Water for billion+ people

Public Private Partnerships - PPPs

• Water Scenario in India

• Benchmarking best practices in PPP: Nagpur

Concessions

• Stakeholder engagement

• Innovative financing initiatives

• Risk mitigation strategies

Arun LakhaniChairman & Managing DirectorVishvaraj Infrastructure Ltd. (India)

Global Water Investment Summit Risks, Innovations and Opportunities

7th – 8th May 2014 - London, UKSession Three –Water Infrastructure Finance

India at the Crossroad of Customs and Development

• Water deeply embedded in the social fabric of the country

• Free water is a birth right – Selling water is sin

• Amongst the world‘s youngest nations (median age of 25 years)

• Steady rise in urbanization – Expanding middle class• 31% of total population i.e. 377 mn (2011) *

• 10 year average GDP growth rate of ~7.6% #

How do we fulfill the aspirations of the young nation keeping the background of social fabric ?(Source: # IMF 2014 report, *McKinsey Global Institute: Urban India Awakening 2011 report)

Urban India: Snapshot

(Source: High Powered Expert Committee (HPEC) 2011)

City Class Reclassification Population Size No. of Cities Population in Mn

Class I

Class IA > 5 million 8 85.1Class IB 1 Mil to 5 Mil 45 75.5

Class IC 100,000 to 1 Mil 415 104.1

Class II Class II 50,000 to 100,000 515 32

Sub-total 983 296.7Class III to VI Class III < 50,000 3,580 80

Total 4,563 377Villages ( < 10,000) 500,000 + 680+

Sector Volume (MLD) Class 1+2 Inv. in USD BN till 2031

Water 51,000 45.2

Wastewater 40,000 34.0

Urban Water: Improvement Opportunity

• Water Infrastructure

– Water deficit of nearly 25% of demand by 2050 *

– Average NRW estimated at 50-55% *

– Continuous water supply as a concept is not prevalent

• Sewage Infrastructure

– Only 30% of sewage generated is treated #

– 55% operational efficiency of STPs #

– Untreated sewage being released into ecosystem

• Three-fourths of India’s surface water resources are polluted, and 80% of the pollution

is due to sewage alone #

(Source: #ADB India's Sanitation for All Report, *UNICEF Water in India Situation and Prospects 2013)

World Bank Review – 5 Water Concessions in India

Nagpur Arurangabad Mysore Latur Khandwa

Population (In Mn) 2.5 1.2 1.0 0.38 0.2

Mandate Rehab + Op’n Bulk+Reconst.+Op’n Reconst+Op’n Op’n+Select

Reconst.Bulk+Reconst.

+Op’nDuration (Yrs.) 25 20 6 10 25

Private investment 30% 50% Nil Nil 10%

User charges as an integral part of operator revenue

Distinct from user charges

Part user charges+ Part

subsidyDistinct from user charges Yes Yes

Contract Signed Late 2011 2011 Mid 2009 2008 Late 2009

(Source - World Bank ‘Running Water in Indian Cities’ Report 2014)

• Nagpur– 10th largest city in India– 2.7 million+ population across 217 sq.kms– 6 Water Treatment Plants: 750 MLD

Nagpur Concessions

• Nagpur 24/7 Water Concession– India’s first “Full City” water distribution PPP contract awarded to Orange

City Water Limited – 50:50 JV of Vishvaraj Infrastructure Limited & Veolia Water India Pvt. Ltd.

– Capex: USD 92 Mn (Grant: USD 47 Mn, Operator: USD 45 Mn)– 350,000 water connections with 2,500 Km of pipelines

• Nagpur 200 MLD STP - Wastewater Concession– DBFOT model with annuity payments (74:26 JV of Vishvaraj Infrastructure

+ Drake & Scull)– Reuse of water with revenue sharing mechanism– Concession Period: 32 years

Stakeholder Engagement

• Recognizing water projects as a social project rather than technical –

commercial contract

• Adding 4th P as people in a PPP model

• Conceptualization stage

• Legal: proposal cleared by highest elected body

• Social: ‘My City My Water’ campaign in 500+ schools

• Implementation stage

• Engaging people in rehabilitation phase (service quality monitoring)

• Make Jalmitra (water friend) in each locality to help communicate

with people and facilitate problem solving

Innovative Financing Arrangement – Water Projects

• Government grant for Capex (70% to 90%)

– Lower tariffs (while maintaining IRRs)

• Telescopic tariffs

– Lifeline supply for under-privileged people- tariffs to be same as pre-project levels

– Separate tariffs for commercial and domestic users

• Keeping water tariff and operator fees separate

– Operator fees linked to performance (NRW reduction)

• Minimum off-take guarantee

– Minimum Take or Pay for first 5 years

• Reducing cost of capital

9

Rivers/Dams/ Lakes

Urban Population

Power plants / Industry

Agriculture

Provide Treatment Infrastructure

Limited Fresh Water Resources

Rivers/Lakes

Fresh WaterWaste Water

Example: Nagpur Treated Water

Innovative Financing Arrangement – Wastewater Projects - Reuse

Mitigating Risks in PPP

• Willingness to charge ?

– Delinking of tariff and operator fees

– Reducing NRW and increasing revenue

– Direct costs (raw water, electricity) to be borne by client

• Inflation

– Operator revenue linked to WPI & CPI

– Electricity/raw water indexed to inflation as a pass through charge

• Willingness to pay

– Engaging stakeholders, adding the 4th P is critical step in reducing the risk

considerably

• For long term water PPP Projects to succeed,

• The Roles

• P – Public – Policy Maker

• P – Private – Efficiency improvement with investment

• P – People – Communication & Monitoring

• Communication, Transparency and On-boarding of the largest stakeholders “People” is

more of a business need and mitigates many risks

“ Win Win for all the stakeholders is essential for long term PPP Projects to succeed ”

In India PPP in water & wastewater sector is evolving, offering a large opportunity in coming decade

PPP: Need of 4th P as People

Thank You