India: Kerala Sustainable Urban Development · 2014-09-29 · TA 4106 –IND: Kerala Sustainable...

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 32300-01

India: Kerala Sustainable Urban Development

(Financed by the Cooperation Fund with UK and Ireland)

Prepared by

SINCLAIR KNIGHT MERZ

Australia

For Local Self Gov't (Urban) Department, Government of Kerala

Government of Kerala Local Self Government Department

Kerala Sustainable Urban Development Project (PPTA 4106 – IND)

FINAL REPORT

VOLUME 1 - MAIN REPORT

MAY 2005

COPYRIGHT: The concepts and information contained in this document are the property of ADB & Government of Kerala. Use or copying of this document in whole or in part without the written permission of either ADB or Government of Kerala constitutes an infringement of copyright.

TA 4106 –IND: Kerala Sustainable Urban Development Project Project Preparation

FR Volume 1 – Main Report PAGE i

Acknowledgements

The Project Team gratefully acknowledges the Government of Kerala support in completion of the Final Report. The team also acknowledges the support provided by the Minister and Secretary of the Local Self Government for extending help and guidance throughout the PPTA. The guidance provided by the Member Secretary, Planning Board, Government of Kerala was very useful with regard to management aspects of the KSUDP.

The Technical Assistance Team also wishes to acknowledge the support of Ms. Tinku Biswal, IAS, Dr. Beena M, IAS, and Mr. KA Mohammed Naushad, IFS, the successive Project Directors of KSUDP, particularly in organizing workshops and other meetings in all five cities and also in facilitating access to senior executives, institutions and relevant documentation. Help provided by the Project coordinators, Mr Tomy Cyriac and Mr V.V. Krishanarajan is kindly acknowledged. The support and guidance provided by the Mayors, Chairmen of Standing Committees, Municipal Secretary and the Municipal Executives in various Departments of the five corporations, is greatly appreciated. The assistance and advice of the Chairpersons, Secretaries and staff of the five Development Authorities is also gratefully acknowledged.

Acknowledgements are also due to number of senior executives and officers in the Government of Kerala, Public Works Department, Kerala Water Authority, Irrigation Department, Director Institute of Management in Government, Town Planning Department, Additional Secretary TUDP, Managing Director KUDFC and other officers in KUDFC and all other executives / professionals visited by the Team Members.

The Team acknowledges the guidance and support provided on a regular basis by Hun Kim, Teresa Kho, Tatiana Gallego-Lizon, Hiroyuki Ikemoto, Dr. J Perera, Alex Jorgensen and CT Abraham of the ADB.


FR Volume 1 – Main Report PAGE ii

Project Team Inception (Phase I) Mr. Andrew Whillas Urban Development Specialist/Team Leader Mr. Badrul Alam Drainage & Solid Waste Man’t. Specialist/Dy. Team Leader Mr. Mulkh Raj Urban Governance/Institutional Development Specialist Mr. Arun Herur Urban Transport Engineer Ms. Bonani Dhar Social/Gender Development Specialist Mr. V.V. Vinod Public Awareness Consultant Mr. Gopalakrishnan Nair Sub Professional Staff – Water Dr. Kasturi Rangan Sub Professional Staff – Institutional

Data Collection and Detailed Feasibility (Phase II & III) Mr. Michael Green Urban Development Specialist/Team Leader Mr. Vijay Padmanabhan Institutional Development Specialist/ Deputy Team Leader Mr. Chito Sun Municipal Finance Expert/Financial Analyst Mr. Neil Urwin Environmental Specialist Mr. Lindsay Shepherd Project Economist Dr. M.S. Prakash Social Development & Resettlement Specialist Mr. P. Krishnan Financial Analyst Dr. A.L. Aggarwal Environmental Specialist Ms. Anindita Das Gupta Solid Waste Management Specialist Mr. V.R. Vaidyanathan Water Supply Engineer Mr. Sanjeev Kumar Drainage Engineer (1) Mr. Tarun K. Acharya Drainage Engineer (2) Mr. Mahmood Ahmad Sanitation & Sewerage Engineer Mr. M. Boominathan Urban Transport Specialist Mr. C.J. Paul Social/Gender Development Specialist Ms. Rupa Pravin Resettlement Specialist

Sub Professional Staff Mr. Parameswaran Nair Institutional Specialist Mr. KV Indulal Environmental Specialist Mr. Y. Umakanth Urban Planner Mr. Jayarajan P.R. Project Assistant (Transportation Engineer) Ms. Selin Abraham Project Assistant (Social/Gender Development Specialist) Ms. Indu P. Nath Project Assistant (Water Engineer) Mr. A. Sreekumar CAD Draughtsman

Office Support Staff Mr. K.N.V. Nambudiri Office Manager Ms. Ninu Susan Abraham Executive Secretary Mr. Prabhukumar V. DTP Operator Mr. Shyam Kumar R. DTP Operator Mr. Deepu Sankar S. Office Helper Ms. Renuka. S. Cleaner/Helper


FR Volume 1 – Main Report PAGE iii

DRAFT FINAL REPORT

VOLUME 1 - MAIN REPORT

Contents 1. BACKGROUND AND SCOPE 1

1.1 Introduction 1 1.2 Project Goal and Objectives 1 1.3 Study Outputs 1 1.4 Scope of the Report 1

2. URBAN SECTOR IN INDIA 2

2.1 Socio-Economic Context 2 2.1.1 Population and Urbanization 2 2.1.2 Economic Development 2 2.1.3 Demographic and Social Profile of the Urban Population 3 2.1.4 Poverty 3 2.1.5 Policies, Targets and Programs 4 2.1.6 Socio-Economic Outlook 6

2.2 Urban Management 6 2.2.1 Institutional and Legal Framework 6 2.2.2 Policies and Programs 8 2.2.3 Performance Review 8 2.2.4 Urban Finance 9

3. THE URBAN SECTOR IN KERALA 10

3.1 Socio-Economic Context 10 3.1.1 State Role and Function 10 3.1.2 Population and Urbanization 10 3.1.3 Economic Development 11 3.1.4 Demographic and Social Profile of the Urban Population 13 3.1.5 Poverty and Urban Services 15 3.1.6 Policies, Targets and Programs 21 3.1.7 Socio-Economic Outlook 22

3.2 Urban Management 23 3.2.1 Government Policies and Plans 23 3.2.2 Policies and Programs 25 3.2.3 Performance Review 25

3.3 Urban Environmental Management 25 3.3.1 Decentralization and Urban Environmental Management 25 3.3.2 Enablement and Participation 26

3.4 Legislative and Regulatory Framework 26

4. EXTERNAL ASSISTANCE 28

4.1 Overview 28 4.2 ADB in the Urban Sector 28 4.3 Lessons Learned and Proposed Strategy 29


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4.3.1 General 29 4.3.2 Issues from Past Projects 29 4.3.3 Integration Strategy based on Lessons Learned 32

5. CITY SOCIO-ECONOMIC CONTEXT 34

5.1 City Role and Function 34 5.2 Population and Urbanization 35 5.3 Socio-Economic Baseline 36

5.3.1 Access to Services 36 5.4 Poverty and Vulnerability 39

5.4.1 Household Profile 39 5.4.2 Employment 41 5.4.3 Poverty Eradication Programs 41 5.4.4 Summary Poverty Profile 42

5.5 Gender 42 5.6 Economic Development and Prospects for Growth 43

6. URBAN MANAGEMENT 44

6.1 Urban Planning and Land Use Management 44 6.1.1 Plan Preparation and Implementation 44 6.1.2 Land Use Management 46 6.1.3 Integration of Urban Poor Settlements 47

6.2 Institutions and Capacity 48 6.2.1 Policy Context 48 6.2.2 Service Delivery and Performance of Project Cities 50 6.2.3 Institutional Strengthening and Capacity Building 54 6.2.4 Project Implementation 55

6.3 Municipal Finance 55 6.3.1 Municipal Fund 55 6.3.2 Revenue Account 56 6.3.3 Capital Account 63 6.3.4 Loans and Other Dues 64 6.3.5 Electricity Distribution Account 64 6.3.6 Key Financial Issues 65

6.4 Kerala Water Authority Finance 66 6.4.1 Mandate and Sources of Finance 66 6.4.2 Cost Recovery 67 6.4.3 KWA Overall Financial Performance 68 6.4.4 KWA Financial Performance in Project Cities 72 6.4.5 Key KWA Financial Issues 73

7. PROJECT RATIONALE – NEED AND DEMAND 75

7.1 Project Objectives 75 7.2 Basic Human Requirements for Urban Services 75

7.2.1 Overview of Urban Services 75 7.2.2 Water Supply 76 7.2.3 Sewerage and Sanitation 77 7.2.4 Urban Drainage 77 7.2.5 Solid Waste Management 78 7.2.6 Roads and Transportation 79

7.3 The Consultative Process 79


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7.3.1 Community Priorities 79 7.3.2 Municipal Corporation Priorities 81

8. SELECTION OF PHYSICAL COMPONENTS 82

8.1 Methodology and Approach 82 8.2 Underlying Principles 82 8.3 Component Selection Criteria 83

8.3.1 Social and Poverty Criteria 83 8.3.2 Financial Criteria 84 8.3.3 Economic Criteria 84 8.3.4 Environmental Screening Criteria 84 8.3.5 Institutional Criteria 86

8.4 Least Cost Solutions and Component Selection 86

9. SELECTION OF URBAN MANAGEMENT COMPONENTS 88

9.1 Need and Approach 88 9.2 State and Municipal Action 88 9.3 Community Level Action 91

10. PROJECT DESCRIPTION 92

10.1 Project Purpose 92 10.2 Part A: Urban Infrastructure Improvement 92 10.3 Part B: Urban Management and Institutional Development 94

10.3.1 State Level Institutional Development 94 10.3.2 MC Institutional Development 95 10.3.3 Municipal Staff Training 95 10.3.4 Poverty Alleviation 95

10.4 Part C: Implementation Assistance 97 10.4.1 Project Management and Design Consulting Services 97 10.4.2 Public Awareness and Benefit Monitoring 97 10.4.3 Community Awareness and Participation 98

10.5 Special Features 98

11. OUTLINE IMPLEMENTATION ARRANGEMENTS 100

11.1 Project Management and Administration 100 11.2 Executing and Implementing Agencies 100

11.2.1 Executing Agency 100 11.2.2 Implementing Agencies 101

11.3 Project Implementation Management 101 11.3.1 Project Management Office (PMO) 101 11.3.2 Project Implementation Units (PIU) 102 11.3.3 Project Implementation Support Services 103 11.3.4 Implementation of Poverty Alleviation Components 104

11.4 Procurement and Disbursement Procedure 108 11.4.1 Procurement of Goods, Works and Services 108 11.4.2 Disbursement Procedures 108

11.5 Fund Flow 109 11.6 Procurement Packages and Implementation 111


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11.6.1 Procurement Packages 111 11.6.2 Implementation Schedule 111

11.7 Reports, Accounting and Auditing Requirement 111 11.7.1 Reporting Requirement 111 11.7.2 Accounting 112 11.7.3 Auditing 112

11.8 Project Review 112 11.9 Project Performance Monitoring System 113 11.10 Long-Term Sustainability 113

12. COST ESTIMATES AND FINANCING PLAN 116

12.1 Cost Estimates 116 12.2 Financing Plan 117

13. TECHNICAL JUSTIFICATION 119

13.1 Water Supply 119 13.2 Sanitation and Sewerage 120 13.3 Urban Drainage 121 13.4 Solid Waste Management 121 13.5 Urban Roads and Transportation 122

14. POVERTY AND SOCIAL ANALYSIS 123

14.1 Social Objectives in Project Formulation 123 14.2 Social Impact 124

14.2.1 Part A: Urban Water Supply and Environmental Improvement 124 14.2.2 Part B Urban Management and Institutional Development 127 14.2.3 Part C: Implementation Assistance 127

15. FINANCIAL ANALYSIS 129

15.1 General 129 15.2 Assumptions Used in Financial Projections 129 15.3 Cost Recovery 131 15.4 Financial Internal Rate of Return 132 15.5 Average Incremental Financial Cost and Subsidy 135 15.6 Beneficiary Affordability 138 15.7 Project Sustainability 139

16. ECONOMIC ANALYSIS 142

16.1 Introduction and Scope 142 16.2 Project Context and Economic Rationale 142 16.3 Selection Process 144 16.4 Approach to Project Economic Analysis 144 16.5 Results of Project Economic Analysis 146


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16.5.1 Water Supply Improvements 146 16.5.2 Environmental Sanitation Improvements 147 16.5.3 Roads and Transportation Improvements 148 16.5.4 Sensitivity analysis 149 16.5.5 Conclusion 149

16.6 Project Beneficiaries 150 16.7 Assessment of Project Sustainability 150 16.8 Poverty Impact Ratio 150

17. ENVIRONMENTAL EXAMINATION 151

17.1 Introduction 151 17.2 Project Descriptions 151 17.3 The Level of Environmental Impact Assessment Employed 151 17.4 Identifying Environmental Impacts and Mitigation Measures 152 17.5 Environmental Monitoring Plan 152 17.6 Findings 153 17.7 Recommendations 155 17.8 Conclusions 155

18. RESETTLEMENT AND REHABILITATION 156

18.1 Scope of Land Acquisition and Resettlement 156

19. PROJECT RISKS AND ASSUMPTIONS 157

19.1 Physical Component Risks 157 19.2 Policy Risks 157 19.3 Institutional Risks 157 19.4 Social Risks 158 19.5 Financial Risks 158 19.6 Economic Risks 158


FR Volume 1 – Main Report PAGE viii

List of Appendices

Appendix 1 Design and Monitoring Framework

Appendix 2 External Assistance to the Urban Sector in India

Appendix 3 Cost Estimates, Flow of Funds and Financing Plan

Appendix 4 Project Implementation Schedule

Appendix 5 Proposed Procurement Packages

Appendix 6 Summary Poverty Reduction and Social Framework

Appendix 7 Land Acquisition and Resettlement Requirements

Appendix 8 Gender Action Plan

Appendix 9 PMO and PIU: Duties and Responsibilities

Appendix 10 Outline Scope of Work for Consulting Services

Appendix 11 Policy and Institutional Reform Agenda

Appendix 12 Project Performance Management Systems (PPMS)


FR Volume 1 – Main Report PAGE ix

List of Tables

Table 3-1: Trend of Urban Population of India and Kerala: 1971-2001 11

Table 3-2: Decadal Growth Rate of India and Kerala: 1971-2001 11

Table 3-3: Growth of Census towns in Kerala: 1981-2001 11

Table 3-4: Population Density of India and Kerala: 1971-2001 13

Table 3-5: Sex Ratio of India and Kerala: 1971-2001 14

Table 3-6: Growth Trend in Literacy Rates of India and Kerala: 1981-2001 14

Table 3-7: Life expectancy level of India and Kerala: 1981-1997 15

Table 3-8: Infant Mortality Rate of India and Kerala: 1981-1997 15

Table 3-9: Overview of Urban Population Below Poverty Line of Kerala and India 1983-2000 16

Table 3-10: Status of urban population in terms of Basic Services, 2001 16

Table 3-11: Urban Slum Population of India and Kerala: 1991-2001 17

Table 3-12: Human Development Index of India and Kerala: 1981-2001 17

Table 3-13: Allocation of Funds for NSDP 18

Table 3-14: Funds available for the implementation of SJSRY in Kerala: 1997-2003 19

Table 3-15: Initiatives of GoK “Urban Policy and Action Plan” 24

Table 3-16: Legislations, Regulations and Rules 27

Table 4-1: Integration Strategy based on Lessons Learned 32

Table 5-1: Population Projections in Five Cities 36

Table 5-2: Infrastructure Priorities of Households 38

Table 5-3: Satisfaction Level of City Services 39

Table 5-4: Willingness to Pay for Services 39

Table 5-5: Households Dependent on Daily Wage Occupation 41

Table 5-6: Summary Results of the sample Household Survey 42

Table 6-1: Utilization of Centrally Sponsored Scheme Funds 53

Table 6-2: Revenue Account (Rs. Million) 56

Table 6-3: Property Tax -Rate Schedule (%) 59

Table 6-4: Property Tax -Demand and Collection (Rs. Million) 60

Table 6-5: Water Tariff Schedule 61

Table 6-6: Thrissur MC Water Charges – Demand & Collection (Rs. Million) 62


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Table 6-7: Thrissur MC Water Supply Distribution Cash Profit and Loss (Rs. Million) 62

Table 6-8: Capital Account (Rs. Million) 63

Table 6-9: Outstanding Liabilities as of 31 March 2004 (Rs. Million) 64

Table 6-10: Electricity Distribution Cash Profit and Loss (Rs. Million) 65

Table 6-11: KWA Water Tariff Schedule 67

Table 6-12: KWA Number of Connection and Public Standposts 68

Table 6-13: KWA Sewerage Connection Fee 68

Table 6-14: KWA Balance Sheet (1999-2003) (Rs. Million) 69

Table 6-15: KWA Income and Expenditure Statement (1999-2003)(Rs. Million) 69

Table 6-16: KWA Financial Performance in Project Cities 72

Table 7-1: Status of Water Supply Services in the Project Cities 76

Table 7-2: Status of Sanitation in the Project Cities 77

Table 7-3: Status of Solid Waste Management in the Project Cities 78

Table 7-4: Need and Demand for Basic Services (Baseline Survey Results) 80

Table 7-5: Community Municipal Service Priorities 81

Table 7-6: Municipal Corporation Priorities 81

Table 8-1: Least Cost Solutions 87

Table 9-1: Project Sustainability – KSUDP and GoK Actions 88

Table 10-1: City Sub-Project Components 92

Table 12-1: Summary of Project Cost Estimates 116

Table 12-2: Proposed Financing Plan (US$ Million) 117

Table 12-3: City Level Financing Plan (Rs. Million) 118

Table 13-1: Status of Water Supply in 2004 119

Table 13-2: Status of Water Supply at EOP (2011) 120

Table 13-3: Status of Sanitation and Sewerage in 2004 120

Table 13-4: Status of Sanitation and Sewerage at EOP (2011) 121

Table 13-5: Status of Municipal Solid Waste Management in 2004 122

Table 13-6: Status of Municipal Solid Waste Management at EOP (2011) 122

Table 15-1: Weighted Average Cost of Capital 132

Table 15-2: Summary of Financial Evaluation 133


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Table 15-3: Average Incremental Financial Cost 135

Table 15-4: Subsidy Analysis 136

Table 15-5: Population Distribution by Income Group 138

Table 15-6: Household Affordability Analysis 138

Table 15-7: Summary of Projected Financial Position 140

Table 16-1: Cost Estimates for Project Economic Analysis 145

Table 16-2: Economic Cost-Benefit Analysis for Water Supply Component 147

Table 16-3: Economic Cost-Benefit Analysis for Environmental Sanitation Component 148

Table 16-4: Economic Cost-Benefit Analysis for Roads & Transportation Component 149

Table 16-5: Direct Project Beneficiaries a/ 150

Table 17-1: Sub-project Component Environmental Impact Issues 153


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List of Abbreviations and Acronyms ADB Asian Development Bank ADS Area Development Society BOT Build Operate Transfer BOO Build Own Operate BOOT Build Own Operate and Transfer CBO Community Based Organization CDS Community Development Society DFID Department for International Development DPC District Planning Committee DWCUA Development of Women and Children in Urban Areas EIA Environmental Impact Assessment EDII Entrepreneurship Development Institute of India GDP Gross Domestic Product GIS Geographical Information System GoI Government of India HRD Human Resources Development HUDCO Housing and Urban Development Corporation IEE Initial Environmental Examination IKM Information Kerala Mission IMA Indian Medical Association IMR Infant Mortality Rate IT Information Technology JBIC Japan Bank for International Cooperation KocMC Kochi Municipal Corporation KolMC Kollam Municipal Corporation KozMC Kozhikode Municipal Corporation KSEB Kerala State Electricity Board KSPCB Kerala State Pollution Control Board KSRTC Kerala State Road Transport Corporation KSUDP Kerala Sustainable Urban Development Project KUDFC Kerala Urban Development Finance Corporation KUDP Kerala Urban Development Project KWA Kerala Water Authority LFS Land Fill Site Lpcd Litre Per Capita Per Day LSGD Local Self Government Department MFI Micro Finance Institutions MGP Modernizing Government Program MIS Management Information System MLD Million Litre Per day MSL Mean Sea Level NABARD National Agricultural Bank for Rural Development NATPAC National Transportation Planning and Research Centre NGO Non Government Organization NH National Highways NHG Neighborhood Group NRY Nehru Rojgar Yojna


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NSDP National Slum Development Program O&M Operation and Maintenance PIU Project Implementation Unit PMO Project Management Office PPP Public Private Partnership PPTA Project Preparation Technical Assistance PWD Public Works Department RIS Repayment Information System SC/ST Schedule Caste and Schedule Tribe SHG Self Help Groups SJSRY Swarna Jayanti Shahari Rozgar Yojna STP Sewage Treatment Plant SWM Solid Waste Management TCPO Town and Country Planning Organization ThMC Thiruvananthapuram Municipal Corporation TMC Thrissur Municipal Corporation TRIDA Thiruvananthapuram Development Authority TUDP Trivandrum Urban Development Project UFW Unaccounted Water USEP Urban Self Employment Program UBSP Urban Services for the Poor VAMBAY Valmiki Ambedkar Awaz Yojna WTP Willingness to Pay


FR Volume 1 – Main Report PAGE 1

1. BACKGROUND AND SCOPE

1.1 Introduction The Final Report (FR) is the forth main output from the ADB TA4106-IND for the preparation of a project to attract loan funding from the Asian Development Bank for improving infrastructure and municipal service delivery in the five municipal corporations of Kerala. The five cities are Thiruvananthapuram, Kollam, Kochi, Thrissur, and Kozhikode. The project will include investment in physical infrastructure at city level and with proposals for capacity building and institutional strengthening of municipal and state authorities.

An Inception Report was submitted to the State Government and the ADB in April 2004 (revised June 2004), a Mid Term Report (MTR) was prepared and submitted in November 2004 and the Draft Final Report submitted in February 2005. Throughout the PPTA there has been a high level of participation from the stakeholders from the Project cities, GoK agencies and the private sector. Baseline socio-economic surveys were conducted during the second stage of the PPTA which provided community and business perceptions on municipal services delivery. Topic-specific questionnaires also solicited specific data from the cities. The design has learnt from ADB experiences in Karnataka, Rajasthan and Madhya Pradesh and other donor agencies in Kerala. The design has also capitalized on the GoK’s own initiatives in municipal decentralization and urban management reform.

1.2 Project Goal and Objectives The project goal is to encourage sustainable economic growth and poverty reduction in urban Kerala. The objective of the Project is to provide sustainable growth and poverty reduction through the provision of urban infrastructure services and the promotion of good urban governance to urban local bodies in Kerala.

1.3 Study Outputs The outputs from the study are a series of components to improve city wide urban infrastructure services with the integration of poor settlements within the overall urban development process. Specifically, the Project will provide (i) basic infrastructure services to increase economic opportunities and to reduce vulnerability to environmental degradation and urban poverty and (ii) improve urban governance and increase capacity of the municipal corporations to undertake urban planning activities. The Project will also focus on improving the conditions of the poor through undertaking community infrastructure development and poverty alleviation activities at each municipal corporation.

1.4 Scope of the Report The FR is presented in 9 volumes. Volume 1, the Main Report, provides an overall view of the project and concentrates on State level policy, social-economics and urban management plus issues that are common to all the five project cities. Volume 2 provides separate reports for each individual project city covering mainly technical and financial issues that are particular to that city. Volumes 3 to 7 provide comprehensive details on: Social Impacts and Poverty; Economic Analysis; Initial Environmental Examination; Technical Analysis and, Urban Management and Institutional Development; Volume 8 provides support documents on social and environmental safeguard frameworks and Volume 9 provides the Project Resettlement Plan.



Section A: Sector Performance 2. URBAN SECTOR IN INDIA

2.1 Socio-Economic Context

2.1.1 Population and Urbanization

India having crossed its 1 billion mark in 2001 is likely to touch 1.35 billion in another two decades, adding more than one India at the time of Independence. The reason for the phenomenal population increase in the past decade has mainly been due to the natural growth, with an annual population growth of 2.3% (1971-1991).

In order to comprehend the Spatio-temporal population trend in India, it’s important to get an insight into its urban pattern. It has been viewed that the unplanned urbanization and unending exodus of rural masses to towns and cities has led India to become the second largest urban systems in the world. Further, in the last fifty years, the process of urbanization in India has ushered in numerous changes unlike those witnessed during earlier periods, both in terms of degree and quality.

2.1.2 Economic Development

Post independence, India followed a unique blend of ‘mixed economy’. From the early 1980s, there was a gradual policy shift towards opening up the economy and market reform. In contrast to the previous 40 years, policy from 1990 is characterized by liberalization of markets, globalization, deregulation and reigning back of the public sector. However, the process of change is gradual and the role of the government remains dominant in almost all sectors of the economy.

Sector productivity and contribution to GDP shows a familiar pattern for developing countries. Growth in agriculture is erratic, industrial growth is positive but moderate and the services sector has provided the driving impetus behind the economic growth achieved in the last five to ten years.

Similarly, urban areas are net contributors to GDP. Estimates of the contribution of urban areas to GDP are in the order of 50% to 60%1, well above the level of urbanization of 28% of the population. The estimated per capita productivity ratio between the urban and rural populations in India is 7:2.2 Economic growth in India is thus dependant on the fortunes of urban areas and their ability to attract investment, increase productivity and continue to provide the focus for service sector activity. This ability, in turn, depends on the ability of cities to deliver infrastructure services and provide an adequate urban environment and quality of life.

GDP per capita has approximately doubled over the last 20 years and the rate of increase has accelerated in recent years, both as a result of achievements in real economic growth and as population growth has slowed down. However, by 2003, estimated GDP per capita was only Rs.25,700, an equivalent of US$560 or US$1.50 per day.3

1 National Institute of Urban Affairs, Draft National Urban Policy, Ministry of Urban Development and Poverty Alleviation, January 2001. 2 HUDCO, Indian Experience in Urban Water Supply and Sanitation, presented by V Suresh, Chairman & Managing Director, 1998. 3 Measured in current market prices. Sourced from ADB, Outlook 2004 Update, (October 2004), Statistical Appendix, p.149. Figures are rounded.



A source of concern is that of ‘jobless growth’, i.e. employment generation does not appear to have followed the strong growth in the services sector, at least not sufficiently enough to absorb the growth in the labor force. It is possible that productivity growth in the services sector has been a major contributing factor, together with structural changes in the economy.

2.1.3 Demographic and Social Profile of the Urban Population

The proportion of population living in urban areas has been increasing steadily. In 1951, only 10% of Indians lived in urban centers but now something like a third of the population lives in urban areas. There has been nearly eleven fold increase in the urban population of India from 25 million in 1901 to 285 million in 2001 and is expected to almost double to 550 million by 2021. The percentage of urban population in India, which was 20% in 1971, has grown to 28% in 2001 and is expected to reach 40% by 2021, wherein the million plus cities would increase from 35 to 75 in two decades. In absolute terms, an urban population of more than half a billion is a daunting challenge to the sub-continent.

The comparative overview of the demographic and social profile of the urban and the total population of India indicate that the urban areas have progressed significantly in the past years. Presently, the sex ratio of the urban area is 52.6% males to 47.4% female, compared to 51.7% and 48.3% for the whole of India. The sex ratio (numbers of females per 1000 males) of the urban population has increased from 894 in 1991 to 901 in 2001, which suggests positive development of female population.

The life expectancy of the total population of India has increased from 55.9 years in 1988 to 59.4 in 1993 and is currently 62.4 years for men and 63.4 for women, which stresses on the improved social and health policy of the government.

The literacy rate of the urban population has shown an improvement with an increase from 73% of the 7+ population in 1991, (81% for men and 64% for women) to 80% in 2001, (86% of men and 73% women). The vast disparity between the literacy rate of men and women in 1991 reduced from 17% to 13% in 2001. The Literacy rate in the urban areas is higher in comparison to the national average of 65% in 2001.

The overall health status of the population has shown considerable improvement with the infant mortality rate dropping from 74 deaths per 1000 live births in 1995 to 70 in 1999. The natural growth rate of the population has decreased from an annual rate of 1.97% in 1991 to 1.93% in 1999. The urban rate has dropped from 1.72% to 1.61%.

In addition to the above indicator, the overview of the total fertility rate in India shows a drop from 4.9 births per woman in 1980 to 3.0 births per woman in 2001, and infant mortality rate has dropped from 113 per 1,000 live births to 67 in 2001. (According to the 2003 edition of World Development Indicators). But besides measurable changes like these ones, there have also been crucial qualitative gains such as strong community ownership, and development of a political consensus on making reproductive and child health a social priority.

2.1.4 Poverty

The incidence of poverty in India still remains very high. Using the nationally determined Poverty Line (per capita income to meet minimum levels of consumption), both the absolute numbers and



proportion of people living below the poverty line (BPL) in 2001 is 26%. For urban areas, the BPL population is estimated as 23.62%, (67 million), slightly better than rural areas. Income and consumption based measures of poverty ignore other crucial dimensions of poverty such as access to basic services, health and education, social and political capital and security. Although in 1991 the access to basic services had improved from the previous decade, but 50% of all households did not have individual access to piped water, and 36% of all households did not have access to toilet facilities in 1991.

According to a 1997 survey, 52% of the urban poor do not have access to piped (treated water) water supply respectively; time spent to collect one bucket of water from a public stand post takes about 3-6 hours; and 60% of people resort to open defecation. The total slum population according to 2001 Census is 40 million people, out of which 22.58% is the urban slum population. The slum population is concentrated in 607 towns. The sex ratio in the slums is 873 females per thousand males in comparison with 901 of that of urban population and 933 nationally. Literacy rates of the slum population are 64% as per Census 2001 (70% males and 56% females).

The development indicators for women indicate that on the whole, women are in much worse conditions than men in terms of income, employment status, access to education and social and political capital. However, urban women tend to be better off than rural women. It has been viewed that the poor women in both the urban and rural areas are more vulnerable to sustained poverty because of lack of access to legal tenure, poor levels of education, inequity of resource distribution within the community and the household, and exposure to domestic and social violence.

2.1.5 Policies, Targets and Programs

The Tenth National FYP (2002-2007) sets out an overall policy framework and targets and overall improvement of the social and economic sectors. The target GDP growth in the plan period (2002-2007) is 8% and it is largely based on consideration of the rate required to double the GDP/capita over a 10 year period, twice as fast as that achieved over the past decades.

To achieve the economic growth targets, the Tenth National FYP (2002-2007) sets out the need for further liberalization and increase in the pace of institutional reform in conjunction with sustainable growth policies for human development and environmental protection. Poverty alleviation, human development and environmental quality indicators are key targets for the overall development.

The specific targets to be reached by 2007 are:

a) Reduction in the BPL population at 20%;

b) Reduction in maternal mortality to 20%;

c) Reduction in child mortality to 45%;

d) Increase in literacy to 72% (from 65%);

e) Universal access to primary education; and

f) Environmental targets include a reduction in pollution of major rivers.



Despite the recognized importance of the urban sector, there is no national urban policy. A Draft National Urban Policy was prepared in January 2001, which included governance, planning, financing and urban infrastructure.

The Government of India has launched a number of poverty alleviation programs. These have been targeted at provision of basic infrastructure mostly in slum settlements and at social welfare or income-generating schemes. Following several decades of attempts at slum clearance, since the mid-1970’s, the Government has focused through various programs on in-situ slum improvement. Physical improvement of slum settlements has been in the form of two main programs, the Environmental Improvement of Urban Slums – EIUS, and more recently the National Slum Development Program – NSDP (formerly the Urban Basic Services Programs (UBSP).

The programs have concentrated on the provision of basic infrastructure. A total of Rs 8.04 billion has been expended between 1996 and 2001 on the NSDP and it is reported to have benefited a population of 28 million people. The main poverty alleviation programs focusing on income generation for the poor is the SJSRY. This combines approaches of community development, micro-finance and skills training. Social welfare schemes are available to the BPL population through various targeted allowances and food subsidies, principally through the Targeted Public Distribution System. Emerging Policy for Urban Poverty Reduction Recently, an Urban Slums Working Group has provided a paper contributing to the Tenth Five Year Plan. It has redefined a strategy for addressing the urban poor, which is yet to be approved or implemented at the state level.

The elements of the strategy are:

a) Preparation of city poverty alleviation plans to include coverage of all settlements in a phased manner addressing the multidimensional nature of problems that slum dwellers encounter;

b) Networking settlements to city infrastructure is perceived as the primary solution for integrating them with the rest of the city. It is proposed that the settlements should be granted a minimum tenure of 10 years and service provisions to be made at the household level;

c) Cost sharing arrangements in infrastructure provision has also been suggested wherein the people and the ULB share the cost with the flexibility of inviting private sector investments wherever found appropriate; Resource mobilization being one of the key issues, linkages with HUDCO/ LIC/ICICI would be established for creating credit lines to NGOs/CDS to offer infrastructure upgradation loans to people;

d) Convergence of resources under poverty alleviation programs such as SJSRY, LCS, State schemes, at the city level;

e) City Government would also be expected to create the necessary institutional arrangements for programs implementation. They would create or strengthen the existing Town Urban Development Agency or UPE cell;

f) Utilization of the CDS and Community Organizations built under the SJSRY for community level infrastructure planning; and

g) Involvement of NGOs in working with poor communities, enabling them to form associations at the neighborhood level and capacity building. Finally, in parallel with this thinking on urban slum improvement, the GoI and other agencies are considering appropriate responses to the different circumstances of different groups within the poor.



The studies to understand the specific nature of poverty and vulnerability have identified 3 groups of poor- First, those who are in an extreme, often life threatening state of poverty who need social welfare to help survival; Second, those who are in severe poverty who need assistance to build a livelihood, Third, those who are at the edge of poverty and need help to graduate and sustain a life outside of poverty. The terms Core, Intermediate and Transitional Poor have been used to define these groups.

Although the target rate of 8% growth in GDP appears optimistic, critics remain positive. The continued viability of the balance of payments and low inflation are well-recognized strengths. Critics also recognize central government’s effort to overcome growth-retarding factors, particularly in government finances, where the fiscal deficit continues to be a burden.

2.1.6 Socio-Economic Outlook

The outlook for poverty and human development again appears reasonably good. Most development indicators have continued to show improvement in recent decades. Programs targeted at slum settlements appear to be having visible impact in providing services to those areas.

However, evidence suggests that the poverty of the most poor and vulnerable endures through generations as children inherit their parents’ poverty. The outlook for the landless in urban areas remains bleak.

2.2 Urban Management

2.2.1 Institutional and Legal Framework

The 74th Constitutional Amendment Act (1992) recognized urban local bodies (ULBs) as institutions of local self government and created a third tier of government for urban areas in India. Prominent features of the Amendment are:

It considers the ULBs no longer as mere service bodies which create, maintain and operate a certain minimum number of civic facilities like water supply, sanitation and drainage, solid waste management, etc. It empowers them, if so authorized by the state governments, to undertake planning for social and economic development, urban environmental services, urban planning, poverty alleviation, etc.

It ensures that the ULBs should not remain under prolonged periods of dissolution or super-session. While the state governments still have the power to dissolve or supersede the ULBs, the law now requires such a situation cannot exceed a period of six months by which time the next election should be held to constitute the elected body.

The state-municipal financial relationship has been put on a firm basis, by setting up State Finance Commissions for each state. These Commissions would review the financial position of the municipalities and the devolution of funds from the state government to the ULBs.4 They would make recommendations as to: (a) the distribution of the net proceeds of the revenue leviable by the state between the state and the ULBs; (b) the revenue which may be assigned to,

4 Devolution of Non-Plan funds only.



or appropriated by the ULBs; (c) the grants-in-aid to the ULBs from the State; and (d) other measures needed to improve the financial position of the ULBs.

State Election Commissions are to be set up to superintend, direct and control the preparations of electoral rolls, and conduct all elections to the rural and urban local bodies in each state.

Constitution of Wards Committees, consisting of one or more wards in the ULBs where the population exceeds 10,000, has been made mandatory. The essence of this provision is to bring about proximity between the people and local governments so that more decentralization takes place.

District Planning Committees are to be set up to consolidate the plans prepared by the panchayats and the municipalities in the district, and to prepare a draft development plan for the district as a whole.

Metropolitan Planning Committees are to be set up to prepare draft development plans for metropolitan areas.

All the States have carried out the consequential compliance legislation in their own laws and have taken the follow-up administrative actions. However, there are some variations (within the legal limits) between states in the legislative and administrative frameworks. These variations depend upon the political context, the level of evolution of local bodies and the historical and social backgrounds.

Some of the implications of the 74th Constitutional Amendment are presented below.

All the ULBs are democratic in character and based on adult franchise; some decentralization by way of Wards/Ward Committees have been made; but the decentralization process has not usually come down below that level except in certain cases.

The ULBs still do not enjoy their powers directly from the Constitution. Whereas the central and state governments derive their authority from the Constitution from the Union List (List I) and State List (List II), there is as yet no Local List to show the distribution of powers between them.

The ULBs do not enjoy an absolute or exclusive domain or sphere of activity or authority. They are created by state legislation. The state governments reserve the right to operate in the same functional areas; even the functions mentioned in the Twelfth Schedule can be passed on to the ULBs, as obligatory or discretionary, by state legislation or order.

The state governments have the power to supervise the administration of the ULBs, to confer additional powers on them, and to suspend or dissolve them.

The state governments, who may authorize powers to the ULBs to impose taxes and fees or receive state government funds, determine the fiscal domain of the ULBs.



74th CAA – Twelfth Schedule The functions of ULBs can include: urban planning including town planning; regulation of land use and building construction; planning for economic and social development; roads and bridges; water supply; public health, sanitation conservancy and solid waste management; fire services; urban forestry, protection of the environment and promotion of ecological aspects; safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded; slum improvement and upgradation; urban poverty alleviation; provision of urban amenities and facilities such as parks, gardens and playgrounds; promotion of cultural, educational and aesthetic aspects; burials and burial grounds, cremation grounds and electric cremations; cattle pounds, prevention of cruelty to animals; vital statistics including registration of births and deaths; public amenities including street lighting, parking lots, bus stops and public conveniences; regulation of slaughterhouses and tanneries.

2.2.2 Policies and Programs

Although an ‘urban policy’ in its strictest sense has not been adopted, a number of major policy shifts have had a significant impact on the urban sector and there has been a noticeable change in the attention given to the urban issues during the last 15 years. Apart from the 74th Constitutional Amendment in 1992, there are three major examples:

In September 2001, the GoI launched a Campaign for Good Governance in the country, in pursuance of the UN Habitat Agenda adopted at Istanbul in 1996. This launch was the first sub-regional launch of Habitat’s Global Campaign. The theme of the Campaign was “inclusive city”, as inclusive decision-making is at the heart of good urban governance. The Campaign proposed that for the realization of the “inclusive city”, good urban governance will promote the specific goals of decentralization, integration of the poor and the marginalized, environmental sustainability, improved municipal finance, transparency and civic engagement, better municipal management and capacity building.

In the 2002-03 budget, the GoI announced three financial assistance schemes based on urban reforms, which supported an earlier initiative of the Municipal Bond System. These were: (i) Pooled Finance Development Scheme; (ii) Urban Reform Incentive Fund (URIF) and (iii) City Challenge Fund (CCF).

The Government elected in May 2004 announced the National Common Minimum Programs (NCMP), which emphasizes economic reforms “with a human face”. Goals include generating employment and stimulating pro-poor growth, increasing social spending and stepping up investment in the development and expansion of physical infrastructure.

2.2.3 Performance Review

In most states, there has not been a commensurate devolution of authority or resources from the State Government and the financial, human and other facilities available with the ULBs are generally inadequate to carry out the functions entrusted under the 74th Constitutional Amendment. Most ULBs continue to be poorly and inefficiently staffed, suffer from weak technical and managerial skills and depend increasingly on the state for a large part of their funding.

This situation is further complicated by the number of agencies typically involved in activities in the urban sector, including municipalities, urban development authorities, parastatals and various line agencies of the State Government itself.



It has been recognized that there is a clear need to distinguish between the twin objectives of providing urban infrastructure and urban development.5 Creation of urban infrastructure is achieved through capital investment projects such as water and sewerage treatment plants, building roads or providing housing. However, the objective of urban development requires working with ULBs, strengthening their capacities and supporting the process of decentralization as set out in the 74th Constitutional Amendment.

While construction activities can be completed within a reasonable time frame of three to four years, achieving the development objectives and building up of municipal capacities is a much slower process. The result is that ULBs may not be in a position to take over and manage the assets after their completion.

2.2.4 Urban Finance

There have been several estimates of the amount of public investment that will be needed annually to finance India’s growing urban infrastructure needs, even assuming that O&M costs would be met through tariff revenues.6 What is clear is that the amount of public funds that is likely to be available falls well short of these estimates - of the order of at least one-fifth of the requirement.7

New sources of financial resources are needed to make up for the inability of budgetary allocations from the Central Government to keep pace with growing demand for urban infrastructure. These sources exist within India’s capital markets and financial institutions, as well as from the international development financing agencies such as the Asian Development Bank and the World Bank.

However, access to these resources requires the discipline of commercial viability and development of bankable projects. These factors depend largely on the basis of revenue streams from specific service-linked user or beneficiary charges and other dedicated sources. This requires the introduction of gradual tariff reforms, a move toward cost recovery or an efficient pricing regime and a focus on reducing the costs of service provision. Also, it requires the provision of reliable information that in turn will require reforms in financial accounting, reporting and management.

For instance, the key to the financing of urban water and sanitation services has been improving the financial performance and sustainability of the agencies providing these services, and removing their dependence on government funding for both operation and maintenance and capital investment. This reform has been undertaken with strong government support, in terms of policy, institutional and legal reforms and capital spending programs, until the service providers become fully self-financing and are capable of attracting private sector finance.

As with international experience, the financial sustainability of infrastructure service providers will be the key to improving the urban financing situation in India. Resource mobilization outside the traditional government sources of funding has involved institutions like HUDCO, IL&FS and LIC relying on market-based resources. At the State level, specialized urban development funds are being set up to address the needs of medium and small cities. At the city level, partnerships amongst the city governments, investment bankers and financial institutions are developing projects within commercial format for accessing the capital market. These developments all emphasize a move towards commercial viability.

5 Refer ADB, Urban Sector Review and Strategy, Draft Final Report, March 2003 6 Refer, for example, UNDP-World Bank, Water and Sanitation Program – South Asia, Water for India’s Poor, October 1999. 7 TCGI-PADCO, The FIRE(D) Project, funded by USAID, November 1999.



3. THE URBAN SECTOR IN KERALA

3.1 Socio-Economic Context

3.1.1 State Role and Function

Kerala, the southern most states of the Indian subcontinent, takes its name from kerum meaning coconut in Malayalam. Being the one of the smallest states in geographical area, Kerala accounts for 1.1% of the country’s land area and 3.10 of its total population (Census 2001). Kerala also occupies the pivotal position amidst the other Indian states in Human Development Index and is the only Indian state witnessing a positive sex ratio.

Though Kerala’s population is uniformly scattered throughout the state but the vast majority of its people still reside in the villages and are engaged in agriculture or agricultural related activities, wherein depicting an excellent picture of urban-rural continuum in the state.

3.1.2 Population and Urbanization

During the last 50 years, India has witnessed the population growth of nearly two and half times, which may be accredited to the growth of its urban centers. The urban population in India on the other hand has increased eleven fold from 25 million in 1901 to approximately 285 million in 2001.

In numerical terms, India’s urban population is the second largest in the world after China and is higher than the total urban population of all the countries put together barring China, USA and Russia. The processes of rapid economic growth and urbanization have been inextricably linked in India, which has led to transmogrification its urban landscape.

In line with the above, Kerala also reveals a similar spatio-temporal trend in urbanization. The state exhibits a steady increase in urban population from 16.24% in 1971 to 25.97% in 2001, which is slightly lower than the national average of 28% (Census 2001). However, the percentage of the urban population has witnessed a decline from 26.39% in 1991 to 25.97% in 2001 and accounts for lowest decadal urban growth rate of 7.6% in comparison to the decennial growth of 60.89% between 1981to 1991. The reasons for the decline in the urban population in 2001 have been due to the reduction in number of census towns and the change in jurisdiction in statutory urban areas in the state.

Reflecting similar pattern of urban growth in the state, the trend of total population in Kerala also reveals a low decadal growth rate of 9.42% (1991-2001), which has been the least growth rate in comparison to all the states of India. It accounts for an increase of 0.94% annual growth rate during this period, which is significantly lower than the national average of 2% too. These growth rates of the state demonstrate that whilst net migration has been a contributing factor to urban population growth, natural increase has been the dominant explanatory factor in 1991-2001.



Table 3-1: Trend of Urban Population of India and Kerala: 1971-2001

India Kerala Year Total Urban Percent of

Urban Pop. Total Urban Percent of

Urban Pop 1971 548,159,652 109,113,977 19.91 21,300,560 3,459,211 16.24 1981 683,329,097 159,462,547 23.34 25,453,680 4,770,020 18.74 1991 846,302,688 217,611,012 25.71 29,098,518 7,680,294 26.39 2001 1,027,015,247 285,354,954 27.78 31,838,619 8,267,135 25.97

Census of India: 1971, 1981, 1991, and 2001.

Table 3-2: Decadal Growth Rate of India and Kerala: 1971-2001

India Kerala Year

Total Urban Total Urban 1971 24.8 38.23 26.29 - 1981 24.66 46.14 19.24 37.89 1991 23.86 36.47 14.32 60.17 2001 21.34 31.13 9.42 7.6

Census of India: 1971, 1981, 1991, and 2001

The spatial distribution of population in Kerala according to Census 2001 reveals that maximum share of people reside in rural areas accounting for 74.03% (Census 2001). Despite its reputation of being largely a rural state, Kerala has a large and growing urban population. In line with expected trends in India, urbanization in Kerala is expected to intensify over the coming decades. It has been estimated that over the twenty-year period (2001-2021), even after the estimating the current annual rate of 0.76% increase, the population growth would reveal 15.2% increase in absolute terms. Hence, the urban population would likely to exceed 9.53 million by the design year of the Project, 2021.

Table 3-3: Growth of Census towns in Kerala: 1981-2001

Year Number of Census Towns

1981 106 1991 197 2001 159


Viewing the current pattern of urban centers in 2001, Kerala accounts for 159 census towns / cities, which includes the five major Municipal Corporations of Thiruvananthapuram, Kochi, Kollam, Thrissur and Kozhikode. These five Corporations contain 2.46 million population, wherein accounting for 29.72% of the total urban population and 7.7% total population of the state. There has been a decline in the growth of census towns from 197 to 159 between the period 1991-2001, as cited in the reasons given above.

3.1.3 Economic Development

Net State Domestic Product at factor cost (NSDP) in 2002-03 was Rs838 billion, which was 4.2% of the national total (compared to Kerala’s 3.1% population share). Primary sector accounted for 18%, secondary 24% and tertiary 58%, illustrating the importance to Kerala of urban sector activities such



as tourism, trade and commerce, transportation, banking and financial services, business services, public administration and community services.8

NSDP grew at an average annual rate of 5.3% in real terms over the last five years (1998-2003), just under the national average of 5.4%. In fact, during this period, Kerala outperformed the national average three times. However, its annual growth tended to be more erratic than the national average, partially due to:

the relative importance of tourism to the Kerala economy and the series of incidents in 2001 and 2002 which impacted negatively on international tourism in particular;9 and

the vulnerability of the Kerala agricultural sector because of the nature of trends in the local farming system10 and because, being the major cash crop producing state, it is affected perhaps most by agriculture-related trade policies adopted by GoI.

Over the last five years, there have been considerable gains in per capita NSDP at an average rate of 4.6% per year, which was significantly above the national average of 3.6% per year. By 2002, estimated per capita NSDP was Rs25,800,11 136% of the corresponding national average (Rs19,000) and equivalent to about US$1.45/ day.12

In addition to the high priority given to tourism, the State Government is taking serious efforts to identify new industrial opportunities with the objective of creating more income and employment. Traditional industries such as handlooms, coir, cashew and handicrafts are declining and small scale industries are also reported to be suffering; over the last five years, an estimated 30% have closed or are registered as ‘sick’.

Employment data are difficult to obtain and verify, mainly due to the importance of the informal sector. There are considerable difficulties in reconciling reported data with what can be seen and understood from observation and local knowledge. Even in registered businesses, an estimated 40% of the workforce go unrecorded, large numbers of people are involved in petty trading, home-working and a number have more than one job. According to the 2001 census, the number of persons in Kerala classified as ‘main workers’ was 8.24 million and ‘marginal workers’ was 2.06 million.13 This gives a workforce participation rate of 32.3%, compared to the national rate of 39.3%.

The unemployment rate in 1999-00 was 20.8% in Kerala, compared to the national rate of 7.3%.14 This most likely reflects the dominance of the services sector in the Kerala economy and the ‘jobless

8 The revenue generated from tourism and its multiplier effect is estimated to account for 6.3% of NSDP (GoK, Economic Review 2003, prepared by State Planning Board, January 2004, p.241). 9 These include the September 11 World Trade Centre attack, the Afghan War, Indo-Pak Border tension, terrorist attacks in India and other countries and the SARS epidemic. 10 A decreasing trend in family participation and consequent decline in the average size of land holding, subdued growth in yields and dominance of perennial crops – refer Economic Review 2003, Chapter 4. 11 Estimated per capita GDP for Kerala was Rs.28,000, compared to per capita GDP for India of Rs.25,700 (refer Section 2.1.2). 12 The computation of state income does not include remittances from outside the State, mainly from countries in the Middle East). It is estimated that if these were added to NSDP, the per capita state income would be 20% higher (refer Economic Review 2003, p.23). 13 According to the Census, a person is recorded as a main worker if they worked for 183 days a year or more 14 Refer GoK, Economic Review 2003, prepared by State Planning Commission, January 2004, p. 382.



growth’ nature of that sector.15 In other words, in Kerala the rate of employment growth is unlikely to match the high rate of economic growth.

3.1.4 Demographic and Social Profile of the Urban Population

The demographic profile of Kerala ascertains the fact that the state is progressing towards balanced socio-economic development. Characterized by the co-existence of good quality of life with almost stagnating economy, Kerala is aptly called a development paradox. (HDR Report, 1993). The demography of Kerala in term of its sex ratio and population density has been elucidated in the ensuing tables.

Defined as the number of persons living square kilometre, the Population Density in Kerala helps in identifying the areas of varying population concentrations. The overall population density and the urban population density of the state illustrate a steady increase in density pattern from the period between 1971-2001 and have been higher than the national average too. According to 2001 Census Kerala stands 3rd rank in terms of population density (819 persons square km).

Table 3-4: Population Density of India and Kerala: 1971-2001

India Kerala Year

Total Total Urban

1971 177 548 1,028 1981 216 655 1,418 1991 267 749 2,283 2001 324 819 2,457


The Sex Ratio is an important demographic and social indicator to measure the extent of prevailing equity between males and females in the society. Kerala has been ranking first amongst all the Indian states in 1991 (1.036) and 2001 (1.058) for having more females per thousand males and accounts for higher sex ratio than the national average. In the previous decades of 1971 and 1981, the UT of Daman and Diu had been occupying the first position with highest sex ratio.

The Urban Sex Ratio in Kerala account for 48.59% males and 51.41% females, which is higher than the national urban average of 901 (Census 2001). One of the important reasons contributing to favourable sex ratio has been the family organization in Kerala. Further the factors such as female inheritance system, high literacy rates, low fertility levels, right of female residence and right to divorce and remarry if widowed give Kerala a unique status unknown to other Indian states.

The proportion of Child Population in the age group 0-6 years indicates the level of fertility in the states. India has witnessed a steady decline in the growth of child population from 18% in 1991 to 15% in 2001. Kerala ranks 13th among the other Indian states in child population in 2001, wherein accounting for 963 girls per thousand boys.

15 Refer Section 2.1.2.



Table 3-5: Sex Ratio of India and Kerala: 1971-2001

Year India Kerala

1971 930 1,016 1981 934 1,032 1991 927 1,036 2001 933 1,058


India currently ranks second in the world, in terms of absolute size of the Ageing Population after China. There are major differences among the Indian states in proportion of population above 60 years. The Indian elderly population was 6.3% in 1981, which increased to 6.7% in 1991. Kerala ranks first amongst the Indian states for having high ageing population of 10.6%.

Table 3-6: Growth Trend in Literacy Rates of India and Kerala: 1981-2001

India Kerala Year

Males Females Persons Males Females Persons Rank of Kerala

1981 56.4 29.4 43.57 75.3 65.7 70.40 1 1991 64.1 39.3 52.20 93.6 86.2 89.8 1 2001 75.9 54.2 65.38 94.2 87.9 90.92 1


India continues its inexorable march in improving its Literacy Rate by recording an increase from 13% in 1951 to 65% in 2001.According to Census 2001, Kerala stands foremost among the states of India with respect to its literacy rates of 90.92% as against the all India average of 65.3%, followed by Mizoram (88.49%). This achievement may be attributed to the enlightened policies of early rulers of Travancore and Cochin.

Kerala also witnesses a High Female Literacy rate, which forms a positive socio-economic development indicator of a region. Though, there are immense gender disparities in literacy rates at all India level and also within individual states. But the gap has been narrowest in the states of Mizoram followed by Kerala between the male and female literacy levels.

The Urban Literacy Rates of Kerala was 93.4% in 2001 wherein the urban male and female literacy accounted for 96% and 91% respectively.

Life expectancy at birth or longevity is an overall indicator of the economic and social well being of the society. Kerala followed by Punjab has the highest life expectancy rate among the other states right from 1981-1985 to 1993-1997. Further, the distribution of life expectancy of males and female between the periods 1986-1990 was 66.8 and 72.3 respectively. The life expectancy at birth for urban areas in Kerala was 74 (1992-1996) as compared to the national average of 66.



Table 3-7: Life expectancy level of India and Kerala: 1981-1997

Year India Kerala

1981-85 55.5 68.4 1991-95 60.3 72.9 1992-95 60.7 73.1 1993-97 61.0 73.0

Source: SRS based abridged life tables, 1997.

Total Fertility Rate (TFR) of 2.1 is considered to be the replacement level of fertility, which needs to be achieved in all the states of India for population stabilization. Kerala ranked first in TFR of 1.8 in 1998 followed by Tamil Nadu (2.0).

Infant Mortality Rate (IMR), measured in terms of death per thousand of children below 6 years is considered a sensitive indicator of not only the health status of the population but also the level of human development in context of education, economic conditions, nutrition etc. There has been a considerable decline in the IMR of all the states of India, wherein Kerala ranks first for having the lowest IMR in 2001 of 16.

Infact, Kerala is the only State with the lowest IMR for female population (16) and for male population (17), which is very close to the IMR for any developed country. This could be one of the reasons for highest sex-ratio in the State besides selective male migration and emigration. This further speaks of successful MCH and other health care programs in the State and above all such a high literacy-all channeling to favorable social environment and attitudes towards girl child.

Table 3-8: Infant Mortality Rate of India and Kerala: 1981-1997

Year 1981 1992 2001 India 77 79 71 Kerala 42 17 16

Source: Tenth Five-Year Plan, 2002-2007.

Crude Death Rates

The 1993 Human Development Report for the southern States in India estimated Crude Death Rate for India as 10, which ranged from 10.6 in rural and 7.1 in urban areas. The State-wise variation illustrated Kerala with lowest Death Rate (6.3).

Hence, it is evident that the socio-economic indicators like CDR, IMR, TFR, literacy rates, sex ratio etc show Kerala far ahead of the other Indian States in development index. The development efforts in social and demographic sectors also elucidates of the progressive measures initiated by the popular governments in Kerala, which has attracted worldwide attention and many studies refer to the Kerala model on demographic transition.

3.1.5 Poverty and Urban Services

The growth performance of states has crucial implications in poverty reduction, which is an important objective of the nation’s economic policy. The states like West Bengal and Kerala have shown tremendous improvement in poverty levels over the period 1983-2000. In 1973-74, Kerala was amongst the five poorest states, with nearly 62% urban poverty. Now, Kerala has recorded a steep



decline to be amongst the states with very low percentage of population below the poverty line. As per the NSSO (1999-2000) Kerala has poverty figures of 9.38% in rural areas and 20.27% in urban areas, where as the All India figures are 27.09% in rural areas and 23.62% in urban areas.

Table 3-9: Overview of Urban Population Below Poverty Line of Kerala and India 1983-2000

Kerala India Year No. of persons

(lakhs) % of persons

BPL Poverty Line

(Rs.) No. of persons

(lakhs) % of persons

BPL Poverty Line

(Rs.)

1983 25.15 45.68 122.64 709.40 40.79 115.65 1993-94 20.46 24.55 280.54 763.37 32.36 281.35 1999-00 20.7 20.27 477.06 670.07 23.62 454.11 Source: Urban Statistics Handbook 2000, NIUA.

For the year 1999-2000, the Below Poverty Line (BPL) for urban areas of Kerala had been estimated at Rs.477.06 per capita per month. In 1999-2000, 20.27% of the State’s urban population was living below the poverty line in comparison to 23.62% for the country as a whole. Urban poverty was higher than rural poverty with a 20.27% and rural reflecting 9.38%. In both the cases i.e. urban and rural the percentage of BPL population has been lower than national average respectively.

Urban Services. Kerala has good achievement in coverage of basic minimum services for the poor population in the state. Its social security systems in the form of pensions to vulnerable groups and welfare funds for various categories of laborers are reasonably well spread. Universal public distribution system in Kerala provides good food security. These measures have prevented abject poverty to a great extent. Thus from the point of view of capabilities as well as entitlements, Kerala has performed better, in comparison with other states in tackling the problems of its poor population.

The other dimensions of urban poverty include lack of access to basic amenities and services, unsanitary living conditions, overcrowding and exposure to various risks of disease. The table below indicates the status of access to urban services in Kerala, comparing where possible with India as a whole.

Table 3-10: Status of urban population in terms of Basic Services, 2001

Existing situation in urban areas (percent) Basic Services

Kerala India

HHs occupying pucca structures 79 79 HHs occupying semi-pucca structures 14 16 HHs occupying kutcha structures 7 5 HHs having access to electricity 84 88 HHs having access to safe drinking water 40 69 HHs having access to toilets 92 74 Source: Census of India 2001.



Table 3-11: Urban Slum Population of India and Kerala: 1991-2001

India Kerala Year

Urban Pop Estimated Slum Pop (million) Urban Pop Estimated Slum Pop (million)

1991 217,611,012 46.24 7,680,294 1.22

2001 285,354,954 61.83 8,267,135 1.65 Source: Census Data: Census of India 1991 & 2001.

In Kerala, the estimated slum population counted during the 2001 Census totalled 1.65 million, which has increased from 1.22 million in 1991.

Human Development Index. The first ever National Human Development Report (NHDR), 2001 by the Planning Commission estimated the value of Human Development Index (HDI) for the states and the UTs. HDI for the country as a whole has improved from 0.302 in 1981 to 0.472 in 2001. Kerala a middle income state remains at the top of the NHDR table with an achievement of HDI of 0.638, an increase from 0.500 in 1981.

So far as the urban-rural gap is concerned, the national index for rural areas has gone up from 0.263 to 0.340 and for urban areas from 0.442 to 0.511. The rural-urban gap was at the minimum in case of Kerala and maximum for Madhya Pradesh.

Table 3-12: Human Development Index of India and Kerala: 1981-2001

Human Development Index Year

Kerala India

1981 0.500 0.302 1991 0.591 0.381 2001 0.638 0.472

Source: Tenth Five Year Plan 2002-2007.

Infrastructure Index: The infrastructure index brings out a composite comparative profile of the availability of physical, social and institutional infrastructure in the state. It has been viewed that amongst all the states, Goa had the highest infrastructure index of 200.57 and Kerala had the third highest infrastructure index of 178.6816 . The other states with highest infrastructure index includes Punjab (187.57), Gujarat (124.31) and Haryana (137.54). The highest index means the best placed state in terms of infrastructure facilities.

Social Development Policy and Urban Poverty Alleviation Programs

Social development objectives within the Tenth Five Year Plan focus on health and population. Poverty reduction is aimed at bridging the gap between state and national averages but contains few specific targets, focusing instead on continued implementation of central government poverty alleviation programs.

An overview of the major Urban Poverty Alleviation Programs in Kerala has been highlighted in the ensuing section:

16 Tenth Five-Year Plan 2002-07.



Environmental Improvement of Urban Slums Programs (E.I.U.S.) in Kerala

This central scheme was introduced in 1972-73. This scheme was restricted to slum areas in such cities that were not earmarked for clearance during the next ten years. This scheme was transferred to the state sector from April 1974. It is now a state plan scheme with 50% loan and 50% grant. The schemes are formulated and implemented by the urban local bodies.

Under the Environmental Improvement of Urban Slums programs (EIUS), the Plan proposes to cover 57 cities, 350 slum pockets during the plan period 1992-97. The population of these slums is estimated to about 300,000 and the expenditure targeted is approximately Rs.34,500,000. The major stress in the programs was on the improvement of physical infrastructure. The following five components were considered in the programs:

a) Water Supply-Street fountains/community taps;

b) Provision of latrines-individual and/or community latrines;

c) Street lighting;

d) Access improvement; and

e) Area drainage.

National Slum Development Programs

The National Slum Development Program (NSDP) was inaugurated and launched by the Prime Minister in August, 1996 at Kanpur in (UP). Under the National Slum Development Program, Additional Central Assistance (ACA) is being released to the States/UTs for the development of urban slums. The objectives of this programs is upgradation of urban slums by providing physical amenities like water supply, storm water drains, community bath, widening and paving of existing lanes, sewers, community latrines, street lights etc. The program also has a component of shelter upgradation or construction of new houses.

Under the program, the Planning Commission annually on the basis of slum population of the state allocates funds in the form of Additional Central Assistance (ACA).

Table 3-13: Allocation of Funds for NSDP

Name of the State Funds allocated for 2002-03 (Rs. in lakhs)

Amount Released (Rs. in lakhs)

% of released amount

Kerala 972.00 958.31 98.59 Position as on 1.1.2003.

Swarna Jayanthi Shahari Rozgar Yojana (SJSRY)

The budget allocation for the year 2002-200 is Rs.360 million. Government of India has introduced. Swarna Jyanthi Shahari Rozgar Yojana (SJSRY) to replace the existing poverty alleviation schemes such as Nehru Rozgar Yojana, Urban Basic Service for the poor and Prime Minister’s Integrated Urban Poverty Eradication Programs, with effect from 01-12-1997. The funding of the scheme is on 75:25 basis between the Central and State Government. This scheme consists of two broad components viz.



Urban Self-Employment Programs (USEP); and

Urban Wage Employment Programs (UWEP).

USEP has the distinct components- (1) Assistance to individual urban poor for setting up gainful self-employment ventures; (2) assistance to group of urban poor women for setting up gainful self-employment ventures.

Urban Self-Employment Programs: The program intends to facilitate identification of self-employment opportunities by means of individual and group enterprises.

Urban wage Employment Program: This project intends to provide employment to the members of poor families in urban areas as well as development of basic infrastructure. This project would be employed only in small generated as part of this program.

Table 3-14: Funds available for the implementation of SJSRY in Kerala: 1997-2003

Allocation Year

Central Share State Share Total Opening Balance as on 1.12.97 353.750 493.070 846.820

1997-1998 202.992 67.660 270.652 1998-1999 377.090 125.700 502.79 1999-2000 448.320 149.437 597.757 2000-2001 256.500 129.820 386.32 2001-2002 266.230 88.743 354.973 2002-2003 208.790 150.00 358.79 Total 2,113.672 1,204.43 3,318.102

Kochi Urban Poverty Reduction Scheme

Kochi Urban Poverty Reduction Scheme is being implemented in the Corporation of Kochi. The program is implemented with assistance from Overseas Development Agency (UK) in the form of grant. The Budget allocation for the year 2002-2003 is Rs.95 million. The objective of the program is to improve the living conditions of about 195,000 urban poor in Kochi Corporation area. The major activities envisaged under the project are:

a) Improvement or up-gradation of water supply;

b) Improvement in Sanitation;

c) Improvement in access roads;

d) Street lighting;

e) Garbage removal; and

f) Health care and community development through education, training, and economic development activities.

Implementation of the first phase of the project has already been started in selected pockets of the Corporation. The Corporation of Kochi is implementing this program under the direct supervision of Local Self-Government Department.



Kudumbashree

Kudumbashree means prosperity of the family. Kudumbashree an innovative State Poverty Eradication Mission was launched on 1st April 1999 as a partnership of the State Government, Central Government, Local Governments and the National Bank for Agriculture and Rural Development (NABARD) for eradicating poverty.

Objectives and Strategies of Kudumbashree

The principal objective of Kudumbashree is the eradication of absolute poverty from the State of Kerala within a decade and the strategy slogan of the Mission is reaching families through women and reaching the community through families. Women empowerment initiatives, micro finance operations, micro enterprise promotion and convergent community action constitute the core activities of Kudumbashree, carried out through organizations of women below the poverty line.

Evolution of the Initiative

In 1992, a three-tier Community Based Organization of poor women was formed in Alappuzha town, Kerala to implement Urban Based Services (UBS) and Urban Basic Services for the Poor (UBSP) programs. This woman oriented, participatory and convergent approach to fight poverty was a phenomenal success. This internationally acclaimed model is the basic prototype of the urban CDS structure now existing in Kerala.

Participatory Development

Grass root level NHGs act as open forum for poor women to share their concerns, reflect on their state, analyse their situation, discuss issues and options, prioritise their needs and shape an antipoverty development plan called micro-plan. Micro plans are integrated as mini plans at ADS level and the mini plans are integrated as CDs plan at the local government level.

Under the local government laws, CDs is empowered to identify the beneficiaries of antipoverty programs and take up community contracting of local development works. Thus the CDs system has the right of voice, the power of choice and the entitlement of action – that is, real empowerment.

Achievements of Kudumbashree

The CDs structure could bring about a perceptible change in the lives of the urban poor of Kerala like:

a) Community mobilization. 1,96,000 poor women from 58 Urban Local Governments 98119 women from 700 Village Panchayats of the State have been organized into 64272 (Rural) and 7848 (Urban) NHGs and these grass root level entities meet every week and discuss local issues and formulate strategies to overcome them.

b) The poor women’s bank. NHGs also act as ‘Thrift and Credit Societies’ (T&CSs), which facilitate savings. Small savings collected from the poor through the CDS system has already crossed Rs.64 crore of which more than Rs.50 crore has been disbursed as loan among members for contingency, consumption and income generation needs.

c) Innovative enterprise development and economic empowerment. Micro Enterprise promotion is given prime thrust in CDS model of urban poverty alleviation. Over 25,000 vibrant individual micro enterprises–1000 group enterprises, with minimum 10 women in each group – in different



fields from mat weaving to IT and rabbit rearing to biotechnology - function under the system. These income generation activities are instrumental in bringing about significant improvement in the economic status of poor women.

d) Women Empowerment. A significant achievement has been the setting off of a process of genuine empowerment of women –improving knowledge about benefits and services, social and economic security through self-help, expanding control over resources meant for the poor, strengthening demand for improvement in services, and gradually moving on to public action.

e) Capacity Building. General training in awareness building, training for financial management, skill up-gradation training, training in entrepreneurship development and training in functional management areas are given special emphasis.

f) Handholding and Incubatory Services. Under the CDs more than 25,000 micro enterprises are owned, operated and managed by poor women. Kudumbashree provides support and incubatory services to these units, especially in initial stages and handholds them till stability is achieved. Performance Improvement Program (PIP) is also conducted for the entrepreneurs with the assistance of Entrepreneurship Development Institute of India (EDII), Ahmedabad, India.

3.1.6 Policies, Targets and Programs

The overall economic growth rate expected for Kerala from the Tenth FYP (2002-07) is 6.5% per year. Expected annual growth rates by sector are: 3.1% for primary, 5.9% for secondary and 8.2% for tertiary.

The main economic policy thrust of the State Government is to facilitate public and private investment as the main driver of economic growth in Kerala. The core strengths of the State have been identified as IT, infrastructure, tourism, education and health, agriculture and biotechnology and urban development and real estate. Policy measures that have been announced during the last two years are Industrial Policy, Biotechnology Policy, IT Policy, Special Economic Zones Policy, Labor Policy and Renewable Energy Policy.17

Specific initiatives include:

conduct of the Global Investor Meet in 2003 and the resulting investment decisions and proposals;

establishment of the Investment Promotion Board as a fast track mechanism for project approval and implementation;

restructuring of the Kerala State Industrial Development Corporation (KSIDC) to identify, develop and promote industrial, economic and social infrastructure;18

active involvement of the Kerala Infrastructure Development Corporation in developing industry specific parks;

17 Details of these policies are provided in Economic Review 2003, Chapter 25. 18 Implementation of the Central Government initiative of Industrial Growth Centres for the development of industrially backward districts is being undertaken by KSIDC.



formulating a Modernizing Government Program (MGP) to contribute to making government services more effective, efficient and equitable – this program comprises 100 initiatives focusing on improving the quality of service delivery, enhancing efficiency, reducing delays and setting the State on the way to pro-poor growth, resulting in employment generating investment.19

development of Tourism Vision 2025, including proposed incentives for private sector investment – with targets of 10% per year increase in earnings, employment opportunities of 10,000 persons per year and growth in tourist arrivals of 7% per year for foreign and 9% per year for domestic.

In addition, the following government policies are under consideration:

Kerala Infrastructure Development Bill, which allows for public-private partnership arrangements in the provision of infrastructure;

Export Policy, which sets out the incentives for export activities and tourism projects;

Policy for Development of Maritime Sector and Port Infrastructure, which encourages private sector participation (along the lines outlined in the Infrastructure Development Bill).

3.1.7 Socio-Economic Outlook

Kerala stands foremost in comparison to other Indian States with respect to human development index and its achievements in the social sectors. The state has reflected remarkable trends in terms of it education pattern, literacy levels, poverty reduction and positive sex ratio. Health indicators like CBRs, CDR, TFR and IMR also reflect on the progressive measures undertaken by the state government in attaining good quality of life of its people.

However, Kerala though an advanced state in terms of social and demographic status, ranks one of the poorest states in the country in terms of economic development with low per capita income, wide income disparities and very high incidence of unemployment (20.77%), especially amongst the educated.

The employment scenario in the formal sector is quite bleak and compounding this problem is the fact that there’s wide gap between the emerging needs and the skills and knowledge of those coming out of the formal educational and training systems. ‘Employability’ in new areas is a major challenge facing the youth. The State has the lowest work participation rate for women at 13.5%.

Hence, the state of Kerala is aptly called a ‘development puzzle’ with co-existence of excellent achievements in social sector on one hand and almost a stagnating economy on the other hand.

19 Themes of the MGP are: minimum needs; enabling environment for economic growth and employment generation; core government functions; effective, efficient and accessible local self governments. Sub-themes of the ‘enabling environment’ theme are removal of labour market rigidities; state level public enterprises reform; strengthening infrastructure; creating an entrepreneurial culture; simplifying regulatory and administrative procedures. 33 of the 100 initiatives relate to local governments.



3.2 Urban Management 3.2.1 Government Policies and Plans

The Government adopted decentralization in the spirit of the 74th Constitutional Amendment and, through a major initiative, most urban management powers, functions and resources were transferred to local governments at one go in 1995 and 1996. To implement decentralization, the Government chose participatory local level planning as the entry point and, since 1996, it has slowly laid a transparent and accountable procedure to do so. It has set up appropriate systems and undertaken fiscal decentralization by earmarking 35-40% of its Plan resources, using a transparent formula-based approach to the distribution of funds and allowing local governments a high degree of autonomy in the use of transferred funds.

The Government has implemented nearly all of the recommendations of the First Finance Commission. More recently, the Government has accepted the recommendations of the Second Finance Commission for higher grants to ULBs. However, the responsibilities entrusted to the municipalities call for mobilization of additional resources from:

implementation of plinth area-based property tax;

special campaign to bring all potential assessments into the Profession Tax net;

prevent leakages in entertainment tax;

use the service tax to partially or fully recover the cost of new services provided;

enhance non-tax revenues through better assessment and enforcement as recommended by the Commission.

In recognition of the significance and nature of urbanization in the State, the Government of Kerala has formulated an “Urban Policy and Action Plan” which was released for discussion in 2002. It aims at the conversion of urban centres having development potential into growth centres, to facilitate private participation in infrastructure development and service sectors and to form an Urban Regulatory Authority to provide better services and to avoid monopoly in urban services.

Although the percentage of the population living in urban areas is less than the national average (26.0% compared to 27.8% according to the 2001 Census), the State has 98 urban areas. Urban population growth has been due to the increase in the number of urban areas and urbanization of peripheral areas. In addition, the density of population is very high in almost all the local government areas in the coastal areas. These features show a semi-urban character and the State can be viewed as an urban-rural continuum, except for a few hilly and isolated areas.

The urbanization strategy as part of Urban Policy states, “it is necessary to identify urban centres which demonstrate economic potentials and propensities and to prioritize them”. Such an attempt will lead to Selective Urban Development, which will give a fillip to development of many other sectors of development. Along with this approach, the minimum required infrastructure support shall also be given to other not so economically potentially urban areas to serve an existing population. The Government shall identify such towns and cities and prepare urban development investment packages.



The initiatives to be undertaken by the State Government are set out in Table 3-15.

Table 3-15: Initiatives of GoK “Urban Policy and Action Plan”

Key Result Area Initiative

Development planning Constitution of Urban Regulatory Authority Redefining and reorientation of the existing Development Authorities Introduction of a system to categorize and prioritize cities/towns

Administrative reforms Review of outdated laws Unified Town and Country Planning legislation Amendment of registration act Amendment of rent control act Review of land utilization rules Amendment of municipal building rules Directorate of Urban Affairs to give ‘development’ orientation to Directorate of Municipal Administration Restructuring of KUFDC Use of IT, etc.

Municipal autonomy Greater autonomy to ULBs in the fixation of taxes, user charges, etc. Accounting reforms and financial management

Use of double entry accounting system Issue of municipal bonds Linking of borrowing limits to revenues Greater autonomy to ULBs for debt servicing Rationalization of property tax Restructuring of entertainment tax system

Private sector Involvement of private sector in infrastructure sector Growth centres Development of growth centres and public-private participation in development Urban land policy Effective urban land management

Levy of development charges on every land transaction, new construction and new commercial area Conservation of heritage structures and open space

Traffic and transportation Urban road planning, including judicious land use planning and traffic Health care Health care program through ULBs Urban sanitation Urban drainage as part of urban road planning

Top priority to keep the cities and towns clean Establishment of scientifically designed solid waste management system for all major towns Convergence of many sanitation programs at specific area levels Setting up of underground sewerage system and liquid waste treatment plants with private sector participation

Poverty alleviation Further strengthening of Kudumbashree Taking full advantage of other centrally sponsored schemes such as SJSRY, micro enterprises, Wage Employment to the Poor, etc.



3.2.2 Policies and Programs

Four major programs to institutionalize the decentralization process have been launched recently by the State Government:

Local Self Government Action Plan – includes restructuring of KUDFC, reactivation of State Development Council, etc.

Modernizing Government Program – a range of initiatives to strengthen local governments so that the gains of decentralization are sustained and shortcomings are removed.20

Decentralization Support Program – a range of initiatives that is complementary to the MCP such as strengthening of District Planning Committee, etc.

Capacity Development for Decentralization – a project to strengthen decentralization by networking and training.

3.2.3 Performance Review

The process of devolution of urban functions, powers and resources to ULBs in Kerala has been successful, as has the system developed for the transfer of funds. However, the capacity of the ULBs in project planning, design, implementation and management have been lacking and the quality of existing infrastructure and the delivery of services, particularly to the poor, have been deteriorating. The ULBs generally have the following problems, which affect their performance:

lack of trained professional staff;

insufficient data and information required for planning projects;

inadequate decision-making processes;

lack of equipment to carry out tasks;

poor asset management;

limited capacity to handle multi-sectoral projects or projects which should cross municipal boundaries to be effective;

inability/lack of willingness to raise significant revenue streams (property taxes and tariffs);

lack of autonomy in staffing, being affected by State Government staff recruitment, management and transfer policies; and

lack of operational autonomy (political interference).

3.3 Urban Environmental Management

3.3.1 Decentralization and Urban Environmental Management

The 74th Constitutional Amendment Act and its devolution of greater powers and responsibilities to local governments mean that there is now a greater emphasis on local governments undertaking environmental management. Local governments have to focus more on the environment, particularly

20 These are set out in GoK, Modernising Government Programme: Theme V – Effective, Efficient and Accessible Local Self Government, Annexure D, June 2003.



in keeping water and water bodies free of pollution and maintaining clean surroundings. These are important not only from an environmental and public health point of view but also from the perspective of tourism, which is the fastest growing sector of the Kerala economy.

However, the existing municipal laws do not contain specific provisions on environmental management. The existing obligatory functions assigned in respect of water supply, sewerage, sanitation, drainage, etc. are considered adequate for this purpose. In any case, the ULBs do not have the relevant technical and managerial resources to perform the required tasks, given all their other functions. However, it is not necessary that the ULBs should perform these tasks themselves. They can involve community based-organizations, professional agencies and contract out.

3.3.2 Enablement and Participation

There needs to be a concerted effort in developing community participation in environmental management. By strengthening collaboration between local government and community-based organizations, municipal management can become more cost-effective as well as more sensitive and responsive to community needs, priorities and initiatives. Furthermore, a greater degree of environmental justice can be achieved, especially for those who are the most vulnerable.

3.4 Legislative and Regulatory Framework The legislative and administrative framework governing urban infrastructure development and urban management is based on Acts, Rules and Regulations formulated by the Central and State Government. The legislations considered under KSUDP are detailed in Table 3-16 and described in Volume 7 – Urban Management and Institutional Development.



Table 3-16: Legislations, Regulations and Rules

Legislations, Rules and Regulations Infrastructure / Management

A. Central Acts and Rules a. Constitutional Provisions (Article 51) Infrastructure and Environment b. Constitutional Provisions (Project Affected Persons) Infrastructure and Social c. Land Acquisition Act, 1894 and as amended 1984 Infrastructure and Social d. Wildlife Protection Act, 1972 Infrastructure and Environment e. Water (Prevention and Control of Pollution) Act, 1974 and as

amended in 1978 and 1988 Infrastructure and Environment

f. Water (Prevention and Control of Pollution) Cess Act, 1977 Infrastructure and Environment g. Environment Protection Act and Rules, 1986 Infrastructure and Environment h. Forest (Conservation) Act, 1980 and as amended In 1988 Infrastructure and Environment i. Environmental Guidelines for Rail / Road / Highway Projects,

MoEF, 1989 Infrastructure, Environment and Social

j. Hazardous Waste (Management & Handling) Rules, 1989 Infrastructure and Environment k. Biomedical Waste (Management and Handling) Rules, 1998 Infrastructure and Environment l. Coastal Regulation Zone (CRZ) Notification, 1991 Infrastructure and Environment m. 74th Constitutional Amendment Act (CAA), 1992 Infrastructure and Management n. Environmental Impact Assessment Notification, 1994 Infrastructure, Environment and Social o. Municipal Solid Waste (Management & Handling) Rules, 2000 Infrastructure and Environment p. Air (Prevention and Control of Pollution) Act, 1981 Infrastructure and Environment q. National Policy on Resettlement and Rehabilitation for Project

affected Persons, 2003 Infrastructure and Social

r. Labour Welfare Laws Infrastructure and Social B. State Acts, Rules and Policies a. Local Authorities Loans Act, 1963 Management b. Kerala Water Supply & Sewerage Act, 1986 Infrastructure c. Kerala Municipalities Act, 1994 Infrastructure and Management d. First State Finance Commission, 1996 and Second State

Finance Commission, 2001 Management

e. Kerala Decentralization of Powers Act, 2000 Management f. Kerala State Transport Project (KSTP), R&R Policy, 2000 Infrastructure and Social g. Kerala Ground Water Control and Regulation Act, 2002 Infrastructure and Environment h. Urban Policy and Action Plan, 2002 Infrastructure and Management i. Kerala Infrastructure Development Bill, 2001 Infrastructure and Management j. Kerala Fiscal Responsibility Act, 2003 Management



4. EXTERNAL ASSISTANCE

4.1 Overview There are three types of agencies providing assistance in India: multilateral donors; bilateral donors; and foundation assistance. The multilateral donors are the Asian Development Bank (ADB), the World Bank (WB), the United Nations (UN), and the European Union (EU). The types of assistance include market rate loans, various concessional loans, and grants. Loans extended by ADB and the WB has long-term repayment and grace periods. Among the United Nations agencies, the United Nations Development Program (UNDP) is the largest source of assistance. The EU extends grants and has recently focused on the environment sector with thrust on training and capacity building for government and non-governmental organizations.

DFID and USAID are the two major bilateral donors in the urban sector. DFID has historically been a large assistance provider to India. Since the 1990s, DFID’s focus has been on the alleviation of poverty. For example, Slum Development programs have a strong component on improving environmental health. DFID’s program has two separate policies covering ‘environment’: the Water and Sanitation Policy, and the Urban Poverty Alleviation Policy. JBIC provides project-tied aid in the form of soft loans at a low rate. Though JBIC assists infrastructure projects, environmental considerations are a priority.

Until 2003 when then GoI introduced restrictions on bi-lateral aided programs, AusAID, CIDA and DANIDA were important bilateral donors. The AusAID primarily focused on water and sewerage treatment, environmental management of industrial and mining pollutants and capacity building. CIDA assistance focused on meeting basic human needs (including water supply and sanitation), women in development, infrastructure support, human rights and governance, private sector development, and environment. DANIDA grants were mainly in the area of social development, environment and forestry, and were given to government agencies and local NGOs.

A recent World Bank Study shows that the external assistance for the environment has totaled about $9.9 billion dollars for the years 1995-2000, or about $1.9 billion per year. Of this, about $2.7 billion (28%) has been for urban infrastructure, of which 81% ($2.2 billion) goes to water and sanitation projects, while 19% ($525 million) goes to slum upgradation. Country-wide or multi-state projects get the maximum share (29%), followed by Tamil Nadu, Maharashtra and Karnataka (15% each).

Since 1990s, the GoI has treated external assistance to states as “additionality” over the plan allocations. This assistance is channeled on the basis of a 70:30 loan/grant ratio at a fixed interest rate. The foreign exchange risk is borne by the GoI.

A summary of external assistance to the urban sector in India during the past 12 years is provided in Appendix 2.

4.2 ADB in the Urban Sector ADB’s involvement in India’s urban sector began in 1993 with TA to prepare an urban infrastructure project in Karnataka. Since then ADB has provided 25 TA grants totaling $11.35 million to prepare projects and support capacity building. Since 1995, ADB has approved loans for eight projects in the



urban sector, totaling to $1.8 billion: Karnataka Urban Infrastructure Development ($105 million), Rajasthan Urban Infrastructure Development ($250 million), Karnataka Urban Development and Coastal Environment Management ($175 million), Urban Environmental Infrastructure Facility ($200 million), Kolkata Environmental Improvement ($250 million), and Housing Finance I and II ($420 million), Urban Water Supply and Environmental Improvement in Madhya Pradesh ($200 million). In addition, ADB has approved a $500 million loan for Gujarat Earthquake Rehabilitation and Reconstruction in 2001.

This TA is the first ADB urban sector assistance to Kerala. Other recent ADB’s assistance to the state include:

The Modernizing Government Program, initiated in 2002, conceptualized a development approach for Kerala to: (i) ensure an assured level of basic services to the poor and marginalized through a Minimum Needs Program; (ii) build an enabling economic growth environment; (iii) achieve fiscal sustainability at the State and Local Self Governments; (iv) enhance effectiveness and efficiency of core Government functions; and (v) build on decentralization for efficient, effective and accessible Local Self Governments. MGP support is to 2,605 institutions with funds amounting to Rs.12,000 million sourced from the ADB in two tranches.

ADB also provided assistance through Cities Alliance to prepare a City Development Strategy for Kozhikode, with an objective of preparing a strategy for “Cities Without Slums”.

4.3 Lessons Learned and Proposed Strategy

4.3.1 General

Review of past urban development focused project experiences of both ADB and other funding agencies could provide both a good foresight into the envisaged problems due to local culture, ethnic and regional diversities as well as what works the best (best management practices). Based on the review and analysis, attempts should be made to integrate them into project design, planning and implementation, thus leading to improvements in efficiency, effectiveness and economy of the projects.

To increase depth to the study, a number of urban development projects in India were reviewed which were / are being implemented by ADB, WB and other bilateral funding agencies. In addition, discussions with Kolkata Environmental Improvement Project Authorities (ADB project) as well as Hyderabad Urban Development Authority (Dutch Aided project) were carried out to comprehensively understand the impediments as well as best management practices for better project planning and implementation.

4.3.2 Issues from Past Projects

Overall, evaluation of past performance of many projects in India's urban sector has provided a number of lessons. The relevant features both from integrated urban development projects and city specific urban development projects are listed below:

1) Integrated urban development projects are inherently complex, given that such projects typically include multiple sub-sector investments for more than one urban area, along with policy



reforms, capacity building and community participation components. Such projects must be well defined in scope and scale. Care should be taken to avoid inclusion of too many sub projects and implementing agencies in the final investment program.

2) Urban policy reforms are essential in order to improve the financial performance and administrative/managerial capacity of the ULBs. In this regard, there is a need for a realistic time frame for implementation of urban reforms especially where restructuring of urban bodies are concerned. There is a need to provide a broad base to the reform process across each ULBs and also at the state level to reflect commitment of the authorities concerned. Few improvements, except perhaps in revenue enhancements and financial management may be possible. However local bodies were observed to be highly sensitive political entities. Their reform needs therefore should be steered with great sensitivity and patience.

3) Reforms of municipal finances, particularly tariff revision and urban sector reforms are crucially linked. Introducing appropriate regulatory and pricing framework in early phase of the project cycle would greatly facilitate the implementation process.

4) Lending agencies need to be highly selective about where they operate. More up-front actions by the Borrower (ULB) during preparation are needed to demonstrate its commitment and to give impetus to the change process when a minimum of policy reform. Institutional improvement was observed to be critical to project success. Further, the process of institutional strengthening, capacity building community participation should ideally start early and begin to get operational, prior to the project implementation.

5) The sobering experience with urban lending in India has been the borrowers' (ULBs) lack of absorptive capacity. Generally speaking, most funded urban development projects were both too large and too complex for the limited planning, engineering and implementation capacity of both state and local governments. (World Bank, Urban Infrastructure Services Review Report, 1997). Therefore, absorptive as well as implementation capacities needs to be carefully assessed while considering the number of sub-sectors, projects and the kind of implementing agencies.

6) The low-income population is substantially represented (more than 28% of the urban population) in Kerala in most projects. It is important to consider the poverty issue through appropriate project design and the possible inclusion of a specific project component. A good example is the Grant Fund, which finances the sub-projects targeted to the urban poor (Tamil Nadu Urban Development Project I - Implementation Completion Report, The World Bank).

7) Needs-based and resource-based planning: Where it has been successfully implemented, the Municipal Action Plan for Poverty Reduction (MAPP) process has facilitated a significant attitudinal change away from the normal process of simply allocating resources equally to each Ward or else responding to politically-driven demands. A demand-based approach requires that implementing agencies find out what potential users want and what resources they are willing to apply to finance and manage installed systems. There is a need to design systems, financing mechanisms, and support structures that are best suited to their needs.

8) Linkage of reform with investment - the "challenge" approach: For Example - the DFID Supported Andhra Pradesh Urban Services for the Poor (APUSP) project was designed to promote a challenge fund approach, linking reforms at the municipal level with funds for



poverty-focused investment in Class I towns of the State. An early decision to undertake reforms and investment in all 32 Class I towns, through a Basic Municipal Action Plan for Poverty Reduction, (MAPP), thwarted this challenge-approach early in the project implementation. The large-scale effort that was needed to facilitate the MAPP process in all 32 towns, combined with some delays in decision-making and procurement at the State level, resulted in the reform component of the project being behind schedule.

9) Participatory processes to map levels of poverty and service-deficit in slums, involving both councilors and poor people, has developed into a simple, transparent and easily accepted matrix upon which to prioritize investments. The simple Strengths - Weaknesses - Opportunities – Threats (SWOT) approach to prioritize reforms has also been well accepted by many ULBs. The need to use a similar approach to converge and allocate all available resources (own resources, State Government and Central Government plan schemes/funds, MGP, IKM, other donor resources etc.) could be integrated into the project development and design.

10) To ensure sustainability and compatibility with future development, sub-projects identified for the KSUD Project need to be formulated within the framework of broad master planning for each city. These master plans are not however available, and it is then necessary to at least identify and document the development objectives and planning concepts for each city, so that these concepts can be considered as part of infrastructure design.

11) Citywide investments: DFID implemented APUSP project has shown that a number of prioritized in-slum investments (particularly water and drainage) cannot be undertaken without citywide infrastructure improvements. This was a risk, which was identified during project design. It requires a combination of more far-reaching reforms, both at municipal and State level, to facilitate more effective decentralization, enhancing the abilities of ULBs to raise and allocate their own revenues to enhance the financial viability of the towns, combined with facilitated access to other sources of funds. This conclusion has implications for the ADB/WB project design while also clarifying the potential poverty linkages of citywide investments.

12) Capacity constraints have been identified at a number of levels.

a) The project implementation units (PIU) were normally not fully staffed by ULB/Government.

b) Government (or consultant) resources are not available, in the requisite scale and quality, to either train local government staff and/or directly facilitate activities at the local level (eg. consultative planning, reform initiatives or technical support).

c) Delays at various levels of government, lack of clarity in decision making, lack of timely and adequate release of counterpart funds and sometimes delays in selection of consultants (to provide required technical assistance) have been other serious factors for inadequate project progress.

d) At both the Government level and in the ULBs there are neither sufficient/trained community development staff nor any focused cell to promote and monitor the specific poverty and/or gender dimensions of investments. Adequate provision should be provided during implementation assistance.



e) Town-level data: Problems of inaccurate, out-dated or incomplete data on various facets including accurate and updated geographical maps, poverty and service provision, was noted as a serious constraint.

f) Information: A need for more effective local communication strategies to broaden town-level ownership of the reform and resourced-based planning processes was noted. A comprehensive MIS and monitoring and evaluation system at State level is needed.

g) From funding agency point of view, the TA Consultant should be asked (as part of the TOR) to provide adequate data/feedback/experiences to implementation support Consultants hired under loan projects. Most often, similar data/maps/information are re-collected by the consultants for the loan project.

4.3.3 Integration Strategy based on Lessons Learned

A strategy for the Project Preparation based on Lessons Learned is summarized in Table 4-1 below.

Table 4-1: Integration Strategy based on Lessons Learned

No: Lesson Learned Strategy to Apply

1 Sustainability depends on involvement and ownership of projects by local bodies.

Identification of projects by and with stakeholders Continuous Stakeholder involvement throughout the PPTA stage Adjustability and flexibility in approach

2 Lack of Updated City development plans

ULBs would be requested to produce strategy papers indicating their vision and mission.

3 Proposed Investment plans to be prepared with the perspective of overall and integrated city Development & Investment Plan & consistent with City priorities.

Close interaction with People’s representatives, and identification and prioritization strategy for the projects would be evolved in a manner ensuring that the Investment plans are consistent with overall City Development and City Priorities. Evaluation criteria would integrate overall City development and City Priorities.

4 Integration of poverty alleviation components with on-going Govt programs to improve sustainability and scaling up.

Efforts would be made to have an institutional mechanism thus integrating programs of similar nature (Kudumbashree, IKM, MGP, Central schemes etc.), as well as other state initiatives etc. with a view to have improved coordination and efficiency of resources. Possibly, all these initiatives/ programs could be converged at ULB level.

5 Policy matters such as cost recovery & legislative amendments must be agreed with State Govt’s upfront.

Project has assessed legal framework on cost recovery. In view of this, ULBs agreement and implementation would be pursued. However, considering the time taken in policy/legal changes, a mutually acceptable cost recovery mechanism in short run may be agreed and pursued for the projects, whereas the ultimate policy/legal changes would be carried out in medium/long run.

6 ULB’s needs, capacities (managerial, financial & technical), resources and willingness to improve capacity and reform should be considered in preparatory stage.

Capacity (both financial and competency wise) as well as an assessment of “reform culture” of ULBs should be carried out. This would include preliminary analysis of exiting staff, role and responsibility distribution, staffing and recruitment policy etc. Assessment of capacity building needs would be done and basic programs would be suggested for capacity improvement Specific suggestions on recruitment policy and organizational restructuring would be made to improve ULB’s capacity.

7 Generic problems in land acquisition

Projects will be prioritized in a manner considering gravity of land acquisition or shall minimize the land acquisition.

8 Lack of will to raise tariffs. The Second Finance commission and state Planning Board are putting pressure on ULBs to have remunerative tariff. Urban policy of GoK has also recommended setting up a regulatory body.



No: Lesson Learned Strategy to Apply

9 Lack of data//information/ maps about Urban Areas

Project should have sufficient provisions to initiate steps to collect data/maps/ information during the very early part of the consultancy assignment. Following the PPTA, if required the EA should immediately proceed with updating topographic maps required for detailed designs.

10 Implementation Appropriate implementation mechanism (including human resources, finances, immediate capacity building needs etc.) based on specific projects should be identified and implemented.

11 Economic marginalization of fishing communities is a common problem in coastal cities

Focus on infrastructure improvements and wider economic improvements available through the project.

12 Environmental improvement of canals and waterways

Focus on improved sanitation and reduction of un-treated discharges into waterways.



SECTION B: PROJECT CITIES – PROBLEMS AND OPPORTUNITIES

5. CITY SOCIO-ECONOMIC CONTEXT

5.1 City Role and Function The project cities, Thiruvananthapuram, Kollam, Kozhikode, Kochi and Thrissur are important cities in the State of Kerala, exhibiting varied historical origins, size, role and function within the State. The cities of Kollam, Kozhikode and Thrissur mark their origin as major costal towns, whereas the capital city of Thiruvananthapuram has been a part of the princely states. Popularly known as the port city of Kerala, Kochi is the second largest city in the State with a population of 596,473 (Census 2001) following Thiruvananthapuram, which houses 744,739 persons (Census 2001). All five cities are Municipal Corporations. The population of Thrissur and Kollam is less than 400,000 persons.

Thiruvananthapuram, formerly known as Trivandrum is the largest Municipal Corporation in Kerala and is the State capital. The name ‘Thiruvananthapuram’ means the abode of the sacred snake-god Ananthan, on whom Vishnu, the God of Preservation, is believed to be reclining. The old name Trivandrum was anglicized form the word Thiruvananthapuram. The city is located at the south-western tip of India and is bounded by the Arabian Sea on the West and Thirunelveli and Kanyakumari districts of Tamil Nadu on the East and South, respectively. The wooded highlands on the Western Ghats in the eastern and north eastern borders provide some of the most enchanting spots - long shorelines, with internationally renowned beaches, historic monuments, backwater stretches and rich cultural heritage. Tracing its history, Thiruvananthapuram has been the capital of the princely state of Travancore from 1745 to 1949 and in 1949 it became the capital of Thiru-Kochi by integrating Travancore, its northern neighbor. However, when the new state of Kerala was formed on November 1, 1956, Thiruvananthapuram was chosen as the capital. Many important cultural institutions, palaces, art galleries, beaches and temples are located here. The city is well connected by air, road and rail network. The International airport is 6 kms away from the city and there are direct trains to all the main towns in Kerala as well as the major cities in India. The city also has an excellent road network.

Kollam, bounded by Thiruvananthapuram district on its south, Pathanamthitta and Alappuzha on the north and state of Tamil Nadu and Arabian Sea on its east and west, respectively, is the oldest city on the Malabar Coast. Formerly known as Quilon, Kollam is an important market for coconut products, spices, tea, coffee, and rice. It is located 71 kms north of Thiruvananthapuram. Historically this city was noted by a Nestorian patriarch as the southernmost point of Christian influence in India. The Dutch occupied Kollam in 1662, when the Portuguese had already established their factory and influence there. Eventually, the British East India Company took control of Kollam. This historic place is covered by the renowned Asthamudi Lake, making it the gateway to magnificent backwaters of Kerala. The city has the nearest airport at Thiruvananthapuram and is an important railhead of the southern railways. It has an excellent road network, which has links to all major towns and cities in Kerala as well as to other Indian states.

Kochi or Cochin is the second largest Municipal Corporation in Kerala and is also one of the largest ports in India. Famed for its natural harbor, Kochi has earned the sobriquet "Queen of the Arabian Sea". The city lies between Tripunithura, the seat of the erstwhile royalty in southeast



Population Growth in Project Cities

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and the Eloor-Kalamassery industrial belt in north and the Arabian Sea in the west. An all weather harbor, Kochi is an important centre for commerce and industry. It has a maritime history that began in the remote past and has a Portuguese, Dutch and English influence. Right from the early years, Kochi has had cultural and trade relations with the outside world. An interesting point to note is that Kochi is probably the only city in India formed from parts of three different states, viz. the two princely states of Travancore and Kochi, and the British Malabar. Kochi consists of mainland Ernakulam, Willington Island, Fort Kochi - Mattancherry peninsula, Bolgatty and Gundu and Vypeen Island. In 1976, the village panchayats of Edappally, Vennala, Vyttila, and Palluruthy were merged with the municipalities of Ernakulam and Mattancherry to form the Corporation of Kochi. Tea, cashew kernels, rubber, spices, coir products, betel nuts, coconuts and copra, lemon grass oil, coffee, fish and prawns are the major exports of this city.

Thrissur, formerly known as Trichur, is the market for betel and cashew nuts and has industries in saw milling, rice and oilseed milling and cotton production. Thrissur, a district administrative centre, is one of the oldest towns on the Malabar Coast. The city is known for its ancient temples and churches. Thrissur, with its rich history, cultural heritage and archeological wealth is called the cultural capital of Kerala. From ancient times, it has played a significant role in the political history of South India. Many rulers and dynasties beginning with the Zamorins of Kozhikode, Tipu Sultan of Mysore and Europeans including the Dutch and the British have had a hand in moulding the destiny of this place. Raja Rama Varma popularly known as Sakthan Thampuran was the architect of the present Thrissur town. The international airport at Nedumbassery is 58 kms from the town. Thrissur is an important railhead of the southern railways and is well connected with almost all the major towns and cities of India.

Kozhikode, also known as Calicut, is one of the busiest coastal cities in India. Located in the northern part of the state and 225 km from Kochi, it holds an important position in the legend and history of Kerala. Once the capital of the powerful Zamorins, Kozhikode attained a position of pre-eminence in the trade of pepper and other spices, which made it India's emporium of international trade. As Kozhikode offered full freedom sans security, the Arab and the Chinese merchants preferred it to all other ports. The renowned explorer Vasco Da Gama also landed at Kappad, 16 km north of Kozhikode as the leader of a trade mission from Portugal. Kozhikode is known for its lush green forests, rivers, wildlife, hills, a unique culture and a warm friendly ambience. The nearest airport to Kozhikode is Karipur (23 km) and has rail and road links to all the major cities and tourist centres in India.

5.2 Population and Urbanization The population of the five cities according to the Census 2001 is 2,456,650 and represents about a third of the State’s urban population. The decadal urban population growth rate for the State and the country was 7.6% and 31.13%, respectively, in comparison to the rate of growth for the 5 cities, which has shown a remarkable increase of 107.15% during the past decade. However, there has been a



considerable variation between the growth rate of the towns. Kollam and Thrissur have shown a phenomenal growth of 158% and 325% respectively in the last decade, whereas Kozhikode has grown at just 3.98%. Thrissur and Kollam were Municipalities in 1991 census and due to the jurisdictional changes in the towns they have been classified as Municipal Corporations in 2001. The growth in population is also attributed to the merger of panchayats with the erstwhile municipalities to form municipal corporations.

All the project cities except Kozhikode and Kochi exhibit a lower growth rate (1991-2001) than the state’s urban population growth rate.

For the purpose of project preparation and in the absence of any formal population projections from municipalities or districts, the consultants have provided estimates of population growth to the design year 2021. A pragmatic approach was applied to the projections, taking into account local circumstances and appreciation of the underlying factors behind changes in growth rates over the last few decades. These projections are for design and project preparatory purposes and are not intended to reflect population forecasts based on in depth demographic analysis

Table 5-1 indicates the levels of population at the end of the project and at 2021. They indicate a total population for the 5 cities at 3,602,825 at the end of the project (2011) and 6,217,904 at the end of project design life (2021).

Table 5-1: Population Projections in Five Cities

Population City

2001 2011 2021 2031

Thiruvananthapuram 744,740 788,000 833,000 880,000

Kollam 361,440 378,000 391,000 400,000

Kochi 596,470 630,000 660,000 683,000

Thrissur 317,470 342,000 368,000 395,000

Kozhikode 436,530 454,000 472,000 490,000

5.3 Socio-Economic Baseline Baseline data for the socio-economic profile of the five cities was obtained using primary data collection. Primary data collection included an extensive sample household survey in each city. Details of the Socio-Economic Survey are provided in Volume 3 - Social and Poverty Analysis. Survey results indicate the following satisfaction levels of poor households in the five cities: 73% satisfaction with public transport, 60% satisfaction with water, 55% satisfaction with sanitation, 54% satisfaction with road infrastructure, 46% satisfaction with solid waste management systems, and 16% satisfaction with drainage facilities. The following sections provide results of the survey conducted.

5.3.1 Access to Services

Water Supply. The following were citizen’s perceptions of the water supply services in the five project cities:



The survey reveals that only 18% of the poor in five cities have their own water facility compared to 82% of the non-poor category. 28% of the poor in five cities depend on a neighborhood facility for water whereas only 7% of the non-poor depend on such a facility. 54% of the poor and 11% of the non-poor in five cities depend on a public water facility. 94% of the poor in Kochi, 59% of the poor in Thiruvananthapuram and 55% of the poor in Kollam depend on a public water facility; 85% of the poor in Thrissur depend on a neighborhood facility for water.

In Thiruvananthapuram, about 50% of households surveyed have household water connections. But in Kollam only 12% of the people have household water connections.

All households across the five cities indicated water as a high priority; however, there are differences in priority between the poor and among some categories in certain cities. In Thrissur the poor rank water as second priority and the non-poor rank water as fourth priority. The poor and non-poor category of Kozhikode and Kochi ranked water as their first priority. The poor categories of Thiruvananthapuram and Kollam also ranked water as their first priority.

Willingness to pay (WTP) for improved water supply is quite low. The average percent of households willing to pay among the different categories of people in five cities are as follows: Across the five cities, 22% MV households, 31% JV households, 31% UP households, 31% LIG households, 38% MIG households and 49% HIG households exhibited a WTP for improved services.

Sanitation. The following were citizen’s perceptions on the sanitation services in the five cities:

An average of 79% of households across the five cities have access to own toilets whereas 8% use public toilets. 6% of the people in the five cities share toilets with their neighbors and 7% resort to open defecation.

Open defecation is reported mainly from the Most Vulnerable households and MV households in this category resorting to open defecation comprise 27% in Thiruvananthapuram, 10% in Kollam, 5% in Kochi, 59% in Thrissur and 2% in Kozhikode.

Sewerage and sanitation is ranked as the third most desired service in all five cities; however, the poor in Thrissur and the non-poor in Thiruvananthapuram ranked it as second in their priorities.

Willingness to pay for improved services exhibited the following pattern, 26% of MV households, 27% of Just Vulnerable households, 27% of the UP households, 25% of LIG households, 40% of MIG households and 51% of HIG households.

Solid Waste Disposal. The following were citizen’s perceptions on the solid waste management services in the five cities:

9% of households across all cities dispose off solid waste by throwing it on the streets and in open areas. On an average, 43% of households across all cities burn the waste. It is encouraging to note that 19% of households in all categories across the cities practice disposing within the premises itself by way of composting. Approximately 13% of households dispose waste in nearby dustbins. Kudumbashree (the State Poverty Eradication Mission) collects waste from 9% of the cities’ households and a few NGOs collect waste from 10% of the cities’ households. The remaining households dispose waste into identified places in the locality.



If primary collection is strengthened, there could be a shift in the present solid waste disposal practices to better methods. During the interaction of the field staff with households, the Kudumbashree system and other household waste collection systems were highly appreciated.

On an average, 29% of households across cities were willing to pay for improved solid waste collection services. 22% poor households and 36% non-poor households, across all cities, were willing to pay for improved solid waste collection services.

Respondents ranked solid waste disposal as their fourth priority in all cities except Thrissur, where the respondents ranked it as their third priority; the non-poor categories of Thiruvananthapuram also ranked solid waste as their third priority.

Drainage. Only 24% of households were satisfied with the current drainage facility. Drainage, therefore, was the second priority for four cities and respondents in Thrissur ranked it as their first priority.

Roads and Public Transport. 47% of respondents in all categories across the five cities were dissatisfied with the condition and road network. The survey reveals that 73% of the poor and 71% of non poor across the five cities are satisfied with the public transport system. 14% of poor category respondents and 23% of non-poor category respondents, across all cities, are willing to pay for a public transport system.

Summary of City Service Provision.

An analysis of the survey results provides an indication of community priorities and indicates that across all categories in five cities, the highest level of satisfaction is for transport followed by water, sewerage/sanitation, solid waste management, road and drainage. This analysis is also reflected in the willingness to pay for improved services; depending existing access or reliability.

These results are summarized in the following Table 5-2 to 5-4.

Table 5-2: Infrastructure Priorities of Households

Priorities

City

Categories Water Drainage Sewerage SWD Road

Poor 1 2 3 4 5 Trivandrum

Non poor 4 1 2 3 5 Poor 1 2 3 4 5

Kollam Non poor 3 1 3 2 4 Poor 1 2 3 4 5

Kochi Non poor 1 2 3 4 5 Poor 4 1 2 3 5

Thrissur Non poor 2 1 3 3 4 Poor 1 2 3 4 4

Kozhikode Non poor 1 2 3 4 4



Table 5-3: Satisfaction Level of City Services

City Categories Water Supply System

Sanitation Drainage System

SWM Road Public Transport

System

Poor 62.33% 51.70% 37.23% 59.50% 51.50% 75.07% Trivandrum

Non poor 85.60% 75.10% 47.20% 78.43% 46.67% 80.60%

Poor 50.70% 44.10% 23.03% 49.87% 46.10% 65.87% Kollam

Non poor 69.10% 70.27% 43.73% 59.57% 47.83% 75.47%

Poor 65.00% 65.00% 0.67% 67.67% 71.33% 78.00% Kochi

Non poor 69.00% 68.67% 32.00% 72.33% 53.33% 64.00%

Poor 37.83% 30.93% 0.73% 14.73% 22.27% 76.73% Thrissur

Non poor 61.47% 75.03% 3.63% 40.00% 45.57% 63.10%

Poor 84.07% 84.07% 20.70% 40.19% 78.62% 67.79% Kozhikode

Non poor 87.10% 87.10% 21.01% 55.31% 71.87% 71.83%

Table 5-4: Willingness to Pay for Services

City Categories Water Supply System

Sanitation Drainage System

SWM Road Public Transport System

Poor 34.40% 36.03% - 28.57% - 25.13% Trivandrum

Non poor 35.37% 52.70% - 48.43% - 30.77%

Poor 53.50% 41.17% - 42.43% - 25.90% Kollam

Non poor 55.10% 45.13% - 48.97% - 33.80%

Poor 30.40% 30.40% - 20.87% - 9.83% Kochi

Non poor 50.67% 51.10% - 37.60% -- 27.97%

Poor 15.67% 19.07% - 13.77% - 3.80% Thrissur

Non poor 44.37% 40.30% - 29.63% - 17.80%

Poor 7.73% 8.95% - 6.05% - 3.90% Kozhikode

Non poor 12.92% 6.01% - 13.57% - 6.70%

5.4 Poverty and Vulnerability This section highlights the crucial differences in accessing both physical infrastructure and social development services by the poor. While GoI adopts economic and non-economic criteria to identify the poor for poverty reduction programs, KSUDP study areas cover poor and vulnerable settlements identified by Kudumbashree for poverty reduction programs in the five corporations. The poor/Below Poverty Line population was classified as Most Vulnerable, Just Vulnerable and Upper Crust of the Poor based on the revised risk parameters (urban areas).

5.4.1 Household Profile

Household Size. The average household size of respondents is 4.4 in Thiruvananthapuram, 4.8 in Kollam, 4.48 in Kochi, 4.27 in Thrissur and 5.23 in Kozhikode.



Household Income. Across the five cities, the household’s average monthly income of the MV category is Rs.1,931, of the JV category is Rs.2,187, and the UP category is Rs.3,114. LIG households earn an average monthly income of Rs.3,610, while MIG and HIG households earn a monthly income of Rs.7,302 and Rs.29,847, respectively. The highest average monthly income is the highest in Thiruvananthapuram at Rs.10,155 and the lowest in Kochi at Rs.6,575. The average income across the five cities is Rs.7,999. The poor in Kozhikode earn the highest average monthly income of Rs.2,518 and the poor in Thrissur earn the lowest average monthly income of Rs.2,341.

Household Expenditure. Households exhibit the following pattern of average monthly expenditure, Rs.1,888 by MV households, Rs.2,322 by JV households, Rs.2,938 by UP households, Rs.3,030 by LIG households, Rs.5,035 by MIG households and Rs.10,915 by HIG households. The poor in Thiruvananthapuram incur the highest monthly expenditure of Rs.2,652 and the poor in Kozhikode incur the lowest monthly expenditure of Rs.2,028. Similarly, the non-poor in Thrissur incur the highest monthly expenditure of Rs.7,152 and the non-poor in Kozhikode incur the lowest monthly expenditure of Rs.5,116.

Land and Housing. Among the poor, only 11% of the total respondents in five cities live in pucca houses, 44% in semi pucca houses and 45% live in kutcha houses. The highest percentage of families living in kutcha houses is in Kozhikode (75% of the city’s poor) and the lowest percentage of families living in kutcha houses is reported in Kochi (24% of the city’s poor). In the non-poor categories, 67% live in pucca houses, 27% live in semi-pucca houses and 6% live in kutcha houses.

Social Capital. Resident associations are wide spread in all cities and periodically address problems in their areas with various government agencies in an attempt to provide a solution. Federations of resident welfare associations are invited for crucial discussion by corporations and other Government agencies. Kerala is vibrant in its political activities, this keeps both the ruling and opposition parties abreast with the citizens’ needs. Political institutions are strong in all five cities; both the print and electronic media are alert to reflect the grievances of the people and the poor in particular.

NGO’s and Faith Based Organizations. NGO’s and Faith Based Organizations have supported lot of social, economic and cultural activities in the State and it is visible in the Community Development programs for the poor, health and education, women and children’s programs of these organizations.

Community Based Organizations. Women groups especially among the poor communities who were promoted by NGOs and CBOs have been streamlined into neighborhood groups and self-help groups by Kudumbashree/State Poverty Eradication Mission (SPEM). These groups have already initiated strong socio-economic programs in the communities, which are organized and structured and provide potential capital for scaling-up productive activities in these cities. In addition, trade unions, both Governmental and non-governmental, are engaged in the welfare of the unorganized sector activities. Overall, the social capital of the five cities is high and the potential needs to be tapped. It is necessary to design streams of programs to harness social capital for sustainable economic output through systematic capacity building and technical assistance to programs.

Health. The survey provided ample insights into the health status with specific reference to health in relation to health services. Based on the baseline socio-economic survey, it was evident that 3.03% of



the poor categories in all five cities are affected with diarrhoea, 1.58% of the poor are affected with typhoid and jaundice. Occurrence of water borne diseases is very low in non-poor categories.

Education. The education scenario across all cities is reasonably good; all categories of respondents have a minimum of secondary level education.

5.4.2 Employment

The poor in all cities mainly depend on casual and daily wage occupation. Such vocations do not guarantee regular employment or steady income and the households are in serious threat of bankruptcy/vulnerability if a slight hardship faces the breadwinner.

Table 5-5: Households Dependent on Daily Wage Occupation

City Poor % Non Poor%

Thiruvananthapuram 69 20 Kollam 67 18 Kochi 68 24 Thrissur 67 20 Kozhikode 48 13 Total 64 19

The poor heavily depend on daily wage occupation for their survival. 64% of the poor and 19% of the non-poor in the five cities depend on daily wage occupation. The highest daily wage earners among the poor in 5 cities are 69%from Thiruvananthapuram followed by Kochi, Thrissur, Kollam and Kozhikode. The highest daily wage earners among non-poor are in Kochi (24% of total non-poor), followed by Thiruvananthapuram (20% of total non-poor) and Thrissur (20% of total non-poor). The highest daily wage earners among the MV category are in Thrissur (82% of total MV), followed by Thiruvananthapuram (75% of total MV) and Kollam (72% of total MV).

5.4.3 Poverty Eradication Programs

Kerala has provided many basic minimum services for its population. It has established Welfare Boards for many unorganized workers, social security and special schemes for the poor and vulnerable.

Kudumbashree, a comprehensive poverty reduction program was launched in the State during 1998 –99. The State Poverty Eradication Mission, which is the nodal agency for the poverty eradication implements the Kudumbashree programs. In Kerala, Kudumbashree takes up the role of the State Urban Development Agency (SUDA) for rehabilitating the destitute. Kudumbashree formulated projects like Ashraya and with the assistance of the Central Government succeeded in creating a steady network of 13,841 Area Development Societies federated under 1,049 Community Development Societies in the State. This network has 116,000 neighborhood groups.



5.4.4 Summary Poverty Profile

The summary results of the sample household survey are detailed in the table below.

Table 5-6: Summary Results of the sample Household Survey

TVM KLM KCH TCR KOZ Total

Average household size 4.4 4.8 4.48 4.27 5.23 4.64 Average household income 10,155 9,635 6,575 6,873 6,756 7,999 Diarrhoea last year (%H.H) 2.05 3.08 1.35 0.37 0.06 1.38 No legal Tenure (%H.H) 15.75% 22.22 26.67 21.42 19.38 17.97 No pipe water (%H.H) 49.77 88.25 57.07 73.27 69.09 67.49 No private toilet (%H.H) 14.22 13.03 24.52 33.35 18.3 20.68 Open defecation(%H.H) 6.77 5.17 1.63 13.33 2.72 5.92 Flooding problem(%H.H) 16.2 21.3 23.9 12.8 39 22.64 Daily wage earners (poor) 69 67 68 67 48 53.16

5.5 Gender The demographic data shows that there are an equal proportion of women to men living in urban Kerala with 1,058 females to 1,000 males. In the rural area, the sex ratio is similar with 1,059 females per 1,000 males. Except Kozhikode (1,061 females) and Thrissur (1,058 females), the sex ratio in other cities is below the State average, i.e., Thiruvananthapuram (1,035), Kochi (1,020) and Kollam (1,034).

Available socio-economic indicators for India indicate an average life expectancy of 74 years in Kerala compared to the national average of 66 years. The Kerala life expectancy was 69.1 years for males and 76.1 years for females in 1998; (28-pp, Kerala Economic Review-2003) showing that Kerala women have a longer life span in comparison to Kerala men.

In terms of education, literacy rates have improved significantly over the last two decades. Kerala stands on the first position among the states of India, it also witnesses a high female literacy rate. The urban literacy rate of Kerala was 93.4% in 2001, wherein male and female literacy accounts for 96% and 91%, respectively.

Health indicators of India also show that women in urban Kerala fare better with comparatively high fertility and high infant mortality. The total Fertility Rate (TFR) of 2.1 is considered as the replacement level of fertility, which needs to be achieved in all the states of India for population stabilization. Kerala ranked first in TFR with a figure of 1.8 in 1998.

Infant Mortality Rate (IMR), measured in terms of death per thousand of children below 6 years is considered a sensitive indicator of not only the health status of the population but also the level of human development in context of education, economic conditions, nutrition etc. There has been a considerable decline in the IMR of all the states of India, wherein Kerala ranks first for having the lowest IMR in 2001 of 16.



Kerala, also, is the only State with the lowest IMR for female population (16) and for male population (17), which is very close to the IMR for any developed country. This could be one of the reasons for highest sex ratio in the State, besides selective male migration and emigration. This further speaks of successful MCH and other health care programs in the State and above all such a high literacy-all channeling to favorable social environment and attitudes towards the girl child.

Kerala presents a positive picture for women’s development. Women awareness, women movement at grass root level, grater mobility, education and women and child health interventions are some of the positive factors that have led to overall development of women in Kerala.

The participation of Kerala urban women in the work force is 13.5%, little better in comparison to the urban women at national level of 11.7%, but far behind the national average of 25.7% (Census 2001).

In the participatory exercises undertaken during the PPTA baseline survey within selected pockets of the five project cities, women showed similar preferences to men for service improvement priority, although overall, women placed a slightly higher priority to water supply and sanitation.

5.6 Economic Development and Prospects for Growth Economic data are not available at the city level. The city growth projections thus assume that the cities retain their share of the District Net State Domestic Product (NSDP). This is considered reasonable given that the tertiary sector activities, which have a projected growth rate of 8.2%, are concentrated in the cities and that GoK is giving high priority to tourism and in identifying new industrial opportunities. The districts that contain the five project cities represent 46% of the State’s population and contribute 51% of NSDP. Reflecting the presence of the five largest cities, these districts have above the State average secondary and tertiary sector shares of output - 27% compared to 24% for secondary sector and 59% compared to 58% for tertiary sector. They also all have above the State average per capita NSDP, except for Kollam District, which is marginally below the State average reflecting its significantly higher share of primary sector output than the other four districts.

The two most important sub-sectors in the five project cities are trade and commerce, including hotels and restaurants, followed by construction. These two sub-sectors are followed by, in order of contribution to NSDP, community services, manufacturing, road transport, public administration, business services, banking and insurance and electricity supply.

Prospects for growth in the five project cities are good. As discussed in Section 3.1.6, the overall economic growth rate expected for Kerala from the Tenth FYP (2002-07) is 6.5% per year, with expected annual growth rates of 5.9% for secondary sector and 8.2% for tertiary sector. In addition to the high priority given to tourism, the State Government is taking serious efforts to identify new industrial opportunities with the objective of creating more income and employment. Annual economic growth rates in the range of 6.5-7.0% could be expected for the five project cities, based on these considerations.



6. URBAN MANAGEMENT

6.1 Urban Planning and Land Use Management

6.1.1 Plan Preparation and Implementation

The Municipal Corporations of each project city prepare annual and financial plans to undertake municipal administration and urban management in the cities. These plans include a list of projects, estimated costs and budgetary requirements, but do not address land use and growth management. The 12th Schedule of the 74th Constitutional Amendment Act (CAA) defined new tasks as the functional domain of Urban Local Bodies (ULBs). These tasks included: (i) urban planning including town planning; (ii) regulation of land use and building construction; (iii) planning for economic and social development; (iv) planning for roads and bridges; (v) water supply for domestic, industrial and commercial purposes; (vi) public health, sanitation conservancy and solid waste management; (vii) slum improvement and upgrading; and (viii) urban poverty alleviation.

The state-level Town and Country Planning Department (TCPD) continue to prepare development plans and detailed town planning schemes for the project cities. The Development Authority (DA) in each project city coordinates development activities of various agencies and undertakes projects envisaged in the detailed town planning schemes. The MC’s Town Planning Department is responsible for checking and approving building plans and designs under the building laws to ensure disciplined building activity with adequate provisions for setbacks, light, ventilation, hygienic conditions, etc. and to conform with the provisions of the Development Plan and Zoning Regulations. The provisions under the KM Act, 1994, provide guidelines for the process of building application submission, procedures for obtaining clearances at various stages of construction and for obtaining occupancy certificates.

Thiruvananthapuram. The first Master Plan for Thiruvananthapuram city was prepared in 1966 with a plan period of 20 years (catering to the city’s requirement and population growth in 1986), in accordance with the then prevailing Town Planning Act; GoK approved the Master Plan in 1971. Rapid urbanization trends in city’s periphery called for a larger planning area to be considered and a revised Development Plan was prepared. This revised Development Plan covers an area of 148 sq. km with a projected population of 0.93 million in 2001. According to Development Plan (2001) there were 12 road widening schemes, three schemes for improvement and shifting of the Kerala State Road Transport Corporation (KSRTC) bus terminals, redevelopment of central market areas (at Palayam and Chalai) and its surrounding areas. Of these, two road widening schemes and development of area around one market (Palayam) are complete. Other schemes are at different stages of planning. Of the 100 Ha allocated for industrial development, only a few industries have come up and cover an area of 33 Ha. Currently, the TCPD and the Thiruvananthapuram Development Authority (TRIDA) are preparing a new Development Plan for 2025.

Kollam. The first Master Plan for Kollam was sanctioned by the GoK vide G.O (MS) No. 219/ 86/ LAD dated 3.11.86 with a plan period of 20 years. The Plan was designed for a population of 500,000 in 2001. Subsequently, there were substantial changes in the physical form and structure of the town. To take care of these substantial changes, Kollam Development Authority, on 15.02.93, decided to revise the 1986 Development Plan. The District Planning Unit of the TCPD,



Kollam undertook the revision of the 1986 Development Plan for the year 2011. The main proposals according to the Development Plan (1986) were underground sewerage schemes, rehabilitation of slum dwellers, new link road formation from KSRTC bus stand to Asramam, widening of the inner ring road and beach area development. Of the schemes planned, Mahatma Gandhi Park was developed under the tourism sector and 500 houses were constructed between 1980-2000 under the rehabilitation scheme. Other schemes are at different stages of planning.

Kochi. The TCPD brought out an Interim Development Plan for Kochi region in 1966, which planned for the city, six municipal towns and 51 panchayats in the region. The Interim Development Plan (1966) planned the development of townships at Kalamassery, Trikkakara, Ambalamugal and Eloor. The Kochi Development Plan was formulated in 1976, which included development of Kochi as a primary zone along with the surrounding five Municipalities and 33 Panchayats; the Greater Cochin Development Authority (GCDA) prepared this plan. The Development Plan (1976) aimed at rational distribution of population, coordinated transport network, and preparation of a broad land use plan. The Development Plan (1976) comprised 10 housing schemes, four road widening schemes, one ROB and construction of four bridges. Of these, eight housing schemes, new Mattanchery Bridge, Palluruthy-Manassery Road, new bridge at Chilavannur and ROB at Kathrikadavu are complete. Other schemes are at different stages of planning. At present GCDA and the TCPD are preparing a Perspective Plan for Kochi Region for the year 2025.

Thrissur. GoK sanctioned the first Master Plan for Thrissur city on 03.10.1972 with a plan period of 20 years. It was expected that the town would accommodate a population of 175,000 in 1991.The sanctioned Development Plan (1972) for Thrissur envisaged a growth pattern integrating rural areas and the urban centre of Thrissur so as to provide the rural areas with employment opportunities and social amenities. According to the Development Plan (1972) there were four-road widening schemes, one transport infrastructure development project, relocation of a retail vegetable market, and rehabilitation of slums near the railway line. Of these, shifting of the central market is complete and few slum households have been shifted from the railway line to Ramavarapuram. Road widening proposals are at different stages of planning. Currently, the TCPD and Thrissur Development Authority are preparing a new Development Plan for 2011.

Kozhikode. The first Master Plan for Kozhikode was prepared in the in 1957, vide G.O. Rt. 1474/ dated 06.04.1957. The draft Master Plan was forwarded to the Chief Town Planner to the Government in 1962. Meanwhile, the State Government in G.O. (MS) 644/62/DD, dated 7-8-1962 sanctioned the preparation of a Regional Plan for Calicut (Kozhikode) and surrounding 43 panchayats. This led to the recasting of the draft Master Plan for the city by the erstwhile Department of Town Planning and Architecture. Detailed surveys and studies for the extended areas of the Corporation commenced in 1964 and the Interim Development Plan for Calicut urban area was finalized for the period 1967-1981. However, rapid urbanization trends in the city periphery have necessitated a larger planning area for the Development Plan. The Development Plan (1981-2001) for Kozhikode is basically an extension of the Interim Development Plan and covered an area of 111.9 sq. km with a projected population of 800,000. Proposals in the Development Plan (2001) comprise 11-road widening schemes, one infrastructure development project, slum improvement schemes and dredging of the Conolly Canal. Of these, widening of Mavoor road and intercity bus terminal at Mavoor road are complete. Under slum improvement



NSDP program, 1,700 houses (1983-1993) were constructed through Kudumbashree. Other projects are at different stages of planning. Currently, the Kozhikode Development Authority (KDA), Kozhikode Municipal Corporation and the TCPD are involved in preparing a Perspective Plan for Kozhikode Region for the year 2021.

In most project cities, the progress of implementation relating to new development schemes (housing and commercial) were undertaken as planned, but proposals relating to widening of existing roads, redevelopment of congested areas, preservation/conservation of water bodies/tanks or sensitive areas, etc. were not adequately addressed. Reasons attributed to this approach comprise:

Inadequacy or non-availability of funds;

Lack of coordination amongst agencies responsible for plan implementation;

Non-availability of up-dated base maps and existing land use maps; and

Delays in land acquisition.

6.1.2 Land Use Management Thiruvananthapuram. The city exhibits a mixed land use pattern. The pattern indicates that 38.4%

of the city land is used for residential purposes. Majority of the residential use is in the form of houses in individual plots scattered all over the city. Commercial area utilisation is comparatively low and scattered in small establishments. Concentrations of development are found in the Central Business District (CBD) area; paddy fields are being used for construction purposes. The industrial sector consists mainly of service industries and small-scale industries. Medium scale industries are concentrated in the northwest part of the city. In short it can be concluded that that the overall land use is of mixed nature.

Kollam. The existing land use indicates that 83.32% of the city land is for residential use, which includes not only the area occupied by the houses and their immediate outdoor living spaces but also the coconut garden around the houses as well. As a result a major portion of the urban land is classified under residential use. The average population density is 63 persons per hectare. Commercial area is comparatively low and scattered across the city through small establishment. Large concentrations of development are found near the Civil Station and Railway Station. Even though Kollam is the commercial and marine industrial hub, only 3.09% of land is under industrial use.

Kochi. The characteristic feature of land use in the central city is predominance of water and a substantial part of the city comprises water bodies. The water sheet consists of backwaters, rivers, canals, tanks and ponds and forms 23.40% of the city area. Of the total developed area in Kochi, 50.08 sq. km is under residential use. Transition in the character of land use from residential to commercial uses is prominent in the CBD and at the intersection of important roads. Area under commercial use was 1.65% of the total developed area in 1977; the proposed reallocation in 2001 provided for commercial development equivalent to 2.17%. This increase in allocation indicates the influence of the city’s growth through commercial activities.

Thrissur. Residential areas occupy bulk of the area within the city with a share of 68.60% of the total developed area of the city. This includes large extent of garden lands around each residential building, which reduces the effective urban residential density. The overall population density of



population in Thrissur city is as low as 31 persons per hectare. The area under commercial use (2.28% of the total area) includes wholesale and retail trade, and commercial offices. There are three main concentrations of commercial uses at the Swaraj Round, Municipal Corporation Road, Market and High Road Area at Kokkalai and Aranattukara. The total allocation of public and semi public use is 10.24%, which is relatively high in comparison to allocation in other project cities.

Kozhikode. The current land use pattern indicates that 52.27% of the city land is for residential use, which comprises houses in individual plots scattered all over the city. Commercial area is comparatively less and comprises small establishments. Large concentrations of development are found in the Big Bazaar area; similar to other cities in the State, paddy fields are used for construction purposes to accommodate buildings. Industrial sector consists mainly of service industries and small-scale industries; medium scale industries are concentrated in the southwest part of the city – industries occupy 4.5% of the developed area. Area under public and semi-public use occupies 16.95% of the total area.

6.1.3 Integration of Urban Poor Settlements

Unlike other parts of the country, the urban poor in Kerala are not migrant population and do not transit from rural areas to urban areas for work. Poor settlements have long been in existence and are identified by their income categories. The poor settlements in the project cities are located in areas that house middle and high-income group households. Existing situation of slums in the cities are briefly discussed below:

Thiruvananthapuram. The TCPD identified 37 slum settlements in 1995-96. According to the 1996 survey by TCPD, the slum population was 29,681 and settlements were found in different parts of the city especially along the Pravathy Puthanar Canal and along the Coastal Area. Most of these are low-lying Puramboke land. The settlers were involved in various informal activities like sweeping, fishing, scavenging and domestic work, etc.

Kollam. Based on the aforesaid study, the TCPD identified 25 slum settlements in the city. The resident population in these settlements was 13,711 and primarily along the TS Canal. Most of the settlements are in substandard housing clusters characterized by poor structural conditions, absence of basic amenities like water supply, electricity, over crowding within the houses, congestion in the area and lack of proper accessibility and sanitary facilities.

Kochi. The TCPD identified 208 slum settlements in the city. According to the study, the resident population in the poor settlements is 63,324 and a substantial portion resides in Mattanchery. Approximately 50% of all housing units in slum settlements were Kutcha (in poor condition and generally unfit for habitation).

Thrissur. In 1996, the TCPD identified 5 slum settlements in city. According to the study, the resident population was 2,307 and primarily residing along the Railway Line, Thannikullam, etc. Most of these are substandard housing clusters characterized by bad structural condition, absence of basic amenities like water supply, electricity, over crowding within the houses, congestion in the area and lack of proper accessibility and sanitary facilities.



Kozhikode. The TCPD identified 79 slum settlements in city as a part of the survey and the resident population in the settlements was 76,892, residing in various parts of the city especially along the Chakkumkadavu.

The Development Plans for the project cities suggest that only slum settlements located along main roads and the railway line (Puramboke Land) will be relocated (under the assumption that all such settlements would be found in low-lying areas). For all other slums, the Development Plans recommend improved on-site sanitation and provision of other infrastructure facilities. The Development Plans identify the local self-government as the agency responsible for plan implementation. Development Plans for Kollam (1986), Thrissur (1972) and Kozhikode (2001) mention slums to be relocated and the quantum of houses to be constructed for accommodating slum dwellers. In addition to housing, there is provision for basic services comprising public taps, streetlights and public latrines. Major issues faced in slum improvement and/or relocation programs comprise fund paucity, lack of financial contribution from slum dwellers, and non-availability of vacant land/site at suitable locations.

6.2 Institutions and Capacity

6.2.1 Policy Context

Subsequent to the 74th Constitution Amendment Act (CAA), 1992 the Government of Kerala (GoK) embarked on a policy of decentralization of powers to local governments. The Kerala Municipalities Act, 1994, was drafted based on decentralization principles laid down in the 74th CAA. In September 1995, GoK transferred powers and functions to local governments; along with institutions, offices and functionaries. GoK chose to operationalize the decentralization process through participatory local-level planning and initiated through the People’s Plan Campaign or the Kerala Development Program (refer Volume 7 – Urban Management and Institutional Development).

Key features of the decentralization initiative comprised: (i) transferring health related institutions (except medical colleges and regional specialty hospitals) to local governments; (ii) transferring all schools to Urban Local Bodies (ULBs); (iii) planning and implementing centrally sponsored poverty alleviation schemes through ULBs; (iv) planning social welfare schemes, implementing Integrated Child Development Scheme (ICDS), payment of various social security pensions, and creating centers for disabled care are ULB responsibilities; and (v) planning and providing urban basic services, including water supply, sanitation, storm water drainage and urban roads (excluding those provided / maintained by the State Public Works Department).

The 9th Five-Year Plan (FYP) (1998-2002) witnessed a fiscal crisis, with growing revenue deficits arising out of (i) debt servicing on high borrowings; (ii) increase in salary and pension payments following the 5th Pay Commission and University Grant Commission (UGC) revisions; and (iii) sluggish growth in revenues and Central Government transfers. However, despite the moderate growth key achievements during the plan period comprised (i) decentralization of development through local governments; (ii) institutionalization of e-governance and computerization of departments; (iii) development of the tourism sector and the consequent impact on employment opportunities; (iv) reduction of poverty through synergies between local governments and Kudumbashree; (v) development of Scheduled Castes (SC) and Scheduled Tribes (ST); (vi) launch of



a participatory rural water supply project in six districts of the State; (vii) commissioning 13 power projects and completion of irrigation projects; and (viii) improvement of the State’s education system.

10th FYP Focus and Decentralization. Based on the lessons learnt through the 9th FYP, the 10th FYP (2002-07) for Kerala is based upon local government’s development plan and focuses on (i) reforms and improving organization efficiencies; (ii) increasing allocation in information technology, tourism infrastructure, poverty reduction and health; (iii) planning programs to facilitate employment generation; (iv) promoting private sector investment in economic development; (v) preparing sub-plans for poverty reduction with participation of women groups and focus on vulnerable sections of the society; (vi) evolving a plan for the disabled and women beneficiaries; (vii) strengthening decentralization and improving the planning process; (viii) continuing support to increased use of information technology in all facets of development; (ix) continuing support to tourism infrastructure development; (x) promoting the development of village and small industries; (xi) promoting the participation of private sector in providing education; and (xii) improving service delivery in key areas like health, revenue, education, etc.

Fiscal Decentralization. Fiscal decentralization in Kerala requires the Municipal Corporation to generate own sources of revenue income and is assigned own taxes comprising property tax, profession tax, advertisement tax, entertainment tax and service tax. Based on the recommendations of the First State Finance Commission, in addition to devolving surcharge on stamp duty and 20% of the net collection of motor vehicle tax basic tax was also devolved to the MCs. For functions and schemes transferred after the 74th CAA, Plan and Non-plan grants are provided in a tied form; GoK also devolves untied plan grants equivalent to an amount greater than one-third the approved plan size of the State. Key features identified for fiscal decentralization include:

Devolution of State funds – Plan (untied and not less than 33% annual size of State Plan – of the total allocation to a local self government institution, 30% is allocated for SC/ST development and 70% is allocated for general purposes and comprises 10% in productive sectors, 10% for slum infrastructure, not more than 50% on infrastructure, and 30% for service sector); Asset Maintenance (Non-plan tied/5.5% of annual own-tax revenue of GoK); and General Purpose (Non-plan untied/3.5% of the annual own-tax revenue of GoK);

Entitlements to individual local governments based on a formulae and stipulating that no part of the devolved funds should be used for staff salaries and establishment expenditure;

Implementation of the plinth area based system of property taxation and increase in tax base through property mapping; affecting a four-yearly revision to property tax;

Asset survey of ULB own property and transferred properties to be carried out for devolution of asset maintenance fund;

Service tax to be made compulsory and linked to the cost of performing obligatory functions;

Carrying out two-yearly revision to non-tax license items and advertisement tax; and

Releasing funds in fourteen installments during a fiscal year; any shortfalls in fund usage would result in allocation lapsing.



Of importance is the feature regarding planning and implementing projects prepared by local self governments – 30-40% of the plan size of the State’s budget was set apart for local self governments with 15% of the said amount earmarked for ULBs.

Urban Policy and Action Plan, 2002. Urbanization in Kerala is a result of growing urban areas and urban growth in the city’s periphery. The Urban Policy and Action Plan was formulated to address the urbanization trends in the State; key elements are:

Preparation of a development vision;

Promotion of private sector participation;

Identification of growth centres for economic development;

Preparation of a database o assist urban land consolidation;

Conservation of heritage structure and open space;

Urban road planning;

Provision of primary health care services;

Provision of urban drainage services;

Preparation and implementation of solid waste management and sewerage services;

Administration of accounting reforms in LSGIs;

Transition to the plinth area system of property taxation;

Restructuring the Kerala Urban Development Finance Company; and

Introduction of IT enabled services.

6.2.2 Service Delivery and Performance of Project Cities

In addition to the Municipal Corporations/local self-governments, State-level Departments, Programs and Missions, and Institutions govern urban development and basic service delivery in the State’s ULBs and depicted in Figure 6-1 (refer Volume 7 for details on institutions involved).

State Level Departments of Local Self Government, Water Resources, Public Works, Revenue and Housing, General Administration, Power, Health, and Science, Technology and Environment provide policy and administrative directions to various State and local-level agencies for effective urban basic service delivery. Departments overseeing transferred functions like education, health, etc. also play a key role in urban service delivery.

Missions constituted by GoK effectively administer the process of good governance, facilitate urban environmental management, improve financial management in ULBs and assist in poverty alleviation; these include the Modernizing Government Program (MGP), Clean Kerala Mission (CKM), Information Kerala Mission (IKM), and State Poverty Eradication Mission (Kudumbashree).

Institutions supporting activities in urban management include Kerala Water Authority (KWA), Kerala Urban Development Finance Corporation (KUDFC), Kerala Institute of Local Administration (KILA), and Development Authorities.



Figure 6-1: Institutional Arrangement at the State Level

Revenue & Housing Department

Principal Secretary


Principal Secretary

Govt. of KeralaChief SecretaryGovt. of KeralaChief Secretary

General Admn. Department

Principal Secretary


Principal Secretary

Modernizing Govt. PrgmSecretary


Public Works Department

Principal Secretary


Principal Secretary

Public Works DepartmentSecretary


Transport DepartmentSecretary


Kerala State Road Trans. Corp

Managing Dir..


Managing Dir..

Power DepartmentPrincipal Secretary


Kerala State Electricity Board

Member Secretary


Member Secretary

Health DepartmentPrincipal Secretary


Kerala State Poll. Control Board

Member Secretary


Member Secretary

Kerala State Housing Board

Secretary


Secretary

Kerala Sate Ground Water Department

Director


Director

Water Resources Department

Principal Secretary


Principal Secretary

Water Resources DepartmentSecretary


Kerala Water Authority

Managing Director


Managing Director

Irrigation Department

Chief Engineer


Chief Engineer

Housing Commissioner


Planning & Economic Affairs

Secretary


Secretary

Kerala Urban Dev. Fin. Corp.

Director


Director

Municipal Corporations (5)

Secretary


SecretaryDevelopment Authorities (5)Member Sec.

Development Authorities (5)Member Sec.

Directorate of Urban Affairs

Director


Director

Municipalities (53)

Secretary

Municipalities (53)

Secretary

KudambashreeExecutive Dir.


Town & Country Planning Department (14)

Chief Town Planner


Chief Town Planner

Kerala Inst. Of Local Adm.

Director


Director

Clean KeralaMission

Executive Dir.

Clean KeralaMission

Executive Dir.

Local Self Govt. (Urban) Department

Secretary


Secretary

Information Kerala MissionExecutive Dir


Regional DUAs(3)

Regional Dir.

Regional DUAs(3)

Regional Dir.

Local Self Govt. Department

Principal Secretary


Principal Secretary

Power Department

Addnl. Secretary

Power Department

Addnl. Secretary

Health Department

Addnl. Secretary

Health Department

Addnl. Secretary


Principal Secretary


Principal Secretary

Govt. of KeralaChief SecretaryGovt. of KeralaChief Secretary


Principal Secretary


Principal Secretary




Principal Secretary


Principal Secretary






Managing Dir..


Managing Dir..




Member Secretary


Member Secretary




Member Secretary


Member Secretary


Secretary


Secretary


Director


Director


Principal Secretary


Principal Secretary




Managing Director


Managing Director


Chief Engineer


Chief Engineer




Secretary


Secretary


Director


Director


Secretary


SecretaryDevelopment Authorities (5)Member Sec.

Development Authorities (5)Member Sec.


Director


Director

Municipalities (53)

Secretary

Municipalities (53)

Secretary




Chief Town Planner


Chief Town Planner


Director


Director

Clean KeralaMission

Executive Dir.

Clean KeralaMission

Executive Dir.


Secretary


Secretary



Regional DUAs(3)

Regional Dir.

Regional DUAs(3)

Regional Dir.


Principal Secretary


Principal Secretary

Power Department

Addnl. Secretary

Power Department

Addnl. Secretary

Health Department

Addnl. Secretary

Health Department

Addnl. Secretary



Service provision type, institutions involved and the legal context for the provision define MC performance and coordination with other agencies/State Line Departments. The following are key issues associated with the aforesaid services:

1) Water and Sewerage. Currently, KWA creates water and sewerage infrastructure assets and maintains the same. While the KM Act, 1994 and amendments therein require the MCs to maintain and arrange water and sewerage services, KWA continues to provide water services in all municipal corporations except Thrissur. Sewerage is limited to ~ 40% area coverage in Thiruvananthapuram and 5% area coverage in Kochi – both systems are maintained by the KWA. KWA directly collects water charges from the consumers and the Municipal Corporation. New/additional lines within the MC area are constructed as deposit works, with the MC making a deposit with KWA for the identified work. KWA carries out major repairs (like pipe bursts / leakage) on distribution systems but the MC carries out road rectification. Water quality assurance is by KWA and any contamination of water is reported to KWA (and at certain instances an intimation is sent to the MC’s Health Department). Key concern areas regarding water supply and wastewater disposal comprise:

Non-remittance of the water tax component in the property tax, apportioned towards capital contribution, to the KWA affects repayment of funds towards capital creation to improve water supply.

Reduction in State transfers to the MC from duty on transfer of property. Through a 1994 Government Order, GoK ensures that KWA receives payment towards demand raised on the MC towards operational cost on headworks and street taps (25% of the duty on transfer of property, transferred by GoK to the MC, is deducted and apportioned to KWA).

Improvement in coordination with KWA regarding operation and maintenance. GoK through a Government Order has created a system of coordination on the aforesaid aspect; the same may be further refined to facilitate large-scale/citywide projects.

2) Solid Waste Management. Municipal solid waste management – collection, handling, treatment and disposal – is a mandatory function of the ULB. Conservancy staff appointed by the MC carries out waste management activities. Regarding waste treatment and disposal, the KSPCB’s mandate includes monitoring the methods of waste collection and transportation, and the treatment and disposal technology. Bio-medical waste handling and treatment is the responsibility of the waste generators/hospitals. The MC is expected to ensure that bio-medical/hazardous waste generators dispose waste generated in an environmentally sound manner. The Clean Kerala Mission (CKM) conducts training programs for MC staff associated with waste management, in addition to identifying waste management and disposal strategies for ULBs in the State.

3) Roads and Drainage. Municipal Corporations and the State PWD are responsible for creation and maintenance of roads and roadside drains in the cities; services offered by an agency is limited to the assets created by it and there is overlap in jurisdictions. While the PWD caters to main road links and highways/district roads and drains along these links, the MC undertakes works and maintenance on other roads and roadside drains. The State PWD creates new roads and roadside drains based on the Master Plan prepared by the TCPD and processed by the Development



Authority; funding is sourced from the State and identified agencies. The MC creates new roads and roadside drains based upon the Annual Plan approved by the District Planning Committee – the funds for new works is sourced from the plan allocations of the State for developmental works. The Project Engineer from the MC’s Engineering Department oversees construction of all new works.

4) Waterways/Canals. The presence of waterways/canals affects connectivity between different parts of the city and between the city and the hinterland. The Irrigation Department under the State Water Resources Department maintains waterways/canals in urban and rural areas of the State. Storm water flows into the natural drains/canals through a reticulation of roadside and secondary drains. Dredging activities along main drainage channels are carried out by the Irrigation Department based on the gravity of the problem.

5) Poverty Alleviation. The MC provides infrastructure in low-income settlements, primarily housing Below Poverty Line (BPL) households. Funds drawn from the MC’s capital budget and those available from centrally sponsored schemes are utilized for infrastructure creation in BPL settlements. Kudumbashree channels funds of centrally sponsored schemes to the MC and monitors fund utilization through its District Mission Coordinator (DMC). Infrastructure requirement is identified through the neighborhood groups/area development societies/community development societies and indicated to both the MC and Kudumbashree. Based on the funds available through Centrally Sponsored Schemes and projects/schemes approved by the MC, Kudumbashree transfers the requisite amount to the MC for utilization in BPL settlements – 2% of the Municipal Corporation’s own revenue is earmarked for poverty alleviation schemes. The Urban Poverty Alleviation (UPA) Cell within the MC handles urban poverty related functions. Table 6-1 indicates the fund utilization/project progress in the five MCs related to poverty alleviation schemes.

Table 6-1: Utilization of Centrally Sponsored Scheme Funds

Municipal Corporation

SJSRY (Income Generation Program)

NSDP (Infrastructure Development Program)

VAMBAY (Housing Development Program

Allocation Expenditure Allocation Expenditure Sanctioned Completed Thiruvananthapuram Rs.26 mn 79.5% Rs.44 mn 54.0% 1,160 nos. 338 nos Kochi Rs.22 mn 81.6% Rs.43 mn 66.0% 2,610 nos. 1,140 nos Kozhikode Rs.24 mn 124.0% Rs.45 mn 81.4% 1,116 nos. 160 nos Thrissur Rs.7 mn 65.7% Rs.19 mn 67.0% 16 nos. 2 nos Kollam Rs.15 mn 95.7% Rs.26 mn 58.0% 536 nos. 29 nos

Source: Kudumbashree, Aug 2004.

6) Town Planning. The Development Authority (DA) is a coordinating agency responsible for Master Plan implementation, which is prepared by the Town and Country Planning Department. The DA is expected to coordinate with State Line Agencies and the MC regarding plan implementation. The MC currently oversees land use zoning originally the responsibility of the DA. Under Section 30 of the KM Act, 1994, the MC is required to carry out spatial planning; this function is currently carried out by the TCPD at the MC’s request.

Improvement in inter-agency coordination is contingent on the MC staff’s capacity to handle large-scale works, the MC’s financial soundness and ability to leverage funds for works and a clear



distinction regarding the operational jurisdiction of the MC and State Line Departments. For sub-projects proposed under KSUDP, coordination of activities between the MC and State Line Departments is important with regards approvals and clearances, land acquisition, and resettlement and rehabilitation of project-affected persons. Further, post construction, sub-projects will require incorporating adequate operation and maintenance controls/measures to sustain investments in addition to defining responsibilities of each agency. Improvements in inter-agency coordination are dependent on the project implementation arrangement with a focus on sustainability during the operation and maintenance period.

6.2.3 Institutional Strengthening and Capacity Building

As a service organization, institutional strengthening and capacity building of the MC is dependent on planning, service provision, institutional development and financial management. The following sub-sections detail issues related to the MCs’ ability to provide municipal service and identify specific actions to enhance the MC performance.

1) Planning. According to the State’s Urban Policy and Action Plan (2002) and the KM Act, the MC requires: (i) undertaking responsibility of urban planning, where the MC requires building staff capacity to undertake preparation of the Municipal Development Plan including urban planning to reduce State agency involvement in urban planning and implementation; and (ii) establishing a Planning Department within the MC, which should undertake all planning responsibilities for the preparation of the Municipal Development Plan including spatial planning and land use management for the identification of land for specific projects such as solid waste treatment/disposal plants. The MC’s Planning Department will ensure works implementation, and monitoring and asset management by the Engineering and Health Department. Immediate focus is required to address requirements under the Kerala Development Program, where no specific post was sanctioned or department created within the Municipal Corporation to carry out decentralized planning21. In formulating local-level plans, Ward Committees22 play an active role supported by the MC’s Engineering Department. However, procurement is carried out on the basis of the Stores Purchase Manual and PWD Manual; the MC lacks access to a comprehensive Works Manual comprising procedures from planning through implementation. Besides proving to be a pressure on the MC’s resources, works are disjointed and do not adopt a holistic view to planning.

2) Institutional Development. Institutional development in the MC is governed primarily by the State Finance Commission recommendations and the KM Act, which focus on (i) reorganizing decentralized operations based on magnitude of works/revenue collection/municipal functions to satisfy the requirement for preparing Municipal Development Plans; (ii) introducing accountability in service provision and greater citizen participation in infrastructure planning; (iii) addressing human resource development, through appointment of additional and appropriately qualified staff for Municipal Development Plan preparation and implementation; and (iv) initiating, planning and delivering staff training programs.

21 Technically qualified staff was absent in panchayats; hence, they were allowed to procure external assistance for plan/estimate preparation. 22 Ward Committees are constituted in local self-government institutions (LSGIs) with population exceeding 100,000 persons. For all LSGIs with population less than 100,000 Ward Sabhas are constituted.



3) Financial Management. While certain activities as a part of fiscal decentralization were undertaken, rules for budget preparation, accounts/financial management and taxation were not framed under the KM Act, 1994. The MC continues to follow rules framed under the KM Act, 1961, and other executive orders issued regularly. The actual fiscal status of the MC is difficult to ascertain due to the dual financial management approach. Asset survey of the MC’s own property and transferred properties is to be carried out for devolution of maintenance fund, and is also an important requirement for asset maintenance, asset inventory and valuation for transition to double entry/accrual accounting system.

6.2.4 Project Implementation

Regarding project implementation capabilities, the MC currently undertakes new schemes through the Engineering Department (through the Project Engineer in larger municipal corporations). However, these schemes are usually limited to the construction of commercial structures, such as, shopping complexes, marriage halls, etc. Major urban infrastructure projects are generally outsourced to State Line Departments on a deposit work basis, wherein the entire cost of the project is deposited with the State Line Department for undertaking the project; the State Line Department is responsible for designs, contract award and project management. The Municipal Corporation has no control on the progress and quality of the work carried out. Staff in the Municipal Corporation’s Engineering Department attend to operation and maintenance or basic service delivery and are not equipped to handle project design, detailed engineering or construction supervision of urban infrastructure projects. If KSUDP components are to be implemented and eventually operated and maintained by the Municipal Corporations, considerable capacity building and training will be required to permit them to handle the aforesaid functions.

6.3 Municipal Finance

6.3.1 Municipal Fund

All cash received by a Municipal Corporation (MC) constitutes a fund called the Municipal Fund (Fund) under the Kerala Municipality Act 1994 (KM Act 1994). The items of income credited to the Fund consist of:

Own source revenue which includes taxes, duties, cess and surcharge, fees from licences and permissions, income from MC properties, and income from other miscellaneous items;

Share of the taxes levied by the Government and transferred to the MC;

Grants released to the MC by the Government for the implementation of schemes, projects and plans formulated by the MC;

Grants released to the MC by the Government for implementation of schemes, projects and plans assigned or entrusted to the MC under the KM Act 1994; and

Money raised through donations and contributions from the public and non-governmental agencies.

All the 5 MCs of the project keep their books of accounts under the cash-based system rather than the accrual method of accounting. Revenues are recorded only when received while expenditures are recognized only when paid.



0250500750

1,0001,2501,5001,750

2,0002,2502,500

ThM C TM C KozM C KolM C KocM C

FY 1998-99 to 2002-03 Revenue Account

Revenue Receipts Revenue Expenditures

The KM Act 1994 mandates the publication, not later than first week of June, of an annual financial statement of the MC of the preceding year showing a classified abstract of receipts and payments of the MC under Revenue, Capital and Debt heads, a demand, collection and balance statement and a statement of the general financial position of the MC.

6.3.2 Revenue Account

The Revenue Account deals with the recurring Revenue Receipts and Expenditures of the MCs. The actual financial performances of the 5 MCs were reviewed for the past fiscal years (FY) 1998-99 to 2002-03. Presented in Table 6-2 is a summary of the Revenue Account of the 5 MCs during the review period.

Table 6-2: Revenue Account (Rs. Million)

Particulars 1998-99 1999-00 2000-01 2001-02 2002-03 Total

Thiruvananthapuram Revenue Receipts 253 265 240 275 372 1,405 Revenue Expenditures 163 160 231 223 285 1,062 Revenue Surplus 89 106 9 52 87 343 Thrissur Revenue Receipts 76 133 134 139 188 670 Revenue Expenditures 76 104 85 112 134 511 Revenue Surplus 0 29 49 28 54 160 Kozhikode Revenue Receipts 180 189 218 221 249 1,057 Revenue Expenditures 156 170 168 142 193 829 Revenue Surplus 24 18 50 79 56 228 Kollam Revenue Receipts 71 81 77 87 92 408 Revenue Expenditures 45 69 68 70 75 327 Revenue Surplus 25 12 10 17 17 81 Kochi Revenue Receipts 318 378 385 423 512 2,017 Revenue Expenditures 212 220 298 224 266 1,219 Revenue Surplus 106 158 87 199 247 798

Source: All 5 Municipal Corporations

During the review period, all MCs had Revenue Surplus, i.e. Revenue Receipts exceeded Revenue Expenditures, each year. Among the 5 MCs, Kochi had the highest accumulated surplus during the period while Kollam had the lowest. In terms of Revenue Surplus as a ratio of Revenue Receipts, Kochi again had the highest at 39.6% while Kollam again had the lowest at 19.8%. Thiruvananthapuram had 24.4% while Thrissur had 23.8% and Kozhikode, 21.5%.



0% 5% 10% 15% 20% 25% 30%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Revenue Receipts & Expenditures Growth Rate

Receipts Expenditures

Based on the 2001 Census population, Kochi had the highest Revenue Receipts Per Capita (RRPC) at Rs.677 and Revenue Expenditures Per Capita (REPC) at Rs.437 while Kollam had the lowest RRPC at Rs.228 and REPC at Rs.191. For the same year, Kozhikode had a RRPC at Rs.503 and REPC at Rs.355 while Thrissur had Rs.431/Rs.310 and Thiruvananthapuram had Rs.346 / Rs.304, respectively. It is interesting to note that Thiruvananthapuram, the MC with the highest population, had the second lowest RRPC and REPC while Kochi, the MC with the second highest population, had the highest RRPC and REPC.

In terms of growth, Thrissur had the highest Revenue Receipts annual growth rate during the 5 year period at 25% while Kollam had the lowest at 7%. Kochi had a growth rate of 13%, Thiruvananthapuram had 10% while Kozhikode had 8%. In comparison with their respective Revenue Expenditures growth, Thiruvananthapuram’s and Kollam’s Revenue Receipts lagged behind the growth rates of their Revenue Expenditures at 15% and 13%, respectively. If this growth trend continues, both MCs will incur deficit in the coming years. If such will be the case, a transfer of surplus from Revenue Account to Capital Account cannot be expected to meet shortfall in Capital Account to fund some capital investment programs of the MCs. The 3 other MCs had lower Revenue Expenditures growth in contrast with their respective Revenue Receipts. Thrissur’s Revenue Expenditures grew at 15%, Kozhikode at 5% and Kochi at 6%.

Revenue Receipts of the MCs can be classified into 3 types of revenue source:

Own source income;

Revenue from assigned and shared taxes; and

Grants-in-aid from the Government.

Own Source Income refers to those revenue items which the MCs are responsible for in terms of assessment and collection. Assigned and Shared Taxes are taxes collected by the State Government but the revenue collected is assigned to or shared with the MCs. At present, there are 2 assigned and shared taxes, namely, the Surcharge on Stamp Duty and Motor Vehicle Tax. Basic Tax, a general tax on land recommended by the First State

0

100

200

300

400

500

600

700


Revenue Receipts & Expenditures Per Capita (2001)

Receipts Expenditures

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Average Revenue Surplus Ratio



0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Own Source Income

Own Tax Own Non-Tax

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Share of Property, Profession & Entertainment Taxes in Total Revenue Receipts

Property Profession Entertainment

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Sources of Revenue Receipts

Own Source Shared Taxes Grants

Finance Commission for devolution to the MCs, is still pending State Government approval for implementation. Grants-in-Aid from the Government come in the form of plan, maintenance of assets, general and specific purpose grants.

Own Source Income is the biggest source of revenue among the MCs. Thrissur had the highest percentage of Own Source Income to Total Revenue Receipts at 77%, Kozhikode had 76.7%, Kollam had 68.1%, Kochi had 68% and Thiruvananthapuram had the lowest at 64%. The Own Source Income ratios are healthy and positive indicators that the MCs are less dependent on revenue transfers and grants from the Government. In terms of Assigned and Shared Taxes, Thrissur had the least at 12.9% of Total Revenue Receipts while Kozhikode had the most at 20.1%. With regards to Grants, Kozhikode had the least at 3.3% of Total Revenue Receipts while Thiruvananthapuram had the most at 19.1%.

Own Source Income comes in 2 forms: Own Tax Income and Own Non-Tax Income. Own Tax Income refers to taxes which the MCs are responsible for in terms of their assessment and collection from taxpayers. Own Non-Tax Income includes fees from licences and permissions, income from MCs’ own properties, and income from other miscellaneous items.

All the 5 MCs had more Own Tax Income than Own Non-Tax Income. Expressed in ratio, Kochi had the highest at 82:18 while Thrissur had the lowest at 54:46 in favor of Own Tax Income. Thiruvananthapuram had an 81:19 ratio; Kollam had a 71:29 while Kozhikode had a 67:33 ratio.

The major items of Own Tax Income are: Property Tax, Profession Tax and Entertainment Tax. These 3 taxes combined contributed 55% (Property at 37%, Profession at 7% and Entertainment at 11%) to Total Revenue Receipts of Kochi. In Thiruvananthapuram, the 3 taxes contributed 51% (Property at 24%, Profession at 14% and Entertainment at 13%); in Kozhikode, they contributed 51% (Property at 26%, Profession at 7% and Entertainment at 18%); in Kollam, they contributed 47% (Property at 20%, Profession at 8% and Entertainment at 19%); and in Thrissur, they contributed 41% (Property at 15%, Profession at 10% and Entertainment at 16%).



Property Tax is the biggest source of Own Tax Income of the MCs. The KM Act 1994 provides that the aggregate percentage to be levied for Property Tax, in the case of a MC, shall not be less than 13% and not more than 25% of the annual rental value (ARV) of all buildings or lands within the municipal area unless exempted under the Act or any other law.

Property Tax may comprise of a tax for general purpose and a service tax. The service tax may include:

Water and drainage tax to provide for expenses connected with the construction, maintenance, repair, extension or improvement of water or drainage work provided or hereafter to be provided;

Lighting tax to provide for expenses connected with the lighting of the municipal area by gas, electricity or any other means; and

Sanitary tax to provide for expenses connected with the general sanitation of the municipal area and the removal of rubbish, filth and carcasses of animals from the private premises.

Where water tax and drainage tax are levied, the Corporation Council shall declare what proportion of tax is levied in respect of water works and the remainder shall be deemed to be levied in respect of drainage works.

The Property Tax rate schedule as prescribed in the KM Act 1994 and those presently in force in the MCs are as follows:

Table 6-3: Property Tax -Rate Schedule (%)

Kozhikode Particulars Minimum per KM

Act 1994

T’puram Kollam Kochi Thrissur

Old Area

New Area

Tax for general purposes 6 11 7 7 5 9.50 8 Lighting Tax 2 2 2 2 2 3.75 2 Drainage Tax 2 2 2 2 0 2.25 2 Water Tax 1 1 1 1 0 2.75 1 Sanitation Tax 2 2 2 3 3 3.00 2 Total 13 18 14 15 10 21.75 15


Except for Thrissur, all the MCs are levying and collecting Property Tax within the rates prescribed in the KM Act 1994. Thrissur is using a rate (10%), which is lower than the minimum rate (13%).

All the MCs maintain a demand register for all properties assessed for property tax. There is a proposal to computerize the property tax database of the MCs.

The last survey of properties carried out by the MCs was either in the late eighties or early nineties. With the survey done several years back, there is a high probability that many properties are not in the tax net.

Under the present system, ARVs are revised once in four (earlier till 1999 was five) years. However, there has been no change in the Property Tax rate and ARV for the last twelve years. The proposal



linking property tax assessment to plinth area assessment is still pending for approval by the State Government. Under the proposal, all ULBs are required to switch to a zonal area-linked system involving self-assessment of ARV by the assessed. The new system will classify the municipal area into more than one zone on the basis of, as far as possible, similar locations of the buildings and lands situated therein.

The details of Property Tax demand and collection by MC for the last three fiscal years are shown in Table 6-4 below.

Table 6-4: Property Tax -Demand and Collection (Rs. Million)

Particulars 2000-01 2001-02 2002-03

Thiruvananthapuram Demand 186.9 216.4 216.6 Collection 66.9 104.2 110.0 Balance 120.0 112.2 106.6 Collection Efficiency (%) 35.8 48.1 50.8 Kollam Demand 24.4 26.1 28.3 Collection 17.9 19.7 20.6 Balance 6.5 6.4 7.7 Collection Efficiency (%) 73.4 75.5 72.8 Kochi Demand 232.2 233.6 271.4 Collection 168.3 175.6 205.3 Balance 63.9 58.0 66.1 Collection Efficiency (%) 72.5 75.2 75.6 Thrissur Demand 33.1 38.8 42.0 Collection 22.9 28.4 35.2 Balance 10.2 10.4 6.8 Collection Efficiency (%) 69.2 73.2 83.8 Kozhikode Demand 83.2 117.3 149.8 Collection 61.7 67.1 80.0 Balance 21.5 50.2 69.8 Collection Efficiency (%) 74.1 57.2 53.4


Thiruvananthapuram’s and Kozhikode’s collection efficiency are very poor. Although relatively satisfactory, Thrissur’s, Kollam’s and Kochi’s collection efficiency still have significant scope for improvement.

Profession Tax is levied on companies and individuals vide Section 245 of the KM Act 1994. All companies and individuals transacting business or engaged in profession in the municipal area for at least 60 days in a half year shall pay the tax at rates prescribed by Government. However, Article 276(2) of the Indian Constitution has fixed the maximum tax leviable per year at Rs.2,500. All the MCs had good collection efficiency on this particular tax ranging from 80% to as high as 94%.



0% 5% 10% 15% 20% 25% 30% 35% 40%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Share of Own Non-Tax Income in Total Revenue Receipts

Propert ies' Income Licenses Others

Entertainment Tax is collected according to the provisions of Section 3 of the Local Authorities Entertainment Tax Act. A proposal to tax on the basis of seating capacity and occupancy is pending for approval by the State Government. Entertainment tax is presently fixed between 24 to 48% of the price of admission.

Own Non-Tax Income contributed 35% (Municipal Properties’ Income at 21%, Licenses and Permits at 4% and Others at 10%) to Total Revenue Receipts of Thrissur. In Kozhikode, it contributed 25% (Municipal Properties’ Income at 15%, Licenses and Permits at 5% and Others at 5%); in Kollam, it contributed 20% (Municipal Properties’ Income at 9%, Licenses and Permits at 8% and Others at 3%); in Kochi, it contributed 13% (Municipal Properties’ Income at 7%, Licenses and Permits at 4% and Others at 2%); and in Thiruvananthapuram, it contributed 12% (Municipal Properties’ Income at 5%, Licenses and Permits at 5% and Others at 2%).

Water supply distribution within the MC area is being carried out by Thrissur MC only. In the other 4 MCs, water supply is being handled by the Kerala Water Authority (KWA), an autonomous body created in the year 1984.

Thrissur MC is billing and collecting water charges from residents with water connections. During the FY 1998-99 to 2002-03, water charges collection (included in - Own Non-Tax Income) contributed 4% to Total Revenue Receipts. Thrissur MC has the following number of water connections:

Domestic Metered Connection. 12,636

Commercial Metered Connection 1,400

Stand Posts 506

Thrissur MC’s water tariff is in accordance with what is prescribed by the State Government. The present water tariff schedule is presented in Table 6-5. The present tariff came into effect on 1st April 1999 but has not been revised since.

Table 6-5: Water Tariff Schedule

Customer Category

Monthly Kilo Litre Consumed

Rate

Domestic 0 -10 Rs.2/KL subject to minimum of Rs.20 / month + Rs.2 as MIC 10 -30 Rs.22 + @ Rs.3 /KL for above 10 KL 30 -50 Rs.82 + @ Rs.5/ KL for above 30 KL Above 50 Rs.182 + @ Rs.7.35 /KL for above 50 KL Non-Domestic 0 -50 Rs.7.35/KL subject to a minimum of Rs.100 / month + Rs.2 as MIC Above 50 Rs.370 + Rs.10.60 /KL for above 50 KL Industrial Whole consumption Rs.10.60/KL subject to minimum of Rs.200 / month + Rs.2 as MIC



0%10%20%30%40%50%60%70%80%90%

100%


FY 1998-99 to 2002-03 Revenue Expenditures

PH & Sanitat ionM gt. & Col. of TaxesPublic WorksStreet LightsNon PlanWS & DrainageTown PlanningEducationM C Propert iesM isc.

The details of water charges demand and collection of Thrissur MC for the last three fiscal years are shown in Table 6-6.

Table 6-6: Thrissur MC Water Charges – Demand & Collection (Rs. Million)

Particulars 2001-02 2002-03 2003-04

Demand 5.5 6.5 7.0 Collection 4.5 5.5 6.6 Balance 1.0 1.0 0.4 Efficiency (%) 81.8% 84.6% 94.3%

Source: Thrissur Municipal Corporation

None of the MCs are charging any money for the water supplied through public stand posts or street taps from their users. However, they are liable to Kerala Water Authority for the payment of corresponding water charges at the rate of Rs.2,628 per street tap per year.

Revenue Expenditures of the MCs are classified and recorded according to the following revenue main heads or cost centers: (i) Management and Collection of Taxes; (ii) Public Works; (iii) Town Planning; (iv) Education; (v) Water Supply and Drainage; (vi) Public Health and Sanitation; (vii) Street Lights; (viii) Municipal Properties; (ix) Non Plan Operation Expenses (running transferred institutions); and (x) Miscellaneous Expenses.

During the FY 1998-99 to 2002-03, the 5 most significant cost centers in most MCs were Public Health and Sanitation, Management and Collection of Taxes, Public Works, Street Lights and Non Plan. Collectively, they accounted for 98% of Total Revenue Expenditures in Thiruvananthapuram, 96% in Kochi, 90% in Kozhikode, 87% in Kollam and 79% in Thrissur.

In Thrissur, Water Supply and Drainage expenditures were also significant. This was due to the MC’s decision to handle water supply distribution to its population as provided under Section 315 of KM Act 1994. With water supply distribution, the percentage share of Water Supply and Drainage expenditures to Total Revenue Expenditures significantly increased from 1.9% in FY 1998-99 to 17.8% in FY 2002-03. During the 5 year period, Drainage expenses accounted only for 15% of the total Water Supply and Drainage expenditures. Comparing the water charges collected by the MC with water supply expenditures during the 5 year period, its water supply operation incurred a cumulative loss of Rs.8.76 million under a cash basis of accounting (Table 6-7). Depreciation charges, accrued water income and expenses cannot be ascertained due to absence of reliable records.

Table 6-7: Thrissur MC Water Supply Distribution Cash Profit and Loss (Rs. Million)

Item 1998-99 1999-00 2000-01 2001-02 2002-03 Total

Charges Collected 5.07 5.47 6.60 4.48 5.59 27.22 Cash Expenses 1.37 6.69 1.68 6.46 19.77 35.97 Surplus (Deficit) 3.71 (1.22) 4.92 (1.98) (14.18) (8.76)

Source: Thrissur Municipal Corporation



0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ThM C

TM C

KozM C

KolM C

KocM C

FY 1998-99 to 2002-03 Capital Receipts

Grants Loans Internal

From the above table, it is evident that the existing water tariffs do not recover fully even the cash operating and maintenance expenses of the water supply distribution.

6.3.3 Capital Account

The Capital Account deals with the non-recurring Capital Receipts and Expenditures of the MCs. Presented in Table 6-8 is a summary of the Capital Account of the 5 MCs for the FY 1998-99 to 2002-03.

Table 6-8: Capital Account (Rs. Million)

Particulars 1998-99 1999-00 2000-01 2001-02 2002-03 Total

Thiruvananthapuram Capital Receipts 177 161 168 174 142 822 Capital Expenditures 83 167 262 160 165 836 Capital Surplus (Deficit) 95 (6) (94) 14 (22) (14) Kollam Capital Receipts 64 123 78 83 91 438 Capital Expenditures 71 100 82 93 100 447 Capital Surplus (Deficit) (7) 22 (4) (11) (10) (9) Kochi Capital Receipts 162 400 346 192 466 1,567 Capital Expenditures 347 414 346 294 372 1,772 Capital Surplus (Deficit) (184) (14) (0) (102) 94 (205) Thrissur Capital Receipts 22 132 103 96 203 556 Capital Expenditures 34 87 77 81 119 399 Capital Surplus (Deficit) (13) 45 26 15 84 157 Kozhikode Capital Receipts 163 239 181 127 132 842 Capital Expenditures 85 164 133 88 86 555 Capital Surplus (Deficit) 78 75 48 39 46 286


Capital Receipts come in the form of capital grants released by the Government for the implementation of schemes, projects and plans formulated by the MC; capital grants released by the Government for the implementation of schemes, projects and plans assigned or entrusted to the MC under the KM Act 1994; loans from the Government for the implementation of schemes, projects and plans; loans from financial institutions; and transfers from the Revenue Account when the MC has Revenue Surplus.

During the FY 1998-99 to 2002-03, capital grants from the Government had been the primary source of Capital Receipts of the MCs. To augment grants received from the



Government to fund their capital programs, Kollam and Thrissur used external (loans) and internal (Revenue Account transfer/ Investments realized) funds, Kochi resorted to internal funds only while Kozhikode borrowed only. Thiruvananthapuram relied 100% on grants. It is interesting to note that among the MCs that used internal funds for their capital programs, Thrissur had transferred 92% of its Revenue Surplus to its Capital Account during the period; Kollam had transferred 58% and Kochi had transferred 57%. Kozhikode and Thiruvananthapuram, the MCs that did not use any internal funds for their capital programs, did not transfer any amount from their Revenue Surplus to their Capital Account during the period.

The MCs classify and record Capital Expenditures according to the following capital main heads or cost centers: (i) Management; (ii) Plan Schemes; (iii) Poverty Eradication; (iv) Transferred Institutions; (v) Education; (vi) Water Works and Drainage; (vii) Public Health; (viii) Street Lighting; (ix) General Items; and (x) Kerala Development Program.

Among the 5 MCs, Kochi had the highest capital utilization ratio (Capital Expenditures over Capital Receipts) during the period at 113%, followed by Kollam and Thiruvananthapuram at 102%, Thrissur at 72% and Kozhikode, the lowest, at 66%.

6.3.4 Loans and Other Dues

The MCs have outstanding amounts borrowed from financial institutions, State Government and other creditors for the execution of their development works. These liabilities are summarized in Table 6-9.

Table 6-9: Outstanding Liabilities as of 31 March 2004 (Rs. Million)

Lender ThMC KolMC KocMC TMC KozMC

KUDFC 0.0 5.1 5.3 1.6 13.1 KLA 0.0 0.0 0.0 0.0 55.7 HUDCO 0.0 0.0 0.0 3.9 0.0 Others 0.0 0.0 0.0 0.0 22.6 State Government 0.0 23.4 0.0 8.0 0.8 Various – Capital Works

0.0 3.5 0.0 0.0 15.0

Total 0.0 32.0 5.3 13.5 107.2

6.3.5 Electricity Distribution Account

Thrissur MC, unlike the 4 other MCs, is also managing the distribution of electricity to residents and commercial establishments at the old municipal area covering about 12 square kilometers. The MC purchases power in bulk from the Kerala State Electricity Board. The budget for this operation, however, is separately prepared and is not included in the regular annual MC budget. The separate books of accounts of the operation are also kept under the cash based system. The summarized financial performance of the operation is shown in Table 6-10. Actual depreciation charges, accrued electricity income and expenses cannot be ascertained due to absence of reliable records.



Table 6-10: Electricity Distribution Cash Profit and Loss (Rs. Million)

Item 1998-99 1999-00 2000-01 2001-02 2002-03

Total Revenue Receipts 106.77 138.32 177.18 234.44 317.90Total Revenue Expenditure 88.34 114.62 150.14 166.26 187.24Revenue Surplus 18.43 23.70 27.04 68.18 130.66Source: Thrissur Municipal Corporation

Although the above table indicates that the electricity operation is generating cash revenue surplus, it cannot be concluded that the operation is actually profitable if reported under an accrual system of accounting.

6.3.6 Key Financial Issues

Municipal finance plays a key role in any local government. While Municipal Corporations are empowered to levy and collect their own taxes and user service charges, they must be efficient in revenue administration so they can generate sufficient funds from various sources to deliver and finance municipal services. In their delivery of the municipal services, the Municipal Corporations, however, must be cost efficient and control expenditures within their reasonable limits. Otherwise, Municipal Corporations cannot accumulate adequate surplus funds to undertake additional and future development programs.

The key financial issues affecting the Municipal Corporations that need immediate attention are:

No. Issues Actions Required

1. Thiruvananthapuram’s and Kozhikode’s Property Tax collection efficiency are very poor. Although relatively satisfactory, Thrissur’s, Kollam’s and Kochi’s collection efficiency still have significant scope for improvement.

MCs must exercise all their statutory powers to enforce collection from chronic defaulters. In addition, they must also explore other means like extensive public awareness campaign or reminder to settle property tax, appointment of tax collectors on commission basis, giving discounts or other incentives for early payment, full or partial condonation of surcharges if past accounts are settled in full, etc.

2. There has been no change in the Property Tax rate and ARV for the last 12 years.

State Government must act urgently on the legislation required to put the new system in place, i.e. plinth area based Property Tax and once every four years revision.

3. The databases on property holdings in all MCs are outdated. The last survey of properties carried out by the MCs was either in late 1980’s or early 1990’s.

MCs must undertake a detailed survey to identify properties that are not included yet in the tax net. In addition, they must speed-up computerization of their databases.

4. Water charges collected from water supply distribution in Thrissur could not fully cover even the cash operating and maintenance costs. If the situation continues, Thrissur MC cannot sustain the water supply operations in the long-run. The present water tariff has not been revised since it came into effect on 1 April 1999.

State Government must allow water tariff to be raised to a level that at least cash operating and maintenance costs can be fully covered. State Government must also act on the legislation required to introduce periodic revision of tariff, say once every 3 years.



No. Issues Actions Required

5. In Thiruvananthapuram, Kozhikode and Kollam, cost of tax administration is high and is rising as a percentage to own taxes actually collected. The cost of tax administration growth rate is outgrowing own tax income growth rate. With cost outgrowing income, tax administration is not cost efficient.

MCs must review and rationalize staffing with regards to (a) general administration related to tax management (b) billing, including preparation of demand notices and transmitting them to the tax payers (c) collection (d) maintenance of records and reconciliation. They must likewise control other cost items within reasonable limits.

6. There has been no regular revision of other taxes and non-tax income items while the costs of revenue administration and delivery of municipal services have risen.

State Government must act on the legislation required to introduce automatic indexation or periodic revision of other taxes and non-tax income items.

7. There is a lack of adequate financial management and information system. Adequate financial management and information system is necessary for effective revenue administration and cost control. There is also a lack of reliable information as to the assets required to be maintained.

State Government must prescribe that accounts be maintained under a double entry accrual based accounting system. Asset register must also be kept and regularly updated.

6.4 Kerala Water Authority Finance

6.4.1 Mandate and Sources of Finance The Kerala Water Authority (KWA) was constituted as an autonomous body by the Government of Kerala on 1st April 1984 under the Kerala Water Supply and Waste Water Ordinance 1984 as a successor to the erstwhile Public Health Engineering Department of the Government of Kerala. The ordinance was replaced by the Kerala Water Supply and Sewerage (KWSS) Act 1986.

Section 15 of the Act has given KWA the following mandate:

To obtain periodic or specific information from any local body;

To prepare and carry out schemes for water supply and sewerage;

To abstract water for drinking purposes from any natural source and disposal of wastewater;

To lay down schedule of fees for all services rendered to Government, local bodies, institutions or individuals;

To fix and amend tariffs and charges for water supply and sewerage services and collect all such fees;

To borrow money, issue debentures, obtain subventions, capital contributions, loans and grants, to incur expenditure and manage its own funds; and

To grant loans and advances to such persons or authorities as the KWA may deem fit.

In the initial years of its establishment, KWA had a monopoly over the planning, designing, execution, operation and maintenance of water supply and sewerage schemes across the entire State. This monopolistic role of KWA in providing piped water supply and sewerage services underwent a change after the 73rd and 74th constitutional amendments. Under these amendments, the responsibility of supplying drinking water was vested with local bodies. The change is more marked in the case of rural water supply. Government issued orders in March 1998 defining the procedures for the implementation of small type of water supply schemes covering a single panchayat by the local bodies



with technical assistance from KWA and other agencies. As a result, KWA’s role is changing from that of a monopoly provider of water to that of a facilitator and supervisory agency implementing only urban and major comprehensive rural water supply schemes. KWA, however, continues to be responsible for the large underground sewerage and sanitation schemes.

In line with its mandate, the sources of finance for KWA are water and related charges collected from its customers, grants and loans from the Government of Kerala, grants from the Government of India, and loans from financial institutions like Housing and Urban Development Corporation (HUDCO) and Life Insurance Corporation of India (LIC).

6.4.2 Cost Recovery

The State Government’s policy on cost recovery for KWA operations is articulated in the KWSS Act 1986. The Act states that KWA “shall not, as far as practicable and after taking credit for any grants or subventions or capital contributions or loans from Government, carry on its operations at a loss and shall so fix and adjust its rates of taxes and charges as to enable it to meet as soon as feasible the cost of its operations, maintenance and debt service and where practicable to achieve an economic return on its fixed assets.” The Authority, however, has to take prior approval from the State Government for the revision of its rates.

Water Supply The existing water tariffs shown in Table 6-11 came into effect on 1 April 1999 but have not been revised since.

Table 6-11: KWA Water Tariff Schedule

Customer Category Monthly KL Consumed Rate

Domestic 0 –10 Rs.2/KL subject to minimum of Rs.20 / month + Rs.2 as MIC 10 –30 Rs.22 + @ Rs.3 /KL for above 10 KL 30 –50 Rs.82 + @ Rs.5/ KL for above 30 KL Above 50 Rs.182 + @ Rs.7.35 /KL for above 50 KL Non-Domestic 0 –50 Rs.7.35/KL subject to a minimum of Rs.100 / month + Rs.2 as MIC Above 50 Rs.370 + Rs.10.60 /KL for above 50 KL Industrial Whole consumption Rs.10.60/KL subject to minimum of Rs.200 / month + Rs.2 as MIC

Water connection fees are Rs.500 for domestic and Rs.1,000 for non-domestic. Government local bodies are charged for the street taps provided in their areas at the rate of Rs.2,628 per street tap each year. Local bodies, however, are not charging any fee directly from street tap users. Water charges per month are collected by KWA under the Provisional Invoice Card System.

KWA had requested the State Government in January 2000 to increase the water tariff by 30% effective 1 April 2000 and to allow KWA to revise the water tariff from time to time corresponding to the increase in power tariff. The State Government is yet to take a decision on this request.

Presently, KWA has 942,221 connections and 180,198 public standposts; summarized in Table 6-12.



Table 6-12: KWA Number of Connection and Public Standposts

Customer Category Number

Connections Domestic 869,113 Non-domestic 72,263 Industrial 845 Total Connections 942,221 Public Standposts In 5 Corporations 19,792 In Other Municipalities 23,790 In Panchayats 136,616 Total Street Taps 180,198

All water connections are metered. But, as per KWA’s Water Supply Regulations, the responsibility of the safe custody and sound condition of the water meter is vested with the consumer. If the meter is found defective the consumer shall repair or replace the defective meter within 30 days with the concurrence of KWA on receipt of notice, at his own cost. In case of default, a surcharge is imposed at the rate of 25% on the monthly water charges for the first month after the expiry of the notice period; 50% for the next two months and 100% beyond that period. In case of continued default, KWA shall have the power to disconnect the water supply to the premises without further notice.

It is estimated that more than 50% of water connections have defective meters. However, KWA has not been successful in implementing its regulations on defective meters. The consumers have challenged the regulations on defective meters as being against the KWSS Act 1986. A proposal to amend the Act is now under consideration.

Sewerage At present, sewerage schemes are in operation only in two cities in the State, i.e. Thiruvananthapuram and a part of Kochi. Except for a sewer connection fee, see Table 6-13, there are no monthly or annual sewerage service charges collected.

Table 6-13: KWA Sewerage Connection Fee

Customer Category Rate Domestic 10% of the estimate cost - minimum Rs.500 Non-domestic 10% of the estimate cost - minimum Rs.1,000 Casual 10% of the estimate cost - minimum Rs.1,000 Industrial 10% of the estimate cost - minimum Rs.2,500

Source: KWA

6.4.3 KWA Overall Financial Performance

Presented in the following tables are the Balance Sheet and Income and Expenditure Statement of KWA for the FYs 1999-00 to 2002-03.



Table 6-14: KWA Balance Sheet (1999-2003) (Rs. Million)

Particulars 31.3.2000 31.3.2001 31.3.2002 31.3.2003 Sources of Funds Kerala Water Authority Fund: a) Contributions and Grants 14,456.72 15,739.28 17,035.04 18,058.92 b) Reserves & Surplus 151.72 151.72 151.72 151.72 Kerala Water Authority Loan Fund: a) Secured Loans 2,626.09 2,686.14 2,493.60 2,906.18 b) Unsecured Loans (mostly from Government) 9,721.84 10,788.90 11,867.62 13,516.77 Total Sources of Funds 26,956.37 29,366.05 31,547.99 34,633.59 Application of Funds Fixed Assets: a) Gross Block 7,443.42 7,459.16 7,469.84 13,612.38 b) Less: Depreciation Reserve 3,631.10 3,761.75 3,884.94 5,164.54 c) Net Block 3,812.32 3,697.41 3,584.90 8,447.84 d) Capital Work-in-Progress 11,740.26 13,710.00 15,410.47 11,469.92 Investments 0.00 0.00 0.00 20.00 Net Current Assets: a) Current Assets 4,169.37 3,864.06 4,107.49 4,987.53 b) Current Liabilities 1,113.60 1,376.32 1,855.72 1,733.26 Loans and Advances 1,691.85 1,889.30 1,977.72 1,320.61 Miscellaneous Expenditure not written off 0.00 0.00 0.00 0.00 Accumulated Excess of Expenditure over Income 6,656.17 7,581.60 8,323.12 10,120.96 Total Application of Funds 26,956.37 29,366.05 31,547.99 34,633.59

Table 6-15: KWA Income and Expenditure Statement (1999-2003)(Rs. Million)

Particulars 1999-00 2000-01 2001-02 2002-03

Income 1. Operating Income a) Consumers 913.73 1,164.80 1,307.68 1,352.24 b) Others 4.26 3.12 3.07 2.18 2. Grants & Subventions – GoK 551.26 478.03 618.60 618.60 3. O & M Grant from GoI 34.56 77.33 78.60 28.49 4. Interest Income 3.66 7.19 (1.36) 3.84 5. Other Non-Operating Income (mostly penalties) 126.11 189.79 292.07 523.93 Total Income 1,633.57 1,920.25 2,298.66 2,529.28 Expenditure 1. Operation and Maintenance Expenses 846.57 855.86 1,054.48 1,013.12 2. Payment & Provisions to Employees 1,179.67 1,302.20 1,207.99 1,233.25 3. Office Expenses 44.25 39.50 47.71 50.60 4. Traveling & Conveyance Expenses 7.75 9.46 8.83 8.53 5. Administrative Expenses 6.84 6.81 8.39 5.40 6. Interest on: a) Secured Loans 330.91 342.17 356.70 333.63 b) Unsecured Loans (mostly from Government) 778.76 815.45 841.48 873.68 7. Depreciation 138.10 130.65 123.19 284.84 Total Expenditure 3,332.85 3,502.08 3,648.77 3,803.05 Capitalized Expenditure 558.54 944.40 608.60 629.63 Net Expenditure 2,774.30 2,557.69 3,040.17 3,173.42 Net Income (Loss) (1,140.73) (637.44) (741.52) (644.14)

Source: KWA



The unsecured loans are mostly from Government. Interests on these loans are provided and recorded in KWA’s accounts but are not paid. As of 31st March 2004, the total amounts outstanding on these unsecured loans were Rs.5,761.4 million for principal and Rs.7,321.9 million for accrued interest or a total liability of Rs.13,083.3 million. The secured loans, on the other hand, are mostly from HUDCO and LIC of India. As of 31st March 2004, the balance payable to HUDCO was Rs.513.1 million while LIC had Rs.2,204.2 million.

KWA could not provide data on volume of water produced, distributed and billed by consumer class for the fiscal years reviewed. This is attributable to KWA’s problem on defective meters, both at production and consumer level. Water production rates quoted are for design rated plant capacity; which in most cases will be an over statement due to reduced efficiency over time. A reliable unit analysis on income and expenditure therefore could not be undertaken.

As of 31st March 2003, the accumulated deficit of KWA since its formation amounted to Rs.10,120.96 million. KWA’s financial performance for the last 4 years, however, showed a trend of decreasing loss. During the 4 year period, operating income grew annually at an average of 14% while operating expenses (excluding interest and depreciation) grew minimally at 3%. The increase in operating income was due to growth in the number of consumers while the minimal growth in costs was a result of KWA’s cost control measures like the ban on recruitment and filling vacancies and voluntary retirement scheme to reduce excess staff.

Non-operating income grew enormously at an average annual rate of 60% due to majority of consumers’ inability to pay water charges on time. KWA imposes and collects penalties for late payment of water charges at the rate of 2% per month or a minimum of Rs.10 for non-domestic consumers while domestic consumers are charged at Rs.5 per month. Government local bodies, which are responsible for the street tap charges in their respective areas, are the major late paying consumers. The growth in government grants was minimal at the rate of 3% as a result of the improvement in operating and non-operating income.

Income

0 500 1,000 1,500 2,000 2,500 3,000

1999-00

2000-01

2001-02

2002-03

Rupees (Million)

Operat ing Grant s Non-Operat ing

Expenditure

0 1,000 2,000 3,000 4,000

1999-00

2000-01

2001-02

2002-03

Rupees (Million)

Operat ing Cost s Finance Charges Depreciat ion

Income and Expenditure

0

1,000

2,000

3,000

4,000

1999-00 2000-01 2001-02 2002-03

Fiscal Year

Income Expendit ure



Revenue from water and related charges recovered (excluding grants, fines and penalties) were on average about 53% of operating costs (excluding interest and depreciation) during the 4 year period. During the period, operating cost recovery ratio improved from 44% in FY 1999-00 to 59% in FY 2002-03. As explained previously, the cost recovery improvement was due to the growth in consumers and KWA’s cost control measures. The improvements, however, were not enough. KWA continued to incur losses during the period due to very high non-revenue water (NRW) of its network system estimated at about 60% of water produced.

Income Sources FY2000 to FY2003Non-

Operat ing14%

Grants30% Operat ing

56%

Expenditure Share FY2000 to FY2003

Operating Costs62%

Finance Charges

33%

Depreciat ion5%

KWA’s state-wide collection efficiency on consumers’ accounts was extremely low at 22%. This was due to government local bodies’ chronic delay in the payment of their accounts. As of 31st March 2003, government local bodies’ accounts stood at Rs.1,827.35 million or 57% of the total consumers’ account outstanding (Rs.3,212.26 million). The total consumers’ account outstanding was equivalent to 29 months of water sales for the fiscal year.

The State Government constituted a Committee in 200223 to review the operations of KWA and submit recommendations for improving its financial performance. The recommendations of the Committee were presented in a ‘White Paper’ as follows:

KWA to balance its revenue budget and stop diverting plan and capital funds to Revenue Expenditure or repayment of loans by the year 2003-04 by increasing revenues and reducing expenditure. Increasing revenues would include, inter alia, steps to check unauthorized connections, improved billing and collection, levy of sewerage charges, etc. Reducing expenditure would include, inter alia, ban on recruitment and filling vacancies, voluntary retirement scheme to reduce excess staff, reduce inefficient electrical installations by conducting energy use studies, computerization and centralization of salary, pension, provident fund, etc. payments in head office;

KWA to improve project preparation and management methods to avoid cost and time overruns with incentives for timely completion and disincentives for delays and overruns;

Government to clean up the finances of KWA as of 31st March 2002 by writing off all dues to Government (loan principal, interest, guarantee commissions, etc.) that have never been paid or repaid; and to devise a rational basis for non-plan grant to KWA.

23 White Paper on Kerala Water Authority prepared by the Committee Constituted vide G.O.(Rt) No.215/02/Ir.D dated 01/04/2002.



6.4.4 KWA Financial Performance in Project Cities

The results of KWA’s financial performance in the project cities are summarized in the table below. However, the operating costs in the cities of Kochi and Thiruvananthapuram do not include the water production costs. KWA’s operations in Kochi and Thiruvananthapuram involve the distribution only of water which are coming from KWA’s other districts. Under this operating set-up, the water production costs are recorded as part of the other districts’ costs. KWA could not provide the water production costs pertaining to Kochi and Thiruvananthapuram corporation area operations.

The results of financial performance in the project cities show a general trend of growth in operating income and non-operating income and reduction in operating costs. This was due to the increase in consumer base, imposition of late payment charges, and the cost control/reduction measures implemented by KWA. The city results confirm that KWA’s operating income could not fully cover operating costs, hence, the need for an operating subsidy from the government. This situation of continuing operating losses is due to the high non-revenue water (NRW). The NRW has reached to a level that it has outweighed the benefits from revenue enhancement and cost control/reduction measures. Collection efficiency was about 53% in Kollam, 50% in Kochi and Thrissur, 26% in Thiruvananthapuram and 19% in Kozhikode as compared to the state average efficiency of 22%.

Table 6-16: KWA Financial Performance in Project Cities

Particulars 2002-03 2001-02 2000-01 1999-00 Operating Cost Recovery Ratio (%) Kochi i.d. i.d. i.d. i.d. Kollam 60.30% 62.02% 57.61% n.d. Thrissur 71.48% 68.38% 45.25% 51.05% Thiruvananthapuram n.d. i.d. i.d. i.d. Kozhikode n.d. 72.80% 59.47% 54.06% Operating Income Growth (%) Ave. Growth Kochi -6.94% 11.02% 49.12% 15.50% Kollam 17.98% -15.30% n.d. -0.04% Thrissur 13.80% 28.64% -7.47% 10.64% Thiruvananthapuram n.d. 1.60% 73.01% 32.58% Kozhikode n.d. 11.07% 4.90% 7.94% Operating Costs Growth (%) Kochi (w/out production costs) 1.58% -17.67% 16.96% -0.73% Kollam 21.35% -21.32% n.d. -2.29% Thrissur 8.87% -14.87% 4.38% -1.10% Thiruvananthapuram (w/out production costs) n.d. -15.05% 5.22% -5.46% Kozhikode n.d. -9.27% -4.63% -6.98% Non-Operating Income Growth (%) Kochi 26.44% 26.51% 242.37% 76.27% Kollam 29.48% 36.87% n.d. 33.12% Thrissur 761.58% 33.67% 6.91% 130.91% Thiruvananthapuram n.d. 473.56% -52.24% 65.52% Kozhikode n.d. 29.43% 57.51% 42.78%

i.d. - incomplete production costs data; results could be misleading if calculated n.d. - no data

Source: KWA



6.4.5 Key KWA Financial Issues

The key issues affecting the financial performance of KWA that need immediate attention can be summarized as follows:

Non-Revenue Water (NRW)

Issue: The high NRW in KWA has been the major cause of its financial losses. The level of NRW has reached to a point that it could outweigh the financial benefits to be derived from other revenue enhancement and cost control/reduction measures to be implemented by KWA.

Action Recommended: KWA needs to put in place a comprehensive NRW reduction program. The program should include other parts of the state in addition those that will be implemented under KSUDP and JBIC funded projects on water supply.

House Connections versus Standposts

Issue: The census 2001 indicated that only 40% of the urban population in Kerala had access to safe drinking water, compared with the national average of 69%. This statistic has been recognized by the state government which has an un-written social policy to improve the state percentage. As a result, water lines have been extended and public standposts provided, often irrespective of the pressure and volume of water available for distribution.

Action Recommended: As part of the NRW action, a policy should be agreed to increase the provision direct house connections in place of providing public standposts. This action would reduce the burden of the ULBs for the payment of standposts by increasing consumers directly connected into the water tariff net. Standposts that are required due to social ‘safety-net’ necessity should be metered as part of improving accountability and management procedures. The overall result will provide a better service to all customers by reducing wastage.

Defective Meters

Issue: The huge number of defective meters could render ineffective any kind of measures to reduce NRW. Without functioning meters to measure actual water production and usage, water consumption is prone to wastage and consumers tend to be under billed.

Action Recommended: KWA should give priority for the replacement of defective meters. If the present regulations on defective meters could not be implemented due to differences in the interpretation of some sections in the KWSS Act 1986, KWA should get a court ruling on this issue or have the Act amended to clarify the issue once and for all. For proper operational management of the system, KWA should be responsible for the provision and maintenance of consumer meters.

Collection Efficiency

Issue: Collection efficiency has been very low. Implementation of disconnection policy on long overdue accounts has been lax. KWA’s cash flow has been hampered by the chronic delay in payment by government local bodies and a large portion of outstanding accounts belonging to them.



Action Recommended: Strict implementation of disconnection policy on long overdue accounts should be carried out. Customers normally pay if disconnection policy is strictly implemented. The State Government should assist KWA with regards to the collection of accounts owed by the government local bodies. The Government should devise an inter-government payment system that facilitates the accounts settlement among the different government bodies and institutions without sacrificing the proper recording and accounting of expenses and control procedures of the concerned institutions.



SECTION C: PROJECT IDENTIFICATION AND SELECTION

7. PROJECT RATIONALE – NEED AND DEMAND

7.1 Project Objectives This chapter explains the approach that has been adopted in the design and selection of project components, starting from the strategic development objectives for the Project. Chapter 8 then presents how components were selected and the Project designed and formulated.

The overall development goal of the Project is to provide sustainable growth and poverty reduction in the five project cities in Kerala, and thereafter in the other LSGI’s in the State. The Project purpose has been defined to assist the selected Municipal Corporations and other LSGI’s to “promote good urban management and develop and expand urban infrastructure to increase economic opportunities and to reduce vulnerability to environmental degradation and urban poverty”. These statements can be broken down to three key criteria in the selection of project activities:

Poverty Reduction: Will the component significantly and directly benefit the living environment or economic and employment opportunities of the urban poor; is the component primarily aimed at the urban poor.

Economic Growth: Will the component contribute to economic growth in the urban area, by improving the efficiency of essential urban infrastructure and services, by improving productivity of economic activities, and attracting new investment to the area.

Improved Urban Management: Will the component contribute to a greater efficiency in the planning and management of urban infrastructure and services. Are the poor mainstreamed into the planning process.

7.2 Basic Human Requirements for Urban Services

7.2.1 Overview of Urban Services

The ADB’s Poverty Reduction Strategy identifies poverty as: A deprivation of essential assets to which every human is entitled. The Strategy includes access to water, sanitation and other basic services, as well as income, employment and wages, as measures of poverty. The assessment of the prevailing situation in India, Kerala and the Project cities has identified a massive deficiency in the provision of basic services, particularly to the poor and the unacceptable quality of the urban living environment.

A review of the management and institutional situation also demonstrates clear gaps in the organizational arrangements that are necessary for the efficient delivery of urban services. Minimum standards for improvements to the physical environment are not possible without considerable investment in organizational and institutional change. Lessons learnt from previous ADB projects and development projects in India demonstrate that it is the ability to finance, plan and effectively manage such services that are critical to Project success and long-term sustainability.

The Project takes guidance on the minimum acceptable standards from National Guidelines, as the most relevant objectives and appropriate standards within the India context. Setting standards for



provision of services and environmental conditions, demonstrates the Government’s commitment to improving living conditions, and the recognized economic worth of such investment, in spite of the potential financial cost. It is of note that given the reality of the situation and in particular institutional and operational changes that are required, and despite the size of the proposed investment Project, these standards will not be fully achieved within the design life of the Project.

All of the project cities of the KSUDP lack basic urban infrastructure and municipal services to some extent. Provision of basic urban infrastructure and services fall below the government’s own targets, even for the larger and relatively affluent project cities. The problems relate to physical deficiencies in respect to demand and deficient operation and maintenance. Sewerage/Sanitation, Drainage and Urban Transport improvements are high priorities for all the cities, whereas water supply and solid waste improvements are city specific. The status of the various infrastructure sectors is summarized below. Details of city specific needs and issues are addressed in Volume 2 - City Reports.

7.2.2 Water Supply

Water supply systems suffer from extremely high losses, contributing to an unacceptable level of service, down to 1 hour per day in some areas. Large sections of the urban population, in particular the poor, remain without access to piped water. Water tariff collection is poor, with tariffs remaining unrealistically low because of political pressures, and many consumers not being charged. Table 7-1 provides a summary of the status of the provision of piped water supply in the five Project cities.

Table 7-1: Status of Water Supply Services in the Project Cities

Target T'puram Kollam Kochi Thrissur Kozhikode

% of population with access to piped water (theoretical based on coverage) 98% 90% 98% 94% 96% 91%

% poor households with access to piped water supply (from baseline survey)

95% 70% 32% 88% 78% 72%

Supply rate (average) in Lpcd 150 132 40 89 65 61 Water pressure, meters head 2 - 6m 0-3 0-3 0-3 0-3 0-3 Supply period, hrs per day 24 hrs. 8-10 2-3 2-3 2-3 4-6 Unaccounted-for-water (% of production) < 25% 55% 60% 60% 60% 55%

Note: Water supply improvements in Thiruvananthapuram and Kozhikode being provided under JBIC funding assistance.

In all project cities water from existing surface and ground water sources is theoretically adequate for the present population. However, in all cases the supplied water does not reach the majority of the population largely due to operational deficiencies. Although the statistics show that the coverage of the water supply distribution system might be very close to the accepted target, all cities suffer from problematic transmission and distribution systems, supplying water at low pressure and often only for a few hours per day.

Key problems are leakage from inadequate sized old pipelines, connections and fixtures, with uncontrolled wastage from public stand posts; unauthorized tapping from water mains, leading to further loss of revenue and supply contamination. As a result the actual average supply rate in the



cities is limited to 40–90 liter per capita per day (Lcpd), for those with access to the distribution network, compared to the KWA target of 150-200 Lcpd24.

Alternative supply in most of the cities is usually from shallow open wells or tube-wells, which are often contaminated with saline water in the coastal areas, or from deeper aquifers that are rapidly becoming depleted due to unrestricted abstraction.

The quality of treated water supplied to the beneficiaries is generally acceptable, although bacteriological contamination is recorded especially in areas with unsanitary environment, and where households have illegally connected pumps direct to the water distribution pipes to extract water.

7.2.3 Sewerage and Sanitation

The status of sanitation and sewerage is poor in all the project cities. Sewerage is non-existent or not functioning adequately. On-plot sanitation and septic tanks are not maintained and many poor have to resort to open defecation thereby adding to public health risks and long-term environmental threats. Table 7-2 provides a summary of the status of sanitation in the five Project cities.

Table 7-2: Status of Sanitation in the Project Cities


% of households with sanitation 98% 92% 91% 95% 97% 95% % of slum households with sanitation 95% 48% 40% 57% 45% 40%

Three of the five project cities (Kollam, Thrissur and Kozhikode) do not have underground sewerage, whilst the others (Thiruvananthapuram and Kochi) are inadequately covered (30–5%). Sewerage schemes were started in Kollam and Kozhikode during the 1980’s but not completed because of the large investment required and the absence of direct financial return on the investment.

The discharge of effluent of septic tanks to the surface drains and open defecation are contributing to the pollution of the receiving watercourses, ponds, tanks and ground water and causing environmental degradation.

7.2.4 Urban Drainage

Most rainfall in the state falls during the June-October monsoon period, with an annual average ranging from 1800mm in Thiruvananthapuram in the south to 3200mm in Kozhikode in the north. Kochi suffers from regular localized flooding in a number of areas within the central business district. In most other cities, flooding is not a major problem, although none have a formally designed, interconnected network of drainage channels with clear disposal points.

Urban drains are poorly maintained and often blocked by an accumulation of silt and un-collected municipal solid waste, causing water logging and flooding in many congested city areas. The problems are often made worse by the un-controlled development and encroachment in drainage channels and the ineffective maintenance of the drainage system and sanitation facilities.

24 Government of India, CPHEEO guidelines give 70 Lcpd where no sewerage and 135 Lcpd where sewerage.



7.2.5 Solid Waste Management

Domestic solid waste collection is poor, involving open un-hygienic street collection points and considerable double handling. Most of the cities are operating compost plants but disposal of rejects and surplus waste is by crude dumping. There is little control on the disposal of infectious waste and no facilities for toxic waste disposal. Table 7-3 provides a summary of the status of the collection and disposal of municipal solid waste in the five Project cities.

Table 7-3: Status of Solid Waste Management in the Project Cities


% of waste collected and disposed 98% 70% 70% 80% 85% 60% Composting treatment of waste Yes Yes No No Yes Yes Controlled Sanitary Landfill Disposal Yes Contract No No No No

Note: Thiruvananthapuram SWM improvements are being undertaken under the Capital Region Development Program.

Above all, solid waste management in the project cities suffers from the absence of a clear organization and management. The municipal corporations do not have a dedicated conservancy department, and solid waste management falls under a Chief Health Officer, and not an environmental engineer. There is little systematic planning of the waste collection and disposal process. Systems are under-funded and lack skilled staff.

There is no effective primary collection system in any of the five cities, except localized door-to-door collection schemes organized through Kudumbashree. Waste is generally thrown directly into the street, open spaces or drainage channels, which is then partially collected by sweeping staff during road and street sweeping operations. In almost all the five cities community dustbin facilities are inadequate. The existing dustbins are not properly designed and are not placed at appropriate locations. As a result, the majority of the waste generated remains uncollected on the roadsides, in vacant plots or in the drainage system.

In most of the cities loading and unloading of refuse vehicles is done manually, with considerable inefficient double-handling. This affects the health of the conservancy department workers and causes unhygienic conditions in the surrounding environment. Secondary waste collection and transportation rarely synchronizes with the timings of primary collections of solid waste, especially from commercial areas. Most of the refuse vehicles are open and during transportation waste spills out onto the roads. Generally, the refuse vehicles are old and badly maintained due to poorly equipped workshops. There are no records on the refuse vehicle collection routes or weighbridges for checking actual weight of waste transported for disposal.

The informal sector using rag-pickers thrives in all the cities for the separation of recyclable wastes, such as plastic, paper, cloth, glass, metal, etc. from the municipal waste stream. Composting is being tried in three cities as an attempt to reduce the volume of waste requiring disposal, but in all cases the trials have not been financially viable due to the lack of a market for the product produced, which is often poor.

The present waste disposal sites use simple dumping systems, without protection of workers, surrounding population or the environment. There are few controls at the present disposal sites on the



entry of the rag pickers and stray animals, which allows waste to be spread around. Burning of solid waste at primary collection points as well as at disposal site is very common which generates smoke, dust and toxic gases posing health risks to the people of the city.

7.2.6 Roads and Transportation

Similar problems on roads and transportation have been identified for all the five project cities; (i) deficiencies in the road network, especially in old town area; (ii) inadequate traffic engineering and management measures; (iii) inadequate parking and terminal facilities; (iv) inadequate and inefficient public transport facilities.

Economic development and corresponding urbanization has lead to the increase in traffic flow, congestion and road accidents resulting in the demand for better and safer roads. All cities have high projected rates of increase in traffic volumes. Transport problems related to traffic congestion are due to several reasons but mainly to a mixing of local and intercity traffic. Also, many main roads do not have footpaths and traffic safety is a growing problem. Smaller corporations like Kollam also have problems related to narrow road widths and encroachment of roadside activities on to road space. In addition, there are inadequate parking facilities, absence of bus bays and pedestrian footpaths and transport terminals. However, space is a constraint for expansion and construction of new infrastructure with resettlement and rehabilitation likely to be a major issue.

The Corporation is responsible for maintaining the local roads within the corporation areas and all the major roads and highways fall under PWD jurisdiction.

7.3 The Consultative Process 7.3.1 Community Priorities

As part of the Project preparation, a Baseline Socio-Economic Survey was undertaken in all 5 Project cities. The 1% sample household survey included questions on municipal service delivery and priorities for improvement. Table 7-4 indicates the access levels to basic services in the Project cities. Survey results indicate that the access and satisfaction levels vary across sectors.

Apparently, citizens rely more on non-piped water supply for managing water demand and household needs, and individual sanitary units rather than a reticulated sewerage system cater to household requirement vis-à-vis night soil disposal. Reliance on non-piped supply and presence of septic tanks/individual sanitary units results in an environmentally hazardous condition in the long-term, thereby necessitating a piped/treated water supply and a sewerage system to dispose sewage. Water logging and flooding is localized but citizen satisfaction levels regarding the general upkeep and maintenance is low. With regular silting and solid waste dumping into drains, poor maintenance accentuates the problem.



Table 7-4: Need and Demand for Basic Services (Baseline Survey Results)

City Water Supply Sewerage & Sanitation Drainage & Flooding Solid Waste Management

Roads

HH having Access to

Piped Water

HH satisfied with available water sources

WTP for Improved Services

HH having access to

sanitary units

HH satisfied with available

sanitary facilities

WTP for improved Services

HH experiencing

flooding

HH satisfied with drainage

facilities

HH satisfied

with SWM

WTP for improved services

HH satisfied with road

conditions

T’puram 50% 78% 35% 79% 68% 51% 16% 44% 73% 42% 49%

Kollam 22% 63% 54% 82% 62% 44% 21% 37% 57% 47% 47%

Kochi 53% 68% 44% 74% 68% 45% 24% 23% 71% 33% 58%

Thrissur 27% 55% 36% 44% 62% 36% 13% 3% 33% 25% 39%

Kozhikode 31% 86% 12% 80% 86% 07% 39% 21% 51% 12% 74%

HH: House holds Results are summarized for both poor and non-poor households.



Satisfaction levels regarding solid waste management are low; besides poor coverage, only few residential areas are provided with a door-to-door waste collection service. For simplicity the results in Table 7-5 show the aggregate of both poor and non-poor for each city against each sector.

Table 7-5: Community Municipal Service Priorities

City / Sector Social Category

Water Supply

Sewerage / Sanitation

Urban Drainage

Solid Waste Management

Roads & Transport

Thiruvananthapuram Poor 1 2 3 4 5 Non-Poor 4 1 2 3 4 Kollam Poor 1 2 3 4 5 Non-Poor 3= 1 3= 2 4 Kochi Poor 1 2 3 4 5 Non-Poor 1 2 3 4 5 Thrissur Poor 4 1 2 3 5 Non-Poor 2 1 3= 3= 5 Kozhikode Poor 1 2 3 4= 4= Non-Poor 1 2 3 4= 4=

Clearly, the community priority is for improvements in water supply, sewerage/sanitation and urban drainage, in that order.

7.3.2 Municipal Corporation Priorities

During the Project scoping exercise considerable dialogue was had with the Municipal Corporation Mayors and technical staff as well as state line agencies, such as KWA, PWD and Irrigation Department in their respective sectors. At the Mid Term Workshop, as part of the working group session, the City Mayors and officers were requested to proportion any funding that might be available for infrastructure improvements as an indicator of civic priority. The results are presented in Table 7-6.

Table 7-6: Municipal Corporation Priorities

City / Sector Water Supply

Sewerage / Sanitation

Urban Drainage


Roads & Transport

Poverty Alleviation

Thiruvananthapuram N/A 50% 10% 10% 25% 5%

Kollam 33% 25% 7% 7% 25% 3%

Kochi 20% 30% 20% 5% 23% 3%

Thrissur 40% 5% 20% 10% 15% 10%

Kozhikode N/A 50% 10% 10% 25% 5%



8. SELECTION OF PHYSICAL COMPONENTS

8.1 Methodology and Approach The objective of the following sections is to present the approach adopted for the identification and selection of sample projects for each Project city. It then includes technical choices, in the selection of standards and alternative technology options – and a weighing-up of what is affordable. In addition - and possibly more importantly - it covers policy choices on the type and level of urban services and the management of such services. The section further formulates recommendations on principles of implementing, managing and financing these services.

The central strategic development objective of urban infrastructure projects is to provide adequate environmental and institutional conditions that will permit and encourage sustainable economic growth and targeted development in the cities, and thereby contribute to the reduction of urban poverty.

One element of this is the structural improvement to the urban living environment: water, air and soil. The project should bring physical improvements to the present situation, to the living conditions of the entire urban population. It might also introduce institutional and legal changes that can protect the urban environment and its population in the future.

8.2 Underlying Principles Bearing in mind the present state of development of the five Project cities, and the available state agency and/or municipal finances, we recommend that the project should focus on providing more than the basic minimum expectations for essential services in each of the cities. In all cases, this provision requires a combination of civil works – to put things in place – and a sequence of procedural and organizational change to finance, plan, manage and sustain such services.

In outline these minimum targets are:

A reliable water supply of adequate quantity and acceptable quality, for 24 hours per day, throughout the city in a phased manner, through maximizing house connections and minimizing the need for public standposts;

For densely populated urban core areas when there is adequate water supply: a networked system (such as a sewerage system) to collect and transport waste water, with treatment of the collected sewage; and on-site sanitation of acceptable quality in lower population density areas;

The removal of domestic, commercial and industrial solid waste from the urban area, through an effective and safe system of collection, transportation and disposal;

A drainage system designed to avoid damage caused by stagnant water and flooding;

A demand oriented road and transport infrastructure capable of improving accessibility and mobility of people and at the same time inducing environmental upgrading and saving in energy.

Based on the current conditions, these guiding principles have led to the identification of a set of project components. The cost implications of these preliminary designs have been reviewed against



what government and households can afford, according to a range of financing options. In some cases, this assessment indicated a need to scale down investments, or consider other financing options.

Once the investment program for each project city was agreed, corresponding staffing structure and capacity building activities have been determined some of which could start in the pre-investment period before project implementation commences.

8.3 Component Selection Criteria The total investment in each city varies, depending on the level of current basic needs, the city’s affordability, and the assessed implementation capacity of the city or its agencies. Although the populations of the cities vary considerably, apportioning investment according the population was not considered appropriate. Overall, project component selection is influenced by affordability and implementation capacity, rather than total loan size.

In the interest of integrated city development, another criterion considered in project component selection has been to ensure inter-sector linkages and optimization. For instance, water supply, sanitation and sewerage have been seen as a composite sector and not in isolation from each other.

8.3.1 Social and Poverty Criteria

Overall Social Criteria

Project meets GoI / GoK / Corporation / ADB (KSUDP) social policy objectives;

Project is affordable / accessible by the poor; and

Project meets expressed needs of community (and women and the poor have been consulted).

Maximizing Social Benefits

Project maximizes numbers of BPL beneficiaries. Target is to exceed 38% BPL beneficiaries;

Project extends or improves service delivery to previously un-served or under-served areas, particularly for poor settlements;

Project leads to sustained poverty reduction through demonstrable health, livelihood benefits;

Project empowers and leads to demonstrable improvement in Quality of Life for women; and

Project enables participation of community (especially poor communities) in planning, construction and Operation and Maintenance (O&M).

Minimizing Negative Social Impacts

Project requires minimum resettlement (or loss of productive / non-productive assets). Full Resettlement Plans are required if there are more than 200 affected persons or 100 most poor and vulnerable persons affected. If less, a short Resettlement Plan will be required;

Resources are available to compensate for loss of housing, land, productive assets, cultural sites, social networks etc, including for most poor and vulnerable; and

Project minimizes other negative impacts on poor men and women, e.g. increased costs for services (time and money), unemployment, and health risks.



8.3.2 Financial Criteria Components should ideally produce direct revenue. Non or indirect revenue generating projects

should demonstrate absolute need – social or otherwise – and augment indirect revenue resources of the ULB (i.e. increase the tax base of the ULB on account of the better service provided by it);

Capital costs are based on least per capita cost option considering the area, population and benefits, and designed for 15-20 years;

Components should demonstrate best possible maintenance and management option;

As far as possible the projects generate revenues sufficient to meet O&M costs and debt service without government subsidy;

Components should result in no (or minimal) resettlement / relocation; and

Land acquisition should be considered only where it is absolutely necessary / unavoidable.

8.3.3 Economic Criteria

For economic viability the Project should:

Demonstrate significant improvement over the “without project” situation;

Demonstrate thorough assessment and quantification of effective demand;

Demonstrate demand and supply management as an integral part of design;

Be the most cost effective (least cost) solution. Technical and institutional alternatives must be considered as an integral part of design; and

Demonstrate low risk from technical, social, environmental, financial and institutional perspectives.

For economic development the project should have potential to:

Maximize the removal of constraints on economic activity, sectors ranked as negatively affecting business performance will be preferred;

Maximize economic growth, projects ranked as contributing to improving business performance and prospects will be preferred;

Act as a catalyst to economic growth, projects which will affect industrial sectors identified as having growth potential will be preferred (e.g. agro-business); and

Act as a catalyst for pro-poor economic growth; projects which affect industrial sectors, which have high local employment and income generating effects, will be preferred (e.g. tourism).

8.3.4 Environmental Screening Criteria

The overall environmental criterion is:

Project components should maximize improvements to the urban environment and living conditions for urban population while, at the same time, minimizing the environmental impact of their implementation.



For maximizing environmental benefits Project components should:

Improve access to reliable safe water supply, in particular BPL beneficiaries;

Reduce direct exposure by population to the risks of polluted wastewater;

Reduce property damage due to flooding and dirty storm water;

Reduce flooding of neighborhoods; and

Improve urban environment by the more effective removal and disposal of (solid) waste from the urban area.

For minimizing environmental negative impacts:

Developments should avoid or minimize damage to valuable ecology and natural heritage areas:

Avoid or minimize disturbance to the extent, depth, or hydrological balance of backwater wetlands;

Avoid clearing or indirect destruction of mangroves in Thrissur, Kollam and Thiruvananthapuram districts. Minimize disturbance in Kochi and Kozhikode districts; and

Avoid adding to effluent load entering the Vembanad, Chaliyar, Sasthamcotta, and Pookot waterbodies and the Periyar River system.

Developments should avoid disruption and dislocation to communities:

No resettlement or relocation should be required; and

Avoid destruction / disturbance to historical / cultural items or values.

Developments should avoid causing or exacerbating environmental hazards:

Developments should not result in new or intensified drainage problems in other areas;

Avoid development which could mobilize the acid reaction of acid sulfate soils around Kochi; and

Avoid development on flood-prone land or floodplain on the coastal strip. Flood mitigation / drainage improvement works will need to take account of downstream effects.

Developments should be undertaken in an environmentally sound fashion:

Ensure full environmental benefits will be achieved through adequate maintenance and operation of the developments;

Ensure developments on alluvial soils do not produce effluent / leachate that enters groundwater or aquifer; and

Ensure any effluent produced or diverted by project developments do not increase pollutant loading on coastal rivers and backwaters.



8.3.5 Institutional Criteria Sufficient management, technical and financial resources are available within the Corporation or

other implementing agency to execute the project;

The implementing agency is of the right size, with the right skills and with the appropriate organizational structure to execute the project;

The implementing arrangements of the project meet the objectives of decentralizing authority to as low a level of government as possible;

Financial management systems are adequate to accommodate requirement of project financial flows, accounting and reporting;

Training facilities are available to upgrade the skills needed to run the project;

There is sufficient flexibility to allow for skill enhancement and appropriate job allocation;

Sufficient mechanisms are in place to provide accountability to users for the operation of the project;

Management information systems are in place to enable ULBs to manage a decentralized project effectively; and

Legal and managerial enablement is available to the ULBs for private sector partnerships, if appropriate.

8.4 Least Cost Solutions and Component Selection In formulating project components, the preferred option was developed based on least cost options, taking into account meeting service delivery targets, and whole-life costs, including considerations on achievable operation and maintenance arrangements, given available resources in terms of skills and facilities. Table 8-1 summarizes the main considerations. Further details of benefit –cost analysis of different infrastructure materials and processes is provided in Volume 6 – Technical Analysis.

Based on the considerations and screening referred to in the preceding section priority components were selected for the Project cities. Each selected component was scrutinized and their financial, social and environmental impacts assessed to verify acceptability and that they could be justified for funding under the ADB loan.

A list of selected project components is provided in Chapter 10. Description and financial information on the individual component is provided in Volume 2 – City Reports.



Table 8-1: Least Cost Solutions

Water Sanitation / Sewerage Solid Waste

Source Source close to supply area Gravity where possible

Sanitation Choice Low population density.

Space on-plot for twin-pit latrine

High population density, high water table no space for on-plot

Collection Hybrid door-to-door collection,

using two types of local containers and community systems for concentrating waste to containers, from household to containers

Treatment Rapid sand filtration

preferred to slow sand filtration: higher energy but lower land needs

Transportation / Sewer network Gravity systems to avoid

pumping Pipe materials selected on

construction quality, durability and cost

Transportation Vehicles specified to collect

waste from containers, or lift containers, direct to disposal site

No double handling No transfer stations if small

distance to disposal site

Transmission and distribution Pipe material selected on

cost, durability and pressure resistance

Gradual move to metered house connections, to enable demand management

Treatment Compromise between land

requirements, power needs and O&M: usually leads to choice of waste stabilization ponds, UASB or FAB systems

Disposal and treatment Waste too wet and inorganic for

incineration Composting potential if waste

segregated at source Sanitary landfill required for

inorganic waste and composting rejects



9. SELECTION OF URBAN MANAGEMENT COMPONENTS

9.1 Need and Approach The Project component Part B: Urban Management and Institutional Development (UMID) is designed for long-term sustainability of infrastructure investments and addresses two issues (i) policy reform by the State; and (ii) institutional development / capacity building initiatives. To ensure efficient urban basic service delivery, it is imperative that urban management is undertaken at three levels – State, Local Self Government and Community. For managing urban development efficiently, it was found imperative to review institutional strengthening requirement at all three levels and the component selection is based on four critical parameters – planning, core service delivery and asset management, institutional development and financial management. While GoK itself has defined a road map for urban development in the State, KSUDP initiatives complement GoK’s approach. In order to ensure a greater impact of KSUDP investments in overall service provision, the UMID component addresses improvements required in the systems and functions, and structures and procedures at all levels of the Local Self Government Department (LSGD), including the Municipal Corporations. Ongoing initiatives, like the objectives of the Information Kerala Mission focusing on financial management and improved management systems at the Municipal Corporations, are further strengthened through KSUDP. The above approach of addressing improvements at three levels is in line with GoK’s Participatory Planning Approach and equipping all levels of stakeholders in the planning and decision-making process. The sub-components identified for institutional development lays emphasis on improving current systems and procedures in all departments of LSGD to improve the government-citizen interface and ensure accommodating citizen/public needs in planning for service provision.

9.2 State and Municipal Action Urban management components identified under KSUDP relate to the State’s policy and institutional reform agenda and in order to ensure Project sustainability supports capacity building activities within the State’s policy context as detailed in Table 9-1 below and further elaborated in the Policy and Institutional Reform Agenda presented in Volume 7 – Urban Management and Institutional Development plus a Policy and Institutional Action Plan given (Appendix 11).

Table 9-1: Project Sustainability – KSUDP and GoK Actions

Objectives (Policy Directive) GoK Action KSUDP Action

A. Planning a. MCs to assume

responsibility of urban planning (KM Act, 1994).

b. MCs to undertake preparation of Development Vision and Citywide Development Plans (Tenth Five-Year Plan, 2002-07).

c. MCs to undertake urban road planning (Tenth Five-Year Plan, 2002-07).

During KSUDP implementation, PIU will include city engineering and planning staff. At the end of project, PIU/MC staff would continue as the core of the City Planning and Engineering Department (CPED). An amendment to the KM Act, 1994, may be required to form the CPED. The CPED will undertake future spatial planning and citywide infrastructure provision, and shall comprise staff from the Engineering and Town Planning Department, under the supervision of a Superintending Engineer. The CPED will also oversee solid waste management and undertake the Kerala Development Program.

During KSUDP implementation, PIU and MC staff will receive adequate exposure to project development/planning and implementation procedures. Training and capacity building of staff through KILA programs will provide exposure to planning principles and inculcate a holistic approach to citywide planning.



Objectives (Policy Directive) GoK Action KSUDP Action B. Core Service Delivery and Asset Management

a. MC to create new water supply and sewerage assets and provide services within its jurisdiction/area (KM Act, 1994).

KSUDP assets created are envisaged for operations by the MC. Rehabilitation of assets currently under the purview of KWA and transfer of the same to the MC needs GoK approval (refer Road Map for Decentralized Service Provision – Water and Sanitation).

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b. All MCs to prepare Annual Maintenance Plans (First SFC, 1996, and Second SFC, 2001, recommendation).

GoK may require amending the KM Act, 1994, to ensure that Annual Maintenance Plans form a part of the budget estimate prepared by the MC’s Standing Committee (Sec 286). The MC will need to ensure that all Departments prepare such plans as a part of the budget estimate being submitted for approval by the MC Council.

Implementation under KSUDP will ensure capacity building of PIU and MC staff in preparation of Annual Maintenance Plans for assets created.

c. MCs to ensure priority to solid waste management and sewage disposal services, and undertake urban drainage projects and ensure effective storm water disposal (Tenth Five-Year Plan, 2002-07).

An amendment to the KM Act, 1994 is required for the MC to form the CPED. On formation, the CPED will oversee sewage disposal and treatment activities, and solid waste management. The CPED will prepare drainage improvement plans based on the Storm Water Master Plan prepared under KSUDP, and oversee storm water drain maintenance and ensure effective storm water run-off.

Implementation under KSUDP will ensure staff capacity is built regarding management of sewerage systems and management of solid waste collection and disposal. KSUDP will assist in Storm Water Master Plan preparation for each MC. The Master Plan will provide the basis for MC activities regarding storm water management.

d. Promote public private partnership (PPP) in service delivery.

Certain forms of PPP are in operation and include the solid waste compost plant in Thiruvananthapuram. LSGD will be required to frame and adopt a policy for undertaking more projects on a PPP mode.

Municipal and PIU staff will undergo sensitization and conceptual training regarding PPP options under KSUDP.

e. MCs to effectively implement urban poverty alleviation programs (KM Act, 1994).

MCs are currently undertaking poverty alleviation programs with assistance from Kudumbashree. KSUDP identifies additional areas of poverty alleviation activities that require a city-level stakeholder consensus and participation. The CSOs (formed under KSUDP) and MCs will implement poverty alleviation programs. An anti-poverty sub-plan would be essential for implementing poverty alleviation programs.

KSUDP will ensure constitution of Civil Society Organizations (CSOs) at the city-level and plan preparation through community participation. Capacity building of CSO, PIU, MC and Kudumbashree staff will be undertaken through KSUDP.

C. Institutional Development a. Decentralized operations

of MCs (KM Act, 1994). GoK has recently merged panchayats with Corporations. However, there are indications of a de-merger in the near future. Based on GoK policy, MCs may be required to decentralize administrative and financial functions to zonal offices for effective execution of duties.

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b. Redressal of grievances in MCs (Committee on Decentralization of Powers, 2000).

GoK has already appointed a General Ombudsman, who is currently operational. An internal grievance redressal system, within the MC, will be is imperative for efficient functioning.

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Objectives (Policy Directive) GoK Action KSUDP Action c. MC accountability in

service provision and greater citizen participation in infrastructure planning (KM Act Amendment, 1999).

Through the Kerala Development Program, GoK has ensured that MCs involve citizens in plan formulation for service delivery. The plan formulation requires a citywide holistic approach, which the newly formed CPED will help articulate. An information disclosure mechanism will be required to educate citizens on the MC functions.

Implementation under KSUDP will ensure capacity building of PIU and MC staff in citywide planning.

d. Introduce IT enabled services and streamline municipal systems and procedures.

While IT enabled services have been introduced, extensive support is required in accounting/MIS reforms and tax mapping for resource mobilization. The MCs will need to provide adequate support to IKM achieve the objective.

KSUDP capacity building initiative will support base map preparation, property mapping and implementation of accounting and auditing manual prepared under ADB’s TA for “Capacity Building for Municipal Service Delivery in Kerala”.

e. Human resource development in project ULBs.

GoK may need adopting a policy on additional staff recruitment required for catering to increased service levels (spatial and transferred institutions). GoK will also need to initiate, plan and deliver staff training programs.

KSUDP capacity building will support the Directorate of Urban Affairs (DUA) in creating and maintaining a database on LSGD staff. KSUDP capacity building / training through KILA would ensure staff sensitization towards developmental works.

D. Financial Management Implementation of the plinth area based Property Tax and increase in tax base (First and Second SFC recommendation).

GoK legislations required for amending the property taxation system and enhancing the MCs’ revenue base.

KSUDP will support through base map preparation and property tax mapping.

a. Asset survey of ULB own property and transferred properties (First SFC recommendation, 1996).

GoK policy required on making municipal asset inventory management mandatory (asset valuation would act as a collateral for external borrowings).

KSUDP will support through mapping of municipal properties and database creation at the DUA.

b. Two-yearly revision to non-tax license items and Advertisement Tax (First SFC recommendation, 1996).

Orders passed, GoK legislations required. -

c. Reforms in Accounting in Urban Local Bodies.

GoK in-principle acceptance to introduce double-entry accounting system.

ADB’s TA for “Capacity Building for Municipal Service Delivery in Kerala” will provide the accounting and auditing manual preparation, asset valuation procedures and software verification for compliance with commercial accounting principles. The above will form the basis for implementation of accounting reforms in the MCs.



9.3 Community Level Action The majority of the Project investment will be dedicated to improving major environmental infrastructure, throughout the urban areas of the five cities. Works will include primary (trunk) and secondary infrastructure, as well as further tertiary facilities, providing house connections and services. Beneficiaries of these works will include most of the urban population, throughout the urban area. Although these works will thereby similarly benefit the urban poor, they are not specifically targeted at the poor or at under-served “slum” areas. One of the guiding objectives of the Project is that the provision of improved infrastructure and services to the poor – and relevant to the priorities of the poor – should follow as a result of the encouragement of a process of including planning for improving urban poor community settlements as an integrated part of routine mainstream works.

Therefore, in addition to addressing the urban management functions of the municipal corporations, the UMID Component also addresses issues related to poverty alleviation and capacity building of municipal corporations and communities to address the infrastructure, social and economic needs of the poor and vulnerable. The component provides for poverty alleviation in the five municipal corporations through a Community Infrastructure Fund (CIF) comprising slum infrastructure development, developmental assistance to women and children, and improved health and sanitation facilities, and a Poverty Social Fund (PSF) comprising promotion of livelihood business, assistance to vulnerable groups and capacity building of support organizations like the community development societies.

The formulation of the Community Infrastructure Fund and the Poverty Social Fund components are designed to develop these processes, as an interaction between formal local government and citizens groups representing local interests. The two Funds will be available to Corporations for the implementation of slum improvement and poverty alleviation schemes targeted at the urban poor and vulnerable groups. The schemes are to be prepared by Corporations as part of the Peoples Plan process using the existing SJSRY structure of Community Development Societies with the participation of Neighborhood Groups and NGOs.

The poverty alleviation component would thus have two main themes: (a) providing assistance for physical infrastructure and (b) livelihood promotion in urban poor community settlements. The physical infrastructure schemes will improve access to basic services such as water supply, sanitation, drainage, street paving and street lighting, etc. Consideration could also be given to the construction of community basic health centers and other structures, based on community priorities and need. The livelihood promotion intervention schemes could include livelihood orientated business schools which would be created in each project city to facilitate and support comprehensive livelihood development. In addition, production and market centers for new and existing Kudumbashree products could be established with links to R&D institutions in micro-enterprise, skill, product and marketing development to consolidate the initiatives already undertaken by Kudumbashree and the municipal corporations. These should be further supported by the capacity building programs, including sensitization in gender and development, for community based organizations and elected representatives in the municipal corporations.



SECTION D: THE PROPOSED PROJECT

10. PROJECT DESCRIPTION

10.1 Project Purpose The purpose of the Project is to improve the urban environment and living conditions, with particular attention to the urban poor, in the five municipal corporations.

The Project has thus been designed with city sub-project components grouped into three broad, mutually interactive and supporting categories, further elaborated in the sections below. At the end of this chapter, certain special features on the design and formulation of project components are highlighted.

Part A: Urban Infrastructure Improvement;

Part B: Urban Management and Institutional Development; and

Part C: Implementation Assistance.

10.2 Part A: Urban Infrastructure Improvement The process leading to the selection and formulation of the main physical infrastructure project components is described in Chapters 7 and 8. A review of priority needs in the project cities against the main project objectives has resulted in a concentration on environmental infrastructure components: water supply; sewerage and sanitation; storm water drainage; solid waste management; and, road and transportation. Table 10-1 summarizes the selected project components in each of the cities, with the estimated number of direct beneficiaries for each component at EOP (2011).

Table 10-1: City Sub-Project Components

Component Description Total EOP Beneficiaries

(Poor Beneficiaries)

Thiruvananthapuram Water Supply Not included – under JBIC: providing augmented supply, distribution

rehabilitation and KWA institutional and management strengthening. n/a

Sanitation and Sewerage

Rehabilitation of existing sewerage; extension of sewerage with house connections in coastal areas; 120 MLD STP for existing and extension sewerage; sanitation and sewerage maintenance equipment.

656,000 (78,700)

Storm Drainage

Rehabilitation of existing culverts and construction of by-pass culvert, silt pits etc. on Pazhavangadi Thodu; Improvement of other secondary drains.

83,400 (44,700)


Not included – under Capital Region Development Program: providing collection / transportation equipment and sanitary landfill site development.

n/a

Roads and Transportation

Capacity augmentation of 6 critical road sections – total 23 km. 157,200 (15,700)

Kollam Water Supply Improvements to the two existing water treatment plants; replacement of

existing transmission main; leak detection and metering program including rehabilitation / strengthening of the existing distribution network.

280,300 (112,900)


Rehabilitation of existing sewers and laying new sewers with house connections in old municipal area; construction of pumping stations and 16 MLD STP with supply of sanitation maintenance equipment.

301,500 (25,100)



Component Description Total EOP Beneficiaries

(Poor Beneficiaries)

Storm Drainage

Improvement of existing drains and construction of new drains citywide. 86,000 (43,900)


Collection & transportation equipment; compost plant installation and development of sanitary land fill site.

338,900 (75,600)


Capacity augmentation for 3 major roads and junctions; street lighting improvements; and underpass at Chinnakada.

100,800 (9,100)

Kochi Water Supply Trunk water supply rehabilitation and leak detection program with

rehabilitation / strengthening of the existing distribution network. 472,600

(122,900) Sanitation and Sewerage

Extension of sewerage in South Ernakulam with 10 MLD STP; extension of sewerage in North Kochi with 20 MLD STP including house connections with supply of sanitation and sewerage maintenance equipment.

542,500 (11,800)

Storm Drainage

Improvement of link drains in flood prone and waterlogged areas of city center; rehabilitation of the major drainage canals in the central city zone; Improvement of secondary drains and covering of existing open drains

70,300 (5,500)


Collection & transportation equipment; compost plant installation and development of sanitary land fill site.

567,900 (41,400)


Capacity augmentation for 2 roads and 12 junctions; road safety proposals for 43 km length on 9 critical roads plus construction of road link to stadium and new canal bridge on SA Road.

130,100 (14,300)

Thrissur Water Supply Replacement of existing transmission main and pumping machinery with

leak detection program and rehabilitation / strengthening of the existing distribution network.

207,800 (45,200)


Septic tank emptying equipment and development of sludge treatment facilities.

275,500 (27,000)

Storm Drainage

Side protection and de-silting of primary canals and in all drainage zones (15km); renovation of existing and construction of new culverts; renovation of Vanchikulam Tank and improvements to existing secondary drains.

51,900 (5,000)


Collection & transportation equipment and development of sanitary land fill site.

341,500 (30,400)


Capacity augmentation for 8 critical city roads; safety improvements for central city roads; 3 Pedestrian sub-ways on Swaraj Road and improved street lighting for all major roads.

65,000 (6,500)

Kozhikode Water Supply Not included – under JBIC: providing augmented supply, distribution

rehabilitation and KWA institutional and management strengthening. n/a


Rehabilitation of existing sewers and completion of zone; extension of sewerage in northwest; construction of 27 Mld STP including house connections plus supply of sanitation and sewer maintenance equipment.

389,300 (13,700)

Storm Drainage

Improvements to secondary drains and inlets to Elathur-Kallai (EK) Canal; drainage in Wards 15 and 17; construction of culverts at Kuzhippavayal and Varuthichery Vayal and construction of drainage outlets to the sea.

122,000 (20,400)


Collection and transportation equipment and development of sanitary land fill on existing site.

434,100 (40,900)


Capacity augmentation for 3 critical urban roads; new flyover at Arayidathupalam; GL off-street parking; pedestrian access & safety improvements with street lighting improvements for 58km. of major roads.

154,300 (17,000)



10.3 Part B: Urban Management and Institutional Development While KSUDP will ensure infrastructure provision in the five municipal corporations, for long-term sustainability of the assets created and for effective management of urban basic services, it is imperative to address key management issues. Infrastructure creation under KSUDP will be implemented by the Project Management Office (PMO) at the state-level in association with Project Implementation Units (PIUs) at each corporation; Kudumbashree will channel fund flows for poverty alleviation programs, advise and monitor poverty alleviation components in the city corporations. The urban management component under KSUDP is related to institutionalizing a system to address the municipal corporations’ ability to sustain service provision and the State’s Local self Government Department’s ability to oversee service delivery by LSGIs. In summary, the urban management and institutional development under KSUDP will address:

Capacity building of the Local Self Government Department and the Directorate of Urban Affairs regarding internal systems and procedures and ULB performance monitoring;

Capacity building of the five Project municipal corporations comprising urban planning, asset inventorization, accounting and financial management;

Municipal staff training on project development, design and implementation – this shall apply to the five municipal corporations and 53 municipalities; and

Community development and participation including poverty alleviation tracking.

Volume 7 provides a detailed assessment of urban management and institutional development under the project.

From the urban management perspective, KSUDP will complement the activities envisaged under the ADB aided Modernizing Government Program (MGP). The MGP activities related to urban local bodies is limited to (i) preparation of holistic waste management systems through incentive mechanisms (Theme I.7.1); (ii) regulation for management of institutional waste change (Theme I.7.3); and (iii) Town and Country Planning Legislation (Theme V.1.5). Urban Management and Poverty Alleviation activities under KSUDP would address select initiatives in MGP’s Theme V on Effective, Efficient and Accessible Local Self Government and shall include:

Five-Year Planning Framework. Asset management plans, community rehabilitation plans for the physically and mentally challenged, and spatial plan with focus on connectivity.

Local Economic Development. Identification of micro-enterprise opportunities for the poor.

Strengthen Local Self Governments. New office management systems, procurement manuals, public works manual, IT plan, budgeting, accounting and resource mobilization.

10.3.1 State Level Institutional Development

The current role of the LSGD is primarily related to policy formulation and administrative control of all agencies within its purview; the DUA shares this responsibility and facilitates in tracking Plan fund flows/devolution and human resource/personnel management. However, in order to enhance the role of the LSGD and DUA in urban management, the outcomes of capacity building assistance activities comprise (i) comparative performance assessment/municipal database institutionalized at the DUA



and maintained by the DUA for ready reckoning by the State in policy matters; (ii) database on the ULBs’ human resources/personnel; (iii) State Policy on environmental sanitation infrastructure cost recovery; and (iv) State Policy/Guideline on financing patterns for infrastructure projects.

10.3.2 MC Institutional Development

The capacity building assistance to the five municipal corporations is aimed at addressing the planning, core service delivery, institutional development and financial management improvements. Key outputs of the capacity building assistance comprise (i) Geographical Information System (GIS) based maps – for detailed engineering designs/topographic surveys and property mapping; (ii) database on municipal assets and properties (property tax mapping) –property tax assessments and existing service utility lines; (iii) financial management reforms through property tax rationalization and accounting reforms; (iv) undertaking other e-governance initiatives; and (iv) developing performance based contracts for procurement, infrastructure creation and service provision.

10.3.3 Municipal Staff Training

Under KSUDP, the objective of the training support is to address three key elements comprising effective planning and infrastructure provision, core service delivery and asset management, and prudent financial management. The training assistance shall address the following aspects (i) sensitization/orientation training; (ii) conceptual training; and (iii) implementation training. It is envisaged that this training and capacity building program will target the five Municipal Corporations and 53 Municipalities. KILA will impart training to guide staff in appreciating project structuring and feasibility analysis; this activity will run parallel with the works of the Design and Supervision Consultant (DSC) in the five Corporations to help staff contribute in the works of the DSC. Preliminary sessions of the implementation training will commence before construction contracts are awarded; main sessions on physical and financial monitoring will commence once the contractor is appointed for project implementation.

10.3.4 Poverty Alleviation

Under KSUDP, the objective of capacity building for poverty alleviation initiatives is to ensure that the Project benefits reach the poorest of poor and that all stakeholders involved in the Project are well informed regarding the activities and processes to achieve the Project objectives. Based on participatory workshops, the Corporations and Kudumbashree identified components for poverty alleviation programs. These proposals are only indicative requirements, which as part of the capacity building process for participatory planning will be refined during implementation. The preliminary indicative proposals are divided into two for either accessing the Community Infrastructure Fund (CIF) or the Poverty Social Fund (PSF). Refer Volume 3 on Social and Poverty Analysis.

The Community Infrastructure Fund (CIF) provides assistance for slum infrastructure improvement, facilities for women and children, and facilities for health and education proposals comprise:

a) Slum Infrastructure. Preliminary identified components at community level included inadequate services relating to water, sanitation, roads, streetlights, drainage, community hall, day care centers for children, health facilities, rain water harvesting.



b) Women and Children Issues. Investments identified under this component cover Gender Resource Center, Day Care Center or Early Child Development Center or Early Child Development Center, Legal Aid Support, Nutritional Support, support to Street Children/Child laborers, and scaling-up Balasabha programs.

c) Health and Sanitation. Investments identified under this component relate to support for clearing garbage from communities, mosquito spraying, mini health centre, health kits to volunteers, and creation of a health campus.

The Poverty Social Fund (PSF) addresses the social and economic needs of the poor and comprises:

a) Income Generation Program. Investments identified under this component relate to establishing Marketing Centers, Skill Development, Micro Enterprise Units, EDP Training, Quality support unit for Kudumbashree products, and setting-up Livelihood Oriented Business Schools (LOBS).

b) Vulnerable Groups. Investments identified under this component cater to vulnerable groups including destitute rehabilitation, street children, old age people, widows, women in distress, physically and mentally challenged persons, beggars and migrants, orphans and sex workers rehabilitation.

c) Capacity Building and Institutional support. The proposal under this theme includes capacity building programs for CDS, ADS, NHG members, CSOs, MC, Kudumbashree team, intervention partners training, institutionalizing insurance, computer network support to District Kudumbashree, and quality control units in Kudumbashree.

A key component for successful implementation of poverty alleviation initiatives is the constitution of a Civil Society Organization (CSO) in each city, which is expected to coordinate the identification and prioritization of the requirements of the poor and vulnerable, and facilitate Project implementation. The CSO will essentially comprise city-level stakeholders including but not limited to the Municipal Corporation, business groups, resident welfare associations, NGOs, CBOs, CDS and Kudumbashree. The CSO will strengthen the activities of the Urban Poverty Alleviation (UPA) cell in the Municipal Corporation for utilizing the CIF and the PSF with appropriate facilitation by Kudumbashree.

Training of CSO members, UPA staff at MC, Kudumbashree and CDS members is therefore imperative and may be carried out through identified training institutes (refer Volume 7 for an indicative list of courses). While a training needs assessment is a requisite for identifying areas of capacity building, the following is an indicative list.

Community Infrastructure Fund. These may include (i) planning and identification of community infrastructure needs; (ii) operational and maintenance issues relating to infrastructure provision; and (iii) awareness regarding women empowerment, health and diseases, and education.

Poverty Social Fund. These may include (i) conceptual clarity for scaling-up livelihood initiatives through livelihood development strategies; (ii) facilitating confederation of Self Help Groups to graduate into Micro Finance Institutions (MFI); and (iii) focus on business development initiatives for micro enterprises.



Strategic Programs. These may include (i) project development programs with specific reference to CIF and PSF utilization; (ii) CSO networking and resource convergence; and (iii) creating strategy mechanism for CSO to run programs under health, sanitation and income generation.

10.4 Part C: Implementation Assistance

10.4.1 Project Management and Design Consulting Services

The Project Management Office (PMO) based in the state Local Self Government Department (LSGD) and the Project Implementation Units (PIU) based in the 5 Project cities will be provided with necessary consulting services under the loan to strengthen their project management and implementation capability including engineering design and construction supervision.

A Project Management Consultant (PMC) group comprising international and domestic firms will be located in Thiruvananthapuram to assist the PMO in project management activities including reviewing engineering designs, procurement, and implementation. The PMC will also assist the PMO and the PIUs in project formulations, management, monitoring and evaluation, financial and environmental management aspects, public relations and awareness and the Poverty Alleviation Programs. A total 276 person months (78 international and 198 domestic) of consulting services will be required for the PMC.

Two domestic Design and Supervision Consultant (DSC) firms will be provided to assist each PIU in the project cities; one for the southern region covering Thiruvananthapuram and Kollam and the other for the northern region covering Kochi, Thrissur and Kozhikode to undertake detailed engineering design, preparation of construction drawings, procurement activities, construction supervision, quality control, community awareness and poverty alleviation programs associated with the Project. A total of 2,724 person months of consulting services will be required for the two DSCs (1,170 person months for southern region and 1,554 person months for northern region).

10.4.2 Public Awareness and Benefit Monitoring

A domestic Community Awareness and Participation Consultant (CAPC) firm will be employed by the PMO to make the public aware of the short-term inconveniences and long-term benefits of the project in order to gain full support of the beneficiaries for the project. Beneficiaries will also be made aware of preventive care to avoid environmental health-related hazards and of their responsibilities to avoid the wastage of water, including issues such as water rates, user charges and property tax reform, etc. for achieving the project goal. The CAPC will require a total 60 person months of services.

In addition, a domestic Benefit Monitoring and Evaluation Consultant (BMEC) firm will be required to help the PMO in generating baseline data which will be monitored to assess impact of the Project and providing guidance for mid course correction, if required, and assess benefits on commissioning of the Project. A total 51 persons month of services will be required by the BMEC.

The consultant firms for the five packages will be selected in accordance with the latest procedure and guidelines set by the Asian Development Bank. Outline Scope of Work for the consulting services are provided in Appendix 10.



10.4.3 Community Awareness and Participation

The PMO will identify and recruit NGOs in each Project city primarily for assisting in the poverty alleviation planning process through community participation, the public awareness campaigns and project benefit monitoring and evaluation. In addition, NGOs may be required to assist with any rehabilitation and resettlement to ensure that affected persons are aware of their entitlements and to ensure conformity with the project Resettlement Framework and Resettlement Plan.

The NGOs will be required to have experience in community mobilization, training, information dissemination, communication and media development covering the fields of municipal service provision, socio-economic surveys, environmental health, income generation, education, gender and resettlement.

10.5 Special Features The design of the Project and its sub-project components includes a number of special features and conditions, reflecting the specific situation prevailing in the Project cities, in terms of the physical infrastructure, socio-economic circumstances as well as the institutional framework. These features typically center around an interaction between the investment under Part A in physical works, integrally supported and complemented by the activities financed under Part B: Urban Management and Institutional Development. This section serves to highlight these interactions, to enable recognition of such special features.

Water Supply – System Optimization and 24 Hour Supply

The current provision of piped water in the Project Cities is a critical issue, with limited hours of service in some areas, low delivery pressures and unacceptably high figures for losses or unaccounted for water (UFW). The present situation denies basic human needs to the most vulnerable in the cities, and thwarts any attempts at economic growth. Project component formulation is based on the principle that an integral program of system optimization should precede any capital investment for distribution network expansions or source augmentation. The optimization program is to include (i) Distribution network mapping & analysis; (ii) Leak detection, waste control and metering program; (iii) Water and power audit of production, treatment and distribution; supported by (iv) a program of Water management training and capacity building.

A strategic principle and target for the program is the long-term aim of eventually providing a 24-hour supply to all households with the strategic move of providing water to customers only through metered connections instead of free from public standposts. This target puts high demands on the integrity of the entire distribution system, on the organizational strength of the agencies responsible for operating the system, and the financial efficiency of the billing process. However, the target of 24 hour metered supply – and its underlying essential requirements – is considered to be the only acceptable for major cities in India, in terms of meeting essential minimum services, enabling the effective monitoring and thereby control of all UFW, and enable forms of demand management.

Rationalization and Decentralization of Planning Functions

Planning for urban areas still follows prescriptive centralized delivery of a “development plan”. Effective planning determining local priorities based on an accepted city development strategy in



compliance with the GoK legislative reform for de-centralized planning functions, requires the establishment of local planning units, and a broad program of capacity building to introduce new approaches and procedures. The Project allocates resources dedicated to encourage and develop such a change in planning functions.

Decentralization of Effective Environmental Monitoring and Management

All Project interventions are aimed at improving the urban environment, directly or indirectly. A current weakness in urban management is the absence of effective environmental management and control at the urban level. The Project intends (a) to strengthen the environmental management role through the establishment of a dedicated department for solid waste management, and (b) encourage the de-centralization of the monitoring role of the State Pollution Control Board (SPCB).

Kerala Local Government Development Fund

In order to provide Kerala’s local self-government institutions’ (LSGIs) additional resources for financing infrastructure projects, GoK with assistance from ADB is reviewing the possibility of establishing a financial intermediary that will provide LSGIs with avenues for raising resources through non-budgetary sources (capital markets, infrastructure bonds, etc.); this option is more pronounced given the fact that Plan funds are inadequate to meet the growing demand for basic service delivery.

A separate ADB Line of Credit will flow into the Kerala Local Government Development Fund (KLGDF). It is proposed that the State Legislature will set-up KLGDF as a “Statutory Entity” of GoK and the Chief Minister of Kerala may chair the Fund. The KLGDF Board shall comprise members representing GoK, LSGIs and Financial Institutions. The KLGDF Governing Board will establish a Fund Management Company (known as the Asset Management Company) that will enter into a management contract with the Fund to operate the proceeds. GoK and LSGIs will have initial equity holdings in the Asset Management Company (AMC), which is to be called the Kerala Local Government Infrastructure and Financial Services Limited (KLGIFSL). It is suggested that the shareholding should be increased to involve Financial Institutions (FIs), Academic Institutions, etc.; GoK’s maximum holding in KLGIFSL will be limited to 26% of the equity.

KLGIFSL shall oversee project management and will undertake the following activities (i) infrastructure investment; (ii) project development and implementation; and (iii) institutional development assistance. The AMC will operate proceeds from KLGDF on commercial principles to be decided by the Management Board of KLGDF. Sources of fund will comprise GoK budgetary transfers, GoI fund transfers, loans/grants from bilateral/multilateral agencies, capital markets, etc. It is proposed that the ADB will provide the Fund a maximum line of credit of US$ 50 million.

The potential clientele of KLGDF shall comprise all LSGIs including the five municipal corporations and 53 municipalities. Sub-projects eligible for lending shall include water supply, sanitation, street lighting, solid waste management, roads, transportation, sites and services, area development, and other remunerative and non-remunerative urban infrastructure project; KLGDF will not finance power and telecommunication projects. Eligible items for financing include civil works, services, goods and materials; KLGDF will not finance land acquisition and working capital costs.



11. OUTLINE IMPLEMENTATION ARRANGEMENTS

11.1 Project Management and Administration A Project Management Office (PMO) is responsible for overall coordination, management and administration of the Kerala Sustainable Urban Development Project (KSUDP). The PMO will be responsible for overseeing components under KSUDP, which includes urban infrastructure improvement, urban management, and implementation assistance. The PMO will be responsible for Project implementation along with Project Implementation Units (PIUs) established in each Municipal Corporation. The implementation arrangement is indicated Figure 11-1.

The urban infrastructure component comprising water supply, sewerage and sanitation, solid waste management, urban drainage, urban roads and transport, and community infrastructure will be implemented through the PIU housed in each Municipal Corporation. Project development and implementation assistance will be provided through Project Management Consultants (PMC) and through Design and Supervision Consultants (DSC). The PMO will be directly responsible for urban management component, which comprises institutional development (capacity building and training) activities at the state-level and municipal-level, policy review and formulation and legislative and administrative framework assistance at the state-level. Kudumbashree will channel funds for poverty alleviation programs and facilitate the municipal corporations in implementing poverty alleviation programs; capacity building of Kudumbashree staff will form a key part of the urban management component.

The PMO will also be responsible for overseeing the operations of the Kerala Local Government Development Fund (KLGDF), managed by a Fund Management Company (FMC), Kerala Local Government Infrastructure and Financial Services Limited (KLGIFSL). KLGDF will be made available to the five municipal corporations, 53 Municipalities and other Local Self Governments. KLGDF will provide financial assistance for urban infrastructure creation to borrowing LSGs; it will also support LSGs through project development and implementation assistance. KLGDF through KLGIFSL will report physical and financial progress to the PMO, which will in turn be reported to GoK, GoI and ADB. Social and Environmental Safeguards will be followed for all projects undertaken by KLGDF and in lines with the frameworks detailed in Volume 8. KLGDF will also ensure that all projects comply with the safeguards and that ADB is kept informed of all activities ensuring such compliance. The PMO- KLGDF relationship is detailed in Figure 11-1.

11.2 Executing and Implementing Agencies

11.2.1 Executing Agency

The Local Self Government (LSG) Department of the State government would be the Executing Agency (EA) of the Project and will be responsible for overall strategic guidance, technical supervision, execution of the project, and ensuring compliance with the loan covenants. A state-level Project Management Office (PMO), led by a full-time Project Director executes the project; he/she will have no other duties within the LSG or elsewhere. The Project Director, supported by the PMO and consultants, will (i) coordinate all activities under the Project; (ii) will be responsible for overall project implementation, monitoring, and supervision; and (iii) will directly report to the Secretary, LSG (Urban) Department.



A state-level Empowered Committee (EC) will be set-up with full powers to decide on matters related to the project. The Project Director would be the member secretary; the members of the committee include the Chief Secretary (chairperson), Secretaries of Planning, Finance, Local Self Government, Water Resource (or represented by MD, KWA and Chief Engineer, Minor Irrigation) and Public Works and the project city Mayors. The Director, Kudumbashree will also form a part of the EC. Other relevant officials may be invited as necessary. Once the project is made effective, the EC will meet regularly to review project performance and decide on major issues, such as counterpart funding, implementation bottlenecks, land disputes, special procurement, policy reforms, etc.

A Tender Approval Committee (TAC) comprising Secretary, LSG (U), Secretary, Finance, and PD, KSUDP will approve all tenders related to KSUDP implementation; the EC will delegate powers related to tender approvals to the TAC. The TAC will take decisions related to all tenders under KSUDP.

11.2.2 Implementing Agencies

Given the multiplicity of functions and the overlap in service provision, identifying the implementing agency is critical for smooth operations. A Project Implementation Unit (PIU) within the Municipal Corporation will be responsible for implementing the urban infrastructure components and coordinating the urban management and institutional development component at city level. The MC will administer the Community Infrastructure Fund (CIF) and Poverty Social Fund (PSF), conforming to GoK’s policy of decentralizing planning and service delivery; Kudumbashree will play an active role in overseeing the utilization of the two funds for poverty alleviation.

A city-level Steering Committee (SC) in each Project city chaired by the Mayor would be constituted for overcoming any bottlenecks in sub-project progress. The SC would constitute the Mayor, District Collector, Corporation Secretary, representatives of State-level departments in the town (Public Works Department, Electricity Board, Kerala Water Authority, Pollution Control Board, etc.), the standing committee chair persons of works and health and representatives of chamber of commerce, industry and NGOs. Besides reviewing Project progress, the SC also sorts out local issues and provides guidance on policy matters. Figure 11-2 indicates the project management arrangements. The members of the Civil Society Organization (CSO) will jointly discuss and provide guidance to the SC on poverty alleviation projects. Kudumbashree will continue to play an active role in advising and monitoring activities facilitating poverty alleviation, in addition to channeling funds for poverty alleviation programs.

11.3 Project Implementation Management

11.3.1 Project Management Office (PMO)

The PMO is responsible for:

a) Appointing project management consultants, detailed design and construction supervision consultants, benefit monitoring and evaluation (BME) consultants, public relations and community awareness consultants, and NGOs;

b) Approving the design of the investment components prepared by the project cities;

c) Pre-qualifying contractors;



d) Reviewing public relations and community awareness programs;

e) Preparing standard bid documents to comply with ADB guidelines;

f) Monitoring the tendering process and guiding the project cities in bid evaluation and preparing bid evaluation reports for approval by ADB;

g) Procuring equipment and services at the state-level;

h) Ensuring project compliance with loan covenants;

i) Coordinating with ADB on matters related to disbursements;

j) Conducting the training and capacity building programs;

k) Providing support under the institutional development assistance; and

l) Maintaining project accounts and submitting timely reports (including monthly project performance reports, quarterly progress reports, BME reports) to ADB and GoK.

The PMO is headed by the Project Director and supported by two deputies – Deputy Project Director, Technical and Deputy Project Director, Administration and Human Resources. The PMO is staffed with senior level technical, financial, social, capacity building/management and procurement officers to manage all technical, procurement and loan account administration; a total of 17 professional staff and 13 support staff will constitute the PMO. An accounting and administrative unit manages procurement and loan account administration.

The EC will authorize the DPD, Technical, to provide technical sanctions to all works under KSUDP after carrying out suitable proof-checking of designs. The DPD will involve other members of the PMO to evaluate the detailed designs prepared by the Design and Supervision Consultants or Turnkey Contractors before providing technical sanctions.

Outline duties and responsibilities of the PMO are provided in Appendix 9.

11.3.2 Project Implementation Units (PIU)

The PIU will be established within each Municipal Corporation. The responsibilities of the PIU include:

a) Carrying out detailed surveys, investigations and engineering designs of individual city components;

b) Tendering, evaluating bids and awarding works, contract administration, supervision and quality control;

c) Measuring works carried out by the contractors and certifying payments;

d) Conducting community mobilization and awareness programs,

e) Carrying out the Benefit Monitoring and Evaluation (BME) studies;

f) Carrying out environmental assessments;

g) Ensuring project city compliance with loan covenants; and

h) Preparing monthly reports.



The Design Supervision Consultant (DSC) supports the PIU in all the aforesaid activities (refer section on Project Management and Consulting Services). A Project Manager will head the PIU and will be supported by sector specialists in water supply, sewerage, and civil engineering. The PIU will also comprise staff involved in procurement, accounts and community development. Staff deputed from the Revenue Department shall handle all land acquisition and resettlement and rehabilitation issues. Each PIU will comprise approximately 10 professional staff and seven support staff. The Project Manager at the PIU will report to the Secretary, Municipal Corporation, and the Project Director at the PMO. All administrative and project co-ordination related issues will be handled by the Secretary. The Secretary will also be authorized to release payments to contractors based on the approval/certification of the Project Manager, PIU, and subject to fund release by the PMO. The Secretary shall interface with the Municipal Corporation Council and KSUDP regarding Project progress.

Outline duties and responsibilities of the PIU are provided in Appendix 9.

11.3.3 Project Implementation Support Services

Consulting services are required for project management, engineering design, construction supervision, procurement of goods and services, public relations and awareness, and BME. Consultants would be selected and engaged in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for selecting and engaging domestic consultants.

Project Management Consultant (PMC). A Project Management Consultant group comprising international and domestic firms will assist the PMO in project management activities including reviewing engineering designs, procurement, and implementation. The PMC also assists the Project Management Office (PMO) and the Project Implementation Units (PIUs) in project formulations, management, monitoring and evaluation, financial and environmental management aspects, public relations and awareness, training and capacity building, and institutional development/strengthening.

Design and Supervision Consultant (DSC). The main objectives of the DSC is to update maps and plans, undertake survey, investigations and prepare detailed designs of various project components for each project city, prepare technical specifications and contract documents, assist in construction supervision and quality control, and undertake works measurement.

Community Awareness and Participation Consultant (CAPC). A domestic Community Awareness and Participation Consultant firm appointed will facilitate community awareness and participation programs (CAPP) on project related issues.

Benefit Monitoring & Evaluation Consultants (BMEC). A domestic Benefit Monitoring & Evaluation (BME) consulting firm recruited by the PMO will identify and evaluate broad macroeconomic, socio-economic and environmental impact of the Project and ensure that project facilities are managed efficiently and the benefits of the project reach the target groups.

Non-Governmental Organizations (NGOs). NGOs recruited in each project city will assist in public awareness campaigns and benefit monitoring and evaluation, and resettlement monitoring. The NGOs for the aforesaid activities will be selected by the PIU in consultation with the municipal corporation. NGOs will also form a part of the CSO to help identify and finalize the poverty alleviation component.



Outline terms of reference for the consulting services are provided in Appendix 10 with costs detailed in Volume 7 - Urban Management and Institution Development.

11.3.4 Implementation of Poverty Alleviation Components

At the city-level it is recommended to constitute a Civil Society Organization (CSO). The CSO members shall comprise MC, Kudumbashree, CDS, NGO, Private/Public sector undertakings, research and academic institutions, media representatives and any other member who the MC feels is of significance for undertaking/involving in poverty alleviation initiatives. The representative of the MC will chair CSO meetings. The implementation arrangement is detailed below and in Figure 11-3.

Project Identification. Project Components for accessing funds through the CIF or the PSF will be designed by the Community Development Societies (CDS) in consultation with the Kudumbashree DMC and with assistance from the Social and Community Development Officer at the city’s Project Implementation Unit (PIU). The project identification process will draw from the social capital available in the Project cities and through the NHGs, ADS and CDS structures established. Where the proposal involves detailed designs for slum infrastructure components, the PIU may assign the responsibility to the concerned DSC; implementation arrangements for other components will be discussed by the CSO. The CSO’s involvement in identification of poverty alleviation components is to ensure that there is a citywide consensus on assistance to the poor and vulnerable; the CSO will facilitate the process of accepting the poverty alleviation proposal. Based on the components identified, the CSO shall make recommendations to the City-level Steering Committee for support under KSUDP. The proposals approved by the Steering Committee would be forwarded to Empowered Committee for sanctioning. The Kudumbashree head office at Thiruvananthapuram and the District Monitoring Cells will be informed about components undertaken in each city, to ensure that there is no duplication of works through Centrally Sponsored Schemes.

Project Implementation. Based on the approved components, the CDS will appoint Consultants, Contractors or procure goods. Components involving detailed engineering designs, will require the technical sanction of the Project Manager at the PIU. The PIU will monitor the physical and financial progress of the works and certify all invoices raised by the contractors subject to compliance with the quality. The certification will be handed to the DMC at the Project city and a copy will be forwarded to the PMO.

Fund Flows. The PMO shall release advances to Kudumbashree for mobilization and work commencement; further payments will be based on the Work Plan prepared by the CDS. Based on the PIU certification, the PMO will release funds to Kudumbashree, which in turn will release funds to the concerned municipal corporation. The MC will open a separate project account to manage funds and payments towards poverty alleviation works undertaken through Kudumbashree. Payments will be based on certification by the SCDO and the PIU’s Project Manager; the Secretary, MC, will be authorized to make payments on behalf of the MC. The CSO will be kept informed regarding all physical and financial matters related to poverty alleviation works.



Figure 11-1: KSUDP – Proposed Implementation Arrangement

Govt. of Kerala LSG (Urban) Department


Kerala Local Govt. Development

Fund


Fund

Kerala Local Govt. Infrastructure and

Financial Service Ltd.



Project Management

Unit

Project Management

Unit

Capacity Building

Training Programs

Poverty Alleviation

Project Dev. & Implementation

Infrastructure Projects


Project Implementation Unit (PIU) within the 5 Municipal Corporations


Fund Mgmt

5 Municipal Corporations, 53 Municipalities and other

Local Self Governments



Overall Project Coordination

5 Municipal Corporations and 53 Municipalities


Reporting

a) Corporations will access KLGDF for projects other than those identified for supervision through PMOb) PIU staff will consist of staff sourced from State Line Depts and/or experts from the field




Fund


Fund





Project Management

Unit

Project Management

Unit

Capacity Building

Training Programs

Poverty Alleviation


Infrastructure Projects




Fund Mgmt





Overall Project Coordination



Reporting

a) Corporations will access KLGDF for projects other than those identified for supervision through PMOb) PIU staff will consist of staff sourced from State Line Depts and/or experts from the field



Figure 11-2: KSUDP – Proposed Project Management Structure

Project Management

Consultants (PMC)

Project Management

Consultants (PMC)

Government of India

Project Management

Office

Project Management

Office

Project Imp. Unit, ThiruvananthapuramProject Imp. Unit,

ThiruvananthapuramProject Imp. Unit, Kollam

Project Imp. Unit, Kollam

Project Imp. Unit, Kochi


Project Imp. Unit, ThrissurProject Imp.

Unit, ThrissurProject Imp. Unit,

KozhikodeProject Imp. Unit,

Kozhikode

Design and Supervision Consultants (DSC)

TVM and KLM


TVM and KLM

City-level Steering Committee (each city)

Govt. of Kerala Empowered Committee (EC)

Asian Development Bank



KCH, TSR and KZD


KCH, TSR and KZD

Benefit Monitoring and Evaluation Consultants (BMEC)


Community Awareness and Public Participation Consultants


Project Management

Consultants (PMC)

Project Management

Consultants (PMC)

Government of India

Project Management

Office

Project Management

Office

Project Imp. Unit, ThiruvananthapuramProject Imp. Unit,

ThiruvananthapuramProject Imp. Unit, Kollam

Project Imp. Unit, Kollam



Project Imp. Unit, ThrissurProject Imp.

Unit, ThrissurProject Imp. Unit,

KozhikodeProject Imp. Unit,

Kozhikode


TVM and KLM


TVM and KLM

City-level Steering Committee (each city)

Govt. of Kerala Empowered Committee (EC)




KCH, TSR and KZD


KCH, TSR and KZD







Figure 11-3: KSUDP – Proposed Implementation Arrangements for Poverty alleviation Programs

Poverty Alleviation Investment Plan (PAIP) Projects


Note:a/ Proposal will be approved by the

City-level Steering Committee and the Empowered Committee will approve the budget

b/ The PIU will certify invoices and payment with a copy to the DMC. The PIU may use the DSC’s services for any proof-checking of designs and drawings

Project Management

Office

Project Management

Office

Identifies, Plans and Implements Projects with Community Participation

Approves project proposal a/

State Poverty Eradication Mission

(Kudumbashree)


(Kudumbashree)

Project Implementation

Unit


Unit

Review project progress and ensure fund utilization b/

Community Development Society, Area Development Societies and

Neighbourhood Groups



Releases funds to MC based on PIU certification

Municipal Corporation/KSUDP

Account


Account

Informs SPEM about schemes undertaken through KSUDP

Makes payment to Suppliers, Contractors and Consultants

SPEM District Mission Coordinator

(DMC)


(DMC)

ReportingFund Flow

Legend:

Civil Society OrganizationCivil Society Organization

City-Level Steering Committee


Assists the City-level Steering Committee in Finalizing the PAIP

Receives certification from PIU

Submits report to SPEM on Work Progress and Certification

Provides technical assistance to CDS


Community Development Officer



Note:a/ Proposal will be approved by the

City-level Steering Committee and the Empowered Committee will approve the budget

b/ The PIU will certify invoices and payment with a copy to the DMC. The PIU may use the DSC’s services for any proof-checking of designs and drawings

Project Management

Office

Project Management

Office

Identifies, Plans and Implements Projects with Community Participation

Approves project proposal a/


(Kudumbashree)


(Kudumbashree)


Unit


Unit

Review project progress and ensure fund utilization b/





Releases funds to MC based on PIU certification


Account


Account

Informs SPEM about schemes undertaken through KSUDP

Makes payment to Suppliers, Contractors and Consultants


(DMC)


(DMC)

ReportingFund Flow

Legend:

Civil Society OrganizationCivil Society Organization



Assists the City-level Steering Committee in Finalizing the PAIP

Receives certification from PIU

Submits report to SPEM on Work Progress and Certification



Community Development Officer



11.4 Procurement and Disbursement Procedure 11.4.1 Procurement of Goods, Works and Services

Goods, works, and services financed by ADB will be procured in accordance with ADB’s Guidelines for Procurement. Procurement will generally be carried out by the PIUs under the guidance of the PMO, except for equipment and vehicles common to all cities, which will be procured by the PMO.

Goods: Equipment and selected materials will be acquired using international competitive bidding (ICB), international shopping (IS), and local competitive bidding (LCB) procedures as appropriate. Goods costing less than $1,000,000 (equivalent) per contract will be procured through IS or LCB procedures. Off-the-shelf items and standardized products costing $100,000 or less will be procured following direct procurement procedures acceptable to ADB. Goods packages exceeding $1 million will be purchased through ICB procedures.

Civil Works: Given the project areas’ geographic location and the nature of works, civil works contracts valued at less than $10 million each would not be attractive to international bidders, and thus will be carried out using LCB procedures acceptable to ADB. Some civil works such as sewage treatment plants, road improvements, and solid waste treatment and disposal sites will be undertaken on a turnkey basis. Where the cost, insurance, and freight or ex-factory cost of goods and supplies for permanent works of one package is estimated to equal or exceed 60%, such procurement package should not be treated as a civil works package. Equipment, materials or civil works costing $100,000 or less including for use by community organizations or NGOs for the poverty alleviation activities related to Community Infrastructure Fund (CIF) and Poverty Social Fund (PSF) will be procured following the State’s applicable procurement procedures acceptable to ADB.

Services: All other contracts, other than for Goods & Works, as outlined above, will fall under this category, for example, appointment of NGOs etc. The procedures for appointment of NGOs will be done as per the guidelines laid down for Consultants who will be selected and engaged in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for selecting and engaging domestic consultants.

11.4.2 Disbursement Procedures

The loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook and Interim Guidelines for Disbursement Operations, LIBOR-Based Loan Products. An imprest account will be established at the Reserve Bank of India and to expedite implementation of the Project through the timely release of loan proceeds. It is proposed that a second-generation imprest account (SGIA) will be opened immediately, in compliance of the State Government, with prescribed procedures as agreed-upon by the Government of India (the Borrower) and ADB. Under the SGIA, the controller of aid accounts and audit (CAAA) will pass on the rupee equivalent of ADB’s imprest advance to the EA through the budgetary mechanism. The EA will maintain the advance in a separate commercial bank account and withdraw from it only the eligible portion of expenditure. The SGIA would be managed, replenished, and liquidated in accordance with the Loan Disbursement Handbook and the detailed arrangements agreed to by the Borrower and ADB. The initial amount to be deposited in the imprest account will not exceed the lesser of the equivalent of six months expenditures or 10% of loan



amount. The initial and subsequent amounts to be deposited in the SGIA will be determined by ADB in consultation with the Borrower. Figure 11-4 provides details on the proposed fund flow mechanism.

11.5 Fund Flow The following procedure will be followed for all disbursements under KSUDP:

The Executing Agency (Local Self Government Department, GoK) will authorize the Project Director, PMO, to release payments due under the Project. Based on the Annual Work Plans and budgets prepared for works under each component, PIUs will indicate fund requirements to the PMO. Each Municipal Corporation will maintain a separate Project Account, which will be operated by the Secretary, MC and the PIU Project Manager. Care shall be taken to ensure that funds available in the Project Account are not used for purposes other than that required under KSUDP.

Based on joint measurements of works by the DSC, Project Implementation Unit, and the Contractor, and on confirmation by the DSC that works conform to the prescribed quality and is in accordance with the required physical completion, invoices will be prepared by the concerned PIU and submitted to the PMO for fund release.

Part works not meeting the prescribed standards will not be billed and only approved works will be billed and forwarded to the PMO; works not conforming to the prescribed quality standards should be completed before the next scheduled date of measurement.

The PMO, on receipt of the invoice, will record the physical progress and release funds to the concerned PIU (the PMO will consolidate all invoices submitted by the PIUs). The PIU, through the Secretary, will make payments to the concerned Contractors. All equipment will be purchased directly by the PMO.

The PMC will provide project implementation support to the PMO in matters of physical and financial progress report preparation. The PMO will consolidate all such reports and forward it to GoK, GoI and ADB.



Figure 11-4: KSUDP Proposed Fund Flow Mechanism

US$ Advance / Replenishment

Dept. of Expenditure Plan Finance

Division ADB FGIA (PF1)



Suppliers and Contractors --deliver goods and services


Asian Development

Bank

Asian Development

Bank

Controller of Aid Accounts and Audit (CAAA)


Confirm Receipt Release Rupee

equivalent of US$ funds

received from ADB

Nationalized Bank / Operating Account

(Account B)


(Account B)

Govt. of Kerala Local Self Govt.

Department


Department

Deposit Rupee funds (70%

Project Cost) received for ADB

imprest

Allows withdrawal against funds received

from PF1

Nationalized Bank / ADB SGIA

(Account A)


(Account A)

GoK / MC to provide 30% of Project Cost as

counterpart finance

ADB ShareSubmit liquidation withdrawal application

Executing Agency / PMO

(70% of Project Cost)

Note:Actual Fund Flow Mechanism still to be defined following GoI Cabinet decision to pass on funds direct to state. Expected arrangements could be as follows:-

• ADB Loan will finance approx. 70% of the Project Cost; balance portion of the Project Cost is sourced from GoK / MCs as counterpart finance

• GoI to pass on funds from ADB to GoK with same conditions

• FGIA: First Generation Imprest Account

• SGIA: Second Generation Imprest Account

Submit liquidation cum

Replenishment in US$

Govt. of Kerala Finance

Department


Department

Department of Economic Affairs

Pay 100% Bill AmountMC / PIU Project

AccountMC / PIU Project

Account

Fund transfer from PMO to PIU account

Submit refund application

US$ Advance / Replenishment







Asian Development

Bank

Asian Development

Bank



Confirm Receipt Release Rupee

equivalent of US$ funds

received from ADB


(Account B)


(Account B)


Department


Department

Deposit Rupee funds (70%

Project Cost) received for ADB

imprest

Allows withdrawal against funds received

from PF1


(Account A)


(Account A)

GoK / MC to provide 30% of Project Cost as

counterpart finance

ADB ShareSubmit liquidation withdrawal application

Executing Agency / PMO

(70% of Project Cost)

Note:Actual Fund Flow Mechanism still to be defined following GoI Cabinet decision to pass on funds direct to state. Expected arrangements could be as follows:-

• ADB Loan will finance approx. 70% of the Project Cost; balance portion of the Project Cost is sourced from GoK / MCs as counterpart finance

• GoI to pass on funds from ADB to GoK with same conditions

• FGIA: First Generation Imprest Account

• SGIA: Second Generation Imprest Account

Submit liquidation cum

Replenishment in US$


Department


Department

Department of Economic Affairs

Pay 100% Bill AmountMC / PIU Project

AccountMC / PIU Project

Account

Fund transfer from PMO to PIU account

Submit refund application



11.6 Procurement Packages and Implementation 11.6.1 Procurement Packages

The sub-project components described previously in Table 10-1 will be implemented in a number of separate packages, which are summarized in Appendix 5.

11.6.2 Implementation Schedule

Beginning loan effectiveness from September 2005, the project will be implemented over five years. Prior to this, LSGD with the assistance of the proposed bridging TA consultants will carry out pre-investment / advance actions to avoid delays that would occur if such actions are taken after the loan effectiveness. Within the first two months after loan effectiveness, the project implementation assistance consultant teams (PMC and DSCs) will be mobilized in the PMO and PIUs who will establish project guidelines and procedures. Detailed design for the infrastructure improvement investments will occur in the first twelve months of the project following which construction packages will be tendered and awarded. Construction of urban facilities will commence 12 months from project mobilization. The capacity building program under the Project will be conducted mainly in the first three years. The Project implementation schedule is given in Appendix 4.

11.7 Reports, Accounting and Auditing Requirement 11.7.1 Reporting Requirement

The Government of Kerala will provide ADB with quarterly progress reports on project implementation. The PMO will be responsible for obtaining and consolidating relevant information from the respective PIUs. The progress reports will describe physical progress, details of any modification required to the project implementation schedule, problems encountered, use of Community Infrastructure Fund and Poverty Social Fund, and an outline of the work for the next quarter. The report will also provide summary financial accounts of the Project: expenditure during the quarter, year-to-date expenditure during the quarter, year-to-date expenditure, and expenditure to date.

The progress report includes sufficient information in summary form to be useful to ADB as a funding agency. The purpose of the report is to enable the borrower, EA and ADB to monitor the latest progress, become aware of current problems, and assess whether the Project’s immediate objectives will be met. Consultants or contractors for the EA’s management may prepare more detailed reports. These reports are held at the project management office and are made available for ADB reviews, midterm review, and project completion review missions. The progress report is an executive summary of the detailed reports; with format and content permitting ADB staff to readily capture key information for inputting into the project performance report (PPR), the main tool for monitoring project implementation performance within ADB. Simple charts such as a bar or milestone charts to illustrate implementation progress, a chart showing actual versus planned expenditures, and the relationship between physical and financial performance should constitute a part of the PPR.



The PMO will also submit to ADB, within 3 months of the physical completion of the Project, a project completion report that will cover the details of implementation, costs, monitoring and evaluation activities, and other information requested by ADB.

11.7.2 Accounting

The PMO and the PIUs will establish and maintain separate accounts and records adequate to identify the incomes and expenditures related to the Project. They will be assisted by an adequate number of suitably qualified accounting staff including an accounts officer.

11.7.3 Auditing

Detailed consolidated annual project accounts, as maintained by the PMO, will be audited by independent auditors acceptable to ADB and will be submitted to ADB within 9 months of the close of the fiscal year. The annual audit report will include the audit of the imprest account, SGIA, and SOE procedure, and a separate audit opinion on the use of the SGIA and SOE procedures.

In addition, the auditing should include audit of accounts, and the audit of financial statements of the municipal corporations. Auditors are required to comment on (i) whether the loan proceeds have been utilized only for the Project in accordance with the Loan Agreement; (ii) the financial information complies with relevant regulations and statutory requirements; (iii) financial information contains data specifically agreed upon; and (iv) financial covenant compliance.

LSGD and the five project city corporations should be aware of ADB’s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts.

11.8 Project Review Project performance will be reviewed in a three-tier system. First, the PMC will review progress on each component and the performance of each city PIU. The review will take place in the first 10 days of the month for the previous month’s performance. Monthly performance reports will be prepared for each project city by the DSC and submitted to the PMO. Based on the reviews, the PMC will suggest changes in the project design and implementation, or refer the issues to the EC through the PMO. The review report will be sent to ADB, the EC, and the city steering committees for necessary action.

The EC will conduct the second tier review during its quarterly meetings. The monthly project performance reviews and major policy issues will be reviewed and actions to be taken by the respective authorities will be recorded. The results of the review will be circulated to ADB, LSGD, and the project city corporations. The third tier review will be conducted by ADB every 6 months, with the ADB Review Mission visiting project cities, to discuss major issues with LSGD and the project city corporations and forward their opinion for action at the state government level.

The project review will be supplemented by a formal comprehensive midterm review— with the participation of senior Central Government and State officials as well as ADB staff—when detailed design is completed and major contracts have been awarded and started. The review will be held about 24 months after the loan effectiveness date. It will critically evaluate actual project progress, implementation procedures, procurement methods, public relations and community awareness, BME



activities, and the performance of the design and supervision consultants. Following the review, corrective measures, as appropriate, will be introduced to remedy any identified weaknesses.

11.9 Project Performance Monitoring System The Project Performance Monitoring System (PPMS) forms an essential part of Project Implementation and is a systematic set of procedures aimed at monitoring Project progress. The Project performance is measured through a set of defined indicators (indicated in Appendix 12), which assist in evaluating the Project’s achievement in terms of the goals, purpose and outputs established in the Design and Monitoring Framework (as indicated in Appendix 1 and to be finalized between ADB and the Executing Agency).

The responsibility for ensuring that the project performance monitoring system (PPMS) is established and undertaken rests with the PMO. The PPMS has numerous categories of monitoring, corresponding to development activities and representing the direct and indirect outcomes expected from the Project. The PPMS also defines the responsibility for monitoring, recording, and reporting. Certain tasks will be outsourced to external contractors; others form part of the routine reporting from the PIUs at the city level to the central PMO.

Indicators broadly cover (i) physical progress of infrastructure works; (ii) institutional development and capacity building; and (iii) impact assessment. Key categories of indicators covered include:

Preparatory activities, comprising pre-loan agreements including loan conditions, key appointments, legislative changes, establishment of departments, etc.;

Physical works for infrastructure, comprising project development and detailed design, tendering and infrastructure construction; the system would also include standard construction management procedures;

Financial monitoring, comprising fund draw down and expenditures made; and

Institutional development, comprising targets on transiting to double-entry accounting, streamlining systems and procedures, improved efficiencies in urban planning and management processes.

The PMO would be expected to conduct initial baseline physical and socio-economic surveys and submit a detailed implementation plan for monitoring performance and for preparing benchmarking information for ADB’s review and concurrence within 6 months of loan effectiveness. Thereafter, the PMO will submit annual monitoring and evaluation reports to ADB throughout project implementation.

11.10 Long-Term Sustainability Asset creation through KSUDP requires an institutional mechanism for long-term sustainability. In addition, the institutional mechanism established for asset creation should undertake asset management and maintenance in the long-term besides undertaking future urban infrastructure planning with a holistic perspective. Currently, none of the Municipal Corporations plan for large-scale urban infrastructure projects as the activity is undertaken by State Line Departments like the KWA and PWD. Solid waste management rests with the MC’s Health Department, but the MC is ill-



equipped to handle the responsibility being oriented towards public health functions. The People’s Plan Campaign / Kerala Development Program is currently overseen by the MC’s Engineering Department but should ideally be the responsibility of a Planning Department to ensure holistic approach to infrastructure creation.

In the decentralized perspective and in line with GoK’s Urban Policy and Action Plan, 2002, it is proposed that a City Planning and Engineering Department in the Municipal Corporation will be best equipped, in the long term, to carry out future project development, implementation and asset management. The Project Implementation Unit (PIU) proposed for KSUDP implementation will draw staff from various State Line Departments. Through the Project period and with adequate training / capacity building initiatives, it is envisaged that the PIU staff will be well equipped to oversee long-term asset creation and service provision in the sectors of water supply, sewerage, urban drainage, solid waste management, and urban roads and traffic management.

The KM Act, 1994, provides the legislative framework for ULBs to undertake urban planning and provide water supply and sewerage services within its jurisdiction. Based on policy directives and State Finance Commission recommendations, it is proposed to merge the PIU with the Corporation’s Engineering Department. The strengthened department will oversee spatial planning, infrastructure development and construction and solid waste management. This arrangement will ensure long-term sustainability of KSUDP and provide for complete decentralization of infrastructure provision and urban basic service delivery.

GoK recognize that such dramatic changes cannot happen rapidly but have accepted the proposal that under the KSUDP all new assets created would be owned and maintained in the future by the Municipal Corporation. GoK have also agreed that the Municipal Corporations will take over the O&M of roads and drainage assets that are rehabilitated under the Project that are presently owned by state agencies (i.e. PWD and Minor Irrigation Dept.).

However, for existing water supply and sewerage assets that are rehabilitated under the Project, GoK have decided that they will remain under the control of KWA25. But, if GoK is to move forward with its decentralization policy and if the MC demonstrate their ability to maintain the new KSUDP assets, both technically and financially, then the option should be available for the MCs to expand their responsibility and for the GoK to allow the assessment and transfer of assets within the MC area from KWA to the MC.

A detailed explanation of institutional responsibility for asset maintenance and service provision with a ‘road map’ for devolution of responsibility from the state to the local authority is provided in Volume 7 - Urban Management and Institutional Development.

If the existing water and sewerage assets are not transferred to the municipal corporations in line with GoK’s decentralization policy, GoK would need to ensure sustainability of assets created under KSUDP. Fortunately, the ongoing Japanese Bank for International Cooperation (JBIC) funded Kerala

25 Exception to this rule would be the proposal to extend the jurisdiction of water supply in Thrissur to the whole of the Municipal Corporation area; KWA to remain as bulk supplier of water to the MC.



Water Supply Project (KWSP) has proposed institutional strengthening measures to strengthen the Kerala Water Authority and improve the organization’s capacity to provide water and sewerage services – this initiative is likely to ensure long-term sustainability of KSUDP assets. JBIC’s institutional strengthening/organizational development is focused on the following areas:

Support to KWA in enhancing existing systems and people capabilities through review of review of current operational and business practices with recommendations for improvement. For example, billing and collection activities, communications, people and organizational development activities, etc. This support through JBIC will provide complimenting support to KWA’s ongoing drive to meet their operational, business and service aspirations.

Support to KWA in developing a strategy for Human Resource Development (HRD) including the production of a HRD and Training Manual

Enhancing, defining and developing business and systems strategies for KWA, by implementing new systems such as a MIS, Complaints Redressal System, Project Monitoring System, O&M and Procurement Systems.



12. COST ESTIMATES AND FINANCING PLAN

12.1 Cost Estimates The list of subprojects was agreed upon with the Executive Agency (EA) and the Project Municipal Corporations. This agreement was based on various criteria and priority needs. Improvement of the urban infrastructure is the top priority of the MCs.

The total cost of the Project, including physical and price contingencies, is estimated at US $266.5 million. The foreign exchange cost is estimated at US $82.6 million or about 31% of the total project cost, including US $27.5 million in capitalized interest and other finance charges during construction period. Table 12-1 summarizes the cost estimates. Detailed cost estimate is presented in Appendix-3.

Table 12-1: Summary of Project Cost Estimates

(Rupees Million) (US$ Million) Components

Local Foreign Total Local Foreign Total % Base Costs

Part A - Urban Infrastructure Improvement Water Supply 948.6 407.3 1,355.9 21.8 9.3 31.1 15Sewerage & Sanitation 2,658.3 386.3 3,044.7 61.0 8.9 69.8 35Urban Drainage 667.3 222.1 889.4 15.3 5.1 20.4 10Solid Waste Management 298.3 55.1 353.4 6.8 1.3 8.1 4Roads & Transportation 477.3 876.7 1354.0 10.9 20.1 31.1 15Total - Part A 5,049.9 1,947.5 6,997.4 115.8 44.7 160.5 79Part B – Urban Management & Institutional Development

Poverty Alleviation 981.0 0.0 981.0 22.5 0.0 22.5 11Institutional Development 129.7 0.0 129.7 3.0 0.0 3.0 1Total – Part B 1,110.7 0.0 1,110.7 25.5 0.0 25.5 13Part C - Project Implementation Assistance

Project Management Consultants 140.2 83.8 224.0 3.2 1.9 5.1 3Design and Supervision Consultants 363.1 3.8 366.9 8.3 0.1 8.4 4Incremental Administration (at PMO) 32.6 0.0 32.6 0.7 0.0 0.7 0Incremental Administration (at PIU) 76.5 0.0 76.5 1.8 0.0 1.8 1Total - Part C 612.4 87.6 700.0 14.0 2.0 16.1 8Total Base Costs (A+B+C) 6,772.9 2,035.1 8,808.1 155.3 46.7 202.0 100Physical Contingencies 465.8 144.2 610.0 10.7 3.3 14.0 7Price Contingencies 2,080.4 605.3 2,685.7 17.9 5.2 23.1 11Total Costs With Contingencies 9,319.2 2,784.6 12,103.7 183.9 55.2 239.1 118Interest During Construction 0.0 1094.1 1094.1 0.0 22.0 22.0 11Commitment Charges 0.0 184.2 184.2 0.0 3.6 3.6 2Front-end Fees 0.0 93.8 93.8 0.0 1.9 1.9 1

Total Project Costs to be financed 9,319.2 4,156.7 13,475.8 183.9 82.6 266.5 132a) Stated at November 2004 prices b) Physical contingencies are 7.5% on civil works and 5% on others; represent about 7% of the base cost. c) Price contingencies are provided at 2.4% for foreign exchange and 6% for local currency costs. d) Includes taxes and duties estimated at $18.6 million (7.0% of Project Cost). e) Totals may not add due to rounding.



The local currency cost including taxes and duties is estimated at US $183.9 million or 69% of the total project cost. The local cost component is high as most of the construction materials are indigenously produced and are readily available.

12.2 Financing Plan The Project is assumed to be financed by an ADB loan coming from the Bank’s Ordinary Capital Resources with counterpart contribution from the GoK and the Project MCs26. It is assumed that the ADB loan will be equivalent to 70%27 of the total investment cost. The loan will have an amortization period of 25 years, including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based variable lending facility, a commitment charge of 0.75% per annum, a front-end fee of 1% (the fees will be capitalized in the loan), conversions option that may be exercised in accordance with the terms of the draft Loan Agreement, the Loan Regulations and ADB’s Conversion Guidelines, and such other terms and conditions set forth in the draft Loan Agreement.

The ADB loan for the five KSUDP cities amounts to US $186.55 million and is proposed to finance the full foreign exchange cost of US $82.6 million and US $103.95 million equivalent of local currency costs. The local cost financing is proposed to cover part of the costs relating to civil works, equipment, consulting services and resettlement but will exclude land acquisition costs and taxes and duties. The proposed financing plan is summarized in Table 12-2 and detailed in Appendix -3.

Table 12-2: Proposed Financing Plan (US$ Million)

Participants Foreign Currency Local Currency Total Percentage

ADB 82.63 103.93 186.56 70.0% GoK / Project MCs 0.00 79.95 79.95 30.0% Total 82.63 183.88 266.51 100%

The borrower of the ADB loan will be the GoI. In accordance with the new procedure (under finalization), it is assumed that the GoI will on-lend the proceeds of the ADB loan to GoK in local currency. The loan portion will carry interest at the same rate as ADB is charging GoI, (the current on-lending rate has been assumed on this basis pending finalization of the same at GoI) with similar repayment terms as between the ADB and GoI, i.e. 25 years, including a five-year grace period.

Under the Government’s new sub-lending procedure, GoK would further sub-lend the proceeds of the GoI assistance to the Project MCs in the form of loan. This loan portion would carry interest at the same GoI on-lending rate with similar repayment terms as between the GoI and GoK. In such a case, GoK would pass on to the MCs an amount equivalent to US $150 million (about Rs.6,524 million) to meet the investment costs to be incurred on infrastructure improvements in water, sewerage, road, drainage, solid waste, institutional development, design & supervision consultants, incremental administration and the interest during construction capitalized on the above investments. The balance amount out of the total loan amount US $36.55 (US $186.55 less US $150 million) will be retained by GoK at PMO / State level for meeting costs to be incurred towards poverty alleviation, capacity

26 GoK is considering providing the Project MCs’ 50% equity contribution. However, for the purpose of the financial analysis it is assumed that the Project MCs will provide their respective equity contribution.

27 The final percentage is still subject to agreement between the ADB and GoK.



building and institutional development, project implementation assistance and financing charges. It is assumed that the remaining 30% (about Rs.4,042.7 million) would be contributed by the GoK and MCs from their own resources. Table 12-3 summarizes the city level financing plan if the new sub-lending procedure is used. At city level, the standard new-lending procedure translates to a 70-15-15 (loan-grant-equity) financing mix. For details refer Appendix 3.

Table 12-3: City Level Financing Plan (Rs. Million)

(Rs. Million)

T’puram Kollam Kochi Thrissur Kozhikode GoK Total

Loan from ADB (70%) 1,280.5 1,361.2 2,032.4 1,147.8 1,388.3 2,222.9 9,433.1

GoK share of (50% of 30%) - Equity 274.4 291.7 435.5 245.9 297.5 1,545.0

Own Contribution (50% of 30%) 274.4 291.7 435.5 245.9 297.5 952.7 2,497.7

Total 1,829.2 1,944.6 2,903.5 1,639.7 1,983.3 3,175.6 13,475.8% to total 13.6% 14.4% 21.5% 12.2% 14.7% 23.6%



SECTION E: PROJECT JUSTIFICATION

13. TECHNICAL JUSTIFICATION

13.1 Water Supply Much of the water supply systems in the project cities were constructed during the 1950s to 1970s. These have exceeded their original design life and have leaking distribution networks, although production capacity has been increased to compensate the increased demand. On-site observation and analysis has indicated that between 50% and 60% of water produced is lost or wasted. There are no reliable means of measuring actual water treated and although most household connections are metered, over 50% of meters are not working, largely due to the intermittent supply. Table 13-1 shows the status of water supply during 2004 in the five Project cities. Although the statistics show that the coverage of the water supply distribution system might be considered acceptable, all cities suffer from problematic transmission and distribution systems, supplying water at low pressure and often only for a few hours per day.

Table 13-1: Status of Water Supply in 2004

T'puram Kollam Kochi Thrissur Kozhikode

City population 760,000 366,260 606,565 324,710 440,000 Population with access to piped water (theoretical based on spatial coverage) 90% 98% 94% 96% 91% Poor HHs with access to piped water supply (results from baseline survey) 70% 32% 88% 78% 72% Length of water main (km) n/a 370 1,500 532 n/a Number of domestic connections n/a 23,109 59,681 26,495 n/a Number of public standposts n/a 2,590 6,320 2,209 n/a Water production, MLD 200 35.5* 125 50.5 54 Unaccounted-for-water (UFW % of production) 55% 60% 60% 60% 55% Supply rate (average) in Lpcd 132 40 89 65 61 Water pressure, meters head 0-3 0-3 0-3 0-3 0-3 Supply period, hrs per day 8-10 2-3 2-3 2-3 4-6

Note: Water supply improvements in Thiruvananthapuram and Kozhikode being provided under JBIC funding assistance. * KWA to reinstate Kollam treated water production to 57.5 MLD by June 2005.

The Project will rehabilitate and upgrade the existing systems to improve efficiency and achieve cost effectiveness with improved control and demand management through maximizing house connections and minimizing the need for public standposts supported by institutional strengthening.

The design capacity takes into consideration the current and projected daily water consumption, population increase, and reduction of water and energy losses. Existing larger diameter mains (e.g. ductile iron 150 mm diameter, and greater) will be repaired when feasible by sealing leaking joints. Consideration will also be given to pipe rehabilitation methods, such as, relining the pipes with thin walled polyethylene liner pipe. Mains with severe leakage, such as old asbestos cement pipes, and smaller diameter pipes will be replaced with pipes of more suitable materials in diameters appropriate to future demand flows. The repair and replacement will dramatically reduce the unaccounted-for-water (UFW). New mains will be installed with loops to avoid supply dead-ends and to balance head



losses and flows. Control valves and other special fittings will be installed so as to sectionalize the distribution network for ease of management and maintenance. Table 13-2 shows the results of the proposed investment in water supply at EOP (2011).

Table 13-2: Status of Water Supply at EOP (2011)


City population 788,000 377,500 630,100 341,600 454,000 Population with access to piped water (theoretical based on spatial coverage) n/a 98.9 97.0 99.1 n/a Poor HHs with access to piped water supply (results from baseline survey) n/a 95 95 95 n/a Length of water main (km) n/a 375 1,650 560 n/a Number of domestic connections n/a 57,773 95,490 52,990 n/a Number of public standposts n/a 1,000 2,500 1,300 n/a Water production, MLD n/a 57.5 125.0 50.5 n/a Unaccounted-for-water (UFW % of production) n/a 24% 24% 24% n/a Supply rate (average) in Lpcd n/a 117 155 114 n/a Water pressure, meters head n/a 2-6 2-6 2-6 n/a Supply period, hrs per day n/a 8-12 8-12 8-12 n/a

Note: Water supply improvements in Thiruvananthapuram and Kozhikode being provided under JBIC funding assistance.

13.2 Sanitation and Sewerage The status of sanitation and sewerage is poor in all the project cities. Sewerage is non-existent or not functioning adequately. On-plot sanitation and septic tanks are not maintained and many poor have to resort to open defecation thereby adding to public health risks and long-term environmental threats. Table 13-3 provides a summary of the status of sanitation and sewerage in the five Project cities.

Table 13-3: Status of Sanitation and Sewerage in 2004


City population 760,000 366,260 606,565 324,710 440,000 Population with WC latrines 64% 68% 81% 87% 81% Population with pit latrines 20% 17% 8% 7% 8% Population other sanitary systems 8% 6% 6% 3% 6% Population without any sanitation 8% 9% 5% 3% 5% Population connected to Sewerage System 38% Nil 1% Nil Nil

Note: Sewerage systems were started in Kollam and Kozhikode but not completed due to lack of funds.

Consistent with government policy, sewerage investment will be limited to the core city areas where population density dictates the introduction of piped underground sewerage as the only alternative for improving the sanitation and environmental health conditions. A separate sewerage system is considered because the high monsoon rainfall often flood storm water drains. In congested low-income and slum areas, community sanitation facilities will be provided which will be connected to the water and sewerage networks.

Alternative treatment solutions, such as localized sewage treatment, have been considered for the wastewater disposal. However, it was concluded that (i) there is no evidence that the localized or decentralized treatment alternative is cost effective; (ii) available space within the household plot is



not available in the city centers; and (iii) with the rapid population increase in the cities fringes, the alternative will only postpone the environmental sanitation problems till the population density of the cities reach such a level that eventually a centralized treatment solution has to be found. Simple sewage treatment facilities operated by gravity are selected, if feasible, that are technologically flexible and with a capacity that can be upgraded and extended as required. The proposed sewage treatment plants for construction under the Project due to constraints on available land will consist of Fluidized Aerobic Bed (FAB) reactors.

Through the Poverty Alleviation component urban poor / slum communities will participate in the planning and provision of household and community sanitation facilities to ensure all the population will have access socially and environmentally appropriate sanitation. Table 13-4 shows the results of the proposed investment in sanitation and sewerage at EOP (2011).

Table 13-4: Status of Sanitation and Sewerage at EOP (2011)


City population 788,000 377,500 630,100 341,600 454,000 Population with WC latrines 30% 50% 65% 90% 61% Population with pit latrines 11% 10% 5% 5% 6% Population other sanitary systems (TPPFL) 7% 5% 6% 3% 5% Population using community sanitation facilities 2% 2% 2% 2% 2% Population connected to Sewerage System 57% 32% 27% Nil 22%

Note: Sewerage is not proposed for Thrissur at this time due to relatively low population density.

13.3 Urban Drainage The high precipitation of the monsoon rains has led to surface erosion and silting of the drainage channels in the project cities. The problem of siltation has been made worse by the ineffective solid waste management, which results in municipal waste being deposited or washed into the drainage system. In addition, urbanization has led to the increase in paved areas with the subsequent increase in storm water run-off into channels and culverts with insufficient flow capacity, resulting in extensive areas being waterlogged (locally flooded) during intense rain storms. Worst affected tend to be the urban poor who live in marginal lands, which are often ill-drained. Through the project, each city will be provided with an urban drainage master plan to prioritize the schemes to be implemented under the project for alleviating the drainage problems in each city.

13.4 Solid Waste Management The problem of domestic solid waste collection within the city areas is one mainly of poor resources and management. Generally there are insufficient community containers conveniently placed. Where containers are available, they are not emptied frequently enough to prevent waste being left on the roadside or deposited into drains.

The present waste disposal sites are generally badly operated using simple dumping, and do not conform to government regulations. Composting of waste in being attempted in some of the project cities but in some cases has proved to be un-successful due to the low organic content of the waste



collected to produce a marketable product. Table 13-5 provides a summary of the status of municipal solid waste management in the five Project cities.

Table 13-5: Status of Municipal Solid Waste Management in 2004


% of waste collected and disposed 70% 70% 80% 85% 60% Composting treatment of waste Yes No No Yes Yes Controlled Sanitary Landfill Disposal Contract No No No No


Under the project, un-hygienic fixed concrete ‘vats’ will be replaced by sufficient moveable containers of two types, depending on population density and access. The system will provide full service coverage in city center areas, stop the inefficient manual double handling of waste and improve working and local environmental conditions. Adequate waste trucks and dumper placers will be provided to ensure waste is removed regularly and efficiently. Through the improved collection procedures and a move towards segregation of waste at source will assist the composting process. Existing waste disposal sites will be developed into proper sanitary landfill in compliance with the Supreme Court guidelines and the Solid Waste Handling Rules (2000) to include weighbridge and site office with staff sanitation facilities. Table 13-6 shows the results of the proposed investment in municipal solid waste management at EOP (2011).

Table 13-6: Status of Municipal Solid Waste Management at EOP (2011)


% of waste to be collected and disposed 100% 100% 100% 100% 100% Composting treatment of waste Yes Yes Yes Yes Yes Controlled Sanitary Landfill Disposal Yes Yes Yes Yes Yes


13.5 Urban Roads and Transportation The problem of congestion on main roads and intersections in the project cities is a result of a combination of factors. Traffic volumes have increased significantly in recent years and most arterial roads have substandard road geometry to carry the amount of intercity and local traffic. Prime issues of the urban transport system include: narrow width with heavy mixed traffic; absence of pedestrian facilities; rail level crossings on major roads; inter-city bus traffic due to the location of inter-city bus terminals within the city centers; absence of planned bus bays; inadequate parking facilities; non-designed junctions; encroachment of right of way; absence of a planned road network; plus the poor road conditions.

With the objective of holistically addressing city specific sector issues the scheme identification process included: (a) detailed assessment of the existing systems in relation to master plans or earlier studies; (b) review of on-going development initiatives; (c) need for additional infrastructure strengthening; (d) analysis of environmental, land acquisition and social impacts; and (e) financial implications. The roads and transportation improvement schemes proposed include: (a) improvement to the road network systems comprising of central city roads, radial roads, ring roads / bypasses and critical roads connecting major activity centers; (b) improvement to critical junctions; (c) provision of off-street parking facilities; (d) road safety aspects including pedestrian facilities; (e) Street lighting; and (f) construction of bridges, flyovers and under passes to remove congestion with the resultant improvement in traffic speeds and efficiency of public transport systems.



14. POVERTY AND SOCIAL ANALYSIS

14.1 Social Objectives in Project Formulation The review of the policy and social context of Kerala, and in particular of the 5 project cities, indicates the requirement of improved urban infrastructure in view of the urban population growth. The present urban development scenario of these five cities also reveals the likely increase in urban poverty.

Addressing the urban poverty reduction scenario would depend partly on physical infrastructure but mostly on capacity building within state and municipal government by increasing the partnerships approach with the non-governmental sector to include a focus on participatory planning and target on urban poverty.

The identification of components was based on different social criteria, aimed at maximizing social benefits and minimizing the negative impact.

In formulating the overall project structure, the social objective has been to reinforce the interdependency of investment, reforms and capacity building. The formulation of components has been done in the following manner.

Assessment of essential infrastructure to provide basic urban services;

Suggesting essential reforms and capacity building of state and municipal governments in order to sustain the investment and to improve pro-poor planning and community participation in local governance; and

Developing provision for the necessary social and community development expertise to implement the physical investment and lay the foundation for the management reforms. It also includes the resources to match investment with community awareness and educational training programs to maximize social benefit, for example, hygiene behavior, water use management, community mobilization and self-sufficiency through entrepreneurial skills.

At Component levels, the social criteria were used principally to guide investment location and delivery choices and respond to identified needs. The components offer the prospect for private in-house connections for water and sewerage, but where for poor household, this is neither physically possible nor financially affordable, the project also provides for the improvement of communal supply at public stand posts and community toilets.

City sub-projects address basic needs deficiencies on a city-wise basis and sector deficiencies in an integrated manner. Optimization of the benefits of infrastructure investments will be obtained by integrating design and installation of water, sanitation, drainage, solid waste management and road and transport components, the provision of support programs has also been made, for example, community awareness to maximize social benefit and community mobilization.

The integration of poor colonies will be achieved directly through the provision of primary and secondary infrastructure throughout the cities, direct by linking some slum areas of the cities through



the spatial development program, and indirectly through the planning process of the poverty alleviation programs.

A Summary Poverty Reduction and Social Framework under the Project is detailed in Appendix 6.

14.2 Social Impact

14.2.1 Part A: Urban Water Supply and Environmental Improvement

The social and poverty impact of the project components has been assessed in terms of the benefits and costs which apply to different groups of the population within the 5 cities arising from coverage. This may be in terms of levels of service, demand and supply mechanisms, pricing, implementation and on-going operational arrangements.

The social groups that were studied during the PPTA socio economic household surveys are differentiated in terms of their income, poverty and gender to understand the social profile in a better manner. The projects component have been formulated are based on the following parameters i.e. existing scenario of services, needs and priorities based on benefit distribution, poverty impact and gender analysis. The cost and mitigation measures have been analyzed in terms of social costs, affordability, land acquisition requirements and resettlement issues. The Project has a specific Gender action Plan, which is detailed in Appendix 8.

The base line survey reveals that the project will have insignificant social cost, which may come up from the proposed physical infrastructure investment. Both land acquisition and the need for resettlement of livelihoods is minimized.

Water Supply

The water supply component will increase the delivery pressure and duration of piped water supply in the three project cities of Kollam, Kochi and Thrissur. The component responds to the top priority placed on investment in water by the Corporations and respondents in the household survey. An average of 34% of households expressed willingness to pay more for improved supply.

Benefits of improved efficiency of the proposed water supply system will provide an estimated 96,788 new connections i.e. above 85% increase by 2011. The analysis indicates that the poor and LIG socio-economic category in all the three project cities would take the majority of new connection benefit.

Indirect benefits of the improved water supply are likely to be improved hygiene and therefore improved health status. The incidence of diarrhea stands at an average of 3% across all households in the project cities. Optimization of these benefits and reduction of water-borne diseases will be provided by the integrated project approach with the other components of the project in terms of drainage, sanitation and awareness campaigns on water usage and hygiene behavior.

The improvement in water supply would help women in general and poor women in particular. They will have direct benefits in terms of improved levels of water delivery and accessibility through the reduction of work associated with water collection, storage and the convenience of direct household connection instead of having to rely on public standposts or contaminated well water for cooking and



cleaning. This would help women to save time from family activities; she would be able to look after household activities in better manner.

An indirect benefit will be in the expected improvements to family health, which will improve both quality of life, opportunities to employment and reduce family health problems and costs.


The sanitation component focuses on the provision of underground sewerage in the densely built-up core city areas of 4 of the 5 cities. Underground sewerage will provide the cities with the basic infrastructure to promote a healthier living environment for the part of city population.

Sanitation was rated as one of the top priority for investment by the Corporations (at the mid term Workshop), and the third highest by household survey respondents, and the slum residents of Thrissur and Thiruvananthapuram had given second highest priority sanitation. An average of 33% of households expressed their willingness to pay more for improved sanitation facilities although this was the third priority in proportion of households amongst the 5 sectors.

Provision of the network is in the densely built up and developing areas of 4 project cities. The direct beneficiary population in those areas is estimated to be 20-30% of the total population of the 4 Municipal Corporations.

The direct benefits will include greater convenience and a healthier and more sanitary household environment. Indirect benefits for these households and for the city as a whole will be a safer environment and improved health status.

The cost of connection is up to Rs.500, which represents almost one sixteenth of average of city income i.e. about Rs.8,000/- per month and approximates the BPL monthly avg. income which is Rs.2,059/- per month (Average of MV and JV). The sewerage surcharge costs will fall disproportionately on higher income. i.e. the higher water consuming households.

The proportion of the BPL population amongst beneficiaries will be up to 18% (slightly lower than the cities’ average of 20%). The benefit will be disproportionately high for the poor since the present access to sanitation is nil in the all the four Municipal Corporations accept Thiruvananthapuram and Kochi.

The benefits for women are similar as for water bringing increased health, livelihood and quality of life. Increased toilet provision, private or community, will reduce the practice of open defecation. For many women, this is not only inconvenient but a source of insecurity for them – particularly for poor women.

The costs of connection have been mitigated in design through the provision of roadside chambers, which reduce connection costs. It is proposed that the Corporations should subsidize connection costs for BPL households, although this is not budgeted within KSUDP. The wastewater surcharges relate to water consumption. High consuming, higher income households should pay more.



The proposed sanitation and sewerage component would improve the poor areas of the municipal corporations and would help in providing a better hygienic environment for the selected pockets of the respective cities.

Drainage

Kerala get two monsoons and flooding is reported to be a problem for all the five municipal corporations. Improved drainage was ranked 4th priority by the Corporations (Mid Term Workshop), and also 3rd by the city population at large (household survey). The slum dwellers also had the same priority.

Benefits of the component will be a cleaner, healthier environment with indirect benefits of improved health and livelihoods. Majority of the people of five municipal corporations are estimated to have benefits by this component, out of which sizable population belongs to be BPL households, who actually live close to the drains and canals.

During the monsoon seasons water logging takes place in absence of proper drainage systems, with many poor people becoming victim of water borne diseases. The proposed drainage projects would provide better health and hygienic environment for the poor communities, and particularly poor women, where the benefits are likely to decrease their household and care burdens.


Solid waste collection was shown in the household survey to be the most deficient municipal services. An unhealthy environment is known to be a source of disease, particularly affecting children who play in the streets. The feed back from the study, focus group discussion and city level workshop revealed that solid waste collection, transportation and disposal as a critical problem. The households of Thrissur and non-poor residents of Thiruvananthapuram ranked improved solid waste collection as their third priority.

29% of households across cities were willing to pay for improved solid waste collection services. With better social awareness and advocacy it is possible to enhance the willingness of people to pay for these services. The solid waste component would benefit the poor as well as rich communities of the municipal corporation. The most important aspect of this component is providing indirect benefits to the surrounding environment of the project sites. The women and children would benefit in terms of cleanliness in the surrounding areas, because they are most vulnerable among the people to become the victim of diseases spreads due to bad environmental conditions. Solid waste management component would provide awareness among the communities about the importance of health and hygiene.

Road and Transport

The Road and Transport components mainly focus on the up widening of existing roads, improvement in street lighting, improvement in truck and bus terminals and the construction of flyovers. The road and transport was second top most priority of municipal corporations of five project cities. However this component was given last priority in the household survey respondents in all project cities. The



selected components are likely to provide smooth flow of traffic in the selected section. As a whole the improvement of road and transport in project cities with improve the quality of urban life for all the section of the society by providing easier and faster access to/ from the city to the poor communities who resides in the fringe areas.

14.2.2 Part B Urban Management and Institutional Development

The urban management component is primarily to strengthen project city the capacity of the Corporations to plan and manage urban development in a more effective, transparent and responsive manner. In particular, programs, which are based on participatory approaches to planning which can respond to the needs of local communities, especially the poor. In addition, the urban management component also aims to strengthen the capacity of local NGOs by providing them training as intermediaries between the beneficiaries and municipal corporations. The participatory planning approach would generate a transparent mechanism for smooth implementation of the subprojects components in the five cities.

The primary beneficiaries of the institutional development and capacity-building component will be the State, corporation staff and elected representatives. The secondary beneficiaries will be the communities of the cities themselves, especially the poor. The recipients of two funds, the Community Infrastructure Fund (CIF) and the Poverty Social Fund (PSF), will be directly benefited.

The Community Infrastructure Fund (CIF) will be made available to the corporation on an annual basis for the community-based program within the framework of GoK’s peoples plan process and as determined during city level stakeholder consultation. The proposals developed through the participatory planning process will be led by women based community development societies (CDS) structure set up under the existing SJSRY framework. Long-term benefits are in the form of improved quality of life in the area targeted by the interventions and the municipal corporations approach to urban development and poverty alleviation.

Similar impacts will be felt by the beneficiaries of the Poverty Social Fund made available to the corporation to finance social sector initiatives for city-level poverty alleviation schemes pertaining to vulnerable groups, poor women, destitutes, orphans and income generation opportunities for poor. The schemes will be prepared in consultation with the community and would be implemented with the help of local NGOs. The process of fund utilization of both the Community Infrastructure fund and Poverty Social Fund will be monitored through Kudumbashree.

14.2.3 Part C: Implementation Assistance

A Project implementation unit, at the city level, will oversee the utilization of the CIF and PSF. The PMO will monitor the project implementation. Social and community development Experts at the PIU will oversee the project implementation, and interaction with identified NGOs for project monitoring.

Emphasis will be on maximizing the community participation of the communities concerned by undertaking initiatives to ensure:

That public awareness regarding the program is focused and the community is consulted in project design and implementation; and



That the investment provided is used to maximize benefits e.g. hygiene awareness to maximize health impact of water, sanitation and solid waste components; and water use management to improve the effectiveness of the water supply component.

In addition, support for community participation in the implementation of infrastructure components will help to:

Maximize the efficiency of the investment through community involvement and monitoring, and

Maximize sustainability through community ‘ownership’ of the respective schemes.



15. FINANCIAL ANALYSIS

15.1 General Detailed financial analyses were conducted to examine the financial viability of the revenue generating subprojects. The analyses were undertaken in accordance with ADB's Framework for the Economic and Financial Appraisal of Urban Development Sector Projects. Financial Internal Rates of Return and Average Incremental Financial Costs were calculated and sensitivity analyses were carried out for each subproject. The proposed tariff levels were assessed to ascertain their affordability to the beneficiaries, in particular the low-income group and poor households, i.e. those below the poverty line. Financial projections for the MCs were also performed to determine the financial capability of the MCs to implement and operate the subprojects on a sustainable basis.

15.2 Assumptions Used in Financial Projections Institutional Arrangement. Water and sewerage are currently the responsibility of the Kerala Water Authority (KWA) while the Kerala Municipalities (KM) Act 1994 and the Decentralization of Powers Act 2000 empower the urban local body (ULB) to undertake future water and sewerage service provision. GoK’s Minor Irrigation Department maintains primary drainage channels / canals while the ULB maintains secondary / link drains and roadside drains. Based on the ownership of roads, the State Public Works Department or the ULB maintain their respective stretches. Solid waste management is carried out by the ULB.

Although the KSUDP subprojects will be implemented through the MC PIU, the institutional arrangements used for the financial projections and analysis of the subprojects are based on the proposal as outlined in Volume 7, Chapter 5. As discussed, the transfer of responsibility for water distribution and sewerage system within the MC jurisdiction to the MC in the medium term is based on the proposed road map for a decentralized service provision of water and sanitation. KWA, however, would continue to be responsible for bulk water supply (headworks, water treatment and transmission). For purposes of the financial projections, therefore, it is assumed that in the case of water supply, the responsibility for rehabilitated / improved water supply systems will continue to be with KWA until agreement is made for transfer to MCs. Corresponding to this Water Supply

Assumptions for Financial Projections A. Revenue Receipts a. Property Tax:

• Taxable properties will increase by 1.0% annually; • In FY 2005-06 and every 10 years thereafter,

property survey will be undertaken resulting to an increase in number of properties by 5% for those years;

• Revision of annual rental value (ARV), will increase ARV by 60% to take effect in FY 2007-08

• Revision of ARV every 4 years will increase ARV by at least 20%; and

• Overall collection efficiency at about 80% will be achieved by FY 2007-08.

b. Other Own Source Income is projected to increase equivalent to the assumed inflation rate of 6% over the forecast period.

c. State Transfers: Assigned and shared taxes and grants-in-aid are estimated to increase at 6% over the forecast period.

B. Revenue Expenditure a. Projected salaries, establishment costs, operation and

maintenance costs of existing municipal services and facilities are estimated to increase at inflation rate of 6% per annum.

b. Operation and maintenance unit costs for the new works are estimated to increase at inflation rate of 6% per annum.



(except for Thrissur MC) has been segregated from the MCs’ revenues & expenditures while analyzing the overall financial position and capabilities of the MCs. Similarly in the case of Thiruvananthapuram the existing sewerage system has been assumed to continue to be with KWA but the proposed new investments to be under MC. Investments in other components have been considered as part of the future responsibility of MCs. During the project implementation period until the actual transfer of responsibility, KSUDP and KWA will build the capacity of MC staff in water supply and sewerage asset planning and management. Additionally, KWA in coordination with the MCs will identify and map the assets within the MC jurisdiction area, conduct asset condition surveys for valuation and possible future transfer of the assets to the MCs.

Financial projections performed for the MCs, reflecting the proposed institutional arrangements discussed in the preceding paragraphs, consist of projected revenue receipts and revenue expenditures during the assumed implementation period (FY 2005-06 to FY 2010-11) plus 10 years after project completion. The projected revenue receipts include all receipts from own source tax income like property and entertainment taxes and own source non-tax income like direct user charges and income from municipal properties; and all revenue transfers from the State Government in the form of assigned and shared taxes and grants-in-aid. The projected revenue expenditures include all recurrent expenditures, including those of the subprojects, to be met from revenue receipts. The financial projections also include the MCs’ assumed equity contribution to be met from its own resources in accordance with the financing plan.

Property Tax. The assumptions used for the projection of property tax income include: (i) the number of taxable properties will increase by 1.0% annually; (ii) in FY 2005-06 and every 10 years thereafter, property survey will be undertaken resulting to an increase in number of properties by 5% for those years; (iii) revision of annual rental value (ARV), which has been long overdue as mandated by law, will increase ARV by 60% to take effect in FY 2007-08; (iv) the revision of ARV every 4 years in accordance with the law will be implemented and ARV will increase by at least 20%; (v) overall collection efficiency at about 80% will be achieved gradually with improved systems and procedures by FY 2007-08 and sustained over the forecast period.

Other Own Source Income. Profession tax, entertainment tax, other municipal taxes, receipts from municipal properties, license fees and other miscellaneous own source income are projected to increase equivalent to the assumed inflation rate of 6% over the forecast period.

State Government Revenue Transfers. Assigned and shared taxes and grants-in-aid are estimated to increase at 6% over the forecast period. Starting FY 2011-12, the initial year of KSUDP loan repayment, additional grants shall be provided equivalent to the portion of debt service repayments

Revenue Expenditures. Projected salaries, establishment costs, operation and maintenance costs of existing municipal services and facilities are based on actual and budgeted financial data. These existing costs are estimated to increase equivalent to the assumed inflation rate of 6% over the forecast period. The operation and maintenance costs for the new works are based on engineering estimates taking into account the size of the treatment facilities, length of the pipe network, roads and drains maintained, volume of water produced and wastewater treated, volume of solid wastes collected and disposed, and number of population served. Operation and maintenance unit costs for



the new works are estimated to increase equivalent to the assumed inflation rate of 6% over the forecast period.

15.3 Cost Recovery Water Supply. The existing KWA tariff came into effect on 1st April 1999 but has not been revised since. Under the existing tariff, KWA operation is highly subsidized by the State Government. The revenues collected from water sales represent only about 53% of operation and maintenance cost. KWA requested the State Government in January 2000 to increase the water tariff effective 1st April 2000 and to allow KWA to revise the water tariff from time to time corresponding to the increase in power tariff. The State Government is yet to take a decision on this request.

As part of the Financial Improvement Action Plan (FIAP), it is proposed that KWA’s request for a 50% tariff increase be approved by the State Government with effect in 2006. Another increase of 50% is proposed in the financial year 2009-10, before the last year of project implementation. Thereafter, it is proposed that tariffs should increase regularly every 3 years by at least 22% (3% above the compounded growth of assumed inflation). It is envisaged that the periodic tariff increases coupled with the reduction in NRW through KSUDP will gradually eliminate State operating subsidies on full implementation of the project for the five project cities.

A policy should be agreed to increase the provision of direct house connections in place of providing public standposts. This action would reduce the burden of the ULBs for the payment of standposts by increasing consumers directly connected into the water tariff net. The current connection fee is assumed to remain the same to make it affordable and encourage shift to house connection.

In the medium term, it is assumed that MCs will continue not to collect any charges from street tap users for practical and affordability considerations; the low-income group and poor households being the major users of street taps. The MCs, however, will institute control measures for the use of street taps to avoid wastage.

Sewerage. Presently, KWA does not impose monthly user charge for customers with sewer connections. However, it collects connection fee at the rate of 10% of estimated cost or a minimum of Rs.500 for domestic, Rs.1,000 for non-domestic and Rs.2,500 for industrial. Like water supply, sewerage operation is subsidized by the State Government.

As part of the FIAP, it is proposed that at the start of FY 2009-10 a monthly sewerage charge will be collected from customers with sewer connections. For the existing sewerage systems which will be operated by KWA until future transfer to the MCs, it is proposed that a 40% sewerage surcharge be included in the KWA water bill.

For the new sewerage systems which will be operated by the MCs, it is proposed that there will be a fixed monthly sewerage surcharge. Assuming 135 lpcd water supply and average household size of 5 this sewerage surcharge would be Rs.90 per month per connection until end of project. Thereafter, it is proposed that the sewerage surcharge should increase regularly every 3 years by at least 22% (3% above the compounded growth of assumed inflation). When water distribution responsibility is



transferred from KWA to the MCs, it is proposed that a 40% sewerage surcharge be included in the MC water bill.

With this surcharge of 40% on prevailing water tariff, it is envisaged that there will be full recovery of O & M cost thus requiring no State support in the form of operating subsidies post project implementation. The Project includes sewer house connections as part of the sewerage component to ensure connection and utilization of the new investment. The current fee for future connections (post project) is assumed to remain the same to make it affordable and encourage connection to the system.

On-Site Sanitation. With the acquisition of desludging equipments, it is proposed that as part of the FIAP a fee of Rs.600 (Rs.588 at 2004 price) be collected for every septic tank that will be cleaned of sludge. The fee is projected to increase every 3 years by 20% to achieve sustainability.

Solid Waste. At present, no fees are collected by the MCs from residents in whose areas the MCs are collecting solid waste. With low service coverage by the MCs, households in areas not served by the MCs spend about Rs.30 a month for the collection and disposal of their wastes by private groups or they dump their waste in open areas nearby or burn them on their premises.

With the proposed subprojects, it is envisaged that service coverage will cover the whole MC area. However, the subproject will not be sustainable without the collection of minimal user charge. As part of the FIAP, it is proposed therefore that a solid waste fee of Rs.30 per month for domestic, Rs.150 for shops, restaurants etc. and Rs.300 per month for large establishments like hospitals, hotels etc. be collected starting FY 2006-07. It is projected that the fee will increase every 3 years by 20% to achieve sustainability.

15.4 Financial Internal Rate of Return The financial viability of a subproject is assessed by comparing the subproject’s Financial Internal Rate of Return (FIRR) with the Financial Opportunity Cost of Capital (FOCC). As proxy for the FOCC, the Weighted Average Cost of Capital (WACC) of the subprojects in real terms is used. FIRR is the discount rate that equalizes the present values of costs and revenues over the subproject life while the WACC represents the cost incurred by the MCs to implement the subprojects.

The WACC of the subprojects is 4% (real terms). The calculation of the WACC is shown in the table that follows.

Table 15-1: Weighted Average Cost of Capital

Particulars Grant Equity Total

Weight (%) 70.00% 30.00% 100.0% Nominal Cost (%) 0.00% 10.00% Tax Rate (%) 0.00% 0.00% Tax Adjusted Nominal Cost (%) 0.00% 10.00% Inflation Rate (%) 6.00% 6.00% Real Cost (%) 0.00% 3.77% Minimum Rate Test (%) 4.00% 4.00% Weighted Component of WACC (%) 2.80% 1.20% Weighted Average Cost of Capital (Real) 4.00%



FIRR was calculated for each of the revenue generating subprojects. The assumptions and approach used in the calculation of the FIRR include: (i) all revenues and costs are stated at constant November 2004 prices; (ii) all revenues and costs are calculated on an incremental basis, i.e. difference between “with project” and “without project” situations; (iii) subproject capital expenditures are recognized at the time they are incurred; and (iv) equipment replacement costs have been included every 10 years for water supply and sewerage and every 5 years for on-site sanitation and solid waste management.

Sensitivity analyses were also carried out to determine the possible effects of adverse changes on the subprojects. The adverse changes are: (i) 10% increase in capital costs; (ii) 10% increase in O&M costs; (iii) 10% decrease in revenues; and (iv) one year delay in benefits. For water supply sub-projects, additional sensitivity analyses were done for the following adverse conditions: (i) NRW assumption higher by 10%; (ii) water demand assumption lower by 10%; and (iii) tariff increase assumption lower by 50%.

The results of the FIRR calculation and sensitivity analyses are summarized in the table below. The details of the calculation and analyses for each city are in Volume 2 – City Reports.

Table 15-2: Summary of Financial Evaluation

City / Component NPV @ 4% Rs. Million

FIRR, SI & SV

Base Case

Capital Costs +

10%

O&M Costs +

10%

Revenues – 10%

Benefits Delay by One Year

Thiruvananthapuram Sewerage (897.66) FIRR (%) (11.6)% (12.1)% (13.9)% (14.8)% (12.3)% SI SV (%) Kollam Water Supply 259.14 FIRR (%) 8.7% 7.8% 8.5% 7.5% 7.6% SI 1.18 0.25 1.66 SV (%) 85% 403% 60% Sewerage (374.09) FIRR (%) (3.8)% (4.4)% (4.5)% (5.1)% (4.3)% SI SV (%) Water & Sewerage (23.50) FIRR (%) 3.8% 3.0% 3.5% 2.6% 3.0% SI 2.55 0.91 4.56 SV (%) 39.3% 110.3% 21.9% Solid Waste 62.78 FIRR (%) 9.4% 8.00% 8.10% 6.50% 7.00% SI 1.76 1.68 4.59 SV (%) 57% 60% 22% Kochi Water Supply 835.6 FIRR (%) 12.92% 11.90% 12.70% 11.60% 11.40% SI 0.85 0.14 1.11

SV (%) 118% 733% 90%

Sewerage (961.4) FIRR (%) (11.6)% (12.1)% (13.8)% (14.7)% (12.4)% SI SV (%) Water & Sewerage (125.8) FIRR (%) 3.4% 2.7% 3.0% 2.3% 2.6% SI 2.63 1.02 4.90 SV (%) 38.0% 98.4% 20.4%



City / Component NPV @ 4% Rs. Million

FIRR, SI & SV

Base Case

Capital Costs +

10%

O&M Costs +

10%

Revenues – 10%

Benefits Delay by One Year

Solid Waste 155.1 FIRR (%) 10.7% 9.3% 9.4% 7.8% 8.2% SI 1.47 1.41 3.65 SV (%) 68.2% 71.1% 27.4% Thrissur Water Supply 158.90 FIRR (%) 5.9% 5.1% 5.7% 4.8% 5.0% SI 1.47 0.41 2.26 SV (%) 67.9% 242.8% 44.3% Sanitation 13.87 FIRR (%) 13.1% 10.8% 10.2% 7.6% 8.1% SI 2.10 2.84 7.16 SV (%) 47.7% 35.2% 14.0% Solid Waste 217.29 FIRR (%) 25.3% 22.5% 23.8% 20.8% 18.3% SI 1.24 0.63 2.17

SV (%) 80.6% 159.5% 46.0% Kozhikode Sewerage (549.84) FIRR (%) (7.8)% (8.3)% (9.5)% (10.2)% (8.5)% SI SV (%) Solid Waste 53.18 FIRR (%) 8.4% 7.0% 7.0% 5.4% 6.1% SI 2.04 2.04 5.74 SV (%) 48.9% 49.0% 17.4% Additional Sensitivity Analysis

Component NPV @ 4% Rs. Million

FIRR, SI & SV

Base Case

NRW + 10%

Demand - 10%

Tariff Increase

- 50%

Kollam Water Supply 259.14 FIRR (%) 8.7% 7.7% 7.2% 1.7% SI 1.36 2.04 8.20 SV (%) 73.3% 49.0% 12.2% Kochi Water Supply 835.6 FIRR (%) 12.92% 12.0% 9.4% 4.6% SI 0.80 3.68 3.67 SV (%) 125.2% 27.2% 27.2% Thrissur Water Supply 158.90 FIRR (%) 5.9% 4.7% 4.2% negative

SI 2.62 4.09 SV (%) 38.2% 24.5%

NPV = Net Present Value SI = Sensitivity Indicator (ratio of percentage change in NPV to the percentage change in a variable) SV = Switching Value (percentage change in a variable required for the NPV to become zero)

The water supply, on-site sanitation and solid waste management subprojects are financially viable with FIRRs higher than the WACC. The sewerage subprojects, however, have negative FIRRs due to high investment costs and low sewerage charge. The combined water supply and sewerage subprojects have positive FIRRs higher than the WACC.

Sensitivity tests indicate that the subprojects’ viability is most sensitive to decreased revenues and benefits delayed by one year. Periodic revisions of user charges as described in the cost recovery



proposals and prompt completion of the subprojects are therefore very vital to the subprojects’ financial viability.

15.5 Average Incremental Financial Cost and Subsidy In setting the tariff, the appropriate target level to achieve subproject financial adequacy and sustainability is the long run marginal (LRM) cost, which includes both the incremental investment, and O&M costs. The Average Incremental Financial Cost (AIFC) is regarded as an approximation of the LRM cost. The AIFC for each subproject was calculated by dividing the present value of the incremental subproject costs streams (capital and O&M) by the present value of the incremental quantity streams (volume of water consumed in the case of water supply, volume of wastewater flow in the case of sewerage and metric tons of garbage collected and disposed in the case of solid waste management). The costs and quantity streams were both discounted at the WACC of 4%.

The following table summarizes the calculation of the AIFC, its relation with the average tariff and the resultant financial subsidy.

Table 15-3: Average Incremental Financial Cost

City / Particulars Water Supply

Sewerage & Sanitation

Water Supply & Sewerage

Solid Waste

Thiruvananthapuram PV of Project Costs @ 4% (Rs. Million) 1,771.78 PV of Project Revenues @ 4% (Rs. Million) 462.50 PV of Quantity* @ 4% 90.93 AIFC** 19.49 AIFC (Rs./KL) for O&M 3.21 Average Tariff** 5.09 Financial Surplus (Subsidy)** -14.40 AIFC Recovery (%) 26.1% Kollam PV of Project Costs @ 4% (Rs. Million) 705.2 759.4 1,464.7 293.3 PV of Project Revenues @ 4% (Rs. Million) 1,055.9 433.5 1,624.9 356.1 PV of Quantity* @ 4% 199.9 78.6 184.8 297,419 AIFC** 3.5 9.7 7.9 986.1 AIFC (Rs./KL) for O&M only 1.45 3.1 Average Tariff** 5.3 5.5 8.8 1,197.2 Financial Surplus (Subsidy)** 1.8 (4.1) 0.9 211.1 AIFC Recovery (%) 150% 57% 111% 121% Kochi PV of Project Costs @ 4% (Rs. Million) 715.6 1,408.6 2,124.2 543.8 PV of Project Revenues @ 4% (Rs. Million) 1,587.0 503.1 2,247.9 698.9 PV of Quantity* @ 4% 312.8 81.3 289.2 483,916.2 AIFC** 2.3 17.3 7.3 1,123.7 AIFC (Rs./KL) Only O&M 0.6 5.7 Average Tariff** 5.1 6.2 7.8 1,444.2 Financial Surplus (Subsidy)** 2.8 -11.1 0.4 320.5 AIFC Recovery (%) 221.8% 35.7% 105.8% 128.5%



City / Particulars Water Supply

Sewerage & Sanitation

Water Supply & Sewerage

Solid Waste

Thrissur PV of Project Costs @ 4% (Rs. Million) 790.65 70.81 245.05 PV of Project Revenues @ 4% (Rs. Million) 937.75 91.59 462.35 PV of Quantity* @ 4% 120.15 146.97 299,007 AIFC** 6.58 481.83 819.56 AIFC (O&M) 1.71 Average Tariff** 7.80 623.19 1,546.27 Financial Surplus (Subsidy)** 1.22 141.37 726.71 AIFC Recovery (%) 118.60% 129.34% 188.67% Kozhikode PV of Project Costs @ 4% (Rs. Million) 985.30 324.1 PV of Project Revenues @ 4% (Rs. Million) 492.62 377.2 PV of Quantity* @ 4% 87.90 357,173.6 AIFC** 11.21 907.3 AIFC (Rs./KL) - O & M 4.72 Average Tariff** 5.60 1,056.2 Financial Surplus (Subsidy)** -5.61 148.89 AIFC Recovery (%) 49.7% 116.4% * Million kiloliter for water supply & sewerage; no. of septic tanks for sanitation; metric ton for solid waste **Rs./KL for water supply & sewerage; Rs./Tank for sanitation; Rs./MT for solid waste

The above table shows that the average tariffs for the water supply, on-site sanitation and solid waste management subprojects could cover fully all their respective incremental investment and O&M costs with their average tariffs higher than their respective AIFCs. But for the sewerage subprojects, their average tariffs could cover only O&M costs and not fully cover all its costs.

Table 15-4: Subsidy Analysis

City / Particulars Industrial Commercial Domestic Standpost

Thiruvananthapuram Sewerage Average Water Tariff (Rs./KL)* 16.46 15.38 7.47 0.00 Average Sewerage Tariff (Rs./KL) 6.58 6.15 2.99 0.00 AIFC (Rs./KL) 19.49 19.49 19.49 0.00 Financial Surplus (Subsidy) (Rs./KL) -12.90 -13.33 -16.50 0.00 AIFC Recovery (%) 33.8% 31.6% 15.3% 0% Average O&M Cost (Rs./KL) 3.21 3.21 3.21 0.00 O&M Cost Recovery (%) 205.1% 191.7% 93.1% 0% Kollam Water Supply Average Tariff (Rs./KL) 22.1 20.9 5.6 AIFC (Rs./KL) 3.5 3.5 3.5 3.5 Financial Surplus (Subsidy) (Rs./KL) 18.6 17.4 2.1 (3.5) AIFC Recovery (%) 628% 592% 160% Water Consumption (Million KL) 0.5 6.4 244.5 16.8 Financial Surplus (Subsidy) (Rs. Million) 9.4 111.6 516.0 (59.2)



City / Particulars Industrial Commercial Domestic Standpost

Sewerage Average Tariff (Rs./KL) 8.9 8.4 2.3 0.00 AIFC (Rs./KL) 9.7 9.7 9.7 0.00 Financial Surplus (Subsidy) (Rs./KL) (0.8) (1.3) (7.4) 0.00 AIFC Recovery (%) 92% 86% 23% 0% Average O&M Cost (Rs./KL) 3.1 3.1 3.1 0.00 O&M Cost Recovery (%) 283% 267% 72% 0% Kochi Water Supply Average Tariff (Rs./KL) 21.90 20.68 5.71 AIFC (Rs./KL) 2.29 2.29 2.29 2.29 Financial Surplus (Subsidy) (Rs./KL) 19.61 18.39 3.42 -2.29 AIFC Recovery (%) 957.3% 903.8% 249.6% Water Consumption (Million KL) 6.78 98.31 409.47 31.44 Financial Surplus (Subsidy) (Rs.Million) 132.87 1,807.75 1,401.68 -71.93 Sewerage Average Tariff (Rs./KL) 8.76 8.27 2.28 0.00 AIFC (Rs./KL) 17.33 17.33 17.33 0.00 Financial Surplus (Subsidy) (Rs./KL) -8.57 -9.06 -15.05 0.00 AIFC Recovery (%) 50.5% 47.7% 13.2% 0% Average O&M Cost (Rs./KL) 5.68 5.68 5.68 0.00 O&M Cost Recovery (%) 154.1% 145.5% 40.2% 0% Thrissur Water Supply Average Tariff (Rs./KL) 22.20 20.94 5.73 AIFC (Rs./KL) 6.58 6.58 6.58 6.58 Financial Surplus (Subsidy) (Rs./KL) 15.62 14.36 -0.85 -6.58 AIFC Recovery (%) 337.33% 318.27% 87.06% Water Consumption (Million KL) 0.92 39.56 159.00 15.19 Financial Surplus (Subsidy) (Rs.Million) 14.37 568.19 -135.35 -99.94 Kozhikode Sewerage Average Water Tariff (Rs./KL)* 16.60 15.49 7.49 0.00 Average Sewerage Tariff (Rs./KL) 6.64 6.20 3.00 0.00 AIFC (Rs./KL) 11.21 11.21 11.21 0.00 Financial Surplus (Subsidy) (Rs./KL) -4.57 -5.01 -8.21 0.00 AIFC Recovery (%) 59.2% 55.3% 26.7% 0% Average O&M Cost (Rs./KL) 4.72 4.72 4.72 0.00 O&M Cost Recovery (%) 140.5% 131.2% 63.5% 0%

The above analysis indicates that all customers with house connections cross-subsidize the use of water from street taps. The analysis also indicates that sewerage O&M costs for domestic customers with sewer connections are subsidized. This subsidy is a result of the low maximum rate set by the State Government for sewerage charge to encourage connection to the system and attain its environmental objectives.



15.6 Beneficiary Affordability Willingness to Pay (Survey Results). For survey purposes, the households were categorized into 6 income groups as explained in detail in Chapter 3 (Socio-Economic Profile). The 6 household categories are: High Income Group (HIG), Middle Income Group (MIG), Low Income Group (LIG), Upper crest of the Poor (UP), Just above Vulnerable (JV) and Most Vulnerable (MV). The population distribution by income group28 is as follows:

Table 15-5: Population Distribution by Income Group

City MV JV UP LIG MIG HIG Total

Thiruvananthapuram 7% 7% 7% 39% 33% 6% 100% Kollam 7% 7% 7% 39% 34% 6% 100% Kochi 2% 2% 2% 47% 40% 7% 100% Thrissur 3% 3% 3% 46% 39% 6% 100% Kozhikode 2% 2% 5% 49% 36% 6% 100%

The results of the survey did not specify an amount that each group is willing to pay for improved water supply and sanitation services. The survey however indicated a low willingness to pay among the poor and a bit higher willingness to pay from the non-poor for obvious financial reason. The low willingness to pay for improved services among the poor is largely due to: (i) relative satisfaction with the present water supply and sanitation services; (ii) use of water from street tap, which is the major source of water among the poor, is currently free of charge; and (iii) respondents’ view that government has the responsibility to provide the services to its residents.

Affordability Analysis. An analysis was undertaken to determine if the beneficiaries, in particular the LIG and poor households, could afford the proposed tariff charges. The generally accepted guideline is that the combined charges for water supply and sanitation should not exceed 5% of household income. The average household income gathered in the socio-economic survey (September 2004) and the assumed water usage in 2010 were used in the analysis. The analysis tested the projected tariffs that would prevail in 2010, increased twice after 2004 (by 30% in 2005 and 22% in 2008).

Table 15-6: Household Affordability Analysis

HH Mean

Income*

Water Usage in 2010

Water Charge in 2010 at 2004

Price

Sewerage Charge in 2010 at 2004

Price

Solid Waste Fee in 2010 at 2004

Price City / Income Group Rs./Mo. KL/Mo. Rs./Mo. % of

Income Rs./Mo. % of

Income Rs./Mo. % of

Income

Thiruvananthapuram HIG 41,766 40 215 0.5% 86 0.2% 0.0% MIG 7,968 30 133 1.7% 53 0.7% 0.0% LIG 3,823 20 83 2.2% 33 0.9% 0.0% UP 3,274 16 63 1.9% 25 0.8% 0.0% JV 2,303 14 53 2.3% 21 0.9% 0.0% MV 1,793 12 43 2.4% 17 1.0% 0.0%

28 Source: State Planning Board “Economic Review 2002”



HH Mean

Income*

Water Usage in 2010

Water Charge in 2010 at 2004

Price

Sewerage Charge in 2010 at 2004

Price

Solid Waste Fee in 2010 at 2004

Price City / Income Group Rs./Mo. KL/Mo. Rs./Mo. % of

Income Rs./Mo. % of

Income Rs./Mo. % of

Income

Kollam HIG 39,965 40 215 0.5% 86 0.2% 27 0.1% MIG 7,580 30 133 1.7% 53 0.7% 27 0.3% LIG 3,155 22 93 2.9% 37 1.2% 27 0.8% UP 3,440 20 83 2.4% 33 1.0% 27 0.8% JV 2,120 19 78 3.7% 31 1.5% 27 1.3% MV 1,555 13 48 3.1% 19 1.2% 27 1.7%

Kochi HIG 21,460 40 215 1.0% 86 0.4% 27 0.1% MIG 7,380 30 133 1.8% 53 0.7% 27 0.4% LIG 3,505 20 83 2.4% 33 0.9% 27 0.8% UP 2,760 16 63 2.3% 25 0.9% 27 1.0% JV 2,510 14 53 2.1% 21 0.8% 27 1.1% MV 1,835 12 43 2.3% 17 0.9% 27 1.4%

Thrissur HIG 21,730 40 215 1.0% 25 0.1% 27 0.1% MIG 8,105 30 133 1.6% 25 0.3% 27 0.3% LIG 4,375 20 83 1.9% 25 0.6% 27 0.6% UP 2,665 16 63 2.4% 25 0.9% 27 1.0% JV 2,495 13 48 1.9% 25 1.0% 27 1.1% MV 1,860 10 33 1.8% 25 1.3% 27 1.4%

Kozhikode HIG 24,315 40 215 0.9% 86 0.4% 27 0.1% MIG 5,475 30 133 2.4% 53 1.0% 27 0.5% LIG 3,195 20 83 2.6% 33 1.0% 27 0.8% UP 3,430 16 63 1.8% 25 0.7% 27 0.8% JV 1,510 13 48 3.2% 19 1.3% 27 1.8% MV 2,613 10 33 1.3% 13 0.5% 27 1.0%

* Source: September 2004 survey

The results of the analysis show that the proposed tariff charges are within the 5% affordability limit. If the poor households (MV, JV and UP) would want to continue sourcing their water from the street tap, their monthly charges would even be less since water from street tap would remain to be provided free of charge. No affordability problems therefore are foreseen for the proposed tariff charges.

15.7 Project Sustainability Water supply, on-site sanitation and solid waste management are revenue generating subprojects whose operation and maintenance costs could be fully covered with user charges. Their respective average tariffs, which are affordable, are higher than their respective AIFCs which indicate financial sustainability. The user charges, however, would have to be revised periodically as discussed in the cost recovery proposals to ensure financial sustainability. In the case of the sewerage subprojects, sewerage charges would be adequate to cover the full O&M cost of operations. For the non-revenue



generating subprojects, their respective O&M costs could be covered fully through the MCs’ budget. The cash flow statements of the MCs from FY 2005-06 to 2020-21 detailing the subprojects’ revenues, O&M cost and operating subsidy are presented in Volume 2 – City Reports.

The revenue enhancement measures outlined in Chapter 6 (Municipal Finance) and the cost recovery proposals described earlier for revenue generating subprojects will ensure sustainability of the proposed subprojects. Periodic adjustments of own source revenue such as property tax, license fees and direct user charges are vital for the sustainability of the subprojects. The State Government must allow the MCs to revise local taxes, fees and charges regularly in accordance with prescribed procedures and within limits set by law to make the MCs less reliant on State subsidies. A Financial Improvement Action Plan in Appendix 3 outlines the actions and steps during the implementation and post-implementation periods to ensure the sustainability of the subprojects’ operation by the MCs.

The following table summarizes the results of the financial projections for the MCs from FY 2011-12 to 2016-17, the critical years when the MCs start repaying the KSUDP loan obligation. The detailed financial statements for each city are in Volume 2 – City Reports.

Table 15-7: Summary of Projected Financial Position

City / Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Thiruvananthapuram Revenue Receipts 746.8 790.4 826.1 862.2 948.2 1,003.3 Revenue Expenditures 540.9 572.9 598.6 634.5 672.5 712.9 Revenue Surplus Before Debt Service 205.8 217.6 227.5 227.7 275.6 290.4 Debt Service 136.2 132.6 129.0 125.3 121.7 118.1 Revenue Surplus After Debt Service 69.7 85.0 98.5 102.3 153.9 172.3 Cumulative Revenue Surplus 1,482.1 1,567.1 1,665.7 1,768.0 1,921.9 2,094.2 Debt Service Coverage Ratio 1.5 1.6 1.8 1.8 2.3 2.5 Kollam Revenue Receipts 232.2 255.3 263.5 271.4 306.9 319.3 Revenue Expenditures 177.2 187.4 190.1 201.5 213.6 226.3 Revenue Surplus Before Debt Service 55.0 68.0 73.4 69.9 93.3 93.0 Debt Service 141.3 137.6 134.0 130.3 126.7 123.0 Revenue Surplus After Debt Service (86.3) (69.7) (60.6) (60.4) (33.3) (30.0) Cumulative Revenue Surplus 215.5 145.8 85.2 24.8 (8.5) (38.5) Debt Service Coverage Ratio 0.4 0.5 0.5 0.5 0.7 0.8 Kochi Revenue Receipts 1,126.0 1,200.9 1,245.7 1,289.2 1,441.9 1,521.1 Revenue Expenditures 522.2 553.3 584.3 619.2 655.9 695.0 Revenue Surplus Before Debt Service 603.8 647.6 661.4 670.0 786.0 826.1 Debt Service 217.4 211.6 205.8 200.0 194.2 188.4 Revenue Surplus After Debt Service 386.5 436.1 455.6 470.0 591.8 637.7 Cumulative Revenue Surplus 3,925.5 4,361.6 4,817.2 5,287.2 5,879.0 6,516.7 Debt Service Coverage Ratio 2.8 3.1 3.2 3.4 4.0 4.4



City / Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Thrissur Revenue Receipts 458.2 506.2 531.3 551.8 621.1 654.5 Revenue Expenditures 247.9 262.0 265.5 281.3 297.9 315.5 Revenue Surplus Before Debt Service 210.3 244.3 265.8 270.5 323.2 339.0 Debt Service 124.0 120.7 117.3 114.0 110.7 107.4 Revenue Surplus After Debt Service 86.3 123.6 148.5 156.5 212.5 231.7 Cumulative Revenue Surplus 913.5 1,037.0 1,185.5 1,342.0 1,554.5 1,786.2 Debt Service Coverage Ratio 1.70 2.02 2.27 2.37 2.92 3.16 Kozhikode Revenue Receipts 651.1 693.2 720.1 748.7 830.0 876.1 Revenue Expenditures 352.8 372.1 363.2 384.9 407.8 432.1 Revenue Surplus Before Debt Service 298.3 321.1 356.9 363.8 422.2 443.9 Debt Service 148.3 144.4 140.4 136.5 132.5 128.6 Revenue Surplus After Debt Service 150.0 176.8 216.5 227.4 289.7 315.4 Cumulative Revenue Surplus 1,694.9 1,871.7 2,088.2 2,315.6 2,605.2 2,920.6 Debt Service Coverage Ratio 2.0 2.2 2.5 2.7 3.2 3.5

The results of the financial projections show that the MCs could generate sufficient revenues to meet full O&M costs (all MCs) and debt service obligations (all MCs excepting Kollam Corporation) over the forecast period. The MCs have healthy financial position that could sustain the operation of their subprojects over their economic lives.



16. ECONOMIC ANALYSIS

16.1 Introduction and Scope The economic analysis examined the economic viability of the Project and was undertaken with reference to the ADB Framework for the Economic and Financial Appraisal of Urban Development Sector Projects (1994) and Guidelines for the Economic Analysis of Projects (1997). The costs and benefits of the infrastructure improvement components of the Project were quantified using resource cost and ‘willingness to pay’ measures incremental to a ‘base case’, defined as the situation without the Project improvements. The analysis was undertaken over a 20-year operational period.

The physical components of the Project were categorized into three groups for economic analysis, because of the different approaches to measuring benefits:

Water supply improvements;

Environmental sanitation improvements – drainage and solid waste management, in addition to sanitation activities29; and

Roads and transportation improvements.

The poverty alleviation and capacity building and institutional strengthening components of the Project were not subjected to economic appraisal due to the difficulties of measuring their economic benefits.

The economic analysis was based on information from the Socio-Economic Household Survey undertaken as part of the KSUDP, on the engineering, environmental, social, financial and other investigations of the Detailed Feasibility Study and on economic evaluation parameter values relevant to the Project cities. Data were obtained in the following areas:

Capital costs of improvement;

Annual operating and maintenance (O&M) costs of the improved infrastructure;

Forecasts of demand for/usage of infrastructure services; and

Supply characteristics of infrastructure networks and services delivery.

16.2 Project Context and Economic Rationale The contribution of the Project to India’s main development objective of poverty reduction was considered during the Bank’s country strategy and program process. One of the main factors in this consideration was that a strong correlation exists between economic growth and poverty reduction in India.

29 The term “environmental sanitation” is used to describe the management of all factors in the physical environment which may have harmful impacts on human health and well-being. It normally includes drainage and liquid and solid waste management, in addition to the activities covered by the term “sanitation”. The latter term is used to describe the safe management of human excreta, including both the infrastructure and services (eg. septic tanks, sewers) and the associated policy and institutional support (eg. regulation, hygiene promotion). Refer Government of Kerala State Planning Board, Economic Review 2003, January 2004, p.164 & p.166.



The Project will contribute to the economic development of the selected cities by improving environmental and living conditions in these cities and, at the same time, enabling better access to economic opportunities by urban residents, particularly the poor. The range of infrastructure improvements provided by the Project will assist the municipal corporations in delivering more effective infrastructure services and providing a better urban environment and quality of life than would otherwise exist.

The effectiveness of the Project in terms of its impact on the poor will depend on macroeconomic strategies aimed at labor intensive growth and microeconomic strategies to enable the poor to attain the skills needed by the formal and semi-formal sectors and to be able to afford the improved level of municipal services.

The economic rationale of the Project is two-fold. One rationale is that urban areas in India are net contributors to GDP:

Estimates of the contribution of urban areas to GDP are in the order of 50% to 60%,30 well above the level of urbanization of 28% of the population; and

The estimated per capita productivity ratio between the urban and rural populations in India is 7:2.31.

Economic growth in India is thus dependant on the fortunes of urban areas and their ability to attract investment, increase productivity and continue to provide the focus for service sector activity. This ability, in turn, depends on urban local bodies being able to deliver basic infrastructure services (such as water, environmental sanitation and transport), as well as social services (particularly health and welfare) and provide an adequate urban environment, amenity and quality of life.

The second economic rationale of the Project is to provide basic urban services and environmental and living conditions at acceptable levels, not only for social development but also to enable access to economic opportunities (i.e. income and employment), particularly by the poor. Urban unemployment in Kerala is the second highest in India.32 Improvement in access to basic services for the poor, through impacts on health, welfare and well-being, should assist in overcoming the present lack of economic opportunities for the economically and socially disadvantaged groups and the resulting unemployment and underemployment in these groups.

The economic prospects of Kerala are threatened by inadequate funding for urban infrastructure and the poor performance of urban local bodies in planning, implementing and managing basic urban services.33 Existing infrastructure is deteriorating with inadequate O&M and there is a wide gap between the need for and supply of basic urban services. Although the State Government is actively seeking to identify new industrial opportunities, the states do compete with each other to attract capital investments in manufacturing, processing and service sectors. To the extent that urban environment, amenity and quality of life influence such decisions, the propensity of Kerala to attract

30 National Institute of Urban Affairs, Draft National Urban Policy, Ministry of Urban Development and Poverty Alleviation, January 2001. 31 HUDCO, Indian Experience in Urban Water Supply and Sanitation, presented by V Suresh, Chairman & Managing Director, 1998. 32 At 10% in 2000, according to National Sample Survey data. Refer Planning Commission, National Human Development Report, 2001.



further investments will be reduced and its prospects for annual economic growth rates in the medium-term in the range of 6.5 to 7.0% will be lessened.

In addition, the provision of quality environmental sanitation services in Kerala is important, not only from a public health point of view but also from the perspective of tourism which is a fast growing sector of the State economy.

16.3 Selection Process The process of selecting the sub-projects is described in Volume 6 – Technical Analysis. The process included three concepts of particular importance to the economic evaluation of the proposed improvements:

The services provided by the improved infrastructure are consistent with sector demands or needs;

The least cost or most cost effective way of meeting sector demands or needs, in terms of scale, location, technology and timing, has been selected; and

Economic viability, i.e. the economic benefits of a sub-project are likely to exceed the economic costs.

16.4 Approach to Project Economic Analysis This section summarizes the detailed economic analysis methodology which appears in Volume 4. For each component, the likely situations in each city with and without the Project were projected up to 2031. The main factors considered were:

Water supply – UFW % (as a measure of system efficiency), volume of water supply by customer category, number of household connections, average household supply and number of standposts;

Environmental sanitation – number of household connections to sewerage system, number of households in drainage system catchment areas and number of households receiving solid waste collection services; and

Roads and transportation – average travel speed in peak and off-peak conditions, vehicle kilometers of travel and vehicle hours of travel.

The economic costs of capital works and annual operation and maintenance were calculated from the financial cost estimates and are presented in Table 16-1.34

33 35-40% of the State’s development expenditures are currently transferred to local governments and most urban functions have been delegated to municipalities. 34 The basis for the conversion of financial prices to economic prices was:

price contingencies were excluded but physical contingencies were included because they represent real consumption of resources; import duties and taxes were excluded as they represent transfer payments (estimated at 8% of foreign costs and 4% of local costs); the existence of unemployment and under-employment for unskilled workers within the Indian economy means that the opportunity

cost of unskilled labor can be considered to be lower than its wage rate – a conversion factor of 0.75 of the market wage rate was used to estimate the shadow wage rate;

the unskilled labor component was estimated at the following percentages of local capital costs: 11% for water supply, 12% for environmental sanitation and 15% for roads & transportation; and at 50% of local O&M costs.

the market wage rate for skilled labor and the cost of land were considered to represent opportunity costs, as both are in demand; all costs were valued using the domestic price numeraire, to enable an easier comparison with the information used to measure

benefits (e.g. a significant component of benefit is the savings in resources which would be used in the without project situation);



Table 16-1: Cost Estimates for Project Economic Analysis

Item T’puram Kollam Kochi Thrissur Kozhikode All Cities

Water Supply Improvements

Capital cost

Base cost a/ 0 427 451 479 0 1,356

Economic cost b/ 0 470 479 518 0 1,467

Incr’tl O&M cost c/

Annual expend 0 46 94 25 0 165

% of economic cost - 10% 20% 5% - 11%

Environmental Sanitation Improvements d/

Capital cost

Base cost a/ 932 658 1,277 353 988 4,208

Economic cost b/ 988 697 1,353 374 1,047 4,459


Annual expend 68 42 71 42 78 301

% of economic cost 7% 6% 5% 11% 7% 7%

Roads & Transportation Improvements e/

Capital cost

Base cost a/ 268 142 250 275 315 1,249

Economic cost b/ 282 149 263 289 332 1,315


Annual expend 14 7 13 14 16 64

% of economic cost 5% 7% 5% 5% 5% 5% Notes: a/ In financial prices, including taxes and duties. b/ Refer Footnote 4. Includes the following allowances as percentages of base costs: physical contingencies at 7.5%, design & supervision at 0.6% per city (total of 3%), project management at 3% and incremental administration at 0.2% per city (total of 1%). c/ Increase in annual O&M expenditure compared to situation without the Project. Includes allowances for replacement of solid waste collection vehicles and equipment every ten years and periodic resurfacing of roads. d/ Sewerage, drainage and solid waste management components. Excludes sanitation proposal in Thrissur (Rs.8 million). e/ Excludes street lighting proposals – Rs.22 million in Kollam, Rs.29 million in Thrissur and Rs.54 million in Kozhikode.

The economic benefits of each component were quantified as:

Water supply improvements

Resource cost savings in supplying the existing volume of piped water more efficiently, measured in terms of the average cost of supply with and without the Project.

foreign costs net of duties and taxes are adjusted by the shadow exchange rate factor of 1.1. The percentage of foreign costs of total capital costs: 49% for water supply (72% for Kollam, 29% for Kochi and 49% for Thrissur),

27% for environmental sanitation (all cities) and 25% for roads & transportation (all cities); and at 20% of total O&M costs (all cities).



Economic value of the additional piped water supplied as a result of the efficiency improvements, measured in terms of the average demand price for improved piped water supply.35

Avoided costs of coping with the inadequate supply of piped water in the absence of the project, specifically time spent in collecting water from standposts and wells.

Environmental sanitation improvements

Enhanced property values due to improved environmental and living conditions and amenity.36

Household costs that would be avoided with improved infrastructure services - expenditure on disposing of sewage on-site, expenditure on treating environmental sanitation-related diseases, expenditure on repairing flood damage, loss of earnings due to time spent coping with flooding, time spent in disposing of solid waste costs.

Roads and transportation improvements

Reductions in travel costs due to improved traffic flow, comprising savings in vehicle operating costs and passenger travel time costs.

Savings in vehicle operating costs due to the improved road surface provided by many of the sub-projects.

16.5 Results of Project Economic Analysis Each sub-project proposal was compared to the without project situation, using the discounted cash flow technique and economic opportunity costs of capital of 12% for water supply and roads & transportation improvements and 10% for environmental sanitation improvements. The evaluation period allowed for 20 years from the first full year of benefits; partial years of benefit (and O&M costs) during the project implementation period were determined from the implementation schedule for each sub-project.37. The analysis was conducted at domestic prices and the discount year was taken as 2004-05.

16.5.1 Water Supply Improvements

Collection time savings account for 72% of overall total benefits, with the value of additional piped water supplied accounting for another 18%. The remaining 10% of total benefits is accounted for by savings in the resource costs of supplying the existing volume of water.

Table 16-2 presents the results of the economic evaluation. The table shows that the overall EIRR of the water supply component is estimated to be 21%. Individual city EIRRs are 19% for Kollam, 25%

35 The average demand price was taken as a multiple of the existing average water domestic tariff, with the multiple based on the proportion of respondents to the Socio-Economic Household Survey in each city indicating willingness to pay an undisclosed amount for improved piped water supply. 36 The following assumptions were made of the property value differentials due to a particular environmental difference between properties: 2.5% increase in property value attributable to an effective sewerage (UGD) system, 0.5% increase attributable to an effective drainage system and 0.5% increase attributable to an effective solid waste collection system. These assumptions are considered to be conservative. In any case, sensitivity analysis showed that the EIRR is very insensitive to changes in the property value increase assumptions. 37 For each sub-project, partial benefits were assumed to commence in 2008-09, in line with cumulative capital expenditure lagged one year. O&M costs for water supply and environmental sanitation components were assumed to commence after completion of each procurement package; those for the roads & transportation component were assumed to commence in 2008-09, in line with cumulative capital expenditure lagged one year.



for Kochi and 20% for Thrissur. These EIRR values exceed the economic opportunity cost of capital of 12% and all sub-projects are economically viable.

Collection time savings account for 72% of overall total benefits, with the value of additional piped water supplied accounting for another 18%. The remaining 10% of total benefits is accounted for by savings in the resource costs of supplying the existing volume of water.

Table 16-2: Economic Cost-Benefit Analysis for Water Supply Component

Incremental to Without Project

Kollam Kochi Thrissur All Cities

Present Value (Rs. million) a/

Costs

Capital costs b/ 339 308 364 1,012

O&M costs 219 415 127 761

Total costs 558 723 491 1,773

Benefits

Resource cost savings c/ 44 168 58 270

Value of additional water 194 209 71 473

Collection time savings 515 765 654 1,933

Total benefits 752 1,142 783 2,677

Economic Return Measures

Net present value (Rs. million) 194 418 292 904

EIRR (%) 19% 25% 20% 21% Notes: a/ In 2004 prices. Discounted to 2004-05 at 12% real discount rate. b/ Base capital cost estimates in undiscounted financial prices are Rs.1,356 million (excluding physical contingencies and costs of design & supervision, project management and incremental administration). c/ On water supplied without the Project.

16.5.2 Environmental Sanitation Improvements

Avoided flooding costs comprise the largest proportion of economic benefits – savings in damage costs account for 26% of total benefits and the value of household earnings lost due to coping with flooding accounts for another 10%. Avoided on-site household sewage disposal costs account for 26% of total benefits and time savings in disposing of solid waste account for 24%. Avoided health care costs account for 8%, with the remaining 6% of total benefits being the increased economic value of residential property.

Table 16-3 presents the results of the economic evaluation. The table shows that the overall EIRR of the environmental sanitation component is estimated to be 22%. Individual city EIRRs are 18% for Thiruvananthapuram, 31% for Kollam, 18% for Kochi, 27% for Thrissur and 24% for Kozhikode. These EIRR values exceed the economic opportunity cost of capital of 10% and all sub-projects are economically viable.

Avoided flooding costs comprise the largest proportion of economic benefits – savings in damage costs account for 26% of total benefits and the value of household earnings lost due to coping with



flooding accounts for another 10%. Avoided on-site household sewage disposal costs account for 26% of total benefits and time savings in disposing of solid waste account for 24%. Avoided health care costs account for 8%, with the remaining 6% of total benefits being the increased economic value of residential property.

Table 16-3: Economic Cost-Benefit Analysis for Environmental Sanitation Component

T’puram Kollam Kochi Thrissur Kozhikode All Cities


Costs

Capital costs b/ 665 488 945 266 734 3,098

O&M costs 380 239 404 228 426 1,678

Total costs 1,045 727 1,349 494 1,660 4,776

Benefits

Increased property value 154 59 91 31 57 393

Avoided costs of

- sewage disposal 286 350 563 0 467 1,665

- health care 116 89 129 100 97 530

- flood damage 602 190 198 373 309 1,672

- earnings lost 110 98 162 102 157 629

- waste disposal n.a. 332 500 266 461 1,560

Total benefits 1,267 1,119 1,644 872 1,548 6,449


Net present value (Rs. million) 222 392 295 377 388 1,673

EIRR (%) 18% 31% 18% 27% 24% 22% Notes: n.a. - not applicable a/ In 2004 prices. Discounted to 2004-05 at 10% real discount rate. b/ Base capital cost estimates in undiscounted financial prices are Rs.4,208 million (excluding physical contingencies and costs of design & supervision, project management and incremental administration).

16.5.3 Roads and Transportation Improvements Table 16-4 presents the results of the economic evaluation. The table shows that the overall EIRR of the roads and transportation component is estimated to be 34%. Individual city EIRRs are 47% for Thiruvananthapuram, 57% for Kollam, 42% for Kochi, 15% for Thrissur and 20% for Kozhikode.38 These EIRR values exceed the economic opportunity cost of capital of 12% and all sub-projects are economically viable. Of overall total benefits, savings in vehicle operating costs account for 55% and savings in travel time for vehicle passengers (and crew where applicable) account for 45%. Travel time savings for passengers have been restricted to persons who are in the workforce and working on a regular basis.

38 Benefit-cost ratios which are often used as measures of economic return for road investment proposals are: 3.9 for Thiruvananthapuram, 4.8 for Kollam, 3.5 for Kochi, 1.2 for Thrissur, 1.6 for Kozhikode and 2.8 overall. This range and level of values is typical for urban road projects.



Table 16-4: Economic Cost-Benefit Analysis for Roads & Transportation Component

Incremental to Without Project

T’puram Kollam Kochi Thrissur Kozhikode All Cities


Costs

Capital costs b/ 187 98 176 194 212 867

O&M costs 68 35 63 69 68 304

Total costs 255 143 239 263 280 1,171

Benefits

Savings in costs of

- vehicle operation 610 347 442 180 184 1,762

- travel time 379 290 390 138 268 1,465

Total benefits 990 637 832 318 452 3,228


Net present value (Rs. Million) 735 504 592 55 172 2,057

EIRR (%) 47% 57% 42% 15% 20% 34% Notes: a/ In 2004 prices. Discounted to 2004-05 at 12% real discount rate. b/ Base capital cost estimates in undiscounted financial prices are Rs.1,249 million (excluding physical contingencies and costs of design & supervision, project management and incremental administration). Excludes street lighting of Rs.105 million.

16.5.4 Sensitivity analysis

Sensitivity analysis was undertaken in order to test the robustness of the economic results to changes in benefit and cost variables and to changes in project outputs. The tests comprised a capital cost overrun of 10%; variations in parameter values used in the benefits measures, such as reductions in the valuation of savings in time spent collecting water, disposing of solid waste or traveling; and a reduction of 50% in the expected output levels.

All sub-projects except one39 remained economically viable in each individual sensitivity test relating to benefit or cost parameter values. However, when the Project achieved only half its expected output levels (i.e. number of beneficiaries), only three of the 23 sub-projects remained economically viable.

16.5.5 Conclusion

The main evaluation has shown that all sub-projects are economically viable, with the calculated EIRR values exceeding the economic opportunity cost of capital in all cases. The sensitivity analysis has demonstrated the robustness of these results with respect to changes in benefit or cost parameter values, with all but one of the 23 sub-projects remaining economically viable. However, the Project is clearly more sensitive to the level of outputs achieved, with only three of the 23 sub-projects remaining economically viable when output levels (i.e. number of beneficiaries) are half of those expected.

For all sub-projects, the calculated EIRR values are considered to be minimum estimates of economic return:



For water supply improvements, the willingness to pay for the additional water supplied is based on the existing low tariff levels;

For environmental sanitation improvements, there are a number of economic benefits of reduced pollution, a cleaner city and improved waterway environment that have not been quantified;40 and

For roads and transportation improvements, savings in accident costs have not been quantified.

16.6 Project Beneficiaries The numbers of households and individuals benefiting directly from the sub-projects are summarized in Table 16-5. The table also shows the number of beneficiaries as a percentage of the total population and the percentage of beneficiaries from the poor and low income socio-economic categories.

Table 16-5: Direct Project Beneficiaries a/

Component No. of households

No. of individuals

% of total population b/

Poor + low income as % of total beneficiaries

Water supply 216,000 961,000 71% 29% + 43%

Environmental

- Sewerage (UGD) 194,000 940,000 42% 14% + 43%

- Drainage 87,000 413,000 16% 29% + 47%

- Solid waste 369,000 1,682,000 93% 11% + 48%

Roads & transport n.e. 607,000 23% 10% + 27% Notes: n.e. – could not be estimated a/ The number of beneficiaries was estimated in 2011, the end year of the Project. b/ For those cities receiving improvements under each component.

16.7 Assessment of Project Sustainability The KSUDP financial analysis showed that, in the case of the municipal corporations receiving KSUDP funds as a sub-loan from the GoK, four of the five cities have robust financial positions that would ensure sustainability of the sub-projects. However, the financial projections indicate that the sustainability of sub-projects in Kollam may be uncertain.41

In the case of the MCs receiving additional grant contributions from GoK to repay the KSUDP loans, together with the sewerage O&M subsidy from GoK, all five cities would generate sufficient revenues to meet full O&M costs and debt service obligations over the forecast period.

16.8 Poverty Impact Ratio The distributional analysis of project effects set out in Volume 4, Chapter 10 led to the calculation of a poverty impact ratio (PIR) of 27% for the Project. This value indicates that the Project disproportionately benefits the poor, given that the percentage of households living below poverty line in the five cities is estimated to be 14%.

39 The EIRR for Thrissur roads & transportation sub-project reduced from 15% to 11% (compared to the economic opportunity cost of capital of 12%), for a 50% reduction in unit value of travel time. 40 These benefits include the public cost of treating diseases due to poor environmental sanitation; private and public costs of mosquito control; avoided costs of on-site sewage/wastewater disposal by commercial, industrial and institutional premises; public costs of flooding, including traffic disruption, road repair and building repair; effects on businesses and industries, such as aquaculture and fisheries, agriculture and washing; effects on tourism and tourist-related businesses. 41 The debt service coverage ratio for Kollam MC is below 1.3 for the first two years of the KSUDP debt servicing period.



17. ENVIRONMENTAL EXAMINATION

17.1 Introduction A Summary Initial Environmental Examination (SIEE) for the whole Project and Initial Environmental Examinations (IEE) for the proposed urban infrastructure development in each of the Five City Corporations under the KSUDP have been prepared and presented in Volume 5 – Initial Environmental Examination.

The SIEE is a compilation of the findings of the Initial Environmental Examination documents (IEEs) for the following cities:

Thiruvananthapuram;

Kollam;

Kochi;

Thrissur; and

Kozhikode.

The infrastructure subprojects are drawn from the following sectors:

Water Supply Rehabilitation;

Sewerage and Sanitation;

City Drainage Refurbishment;

Solid Waste Management and Disposal; and

Road Upgrades.

The IEEs examine the environmental effects of implementing selected infrastructure subprojects within the Corporation areas.

17.2 Project Descriptions A total of 22 sectoral subproject components in the five cities, which are summarized in Chapter 10, have been assessed for environmental impacts. The sub-projects are described in more detail in Volume 2 – City Reports.

17.3 The Level of Environmental Impact Assessment Employed All subproject components proposed for the Corporations were classified as Category B, as defined in ADB’s Environmental Assessment Guidelines (2003) on the basis of their beneficial effects, magnitude, locations, and level of environmental impact.

“A project is classified as Category B if its potential adverse environmental impacts on human populations or environmentally important areas, (e.g., wetlands, forests, grasslands, and other natural habitats) are less adverse than those of Category A projects. These impacts are site-specific, and few are irreversible. In most cases, mitigation measures can be designed more readily than for Category A projects” (ADB, 2003).



An IEE is an initial examination of potential environmental impacts of the proposed activities of a project. The IEE identifies any potential environmental impacts under different stages of the subproject implementation and includes environmental management and monitoring plans for the various subprojects. It also describes the appropriate institutional framework to ensure proper implementation of the environmental safeguards.

“The SIEE report is the executive summary of the IEE reports. It describes the significant findings of the IEE reports, and recommendations to manage them. The SIEE report should be presented clearly and concisely as a stand-alone document for submission to the Board and disclosure to the public” (ADB, 2003).

17.4 Identifying Environmental Impacts and Mitigation Measures Potential adverse environmental impacts, short and long term, have been identified for each subproject. Impacts were categorized as location, design, construction, and O&M impacts. It takes the sub-project components with identified environmental consequences and considers them in the context of the receiving environment. Mitigation measures have been devised with recommended monitoring actions to be conducted during implementation to minimize any adverse environmental impacts. The mitigation measures form the basis for an environmental monitoring plan during the implementation stages of KSUDP.

Details of the environmental impacts identified and proposed mitigation measures are described in Volume 5- Initial Environmental Examination, Part 2, Chapter 7.

17.5 Environmental Monitoring Plan An Environmental Monitoring Plan for each city has been prepared. The plans are a set of recommended environmental monitoring activities based upon responses to potential adverse impacts identified in the IEE. The plans also nominate the agencies responsible for monitoring.

During the planning and detailed design stages of the project, the Corporations will primarily be responsible for implementing mitigation measures and monitoring their performance. Technical and institutional mitigation measures will be incorporated into site layout planning and designs.

During the construction phase, the Project Implementation Unit (PIU) of each Corporation will monitor the performance of the contractor who will be contracted to construct the works in a manner that mitigates adverse environmental impacts during the construction phase. Mitigation measures of a planning, functional, institutional and procedural character will have been included in the tender documents and in the supplementary activity plans. The PIUs, with the support of the Project Management Office (PMO), will be responsible for monitoring and enforcement during construction.

During the operational phase, the Corporation, with the assistance of Kerala Water Authority (KWA), Irrigation Department, PWD and the Kerala State Pollution Control Board (KSPCB) will be responsible for monitoring the performance of the infrastructure subprojects.



For monitoring of an issue, which is critical to the environmental soundness of the activity, whether in response to potential location, design, construction or O&M impacts, the PMO has been given a primary role.

Recommended environmental monitoring programs based on the responses to identified adverse impacts are described in Volume 5 - Initial Environmental Examination, Part 2, Chapter 8.

17.6 Findings All proposed sub-project components in all Corporation areas were found on the basis of environmental assessment to be environmentally acceptable and able to proceed to the implementation phase.

In most cases, particular environmental issues identified are those which are typical for the type of project, and a range of proven mitigation strategies exist to address them. These are summarized in Table 17-1.

Table 17-1: Sub-project Component Environmental Impact Issues

Component Environmental Impact Issues Thiruvananthapuram Sewage Treatment Sludge handling and disposal

Contaminated site management Appropriate EMP provisions for construction and operation

Drainage Rehabilitation Appropriate EMP provisions for construction and operation Roads Upgrade Space availability for road safety, residents, pedestrians and for

installation of noise and air pollution mitigation measures Appropriate EMP provisions for construction and operation

Kollam Water Supply Rehabilitation Cap extraction rates to present rated levels to protect biodiversity in

source water body Appropriate EMP provisions for construction and operation

Sewage Treatment Appropriate treatment of Coastal Regulation Zone Sludge handling and disposal Appropriate EMP provisions for construction and operation

Drainage Rehabilitation Appropriate EMP provisions for construction and operation

Solid Waste Management Appropriate treatment of Coastal Regulation Zone Leachate control and integrated scientific landfill Special provision for scientific landfill of hazardous material Buffer/screening from backwater Appropriate EMP provisions for construction and operation

Roads System Upgrade Resettlement plan and implementation for underpass to existing ROB Space availability for road safety, residents, pedestrians and for

installation of noise and air pollution mitigation measures Appropriate EMP provisions for construction and operation



Component Environmental Impact Issues Kochi Water Supply Rehabilitation No outstanding issues

Appropriate EMP provisions for construction and operation Sewage Treatment Sludge handling and disposal

Appropriate EMP provisions for construction and operation Drainage Rehabilitation Appropriate EMP provisions for construction and operation Solid Waste Management Leachate control in low-lying area

Special provision for scientific landfill of hazardous material Appropriate EMP provisions for construction and operation

Roads Upgrade Space availability for road safety, residents, pedestrians and for installation of noise and air pollution mitigation measures

Appropriate EMP provisions for construction and operation

Thrissur Water Supply Rehabilitation No outstanding issues

Appropriate EMP provisions for construction and operation Sewage Treatment Sludge handling and disposal

Appropriate EMP provisions for construction and operation Drainage Rehabilitation Appropriate EMP provisions for construction and operation Solid Waste Management Leachate control and integrated scientific landfill




Kozhikode Sewage Treatment Adjoining natural area (wetland) conservation

Sludge handling and disposal Appropriate EMP provisions for construction and operation

Drainage Rehabilitation Appropriate EMP provisions for construction and operation Solid Waste Management Leachate control and drainage to adjacent residential areas




An important set of mitigation measures for most subprojects focuses on the fleshing out of comprehensive Activity Plans. These comprise:

Site Management Plan (construction, all sub-projects);

Occupational Safety Plan (construction and operation, all sub-projects);

Sludge Management and Disposal Plan (STPs);

Silt/Spoil Management and Disposal Plan (Drainage Refurbishment sub-projects); and

Site Contamination Plan (STP Thiruvananthapuram).



In a number of cases, the IEEs have found that particular technical studies also need to be undertaken to finalize subproject designs in the most environmentally sound way. These studies are regarded as part of the environmental design of the subprojects and not as impediments.

17.7 Recommendations The following additional studies are recommended by the IEEs as part of the environmental design of the subprojects:

A Site Contamination Management Strategy and Plan for the STP site at Thiruvananthapuram.

A water current modeling study at the discharge point at Neendakara to ensure that the discharge to sea does not have any adverse impact on the coastal waters or coast lines as well as no re-entry into the Ashtamudi Lake at Kollam.

An additional recommendation is that the KSUDP PMO should be involved in monitoring the implementation of those mitigation measures, which are critical to the acceptable environmental performance of the subproject. These would include the proper interpreting of the results of the above additional studies and the integration of the results into subproject planning.

17.8 Conclusions It is concluded that the proposed subprojects should proceed, subject to the mitigation measures and monitoring programs identified in the IEEs and the above recommendations.



18. RESETTLEMENT AND REHABILITATION

18.1 Scope of Land Acquisition and Resettlement The Project is envisaged to have minimum impacts on land acquisition and displacement of people. For the proposed sub-projects, land required is either with the municipal corporation or has to be transferred from another Government agency. The estimated additional land requirement is 1.55 Ha., for KSUDP.

In the water supply sector the estimated land required is 0.08 Ha, for the construction of overhead tanks, in the towns of Kollam and Thrissur. Government land will be identified for overhead tanks wherever possible.

In the sewerage and sanitation sector the estimated land required is 1.47 Ha. for sewage pumping stations identified in the cities of Thiruvananthapuram, Kollam, Kochi and Kozhikode. Government land will be identified for pumping stations wherever possible.

In the road sector improvements suggested / recommended along all roads primarily involves (i) strengthening road surface for traffic flow; and (ii) regulating traffic flow through appropriate road cross-sections, designed for traffic and pedestrian movement. In consideration of existing and future traffic use, the roads in general will be restricted to 2-lane continuous carriageway with provisions for parking and pedestrian movement. Given this approach, all vendors/squatters along the proposed roads will be accommodated within the road design and may only experience temporary disruption in activities during construction.

In the water supply, sewerage and drainage sectors pipe laying and civil works may lead to temporary disruption of commercial activities of hawkers and vendors. Alternate temporary space will be provided in the designs to ensure that that there is minimal disruption in the commercial activities carried out by the hawkers and vendors. Civil works contract documents will include mitigation measures and contractor responsibilities to address any unanticipated temporary disruption of activities.

The estimated number of Affected Persons (APs) under the KSUDP is 31 for the construction of the underpass to an existing ROB in Kollam.

The Land Acquisition and Resettlement requirements for different sectors in the five cities are given in Appendix 7.

Social safeguard frameworks under the Project include a Resettlement Framework and Indigenous People’s Development Framework, which are provided in Volume 8 – Social and Environmental Safeguards.

A Short Resettlement Plan has been prepared based on ADB’s Involuntary Resettlement Policy and is provided in Volume 9 - Short Resettlement Plan.



19. PROJECT RISKS AND ASSUMPTIONS

Every project has its risks, and these can be much greater and numerous with a multi-city, multi-sector project involving a multitude of stakeholders and responsible authorities. However, early acknowledgement of the potential risks will help in mitigating or even eliminating the problems that they may cause during project implementation and beyond. The potential risks and assumptions come in a number of different categories and are classified below for better appreciation.

19.1 Physical Component Risks Land transfers and affected person (AP) compensation agreed and completed before scheduled

construction;

Temporary relocation of street vendor and hawkers likely during civil works construction; adequate provision for compensation to be allocated in the Project;

Different sector contract conflicts to be avoided through careful contract management and supervision. Tender and contract documents to clearly specify contractor responsibilities;

Environmental clearances completed before scheduled construction;

Environmental pollution and nuisance to the public to be minimized during construction through diligent site supervision and monitoring. Tender and contract documents to clearly specify contractor responsibilities;

Contractors perform competently, to time and budget; and

Municipal Corporation (MC) may not have the resources or skills to manage the operation of the new facilities (mainly STP and sanitary landfill sites) in an environmentally sound way.

19.2 Policy Risks State and local governments’ commitment to necessary decentralization reforms in urban

planning and management to provide improved services;

GoK continues to provide adequate guidance and capacity building to support the devolution process of decision making and financial independence of the urban local bodies;

Transfer of water supply and sewerage assets to local self governments not matched by re-structuring and adequate staffing of City Planning and Engineering Departments; and

Political acceptance of required changes in tariffs, taxes, and rates;

19.3 Institutional Risks GoK and MCs to ensure that PIUs are fully staffed and capable of undertaking duties prior to and

during project implementation;

To maintain effective management during project implementation the project leadership at municipal corporation level should remain constant, for at least the first 3 years;

Delays will occur unless there is timely recruitment and satisfactory performance of Design and Supervision consultants;



Project ownership will suffer unless there is effective consultation with stakeholders and others government agencies;

Public awareness and community mobilization programs must be effective for getting the participation of local stakeholders into implementation of the institutional development program;

Adequate training opportunities for elected officials and municipal staff must be available;

Implementing agencies must be amenable to capacity building; and

There should be no legal obstacles to poor-settlement upgrading.

19.4 Social Risks Adequate training facilities and technical support system must be available to help Municipal

Corporation in implementing poverty alleviation activities;

Mayors must actively support the initiatives under the poverty alleviation component;

Poor communities must be willing and able to participate in city management and project planning activities;

Investment provided by the Project should be converged with other programs to target the urban poor more effectively and for maximum benefit;

Improved services will only benefit the urban poor and vulnerable groups if included in the physical design and if any financial cost recovery is affordable; and

Project funds must not be diverted from the social programs to pay for loan charges.

19.5 Financial Risks Financial Improvement Action Plan not implemented to scale or schedule necessary for sustained

operation and maintenance;

Willingness of beneficiaries to pay for proper management, maintenance and operation of infrastructure facilities;

Tariffs for services not set at appropriate levels or collected efficiently; and

Un-timely provision of counterpart funds.

19.6 Economic Risks Overrun of project construction costs due to delays;

Indirect economic costs are significant, e.g. negative environmental impacts on agricultural or fisheries production, net loss of income due to shutdown of street vendors/hawkers;

Underachievement of project outputs, i.e. population coverage of improved services is below target or infrastructure improvements not as effective as planned;

Effective demand for the services provided by the improved infrastructure is less than projected due to lack of consumer affordability or willingness to accept change; and

Operation and maintenance of the infrastructure and equipment provided by the Project are not funded and/or carried out at levels sufficient to sustain project benefits.

India: Kerala Sustainable Urban Development · 2014-09-29 · TA 4106 –IND: Kerala Sustainable...

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