REGULATION IN THE URBAN WATER SUPPLY WITH THE INTRODUCTION OF PUBLIC-PRIVATE-PARTNERSHIP (PPP) MODEL
Posted on : June 19, 2020Author : AGA Admin
INTRODUCTION
Water supply in different Indian cities has been in an abysmal state. Reliability and the affordability of the service along with its safe quality is always the centrum of debate. According to the Survey on Service Level Benchmark conducted by the GOI, in a sample of 28 cities an average of 3.3 hours of daily reliable water supply is facilitated (Shah, 2012). The skewed water supply in most of the regions reflect on the incompetence of the departments to cater to the basic human right of the residents. Furthermore, the fugitive nature of water per se, leads to complexities of techno-politics hence impacting the water supply in different corners of the city.
“The reasons for such underperformance are connected and deep-rooted” says, Shah and Aziz. Often it is the failed attempt of the department to accrue tariffs and maintain the cost benefit ratio of the infrastructure to sustain its profitably. Though water is a public and social good yet a meagre margin is required to maintain the operation and maintenance cost of the infrastructure. Failing in which the State moves into the vicious cycle of liabilities and debts and the quality of the service declines.
According to the United Nations Economic and Social Council’s Committee on Human Development and Civil Society (2005) PPP may be defined as “the combination of a public need with private capability and resources to create a market opportunity through which the public need is met and a profit is made” (Lanjekar). The term “partnership” is reflective of the mutual agreement that the private and the public stakeholders decide upon over their shared objectives and working functions (Westman, 2005). It was the deteriorating performance of the Public Sector in managing and effectively allocating water across the city that called for the “private partnership” (Jones, 2010).
However, with the implementation of the PPPs, there comes along the need of regulation so as to protect the consumers against monopoly (Lanjekar). Often these PPPs, in order to keep a profit margin, ring-fence their services. Thus, the domain of water supply tends to be slightly more disputed with higher risk probability (Shah, 2012).
PPP MODEL IN URBAN WATER SUPPLY SERVICES
Broadly the PPP Structure can be categorized into:
- In which the private enterprise invests capital either partially or completely for the project and, or.
- Where the private enterprise does not invest capital.
In case of the urban water supply, the former category is the most common (Meheta, 2011). In many instances, like that in Nagpur the PPP contract adheres to the structure based on the “Performance Contract for Operations and Maintenance of Water Supply System” (Meheta, 2011). This is a form of agreement where the private enterprise has to take the responsibility of financing the project partially and also looking into the operations and management of the existing and also the new connections that will be replacing the older consumer connections (Nagpur & Corporation, 2011). The other variety of PPP model employed was in Karnataka. This was also a partnership between a private enterprise and 5 other public bodies. The unique aspect of this urban water supply project was its implementation in “phases”. This was the attribute that brought success to the project. (Shah, 2012).
SHIFT IN NATURE OF REGULATION IN URBAN WATER SUPPLY
The primary nature of regulation that works in the urban water supply sector is over water tariff and metering. In some projects like in case of Nagpur, it was the responsibility of the private enterprise to look in to the revenue collection and the allocation of risks post the transition period of 5 years (Nagpur & Corporation, 2011), while in many other projects, water tariffs are regulated by public partners so as to prevent any form of extortion by the private company. The main rationale behind proposing a PPP model in the water supply domain is to improve the efficiency of the service.
In India, the larger policy formulation and implementation in the water sector is carried on by the Central Government. These policies are run on ground in the form of different schemes such as maintenance of water infrastructures and so on. However, the regulation of the water supply services, the setting and collecting of the tariffs are independent to State Governments and the Urban Local Bodies (ULBs).
By virtue of the 74th Constitution Amendment Act (1992), the State governments were compelled to empower the ULBs and hand down regulatory bylaws to them. Under JnNURM also, it was a stipulated mandate to involve the parastatal bodies (ULBs) in governance, regulation, “political accountability” and “technical, financial and administrative responsibility” (Shah, 2012).
Over the years, the policy framework of the water sector experienced a transition. The approach with which the National Water Policy was proposed for the first time in 1987 has improved over decades. The Draft of 2017 emphasizes extensively on pricing-regulation and private public partnership in water supply services (Jones, 2010). The PPP intervention in the water sector is much different than their roles in roads or electricity. The private sector gradually became a part of the water supply value chain (Shah, 2012). This began with Built-Operate-Transfer approach[1] where the financial inputs were equally shared between the stakeholders. However, with passing time, the poor commercial viability of the water projects came to the forefront and maintaining the “returns on investment” for the private investors became taxing. There came a shift in regulations and the private and public stakeholders moved to “management contracts”[2]. The public sector took the responsibility of funding the projects through grants, viability gap funding while the private enterprise focused on providing their expertise on board (Meheta, 2011). The change in the “nature of financing” helped reduce the project cost and enhance the cost benefit ratio of the project thereby benefiting the Future Value of the Water supply services.
There are two case studies described and analyzed below for a better understanding of PPP models in an Urban Water Supply, highlighting the probable achievements and setbacks in this model of water supply regulation.
CASE STUDY: NAGPUR PPP MODEL IN CITY-WIDE WATER SUPPLY
Nagpur, the industrial hub of Vidarbha, is one of the fastest growing cities. The ULBs there, previously provided intermittent water supply (duration ranging from 2 hours in some places to 12 hours in some others) to 80% of its citizens. There were 3 raw water sources leading to the Water Treatment Plant of 500-530 MLD capacity. It also had water auditing to calculate the losses and thereby to improve the water supply provisions in the city.
All of this led to the inception of the Dharampeth Pilot Project that went on to create the pedestal for the PPP project for 24X7 water supply across the city. The project received dual approval of funding and ring fencing of water supply assets with NMC under JnNURM in 2009. Another regulatory body, Nagpur Environmental Services Limited (NESL), was also formed comprising “selected elected representatives of NMC” (Nagpur & Corporation, 2011). The stakeholders of the PPP were therefore NESL, NMC and Veolia-Vishvaraj[3] – together called the Orange City Water Private Limited (OWCPL).
The project is currently operating in the Transition Period and OWCPL is implementing the Initial Rehabilitation and Improvement Program in its command areas. OWCPL looks into 30% of the project cost, the other additional costs and the payment of the staffs employed in the project. However, the revenue structure is such that, the Operators gets a fixed amount depending on the Operator’s rate during the Transition period, post which, it relies on the collection made from the Metered water-lines. This project, besides having a Project Management Consultant also has NMC playing the vital role of a regulator, supervising the progress of the project and its regulations.
However, till date, the project has had several shortcomings. The most prominent is the delays in the project. As a result of which the project failed to reach its target connections and further had waive of the meter fares. This however, helped the government to bring all the unauthorized connections under scanner and have greater accountability of the losses in the supply system.(Nagpur & Corporation, 2011).
ANALYSIS AND SOLUTION
From the above case study of Nagpur, though the project seemingly stands out to be a potentially successful one but there are some prominent setbacks. Since the pilot project which later became the PPP agreement, there has always been a gap in communication between the stakeholders and the consumers. It was the reason that led to delays in the project. Though NMC waived the connection fees, it is important that NMC and OCWPL keeps better communication and customer relations.
The tariff structure implementation also needs to be appropriated properly. Though NMC revised the bylaws, yet the increase in the tariff could not be introduced. This would eventually affect the economic sustainability of the project.
At the initial phase of the project when OCWPL was undertaking the rehabilitation project of the existing networks, there were several difficulties in implementing the project. The solution is prior planning to avoid any unprecedented situation.
The different delays in the project added to cost and time overruns of the project leaving the stakeholders at hefty losses.
CASE STUDY: KARNATAKA URBAN WATER SUPPLY IMPROVEMENT PROJECT
The PPP model was introduced in Karnataka with the agenda to facilitate bulk water supply across the city. The ULBs failed to achieve this agenda because of lack of funds and poor O&M of the supply system. Thereafter, the Government of Karnataka in collaboration with IBRD[4], launched the Karnataka Urban Water Supply Improvement Project (KUWSIP), signed on 2005 between a private developer and 5 government bodies[5] (Shah, 2012).
The most unique aspect of the project was its “phased” nature of implementation – Investment Plan (21weeks), Rehabilitation of the Distribution System (58weeks) and the Operation and Maintenance (104weeks).
In the first phase, the operator assessed the performance of the existing networks and suggesting the required repairs quoted the cost for Government approval. The second phase witnessed the division of responsibilities, with regard to the different components of the water distribution system. They even hired three other subcontractors to facilitate activities efficiently. However, after much delays, the final stage of the project commenced in 2008 (Shah, 2012).
A technical auditor was hired as a part of the project to set the technical parameter for better outcomes. The government, in this project, meticulously played the role of a regulator, regulating the tariff structures as well as the stakeholder relationships.
Though the project was a success but it still had its shares of shortcomings.
ANALYSIS AND SOLUTION
During the initiation of the project, there was translucency in the available information. As a result of which there was mismanagement that led to delays in the project.
Cooperation from the Government is vital in case of every PPPs. In this project there were delays made by the Government in approving the nodal agents and contractors. Hence, there were delays in the process of demonstration in the project as well as for payments. Thus, mutual support among all stakeholders is very crucial.
However, looking on the brighter side, the project succeeded in identifying the urban poor and waving of their tariffs. The project completed in 2010 and currently the Government is proposing for an expansion to increase its outreach.
CONCLUSION: THE FUTURE OF PPPs IN URBAN WATER SUPPLY
Though PPP is comparatively recent in the water sector, if planned and designed well; it might help ebb off many issues within the sector. However, a vital aspect of choosing the PPP contract is the proper identification of the project and its nature.
As a socio-urban infrastructure, there are many complexities, besides cost overruns, that make PPPs less amenable; like the affordability of the people, expectation of the service to be free and so on (Shah, 2012).
But this “intervention” has plentitude of scopes ahead. As estimated by HPEC[6]. The sector can look into 63% of capital investment down 20 years (Meheta, 2011). However, according to HPEC reports, if the JnNURM scheme is carried forward for another 2 decades, the Government shall have the potential to invest upto 0.25% in 2032 against 0.1% in 2011. The rest of the PPP project costs in water supply services can easily be managed with private financing.
Therefore, PPPs can be considered as a potential Regulatory Key to an Efficient urban water supply.
References
Jones, P. L. (2010). Privatization and the Poor: Issues and Evidence in the Pro-Poor Growth: Tools and Key Issues for Development Specialists Series. Retrieved from United State Agency for International Development.
Lanjekar, P. (n.d.). Public-Private Partnerships and Urban Water Security: Issues and Prospects in Mumbai, India. 168.
Mehta, A. (2011). Tool-kit for Public Private Partnerships in Urban Water Supply for the State of Maharashtra. Government of India, Ministry of Finance, Department of Economics Affairs. GOI-ADB Initiative : Mainstreaming PPPs in India ; www.pppindia.com.
Shah, A. A. (2012, May). Public Private Partnership in Urban Water Sector – Potential and Strategies. Althena Informatics India Pvt Ltd, 16.
Westman, S. (2005, July-September). Treasuring Every Drop : Water Privatisation and Urban Poor.
Nagpur, A., & Corporation, M. (2011). Nagpur : PPP in city-wide water supply. 1–10.
Purnanjali Chandra
Pursued BSc in Geography with minors in Economics and Human Rights from Loreto College, Kolkata under Calcutta University. Currently pursuing Masters in Water Policy and Governance from TISS Mumbai.
[1] This approach was implemented for projects in Pune, Bangalore and Goa. With the passage of time, due to lack of commitment and regularity the projects were left incomplete and unsuccessful. However, the first ever PPP project that succeeded in India was the Tirupur Industrial Water Supply Project in 2000 in Tamil Nadu.
[2] In these types of PPP contracts, the private sector is primarily responsible for installing the rehabilitation of the existing consumer networks and systems across the city. In some cases, the private stakeholder might also look into the operation and maintenance of the project.
[3] This consortium is commonly called “Orange City Water Private Limited” (OCWPL). It was signed in June 2011, as a Performance Management Contract type PPP. It commenced in November 2011
[4] IBRD-International Bank for Reconstruction and Development
[5] 3 ULBs, Karnataka Urban Water Supply and Drainage Board (KUWSDB), Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC)
[6] HPEC- High-Powered Expert Committee
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