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Water for billion+ people
Public Private Partnerships - PPPs
• Water Scenario in India
• Benchmarking best practices in PPP: Nagpur
Concessions
• Stakeholder engagement
• Innovative financing initiatives
• Risk mitigation strategies
Arun LakhaniChairman & Managing DirectorVishvaraj Infrastructure Ltd. (India)
Global Water Investment Summit Risks, Innovations and Opportunities
7th – 8th May 2014 - London, UKSession Three –Water Infrastructure Finance
India at the Crossroad of Customs and Development
• Water deeply embedded in the social fabric of the country
• Free water is a birth right – Selling water is sin
• Amongst the world‘s youngest nations (median age of 25 years)
• Steady rise in urbanization – Expanding middle class• 31% of total population i.e. 377 mn (2011) *
• 10 year average GDP growth rate of ~7.6% #
How do we fulfill the aspirations of the young nation keeping the background of social fabric ?(Source: # IMF 2014 report, *McKinsey Global Institute: Urban India Awakening 2011 report)
Urban India: Snapshot
(Source: High Powered Expert Committee (HPEC) 2011)
City Class Reclassification Population Size No. of Cities Population in Mn
Class I
Class IA > 5 million 8 85.1Class IB 1 Mil to 5 Mil 45 75.5
Class IC 100,000 to 1 Mil 415 104.1
Class II Class II 50,000 to 100,000 515 32
Sub-total 983 296.7Class III to VI Class III < 50,000 3,580 80
Total 4,563 377Villages ( < 10,000) 500,000 + 680+
Sector Volume (MLD) Class 1+2 Inv. in USD BN till 2031
Water 51,000 45.2
Wastewater 40,000 34.0
Urban Water: Improvement Opportunity
• Water Infrastructure
– Water deficit of nearly 25% of demand by 2050 *
– Average NRW estimated at 50-55% *
– Continuous water supply as a concept is not prevalent
• Sewage Infrastructure
– Only 30% of sewage generated is treated #
– 55% operational efficiency of STPs #
– Untreated sewage being released into ecosystem
• Three-fourths of India’s surface water resources are polluted, and 80% of the pollution
is due to sewage alone #
(Source: #ADB India's Sanitation for All Report, *UNICEF Water in India Situation and Prospects 2013)
World Bank Review – 5 Water Concessions in India
Nagpur Arurangabad Mysore Latur Khandwa
Population (In Mn) 2.5 1.2 1.0 0.38 0.2
Mandate Rehab + Op’n Bulk+Reconst.+Op’n Reconst+Op’n Op’n+Select
Reconst.Bulk+Reconst.
+Op’nDuration (Yrs.) 25 20 6 10 25
Private investment 30% 50% Nil Nil 10%
User charges as an integral part of operator revenue
Distinct from user charges
Part user charges+ Part
subsidyDistinct from user charges Yes Yes
Contract Signed Late 2011 2011 Mid 2009 2008 Late 2009
(Source - World Bank ‘Running Water in Indian Cities’ Report 2014)
• Nagpur– 10th largest city in India– 2.7 million+ population across 217 sq.kms– 6 Water Treatment Plants: 750 MLD
Nagpur Concessions
• Nagpur 24/7 Water Concession– India’s first “Full City” water distribution PPP contract awarded to Orange
City Water Limited – 50:50 JV of Vishvaraj Infrastructure Limited & Veolia Water India Pvt. Ltd.
– Capex: USD 92 Mn (Grant: USD 47 Mn, Operator: USD 45 Mn)– 350,000 water connections with 2,500 Km of pipelines
• Nagpur 200 MLD STP - Wastewater Concession– DBFOT model with annuity payments (74:26 JV of Vishvaraj Infrastructure
+ Drake & Scull)– Reuse of water with revenue sharing mechanism– Concession Period: 32 years
Stakeholder Engagement
• Recognizing water projects as a social project rather than technical –
commercial contract
• Adding 4th P as people in a PPP model
• Conceptualization stage
• Legal: proposal cleared by highest elected body
• Social: ‘My City My Water’ campaign in 500+ schools
• Implementation stage
• Engaging people in rehabilitation phase (service quality monitoring)
• Make Jalmitra (water friend) in each locality to help communicate
with people and facilitate problem solving
Innovative Financing Arrangement – Water Projects
• Government grant for Capex (70% to 90%)
– Lower tariffs (while maintaining IRRs)
• Telescopic tariffs
– Lifeline supply for under-privileged people- tariffs to be same as pre-project levels
– Separate tariffs for commercial and domestic users
• Keeping water tariff and operator fees separate
– Operator fees linked to performance (NRW reduction)
• Minimum off-take guarantee
– Minimum Take or Pay for first 5 years
• Reducing cost of capital
9
Rivers/Dams/ Lakes
Urban Population
Power plants / Industry
Agriculture
Provide Treatment Infrastructure
Limited Fresh Water Resources
Rivers/Lakes
Fresh WaterWaste Water
Example: Nagpur Treated Water
Innovative Financing Arrangement – Wastewater Projects - Reuse
Mitigating Risks in PPP
• Willingness to charge ?
– Delinking of tariff and operator fees
– Reducing NRW and increasing revenue
– Direct costs (raw water, electricity) to be borne by client
• Inflation
– Operator revenue linked to WPI & CPI
– Electricity/raw water indexed to inflation as a pass through charge
• Willingness to pay
– Engaging stakeholders, adding the 4th P is critical step in reducing the risk
considerably
• For long term water PPP Projects to succeed,
• The Roles
• P – Public – Policy Maker
• P – Private – Efficiency improvement with investment
• P – People – Communication & Monitoring
• Communication, Transparency and On-boarding of the largest stakeholders “People” is
more of a business need and mitigates many risks
“ Win Win for all the stakeholders is essential for long term PPP Projects to succeed ”
In India PPP in water & wastewater sector is evolving, offering a large opportunity in coming decade
PPP: Need of 4th P as People
Thank You