Public Private Partnership

in Urban Water Sector

in India

Ankit Tulsyan

Ipshita Das

Khalid Rahman

TERI University

20th October 2014

Public Private Partnership:Definition

• A Public Private Partnership project means aproject based on a contract or concessionagreement, between a government or statutoryentity on the one side and a private sectorcompany on the other side, for deliveringcontractual service on payment of user charges.

• The concept of PPP should not be confused withother concepts such as Public service(full state

responsibility), Privatization(includes sale of assets) andOutsourcing(short term contracts, ex: hiring a security).

Need for a Public Private Partnership

• The increasing trend of population pressures in acountry alongside various developmental projectstaking place for the welfare of state has severallyconstrained the government’s ability to addresspublic needs through the traditional means.

• Other considerations too, like Increased efficiency in project delivery

Improved operation and management

Access to advanced technology

Need to bring in commercial viability considerations in theprovision of urban infrastructure

Types of PPP

Supply and Management

Contract

Manage part or whole of

Infra/Service

Ownership - State

Management Fees in lieu

3 – 5 Years

Turnkey

Traditional Model/Less Complex

Bidding Process of Selection

Design & Builds at a Fixed Fee

Low Risk and Low Pvt. Investment

Lease/Affermage

Public Investment with private

efficiency

Operator run, collect revenue, 8-15

Yr period

Lease – fixed fee to the Owner

Affermage – fixed fee to the operator

Greater commercial risk to the Private

operator

Concessions

Public authority grants the right to build and operate

Revenue is linked to performance, 5 to

50 year period

High Pvt. InvestmentSeveral

Forms –JV/BOOT/BOT.

Govt. may do VGF

Asset ownership of Govt

Genesis of Public Private Partnership

• Public Private Partnerships (PPPs) were introduced in1992 in the UK by the Conservative government andsubsequently expanded across the world.

• This was the basis for the first PPP Policy developedin the state of Victoria, Australia.

• In India, PPP Model was first followed in the powersector and thereafter expanded to other sector

• In case of Urban water supply, the trend wasprimarily Build Operate Transfer (BOT) with 100percent private financing but post 2010, theoperational contracts are a mix of concessionagreements, BOT projects, and management contracts

Overview of PPP in Indian Urban water Sector

Source: Trends in Private Sector Participation in the Indian Water Sector: A Critical Review

Reasons for Failure of the Projects

Source: Trends in Private Sector Participation in the Indian Water Sector: A Critical Review

Analysis of factors for Success of the Projects

Source: Trends in Private Sector Participation in the Indian Water Sector: A Critical Review

International Case StudiesSenegal

• In early 1990’s only 54% of Senegal’s urban population hadaccess to safe water.

• In 1994 Gov created steering committee of the ministers ofeach Gov agency concerned with WSS

• The committee created a state asset-holding company toretain the asset and the right to extract water, andoperating company would produce and distribute water.

• Considering the need and constraint of the sector thecommittee decided to give it on a affermage contract

• A 10 years affermage contract was signed betweenGovernment and Senegalaise des eaus which was formedspecially for this purpose with specified term and condition

How PPP Helped Foster Efficient Public Investment in Senegal

Between 1996 and 2003, water production has increased by 18 percentwith 81,000 new household connections and 400 standpipes according tothe World Bank.

The financial equilibrium achieved in 2003, with average tariff increasesnot exceeding 3% per year

Water cuts are rare and more of Dakar is connected to a clean watersupply than ever before, with careful measures to make sure that poorareas of town are not overlooked.

Service to the poor: Social connections programs (SCPs) have significantlyhelped expend access of service to the poor

Thus, the key outcomes of the PPP are:

1. More water to more people

2. Better financial heath

3. Positive change in tariff

Key factors for successful implementation • The choice of affermage contact was an innovation. A performance

contract has never been used before like this and initially there was a lot of skepticism, but it has proved to be very effective

• The contract addressed the need of the Gov and kept the asset in hand

• Strong political will and good leadership from the relevant ministry was present.

• The operations and maintenance function were clearly defined.

• Tariff Adjustments has introduced progressively as improvements are made in coverage and service quality.

International Case Studies Manila (the Philippines) –Past Scenario, before 1997

• Before 1997, the capital’s water supply and distributionwas in disarray.

• Communal water sources were shared by hundreds offamilies who had to line up for hours just to get a fewpails for the day’s use.

• Two-thirds of the water produced was being lost toleaks, poor metering, and illegal connections

• Clean and potable water was a luxury which poorfamilies simply did not have, and that others had toacquire at a steep price

International Case Studies Manila (the Philippines) - Post a PPP arrangement in 1997

• Two concessions were awarded in 1997 to cover two contrastingareas

• The Ayala-led Manila Water Company took over the East Zone ofMetro Manila & the Western concession by the Maynilad, operatedby Benpres-Suez under a concession agreement. Winners invested$7 billion to expand and improve the facility

• In the Western concession (Maynilad), coverage expandedfrom 67% to 86 percent. In the Eastern zone (Manila Water),coverage jumped from 26% to 99%.

• An estimated 4 million people gained access to piped water inManila during the period 1997–2006.

• Water for poor programme at 1.5$ per month• With the contract the Price has been decreased by 74% in the east

zone and 43% in the west zone.

International Case StudiesManila (the Philippines)

Source: Public-Private Partnerships for Urban Water Utilities, Marin 2009

Way Forward – for strengthening PPP in Urban Water Sector

Establish sector trend approach rather than currentproject specific approach

States should follow well established and acceptedprinciples to increase the chance of success for PPPs inwater sector

Bureaucracy should be a facilitator and not animpediment

Develop sector regulation for long-term measure:

Develop states implementation and monitoring capacity

Tariff Structure Reforms for full cost recovery approach