is important in influencing the initial design decision through articulation of local demand as well as monitoring operator performance

28. Pre-requisites for Financial Viability Principle of full cost recovery & Acceptable levels of tariffs to all stakeholders Transparent, Targeted & Measurable subsidy, if needed Cost savings through energy efficiency, reduction of leakages, manpower rationalisation etc. Full autonomy to local bodies to determine tariffs � to last thru� changes in administrative set-up Tariff fixation taking care of annual incremental cost, O&M cost, debt dues, depreciation charges etc. Compulsory 100% metering Appropriate grievance redress system

30. Way forward Development of innovative financing and security mechanisms enabling PPCP Enabling regulatory framework like TRAI etc. with representative from the User for: Frame and regulate tariff � retail and bulk Lay down, enforce and monitor minimum standards of service; model concession Promote efficiency and competition Adjudicate disputes / differences between local bodies, service provider and consumers Formulate sustainable sectoral policy framework

31. Summary Acute water shortage Industrial sector more at risk Huge funding requirements in water sector Infrastructure cost and prevailing low price of water make it unviable for private capital in domestic sector Cross-subsidisation in PPCP Need for a regulatory framework Need to involve �Unapproved Stakeholders�. Official plans simply pretend that these people do not exist Look at water provision and sewage disposal and recycling in one go Water problems need local solutions like water harvesting and wastewater recycling

32. In short�. The issue Scarcity of water Increasing world population/demand Stakeholders competition (farmers, cities, industries) Solutions Water awareness and minimization Water conservation Water harvesting Recycle and re-use PPCP

33. In Closing� There is no magic trick�.. Thank You