Water PPP Tool Kit

Government of IndiaMinistry of Finance

Department of Economic Affairs

Government of IndiaMinistry of Finance

Department of Economic Affairs

November, 2009

KnowledgeSeriesii

The Asian Development Bank (ADB) engaged CRISIL (a leading consultancy firm), attherequestoftheGovernmentofMaharashtra,undertheMainstreamingPPPsinIndiaInitiative,todeveloppossiblePPPsolutionsfortheurbanwatersupplysectorintheState.The DeA, PPP Cell (Maharashtra) and ADB have worked closely in the developmentofthisreport.Nopartofthisdocumentmaybereplicated,quotedorprintedwithoutwrittenconfirmationfromDeA&ADBPPPfocalpoints.

DisclaimerThedata,information,andopinionsexpressedinthisdocumentarethoseoftheauthors,participantsandconsultants,anddonotnecessarilyreflecttheviewsandpoliciesoftheGovernmentofIndia,theAsianDevelopmentBank(ADB).TheGovernmentandADBdo not guarantee the accuracy of the data included in this publication and accept noresponsibilityforanyconsequencesoftheiruse.Theuseoftheterm“country”doesnotimplyanyjudgmentastothelegalorotherstatusofanyterritorialentity.

Designed and Published by PPPCellDepartmentofeconomicAffairsMinistryofFinanceGovernmentofIndiaNewDelhi-110001Indiawww.pppinindia.com

Printed by

MacroGraphicsPvt.Ltd.

www.macrographics.com

©DepartmentofeconomicAffairsAllrightsreserved

ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra iii

Sustained growthof the Indian economy is essential for all-rounddevelopmentof thecountry. Within this requirement, sustainable infrastructure development is critical forprovidingthebackboneforeconomicactivitiesaswellasforensuringthatresourcesareconservedandusedmostefficiently, given the limited and the fastdepletingnatureoftheseresources.

Publicprivatepartnerships(PPPs)areseenasakeyingredientinthis,forbringinginmuchneeded investments aswell asefficiencies inutilization andmanagementof resources-whetherwater,power,orindeedmoney.Variousestimatesindicatethatiftheeconomyhastogrowat8%perannum,over$500billionofinvestmentisneededfortheinfrastructuresectorsfrom2007–2012;around30%ofthisrequirementisneededtocomefromprivatesector.

Inthefollowingsection,thebroadassessmentofthewatersupplyservicesfortheselectsamplecitiesfollowedbythepreliminaryfinancialanalysisandtherecommendationforthesuitablePPPoptionhasbeenpresented.TheassessmentandtheanalysishasbeenpresentedinasuchamannerthattheuserofthistoolkitgetsabroadideaoftheprocessandthestepswhicharetobefollowedinidentificationandfinalisationofasuitablePPPstructureforthedevelopmentofprojectsinthewatersupplyandsewerageservices.

The Government of India has, therefore, been following a considered approach tocreate theenablingenvironment forcatalyzing suchprivate investmentandoperationsin all infrastructure sectors. Supported by the Asian Development Bank, a PPPInitiativehasbeentargetedoncapacitybuildingandinstitutionalizationofPPPsacrossthecountry

Under the above Initiatives, the Department of economic Affairs (DeA), GovernmentofIndia,incollaborationwiththeAsianDevelopmentBank(ADB)issupportingthePPPCell,theSpecialProjectDepartmentoftheGovernmentofMaharashtrainMainstreamingPublicPrivatePartnerships(PPPs)inselectsamplecitiesoftheStatethroughaTechnicalAssistance(TA)Project.

TheprojectaimstoidentifyanddevelopPPPstructureswhichcanbeimplementedinthewatersupplyandsanitationsectorforthecitiesofMaharashtra.Asapartofthisproject,variouspossiblePPPstructuresinthewatersupplyandsanitationsectorwerestudied,andtheapplicabilityofthesestructuresassessedinthecontextofthesamplecities.TheprojectaimedtodeveloptermsheetsforthosePPPstructures,whichareidentifiedasmostsuitableandfeasibleforimplementation.

Foreword

KnowledgeSeriesiv

ThetoolkitssodevelopedareexpectedtoassisttherelevantpublicentitiesintheStateofMaharashtrafordevelopingPPP-basedprojectsinthewatersupplyandsanitationsector.ThetoolkitisalsodesignedtohelpthedecisionmakersindecidingwhetheraparticularprojectmightbesuitableforthePPProuteornot.Thetoolkitcanthereforebethebasisforapprovingaprojectimplementationstructureaspartoftheoverallprojectapprovalmethodology.

WeareconfidentthatthesetoolkitswillbeusedbytheMunicipalCommissionersandtheChiefexecutiveOfficersoftheurbanlocalbodies,theManagingDirectorsandthefunctionaldirectorsoftheWaterSupplyandSanitationBoardsandtheStategovernmentsandotherdecisionmakerswhileconsideringPPP-basedimplementationofurbanwatersupplyandsanitationprojects.

Govind MohanJointSecretary

DepartmentofeconomicAffairsMinistryofFinance

GovernmentofIndia

Manu Kumar Srivastava PPPNodalOfficer,

Secretary(SpecialProjects),GovernmentofMaharashtra

Ashok Sharma Director,SAFM

AsianDevelopmentBank,Manila

ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra v

This toolkit has been developed with the objective of simplifying the implementationof Public Private Partnership projects in urban water supply sector. The DepartmentofeconomicAffairs (DeA)hasplayedacritical roleby supporting the initiativeof theGovernmentofMaharashtra.AsianDevelopmentBank(ADB)supportedthisendeavourandfacilitatedthepreparationofimplementation-focussedguidancematerial.

WewouldliketoexpressourgratitudetotheDepartmentofeconomicAffairs(DeA),especiallytoMr.GovindMohanandMs.AparnaBhatiafortheirvaluableinputs.ThetoolkitwouldnothavebecomesostreamlinedhaditnotbeenforthenumberofdiscussionsandinputsprovidedbyMr.ManuKumarSrivastava,MrA.K.JainandMrs.AshwiniBhideofthe Government of Maharashtra. The Maharashtra Urban Infrastructure DevelopmentCompany (MUINFRA) facilitateddiscussionsandpresentationswithotherexpertsandagencies including theUrbanLocalBodiesof Jalna, Sangli-Miraj-Kupwad,Virar,NavgarManikpur,Shirpur,Kolhapur,Akot,Saoner,Chiplun,KulgaonBadlapur,Ambernath,NaviMumbai.The toolkithas alsobeenenrichedbycomments and inputsof severalotherpeopleincludingrepresentativesofthedevelopers.

WewouldalsoliketothankMr.AnoujMehta,Mr.AjaySaxenaandtheassociatedAsianDevelopmentBank(ADB)members forplayingan importantguidingroleandensuringthattheoverallobjectivewasmetinaseamlessmanner.

Lastly, thisdocumentwouldnothavebeencompletewithout thehonest feedbackweobtainedfromkeyprivatesectorplayers.WewouldliketoextendoursincerethankstoprivatesectorplayersfromMahendraWaters,Jusco,SPMLandSUeZ.

Theteamthathasworkedonthisreportincludesthefollowing:

Acknowledgement

GovernmentofMaharashtra AjitKumarJain,PrincipalSecretarytoChiefMinisterManuKumarSrivastava,Secretary(UrbanDevelopment)andPPPNodalOfficeAshwiniBhide,JointMetropolitanCommissionerandJointManagingDirector,MUIDCL,GovernmentofMaharashtra

GovernmentofIndia AparnaBhatia,Director,DepartmentofeconomicAffairs,MinistryofFinancePrashantBharadwaj,MISexpert,DepartmentofeconomicAffairs,MinistryofFinance

ADBIndia AnoujMehta,SeniorInfrastructureSpecialistAjaySaxena,PPPexpert

CRIS S.R.Ramanujam,CeOSanjaySahSaloneeJainBrianDSouza

KnowledgeSeriesvi

Key Contacts

Government of India

GovindMohanJointSecretaryDepartmentofeconomicAffairMinistryofFinanceGovernmentofIndiaTel:+911123093881email:[email protected]

AparnaBhatiaDirectorDepartmentofeconomicAffairMinistryofFinanceGovernmentofIndiaTel:+911123094443email:[email protected]

Asian Development Bank

AshokSharmaDirector,FinancialSectorPublicManagementandTradeDivisionSouthAsiaDepartmentAsianDevelopmentBankTel:+6326326755email:[email protected]

AnoujMehtaSeniorInfrastructureFinanceSpecialist&FocalPointforPPPs(India)Tel:911124107200email:[email protected]

Government of Maharashtra

ManuKumarSrivastavaPPPNodalOfficerSecretaryUrbanDevelopmentGovernmentofMaharashtraMantralayaMumbaiTel:+912222846757email:[email protected]

AjaySaxenaPPPexpert–MaharashtraAsianDevelopmentBankTel:+912266157390email:[email protected]

www.pppinindia.comwww.adb.org

www.pppinmaharashtra.com

ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra vii

ADB AsianDevelopmentBank

AMC AkotMunicipalCouncil

BIS BureauofIndianStandards

BLT BuildLease&Transfer

BOO BuildOwnOperate

BOOT BuildOwnOperateTransfer

BOT BuildOperate&Transfer

BPO BusinessProcessOutsourcing

BROT BuildRentOperateTransfer

BT Build&Transfer

BTO BuildTransferOperate

CAO ContractAddOperate

CDP CityDevelopmentPlan

CMC ChiplunMunicipalCouncil

CMWSSB ChennaiMetroWaterSupplyandSanitationBoard

COI CommitteeonInfrastructure

DBFO DesignBuildFinanceOperate

DBOOT DesignBuildOwnOperateTransfer

DCB DemandCollectionandBalance

DeA DepartmentofeconomicAffairs(India)

DOT DevelopOperateandTransfer

DRB DisputeResolutionBoard

DPR DetailedProjectReport

eOI expressionofInterest

Abbreviations

KnowledgeSeriesviii

ePC engineeringProcurement&Construction

FDI ForeignDirectInvestment

FM FacilitiesManagement

GDP GrossDomesticProduct

GOI GovernmentofIndia

GOM GovernmentofMaharashtra

IIFCL IndiaInfrastructureFinancingCompanyLimited

IIPDF IndiaInfrastructureProjectDevelopmentFund

ITN InvitationtoNegotiate

ITT InvitationtoTender

JMC JalnaMunicipalCouncil

JNNURM JawaharlalNehruNationalUrbanRenewalMission

KBMC KulgaonBadlapurMinucipalCouncil

KL KiloLitre

KMC KobhabaMinicipalCouncil

KMDA KolkataMetropolitanDevelopmentAuthority

KUWASIP KarnatakaUrbanWaterSupplyImprovementProject

KUIDFC KarnatakaUrbanInfrastructureDevelopmentandFinanceCorporation

lpcd litrepercapitaday

MBC MeteringBillingandCollection

MIDC MaharashtraIndustrialDevelopmentCorporation

MJP MaharashtraJeevanPradhikarna

MLD MillionLitresperDay

MMRDA Mumbai-MetropolitanRegionalDevelopmentAuthority

MOF MinistryofFinance

MOO ModernizeOwnOperate

MOT ModernizeOperateTransfer

NGO NonGovernmentalOrganization

NITA NabadigantaIndustrialTownshipAuthority

NMMC NaviMumbaiMunicipalCorporation

NRW NonRevenueWater

O&M Operation&Maintenance

PFI PrivateFinanceInitiative

ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra ix

PPP PublicPrivatePartnership

PPPAC PublicPrivatePartnershipApprovalCommittee

PQ PreQualification

PQQ PreQualificationQuestionnaire

PSP PrivateSectorParticipation

Q&A Question&Answer

R&M Refurbishment&Maintenance

RfP RequestforProposal

RfQ RequestforQualification

SC SupremeCourt

SKMMC Sangli-Miraj-KupwadMunicipalCorporation

SMK SangliMirazKupwad

SPV SpecialPurposeVehicle

STP SewageTreatmentPlant

SWMC ShirpurWarvdeMunicipalCouncil

TA TechnicalAssistance

UDD UrbanDevelopmentDepartment

UIDSSMT UrbanInfrastructureDevelopmentSchemeforSmallandMediumTowns

UN UnitedNations

UOI UnionofIndia

US UnitedStates

VfM ValueforMoney

VGF ViabilityGapFunding

VMC VikasMunicipalCouncil

WSSD WaterSupplyandSanitationDepartment

WTO WorldTradeOrganisation

WTP WaterTreatmentPlant

CONTeNTSCONTeNTS

Foreword iii

Acknowledgement v

Abbreviations vii

Overview 1

Section 1: PPP Toolkit for the Water Supply and Sanitation Sector 7

1 PPPinthewatersector 9

2 ImplementingPPPs:Anoverview 18

Section 2: Details of PPP Structures 69

1 Performancemanagementcontractforoperationandmaintenanceofwatersupplysystem 71

2 Concessionagreementforwatersupplyandsewerageservices 75

3 Concessionagreementforconstruction,operationandmaintenanceofbulkwatersupplysystem 79

4 Concessionagreementforconstruction,operationandmanagementofthedistributionsystem 83

5 Concessionagreementfordevelopmentofthebulkwatersupplysystemandoperationandmaintenanceforentiresystem 87

Section 3: Case Studies of Sample Cities of Maharashtra 91

1 Summaryofcityanalysis 93

2 Jalna 97

3 Sangli-Miraj-Kupwad 104

4 Kolhapur 111

5 Virar 119

6 NavgharManikpur 125

7 Shirpur 130

8 Akot 134

4 Kolhapur 111

5 Virar 119


7 Shirpur 130

8 Akot 134

9 Saoner 140

10 Chiplun 145

11 KulgaonBadlapur 150

12 Ambernath 154

13 NaviMumbai 158

Section 4: Term Sheets 165

1 Termsheets 167

Figures 193

Figure1: Valuechainofthewatersupplyandsanitationsector 10

Figure2: Institutionalset-upforthewatersupplyandsanitationsector 11

Figure3: PPPtimelinesinthewatersupplyandsanitationsectorinIndia 13

Figure4: PPPprojectsimplementedinIndia 14

Figure5: OverviewofstagesindeterminingsuitablePPPstructures 18

Figure6: Overviewofstagesinassessmentofwatersupplyandsanitationservices21

Figure7: Indicativelistofissuesinthewatersupplyandsanitationservices 31

Figure8: AssessmentofprojectDPRs 32

Figure9: Processflowforviabilityassessment 42

Figure10: RiskmitigationmeasuresfortheULB/Stateagencyandtheprivatedeveloper 53

Figure11:Alternativeprocurementprocessstrategies 64

Figure12:Alternativeprocurementprocessstrategies 64

Figure13: Performancemanagementcontractforoperationandmaintenanceofwatersupplyservices 72

Figure14: Structureofconcessionagreementforwatersupplyandsewerageservices 76

Figure15: Concessionagreementforconstruction,operationandmaintenanceofbulkwatersupplysystem 80

Figure16: Concessionagreementforconstruction,operationandmaintenanceofthedistributionsystem 84

Figure17: Concessionagreementfordevelopmentofthebulkwatersupplysystemandoperationandmaintenanceoftheentiresystem 88

Figure18: StructureofwatersupplyperformancemanagementcontractforO&M 162

Tables

Table1: Stagesindevelopmentofurbanwatersupplyandsanitationprojects 3

Table2: Representativesampleofassetinventorylist 22

Table3: Keyparametersforassessingtheperformanceofthewatersupplyservices 26

Table4: Keyparametersforassessingtheperformanceofthesanitationservices 29

Table5: Broadcomponentsofthecapitalcosts 35

Table6: Broadcomponentsoftheoperationcosts 36

Table7: Representativevolumetrictariffstructure 38

Table8: Representativetelescopictariffstructure 38

Table9: Constraintassessmentinwayofpublicsector 46

Table10: CriticalquestionsforexploringPPPoption 47

Table11: Keyquestionsrelatingtomanagingcosts 48

Table12: Assessmentoflevelofcompetitioninthemarket 48

Table13: Assessinglegalcapacityofulb/Stateagencytocontract 49

Table14: Genericriskcategories 52

Table15: ListofdocumentsandactivitiestobearrangedbytheULB/Stateagency 56

Table16: PPPmatrixincontextofthevaluechain 57

Table17: KeyrolesandresponsibilitiesoftheprivatedeveloperandtheULB 72

Table18: Keyrisks,rolesandresponsibilitiesoftheprivatedeveloperandtheULB 73


Table20: KeyrisksandrolesandresponsibilitiesoftheprivatedeveloperandtheULB 77


Table22: KeyrisksandrolesandresponsibilitiesoftheprivatedeveloperandtheULB 81

Table23: Rolesandresponsibilitiesofthedifferentinstitutions 84

Table24: Keyrisk-sharingframework 86

Table25: Rolesandresponsibilitiesofthedifferentinstitutions 88

Table26: KeyrisktobebornebyULBandprivatedeveloper 89

Table27: SummaryofPPPstructuresforsamplecities 94

Table28: BasicprofileofwatersupplyservicesinJalna 98

Table29: Watersupplyindicatorsandinferences(Jalna) 99

Table30: Proposedwatersupplyprojects(Jalna) 100

Table31: InvestmentrequirementwithaPPP 102

Table32: BasicprofileofwatersupplyservicesinSangli,MirajandKupwad 105

Table33: WatersupplyindicatorsandInferencesforSangli,MirajandKupwad 106

Table34: Proposedwatersupplyprojects(Sangli-Miraj-Kupwad) 107


Table36: BasicprofileofwatersupplyservicesinKolhapur 112

Table37: BasicprofileofsewerageinfrastructureinKolhapur 112

Table38: WatersupplyindicatorsforKolhapur 113

Table39: KeysewerageindicatorsforKolhapur 115

Table40: ProposedwatersupplyandsewerageprojectsatKolhapur 116


Table42: BasicprofileofwatersupplyservicesinVirar 120

Table43: KeywatersupplyindicatorsforVirar 120

Table44: Proposedwatersupplyprojects 121

Table45: BasicprofileofwatersupplyservicesinNavgharManikpur 126

Table46: KeywatersupplyindicatorsforNavgharManikpur 126

Table47: Keywatersupplyprojectsplanned/proposed 127

Table48: BasicprofileofwatersupplyservicesinShirpur 131

Table49: KeywatersupplyindicatorsforShirpur 131

Table50: BasicprofileofwatersupplyservicesinAkot 134

Table51: KeywatersupplyindicatorsforAkot 135

Table52: Proposedwatersupplyprojects(Akot) 136


Table54: BasicprofileofwatersupplyservicesinSaoner 140

Table55: KeywatersupplyindicatorsforSaoner 141

Table56: Proposedwatersupplyprojects 143

Table57: BasicprofileofwatersupplyservicesinChiplun 145

Table58:KeywatersupplyindicatorsforChiplun 146

Table59:Keywatersupplyprojectsplanned/proposed 147

Table60:BasicprofileofwatersupplyservicesinKulgaonBadlapur 150

Table61:KeywatersupplyindicatorsforKulgaonBadlapur 151

Table62:Proposedwatersupplyprojects 152

Table63:BasicprofileofwatersupplyservicesinAmbernath 155

Table64:WatersupplyindicatorsandInferences 155


Table66:BasicprofileofwatersupplyservicesinNaviMumbai 159

Table67:WatersupplyindicatorsandInferences 159


Table69:KeyrolesandresponsibilitiesoftheprivatedeveloperandtheULB 162

Table70:Keyrisksharing 164

Table71:Modeltermsheet 168

Table72:Detailedworkingofanintegratedconcessionmanagementcontract 173

Table73:Detailedworkingofameteringbillingcollectioncontract 179

Table74:Concessionagreementforthedevelopment,operationandmaintenanceofbulkwatersupplysystem 182

Table75:Concessionagreementfordevelopmentofthebulkwatersupplysystemandoperationandmaintenanceoftheentirewatersupplysystem 187

Boxes

Box1: Keyassumptions 101

Box2: Assumptionsofpreliminaryfinancialanalysis 108








TOOLKITOVeRVIeW

ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 1

The Department of economic Affairs, Ministry of Finance, Government of India, incollaboration with Asian Development Bank (ADB) is supporting the Public PrivatePartnership (PPP) Cell of the Special Project Department, Urban DevelopmentDepartment and the Water Supply and Sanitation Department of the Governmentof Maharashtra in Mainstreaming Public Private Partnerships (PPPs) in select samplecities of the State through a Technical Assistance (TA) project. The project aim toidentifyanddevelopPPPstructureswhichcanbeimplementedinthewatersupplyandsanitationsector forthecitiesofMaharashtra.Asapartof thisTA,variouspossiblePPP structures in thewater supply and sanitation sectorhavebeen studied, and theapplicabilityofthesestructureshasbeenassessedinthecontextofthesamplecities.TheprojectaimstoreviewofstructuresimplementedinIndia,undertakenpreliminaryassessmentofwatersupplyandsanitationservicesinthesamplecitiesofMaharashtra1,identify probable PPP structure for approved projects and develop term sheets forthosePPPstructureswhichareidentifiedatmostsuitableandpossibleforreplication,in discussionwith thePPPNodal-officer-cumSecretary Special ProjectsDepartment(UrbanDevelopmentDepartment)andPrincipalSecretary(WaterSupplyandSanitationDepartment),GovernmentofMaharashtra.Asampleof12citieshavebeenidentifiedfor the identification of PPP structures. In order to ensure that a representativecategoryofsamplecities ispartofthestudy,citieswithvaryingpopulationsizesandgeographicalsettingshavebeenselected.Whileafewcitiesfallinthecategoryof30,000to1,00,000populationsize,afewareinthe1,00,000to3,00,000sizeandtheresthaveapopulationofover3,00,000.TheselectedcitiesarelargelycoveredundertheUrbanInfrastructureandDevelopmentSchemeforSmallandMediumTowns(UIDSSMT)oftheGovernmentofIndia(GoI)and/orareundertakingaprojectundertheMaharashtraSujal Nirmal Abhiyaan scheme. With either of these schemes in place, most of thesampletownsalreadyhaveidentifiedsomeinvestmentswhichneedtobeundertakenforimprovementtotheirwatersupplyandsanitationsituation.Insomeofthesamplecities, thewater supply ismanagedby the respectiveUrbanLocalBody (ULB) itself,whereas insomeothertowns, the institutionoverseeingthewatersupplyscheme isMaharashtra Jeevan Pradhikaran (MJP). The sampled cities include Jalna, Sangli-Miraj-Kupwad,Virar,Navghar-Manikpur,Kulgaon-Badlapur,Chiplun,Kolhapur,Akot,Saoner,

1 Only the city of Kolhapur to be studied for the applicability of PPP in the sanitation sector.

Overview

KnowledgeSeries2

Shirpur,AmbarnathandNaviMumbai2.ForthepurposeofidentifyingPPPoptionswhicharebestsuitedforimplementation,theprojecthasbeenstructuredintothefollowingcomponents:

Detailed study of PPP structures possible in the entire chain of water supplyservices

Comprehensive review of the water supply situation in sample cities andidentificationofareasforPPP-basedintervention

PreparationoftermsheetsforthePPPstructureswhichhavebeenidentifiedasmostsuitableforthesamplecities

Process followed for toolkitThe initial approach followed in the formulation of the toolkit included a review ofdocumentation availableonPPPs in urbanwater supply.This included case studiesontheimplementationofPPPsinurbanwaterinthecountrylikeLatur,Chandrapur,Haldia,ChennaiDesalination,SaltLake,KWASP,etc.Otherdocumentsreviewedwerereports,articlesandpresentationsontheimplementationofPPPintheurbanwatersupplysector.The review of this documentation assisted in getting an understanding of the currentstatusoftheurbanwatersupplysectorinthecountryandgaininganunderstandingonthedifferentmodesofimplementationofPPPsintheurbanwatersupplysector.ThekeylearningsweredrawnfromthecasestudieswithfocusonthedifferentPPPstructureswhicharesuitableundervaryingurbanwatersupplyscenarios.Additionally,anassessmentwasmadeof themain challengeswhichprivateparticipationwould faces in theurbanwatersupplysector.

Subsequently, using these key learnings, the various project structuring options wereidentified, which could be used for implementing PPPs in the sector. A study of PPPconcession agreements for the urban water supply sector was also undertaken; theconcessioncontractsofLatur,Haldia,SaltLakeCity,NaviMumbaiandwerestudiedtermssheetsforeachPPPstructurebasedonthelearning’softhedocumentationreviewandstudyofconcessioncontractswereformulated.eachtermssheetcontainsabriefreferenceguideforunderstandingthekeyclausesapplicableunderthespecificPPPstructure.Theclauses presented in the term sheet would help the water supply service provider indraftingacontractforthePPPstructurethathasbeenselectedforimplementationoftheidentifiedprojectsintheurbanwatersupplysector.

A current assessment of the sample cities was undertaken using documents like CityDevelopment Plans, Detailed Project Reports. Discussions were also held with urbanwatersupplyofficialsofthesamplecitiestogetanupdateofthecurrentsituationoftheurbanwatersupply sector.Thediscussionscentredon thecurrentStateof theurbanwatersupplysector,problemsbesettingtheurbanwatersupplydepartment,futureplansandscopeforPPPinurbanwatersupplyinthecity.Theviewsandsuggestionsweresolidredon the various PPP structures devised.These suggestionswere incorporated intothe termsheets. Interactionwasalsoheldprivatedeveloperswhoare involved in theprovisionofurbanwatersupplyservicesinvariouscities.

2 Since Navi Mumbai has already undertaken PPP in water supply, learnings are to be drawn from the existing structure.


Allthe learningobtainedfromthestudyofPPPinurbanwatersupplywasusedintheformulationofastepbystepprocessforimplementationofaPPPlifecycle.Suggestionswere taken from internal PPP and urban water supply experts. The process was alsodiscussedwithMr.AjaySaxena,PPPexpert,ADBandhissuggestionswereincorporatedin the toolkit. The entire toolkit was subsequently presented to the Government ofMaharashtra,ADBandDeA.Thecommentsandsuggestionsreceivedonthesamewerethenincorporatedintothefinalcopyofthereport.

Context of the toolkitThe purpose of the toolkit is to assist the relevant public entities in the State ofMaharashtra for developing PPP-based projects in the water supply and sanitationsector. The project development process in the urban water supply and sanitationsectorinvolvesmultiplestagestoarriveattheimplementationstage.ThesemultiplestagesaredescribedinTable1.

Thetoolkitofthereportdiscussesinpartstheassessmentofwatersupplyservicesanddetailsouttheformulationofprojectstructureforimplementation,ifthePPProuteistobeadopted.ThetoolkitprovidesinformationonhowtodevelopaprojectifaPPP-basedoptionisfoundnecessaryandpossibleforimplementation.

ItistobenotedherethatabroadanalysishasbeenundertakenforthesamplecitiesofMaharashtrainordertoassess,anddeterminethepossibilityandsuitabilityofPPP-basedinterventionforwatersupplyandsanitationsectorprojectsforthesecities.Thedetailedanalysis,however,requiredtobeundertakenforfinalisingthePPPoption.

STAGE DESCRIPTION LEVEL1. Detailed assessment

studyA detailed assessment of the existing service delivery is the process of reviewing the existing status of water supply and sanitation services in the city vis-à-vis the current demand based on standardized delivery norms. Such studies shall include water audit, leak detection study, energy audit, consumer survey, etc. The assessment is to be carried out across the entire value chain of water supply services. The output of this study is identifi cation of all the areas of service delivery which need improvement in terms of augmentation of services, rehabilitation, repairs, etc.

City level

2. Alternative analysis Alternative analysis is the process of identifying the possible alternatives for resolving the problems identifi ed in each component of the value chain, evaluating the identifi ed alternatives and selecting the optimum alternatives based on multiple parameters. The output of the alternative analysis process is a set of defi ned projects for each component in the value chain.

Value chain component level

3. Techno-economic feasibility for project approval

Techno-economic feasibility is the process of assessing whether the identifi ed project is technically and fi nancially implementable.

Project level

4. Detailed project report

Detailed Project Report (DPR) is a specifi c project blueprint on the basis of which the project will be implemented. It includes detailed technical designs of the project and detailed costing. The DPR for urban water supply projects in India needs to be prepared as per the Manual on Water Supply and Treatment, published by CPHEEO, Ministry of Urban Development. In the case of sanitation projects too, the manual prepared by CPHEEO for sanitation services needs to be consulted.

Project level

STAGES IN DEVELOPMENT OF URBAN WATER SUPPLY AND SANITATION PROJECTS Table 1

KnowledgeSeries4

Users of the toolkitAsexplainedabove,thistoolkitcoversapartoftheprojectdevelopmentprocess.Therefore,thetoolkitmaybeusedbyanyentitywhichisdevelopingurbanwatersupplyorsanitationprojectsandwishestoexplorethepossibilityofimplementingtheprojectthroughthePPProute.InIndia,organisationslikelytobeinvolvedintheprojectdevelopmentprocessare:

UrbanLocalBodies(ULB)

WaterSupplyandSewerageBoards

PublicHealthandengineeringDepartments

Thus, individualsmost likely touse the toolkitwouldbe thedepartmental staffof theaboveentitieswithprojectdevelopmentresponsibilities.

Additionally,thetoolkitwillhelpindecidingwhetheraparticularprojectmightbesuitableforthePPProuteornot.Thetoolkitcan,therefore,bethebasisofapprovingaprojectimplementationstructureaspartoftheoverallprojectapprovalmethodology.Usually,theresponsibilityforapprovalofprojectsisvestedinthetopdecision-makingauthorityoftheentity,whichhastheprimaryresponsibilityforimplementingand/orfinancingtheproject.Thus,itcanbeusefulfortheMunicipalCommissionerandtheStandingCommittee(beingthetopdecision-makingauthoritiesinanULB)inurbanlocalbodies,theManagingDirectorandthefunctionaldirectorsoftheWaterSupplyandSanitationBoardandtheStategovernment(incaseofthePublicHealthandengineeringDepartment).

Thetoolkitwouldbeusefultofacilitate:

ApprovalofprojectimplementationstructureforPPP-specificurbanwatersupplyandsanitationprojects;

2. Overallprojectapproval;and

3. Considerationofviabilitygapfundingforindividualprojects;

Structure of the toolkitTheentiretoolkitcomprisesoffoursections:

Section1:PPPtoolkitforthewatersupplyandsanitationsectorSectionII:DetailsofPPPstructuresSectionIII:CasestudiesofsamplecitiesinMaharashtraSectionIV:Termsheets

Thebroadguidelineswhichneedtobekeptinmindwhileusingthistoolkitarepresentedbelow:

Section 1: PPP toolkit for the water supply and sanitation sector

TheoverallprocessofidentificationofthePublicPrivatePartnership(PPP)structureandtheprocessofimplementationofthesamehadbeenpresentedinthissection.

Inordertounderstandtheconcept,purpose,needandrationalefordevelopingtheprojectsonaPPPbasis,theusershouldrefertoChapter1ofthisSection.ThechapterintroducestheconceptofPPPinwatersupplyandsanitationservicesandalsoprovidesinsightsintotheoveralltrendofPPPinthewatersupplyandsanitationsectorinthecountry.

1.


HavingunderstoodtheconceptofPPPinthewatersupplyandsanitationsector,thenextchapterviz.Chapter2inthetoolkitwouldguidetheuserwithinformationontheoverallprocessthatisinvolvedindevelopingaprojectonaPPPbasisandthestepstobetakentoimplementthesame.

ForinformationonsetofstepstobeundertakeninanefforttodevelopaprojectonaPPPbasis,theuserorreaderofthetoolkitwouldneedtorefertoChapter2.Here,thereaderwouldbefamiliarisedwiththemethodsofidentificationoftheareasinthewatersupplyandsanitationserviceswherethereareservicedeliveryand infrastructuregapsandwhichrequire intervention for improvement. If theuserneedstogaininsightsintothevariousmethodsofservicedeliveryassessment,andtheperformancestandardswhichneedtobemetwith,thischapterwouldprovideallthekeyinputs.

If the user has already identified some projects required for improvements inthewatersupplyandsanitationsector,andwouldwanttoassessifaPPProutecanbetriedfordevelopingandimplementingtheproject,thefirstactivitythatwouldberequiredistoundertakeafinancialassessment.Fordetailsabouttheprocessoffinancialassessmentandthekeycomponentsthatformapartoftheassessmentprocess, theuserof themanualwouldneedtostudythecontentsofChapter 2.On the basis of the assessment, the process bywhich a choicebetween thepublic fundedmodeofprojectdevelopment andaPPP route forprojectdevelopmentcanbemadeisexplainedinthischapter.

Chapter2thenbuildsonthefinancialviabilityassessmentcarriedoutsofar,andwouldprovideinsightsintoadditionalpointsofassessmentwhicharequalitativeinnature.Foruserswhoneedtoknowsomeofthepre-requisitesthatarenecessarytodevelopaprojectonaPPPbasis,informationonthesamehasbeenlistedinthechapter.

If the assessments carried out thus far, have strongly established the case fordeveloping a proposedprojecton a PPPbasis, then the user can refer to thechaptertodeterminewhattypeofPPPstructureisbestsuitedforimplementingtheproject.Theuserwouldbefamiliarisedwiththevariouskeyfactorssuchasrisksinvolved,theirallocation,etc,todetermineandhelphim/herchoosefromthevariousPPPstructures,thebestsuitedoption.

ForuserswhodesireinformationontheprocurementprocessandprocedureswhichneedtobefollowedoncethePPPstructureforaprojecthasbeenfinalised,thedetailsofthebiddingprocess,thekeyfactorswhichneedtobeconsidered,themethodofinvitingbids,etc.haveallbeendetailedoutandpresentedinthischapter.

Section II: Details of PPP structuresThissectionofthetoolkitprovideskey informationrelatingtothe fivePPPstructuresthathavebeenstudiedandreviewedingreatdetail.TheoverallstructureofeachPPP,theobligationsoftheinvolvedparties,thenatureandtypeofriskallocations3betweenthepublicandprivateentityandotherkeyfeatureshavebeenpresented.ThefivePPPstructuresare:

3 Theriskallocationasmentionedinthisvolumeistoprovideaperspectivetotheuserofthetoolkit.ThedetailsoftheriskallocationareinVolume4ofthetoolkit.

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Performance management contract for operation and maintenance of watersupplyservicesConcessionagreementforwatersupplyandsewerageservicesConcessionagreementforconstruction,operationandmaintenanceofbulkwatersupplysystemConcession agreement for construction, operation and maintenance of thedistributionsystemConcession agreement for development of the bulk water supply system andoperationandmaintenanceoftheentiresystem

Section III: Case studies of sample cities in MaharashtraInthisSection,thepreliminaryanalysisoftheselectedsampleof12citiesofMaharshtra,viz.,Jalna,Sangli-Miraj-Kupwad,Kolhapur,Virar,NavgharManikpur,Chiplun,Akot,Saoner,Shirpur,Kulgaon-BadlapurandAmbernathhasbeenpresented.Abroadassessmentofthewater supply services for the select semplecities followedby thepreliminary financialanalysisandtherecommendation forthesuitablePPPoptionhasbeenpresented.Theassessment and the analysis has been presented in a such a manner that the user ofthistoolkitgetsabroadideaoftheprocessandthestepswhicharetobefollowedinidentificationandfinalisationofasuitablePPPstructureforthedevelopmentofprojectsinthewatersupplyandsewerageservices.

Section IV: Term sheetsThisSectionpresentsthedetailedtermsheetspreparedforthePPPoptionsidentifiedforthecitiesanalysedinSectionIII.ThetermsheetspresentedherehavebeendevelopedforthosePPPstructureswhichhavebeenfoundtobebestsuitedforthecitiesstudiedaspartofSectionIII.ThetermsheetisareferenceguideforunderstandingthekeyclausesapplicableunderaspecificPPPstructure.

Inthiscontext,thetermsheetbroadlycoversthefollowingareas:

ListofpreparatoryworktobeundertakenbytheULB/StateagencybeforethecommencementofthePPPcontract

ListofinformationtobeprovidedbytheULBtotheprivatedeveloper

TenureofthePPPcontract

Rolesandresponsibilitiesofthedeveloper

ULB’sobligations

Projectmonitoringmechanism

Performancestandards

Paymentterms

RiskMitigationstrategies

Consequencesofdefault

RFQcriteria

Biddingparameter

The term sheet is expected to offer the ULB/Stage agency with broad guidelines forpreparationofacomprehensivecontractforthePPPstructuretheseidentified.

SeCTIONIPPPToolkitforthe

WaterSupplyandSanitationSector

CONTeNTS

1 PPPintheWaterSector 9

2 ImplementingPPP:AnOverview 18


ThischaptergivesabriefontheconceptandrationaleforPPP-basedprojectdevelopmentin the water supply and sanitation sector. It also familiarises users with PPP projectsdeveloped in the water supply and sanitation sector in India. A brief on the key PPPprojectsthathavebeenimplementedinIndiaisalsocaptured.

1. General definition and overview of PPPProvisionofpublicservicesandinfrastructurehastraditionallybeentheexclusivedomainofthegovernment.However,withincreasingpopulationpressures,urbanisationandotherdevelopmentaltrends,thegovernment’sabilitytoadequatelyaddresspublicneedsthroughthetraditionalmeanshasbeenseverallyconstrained.Thishasledgovernmentsacrosstheworld to increasingly look at the private sector to provide supplement infrastructureinvestmentsandprovidepublicservicesthroughPublicPrivatePartnerships(PPP).

A PPP transaction has been clearly defined by the Department of economic Affairs(InfrastructureDivision),MinistryofFinance in itsguidelinedocument for ‘Scheme forSupporttoPublicPrivatePartnershipsinInfrastructure.’ThisdefinitionemphasisesthatPPPisacontractualarrangement,madebyagovernmentorstatutoryentityandaprivatesectorcompany,toprovideaninfrastructureservice.

Thus,aPublicPrivatePartnership(PPP)projectmeansaprojectbasedonacontractorconcessionagreement,betweenagovernmentorstatutoryentityontheonesideandaprivatesectorcompanyontheotherside, fordeliveringan infrastructureserviceonpaymentofusercharges.

2. Rationale for PPPsPPP offers a win-win solution for all stakeholders, as is explained in the followingsection.

2.1 For the Public SectorPPPsallowthepublicsectortoderivebenefitsfromtheefficiencyandeffectivenessoftheprivatesector.Thisispossiblebecauseofthefollowingimpacts:

Innovation: PPPallowsthegovernmenttotaptheprivatesector’scapacitytoinnovate.Instead,thegovernmentwillspellouttheservicesitneeds,andthedesiredoutcomes/

PPPs in the Water Sector1

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outputs. The private sector can then introduce innovative solutions to meet thegovernment’sobjectives.

Sharing of responsibilities: InaPPPproject,thegovernmentandtheprivatesectorsharetheresponsibilitiesofdeliveringaservicedependingoneachparty’sexpertise.

Finance: InaPPPproject,accesstoprivatecapitalfreesgovernmentcapitaltobeusedinprojectswithhigherpublicpolicyobjectives

2.2 For the Private SectorBusiness opportunities: Through PPP the private sector can have access to businessopportunitieswhichweretraditionallyaccessibleonlytothepublicsector.

Designing and delivering innovative solutions: PPPalsoallows theprivate sector tomovefromjustconstructingassetsaccordingtoclearlyspecifieddesigns,todesigninganddeliveringinnovativesolutions.Theprivatesectorhasmoreroomtoinnovateandofferefficientsolutionsforpublicservices.

2.3 For the General PublicCombining expertise of public and private entities: Whenstructuredappropriately,PPPswill deliverpublic services that canbettermeet theneedsof thepublicwithoutcompromisingpublicpolicygoalsandneeds.

Protection of public interest: Thegovernmentwill alsoensure thatpublic interest isprotectedinallPPPprojectsandthatservicedeliverywillmeetpublicneedsatthebestvalueformoneywhentheprivatesectorisbroughtintoprovidegovernmentservices.

WhileservicedeliverythroughaPPPchangesthemeansofdeliveringservices, itdoesnotchangethegovernment’saccountabilityforensuringthattheservicesaredelivered.The department’s focus shifts from providing the service to managing the serviceprovider.

3. Water supply and sanitation sector in IndiaInIndia,urbanwatersupplyandsanitationserviceisaStatesubject.Thewatersupplyandsanitationserviceismanagedbyeitheroneofthefollowinginstitutions, i.e.,State-levelPublicHealthandengineeringDepartments(PHeDs),UrbanLocalBodies(ULBs),orthecitylevelWaterSupplyandSanitationBoards.Theentirewatersystemfromsourcetotheconsumerendismanagedbyoneoftheseagencies.Waterandsanitationservicescanbeunbundledintoseveralcomponents, includingrawwaterproductionandtreatment,bulkwatersupply,retaildistribution,andsanitationcollection,treatment,anddisposalasindicatedinFigure1below.

VALUE CHAIN OF THE WATER SUPPLY AND SANITATION SECTORFigure 1


Theentireprocessrepresentedaboveisreferredtoasthevaluechainforwatersupplyand sanitation services. The unbundling of water supply services is being increasinglyexperimentedwithsuchas:

SeparatingwastewaterresponsibilitiesfromwatersupplySeparating bulk water production and treatment from water distribution, orwastewatertreatmentanddischargefromcollectionSeparatingwatertransmissionfromdistribution

3.1 Institutional set-up for water supply and sanitation service

As discussed earlier, water supply and sanitation services in the country are largelymanagedattheleveloftheStategovernmentandlocalgovernments.TheroleplayedbytheCentralgovernmentintheurbanwatersupplyandsanitationservicesislimitedtodefiningnormsforthesector4,andprovidingguidelinesandtechnicalassistancetotheStates.TheCentralgovernmentalsointervenesthroughsomecentrallyfundedspecialprogrammesoftheMinistryofUrbanDevelopment.Similarly,thePlanningCommissionplaysaroleinevaluatingfinancialrequirementsforitsquinquennialplansandplaysanadvisoryroleinpolicymaking.However,theStatesareresponsibleforurbanwatersupplyandsanitationserviceswhiletheULBsoperateandmaintainthewatersupplyandsanitationservices.TheroleofULBsinoperationandmaintenancehasnowbeenreinforcedwiththe74thConstitutionalAmendment.

Capital investment fordevelopment for thesewater supplyprojectshasbeen typicallyeither funded through internal funds of the ULBs/Boards or by way of the regionalgovernment’sbudgetarysupportanddonorsupportfrommultilateralagencies.

Thethreeprimary institutionalset-ups,engaged intheprovisionanddeliveryofwatersupplyandsanitationservicesinthecountry,arerepresentedinFigure2.

4 Through the Central Public Health and Engineering Organisation (CPHEEO), Ministry of Urban Development, Government of India.

INSTITUTIONAL SET-UP FOR THE WATER SUPPLY AND SANITATION SECTOR Figure 2

Option III

Option II

Option I

SourceDevelopment

Raw WaterTransmission

Storage/Treatment

DistributionNetwork

O & M

Water Supply Sewerage

Collection Treatment

Municipal Government/ State Department/ Metropolitan agency

Municipal Government

State Government

Parastatal agency at the state or city evel

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Inthe firstset-upascanbeseen fromFigure2, theentirevaluechainofservicesofthewatersupplyandsanitationsectorisundertakenfullybyoneoftheagencies-viz.,themunicipal governmentoraparastatal agencyorby theStategovernment. In thecaseof large urban cities andMunicipalCorporations, such an institutional set-up iscommonlyfoundinIndia.Forexamples,inthecitiesofMumbai,Pune,andAhmedabad,therespectiveMunicipalCorporationsmanagealltheactivitiesinthesectorincludingcapitalinvestmentandarealsolargelyinvolvedinthedesigningandplanningofsourcedevelopment.InthecaseoflargemetropolisesparastatalagenciesattheStateleveloratthecityleveloverseetheentirevaluechainofwatersupplyandsewageservices,ascanbeseeninoption2.ForinstanceincitiesofDelhi,Chennai,Hyderabad,andBangalorewatersupplyandsanitationboardshavebeensetuptodevelopandmanagewatersupplyandsanitationservices.Thethird formof institutionalarrangement isasrepresentedin option three. As per this arrangement, the activities of source development andcapital investment for network development are managed by the State department(inmostcases,thePublicHealthengineeringDepartment),whilethemanagementofdistributionnetwork,operationandmaintenanceandrevenuecollectionareoverseenbythemunicipalgovernment.

4. Trend of PPP in the water supply and sanitation sector in India

Ashasbeendiscussedintheearliersection,watersupplyandsanitationservicesinthecountryaremanagedby theStateor local governments.However, theoverall servicedeliverylevelsinthecountryforthesesectorshavebeenassessedtobelargelyinadequate.There are large infrastructural gaps and theoperationsofwater supply and sanitationareplaguedwithhighlevelsofinefficiencies.Thepercapitaavailabilityofwaterinmosturbancentersofthecountryissignificantlylesserthanwhatisneeded.Only50%(140million)oftheurbanpopulationisdirectlyconnectedtothedistributionnetworks.5Theexistinginfrastructuresuffersfromhighdegreeofoperationalinefficiencies.Forinstance,approximately40-50%ofthewaterpumpedintothesystemisnotavailableforconsumptionsinceitislostintransmission,theftetc.Onanaverage,only24%ofallconnectionsinthecountryaremetered.6Inaddition,poorcollectionpracticesbytheutilitieshaveresultedinlowcostrecoveryratesat20-30%ofoperationandmaintenance(O&M)cost.Thecostofproductionoftheseserviceshasbeenassessedtobeveryhigh,againstthelowlevelofrecoveries,resultinginlimitedfundavailabilitywiththeserviceprovidersforroutinemaintenance.Thiseventuallycausespoorinfrastructurecoverage,pooraccessandlowqualityofservices.Additionally,theserviceprovidershavebeenincurringhugelossesontheirservices.

Improvementintheservicedeliverylevelshaveimpliedhugeinvestmentsforaugmentation,improvementsinphysicalinfrastructure,andsignificantscalingupofoperationalefficienciesin thesystem. Inordertomeetboththeserequirements,variousULBsandparastatalagencies in thecountryhaveexploredtheoptionofPPP forboththedevelopmentofinfrastructureandoperationandmaintenanceofthesame.PPPeffortsmadeinthecountryhavemetwithdifferentdegreesofsuccess.WhilesomeofthePPPinitiativescompletelyfailed,therehavebeenrecentinstancesofsuccessfulimplementationofthesame.Inthesectionsbelow,theevolutionofPPPinwatersector,Indiahasbeentracedandthesamehasbeendiscussed.

5 India Water Supply and Sanitation, Bridging the Gap between Infrastructure and Service, World Bank 2006.6 ADB, 2007 Benchmarking and Data Book of Water Utilities in India.


Ascanbeseenfromtheprecedingschematic,PPPprojectsinthecountryhaveevolvedovertheyearsandincreasinginstancesofsuccessfulimplementationarebeingobserved.

Mid to late 1990s: PPP initiatives were attempted in the States/cities of Goa, Pune,HyderabadandBangalore.Theinitiatives;however;metwithfailureonaccountofmultiplereasons.Forinstance,inGoa,aPPPinitiativewasattemptedforthedevelopmentofabulkwatersupplysystem;PPPwassoughtforinvestment,design,constructionandoperationandmaintenance.However, though theprojectwasbidout, itwasabandoneddue toissuesofhighbulktariffproposedbytheprivatepartyandalsolowpoliticalwill.AsimilarprojectinbulksupplyvaluechainwasproposedinBangalore,whereagainonaccountofunaffordabletarifflevelsandothercontroversies,theprojectwasshelved.ThisphaseofPPPinitiativesinthecountrywas,thus,largelyunsuccessfulduetoissuesoftariffsettingandlackofpoliticalsupport.

Around 2000: Fewer projects were attempted on a PPP mode around this time,noteworthybeing thedevelopmentof aWaterTreatmentPlant(WTP) inSoniaVihar,Delhi,andtwootherprojectsinSangli-MirajcityofMaharashtraandinBangalore.TheSoniaViharprojectsoughtPPPfordesign,constructionandoperationandmaintenanceofaWTP.TheprojecthasbeenimplementedsuccessfullylargelyduetobalancedallocationofrisksbetweentheWaterSupplyBoard(DelhiJalBoard)andtheprivatedeveloper.InSanglithough,thePPPwascalledfortheOperationandMaintenance(O&M)ofbulkwatersupplyandtreatmentanddistributionoperationsonly;butlackofpoliticalsupportledtotheprojectbeingabandoned.SimilarwasthecasewiththeBangaloreinitiative.Thisphasetherefore,sawfewinitiativesbeingproposed.

Mid 2000: Thisperiodwasalsomarkedbytheabandonmentofseverallarge-scalePPPinitiativessuchasapilotprojectproposedbyDelhiJalBoard(DJB)inDelhi,andprojectsproposed by the Water Supply Board in Bangalore. These projects met with strongpoliticalandpublicopposition.

Current (late 2000):Inthecurrentphaseofthedecade,thecountryhasseenseveralPPP initiativesbeing implementedsuccessfully.These includePPP-basedprojects in thecitiesofLatur,Chandrapur,Chennai,Kolkatta,Mysore,Madurai,Haldia,andNagpur.ThetypeofPPPoptionsandthevaluechainsinwhichthesehavebeenimplementeddifferasrepresented.

Goingforward,itisunderstoodthatseveralPPPinitiativesarebeingplannedandproposedin the water supply and sanitation sector following the successful implementation of

PPP TIMELINES IN THE WATER SUPPLY AND SANITATION SECTOR IN INDIA Figure 3

Several on going

Efforts to prepare PPP

projects

High NGO opposition

High profile projects run

abandoned

First initiatives

High international

Poor results

Momentum subsidesSuccessful projects

Few projects grounded

Several on going initiatives

Efforts to prepare PPP

projects

High NGO opposition

High profile projects run

First initiatives

High international interest

Poor results

Momentum subsidesSuccessful projects Implemented

Few projects grounded

•

•

•

••

•

•

•

•

•

Mid to late 1990s Around 2000 Mid 2000 Current Way Ahead

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ongoingandprojectsintherecentpast.Thistrendisalsoobservedintheseveralurbansectordevelopmentprogrammesof theCentre and the State governmentswhich areencouragingandpromotingdevelopmentofwatersupplyandsanitationprojectsonaPPPmode.TheoverallpolicyframeworkforPPPprojectsinthecountryhasseensignificantmeasures,aimedatfacilitatingincreasedPPPinprojectdevelopmentandoperationandmaintenance.Forexample,specificurban infrastructurefundssuchastheViabilityGapFund(VGF)schemehasbeendevelopedbytheCentralGovernmenttoprovidefinancialsupporttoinfrastructureprojectsthataretobeundertakenthroughthePPPmode.ASpecialPurposeVehicle(SPV)IndiaInfrastructureFinanceCompanyLimited(IIFCL)hasbeen constituted by theGovernmentof India as a dedicated institution, purported toassumeanapexrole inthefinancinganddevelopmentof infrastructureprojects inthecountry.Again,theurbandevelopmentschemeoftheGoI,theJawaharlalNehruNationalUrbanRenewalMission(JNNURM)initiatedin2005,alsoencouragedurbaninfrastructureprojectstobedevelopedonaPPPbasis.

AsummaryoffewofthePPPprojects implementedinthecountryispresentedinthefollowingsections.

5. PPP projects in water and sanitation sector in India

AbriefonthePPPstructuresimplementedinthecitiesofLatur,Chandrapur,SaltLakeCity,Chennai,andclustersinKarnatakaandHaldiaispresentedhere.

5.1 Distribution-cum-revenue collection contract at Latur and Chandrapur

Thedistribution-cum-revenuecollectioncontractimplementedinLaturandChandrapurhas been classified as a performance management contract. These cities faced severeissuesofacuteshortageofwaterandrequiredaugmentationofthesource.Additionally,thewatersupplyoperations,asbeingmanagedbytheULBs,sufferedfromahighextentofoperationalinefficienciesresultinginpoorrecoveries.Inordertoimprovewatersupplytothesecities,MJPundertookasourceaugmentationproject.However,theULBsrecognisedtheir inabilitytoefficientlymanagethewatersupplyservicesandsoughtprivatesectorinterventioninoperationsandmanagementofthewatersupplysystem.

PPP PROJECTS IMPLEMENTED IN INDIAFigure 4

Rehabilitation

Investment Design Construction O & M Collection

Bulk water

Treatment

Distribution

Chennai desalination plant

KUWASIPLatur, Chandrapur

MysoreMadurai, Salt Lake Kolkatta

Haldia

Tariff

Nagpur pilot


InLatur, the capital investment for augmentationof thebulkwater supply systemhasbeenbornebyMJP.Post-augmentation,theentirewatersupplysystemfromsourcetothedistributionend,hasbeenhandedovertotheprivatedeveloperforoperationandmaintenance.InthecaseofLatur,thecontractisbeingexecutedbytheSPV,LaturWaterManagementCompanyLimitedformedbyaconsortiumofSubhashProjects&MarketingLtd.,UPL-eeLandHydroCompenterprises.Thecontractwasawardedforaperiodoffiveyears.ForChandrapur,thecontractwashandedovertoM/sGurukripaAssociatesforaperiodoftenyears.

Theprimarypurposeofthecontracthasbeentobringinoperationalefficienciesintheentire water management system, and thereby, reduction in the associated operationandmaintenancecost.Besides, theprivatedeveloper is required to increasecoverageof thewatersupplyservices, increasethenumberofdirectconnections,reduce illegalconnections, install meters, generate bills and undertake collection activities. As perthe contract, specific performance targets for each activity have been defined for theprivatedeveloper.TheprivatedeveloperhasbeengiventherighttolevythetariffsetbyMaharashtraJeevanPradhikarna(MJP)tocollectrevenuesfromtheconsumersandretainthesame.Inreturn,theprivatedeveloperisrequiredtopayafixedbi-monthly/bi-yearlyorannualpaymenttoMJPaslicensefee.Thefinancialbidcriteriaforthiswasthehighestlicenseefeepaymentquoted.

5.2 Water supply and sanitation concession agreement for a service area, Salt Lake City

AwatersupplyandsanitationconcessionagreementhasbeenimplementedinSectorVoftheSaltLakeCity,Kolkata.Thisagreementhasbeencategorizedasa formofBuildOperateTransfer(BOT)typeofPPPstructure.ThecontractimplementedbytheKolkataMetropolitainDevelopmentAuthority(KMDA)requiresprivatesectorparticipationforthedevelopmentofanundergroundnetworkforwatersupplyandsewageservicesforthetownshipofSectorV,managedbyNabadigantaIndustrialTownshipAuthority(NITA).Thekeybidding criterionwas the lowestwater-cum-sewage chargewhich theprivatedeveloperwouldlevy.Thetenureofthecontractisthirtyyears.

ThecontractwashandedovertoJamshedpurUtilitiesandServicesCompany(JUSCO)andVoltaswhoformedajointventureforundertakingthecontract.Asperthecontract,theprivatedeveloperhasbeenrequiredtoundertakeconstructionofinfrastructureforwatersupplyandsanitationservices,andtooperateandmanageboththesystemsfortheconcessionperiod.Theprivatedeveloperwouldlevyawater-cum-sanitationchargefortheservicesmanaged.Attheendoftheconcessionperiod,theassetsaretobetransferredtoNITA.Approximately35%ofthecapitalcostsfortheprojectwouldbepassedonasasubsidyfromtheGoIthroughJNNURMtotheprivatedeveloper.

All the operational expenses for managing the water supply/sanitation services fromsource to theendconsumerwouldhave tobeborneby theprivatedeveloperduringthe concessionperiod. In addition to thewater-cum-sewage chargewhich the privatedevelopercanlevy,thedeveloperhasalsobeenthegiventherighttolevyandcollectaone-timeconnectionchargefromtheconsumers.Thetarifftobechargedandtheextentandtimelineforitsescalationwouldalsobedecidedbytheprivatedeveloper,subjecttoapprovalfromKMDA/NITA.

TheSPVformedbytheJUSCO-VOLTASConsortiumhasalreadystartedwatersupplyrelatedworkonground,aftertheworkingschemeshavebeenapprovedbyKMDA/NITA.About25%progress in theworkongroundhasbeenachievedagainst the sanctionedwatersupplycomponentoftheProject.

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5.3 Bulk supply cum Operation and Maintenance contract, Chennai

ThebulksupplyplusO&McontractisaPPPagreementthathasbeenimplementedforthedevelopmentofa100MLDseawaterdesalinationplantinChennai.ThePPPstructurehasbeencategorizedasaDesignBuildOwnOperateandTransfer(DBOOT)model.TheprojecthasbeenawardedtoChennaiWaterDesalinationLtd(CWDL),aSPVfloatedbyIVRCLInfrastructures&ProjectsLtd.ThecontractwasawardedtotheChennaiMetroWaterSupplyandSanitationBoard(CMWSSB)foratenureperiodof25years.

Asperthecontract, theprivatedeveloper isrequiredtodesign,engineer, financeandprocuretheentireinfrastructureforoff-takeofwater,transmission,treatmentandsupplyoftreatedwatertothestoragereservoir.Inaddition,theprivatedeveloperisalsorequiredtooperateandmanagethe facility fortheconcessionperiod.Theprivatedeveloper isthereforerequiredtosupplytreatedbulkwatertotheCMWSSB.Forthetreatedwaterproduced,theprivatedeveloperispaidawaterchargebyCMWSSB.

Theuniquefeatureofthiscontractisthatforalltheactivitiesrequiredtobeundertakenbytheprivateentity,itisassuredofaminimumfixedpaymentbytheutility.Thisarrangementisalsoreferredtoasa“takeorpay”system.Thekeybiddingcriteriahasbeentheperunitchargefortreatedwater,whichtheprivatedeveloperwouldcollectfromCMWSSB.

5.4 Augmentation-cum-O&M contract for distribution system for a cluster of ULBs, Karnataka

Theaugmentation-cum-O&Mcontractforthedistributionsystemisaperformance-basedfeemodel,implementedundertheKarnatakaUrbanWaterSectorImprovementProject(KUWASIP)forthetownsofBelgaum,Hubli-Dharwad,andGulbarga.ThisperformancecontractisaPPPmodelwitha100%capitalsubsidyfromthegovernmentagency-KarnatakaUrbanInfrastructureDevelopmentandFinanceCorporation(KUIDFC).

TheseselectcitiesofKarnatakafacedissueswiththeirdistributionnetwork.Therewasnoaccurateestimationofthelossofwaterincurredintransmissionanddistribution;thesupplyhourswerereportedtobeirregular;andnoclearinformationwasavailablewiththeULBsonthestatusofwatersupplyinfrastructureassets.Giventheseissues,privatedeveloperassistancewassoughttoimprovethewatersupplyservices.

UnderthePPPstructure,theprivatedeveloperhasbeenrequiredtoundertakerehabilitationworksofthedistributionnetworkofaclusteroftownsandoverseetheoperationsandmaintenanceofthedistributionnetwork.Theprivatedeveloperisthereforefirstrequiredto undertake construction works for the distribution network. The private developerwillbefullyreimbursedbytheStateagencyfortherehabilitationactivityitundertakes.The private developer is therefore responsible only for water supply activities at thedistributionend,includingsupplyingtreatedwatertoalltheconnections,installingmeters,generatingbills,collectingrevenues,andundertakingrepairworks.

The contractwas awarded to an international bidder,CompagnieGenerale des eaux,Paris,France.Asperthecontract,theoperatorwillhavetheresponsibilityforoperationandmanagementofthedistributionnetworkinthecitiesfortwoyearsfollowingeighteenmonthsofdistributionnetworkrehabilitation.

TheprivatedevelopergetsfixedoperatorfeesfromtherespectiveULBsforexecutingO&Mactivities;thisfeewhichistobepaidbytheULBstotheprivatedeveloperisthecriticalbidparameter.


5.5 Augmentation of water treatment system-cum-Operation and Maintenance contract of the water supply system, Haldia

For the augmentation of the WTP and for operation and management of the watersupplysystemattheHaldia Industrialregion,aPPParrangementhasbeendesigned.AconcessionbasedPPPagreementhasbeenimplementedinHaldiaforthedevelopmentoftheWTPsystemandfortheO&Mworksofthewatersupplysystem.TheagreementhasbeenimplementedbytheHaldiaDevelopmentAuthority(HDA)tomeetthelong-termdemandof industrial consumersof theregion.DevelopedasaGreenfieldWaterSupplyProject, itenvisagesthedevelopmentofa227MLDWTPalongwithO&Mofthewatersupplysystem.

ThewatersupplysystemfortheregionwasearliermanagedbytheWestBengalPublicHealthandengineeringDepartment(PHeD)onbehalfofHDA.Thewatersupplysystemwasplaguedwithseveralproblemsincludinghighproductionanddistributionlosses,poorservicequality,pooroperationandmaintenanceof theWTP,andveryhighoperationcost.PrivatesectorparticipationwasthereforesoughtforthedevelopmentoftheWTPandforO&Mofthedistributionsystem.

ThecontracthasbeenhandedovertoconsortiumconsistingofJamshedpurUtilities&ServicesCompanyLtd. (JUSCO),RanhillUtilitiesBerhard (Malaysia) and InfrastructureDevelopment FinanceCompanyLimited (IDFC).The total tenureof theproject is 25years. The project for raw water off-take, transmission and treatment plant has beendevelopedonaBOTbasis.

As per the concession agreement, the private developer is required to undertakethe construction of the raw water off-take system and raw water transmission lines;augmentation to the existing treatment plant; and operation and management of thewatersupplysystemfromsourcetotheend-consumer.AnyexpansionandrehabilitationworkforthedistributionnetworkwouldbemanagedbyHDAbeforeinvitingtheprivatedeveloper to operate and manage the water supply system. The private developer isrequiredtomakeafixedmonthlypaymentaslicensefeetoHDAfortherighttooperatetheexistingwatersupplyassetsandtheentiresystem.Thishighestfixedmonthlypaymentwassetasthecriticalfinancialbidparameter

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Inthissection,anoverviewofallthestepswhicharetobefollowedfordeterminingasuitablePPPstructureforanidentifiedprojectinthewatersupplyandsanitationsectorareindicatedalongwithasnapshotoftheremainingactivitieswhichneedtobeundertakentofacilitatetheimplementationoftheselectedPPPstructure.Astep-by-stepindicationofthestagesinvolvedinthedeterminationofthePPPstructureanditsimplementationarerepresentedintheschematicFigure5.

Implementing PPPs: An Overview2

OVERVIEW OF STAGES IN DETERMINING SUITABLE PPP STRUCTURESFigure 5

Step IIdentifying the Problem

Areas

Compile keyparameters

Review of projectswith available DPRs

Assess prioritize andidentify key area of

intervention

Viability assessment

Choice between publicfunding and PPP

Identify and allocaterisks

Select the contracttype

Defineimplementation

structure

Plan and manageprocurement

Step IIChoosing between public

funding and PPP

Step IIIChoosing the structure of

the PPP arrangement

Step IVProcurement


Thestepsindicatedintheschematicabovehavebeenbrieflyexplainedinthefollowingsections.

Step 1: Identifying the problem areasThe determination of the set of projects required for improvement to the existinglevelofwatersupplyandsanitationservices isbasedon identificationofall theareasofservicedeliverywheresomeformofprojectbasedinterventionisrequired. Inthiscontext,theveryfirststeptobetakenistolistdownalltheissuesinthecurrentsystembasedon a detailed assessment.This detailed assessment is tobe carriedout by theULB/State agency for the water supply and sanitation services across its entire valuechainbyundertakingstudiessuchasconsumersurveys,wateraudit,leakdetectionstudyandenergyaudits.Theresultsoftheseassessmentsshouldbecomparedwiththekeyperformance indicators/standards applicable foreach levelofoperations.TheexistingDetailedProjectReports(DPRs)shouldbereviewedtocheckiftheproposedprojectcomponentswouldadequatelyaddresstheissuesidentified,andifnot,whetherthesamewouldneed toberectified. It is important toensure thateven theDPRswhichhavebeensanctionedareassessedtoensurethat ifanyfurthermodificationsbasedontheassessmentundertakenisrequired,thenthesamebepursued.Goingastepfurther,theULBsmayexplorethepossibilityofmodifyingtheDPRtoensurethattherelevantareasofservicedeliveryareadequatelyaddressed.Ifonaccountofchangeinscope,thecostsoftheprojectincrease,theULBcanconsiderapproachingtheState/centralgovernmentforadditionalfundingormayexplorethePPPoptionforthesame.Theoutputoftheassessmentwouldindicatetheaccuratestatusoftheservices,theissuesbeingfacedinthecurrentsystemandtheinterventionsrequired.

Step 2: Choosing between public funding and PPPHavingidentifiedtheareaswhereinterventionintheformofspecificprojectsisrequired,thenextstageistodeterminewhethertheproposedprojectsshouldbetakenupthroughtheULB/StateagencywhollyorshouldbedevelopedonthebasisofaPPProute.Thischoicebetweenthetwooptionsislargelyguidedbyadetailedprojectviabilityassessment.Thisassessmentwouldthenhavetobe followedupwithaqualitativeassessmentthattriestodeterminewhichofthetwoparties,theprivatedeveloperorthepublicagency,isrealisticallybestsuitedtoundertaketheproject.

Step 3: Choice of PPP structureIf the analysis undertaken in theprevious stage indicates that thePPPoption is tobepursuedfordevelopingtheproposedproject,thenextlogicalactivityinthesequenceofstepsistodetermineanappropriatePPPstructure.Ashasbeenindicatedinthepreviouschapter,ahostofPPPstructurescanbedevelopedandimplemented;however,thechoiceofaparticularstructurefromamongthevariousoptionsismadebasedontheprojectcharacteristicsandtheuniquenessofthecontext.Oneofthekeyparametersdeterminingthe choice is the extent and type of risks which are associated with the project andtheallocationof theserisksbetween theprivatedeveloperand theULB/Stateagency.Therefore,anexhaustivelistofrisksassociatedwiththeprojectneedstobeprepared,deliberatedupon and its allocationduly considered todetermine the suitabilityof thevariousPPPstructureoptions.Fromtheactivitiesundertakeninstagetwoandthree,thebestsuitablePPPstructurewouldbeidentified.

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Step 4: ProcurementThe final step in theentireprocessdiscussed so far is theprocurement stage.HavingidentifiedthePPPstructuretobeadoptedfordeveloping,operatingandmaintainingtheproposed project, and finalising the same, the next stage is to plan the procurementprocess.Thecontractualstructureidentifiedneedstobetranslatedtoaworkableactionplan with clear and precise definitions of the responsibilities of the two contractingparties-theULB/Stateagencyandtheprivatedevelopertobe identified.Thefinancialmodelpreparedfortheprojectwouldthenbefurtherrefinedaspertherequirementsofthetransactionstructure.Basedonthetransactionstructure,thecontractforthePPParrangementwouldneedtobedrawnup.Finally,theprocurementplanwillbefinalisedandputintooperation.

Allthefourstepsdiscussedabovehavebeendetailedoutinthefollowingsectionsofthisreport.


2. Assessment of current water supply and sanitation system

Thebasisforidentificationoftheareaofimprovementisadetailedassessmentoftheexistingstatusoftheinfrastructureandservicedeliveryacrossthevaluechainofthewatersupplyandsanitationsystem.Theoutputoftheassessmentwouldindicatetheaccuratestatusoftheservicesandtheissuesbeingfacedinthecurrentsystem.ItistobenotedherethatforsuccessfulimplementationofanyformofPPPinthissector,thereneedstobeawell-maintainedaccuratedatabaseoftheexistinglevelofservices.Figure6providesanoverallreviewofthebroadstagesintheassessmenttoarriveattheissuesintheexistingwatersupplyandsanitationsystem.

OVERVIEW OF STAGES IN ASSESSMENT OF WATER SUPPLY AND SANITATION SERVICES Figure 6

Identification of issues in the existing infrastructureand gaps in service delivery

Assessments to be undertaken

� Water audit

� Asset review

� Asset inventory listing with details on the existing status

� Detailed consumer survey

� Leak detection study

� Energy audit

Compilation of key performanceparameters

Step1

Identifying the Problem Areas

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Ascanbeseenfromtheschematicabove,acombinationofphysicalassessmentsandservicelevelreviewneedstobecarriedouttoascertaintheissuesandgapsintheexistingwatersupplyandsanitationservices.Itisimportantthatboththeseassessmentsareundertakensimultaneouslyandareequallycriticalforissueidentification.Thecomprehensivelistofassessmentswhichneedstobeundertakenisaspresentedinthefollowingsection.

2.1 Asset reviewOneoftheimportantassessmentswhichneedtobeundertakenisthatofreviewoftheexisting water supply and sanitation assets of the ULB. Asset review forms an integralcomponentof thephysical infrastructureassessment tobeundertakenby theULB.Theassessment of existing physical infrastructure needs to be carried out by the ULB/Stateagency to determine the existing condition of water supply and sanitation assets in theservicearea.The importanceof the infrastructuresurvey lies in identifyingassets in theentiresystemwhichneedtobereplacedorrehabilitatedonaccountoftheirpoorconditionorinadequacy.

Additionallytechnicalissuesofoperationassociatedwiththeassetscanalsobeidentifiedaspartofthephysicalassessment.

Theassessmentisexpectedtoidentify:

Thestatusofavailabilityandadequacyofphysicalinfrastructuresuchas,toilets,sanitation,septictanks,VGS,(water)distributionnetworkinslums,etc

2. Theoperationalconditionoftheinfrastructureinthewatersupplyandsanitationsystem

3. Theinfrastructurecomponentswhichrequireaugmentationandorreplacement

The ULB/State agency may have to undertake the asset review on its own or obtaintechnical assistance for the asset review. It may be noted here that the status of thecurrentinfrastructuredirectlydeterminesthelevelofservicesprovidedbytheULB/Stateagency. For instance, if the raw/pure water transmission lines are corroded, it wouldresultinahighextentofwaterlossduringtheprocessofconveyanceresultinginreducedavailabilityofpotablewaterattheconsumerend.Similarly,ifthesewagetreatmentplantisnotoperatingaspertherequiredstandards,orhasoutdatedtechnology,itwouldresultinimpropertreatmentofthesewageandfinallyresultinofnaturalwaterbodies.

ULBs/Stateagenciesinseveralinstancesdonothaveadetailedupdatedrecordofthewatersupplyandsanitationinfrastructure.Onaccountofpoororun-reliableinformationonthestatusoftheassets,acorrectpictureoftheexistingstatusoftheinfrastructurewould

1.

REPRESENTATIVE SAMPLE OF ASSET INVENTORY LISTTable 2ASSET SPECIFICATION

OF THE ASSETAGE VALUE CONDITION REMARKS

SAMPLE


notemergeandthereforetheinterventionsrequiredcannotbeidentified.Additionally,if a PPP-based project is identified, then the performance standards to measure theeffectivenessoftheprivatedeveloperinoperatingandmaintainingthesystemcannotbecorrectlyframedduetoambiguousinformationaboutcurrentinfrastructure.

Arepresentativeperformaontheassetinventorylistthattheserviceprovidershouldmaintainispresentedbelow.

Theassetinventorylistingmayalsobeundertakenspecifictoeachvaluechain.Table2isonlyabasicperformaindicatingtheminimumcomponentsoftheinventorylist.Suitablechangesmaybemadetothesameforacomprehensivecompilationandpresentationofinformation.

ParalleltotheinfrastructureassessmentundertakenbytheULB/Stateagency,areviewoftheservicedeliverylevelsisalsocriticaltodeterminethecurrentstatusoftheentiresystem.Asapartof theservicedeliveryassessment, it is important that the followingthreesurveysorstudiesareundertaken:

Detailedconsumersurvey

Waterauditandleakdetectionstudy

energyefficiencyaudit

Waterqualityaudit

2.2 Detailed consumer surveyTheULB/Stateagency inmostcaseshasbeen foundtohave inadequateorun-reliableinformationontheextentofcoverageofitsservices,thenumberandtypeofwatersupplyconnections, the exact consumption levels, etc. In the absenceof such information, itbecomesdifficulttocorrectlyplananimprovementorintervention.Moreso,itisdifficulttohandoverthesystemtoaprivatedeveloperfordevelopmentand/oroperationandmanagementofthesystemwithinaccurateinformationaboutthesystem.Itwouldinvariablyresultinimbalancedallocationofresponsibilitiesandrisksbetweenthestakeholders.Oneof the basic premise on which a PPP option is built is the provision of good, reliableinformationabouttheexistingsystembytheULB/Stateagencytotheprivatedeveloper.Therefore, it is extremely critical that theULB/State agencyexploring thePPPoptionfordevelopmentandimprovementofwatersupplyandsanitationservicesundertakeadetailedconsumersurveyontheexistingstatusofservicesprovidedbyit.

Dependingonthepopulationandareabeingservicedbytheserviceprovider,thetimerequiredforcarryingaboutaconsumersurveywouldvary.Whileundertakingaconsumersurvey,itisimportantthatagoodrepresentativesampleintermsofthesizeofpopulationorthezonesisconsideredtogiveaccurateinformation.Thedetailedconsumersurveywouldaddressthefollowinginformationgaps:

Whatisthetypeofconnection

Whatisthefrequencyofwatersupply

Howreliablearethewatersupplyservices

Isthetarifflevelaffordable?

Howoftenarethesceptictankscleaned?

Thedetailedconsumer surveywouldprovidea correctpictureof the statusofwatersupplyandsanitationserviceswoulddirectlyhelpinidentifyingtheareasofinterventionrequired.

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2.3 Water audit and leak detection studyAn important studywhichneeds tobeconductedby the serviceprovider, i.e., theULB/State agency is water audit and leak detection. A water audit is a thoroughexaminationoftheaccuracyofwateragencyrecordsandsystemcontrolequipment.Leakdetection is the systematicmethodof surveying theentire system to identifyleaks,andexactlyidentifythepointsofleakinthewatersupplysystem.Theprimaryobjectiveofthissurveyistoassesstheentirewatersupplysystemfordetectionoftheextentoftechnicalandcommerciallosses.Theauditwouldfacilitatetheserviceproviderindeterminingtheefficiencyofthedistributionsystem.Awaterauditwouldhelptheserviceprovidertoselectandimplementprogrammeswhichwouldreducewaterandrevenuelosses.

Waterlosses,whetherduetoleakages,theft,under-billingofcustomers,orfaultysystemcontrols,representmonetarylossestothewateragency.Thisiswaterthattheagencyhasalreadypaidtoobtain,treat,andpressurize.However,sincethewaterislost,thewater produces no revenue. A water audit would provide answers to the followingquestions:

Wherearelossesoccurringwithinthesystem?

Howmuchwaterislostineachproblemareaidentified?

Whatcorrectivemeasuresareneededtoreducethewaterloss?

Whatwillbethecostofreducingthewaterloss?

Whatsavingsandbenefit-costratioswillresultfromreducingthewaterloss?

Whencanthecorrectivemeasuresbeimplemented?

ItisimportantthattheULB/Stateagencyhasthelatestupdatedversionofthewaterandleakdetectionstudytosharewiththeprivatedeveloper.

2.4 Energy audit studyAlongwiththewateraudit,theULB/Stateagencyisalsorequiredtoundertakeanenergyauditof theentirewatersupplyandsanitationoperations.energyauditsareundertakento determine the current level of energy consumption at various stages of the valuechainand tocompare the samewith the standardbenchmarks.Theauditsmeasure theenergyconsumptionatvariouspointsofpumpingofwaterandreviewtheefficiencyoftheequipmentbeingused.Theenergyauditundertakengenerallycoversthefollowingrangeofassessments:

Studyofexistingsystemandpastrecords

Settingofexistingenergyconsumptionbenchmark

Studyofsystemenergyefficiencyfromsourcetoconsumer

Checkingofequipmentefficiencyincludingpumps

Checkingtheprocesslossesforenergyefficiency

Theinformationprovidedfromtheenergyauditwouldhelpinaccuratelyidentifyingthecostreductionefficiencybenchmarkthatcanbeset.

2.5 Water quality audit studyOneofthecriticalareaswhichneedstobereviewedwhileundertakingthewaterqualityaudit is thatofassessing thewaterquality levels.Waterqualityauditswouldascertain


whetherthewaterbeingsuppliedintheULBisfitforpotableconsumptionornot.Aspertheprocess,therequiredsamplesofwaterwouldbecollectedandtestedatlaboratoriestoascertainthewaterqualitystandards.

Thefourstudiesdiscussedabovearecriticaltodeterminetheservicelevelsandstandardsofoperationalefficiencyprevalentintheexistingwatersupplyandsanitationsystem.

2.6 Assessment of future demandItistobenotedthattheassessmentundertakenwouldhighlighttheissuesintermsofinfrastructuregaps intheexistingscenario.Goingastepfurther,theULB/Stateagencywouldalsohavetomeasuretheadequacyofthecurrentservicestomeetthedemandsof the future population. For instance, the per capita water availability in the existingscenariomaymeetthedemandsofthecurrentpopulation;however,fortheexpectedriseinpopulation,thecurrentlevelsofsupplymaynotbeadequate.Therefore,itbecomesimportantthatwhenthedetailedassessmentisundertaken,boththeneedsofthecurrentpopulationandthatofahorizonplanperiodareconsidered.

2.7 Compiling key parametersSomekeyperformanceindicatorsaretobeusedforassessingthelevelofservicesandfordeterminingtheinfrastructuregaps.Theparametersmostcommonlyusedarediscussedinthefollowingsection.Foreachcomponentofthevaluechain,parametershavebeenidentified for evaluating the performance levels. These parameters include technicalindicatorsandqualityindicators.TheperformancestandardsforeachoftheindicatorsareaspertheguidelinesmentionedintheCPHeeOmanual.SomeofthekeyindicatorswithrespecttothewatersupplysectorwhichneedtobeassessedalongwiththeirformulaandrationalehavebeenprovidedinTable3.

ItistobenotedherethattheindicatorsdiscussedintheprecedingTablearethemostcritical parameters for assessing the status of water supply services in a city/town. Inaddition to these indicators, it is important that the ULB/State agency also considersother important factors in the value chain such as the ageof the installed equipment,efficiencyofoperationsetc.Also,theefficiencyofconsumergrievanceredressalneedstobemonitoredandtheadequacyofstafftomanagetheexistingconnectionsassessed.

Similartotheassessmentundertakenforthewatersupplyservices,thesanitationservicesoftheULB/Stateagencyalsorequiretobeassessed.AsnapshotofthekeyparameterswhichneedstobeassessedisrepresentedinTable4.

ItistobenotedherethattheindicatorsdiscussedintheprecedingTablearethemostcriticalparametersassessingthestatusofsanitationserviceinacity.Inadditiontotheseindicators, it is important that the ULB/State agency also considers other importantfactorsinthevaluechainsuchastheageoftheinstalledequipment,operationalefficiencyetc.Also,theefficiencyofconsumergrievanceredressalprocessneedstobemonitored.Indicatorswhichcanalsoeffectivelycapturethe impactonhealthof theconsumers intheserviceareasuchas incidenceofwaterbornediseasemayalsobe included.Theseindicatorswouldprovideaninsightonhowwithimprovedsanitationservices,thereisanimprovementinthehealthoftheconsumersintheservicearea.

Theindicatorswouldfacilitateinassessingtheservicelevelstatusoftheasset.Inadditiontothese,thequalityandstatusofthewatersupplyandsanitationassetswouldbereflectedinthewateraudit,leakdetectionaudit,andenergyauditwhicharealsotobecarriedoutaspartofthetechnicalassessment.

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INDICATOR UNIT NORM FORMULA DEFINITION RATIONALE REMARKS

Service level performance parameters

Per capita quantum of water supplied ( for cities without a developed underground system)

litres per capita per day (lpcd)

70 lpcd = [Quantum of water supplied to the distribution system/Population served]

Total water supplied into the distribution system (ex-treatment plant and including purchased water, if any) expressed by population served per day

Indicates the adequacy of the water supplied for consumption at the distribution end

For cities without an underground sanitation system, a per capita water availability should ideally be 70 lpcd

Only treated water input into the distribution system should be measured

Only population served by the ULB to be considered

Per capita quantum of water supplied(with a developed underground system)

litres per capita per day (lpcd)

135 lpcd For cities with a fully developed sanitation system, the CPHEEO norm of 135 lpcd is to be adhered to

Quality of water supplied

- As per BIS norms

= [(Number of samples that meet the specifi ed potable water standards in a month/Total number of water samples in a month)*100]

Percentage of water samples that meet or exceed the specifi ed potable water standards, as defi ned by CPHEEO. Sampling regimen should be as per standards and norms laid down for the same

Poor water quality can pose serious public health hazards.

Its highly critical to monitor the quality of the water supplied

Samples should be drawn at both points-outlet of treatment plant and at consumer end.

All parameters of the quality standards should be met.

Frequency of water supply

Hours per day

24 hours = [average number of hours of pressurised water supply per day]

The number of hours in a day during which pressurised water is available

Intermittent supply results in the need for individual households to create additional storage requirements and other in conveniences

The number of hours of supply in each of the operational zones should be measured, continuously for a period of 7 days

The zone-wise fi gures should be averaged out to get city-wise data

Water Treatment Plant Capacity

% 100% = [(Quantum of bulk water supply/Installed capacity of the WTP)*100%]

Installed capacity of the water treatment plant in MLD terms to treat the bulk water supplied for treatment

Indicates if the installed capacity is adequate to treat the bulk water supplied

If the installed capacity is less than the bulk supply, a check on the water quality standards is essential to determine any

KEY PARAMETERS FOR ASSESSING THE PERFORMANCE OF THE WATER SUPPLY SERVICESTable 3




Storage levels % 33% =[((installed capacity/(1-quantity of water discharged from WTP))]

The storage capacity available in the form of Elevated Storage Reservoirs or Ground Water Storage Reservoirs

Indicates the extent of storage capacity available to store treated water at any point in time before actual supply to the distribution system is undertaken

Coverage of distribution system

% 100% = [(Total number of households with direct water supply connection/Total number of households in the service area)*100]

Total number of households in the service area that are connected to the water supply network with a direct service connection, as percentage of total number of households in that service area.

Indicates the extent of households in the service area which have a direct access to drinking water supply and therefore the extent that are not covered and where services need to be provided

Only the number of households (not properties) in the service area should be considered

Would include households which receive supply at one common point, from where it is stored and distributed

Common public stand posts not to be considered

Raw water transmission loss level

% Less than 2%

= [((1-quantity of water received at WTP)/quantity of water pumped at intake works)*100]

Total raw water lost in conveyance from the source/MBR to the treatment plant expressed as a percentage of total bulk water off take at source

Indicates the effi ciency of the conveyance system to ensure that only technical loss levels due to friction are permissible.

In case of conveyance through open channels, the loss level would be higher due to evaporation

Loss level exceeding permissible standards indicate either corroded pipelines or theft of raw water.

Water Treatment Loss

% 2%-3% = [((1-quantity of water discharged from WTP)/quantity of water received at WTP))*100]

The quantum of water which is lost at the time of treatment on account of technical issues

Indicates if the technology and the equipments used for treatment procedure are operating effi ciently and result in only acceptable levels of loss

Loss levels beyond acceptable limits indicate either obsolete equipments being used or operational ineffi ciency

Pure Water Transmission loss

% Less than 2%

= [((1-quantity of water discharged from ESR)/quantity of water discharged from WTP)*100]

The quantum of water lost during conveyance from the WTP to the Storage reservoirs

Indicates if the pure water transmission pipeline is corroded, or has points where there are leaks

Loss levels beyond acceptable limits indicate either corroded pipelines, theft of pure water

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Extent of metered service connections

% 100% =[(Number of metered direct service connections+ Number of metered public stand posts)/Total number of direct service connections+ Total number of public stand posts)*100]

Total number of functional metered water connections expressed as a percentage of total number of water supply connections. Public stand post connections should also be included.

Facilitates in measuring the exact quantum of water consumed and thereby that which can be billed as per consumption levels

Of the meters installed, it is important to check the extent which are fully functional and operational

All the installed meters need to be 100% functional

Non Revenues Water (NRW)

% 20% =[((Total water produced and put into the transmission and distribution system-Total water sold)/(Total water produced and put into the transmission and distribution system))*100%]

Extent of water produced which does not earn the ULB/State agency any revenue.

Reduction in NRW levels is vital for the fi nancial sustainability of the ULB/State agency

Only treated water input into the distribution system to be included.

Water sold implies actual volume of water supplied to customers

In the absence of a functionally effective metering alternate methods of measurement needed

Cost recovery in water supply services

% 100% =[( Total annual operating revenues/Total annual operating expenses)*100]

Total operating revenues expressed as percentage of total operating expenses incurred in the corresponding time period

Financial sustainability is critical

Provide a basis for tariff fi xation, enables setting targets for revenue mobilisation and cost control in delivery of water supply services

Operating expense includes charges on electricity, chemicals, staff, bulk water purchase costs etc

Revenues may be in the form of taxes/cess/surcharges, user charges, connection charges, sale of bulk water, etc

Collection effi ciency

% 100% = [(Current revenues collected in the given year/Total operating revenues billed during the given year)*100]

Effi ciency in collection is the current year revenues collected, expressed as a percentage of the total operating revenues, for the corresponding time period.

Indicates the extent of operational effi ciency present in the system and makes note of the extent of arrears

Collection of arrears to be excluded




Coverage of sanitation network

% 100% = [(Total number of properties with direct connection to the sanitation network/Total number of properties in the service area)*100]

Denotes the extent to which the underground sanitation (or Sanitation collection) network has reached out to individual properties across the service area.

Last mile access to Sanitation networks is key to improvement in service levels of sanitation management

The total number of properties (as against households) as recorded in the municipal records should be assessed

Only properties with access connection to underground sanitation network should be included. Those that connect their sanitation outlet to storm water drains or open drainage systems should not be considered

Adequacy of sanitation treatment capacity

% 100% =[( Treatment plant capacity/Total water consumed+ Estimated water use from other sources)*0.8]

Adequacy is expressed as secondary treatment (i.e. removing oxygen demand as well as solids, normally biological) capacity available as a percentage of normative wastewater generation, for the same time period

It will highlight the adequacy of available and operational sanitation treatment capacity

To include water supplied to the distribution system (ex-treatment plant and including purchased water, if any and water supplied through any decentralised system.

Collection effi ciency of sanitation network

% 100% =[( Wastewater collected/(( Total water produced+ Estimated water use from other sources)*0.8)]

The quantum of wastewater collected as a percentage of normative sanitation generation in the ULB

Signifi es the effectiveness of the network in capturing waste water and conveying it to the treatment plants

To include water supplied to the distribution system (ex-treatment plant and including purchased water, if any and water supplied through any decentralised system.

Extent of reuse and recycling of sanitation

% Minimum of 20%

=[( Wastewater recycled or reused after appropriate treatment/Wastewater received at the treatment plants)*100]

Percentage of wastewater received at the treatment plant that is recycled or reused after appropriate treatment for various purposes.

For sustainable water management, it is desirable that Sanitation is recycled or reused after appropriate treatment. To maximise the same, it is important that this indicator is measured and monitored

Indicator should be reported at the city/ULB level as a whole.

This should only consider water that is directly conveyed for recycling or reuse, such as use in gardens and parks, use for irrigation, etc.

KEY PARAMETERS FOR ASSESSING THE PERFORMANCE OF THE SANITATION SERVICES Table 4

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Quality of sanitation treatment

% 100% = [(Number of samples that pass the specifi ed secondary treatment standards/Total number of wastewater samples tested in a month)*100]

Extent of wastewater samples that pass the specifi ed secondary treatment standards

It is important that the treated water that is discharged back into water bodies, or used for other purposes such as irrigation, meets the laid down environmental standards

Sampling should be taken as per good industry practices and laid down norms by environmental agencies, such as Pollution Control Boards of respective State.

Extent of cost recovery in sanitation management

% 100% =[( Total annual operating revenues/Total annual operating expenses)*100]

Extent of cost recovery is expressed as-Wastewater revenues as a percentage of wastewater expenses, for the corresponding time period.

For ensuring fi nancial sustainability it is necessary to ensure that costs incurred are fully recovered

All operating expenses and revenues of the revenue account only to be included and incomes and expenses of capital account to be excluded

Effi ciency in collection of sanitation charges

% 100% =[( Current revenues collected in the given year/Total operating revenues billed during the given year)*100]

Effi ciency in collection is defi ned as-Current year revenues collected, expressed as a percent of age of the Total operating revenues billed.

Effi cient collection of revenues due in the current year is critical for overall fi nancial health of the utility

Collection of arrears to be excluded

2.8 Identifi cation of key issuesThedetailedassessmentundertakenwouldfacilitateinidentifyingthemajorissueswhicharebeingcurrentlyfacedinthewatersupplyandsanitationservicesinthesystem.Theissuesidentifiedmaybecategorizedasthoserelatedtotheoperationalhandlingofthesystemandthethoserelatingtothephysicalinfrastructure,asindicatedbelow

Onthebasisoftheassessment,keyinferencesintermsof issuescanbeidentifiedandcategorizedas indicatedabove.Foreachof the issues identified, theULB/Stateagencywouldneedtoprepareasetofmitigationmeasuresorremedialactionstoaddresstheissues.ItisimportantthattheULBshouldfirstfocusonaddressingtheoperationalissueswhichrequireminimallevelsofcapitalinvestmentsandshouldthenpursueaddressingthephysicalinfrastructurewhichtypicallyrequiremuchhigherlevelsofcapitalinvestments.Thesemeasuresmaytaketheformofinfrastructuredevelopmentprojectsfortheareaswhereagaphasbeenidentified,ormaybestepsforrevisionoftarifftofacilitatehighercostrecoverylevel.

3. Review of projects with approved DPRs Typically,theoutputoftheassessmentprocesswouldbethekeyinputforanyprojectthe ULB/State agency proposes to develop for improvement of the water supply and


sanitationservices.Asanextsteptowardsaddressingtheissuesinthewatersupplyandsanitationservices,theULBneedstodevelopshort,mediumandlong-termprojectswhichwouldeffectivelyaddressthecurrentissuesinthewatersupplyandsanitationsystem.TheULB/StateagencymaydevelopDetailedProjectReports(DPRs)whichwouldlistallthespecificcomponentswhichneedtobeaddressedintermsofaugmentation,replacement,andrehabilitationwiththecorrespondinginvestmentrequirement.

Herein,theULBneedstoadoptdifferentapproachesdependingonwhethertheULBhasanapprovedDetailedProjectReport(DPR)foritswatersupplyandsanitationsectororwhethersuchaDPRhasbeenprepared,butisyettobeapprovedandsanctionedbytheconcernedauthority.

IncaseofthoseprojectswithapprovedDPRs,afurtherassessmentofthesystemshouldbeundertakensoastoidentifyanyotherimprovementsthatareneededinadditiontothoselistedintheapprovedDPR.Thus,theexistingDPRmaybemodifiedtoincorporateinitiativeswhichtheULBmightconsiderasimportanttoensurethatalltheissuesidentifiedintheassessmentareincluded.AllsuchmodificationstotheDPRshouldbeundertakenonlybeforetheperiodofprojecttendering.Also,itistobereviewediftherequirementforadditionalcapitalinvestmentforthenewworksidentifiedcanbemetwithintheexistingapprovedprojectcostorneedsfurthergovernmentassistance.Ifadditionalgovernmentassistanceisnecessarytopursuenewlyidentifiedinitiatives,theULBmayreverttotheprojectsanctioningauthorityattheGoIorGoMlevelforfurtherinvestmentsupport.

In instances where the DPR (under an existing scheme like JNNURM/UIDSSMT/Statescheme)hasbeenpreparedandawaitsapproval,itisimportantthatathoroughreviewofthecomponentsoftheDPRisundertaken.ThereviewmustassessandestablishtheneedforthevariousproposalsmadeintheDPR,andshouldcriticallyevaluatethecosts

INDICATIVE LIST OF ISSUES IN THE WATER SUPPLY AND SANITATION SERVICES Figure 7

Preparation of mitigation measures to addressthe identified issues

Output of key parameters

Operationalissues

� Low coverage

� Poor collection efficiency

� High O&M costs

� Low O&M recovery

� Poor grievance redressal

Physicalinfrastructure issues

� Corroded pipelines resulting in high levels of transmission losses

� Lower than required capacity of the WTP

� Inadequate storage capacity

� Absence of meters

� Lack of STP

� Open sewage drains

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considered for the various activities. The ULBs would need to include any additionalprojectwhich is feltnecessaryaftertheassessmentundertaken.ThecostsoftheDPRwouldneedtobeupdatedtocorrespondwiththenewprojectsincluded.

A detailed list of the activities which need to be considered while undertaking a duediligenceofthecostcomponentshasbeenelaborateduponinChapter5.Inadditiontothecostswhicharetobe incurred, theprojectedrevenue fromtheproposedprojectmustalsobeelaborated.Thedetailedcomponentsof therevenueswhichwould likelyaccruetotheprojecthavealsobeenexplainedinChapter5.

IfthereareinfrastructureandotherissueswhicharenotdirectlyaddressedintheDPR,thenthoseneedtobeaddedandthecorrespondinginvestmentrequirementneedstoberevisited.

4. Prioritisation of key areas of investmentHavingidentifiedtheprojectswhichneedtobetakenup-theassociatedprojectcostsandtheexpectedrevenues-itisimportanttolisttheprojectswhichneedtobeundertakenonaprioritybasis.TheULB/State agencywouldneed to lookat ahostof criteria todetermine the projects which have to be pursued on a priority basis. Typically, theULB/State agency would not necessarily have the capacity to undertake the identifiedinvestmentsacrossthevariousprojectsatonego.eventhetechnicalskillsandexpertisemay not be readily available.A set of issuesmight require immediate attention,whileothersmaybeundertakenatalaterstage.GiventherangeoffactorswhichmayfacetheULB/Stateagency,itbecomesimportanttoclearlydefinetheprojectswhichwouldhavetobeaccordedthehighestpriority.

4.1 Rationale for prioritisationThe rationale for prioritisation of projects would depend broadly on two importantconsiderationsofinvestmentrequirement,andthecriticalityoftheprojectinthecurrent

ASSESSMENT OF PROJECT DPRSFigure 8

DPRs approvedDPRs yet to be submitted

for approval

Review of project DPRs

� Review to verify if any additional set of projects need to be included

� Before project tendering, include projects/measures assessed to be critical

� ULB may revert to project sanctioning authority for additional funds for increased cost

� Review to verify if any additional set of projects need to be included

� Add on projects to address Issues identified in the assessment

� Update DPR project cost to reflect additions of new projects


scenario. For both the parameters, the ULB/State agency would need to undertake adetailedanalysistodetermineprojectcomponentsacrossthevariousvaluechainswhichrequireintervention.

Ideally, the ULB should first take measures to address all the issues of operationalinefficiencyintheentirevaluechainofwatersupplyandsanitationservices,whichhavebeen identifiedaspartof theassessmentstudy.Having takenspecific steps toaddresstheissuesrelatingtooperatinginefficiencies,theULBshouldthenproceedtoaddressingissuesof infrastructuregapsbywayofaugmentationworks.For instance, ifaspertheassessmentoftheentirechainofwatersupplyservices,itisidentifiedthatthedistributionnetworkfacesseveralissuessuchashighextentofdistributionloss,poorpressurelevels,etcandthatthebulkwatersupplytothecityrequiresaugmentation,then,theULBshouldideallyfirstaddresstheissuesinthedistributionnetworkandthentakeupprojectsforaugmentingthebulksupplytothecity.Therationalebehindthisisthat,iftheULB/Stateagencytakesupthebulksupplyaugmentationprojectandkeepsthedistributionnetworkimprovement project as second in line of priority; the resultwould be theULB/Stateagency pumping in additionalwater into a poorly performing distribution system.Theadditionalwater supplied alsowould be lost if the distribution network has corrodedpipelinesresultinginwaterloss.Therefore,theULB/Stateagencyshouldhaveastrongrationalebehindpursuingspecificprojectoverotherprojectsidentified.

Achoiceoftheprojectswhichneedtobepursuedwouldthereforebetosomeextentguidedbytheoutputofanalysisundertakenabove.Additionally,thepriorityrequirementswould need to be supported with financial considerations. Against the projects andtheircosts identified,theULBwouldneedtoreviewthepossiblealternativesourcesof funding for the required investment, viz., from internal revenuesof theULB/Stateagencyor fromexternal sources comprising grants andcommercial borrowings, etc.The investment abilityof theULB toundertake and sustain the required investmentwouldhavetobeassessed.

Theprojectcriticalityanalysis,togetherwithareviewoftheinvestmentsustenanceabilityoftheULB/Stateagency,wouldfacilitateprojectprioritisation.

It is important that ULBs/State agencies, which have already developed DPRs or arein the process of doing so, undertake this type of analysis and phase out the capitalinvestments required to improve theoverall servicedelivery in thewater supply andsanitationsector.

5. Financial FeasibilityTheassessmentundertakensofarwouldhelpinidentifyingprojectswhicharerequiredforimprovementtothewatersupplyandsanitationservices.Fortheprojectssoidentified,thenext importantactivity tobeundertaken is thatofassessingtheir financialviabilitywithrespecttothecostsinvolvedandthealternativesourcesoffundingfortheidentifiedprojectcost. Inthissectionofthereport,theentireprocessofundertakinga financialfeasibilityof theprojecthasbeenelaboratedupon.Thevarious factorswhichneed tobe considered to arrive at a decision regarding the select projects viability have beendiscussed.

5.1 Determination and Due diligence of Project CostOne of the most critical activities which need to be taken up to determine thepossibility of developing a project on a PPPmode and to further pursue the same

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isadetailedfinancialanalysis.Thefinancialanalysissoundertakenwoulddeterminetheviabilityoftheprojectgiventhecostsinvolvedandtheexpectedrevenuesfromthesame.Thenextstepintheentireschemeofactivitiesisthereforetoundertakeadetailedfinancialanalysis.

Thekeyinputforthefinancialfeasibilityanalysisistheprojectcost.Threebroadcategoriesof costsneed tobeconsidered-capital costs forprojectdevelopment,operationcostsandmaintenancecostswhichariseduringtheoperationandmaintenanceofthecreatedinfrastructureorasset.ThefollowingsectionsdefinethesecostsandguidetheidentificationofthesecostsbytheULB.

5.1.1 Determination of Project Cost

As indicated above, there are two broad categories of costs to be incurred for theprojects.

1. Capital Costs

Capital costs for the development of the water supply and sanitation projects wouldincludebasiccapitalcostsonbuildingsrequiredfortheproject,includinganyfit-outcostsrequiredtoconvertanexistingpropertytotherequireduse.Landacquisitioncostwouldincludespecificcostsonassetsacrossthevaluechain,whichneedstobecreated.Costestimatesshouldreflectthefullresourcecostsoftheproject.

Forinstance,thecomponentsofabulksupplyprojectwouldincludeexpenditureonintakewell, eSRs, jackwell, pumphouse, rawwaterpumpingmachinery, rawwaterpumpingmain,approachbridge,etc.Similarly,thecapitalcosttodevelopaWaterTreatmentPlant(WTP)wouldincludeexpenditureonthedevelopmentofapumphouse,WTP,sumps,bulkmeters,etc.Atthedistributionend,thecapitalcostlargelywouldbethatassociatedwiththelayingofpurewaterpipelines,bulkmeters,etc.Therefore,allthecostswhicharerelevanttoeachcomponentofthevaluechainandapartoftheprojectaretobeconsideredduringtheestimationofthecapitalcost.

Itistobenotedherethattheestimationofcapitalcostsshouldalsoincludetheopportunitycostofassetsalreadyownedbytheinstitutionandwhicharetobeusedintheproject.Iftheassetcouldbesoldorusedforanotherpurpose,thentheuseofthatassetintheprojecthasanopportunitycost.

Thecapitalcostswouldbeidentifiedfromthedetailedprojectreport.Table5indicatesthemainheadsofcapitalcostsforatypicalproject.

ii. Operating Costs

Asindicated,inadditiontoconsiderationofthecapitalcoststobeincurredforthecreationofanasset,theprojectcostestimationshouldalsoincludethecostsonoperationoftheassets created. In the caseofwater supply and sanitation projects, these costswouldincludethefollowing:

Rawbulkwaterpurchasecharges

2. Powerconsumptioncharges

3. Inputcostssuchaschemicalsforwatertreatment,sewagetreatment

4. Costofemployeesdirectlyinvolvedinservicedeliveryincludeswagesandsalaries,employeeentitlements,superannuation,traininganddevelopment,etc.

1.


5. Administrationexpenses

6. Insurancecosts

Theoperatingcostswouldbeidentifiedonthebasisofthedemandprojectionspresentedinthedetailedprojectreportandtheratesofoperatingcostsidentifiedonthebasisofcurrentmarketratesorratespaidinrecentsimilarprojects.

iii. Maintenance Costs

Inadditiontoconsideringtheoperationalcostsoftheassets,itisequallyimportantforthe ULB to take into account the expenses relating to the maintenance of the assetscreated.Thesecoststhereforelargelyrelatetotheregularcivilworkswhichneedtobeundertakenformaintainingthelifeoftheasset.Thesecivilworksthereforeincluderepairworks and minor replacements. These maintenance costs are recurringin nature andwillbelinkedtomaintainingthecapacityandqualityoftheassetratherthanupgradingorimprovingassets.Maintenancecosttypicallyincludesrawmaterials(spares),toolsandequipmentandemployeecostsassociatedwithmaintenancework

Therefore,acombinationofthecapitalcostsandtheoperationandmaintenanceexpensesontheproposedprojectwouldindicatethetotalinvestmentcostsontheproject.

SN PARTICULARSCAPITAL COST

(Rs. in crore)

1. Land acquisition cost

Water supply services

2. Construction cost on:Bulk water supply systemRaw water transmission pipelinesWater Treatment PlantDistribution networkStorage ReservoirsElectric sub stationsPump houses

3 Installation and additional costs on:Bulk Meters/Consumer end metersIT infrastructureEnergy saving measures

Sanitation Services

Construction cost on:Sanitation pipelineSanitation Treatment PlantElectric sub stationsPump houses

4. Contingency reserve

5. Preliminary and pre-operative expenses

6. Interest during construction

7. Operations and maintenance to be capitalised

Total

BROAD COMPONENTS OF THE CAPITAL COSTS Table 5

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5.1.2 Due diligence of Project Cost

Thisactivityinvolvesreviewingthedefinitionofprojectcosts,bothcapitalandoperational,toensurethattheyconformtosomeminimumtestsofreliability,credibilityandconsistency.Thisstageisimportanttoensurethattheestimateofcostsandrevenuesareprimafacieacceptabletotheprospectivebidders.Adescriptionofsomeoftheimportantparametersforthereviewofprojectcostsfollows7.

i. Inflation

Thecostsofindividualitemsconsideredforarrivingatthefinalcostshouldreflectcurrentmarketprices.Ifthecostsarebasedonstandardhistoricalprices,thentheyshouldbeadjustedtotheextenttheyreflecttheinflation.Additionally,theassumedrateofinflationshouldbedocumented.Theimplicationsofunrealisticassumptionsoninflation/omissionofinflationarethatthecostestimateswouldbelowerandwouldnotreflectthecurrentlevelofprices.Thus,therewillbesubstantialdifferencesinthecostsplannedforandthecostsactuallyincurred.

ii. Opportunity Cost

Incasethesponsorisdeployingitsownresources-men,machineryorfunds-intheproject,thentheopportunitycost(thereturnforegonebythesponsorbynotdeployingtheseresourcesprofitablyelsewhere,includingitsownoperations)willneedtobeconsideredasthecostoftheresource.

The implicationsofomittingopportunity costs in the cost estimates are that the costestimateswouldbeunderreported,inflatingthefeasibilityoftheproject.However,theprojectwillthennotbecomparablewiththeprivatesectorreference.

7 Please note that this is an indicative list of the minimum required parameters of review.

SN PARTICULARS COST

(Rs. In crore)

1. Administrative expenses

Water supply services

2. Operation and maintenance cost on:

Raw bulk water purchase

Power consumption

Chemicals utilised

Meters

Connection costs

Sanitation Services

Operation and maintenance cost on:

Energy costs

Chemicals

Sludge handling

Connection costs

3. Salaries and other establishment expenditure

4. Insurance costs

5. Any other miscellaneous expenditure

Total

BROAD COMPONENTS OF THE OPERATION COSTSTable 6


iii. Basis for estimation of costs

Thebasisorassumptionsfortheestimationofthecostsneedstobeverified.Thecostsofindividualitemsconsideredforarrivingatthefinalcostshouldbebasedoneither:

Standardcosts,

Costingforsimilarprojectsintherecentpast,

Actualmarketprices,or

Standardindustrynorms.

Alloftheseabovementionedfactorsneedtobeadjustedforinflation.Theimplicationsofunrealisticbasesfortheestimationofcostsarethatthecostestimateswouldnotreflectthecurrentlevelofprices.Theestimateswouldbeinconsistentandincomparable,thusdistortingthefeasibilityanalysis.

5.2 Identifi cation of project revenuesThenextimportantestimationwhichneedstobeundertakenasapartofthefinancialfeasibilityanalysisistheprojectrevenues.Projectrevenuesrepresenttheincomethatisgeneratedfromtheprovisionofwatersupplyandsanitationchargestotheconsumer.Itshouldbenotedthatinflowsofarevenuenaturewillbeconsideredasprojectrevenues.Anyinflowofacapitalnaturewouldbeaddedtotheprojectfundingorreducedfromthegrosscostoftheproject,dependingonitsaccountingnature.

Therevenuesmaybebifurcatedintotwobroadcategories-Directrevenuesandindirectrevenues.Therevenuesgeneratedfromthewatersupplyservicesarediscussed inthefollowingsection.

5.2.1 Direct sources of revenues from water supply service

i. Water Supply Charges

Thesingle, largestandthemost importantcomponentofrevenuegenerated fromtheprovisioningofwatersupplyservicesisthatobtainedfromalevyofwatersupplycharges.Watersupplychargesmaybeleviedintheformofflatratetariffs,volumetrictariffsortelescopictariffs.Thethreetypesoftariffstructuresarediscussedbelow.

Flat rate tariff: Flatratetariffreferstoapricingstructurewhereinthecustomersarechargedafixedamountoftariffbasedonthesizeofpipeconnectionsatcertainintervals,irrespectiveofthequantityofwaterconsumed.Itisthereforealinearrate,whichmaynotvarywiththeusageoftheserviceorwiththetimeofavailingoftheservice. In the case of water supply services, this implies that a fixed per monthlychargeisleviedfordifferentcategoriesofconsumers, viz.,residential,commercialandindustrial.Usually,withinthesecategoriesagain,adifferentialrateislevieddependinguponthetypeofindividualunitholding.Forinstance,intheresidentialusercategory,different units such as residential houses, slum dwellings, educational institutions,andgovernmentestablishmentsarechargedvaryingratesbasedonthesizeofpipeconnections.

Therefore,aresidentialunitmaybechargedRs120permonthforwatersupplyserviceswhereasaslumunitmaybechargedRs40permonth,andaninstitutionmaybechargedRs200permonth.Theratesforthecommercialestablishmentsandtheindustrialunitsaregenerallymuchhigherthanthedomesticrates.Itistobenotedherethatirrespectiveofthequantityofwaterusedbyaconsumer,s/hewouldbechargedonlya fixedrate.

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Typically,suchapricingstructureisfoundinthecaseofcitieswherenometershavebeeninstalledattheconsumerend.

Volumetric tariff: Volumetrictariffreferstoapricingstructurewhereinthetariffratevariesasperthequantumofwaterusedbytheconsumer.Itisthereforeavariablerate,wherefordifferentconsumptionlevels,differenttariffratesareapplicable.Suchatariffstructureisapplicableincities/townswheremetershavebeeninstalledattheconsumer end; there are separate consumption slabs with corresponding per unitcharges.Thebroadconsumptioncategoryremainsthesameasthatundertheflatratetariff structure,viz., residential,commercialand industrial.Within thesecategories,slabs for different consumption levels exist. For example, under the residentialcategory,theremaybethefollowingslabswiththecorrespondingrates,asshownatTable7.

Watermeterreadingsarerecordedanddependingonthevolumeofwaterconsumed,tariffislevied.

Telescopic/Increasing block tariff: Asperthistariffstructure,thereexisttwoormorepricesforwaterused,whereeachpriceappliestoacustomer’susewithinadefinedblock.Pricesrisewitheachsuccessiveblock.Generally,undersuchapricingstructure,thefirstblockpriceisdeliberatelysetbelowcost.Awateruserinaparticularusecategory(e.g.,residential)ischargedaunitpriceforthefirstunitsabstracteduptoaspecifiedamount(thisdefinestheendoftheinitialorfirstblock).Abovethisamount,theuserfacesahigherpriceforadditionalunitsuntilasecondspecifiedamountisreached(theendofthesecondblock)andsoonuntilthehighest(top)blockintheincreasingblockstructureisreached.Theusercantypicallyabstractasmuchwaterasdesiredinthistop(highestpriced)block,butforeachadditionalunitofwater,thebillincreasesbyanamountequaltothehighestpriceintheratestructure.

ii. Water Connection Charges

Anothercomponentoftherevenuefromtheprovisionofwatersupplyservicesisthewaterconnectioncharge.Awaterconnectionisaone-timepaymenttobemadebyaconsumertotheserviceproviderforaccessingwatersupplyservices.Theseconnectioncharges are generally based upon the size of the connection; user category (e.g.,domestic,industry);locationoftheproperty(i.e.,within/outsidecitylimits);anddistance

RESIDENTIAL Rs per litres

Below 15 kl 2.50

15 kl-30 kl 6.00

31 kl-50 kl 12.00

51-100 kl 20.00

RESIDENTIAL Rs. per kilo litre

Below 15 kl 6.00

15 kl-30 kl 8.00

31 kl-50 kl 15.00

51 kl-100 kl 20.00

REPRESENTATIVE TELESCOPIC TARIFF STRUCTURETable 8

REPRESENTATIVE VOLUMETRIC TARIFF STRUCTURETable 7


ofthepropertytothenearestwatermain.Connectionchargesusuallyincludeabasicconnectionfeeplusvariousadd-onchargesforphysicalfacilities,labour,administrativefees,andothercosts.

Therefore,asapartofthetotalprojectedrevenues,itisimportantthatthefuturedemandforthewatersupplyservicesisestimated.Basedontheanticipatedincreaseinthenumberofconnectionswhichneedtobeprovided,theapplicablewaterconnectionchargesneedtobeappliedandtherevenuefromthissourcetobeestimated.

iii. Penalties

Asmallcontributortothetotalrevenuesearnedisthepenaltyimposedonconsumerswhoareillegallyconnectedtothewatersupplysystem,andthosecustomerswhohavenotpaidupthewaterbills.Onthebasisofthetrendinthearrearsinthetotalcollectionstobemade,therevenuetobeearnedaspenaltymaybeestimated.

iv. Charge for establishment of meter

ThecostincurredbytheULBinpurchasingandinstallingmetersattheconsumerendisgenerallyrecoveredaspartofthetotalwaterbillgenerated.Therevenuefromthissourceistobelargelytreatedasaninflow,meanttorecoverthecostsalreadyincurredbytheULB.Thecostsaregenerallyrecoveredasinstalmentsfromtheconsumers,andthesameshouldalsobeaccountedforinthetotalrevenues.

5.2.2 Indirect sources of revenue

Inadditiontothedirectsourcesofrevenue,theULBshouldalsoexplorethe indirectrevenuesourcesforthewatersupplysector.Fewsuchrevenuesourceswhichhavebeenidentifiedareasunder:

i. Development charges

TheULBshouldalsoconsiderpossibilityofdevelopingaspecialcorpusfundmeanttomakepaymentstotheprivatedeveloperfordevelopingthewatersupplysystem.AMunicipalFundmaybecreatedwithrevenuecontributionsfromthedevelopmentchargeswhicharecurrentlyleviedunderMRTPAct1966.Approximately50%orapredecidedshareofthedevelopmentchargessoleviedmaybeconsolidatedtoformthefund.

ii. Real estate revenues

TheULBmayalsoexplorethepossibilityofun-lockingtherealestatevalueofthemunicipallandwithinitspossession.AspartofthepaymentorcompensationagreementbetweentheULBandtheprivatedeveloper,theULBmayconsidertheoptionofprovidingthedeveloperwithaTransferofDevelopmentRight(TDR).TDRsmaybegivenbytheULBtotheprivatedeveloperasformofcompensation

Thesumtotaloftheaboverevenuestreamswouldhavetobeprojectedasapartofthefinancialanalysisforthewatersupplyservices.

5.2.3 Direct revenues for sanitation service

Therevenuesfromprovisionofsewageservicesareasindicatedasbelow:

i. Sanitation charge

Sanitation charges form a significant component of the total revenues accruingfrom theprovisionof sanitation services. Sanitation charges generally are levied as

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a percentageofwater charges and are collected from all the premiseswhich havesanitationconnections.Therefore,aspartofthetotalprojectedrevenues,theincomefromthesanitationchargesshouldalsobeestimatedandincludedinthetotalrevenuestream.

ii. Sanitation connection charge

Sanitation connection charge is the fee that the ULB/State agency would levy as aone-timechargeonconsumers forprovisionofaconnection.The feewouldconsistof a charge for providing connections and a tapping charge.The total revenue fromconnectionfeeseachyearwoulddependonthenumberofconnectionsprovidedinthatyear.Therefore, thetotalrevenue forsanitationchargesshouldalsoaccount fortheincomefromtheconnection.

iii. Penalties

Asmallcomponentoftherevenuefromsanitationservicesisfromimpositionofpenalties.Generally,penaltiesareimposedonthoseconsumerswhohavenottakenalegalconnectiontothesanitationsystemandaredumpingtheirsewageintheopendrain.Onthebasisofthetrendofincomefrompenaltiesinthepreviousyears,thisincomecomponentwouldhavetobecomputed.

5.2.4 Indirect revenues for sanitation service

Incaseofsanitationservices,therevenuesfromsaleoftreatedsewagewouldneedtobetreatedasanindirectsourceofrevenuebytheULB.Treatedsewagemaygenerallybepurchasedbymanufacturingorindustrialunitswhichhaveahighuseofwaterfortheirindustrialactivities.If theoptionexists,theULBmay identifysuchunitsandcanguaranteeapredeterminedquantityoftreatedsewagewatertosuchunitsinexchangeforacertainprice.

5.3 Preparation of the fi nancial modelOncetheprojectcostsandrevenuesareidentified,thenextstageinthefinancialanalysisistobuildthefinancialmodeloftheproject.Thistaskinvolvesthefollowingactivities:

Identifyingalltheinputsforthefinancialmodel:

ProjectcostProject revenuesOperation and maintenance costsAssumptions for the fi nancial model

2. Preparingthefinancialmodelincludingthefollowingcomponents:

CalculationofprojectcashflowsCalculation of Project IRR

5.3.1 Inputs to the fi nancial model

Some basic assumptions and inputs need to be considered when a financial model isprepared.Theinputsandassumptionsarelistedbelow.

Project cost as derived from the detailed project report capital costs, pre-operativeexpenses(tobecapitalised),feesofthetransactionadvisor(ifany),costoflegalapprovals,etc.Inaddition,thephasingofthecapitalexpenditurealsoneedstobedefined.

1.

a.b.c.d.

a.b.


Projectrevenuesincludingtherevenueswhichhavebeenidentifiedfromallthesourcesasindicatedintheprecedingsections.

OperationsandmaintenancecostsasderivedfromtheDPRasperthedemandprojectionsandtheestimatedoperatingexpenses.

Certain assumptions for projecting the cash flows in the future, for instance,long-terminflationrates,long-terminterestrates,incometaxratesinthefuture,etc.

All these assumptions will need to be documented as part of the financial feasibilityprocess.

5.3.2 Preparation of the fi nancial model

The financial viability of any capital-intensive project is largely defined by the returnsoninvestmenttheprojectisexpectedtoearntheinvestors.Therefore,oneofthekeyobjectivesbehindthepreparationofafinancialmodelistoestimatethereturnsthattheprojectcangenerateinthefuture.Thesereturnsarecalculatedonthebasisofprojectcashflows,whichareavailableforinvestorswhohaveinvestedintheproject,bothdebtandequityinvestors.

Therefore, for the calculation of the project cash flows, the following key statementswouldhavetobeprepared:

ProjectedProfitandLossAccount

ProjectedBalanceSheet

ProjectedCashFlowstatement(showingcalculationsoftheprojectcashflows)

Astatementoftheassumptionsusedacrossthefinancialstatements

Totalcapitalexpenditureanditsphasing

Thesefivefinancialstatementstogetherwillconstitutethebasicfinancialmodeloftheproject.Generally, the financial statements listedaboveareprojected tocover theeconomiclifeofthecreatedassetsoastoconsiderthecostsofthecompleteprojectlifecycle. Incasetheeconomic lifeof theproject is longerthan30years, theULBcanatthisstageofpreliminaryfinancialfeasibilitylimitthedurationoftheprojectsto20-30years.

5.4 Assessing the viability of the private investmentThespectrumofPPPcontractstructurescanbebroadlyclassifiedintotwocategories:

Contracts inwhich theprivate sector invests capital, either thewholeprojectcostorapart

2. Contractsinwhichtheprivatesectordoesnotinvestcapital

The followingdiscussion is specificallyapplicable toPPPcontracts inwhich theprivatesector invests capital. Such PPP contracts can take the nature of concessions (BOT),BOO, BOOT, DBFO, etc. The private sector invests capital in these contracts as abusinessinvestment.Thismeansthatthereisanexpectationofattractivereturnsfromtheinvestmentthattheprivateinvestorhasmade.Thekeyquestionthereforetoassessthe commercial viability of the project under consideration is to determine whetherthereturnsavailablefromtheprojectareattractiveenoughforaprivateinvestor.Thefollowingsectionsdiscussthecalculationandassessmentoftheprojectreturnstochecktheirattractiveness.

1.

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5.4.1 Principles and Risk Return relationship

Onthebasisoftheprojectedcashflowswhichhavebeenestimatedintheprecedingstep,thenextactivitytobeundertakenistocomputetheInternalRateofReturn(IRR)oftheproject.TheIRRsoestimatedwouldthenhavetobecomparedagainstabenchmarktoassess whether the project is commercially viable. The possible benchmarks could bereturnsthataregeneratedthroughsimilarprojectsorreturnsthatareassumedtobereasonablebyaprivatedeveloperplayerinthewatersupplyandsanitationsector.Itistobenotedherethatprojectsoflarge-scaleinvestmentswoulddifferfromcasetocase.Forinstance,anonlybulksupplyaugmentationprojectwoulddifferfromonewhichrequiresdevelopment,operationandmaintenanceofbothbulkwater supply andadistributionsystem.TheULB/Stateagencytherefore,cannotassumeanarbitraryrateofreturn.Asuitablerateofreturnwouldhavetobeclearlyidentified.

Inordertoidentifywhetheraprojectiscommerciallyviableornot,thefollowingformulacanbeused:

Project Internal Rate of Return Weighted Average Cost of Capital

Weightedaveragecostofcapital (WACC) isaminimum return that a project must earn on its asset base to satisfy its creditors, owners, and other providers of capital. WACCiscalculatedas:

WACC=(1-t)(e/K)*Ce+(D/K)*Cd

Where,

t=amountoftaxapplicable

e=Valueofequityintheproject

PROCESS FLOW FOR VIABILITY ASSESSMENTFigure 9

Consider therevenues fromthe project

Estimate theproject IRR basedon the revenues

Are thereturns

attractive

Qualitativeassessment

Consider thealternative sources

of grant

Are thereturns

attractive?

Apply to relevant authority forAdditional Centre/State VGF/

Support

PPP optionchosen

yes

no

yes nonn

Rationale for PPP

Prerequisitesfor PPP

Assess the projectIRR on the financialcomparator scale

Public fundingoption chosen

Consider thequantum of

additional grant tobe received


D=Valueofdebtintheproject

K=D+e

Ce=Costofequity/Minimumreturnexpectedbyequityinvestors

Cd=CostofDebt/Minimumreturnexpectedbydebtinvestors

TheprojectIRRmustatleastbeequaltotheWACCofcapitalfortheprojecttobecalledcommerciallyviable.ThevalueofWACCwouldbedirectlyrelatedtotheriskperceivedintheprojectbytheinvestors.

5.4.2 Process fl ow of viability assessment

Thestepswhichtobefollowedforundertakingtheviabilityassessmentaresummarizedinthefollowingschematic.

ProjectIRRisdefinedasthediscountratethatmakesthenetpresentvalueofallcashflowsfromaparticularprojectequaltozero.Generallyspeaking,thehigheraproject’sinternalrateofreturn,themoredesirableistheproject.

TheprojectIRRiscalculatedusingtheinputsofprojectcashflowsovertheeconomiclifeoftheproject.Incasetheeconomiclifeofaprojectexceedsthetenureforwhichthecashflowshavebeenprojected,thenforthelastyearoftheprojectedcashflowsassumetheterminalvalueoftheprojectasthecashflow.

5.4.3 Assessment of Project IRR: Financial comparator scale

To assess the commercial viability of the project, the project IRR would have to becomparedwithaseriesofbenchmarkreturns.Thesebenchmarkreturnswouldincludecomparisonswith:

Risk-free rate of return:Therisk-freerateof returnrepresents the lowestpossiblereturnfortheproject,asitrepresentsarisk-freeinvestment.Generally,a project being developed as an investment avenuewould have a substantiallyhigher degreeof risks in addition to the sovereign risk (corresponding to therisk-freerateofreturn).Therefore,theprojectIRRshouldbegreaterthantherisk-freerateofreturninthemarket.Forpracticalpurposes,the10-yearyieldongovernmentsecuritiesisareasonableindicatoroftherisk-freerateofreturn.

2. Comparison with AAA-rated bond yield:TheAAA-ratedbondyield(overthe risk-free rate of return) represents the return on an investment which isratedbyratingagenciesascarryingthe lowestriskforthe investoramongthebonds available in themarket.The riskof theprojectunderdevelopmentwillrealisticallybeequaltoorhigherthanthatoftheAAA-ratedbond.ThismeanstheinterestondebttotheprojectwillbemorethantheAAA-ratedbondyield.IfthereturnavailableforequityshareholdersislessthantheAAA-ratedbondyield,aninvestorwillliketoinvestintheAAA-ratedbond,ratherthanintheproject.Therefore,insuchacase,thepublicsectorshouldfundtheprojectcompletelyasthereturnsarenotattractiveforaprivateinvestor.

3. Comparison with interest rate at which debt is available to the ULB/State agency:TheprojectIRRmayalsobecomparedwiththelong-terminterestrateatwhichtheULB/Stateagencycanborrowfundsfromthemarketfortheproject.IftheprojectIRRisequaltoorlessthantheinterestrateatwhichdebtisavailabletotheULB,thenthereturnavailablefortheequityinvestorswouldbethesameasthecostofdebt.However,sincetheequityintheprojectwould

1.

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havehigherriskthantheprojectdebt,thereturnrequiredbytheequityinvestorswouldbecorrespondinglyhigher.Therefore,thereturnavailablefortheequityinvestorsisnotadequate.

4. Comparison with the market rate of return: As a representation of allbusinessopportunitiesavailabletotheinvestor,therateofreturnoftheequitymarketoveralongtermontheBombayStockexchange(BSe)sensexorNationalStockexchange(NSe)NiftyNiftycanbeusedtocomparewhethertheProjectIRRisattractiveornot.Incasethereturnsavailablefortheequityinvestorsareequalormorethanthemarketrateofreturn,theprojectcanbedeclaredascommerciallyviableforexecutionthroughprivateinvestment.

Incasetheprojectreturnsarefoundattractiveforprivateinvestment,thefocuswouldshift to an assessment of the project on a specified set of qualitative parameters forchoosingbetweenpublicfundingandPPP.

Incasetheprojectreturnsarenotfoundtobeattractivewiththeprojectedrevenuesconsidered,thepossibilityofobtainingacapitalgranttofundthecostsoftheprojectmaybeexplored.Typically,ifthereturnsonaprojectarefoundtobeunattractive,theviabilityoftheprojectmaybeenhancedbyconsideringtheoptionofaViabilityGapFund(VGF)schemeoftheGovernmentofIndia.Underthisscheme,foraPPPprojectdeveloped, financed, constructed, maintained and operated by a private developer,wherethecommercialviabilityislow,theVGFoptioncanbeexploredtoenhancetheviability8.Theviabilitygapfundingistypicallyprovidedintheformofacapitalgrant,inwhichcasethegrosscostoftheprojectdecreasesbytheamountofthecapitalgrant.In certain cases, viability gap funding can also be provided in the formof deferredgrantorrevenuegrant,inwhichcaseitbecomesanadditionalsourceofrevenuefortheproject.

Theresultoftheabovecomparisons,intermsoftherangeofbenchmarks,wheretheactualprojectIRRlieswillsupportthefollowingdecisionstobetakenbytheULB/Stateagency:

Whether the project returns are attractive enough for a private investor topursueit;

WhethertheprojectwouldrequireVGFsupporttomaketheprojectcommerciallyviable

5.5 Viability Gap FundingAsindicatedabove,incaseoftheprojectreturnsnotbeingattractivewiththeinternalrevenues considered, the option of viability gap funding may be explored. The VGFschemehasbeeninitiatedbyGoIwiththepurposeoflendingfinancialsupporttothoseinfrastructureprojectswhicharebeingdevelopedonaPPPbasis.However,tobeabletoattractVGFgrantthereareafewbasicguidelineswhichneedtobeadheredto:

TheschemeprovidesVGFgrantstoPPPprojectsinspecificsectors,sponsoredbyanylevelofadministration-CentralGovernment,StateGovernmentandLocalGovernment.

The VGF support is admissible only after the other options of enhancingviability are exhausted or are not possible in the case of a specific project.

8 Kindly refer to ‘The Scheme for Support to Public Private Partnerships in Infrastructure’, Department of Economic Affairs, Ministry of Finance.


That is, if the ULB/State agency has explored all the available options forfundingaproposedwatersupplyandsanitationprojectandrequiresadditionalinvestmentsupporttomake itcommerciallyviableenoughtoattractprivatesectorfortheproject.

The VGF support is capped at 20% of the project cost. An additional VGFsupport,cappedat20%,canbegivenbythegovernmentagencysponsoringtheproject.

TheVGFschemeprovidesaone-timegrantordeferredgrantswiththeexclusivereasonofmakingtheprojectviable.Itisgenerallyintheformofacapitalgrantatthestageofprojectconstruction.

Tobeeligible,theprojectshouldinvolveprovisionofaserviceagainstthepaymentofusercharge.

TheapprovedamountofVGFgrantforaprojectisreleasedaftertheequityoftheprivatepartnerhasbeenexpendedontheproject.Thereleaseofthegranttotheprojectisintheratioofreleaseofthedebt.

TheextentofVGFsupportthatwouldberequiredtomaketheprojectattractive forprivateinvestmentisdetermindthroughcompetitivelandprocess.

5.6 Assessment of water PPPs not requiring private investment

Asperfinancialprinciples,aserviceshouldbeoutsourcedwhenthemarketpriceoftheserviceislowerthanthevariablecostsofprovidingtheservicein-house.Variablecostsare direct operating costs, which are directly proportional to the level of operations.Thesecostsincreaseinthesamepercentageasthelevelofoperationsincrease.Forthewatersupplyandsanitationsector,thevariablecostswouldbetherawwatercharges,theelectricitycosts,chemicalcosts,etc.Thefollowingstepswouldfacilitateindecision-making with respect to the choice between outsourced service and in-house service.Thisway, theULB/State agency can choosebetween aprivate-operated service and agovernment-operatedservice.

Step 1: Based on the service component (or components) being considered foroutsourcingthroughaPPParrangement,theULB/Stateagencywillneedto listall thecostsfortheservice.Thelistoftheservicecostsshouldbesegregatedintofixedandvariablecosts.

Step 2:Separatethecosts,bothfixedandvariable,intocostswhichwillberetainedbytheULB/Stateagencyandcostswhichwillbetransferredtotheprivateparty(basedonriskallocation).

Step 3:Pricetheservicewhichisbeingconsideredforoutsourcing,takingthecoststhatwillbeshiftedtotheprivateoperator.Pricetheserviceonthebasisoftheservicebeingdone in-house.TheULB/serviceauthoritywillhavetoassumea levelofoperationstopricethevariablecosts,whilethefixedcostscanbetakenastheyare.

Step 4:estimatethepricefortheofferingsoftheprivatesector.Iftheestimatedpricefortheprivatesectorofferingislowerthanthecostcalculatedforthegovernmentservice,thePPParrangementcanbeconsideredforfurtheraction.

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6. Financial Viability AnalysisThe financial viability assessmentundertakenwoulddeterminewhether theproposedwater supply and sanitation project offers enough investment returns such that it isattractiveenough for theprivate sector.The returnsexpectedon theprojectwouldbethekeyindicatortotheULB/Stateagencyregardingthecommercialviabilityoftheproject.Once,ithasbeenclearlyestablishedthattheproposedprojectoffersreturnsthat are adequate to attract aprivatedeveloper to theproject theULB/State agencywouldhave todecidewhether theproject is tobe takenup through the route.ThefollowingsectionofthistoolkitwoulddiscussthekeyparameterswhichtheULB/Stateagencyneedstoconsiderbeforeafinaldecisionontheinvolvementoftheprivatesectorfortheprojectismade.

6.1 Rationale for PPPThechoiceofoptingforaPPP-basedrouteforexecutionoftheidentifiedprojectwouldbedependantonasetofkeyparameters.Theseparameters justify theuseofPPPs increationofanassetinthewatersupplyandsanitationsector.TheseparametersmaybetermedastherationaleforPPP.ToestablishtherationaleforPPP,theULB/Stateagencywouldneedtoassesstheprojectonthebasisofthefollowingindicators.

6.1.1 Resource constraint in the way of public sector providing the service

TheULB/Stateagencywillneedtoassesswhetherthereareanyconstraintsbeingcurrentlyfacedwhichhinderinefficientserviceprovisioning.Theseconstraintscanbeintheareasofcapabilitiesoftheexistingworkforce,costrecovery,inaccessibilityofbettertechnology,

1. What are the resources that are required for creation of the asset/providing the service

List all the areas of operation, the costs involved, the recoveries made against the costs, the effi ciency levels, etc.

2. Are there any constraints for the ULB/State agency in arranging all the resources itself?

Defi ne the constraint if any in the provision of any or all the above resources

3. What is the nature of the constraint? Determine whether the constraint a statutory constraint, a budget constraint, management capability constraint, constraint of available skills.

4. Can the constraint be removed? Examine the possibility of removing the constraint and removal of the constraint which would require legislative changes.

CONSTRAINT ASSESSMENT IN WAY OF PUBLIC SECTORTable 9

Step2

Choosing Between Public Funding and PPP


limitedresources,etc.TheULB/Stateagencywillneedtoassesswhethertheseconstraintscanberemovedinternallybyit.AnindicativesetofconstraintsisprovidedinTable9.

If these constraints cannot be removed by the ULB/State agency internally, then theargumentsupportingtheinvolvementoftheprivatesectorthroughPPPcanbeinitiated.Itistobethendeterminedwhetherprivatesectorsupportwouldbeessentialinfacilitatingefficientservicedelivery.

Ifitisclearlyestablishedthatprivatesectorassistancewouldbenecessary,thenthePPPoptioncanbefurtherexploredbytheULB/Stateagency.Inthiscontext,thesetofcriticalquestionsatTable10wouldneedtobeanswered.

6.1.2 Ability of the private developer to create the asset and provide the service

Anassessmentneedstobeundertakentofindoutwhethertheprivatesectorhasthecapabilitytoinnovateandprovideanefficientservice.Onlyiftheprivatesector,whetherdomesticorinternational,hasthetechnicalskillandmanagementcapacitytoperformtheservicethattheULB/StateagencyintendstocarryoutthroughPPP,shouldPPPcontractsbeexplored.Inthiscontext,thefollowingsetofquestionsmaybedeliberateduponbytheULB/Stateagency:

6.1.3 Effi ciency in managing the overall costs

Oneofthecriticalparameterswhichneedtobeassessed isregardingtheefficiency inmanaging the overall costs which are involved in the development and operation andmaintenanceof thewater supply and sanitation services.TheULB/State agencywouldneedtoundertakeananalysisofwhetherthereisscopeforsavingsincostsincurredindevelopingandprovisioningoftheserviceiftheprivatesectoris involvedinthesame.Fordoingso,theULB/Stateagencywouldneedtofirstassessthetotalcostswhichareinvolved.Thiscanbederivedfromthefinancialanalysiswhichhasalreadybeencarriedouttodeterminethefinancialviabilityoftheproject.Thecosttobeconsideredhereisthetotaloperationandmaintenancecostthatisrequiredtobeincurredforprovisioningofwatersupplyandsanitationservices.

ThetotalO&Mcostsoobtainedneedstobecomparedwiththecostwhichtheprivatedeveloperwouldincurforoperatingandmanagingthesamesetofwatersupplyandsanitationservices.Thiscomparisonwouldbemadeoncethefinancialmodelpreparedin thepreceding task is refinedaccording to thesuitablePPPmodel.ThatexercisewouldgeneratetheservicecostsforthePPParrangementforcomparisonwiththepublicsectorcostscalculatedearlier.Dependingupontheoutputoftheanalysisitcan

1. Does the ULB recognize that external expertise is essential for competent and effi cient management of services?

Clearly established that the private sector would be able to manage and provide the water supply and sanitation services better

2. What are the capabilities within the ULB for O&M, procurement or fi nancial management?

List the internal skills available with the ULB/State agency in the area of everyday operations and management of an infrastructure, fi nancial management, accounting skills, procurement handling etc. Based on the list identify the existing gaps

3. What are the private sectors strengths which the ULB is proposing to explore?

Establish coupes that the private developer be able to operate the system better by use of better technology, or system understanding

Table 10CRITICAL QUESTIONS FOR EXPLORING PPP OPTION

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bedecidedastowhetherthecostsavingsundertheprivatedeveloperaresubstantialornot.SomeofthekeypointsorquestionswhichneedtobeconsideredthereinareasindicatedatTable11.

6.1.4 Overall level of competition in the market

It isdesirable from theperspectiveof theULB/State agency that there are substantialnumber of private developers in the market who have the skills and the financialwherewithaltoprovidethewatersupplyandsanitationservicesefficiently.TheexistenceofmultipleplayersinthemarketputstheULB/Stateagencyinabetterpositionintermsofaskingforthebestoftechnicalandoperationalexpertisefromtheprivatesectortoprovidetheservicesidentified.Inthiscontext,theULB/Stateagencywouldhavetoalsoundertake an assessmentof themarket todetermine theextent, number and typeofprivatesectorplayerswhoarecurrentlyengagedinthecreationofthewatersupplyandsanitationservicesandarealsoinapositiontooperateandmanagetheservices.Havingadequatecompetitioninthemarketwouldalsohelpinobtainingcompetitivequotesforthecontract.InthiscontextsomeofthekeyquestionswhichneedtobelookedintoareindicatedatTable12.

6.2 Pre-requisites for PPP

6.2.1 Extent of public and political support

TheULB/Stateagencywouldbeabletotakeafinaldecisiononwhetherprivatesectorparticipation is required for the provisioning of water supply and sanitation servicesbased on the general views of the public and the support extended by the politicalrepresentatives. Given the fact that the provision of the water supply and sanitationserviceshastraditionallybeenthedomainofthepublicsector,theinclusionofprivatesectorinthesameisasensitivematter.TheULB/Stateagencywould,therefore,havetonecessarilyconsultthevariousstakeholderswhoaredirectlyorindirectlyrelatedto

1. Are the costs for public service known? Calculate the cost of public service to enable its comparison with the cost of the private sector.

Ascutain the availability of with the ULB the accounting information to determine whether private sector participation would offer service delivery at equivalent or lower costs?

2. Is there scope for the private developer to innovate and improve the effi ciencies of operation?

Decide wether the private developer would be allowed to bring in innovations in service provisioning.

3. Would the innovations identifi ed be able to bring down the current O&M costs substantially or are the saving going to be marginal in nature?

Undertake strategic planning and could feasibility studies to benchmark whether the price or technology offered by the private sector would result in savings.

KEY QUESTIONS RELATING TO MANAGING COSTSTable 11

1. What is the potential capacity and strength of the market?

List the number of private players who have the experience in providing the identifi ed set of services.

2. Is the private sector adequately developed so as to ensure competition among private fi rms?

Assess the experience of the private players who are currently engaged in the provision of water supply and sanitation services.

Also undertake a review of the quality of work being provided at various locations.

ASSESSMENT OF LEVEL OF COMPETITION IN THE MARKETTable 12


theprovisioningofwater supply and sanitation services provided.Adetailed processofconsultationwouldbenecessarywith theendconsumersand themembersof theMunicipalCouncilsorCorporationtocreateawarenessregardingtheproposedchangeinhandinprovisionoftheservice,andintheinteractionssoheld,theconcernsofthestakeholderswouldneedtobegaugedwell.

ForthePPPoptiontobeimplementedsuccessfully,itisimportantthatthereisconsensusamongthegeneralpublicandthepoliticalrepresentativesregardingcontractingoutofthecreationandprovisionofservicetotheprivatedeveloper.

6.2.2 Legal capacity of ULB/State agency to contract out

Inadditiontoconsiderationofthefactorsofefficiencyinoperation,savingsincostsetc,itisimportanttoassessandensurewhethertheULB/StateagencyhastherighttoappointaprivatepartythroughaPPPcontractincludingconcessionsforprovidingaserviceforwhichithasthelegalmandate.TheULB/Stateagencyneedstobeclearaboutthelegalcontextinwhichprivatesectorparticipationispossible.Additionally,itneedstoassessiftherearesomeapprovalsrequiredfromsomehigherauthoritiestobeabletoinvolveaprivatepartyinprovisionofwatersupplyandsanitationservices.The ULB will also assess whether there is a need for an enabling provision in theauthority’sbye-lawsorotherlegislationstoprovideanenvironmentsuitableforPPParrangements,asprovidedatTable13.

6.3 Making the ChoiceThefinaldecisiontoundertaketheexecutionoftheprojectthroughthepublic-fundedrouteorthroughPPParrangementswouldhavetobetakenafterconsideringthefollowingpoints.

Assesswhethertheprojectedreturnsfromtheproposedinvestmentareattractiveenoughforaprivateentitytoenterintoacontractualrelationship.Iftheprojectreturns are attractive, then theprojectwouldbe suitable for considerationofexecutionthroughPPP.

AssesswhetherthepolicyandadministrativeenvironmentissuitableforPPPornot,whethertheprivatesectoriscapableofprovidingtheservicethatisintendedandwhetherinvolvingtheprivatesectorwillgeneratesavingsintheservicecost.

Assess the degree of acceptance among all the key stakeholders regardingthe likely decision. Stakeholders shall include prospective users, employees

1. Does the ULB have the right to award concessions or enter into contractual license agreements with the private sector to essentially deliver municipal services?

Contain the right of the ULB to outsource provisioning of water supply and sanitation services to a private developer.

2. What are the statutory permissions it needs to do so? Ascertain all the permissions, approvals, and relating procedures which may be needed to facilitate inclusion of private developer in provision of water supply and sanitation services..

3. What are the enabling provisions or amendments in the existing legal framework that would be necessary to make such arrangements enforceable?

If the existing legal framework does not permit inclusion of private developer in provision of water supply and sanitation services, determine wheter amendments possible to facilitate private sector participation.

ASSESSING LEGAL CAPACITY OF ULB/STATE AGENCY TO CONTRACT Table 13

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of the ULB/State agency currently managing the service (if any), and publicrepresentatives. Concerns of these stakeholders should be addressed beforetakingthefinaldecision.

Afterhavingundertaken theabove steps, theULB/Stateagencywouldneed to finalisethechoiceof theexecutionmethodology-public fundingorPPP.The finaldecisionwillbeinfluenced,inadditiontotheaboveparameters,bythepublicpolicymandateoftheULB/Stateagency.Thefinaldecisionshouldbedocumentedalongwithitsrationaleforthesubsequentprocedure.


7. Approach AdoptedHaving decided that the ULB/State agency would develop the project on a PPP basis,thenextstepwouldbetoidentifytheappropriatePPPstructure.Thisshallinvolvethefollowingactivities:

IdentificationofalltherisksassociatedwiththeprojectAllocationofrisksbetweentheprivatedeveloperandtheULB/StateagencyIdentificationofasetofappropriatePPPcontractoptionsIdentificationofthePPPcontractstructuremostsuitable

The above mentioned activities have been discussed in greater detail in the followingsections.

7.1 Identifi cation of RisksAcomponentcriticaltoanyPPPstructureistherisksinvolvedinthedevelopmentoftheproject.SuccessfulimplementationofaPPPcontractis,therefore,dependantonhowtherisksassociatedwiththeprojectareallocated.Beforetherisksareallocated,itisimportantthattheserisksbeidentified.Hence,asasteptowardsmakingachoiceaboutthePPPoptiontobeimplemented;alltherisksassociatedwiththeprojectaretobelisteddown.AnillustrativelistofrisksassociatedwithaprojectanditsconsequencesispresentedinTable14.

Thelistofriskspresentedaboveisgenericandindicativeinnature.Asmentionedearlier,thedetailedproject-specificriskswouldhavetobeidentifiedanddetailedoutinadditiontotheoneslistedabovebytheULB/Stateagency.Itisimportantthatthelistismadeasexhaustiveaspossible.

7.2 Allocation of RisksBalanced allocation of all the risks identified plays a critical role in the successfulimplementationofanyPPPstructure.Inthiscontext,thegeneralprinciplegoverningrisktransferisthateachriskshouldbeallocatedtowhoeverisbestabletomanageitatleastcost,takingintoaccountpublicinterestconsiderations.Therefore,anoptimalratherthanamaximumtransferofriskneedstobeundertaken.

Theimportantfactorstobeconsideredduringriskallocationinclude:Thenatureoftheproject

2. The respective strengths and ability of each party to manage a risk (this maychangeovertimeaseachparty’sriskmitigationskillsimprove)

1.

Step3

Choosing the PPP Structure

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RISK CATEGORY

DESCRIPTION OF RISK DIRECT CONSEQUENCE

Commissioning risk

The risk that the infrastructure will not receive all approvals to satisfy an output specifi cation, such as expected changes in legislation which allow for a specifi c output specifi cation not materialising

Additional ramp-up costs, cost of maintaining existing infrastructure or providing a temporary alternative solution where this leads to a delay in the provision of the service

Construction risk The risk that the construction of the assets required for the project will not be completed on time, within the budget or to specifi cation

Additional raw materials and labour costs, cost of maintaining existing infrastructure or providing a temporary alternative solution where this leads to a delay in the provision of the service

Demand (usage) risk

The risk that the actual demand for a service is lower than planned

Reduced revenue

Design risk The risk that the proposed design will be unable to meet the performance and service requirements in the output specifi cations

Cost of modifi cation, redesign costs

Environmental risk The risks that the project could have an adverse environmental impact which affects project costs not foreseen in the environmental impact assessment

Additional costs incurred to rectify an adverse environmental impact on the project, incurred from the construction or operation of the project or pre-existing environmental contamination

Financial risk The risk that the private sector over-stresses a project through inappropriate fi nancial structuring

Additional funding costs for increased margins or unexpected refi nancing costs

Force majeure risk An act occasioned by an unanticipated, unnatural or natural disaster such as war, earthquake or fl ood of such magnitude that it delays or destroys the project and cannot be mitigated

Additional costs to rectify

Industrial relations risk

The risk that industrial relations issues will adversely affect construction costs, timetable and service delivery

Increased employee costs, lost revenue or additional expenditure during delay in construction or service provision (post-construction)

Latent defect risk The risk that an inherent defect exists in the structure being built or equipment used, which is not identifi ed upfront and which will inhibit provision of the required service

Cost of new equipment or modifi cation to existing infrastructure

Operating risk (service under-performance)

The risks associated with the daily operation of the project, including an unexpected change in operating costs over budget

Increased operating costs or reduced revenue over the project term

Performance risk The risk that the operator will not perform to the specifi ed service level, such as the Water Resources Department permitting off-take of less than required demand

Cost of failing to comply with performance standards

Change in law risk The risk that the current regulatory regime will change materially over the project or produce unexpected results

Cost of complying with new regulations

Residual value risk The risk relating to differences from the expected realisable value of the underlying assets at the end of the project

Lower realisable value for underlying assets at the end of the project term

Technology obsolescence risk

The risk that the technology used will be unexpectedly superseded during the term of the project and will not be able to satisfy the requirements in the output specifi cation

Cost of replacement technology

Upgrade risk The risks associated with the need for upgrading the assets over the term of the project to meet performance requirements

Additional capital costs required to maintain specifi ed service

GENERIC RISK CATEGORIESTable 14


3. Flexibilityoftheoutputspecification(whetheranyconstraintsexistwhichinfluencethemethodformanagingrisk)

4. Previous levels of risk transfer (this indicates the historical success of eachpartyinmanagingparticularrisksandthepotentialabilitytomanagerisksinthefuture)

5. Prevailingmarketattitudestowardsrisk

6. Publicinterestfactors

7. Otherpolicyconsiderations

8. externalenvironment,economicscenario,riskappetiteofforeigninstitutions

Once the risks have been identified, and allocated appropriately, the next activity tobe undertaken is developing the probable risk mitigation strategies. Risk mitigationstrategies are developedwith the intentionof reducing each party’s exposure to therisk.Simultaneously,itinherentlyincreasesthelikelihoodofachieving(orbettering)theproject’sbasecasescenario.Anindicativelistofriskmitigationstrategiesormeasuresfor both the ULB/State agency and the private developer has been presented in thefollowingfigure10.

It is recommended here that in addition to identification of risks, its allocation anddevelopmentofmitigationmeasures,theULB/Stateagencyalsodevelopadisputeresolutionmechanism. Once the project implementation begins with the private developer, it isnecessarytoensurethataregulatorybodybeformedwhichwouldformallylookintothedisputesthatmightariseduringtheconcessionperiod.

7.3 Selection of possible PPP structuresTheactivitiesandthestepstakensofarhavecreatedthecontextforimplementationofaPPP-basedmodelforthedevelopmentoftheproposedproject.ThenextstageinthisprocessistodeterminewhichofthePPPstructuresisbestsuitabletoaddresstheneedsof theproposedproject.FivesuchpossiblePPPstructureshavebeendiscussed in thesectionsbelow.ItistobenotedherethatthesestructureshavebeenpreparedbasedonthesuccessfulPPPstructuresimplementedinthecountry.

RISK MITIGATION MEASURES FOR THE ULB/STATE AGENCY AND THE PRIVATE DEVELOPER Figure 10

ULB/Sate Agency Private Developer

Preparation of comprehensive documentsInsurance

Correct and appropriate bid process

Financial Market instruments

Reduce possibility of scope roll back

Diversification of project portfolioContingency Plan

Insurance Arrange for a pass through

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7.3.1 Performance-Based Management Contract

The performance-based management contract is one where the private developer isrequired to undertake the activity of operation and maintenance of the entire watersupplysystemfromsourcetotheconsumerendincludingmetering,billingandcollectionof revenues. If sanitation services are tobealso includedaspartof thePPPcontract,then the operation and management of the sanitation services would also have to bemanagedbytheprivateoperator.Asperthiscontract,allthemajorcapitalcostswhicharerequiredforimprovingtheservice,betheyforservicelevelaugmentation,expansionetc would have to be borne by the ULB/State agency. Under this PPP structure, theprivatedeveloperisgiventherightstolevytheuserchargessetbytheULB,collectthecharges.Asperthefinancial feasibility,theprivatedevelopermaybegiventherighttoretain the revenues againstpaymentof a fixed license fee to theULB/State agency. Inothercases,theprivatedevelopermayberequiredtohandovertherevenuescollectedtotheULB/Stateagencyandinreturnforactivitiesundertakenwillbepaidanoperator’sfeebytheULB/Stateagency.IftheULB/Stateagencyintendstoimplementaperformancebasedmanagementcontractforitswatersupplyandsanitationservices, it is importantthatitshouldhaveundertakenawaterandenergyaudit.Sincetheperformancecriteriafortheprivatedeveloperwouldbedefinedonthebasisoftheexistingscenarioofthewatersupplyandsanitationservices,itisimportantthatthewaterandenergyauditbeundertakenonaprioritybasis.TheoutputfromtheauditsoundertakenwouldhelptheULBidentifytheareasofoperationalimprovementwhichwouldberequired.Theprivatedeveloperwouldalsoon thebasisof theresultsof theaudit gauge theactual leveloftheservicesonground.TheULB/Stateagencyshouldthendefinerequiredperformancetargetsfortheprivatedeveloper.

7.3.2 Concession agreement for water supply and sanitation services

AconcessionagreementforwatersupplyandsanitationservicesisaPPPcontractwhereintheprivatedeveloperwouldberequiredtoundertakeinvestmentsforcreationofassetsinthewatersupplyandsanitationvaluechainandwouldalsoberequiredtoundertaketheoperationandmaintenanceoftheentiresystemfortheperiodoftheconcession.Asperthisconcessionagreement,theprivatedeveloperwouldberequiredtodesign,finance,construct,operateandmanagethewatersupplyandsanitationservicesfortheconcessionperiod.Thecapitalinvestmentrequiredforundertakingtheaugmentationworkswouldbemetwhollyorpartlybytheprivatedeveloper.Additionally,alloperationalexpensesformanagingthewatersupply/sanitationservicessuchaselectricitycharges,bulkwatercharges,establishmentexpenses,andrepairandmaintenance,wouldhavetobebornebytheprivatedeveloper.Theprivatedeveloperwouldrecovertheinvestmentsmadebywayofcollectionandretainuserchargesleviedonconsumers.Anychangetothetariff,therateofescalations,etc.wouldbedeterminedbytheULB.Typically,thetenureofsuchacontractrangesfromfifteentothirtyyearsandisdependantonthefinancialfeasibilityoftheproposedproject.

7.3.3 Concession agreement for construction, operation and maintenance of bulk water supply system

Theconcessionagreementfortheconstruction,operationandmaintenanceofthebulkwatersupplysystemisatypicalPPPstructureundertheDesignBuildOwnOperateandTransfer (DBOOT)model.Asper this structure, theprivatedeveloper is required toconstructthebulksupplyinfrastructuresoastoprovidetreatedwateruptothepoint


of the storage reservoir. From the point of the storage reservoir to the distributionnetworkup till theconsumerend, thewatersupplyresponsibility restswith theULB.Thecapital investmentrequiredfortheaugmentationworksneedstobebornebytheprivatedeveloper.Theoperationandmanagementoftheseassetsduringtheconcessionperiodrestswiththeprivatedeveloper.Therefore,alltheassociatedoperatingexpensesincludingthepurchaseofbulkwater,paymentofelectricitycharges,chemicalsforwatertreatment,andestablishmentexpensesincludinglabourchargesaretheresponsibilityoftheprivatedeveloper.

Forthetreatedwaterproduced,theprivatedeveloperispaidawaterchargebytheULB.Thetypicaltenureofthiscontractistwentytothirtyyears.

7.3.4 Concession agreement for construction, operation and management of the distribution system

Asper this formof concession agreement, thedesign and financeof the identifiedaugmentation works would be undertaken through a 100% capital grant from thegovernment.Asperthecontract,theprivatedeveloperisrequiredtofirstundertaketheconstruction/rehabilitationworksfortheidentifiedsectionofthewatersystem,and further to the construction activity, undertake theoperation andmaintenanceof the entire water supply system. The private developer would get full capitalreimbursementfromtheULBoranyothergovernmentagencyfortherehabilitationworksundertaken.Oncetheconstructionactivityiscomplete,theprivatedeveloperalone is responsible for theoperation andmaintenanceof the entirewater supplysystem, including the supply of treated water to all the connections, installationof meters, generation of bills, and collection of revenues. Any major expansionactivitywhichmayberequiredtotheexistinginfrastructurewouldhavetobebornebytheULB.

AsetofperformancetargetswouldbesetbytheStatenodalagencyorbytheULBsintheclusterfortheoperationandmaintenanceactivity.FortheO&Mactivityundertakenbytheprivatedeveloper,anoperatorfeeispaidbytheULBsortheStatenodalagencyfortheperiodofthecontractbasedontheachievementofperformancestandards.Thetenureofsuchcontractscanrangebetweenfivetotenyears.

7.4 Concession agreement for development of the bulk water supply system and operation and maintenance of the entire system

The concession agreement for the development of the bulk water supply systemincluding theoperationandmaintenanceof theentirewatersupplysystem isaPPPstructuredevelopedonaBOTbasis.Asper the concession agreement, theprivatedeveloperisrequiredtoundertaketheconstructionofthebulkwatersupplysystemincluding the raw water off-take system, raw water transmission lines and watertreatmentplant.Theprivatedeveloperwillalsoberesponsiblefortheoperationandmanagementofthewatersupplysystemfromsourcetotheendconsumer.Theprivatedeveloperisgiventherighttolevyandcollectrevenuesfromtheconsumersfortheactivitiesundertaken,andretainthesame.TheprivatedeveloperisrequiredtomakeafixedmonthlypaymentaslicensefeetotheULBfortherighttooperatetheexistingwatersupplyassetsandtheentiresystem.Thetypicalconcessionperiodwouldrangefromtwentytothirtyyears.

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7.5 Service management contract: Metering, Billing and Collection

Undertheservicemanagementcontractformetering,billingandcollection,theprivatedeveloperwouldberequiredtoundertakeinvestmentsforinstallationofmetersattheconsumerend,overseetheiroperationandmaintenance,maintainacomputerizeddatarecordingsystem,generatebillsandcollectuserchargesfromtheconsumers.Theprivatedeveloperwouldnotberequiredtoundertakeanyotheractivityintheentirechainofwatersupplyservices.Thetypeofmetertobeinstalledandthenumberofconnectionswhere the meter is to be installed would be specified by the ULB/State agency. ThetarifftobeleviedwouldalsobedeterminedbytheULB/Stateagency.TheperformancestandardslaidoutbytheULB/Stateagencywouldspecifytherevenuecollectionstargettobeachieved,theextentofmeterfunctionallevelswhichneedtobemaintained,etc.Thecostofpurchaseofthemeterandthe installationofthesamewouldbegenerallyrecovered by the private developer from the consumers as part of the water supplyservicebills.Thisrecoveryisgenerallyintheformofinstalments.

Fortheoperationandmaintenanceactivityundertakenbytheprivatedeveloper,afixedannuitypaymentismadebytheULB/Stateagency.Thisannuityamountwouldgenerallybethebiddingparameter.

7.6 Preparatory documents and activities required to be undertaken

BeforeanyPPPcontractisimplemented,itisnecessarythatULB/Stateagencyonitspartundertakessomeimportantsetofactivitiesandmakesavailablesomecriticaldocumentstotheprivatedeveloper.AlistofthesamehasbeenindicatedatTable15.

Sl. No DOCUMENTS ACTIVITIES

1 Contract/Agreement document

Raw bulk water purchase contract with Water resource department for water source supply from--riverPower purchase agreement with the--Electricity Board for supplying power to the water supply system and the proposed tariff details

2. Site and asset information

Contour Maps, Network maps and Network survey on a GIS platformAsset Inventory with technical specifi cationSite details in terms of land area, assets there in etc Number and type of water supply connectionsNumber and type of bulk meters

3. Reports Water AuditLeak DetectionEnergy AuditWater quality standardsConsumer studyWater demand projectionCapital investment plan

4. User Charges Tariff levels, escalation rate and scheduleConnection ChargesElectricity charges escalation rate and schedulePenalties

5. Manuals Construction guidelines, debris disposal guidelinesWaste disposal guidelinesEnvironmental regulationsQuality control guidelines

LIST OF DOCUMENTS AND ACTIVITIES TO BE ARRANGED BY THE ULB/STATE AGENCYTable 15


7.7 Matching of PPP Structures with the Value Chain and Prioritised Projects

SomeofthepossiblePPPoptionshavebeendiscussedinthesectionsabove.Inadditiontothese,theremaybeotherPPPstructureswhichmaybedevelopedtosuitthespecificproject requirementsof theULB/State agency.TheULB/State agencyhaving identifiedtheprojectswhicharetobeimplementedandthevaluechainforwhichtheyarebestsuited,wouldnextneedtothereviewthePPPalternativeswiththeprojectrequirementsinordertodeterminethebestsuitedPPPoption.TheULB/Stateagencywouldneedtoclearlyunderstandtheprojectrequirementsacrossthevaluechainofwatersupplyandsanitationservices,andreviewtheseinthecontextofthepossiblePPPoptions.TheULB/StateagencythenneedstoidentifythatPPPoptionfromamongthesuitablestructureswhichwouldfullyaddresstheprojectrequirements.AnindicativePPPstructurematrixalongwithdifferentstatusoftheexistingvaluechainofserviceshasbeenrepresentedinthefollowingtable.

Parameters Concession agreement

for Integrated

water supply system

Performance management agreement for O&M of entire

water supply services

Service agreement

for only Metering

Billing and Collection

Concession agreement

for bulk supply system


for distribution

system

Low bulk water supplyHigh raw water transmission lossInadequate capacity of WTPObsolete WTPHigh WTP operational lossesLow distribution network coverageLow metering Low O&M recoveriesHigh investment need

Low bulk water supplyHigh raw water transmission lossInadequate capacity of WTPObsolete WTPHigh WTP operational lossesHigh investment need for bulk supply and WTPSatisfactory distribution network operation

PPP MATRIX IN CONTEXT OF THE VALUE CHAIN Table 16

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Parameters Concession agreement

for Integrated

water supply system

Performance management agreement for O&M of entire

water supply services

Service agreement

for only Metering

Billing and Collection


for bulk supply system


for distribution

system

Adequate bulk water supplyModerate raw water transmission lossesAdequate WTP capacity; low lossesLow distribution network coverageHigh distribution lossesLow metering High investment need for improvisation of distribution network

Adequate bulk water supply; Moderate raw water transmission lossAdequate WTP capacity; low lossesHigh distribution network lossesUntimely repairs and maintenance of distribution networkMinimum coverage of meters/No metersLow O&M recoveriesNo investment need

Adequate bulk water supplyLow transmission lossesAdequate WTP capacity; low lossesHigh distribution network coverageMinimum coverage of meters/No metersLow collection effi ciency

BasedontheassessmentthebestsuitedPPParrangementwouldhavetobefinalisedbytheULB/Stateagency.


8. Approach AdoptedThe final stage in the entire activity of developing and implementing a project in thewatersupplyandsanitationsectoronaPPPbasisisthephaseofprocurement.Adetailedimplementationplanforthecontractualstructureneedstobeprepared,whichincludesclearandprecisedefinitionsofthescopeofworkandtherolesandresponsibilitiesofthetwocontractingparties-ULB/Stateagencyandtheprivatedeveloper.Thisistermedasthetransactionstructure.Thefinancialmodelpreparedfortheprojectwouldthenberefinedaspertherequirementsofthefinancialstructure.Basedonthetransactionstructure,thecontractforthePPParrangementwouldneedtobedrawnup.Finally,theprocurementplanwillbefinalisedandputintooperation.

8.1 Transaction StructureThe stage of drafting of a PPP contract would be preceded by one where a detailedtransactionstructureispreparedbytheULB/Stateagency.Theimplementationstructurewoulddefinethecontextofdealings,andtherelationshipbetweentheprivatedeveloperandtheULB/Stateagency.Whensuchastructureisprepared,itisnecessarytoensurethatitisdefined,keepinginmindthefollowingconsiderations:

ThetransactionstructureshouldbewithinthedefinitionofthelegalandpublicmandateoftheULB/Stateagency.Inotherwords,theimplementationstructureshouldnotdilutethelegalresponsibilityoftheULB/Stateagency.

The transaction structure shouldbe responsive to the interestsof theprivatesectorandshouldpromotecompetitionwithintheprivatesector.

Thetransactionstructureshouldallocatetherisksandresponsibilitiestoensurethatthepartywhichiscapableofmanagingparticularrisksandresponsibilitiesisentrustedwiththose.

Thetransactionstructurewouldbe legally formalised inthe formofthePPPcontract.Underthetransactionstructure,thefollowinginformationwouldhavetobeprovided

Thepartiesinvolvedinthecontract

Thecontractualrelationshipbetweentheparties

Thenatureoftheagreement

Thekeyrisksandtheirallocation

Tariff

Step4

Procurement

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Governmentcommitment

Durationofcontract

Performanceindicators

Paymentterms

Awardcriteria

Contractmanagementstrategy

Theabovementionedkeypointsofthetransactionstructurehavebeenfurtherelaborateduponinthefollowingsections.

8.1.1 Defi ning the parties involved in the contract

Thetransactionstructurewouldclearlyidentifyanddefinethepartieswhoareinvolvedintheproposedcontractualagreement.Forinstance,inthewatersupplyandsanitationservices, typically a contractual agreement would involve a competent authority, ULB(MunicipalCorporation/Council),customer,developer/privatedeveloper,sub-contractor,etc.Thelistofpartiesisonlyindicativeandwouldvaryacrossthevariouscontracts.

Stating the contractual relationship between the parties involved

The transaction structurewouldhave tonecessarily State the contractual relationshipbetweentheparties involved.Thecontractualrelationshipwouldbe largelydefinedonthefollowingtwogrounds:

1. Services/activitiestobeundertakenbyboththeparties

2. Paymentswhichwouldbemadefortheservices

ItshouldclearlyStateastowhichofthepartiesisundertakingwhatactivityinthewatersupply and sanitation service value chain. For instance, in a performance managementcontractforoperationandmaintenanceofthewatersupplyservices,itshouldbeclearlystatedastowhethertheULB/StateagencyisresponsibleforthepurchaseofrawbulkwaterfromtheWaterResourcesDepartmentandprovideitatnocosttotheprivatedeveloperfortreatmentanddistribution,oriftheprivatedeveloperwouldalsohavetobeartheexpensesonthepurchaseofthebulkwater.Similarly,eachoftheactivitiesinthevaluechainneedstobemappedandresponsibilitiesamongthepartiesclearlymentionedinthetransactionstructure.

The contractual relationship would also have to be defined in terms of the paymentarrangementsbetweenthetwoparties.Forinstance,asperthestructure,itneedstobestated,iftheULB/Stateagencyisrequiredtomakeanypaymenttotheprivatedeveloperfor the activities entrusted upon the latter or if the private developer is required tomakeafixedlicensefeepaymenttotheULB/Stateagencyorifthereisarevenue-sharingarrangementbetweentheparties,etc.

8.1.2 State the nature or type of the contractual agreement

ThetransactionstructurewouldneedtoStatethetypeofagreementbeingdeveloped,viz., if it’s a concession agreement or a performance-based management agreementor if it is a service contract, etc. From the analysis and activities undertaken in thepreviousstages,itwouldbeclearastowhattypeofPPPcontractisbeingproposed.Thesameshouldbestatedwithabroadexplanationofthecontract,andabriefontheactivitiesinvolved.


8.1.3 State the key commercial risk and its allocation

Withreferencetowatersupplyandsanitationservices,thepossiblesetofkeyriskshasalreadybeendiscussed.However,thecommercialrisksfacingtheprojectmaybeexplicitlystatedaspartofthetransactionstructure.Forinstance,inaconcessionagreementfordevelopment of water supply services and operation and management agreement, thecommercialriskmaybethecollectionofrevenueriskthattheprivatedeveloperwouldhave tobear. It ispossible that someof thecustomersmay refuse topay theprivatedeveloper for thewater suppliedby the latter. Such a scenariowould result in lesserrevenuerealisationsthanthatestimatedbytheprivatedeveloperandwouldgiverisetoproblemsinthesmoothoperationofservices.Anothertypeofrevenueriskisassociatedwiththeprojecteddemandforwatersupplyservicesinagreenfieldproject.Iftheactualdemandforthewatersupplyservicesissignificantlylesserthanthatestimated,thiswouldagainposeahugeriskintheoperationsoftheservices.Hence,thecommercialrisksontheprojectshouldbestatedinthetransactionstructure.

8.1.4 Set the tariff to be levied

Variousapproachesfortariffsettingexist.TariffsareperhapsthemostpoliticallysensitiveaspectofaPPPcontract,particularlyforwatersupplyservices.ItisimportanttoensurethatthetariffbesetbyULBisdeterminedafteracompleteunderstandingofcostswhichare incurred to provide that service have been assessed. The structure of the tariffshouldbemadetransparentsuchthatthecrosssubsidiesprovidedtousersareclearlyknown.TheULB/Stateagencyshouldaccount for the followingconsiderationsbeforedefiningthetariff:

State of competition:Wheremarketcompetitionfortheserviceisstrong,theprivatesectorisusuallygivenconsiderablescopetosettheirowntariffs,althoughtheymaybesubjecttoutilityrateregulations.Wheresomedegreeofmonopolypowerexists,tariffstendtoberegulatedandwherethegovernmentsetsthem,mechanismsforchangesmustbeclearlyarranged.

Public acceptance of PPP:WherePPPshavebeeninexistenceforasubstantialperiodoftimeandtheusersacceptitandarecomfortablewithit,itiseasiertodelegatetherightofdefiningfarestotheprivatesector.ItwillbedifficulttodothatinascenariowherethepublicauthorityisinatransitionphaseofmovingtowardsPPPfromtraditionalpublicprocurement.

Social objectives:WheretheULB/Stateagencywantstoprotecttheweakersectionsofthesocietyfromcompletelymarket-basedtariffs, it isdesirablethat itretainstherighttodefinefares.Itistobenotedherethattheconsumersareinmostinstanceswillingtopayforimprovedlevelofwatersupplyservices.Anytariffchargedshouldbeinlinewiththequalityoftheservicedelivered.Anincreaseintariff levelswithoutacorrespondingimprovementinthewatersupplyserviceswouldnotbeacceptablebytheconsumers.

8.1.5 Government Commitment

The transaction structure should State the government’s commitment to the processof PPP-led project development. Support from government for the implementationofPPPprojects iscrucial inthe implementationandrunningoftheproject.ThepotentialprivatedevelopersarealwaysconcernedabouttheextentofpoliticalwillandsupporttothedevelopmentofaprojectonaPPPbasis,andthisareaisconsideredtobehighlysensitive.

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8.1.6 Performance Indicators/Parameters

The transactionstructurewouldhave toState inclear terms thevarious standardsofperformancewhichwouldbeapplicable to theprivatedeveloper.Thesewould largelyrelatetotheconstructionstandardswhichtheprivatedeveloperwouldhavetoadheretoandtheoperationandmaintenancestandardsforthewatersupplyandsanitationservicesduringthelifeofthecontractualagreement.Inaddition,thestandardoftheassetsatthetimeoftheirtransferbacktotheULB/Stateagencyshouldalsobementioned.

8.1.7 Payment terms

PaymentsinPPPcontractscanhappeneitherfromtheprivatedevelopertotheULBorviceversa.Forinstance,inacontractualagreement,theprivatedeveloperwouldpaytheULB/Stateagencyonabi-monthlybasisafixedlicensefeefortherightgiventotheformerforoperationandmaintenanceofthewatersupplyandsanitationservices.Similarly,inaserviceagreement,theULBwouldmakepaymentstotheprivatedevelopertoundertaketherequiredactivities.AsperthePPPcontractapplicabletoallthepayments,thetermsof payments and the mode of payments should be clearly specified in the transactionstructure.

8.1.8 Duration of the contract

Thetimeperiodforwhichthecontract isapplicablewouldhavetobespecified inthetransactiondocument.ThetimeperiodofthecontractgenerallyvariesdependinguponthetypeofPPPcontract.InPPPstructureswheretheprivatedeveloperisrequiredtoinvestandalsooperateandmanagetheservices,thetimespanofthecontractwouldbegenerallylonger.Here,itislargelyguidedbythetimeitwouldtaketheprivatedevelopertorecovertheinvestmentsmadebyhim/herontheproject.Forinstance,aPPPprojectwhichrequirestheprivatedevelopertoundertakeinvestmentsinthedevelopmentofaWTP,bulkwaterpipelinesandalsotakecareoftheoperationandmanagementoftheentiresystemfromsourcetodistributionendwouldgenerallyhavetenureof25-30years.Similarly,aPPPcontractwhich is inthenatureofamanagementcontractoraserviceagreementwouldtypicallybeofashorterduration.

8.1.9 Award Criteria

Theawardcriteriawouldneedtobespecifiedinadvanceofthebidding,alongwiththeirrelativeweight,sincethishelpspotentialbiddersunderstandtheselectionmechanismandreducestheriskofallegationsaboutcorruptgovernmentpractices.Thecriterialargelydeterminetheallocationofbenefitsbetweengovernmentsandconsumers.Forinstance,oneofthekeyawardcriteriainaPPPagreementforaperformance-basedmanagementcontractwouldbethehighestlicensefeesumagreedtobepaidbytheprivatedeveloperto the ULB/State agency for the right to operate and maintain the water supply andsanitationservices.IncaseswhereaVGF-basedgrantisbeingexploredsoastomaketheproposedprojectcommerciallyviable,theawardcriteriawouldbethelowestVGFgrantquoterequestedbytheprivatedeveloper.

8.2 Drafting the PPP contractThePPPcontractputstheimplementationstructureintoalegaldocumentthatcanbeenforced.Thecontractagreementisthemostimportantdocumentinthetransactionasitregulatesthetransactionduringitscompletetenure.Itdefinestherightsandobligations


ofthecontractingpartiesandthetermsandconditionsunderwhichtheobligationswouldbedischarged.Italsoregulatestheenforcementofthetermsandconditionsandspecifiestheconsequenceswhenacontractingpartydefaults.

ThePPPcontractwouldneedtobedraftedbytheULB/Stateagencybeforeit initiatestheprocurementprocessasduring theprocurementprocess, theprospectivebidderswouldneedtobemadeawareofthecontractconditionssubjecttowhichtheywouldberequiredtobid.Atypicalcontractwouldhavethefollowingcomponents:

Recitals

2. Definitionsandinterpretations

3. Rightsoftheparties

4. Considerationofthecontract

5. Commencementofoperations

6. Obligationsofthepartiestothecontract

7. Paymentmechanism

8. Performancemanagement

9. Defaultsandconsequencesofdefaults

10. Step-inandsubstitutionrights

11. Disputeresolution

12. Terminationofthecontract

8.3 Selection of the Procurement StrategyIt is critical that a transparent strategy which is suitable for the type of contractselected for the PPP arrangement. In this context, there are largely twoprocurementstrategieswhicharebroadlyfollowed,vizaCompetitiveProcurementstrategyoraSuomoto/unsolicitedstrategy.Abriefonthetwostrategiesisdiscussedbelow:

Competitive Procurement strategy: Competitive procurement strategiesare the most efficient strategy in case the contract size is large and it isexpectedthatthenumberofprospectivebidderswouldbelarge.Competitivestrategiesareseenasthepreferredprocurementstrategywhenthecontractingparty is initiating theprocurementprocess to identify theprivatepartner fora PPP arrangement. The generic competitive strategies include methods suchas International Competitive Bidding, National Competitive Bidding, LimitedCompetitiveBidding,andShopping(internationalordomesticmarkets).

Suo Moto/Unsolicited strategy:Inexceptionalcases,thecontractingpartymightnotfollowthecompetitivebiddingrouteforprocurementoftheprivateparty.Thealternateprocurementstrategiesarenotstrictlycompetitive;theymaybecompletelysuomotoasindirectcontractingortheymighthaveinducedcompetition.ThedifferentformsofthisstrategyincludeDirectContracting,SwissChallengeandMarginPreferenceprocurementstrategies.

The ULB depending on the specific need and on site situation select either ofthe procurement strategies discussed above. The procurement strategy selectedwouldhavetobeapprovedbytherelevantauthoritybeforeitcouldbeimplementedfurther.

1.

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8.4 Design of the procurement processSeveralalternativeprocurementprocessescanbeimplemented.Thefollowingschematicrepresentsthisrange.

The selection would be based on the matrix of criteria represented by the followingschematic.

ALTERNATIVE PROCUREMENT PROCESS STRATEGIESFigure 11

EliminationReceipt of EOI/ Issue RFQ

Consortium FormationShortlisting

Project ScopeContracts

Technical ProposalFinal Commercial Offer

Submission of Proposal


Submission of Proposal

Consortium FormationShortlisting


Receipt of RFQ/Issue RFP

Consortium FormationShort listing


Submission of ProposalIssue of RFP


EliminationIssue of RFQ

EOIIssue of EOI

Option 3(EOI + RFQ +

RFP)

Option 1(RFP)

Option 2(RFQ + RFP)

Sing

le S

tage

Mul

tiple

Sta

ge

Project Scope Contracts

Elimination

ALTERNATIVE PROCUREMENT PROCESS STRATEGIESFigure 12

Project scope is unambiguousExecution options well defined

Bidder universe is well-defined and limited

Bidder universe is well-defined Number of bidders is large and needs to be limitedConsiderable effort required bybidders to submit proposals

Number of bidders are large and needs to be limitedBidder profile needs sharpeningConsiderable effort required bybidders to submit proposals

Project characteristics Option 1(RFP)

Option 2(RFQ + RFP)

Bidders characteristics

Project Scope is ambiguous and requires extensive discussions

Project Scope is ambiguous and requires iterative discussions

Option 4(EOI +RFQ + RFP)


8.5 Managing the Procurement ProcessVarious alternative procurement processes may be pursued. Depending upon therequirementsandcharacteristicsoftheproject,thebestsuitableprocurementprocesscanbeselected.Inthefollowingsection,theprocessdiscussedisbasedonatwo-stage(RFQ-RFP)approach.Thesectionprovidesanoverviewoftheprocurementprocessandprovidesinformationonthebasicrequirementsforeachstage.

8.5.1 Undertake Pre Bid Activities

Review and update project information

OneofthebasicrequirementshereisthattheULB/Stateagencyshouldorganiseandputtogetheralltheproject-specificinformationwhichhasbeencollectedanddetailedoutintheearlierphases.Indoingso,thefollowingshouldbereviewedandanalysed:

Project definition, objective and scope:Asanintroductiontotheprocurementdocument, it is suggested that theoverall project definition, objective and thescopearestatedinclearandprecisetermsofbusinessoutcomesandexpectedoutputs.

Procurement Plan: Updated project timelines, processes and deliverablesbasedonthelatestavailableinformationshouldbestated.

Nature of project and structuring:TheULB/Stateagency’sviewsonprojectstructuringandfundingshouldbestatedhere.However,itshouldalsoprovidethepotentialbidderswithanoptiontoprovideinnovativesolutions.

Third party contracts:Theprocurementplanshouldprovidedetailsonthetiming and signing of the third party contracts. Draft Contracts providing thecriticalinformationneedstobeprepared.

Payment mechanism: Details of the payment mechanism as identified anddefinedbytheULB/Stateagencywouldhavetobeclearlystated.

Risk matrix: The risks identified in the analysis stage should be frequentlyreviewedandthelatestupdatedversionwouldneedtobeprovidedaspartoftheprocurementdocumentation.Itisimportantthatrisksareclearlystatedsothatthebidderscanconsiderthesamewhilepreparingbidproposals.

Key considerations of the procurement process

SomeofthecriticalareaswhichneedtobeadequatelydeliberateduponbytheULB/Stateagencyduringtheprocurementstageareindicatedbelow:

Bidding timeframes: It isnecessarythatappropriatetimeisprovidedtothebidders for submission of their bids. Generally, the time period required forbidderstoprepareandsubmitbids isdirectly linkedtothesizeoftheprojectbeingbidanddirectlyaffectsthequalityofthebid.SuitabletimeframescanbedeterminedbywayofgaugingtheperceptionsandopinionsofthebiddersatorduringtheRFQstage.

Information related to institutional assets:Alltheinformationregardingtheassetstobeusedbytheprivatedeveloperaspartoftheprojectwouldhavetobeprovided, viz.,informationonalltheequipmentused,suchaspipelines,jackwells,valves,WTP,andmeters.

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Labour issues:IncasethePPPprojectrequiresmodificationstoexistinglabourorstaff,thebiddersshouldbeprovidedwithsufficientinformationtoaccountforsuchprojectcostsandrisks.

Competition and regulatory issues:Alltherequisiteapprovalsforcomplianceneedtobeexplicitlystated.Also,thecompetitionlawsshouldalsobeexaminedandappropriateprocedural/approvalrequirementsshouldbedovetailedintothePPPprocess.

Bid costs:Thecostsofduediligencesbyprivatepartiesmaybesignificant.Wherepossible,andwherebiddersagree,surveycostsmaybesharedbetweenpre-qualifiedbidders.ItmaybenotedherethattheDepartment/ULBcoststoprovidesurveyinformationtobiddercouldbecapitalisedintotheprojectcostatalaterstage.

8.5.2 Prepare RFQ and pre-qualify bidders

DuringtheRFQstage,theintentionisthatonlythosebidderswhoaretechnicallyandfinancially qualified and those possessing requisite skill sets for implementation of theproject submitbids for theproject andcontinue into the remaining stagesof thePPPprocurementprocess.

Whilepre-qualificationshouldnotbeundertakensolelytolimitthenumberofbidderstoapre-specifiedortargetednumber,itisadvisabletohaveatleastthreepre-qualifiedbidderstoensurecompetitivebiddingandachievevalueformoneythroughthebiddingprocess.

Preparation of the RFQ document: The RFQ document would need toclearlycommunicatetotheprivatebidders,therequisitedeliveryspecificationson the project. All the necessary information regarding the project should beprovided to thebidders.Thedocument shouldalsoclearly laydown theRFQevaluationcriteriaandanyspecificrequirementsoftheinstitution.

Advertise and distribute the RFQ document: Once the RFQ documenthasbeenfinalised,thesamewouldhavetobedistributed.TheULB/StateagencywouldberequiredtoadvertisetheRFQintheformofapublicadvertisementinatleastonenewspaperofnationalcirculationandatleastonenewspaperofregionalcirculation.Additionally,anyothermediumofcommunicationsuchasanofficialportaloftheULB/Stateagencycouldbeusedforadvertising.

Receive queries and give clarifications: Generally,thebidderswouldhavesomeclarificationsandotherpre-bidqueriesontheinformationprovided.Oncethesequeries are receivedby theULB/State agency, it ismandatory that theyrespondtotheclarificationssought.Typically,theULB/Stateagencyisrequiredtorespondtoallclarificationssoughttwoweekspriortothedateofthefinalbid.If required, the institution could also considerorganising a pre-bid conferencewherein the issues raised by the bidders could be collated and addressed.However, this activity should be in addition to written communication to thebiddersasmentionedabove.

Evaluation of responses: TheresponsesreceivedtotheRFQdocumentshouldbeevaluatedbasedontheevaluationcriteriaspecifiedintheRFQdocument.Theevaluation criteria should consider the technical and financial capability of theprivateparty,theirunderstandingoftheprojectandtheirskillsetstodeliverthecommittedoutputswithintherequiredtimeframes.

Publish list of pre-qualified bidders: Firms meeting the pre-qualificationcriteriaandapprovalbytheappropriatetenderboardshallbesonotifiedbythe


institution and invited to tender. The notification shall indicate the terms andconditionsunderwhichtenderdocumentsshallbeobtainedaswellasthedate,hourandplaceforlatestdeliveryoftendersbythetenderer,andofthetenderopening.

Applicantswhoarenotsuccessful inthepre-qualificationshallbeaccordingly informedbytheinstitutionwithinoneweekafterreceiptofalltherequiredapprovalstothepre-qualification.Onlybiddersthathavebeenpre-qualifiedareentitledtoparticipatefurtherintheprocurementproceedings.

8.5.3 Preparation of RFP

IntheRFPstage,apreferredbidderisselectedbasedonanobjective,comprehensiveandtransparentselectionprocess.TheRFPdocument(includingthedraftPPPAgreement)is the formal bid document issued by the institution. Its issue to short-listed partiessignalsacommitmenttodelivertheproject,subjecttothedefinedhurdlesbeingcleared.TheRFPdocumentshouldalsobestructuredinsuchamannerthatitclearlylaysdownthe informationalrequirementsof thebidders.The formandmannerofsubmissionofinformationshouldbeclearandconcisetoassisttheevaluationCommitteeinselectingtheappropriatebidder.Thefollowingaspectsshouldbenecessarilypresent intheRFPdocument:

Disclaimer

OutlineofthecontentsoftheRFP

PurposeofissuingtheRFP

TermsandconditionsofissuanceofRFPandbidformalities

GeneralInformationtoBidders

MinimumessentialRequirements

Servicerequirements

Standardspecification

Paymentmechanismandpenalties

LegalrequirementanddraftPPPagreement

Commitmentsrequiredfrombidders

evaluationprocess

SeCTIONIIDetailsofPPPStructures

CONTeNTS

1 Performancemanagementcontractforoperationandmaintenanceofwatersupplysystem 71

2 Concessionagreementforwatersupplyandsewerageservices 75

3 Concessionagreementforconstruction,operationandmaintenanceofbulkwatersupplysystem 79

4 Concessionagreementforconstruction,operationandmanagementofthedistributionsystem 83

5 Concessionagreementfordevelopmentofthebulkwatersupplysystemandoperationandmaintenanceforentiresystem 87


Under thisarrangement, theprivatedeveloper is required toundertake theoperationandmaintenanceof theentirewatersupplysystem fromsourceto theconsumerendincludingmetering,billingandcollectionofrevenues.Theprimarypurposeofthecontractistobringinoperationalefficienciesintheentirewatermanagementsystem,andtherebyreductioninassociatedoperationandmaintenancecost.

1. About the PPP structureAsperthiscontract,theprivatedeveloperwouldberequiredtotakeovertheoperationsandmanagementoftheexistingassetsofthewatersupplyscheme,comprisingofftakewells,withallpumpingstations,electrical installations,watertreatmentplants(WTPs),water storage reservoirs, transmission pipelines and distribution system till consumerend.TheoperationandmanagementofthewatersupplyserviceswouldmatchwiththeperformancestandardsspecifiedbytheUrbanLocalBody(ULB)intheagreementwiththeprivatedeveloper.Theperformancestandardshasprimarilytwocomponentsi.e.coverageandquality.Coveragestandardswillincludethenumberofhouseholdsconnectedtodirectconnections.Qualitystandardswillincludeavailabilityofservice,pressure,waterquality,effluenttreatmentandcustomerservice.Thestandardswouldincludespecificationsonthenumberofmeterstobeinstalledwithinaspecifictimeperiod,theoperationalefficiencylevelstobemaintained,etc.

UnderthisPPPstructure,theprivatedeveloperisgiventherightstolevytheuserchargessetbytheULB,collectthechargesandretaintherevenuefortheperiodofthecontract.TheresponsibilityoftheprivatedeveloperalsoincludesthepurchaseofbulkwaterfromtheWaterIrrigationsorResourceDepartment,transmissiontotheWTPandthesupplyoftreatedwatertotheendconsumers.Inadditiontoprovisionofwatertotheexistingconsumers,theprivatedeveloperwouldalsoberequiredtoprovidetheseservicestoallnewconnections,installbulkmetersatallsourceandconsumerpoints,generatebillsandcollectuserchargesfromtheconsumers.Theperiodicrepairandrelatedmaintenanceoftheseassetswouldhavetobeundertakenbytheprivatedeveloper.

All theoperationalexpenseswouldhavetobebornebytheprivatedeveloper includingpaymenttotheWaterResourcesorIrrigationDepartmentforpurchaseofrawbulkwater,payment to the State electricity Board (SeB) for units consumed, etc. Since the privatedeveloperisgiventherighttotakeovertheentirewatersupplyservicesandoperateandmanagethesameforafixedtimeperiod,inreturn,alicensefeeisrequiredtobepaidbytheprivatedevelopertotheULB.Thisfeemaybepaidupatmutuallyagreedintervals(monthly,

Performance Management Contract for Operation and Maintenance of Water Supply System

1

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PARTICULARS PRIVATE DEVELOPER URBAN LOCAL BODY

Primary Task Operate and manage the water supply system from source to consumer end

Set performance standards

Provide new water service connections Handover of water assets to the private developer to operate and manage

Install bulk and consumer meters, generate bills, collect revenues

Coordinate and oversee works of the private developer

Tariff Levy tariff, generate bills as per tariff, collect and retain revenue

Sets the tariff, determines the revision rate and period

Operating Expense Install meters Oversee the O&M expenses

Bear expense on repairs to assets

Pay for raw water purchase and electricity consumption

Labour charges, chemical charges

Any other O&M expense

Capital Expense No capital expense borne All capital augmentation works to be undertaken - source, WTP, network augmentation, etc

Asset Ownership Transfers assets and operational rights to the ULB at the end of the contract

Retains ownership to all water assets including the meters installed

bi-monthly, annual etc.). The composition of revenue accruing to the private developerincludeswaterchargescollectedfromusers,feesfromnewconnections,penaltycharges,andifthecasemaybe,thenfromthesaleofsurpluswater.ThehighestfixedfeequotedbytheprivatedevelopertobepaidtotheULBwouldbethekeyfinancialbidcriteria.

Typicallythetenureofsuchacontractrangesbetweenthreetofiveyearsandisdependantonthefinancialfeasibilityoftheproposedproject.Figure13presentsaholisticviewoftheentiretransactionunderaperformancemanagementcontractforoperationandmaintenance.

ThekeyrolesandresponsibilitiesofthestakeholdersisgivenintheTable17.

KEY ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULBTable 17

PERFORMANCE MANAGEMENT CONTRACT FOR OPERATION AND MAINTENANCE OF WATER SUPPLY SERVICES

Figure 13

Treats

Fixes Tariff

PrivateDeveloper

Household

Fixes Payments

Distributes

Collects revenue from households

Builds infrastructure

Operates

Builds

Operates

Builds

Operates

Sources bulk water Treats Distributes

MunicipalAgency


AdetailedlistoftheobligationsandresponsibilitiesofthestakeholdersispresentedinSectionIVofthisdocument.

Beforesuchacontractcomesintoeffect,boththeprivatedeveloperandtheULBneedtoundertakecertainpreparatoryactivities.Inordertosetreasonableperformancetargetsfortheprivatedeveloper,theULBwouldneedto:

Carryoutconsumersurveys,waterandenergyauditstoaccuratelyascertaintheexistingstatusofthewaterassetsandsupplyservices.

Facilitatethetakeoverofassetsbytheprivatedeveloper fortheperiodofthecontractbyentering intonecessaryagreements/negotiationsofwaterpurchasewiththeIrrigationDepartmentandelectricitypurchasewiththeStateelectricityBoard.

Providetherightsandpermitstotheprivatedevelopertobeabletotakeovertheassetsanddischargethetasksasrequired.

Providelandleaserightstotheprivatedeveloperforoperatingthewatersupplysystems,etc.

All detailson the current connections, networkmaps, the applicable acts, andbye-laws,waterdemandprojections,waterqualitylevels,etc.needtobemadeavailablebytheULBtotheprivatedeveloper.

ThekeyriskswhichhavetobebornebytheprivatedeveloperandtheULBareasindicatedinTable18.

KEY RISKS, ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULB

RISKS PRIVATE DEVELOPER ULB REMARKS

1 Commencement Risk

The ULB will be responsible to transfer the existing assets to the private developer.

2 Operations Risk The operations and maintenance of the entire water supply system shall be done by the private entity. All costs for the same shall be incurred by such private entity.

3 Financial Risk All costs for the operation and maintenance of the entire water supply system and meeting the performance benchmarks shall be met by the private entity. The fi nances for such operations shall have to be arranged by the private entity.

4 Payment Risk The risk of collecting revenues from the citizens may also reside with the private entity. This shall be project specifi c and decided by the ULB.

5 Performance Risk The risk that the water supply system performs such that the performance criteria are met shall reside with the private entity.

6 Change in law Risk Any additional cost incurred by any party due to change in law shall have to be borne by the respective party.

7 Force Majeure Risk Any additional cost incurred by any party due to force majeure shall have to be borne by the respective party.

Table 18

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2. Applicability of the PPP structureThePPPstructurediscussedhereisapplicableunderthescenarios/conditionswhere:

Thecurrentoperationalefficienciesofthewatersupplysystemarepoor,viz.,thesystemhasNon-RevenueWater (NRW) losses (above25-30%)due to a highnumberofillegalconnections,haspoorcollectionefficiencies,lowperunitcostrecoveries,lackofmeteringetc.

2. The ULB has undertaken major capital improvement works before handingover the system to the private developer for improvisation of operationalefficienciesandnosignificantcapitalexpenseneedstobemadebytheprivatedeveloper.

1.


Aconcessionagreement forwater supply andor sewerage servicing is a typeofBuiltOperateTransfer(BOT)ofPPPstructure

1. About the PPP structureAsperthisconcessionagreement, theprivatedeveloperwouldberequiredtodesign,finance,construct,operateandmanagethewatersupplyandsewerageservicesfortheconcession period.9 Under this PPP structure, the private developer would undertakethe construction of infrastructure for water supply and sewage services, and operateand manage both the systems during the concession period. The capital investmentrequiredforundertakingtheaugmentationworkswouldbemetwhollyorpartlybytheprivatedeveloper.Theprivatedeveloperwouldberequiredtoundertakeconstruction/augmentation works for all or few of the following works for the water supply andseweragesectorandundertakeO&Mofthesame:

Watersupplytransmissionpipelines(rawand/orpurewater)

Watertreatmentplant

Underground/elevatedstoragereservoirs

Layingofdistributionnetworkpipelines

Seweragetreatmentplant

Drainagepipelines

Postconstructionofthesystems,theoperationandmaintenanceofboththewatersupplyandseweragesystemwouldhavetobemanagedbytheprivatedeveloper,includingthegenerationofbills andcollectionofusercharges fromtheconsumers.Additionally, alloperationalexpensesformanagingthewatersupply/sewerageservicessuchaselectricitycharges,bulkwatercharges,establishmentexpenses,andrepairandmaintenance,wouldhavetobebornebytheprivatedeveloper.

Aspertheconcessionagreement,theULBwouldspecifytheaugmentationworksanddesignspecificationsfortheconstructionactivitytobeundertaken,thetimescheduleforcompletionofworks,andwouldprovideinformationrelatingtotheexistinglevelofwatersupplyandorsewageoperations.Theprivatedeveloperwouldberequiredtopurchasebulkwater,treattherawwaterandsupplytreatedwatertoallthespecifiedconnections.Inaddition,ifthe

9 This may also include the takeover, operation and maintenance of the existing water assets. However, this shall be project specifi c and a decision of the ULB.

Concession Agreement for Water Supply and Sewerage Services2

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sewerageinfrastructureisalsotobemanagedbytheprivatedeveloper,thesewagefromallconnectionswouldhavetobecarriedtotheSTPandtreatedwastewaterdisposedoff.Theprivatedeveloperwouldrecovertheinvestmentsmadebywayofcollectionandretainingofuserchargesfromtheconsumers.Anychangetothetariff,therateofescalationsetcwouldbedeterminedbytheULB.Typicallythetenureofsuchacontractrangesbetweenfifteentothirtyyearsandisdependantonthefinancialfeasibilityoftheproposedproject.

Figure14presentsaholisticviewoftheentiretransactionunderaconcessionagreementforwatersupply.

ThekeyrolesandresponsibilitiesofthestakeholdersaregiveninTable19.


Primary Task Design, plan, construct water distribution and sewage infrastructure

Provide permits, rights of operation

Operate and manage the water supply and sewage infrastructure

Facilitate negotiations for bulk water and electricity purchase

Levy user charge, generate bills, collect and retain revenues

Oversee construction, and operation and maintenance activity

Tariff Levy tariff set by the ULB Determine the tariff level, schedule for changes, escalation factor etc

Operating Expense Pay for raw water purchase and electricity consumptionBear expense on repairs to assetsInstall metersLabour charges, chemical chargesAny other O&M expense

Oversee the O&M expenses

Capital Expense Bear capital expenditure for works identifi ed, escalation in costs of raw material inputs

Asset Ownership Retains ownership during concession period and handover at the end of contract term

Take over assets at the end of the concession period


STRUCTURE OF CONCESSION AGREEMENT FOR WATER SUPPLY AND SEWERAGE SERVICESFigure 14

Treats


Operates

Pvt.

Fixes Tariff

Use

r ch

arge

s

Sources bulk water

Pvt.Developer

Household

Fixed annual payments

Operates

Treats Treats

Builds /Augments

Builds /Augments

Builds /Augments

Builds /Augments

Builds /Augments

OperatesOperatesOperates

Disposal

Operates

Distributes Swer lines

MunicipalAgency



1 Commencement risk The ULB will be responsible to transfer the existing assets to the private developer.

2 Construction risk The construction and operations and maintenance of the water supply and sewerage assets shall be done by the private entity. All costs for the same shall be incurred by such private entity.

3 Design risk The design risk shall be shared by the ULB and the private entity. The specifi cations of the assets shall be mentioned by the ULB in the RFP document. The design shall be proposed by the Developer in line with such specifi cations.

4 Operations Risk The operations and maintenance of the entire water supply and sewerage system shall be done by the private entity. All costs for the same shall be incurred by such private entity.

Adetailedlistofobligations,responsibilitiesofthestakeholdersispresentedinSectionIVofthisdocument.

Forsuchanagreementtocomeintoeffect,theprivatedeveloperandtheULBneedtoundertakepreparatoryactivities.Inordertosetreasonableperformancetargetsfortheprivatedeveloper,theULBwouldneedto:

Carry out consumer surveys, water and energy audits to accurately ascertainthe existing status of the water assets and sewage assets and services supplyservices.

Provide the design specifications for the assets to be augmented/constructed,procurementprocess,rawmaterialutilisationetc

Provide land lease rights to the private developer to undertake constructionactivity. The terms of lease would have to be clearly stated as a part of theconcessionagreement.

Facilitatethetakeoverofassetsbytheprivatedeveloperfortheperiodofthecontractbyentering intonecessaryagreements/negotiationsofwaterpurchasewiththeIrrigationdepartmentandelectricitypurchasewiththeStateelectricityBoard.

Providetherightsandpermitstotheprivatedevelopertobeabletotakeovertheassetsanddischargethetasksasrequired.

All detailson the current connections,networkmaps, the applicableActs andByelaws,waterdemandprojections,waterqualitylevels,etc,havetobemadeavailablebytheULBtotheprivatedeveloper.

Thecompositionof revenue accruing to theprivatedeveloper includeswater chargescollectedfromusers,feesfromnewconnections,penaltycharges,andifcasemaybethenfromsaleofsurpluswater.

ThekeyriskswhichhavetobebornebytheprivatedeveloperandtheULBareindicatedTable20.

KEY RISKS AND ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULB Table 20

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2 Applicability of the PPP structureThePPPstructurediscussedhereisapplicableunderthefollowingscenario/conditions.

ThePPP structure is suitable for green fieldprojects requiring large capitalinvestments for infrastructurecreation.This is ideal inascenariowherenoinfrastructure facility isavailableandwherea largenumberofrehabilitationand replacement of the existing infrastructure services would have to becarriedout.

2. TheULBdoesnothavethefinancialcapacitytoundertaketherequiredcapitalinvestmentsandhaspooroperationalefficiencies.

3. The per unit operation cost of the utility would be higher without the PPParrangementandthecostsarereduceable.

1.


5 Financial Risk All costs for the operation and maintenance of the entire water supply system and meeting the performance benchmarks shall be met by the private entity. The fi nances for such operations shall have to be arranged by the private entity.

6 Payment Risk The risk of collecting revenues from the citizens may also reside with the private entity. This shall be project specifi c and decided by the ULB. In addition to this, all payments to contractors, suppliers, etc. shall have to be borne by the private entity.





Concession Agreement for Construction, Operation and Maintenance of Bulk Water Supply System

3Theconcessionagreementfortheconstruction,operationandmaintenanceofthebulkwatersupplysystemisatypicalPPPstructureundertheDesignBuildOwnOperateandTransfer(DBOOT)model.

1. About the PPP structureAccordingtotheconcessionagreement,theprivatedeveloperisrequiredtoundertakethe design, construction, finance, operation and management of water supply servicesfrom raw water source to the distribution point. The augmentation activity includesconstructionof therawwateroff-takemachinery; installationofelectrical sub-stationsandrawwatertransmissionlines;andtheconstructionofWTPs,purewatertransmissionlinesuptothepointofthestoragereservoir,andstoragetanks.Thecapitalinvestmentrequiredfortheaugmentationworksneedstobebornebytheprivatedeveloper.Theprivatedeveloperis,therefore,requiredtoconstructthebulksupplyinfrastructuresoastoprovidetreatedwateruptothepointofthestoragereservoir.Fromthepointofthestoragereservoirtothedistributionnetworkuptilltheconsumerend,thewatersupplyresponsibilityrestswiththeULB.

Theoperationandmanagementoftheseassetsduringtheconcessionperiodrestswiththe private developer. Therefore, all the associated operating expenses including thepurchaseofbulkwater,paymentofelectricitycharges,chemicalsforrawwatertreatment,andestablishmentexpensesincludinglabourchargesaretheresponsibilityoftheprivatedeveloper.

TheULBonitspartwouldspecifythequantityoftreatedwaterwhichwouldhavetobemadeavailablebytheprivatedeveloperatalltimes.Forthetreatedwaterproduced,theprivatedeveloperispaidawaterchargebytheULB.Theuniquefeatureofthiscontractisthatforalltheactivitiesrequiredtobeundertakenbytheprivateentity,itisassuredofaminimumfixedpaymentbytheutility.Thisarrangementisalsoreferredtoasa“takeorpay”system.

Figure15presentsaholisticviewoftheentiretransactionunderabulksupply-cum-O&Mcontract.

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Primary Task Provide treated water supply Set treated water level requirements, specify water quality levels

Design, plan, construct raw water off take infrastructure, raw water transmission pipelines, WTP

Defi ne the technical specifi cations for the infrastructure to be created

Operate and manage the water supply infrastructure including WTP

Provide permits, rights of operation

Oversee construction, and operation and maintenance activity

Tariff Sets the tariff for treated water supplied

Operating Expense

Pay for raw water purchase and electricity consumption


Bear expense on repairs to assets Facilitate negotiations for bulk water and electricity purchase



Capital Expense Bear capital expenditure for works identifi ed, escalation in costs of raw material inputs

Asset Ownership Retains ownership during concession period and handover at the end of contract term



CONCESSION AGREEMENT FOR CONSTRUCTION, OPERATION AND MAINTENANCE OF BULK WATER SUPPLY SYSTEM

Figure 15

Pvt.

Fixes the per unit treated water tariff

PrivateDeveloper

Makes payment to private developerMunicipalAgency

Treats


Operates

Builds

Operates

Builds

Operates

Sources bulk water Distributes

A detailed list of obligations and responsibilities of the stakeholders is presented inSectionIVofthisdocument.


RISKS PRIVATE DEVELOPER

ULB REMARKS

1 Commencement risk The ULB will be responsible to transfer the existing assets to the private developer.

2 Construction risk The construction and operations and maintenance of the water supply and sewerage assets shall be done by the private entity. All costs for the same shall be incurred by such private entity.

3 Design risk The design risk shall be shared by the ULB and the private entity. The specifi cations of the assets shall be mentioned by the ULB in the RFP document. The design shall be proposed by the Developer in line with such specifi cations.

4 Operations Risk The operations and maintenance of the entire water supply system shall be done by the private entity. All costs for the same shall be incurred by such private entity.

5 Financial Risk All costs for the construction, operation and maintenance of the bulk water supply system shall be met by the private entity. The fi nances for such construction and operations shall have to be arranged by the private entity.

6 Payment Risk The risk of collecting revenues from the citizens may also reside with the private entity. This shall be project specifi c and decided by the ULB. In addition to this, all payments to contractors, suppliers, etc. shall have to be borne by the private entity.

7 Performance Risk The risk that the water supply system performs such that the performance criteria are met shall reside with the private entity. Any additional cost incurred by any party due to change in law shall have to be borne by the respective party.



KEY RISKS AND ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULB Table 22

ThepreparatoryactivitieswhichtheULBandtheprivatedeveloperneedtoundertakelargelypertaintotheestimationofthequantumoftreatedbulkwaterwhichneedstobemadeavailable.Therefore,accuratewaterdemandprojectionsneedtobemade.Theprivatedeveloperwouldneedtoconductthenecessaryteststoascertaintherawwaterqualitystandardsanddeterminetheappropriatewatertreatmenttechnology.TheULBinsuchanagreementwouldneedto:

Provide land lease rights to the private developer to undertake constructionactivity. The terms of lease would have to be clearly stated as a part of theconcessionagreement.

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Detail out design specifications, procurement process, rawmaterial utilisation,etc.

Facilitatethetakeoverofassetsbytheprivatedeveloper fortheperiodofthecontractbyentering intonecessaryagreements/negotiationsofwaterpurchasewiththeIrrigationDepartmentandelectricitypurchasewiththeStateelectricityBoard.Also,alltherightsandpermitsgiventotheprivatedeveloperneedtobestatedclearly.

The key risks which have to be borne by the private developer and the ULB are asindicatedinTable22.

2. Applicability of the PPP structureThePPPstructurediscussedhereisapplicableunderthefollowingscenario/conditions.

The existing bulk supply system is inadequate and needs augmentation andrehabilitation.

2. Theextentof rawwater transmission and treatment losses arehigh requiringinfrastructurereplacementandimprovedoperationsandmanagement.

3. TheULBdoesnothavethefinancialcapacitytoundertaketherequiredcapitalinvestments.

1.


Concession Agreement for Construction, Operation and Management of the Distribution System

4Theconcessionagreementfortheconstruction,operationandmanagementofthewaterisaPPPstructurealongthelinesofaBuiltOperateTransfer(BOT)module.

1. About the PPP structureAs per this form of concession agreement, the design and finance of the identifiedaugmentationworkswouldbeundertakenthrougha100percentcapitalgrantfromthegovernment.Asper the contract, theprivatedeveloper is required to first undertaketheconstruction/rehabilitationworksfortheidentifiedsectionofthewatersystem,andfurther to the construction activity, undertake the operation and maintenance of theentirewatersupplysystem.TheprivatedeveloperwouldgetfullcapitalreimbursementfromtheULBoranyothergovernmentagencyfortherehabilitationworksundertaken.

Oncetheconstructionactivityiscomplete,theprivatedeveloperaloneisresponsiblefortheoperationandmaintenanceof theentirewatersupplysystem, includingthesupplyof treatedwater to all the connections, installationofmeters, generationof bills, andcollectionofrevenues.Theprivatedeveloperis,therefore,responsiblefor:

Creationofidentifiedassetsinthewatersupplysystemandoperateandmaintaintheentiresystem

Monitoringofpressurisedandcontinuoussupplyofwater

Leakagereduction

100percentmeteringforconsumerconnections

Managementofwaterqualityatvariousdistributionpoints

Developmentofasystemforbillingandmonitoringofthesame

Insuchacontract,therefore,dependinguponthefinancialfeasibilityoftheproject,theresponsibilityofthepurchaseofrawwateranditssupplytotheWTPwouldrestuponeithertheprivatedeveloperortheULB.However,anymajorexpansionactivitywhichmayberequiredtotheexistinginfrastructurewouldhavetobebornebytheULB.

Thepurposeofinvolvingaprivatedeveloperatthedistributionendistobringinoperationalefficiencieswhichtheexistingsystemlacks.SuchacontractcanbeimplementedforasingleULBorforaclusterofULBs,whichmayhaveacommonrawwatersourceandfacesimilarissuesofoperationalinefficienciesatthedistributionend.Sinceit’sacluster,anodalagencywouldbeinvolvedinoverseeingthewatersupplyservicestothecluster.

AsetofperformancetargetswouldbesetbytheStatenodalagencyorbytheULBsintheclusterfortheoperationandmaintenanceactivity.FortheO&Mactivityundertakenbytheprivatedeveloper,anoperatorfeeispaidbytheULBsortheStatenodalagencyfortheperiodofthecontractbasedontheachievementofperformancestandards.

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Figure16presentsaholisticviewoftheentiretransactionundertheaugmentation-cum-distributionnetworkexpansioncontract.

ThekeyrolesandresponsibilitiesarelistedinTable23.

CONCESSION AGREEMENT FOR CONSTRUCTION, OPERATION AND MAINTENANCE OF THE DISTRIBUTION SYSTEM

Figure 16

Pvt.

Sets Tariff

Capital costs reimbursed from the state agency

PrivateDeveloper

Makes payment to private developer

Collects revenue from households

MunicipalAgency

Treats


Operates

Builds

Operates

Builds

Operates

Sources bulk water Distributes

ROLES AND RESPONSIBILITIES OF THE DIFFERENT INSTITUTIONSPARTICULARS PRIVATE

DEVELOPER

STATE/NODAL AGENCY

URBAN LOCAL

BODY

Primary Task Design, plan, construct distribution pipelines

Set performance standards Supply of treated bulk water for distribution

Operate and maintain the distribution network

Operate and manage the water supply system till the distribution point

Provide new water supply connections

Defi ne the technical specifi cations for the distribution network rehabilitation works

Install meters, generate bills, collect revenues

Oversee the O&M works of the distribution network

Handover of distribution system for

Tariff Collect revenues as per tariff set, handover the collections to ULB

Set tariff to be set, escalation factor

Operating Expense

Pay for electricity consumption for distribution of treated water

Operating expenses till distribution point including bulk water purchase, operation of WTP, transmission etc

Bear expenses on installation of meters, operation and maintenance of meters

Table 23


Under suchaPPPagreement, theStateagencyand theULBneed todetermine if theprivatedeveloper’s servicesneed tobeextended to theentirecityor tobe focussedinitiallyonafewdemonstrationzones,andthenextendedtotheremainingzonesbasedonperformanceresults.Aperformance-basedtimelinecanbesettoanalysetheoutcomeofthecontractforthedemonstrationzones.

Beforethecontractisimplemented,theULB/ortheclusterofULBs(asthecasemaybe)needstoundertakethefollowingsteps:

Undertakeanassessmenttoascertaintheextentofrehabilitationworkswhichneedtobeconstructedbytheprivatedeveloper.

Detail the design specifications, procurement process, raw material utilisation,etc.;however,alltheprocurementactivitywillhavetobemanagedbytheprivatedeveloper.

Undertakeawaterauditstudytoascertaintheextentoflossesatthedistributionend.

Determinethetarifftobechargedandprepareanactionplanforthetransitionperiodfromflatratetovolumetrictariff.

Providetheprivatedeveloperwithaccurateinformationonthepointsofbulkwater supply, the status on existing connections and properties, number ofandtypeofconnectionstobeserved,thenumberandtypeofmeterstobeinstalled,etc.

Provide land lease rights to the private developer to undertake constructionactivity.

Additionally, the ULB with have to facilitate the takeover of assets by theprivatedeveloperfortheperiodofthecontractbyenteringintothenecessaryagreements/negotiationsofelectricitypurchasewiththeStateelectricityBoard.TheULBwillhavetoprovideitsownemployeesforalimitedperiodoftimetoassisttheprivatedeveloper.

ThekeyriskswhichhavetobebornebytheprivatedeveloperandtheULB/StateagencyareindicatedinTable24.

PARTICULARS PRIVATE

DEVELOPER

STATE/NODAL AGENCY

URBAN LOCAL

BODY

Bear escalations on input costs for rehabilitation works beyond permissible levels

Bear expense on repairs to assets



Facilitate negotiations for bulk water and electricity purchase


Capital Expense Undertake initial capital expense for rehabilitation works and be reimbursed

Capital expenditure reimbursement to private developer

Asset Ownership Only given right to operate and maintain the assets. Returns asset at the end of the contract period.


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2. Applicability of the PPP structureThePPPstructurediscussedhereisapplicableunderthefollowingscenario/conditions.

A city or a cluster of cities which face similar water supply-related issues ofoperationalinefficienciesatthedistributionend.

2. Noaugmentationor capitalworksneed tobeundertaken for rawwaterbulksupplyandtreatmentbytheprivatedeveloper.

3. ThecapitalcostsfortherehabilitationactivityaretobefullyfundedasagrantfromtheStatenodalagency/ULB.

Theconcessionagreementforthedevelopmentofthebulkwatersupplysystemincludingthe operation and maintenance of the entire water supply system is a PPP structuredevelopedonaBOTbasis.

1.

Sl. No RISKS PRIVATE

DEVELOPERULB/

CLUSTER COMMENT

1 Commissioning Risk The ULB will be responsible to transfer the existing distribution assets to the private developer, if any.

2 Construction Risk

The construction and operations and maintenance of the water supply distribution assets shall be done by the private entity. All costs for the same shall be incurred by such private entity.

2 Design Risk

The design risk shall be shared by the ULB and the private entity. The specifi cations of the assets shall be mentioned by the ULB in the RFP document. The design shall be proposed by the Developer in line with such specifi cations.

3 Operations Risk

The operations and maintenance of the distribution network shall be done by the private entity. All costs for the same shall be incurred by such private entity.

4 Financial Risk

All costs for the construction and operation and maintenance of the entire distribution network shall be met by the private entity. The fi nances for such operations shall have to be arranged by the private entity.

5 Payment Risk All payments to contractors, suppliers, etc. shall have to be borne by the private entity.

6 Performance Risk The risk that the distribution system performs such that the performance criteria are met shall reside with the private entity.



KEY RISK-SHARING FRAMEWORKTable 24


Concession Agreement for Development of the Bulk Water Supply System and Operation and Maintenance for Entire System

51. About the PPP structureAs per the concession agreement, the private developer is required to undertakeconstructionof thebulkwatersupplysystem including therawwateroff-takesystem,andrawwatertransmissionlines.Theprivatedeveloperwillalsoberesponsiblefortheaugmentation/creationofatreatmentplant,aswellasoperationandmanagementofthewatersupplysystemfromsourcetotheendconsumer.Therefore,asperthisstructure,augmentationworks are tobe carriedout by theprivatedeveloperonly for thebulksupplysystem,whereasanyexpansiontothedistributionsystemisthesoleresponsibilityoftheULB.Therefore,anyexpansionorrehabilitationworkforthedistributionnetworkistobemanagedbytheULBbeforeinvitingtheprivatedevelopertooperateandmanagethewatersupplysystem.

Fortheconstructionworksidentified,theprivatedeveloperwouldalsoberequiredtoundertakethenecessarycapitalinvestments.Theprivatedeveloperwouldberequiredtooff-takerawwater,supplytothetreatmentplantandtransmitthetreatedwaterthroughtheexistingdistributionnetworktoalltheconsumers.Alltheoperatingexpensesincludingprocurement of raw materials, deployment of labour, payment for electricity charges,andrepairandmaintenanceneedtobemanagedbytheprivatedeveloper.TheprivatedeveloperwouldalsohavetofollowallsafetynormsfordisposalofthewastegeneratedfromalltheWTPs,andwouldnotbeentitledtochargeextrafeesforthesame.AllthenewassetscreatedbytheULBwouldalsohavetobemanagedbytheprivatedeveloper.

Theprivatedeveloperisgiventherighttolevyandcollectrevenuesfromtheconsumersfortheactivitiesundertaken,andretainthesame.Theprivatedeveloperisrequiredtomakea fixedmonthlypayment as license fee to theULB for the right tooperate theexistingwatersupplyassetsandtheentiresystem.Thehighestmonthlypaymentquotedwouldbethekeyfinancialbidparameter.

Under suchPPPagreements, theprivatedevelopermayalsobegiven theright to sellsurplus water to consumers other than those identified by the ULB. However, suchsurplussalecanbeundertakenalimitedexlentandarevenueshareintheearningsfromthe surpluswater is tobeprovided to theULB.The typical concessionperiodwouldrangefromtentofifteenyears.

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DetailsofthecontractstructurearegiveninthetermsheetpresentedinSection4ofthisdocument.

Figure17presentsaholisticviewoftheentiretransactionundertheaugmentation-cum-distributionnetworkexpansioncontract.

ThekeyrolesandresponsibilitiesundersuchaPPParrangementarelistedinTable25.

CONCESSION AGREEMENT FOR DEVELOPMENT OF THE BULK WATER SUPPLY SYSTEM AND OPERATION AND MAINTENANCE OF THE ENTIRE SYSTEM

Figure 17

Treats


Operates

Builds

Operates

Builds

Sets Tariff

Sources bulk water

Operates

PrivateDeveloper

Makes License fee payment to ULB

Distributes

MunicipalAgency

PARTICULARSPRIVATE

DEVELOPER

URBAN LOCAL

BODY

Primary Task Design, plan and construct raw water off take system, augment raw water transmission lines, and WTP system

Undertake rehabilitation, expansion works to the distribution network if any

Operate and manage the entire water supply system from source to end consumer

Oversee the O&M works underway

Levy, collect user charges

Tariff Levy and collect user charges as per set tariff Set the tariff levels, structure, escalation factor

Operating Expense Bear electricity consumption charges Oversee the O&M activity undertake

Civil works, repairs to the assets

Labour charges and any other O&M

Capital Expense To bear all the construction work capital cost

Asset Ownership Retains the right to operate the assets for the concession period and handover at the end of the contract period

Takes over assets at the end of the contract period.

ROLES AND RESPONSIBILITIES OF THE DIFFERENT INSTITUTIONSTable 25


Beforethecontractcomesintoexistence,theULBwouldhavetoundertaketheactivities:

Assessthebulksupplysystemtoaccuratelyascertaintheextentofrehabilitationworkswhichneedtobecarriedoutbytheprivatedeveloper.

Detailoutthedesignandtechnicalspecificationsontheinfrastructureassettobedeveloped.

Ascertainthewaterdemandprojectionsandprovidetheprivatedeveloperwiththescheduleforthesame.Postenforcementofthecontract,anychangetothevolumeofwater required to be drawn from the source,would be subject toapprovalsfromtheULB

Undertake financial and commercial viability assessment for the project todeterminewhethertheprivatedeveloperwouldneedtobeartheexpenseofthebulkwaterpurchaseorthesamemaybepaidupforbytheULBitself.

Determinethetarifftobechargedandprepareanactionplanfortransitionfromflatratetovolumetric(ifapplicable)ratesandsharethesamewiththeprivatedeveloper.

Developandmaintainaccurateinformationonthepointsofbulkwatersupply,thestatusofexistingconnectionsandproperties,thenumberandtypeofconnectionstobeserved,thenumberandtypeofmeterstobeinstalled,etc.

TheriskstobebornebytheULBandtheprivatedeveloperareindicatedinTable26.


DEVELOPER ULB REMARKS

1 Commissioning Risk The ULB will be responsible to transfer the existing assets to the private developer, if any.

2 Construction Risk

The construction of the bulk water supply system and the operations and maintenance of the water supply system shall be done by the private entity. All costs for the same shall be incurred by such private entity.

3 Design Risk

The design risk shall be shared by the ULB and the private entity. The specifi cations of the assets shall be mentioned by the ULB in the RFP document. The design shall be proposed by the Developer in line with such specifi cations.

4 Operations Risk

The operations and maintenance of the entire water supply system as per the pre-specifi ed performance benchmarks shall be done by the private entity. All costs for the same shall be incurred by such private entity.

5 Financial Risk

All costs for the construction of bulk water supply system and the operation and maintenance of the entire water supply system and meeting the performance benchmarks shall be met by the private entity. The fi nances for such operations shall have to be arranged by the private entity.

KEY RISKS TO BE BORNE BY ULB AND PRIVATE DEVELOPER Table 26

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2. Applicability of the PPP structureThe PPP structure discussed here is applicable under the two following scenarios/conditions:

Onlyaugmentationandimprovementstothedistributionnetworkisrequired

2. existingdistributionnetworkcoverageislow,distributionlossesarehigh,O&Mrecoveriesarelow

1.


DEVELOPER ULB REMARKS

6 Payment Risk

The risk of collecting revenues from the citizens may also reside with the private entity. This shall be project specifi c and decided by the ULB. In addition to this, all payments to contractors, suppliers, etc. shall have to be borne by the private entity.




SeCTIONIIICaseStudiesofSampleCitiesofMaharashtra

CONTeNTS

1 Summaryofcityanalysis 93

2 Jalna 97

3 Sangli-Miraj-Kupwad 104

4 Kolhapur 111

5 Virar 119


7 Shirpur 130

8 Akot 134

9 Saoner 140

10 Chiplun 145

11 KulgaonBadlapur 150

12 Ambernath 154

13 NaviMumbai 158


In the following sectionsof this report the assessmentwhichhasbeenundertaken todeterminethestatusofthewatersupplyandsewerageservices inthesamplecitiesofMaharashtrahasbeenpresented,alongwiththepreliminaryfinancialanalysisundertakenforeachcity.AsummaryoftheoutputfromthepreliminaryfinancialanalysisundertakenintermsofthePPPstructurerecommendedhasbeenpresentedintheTable27.

TheoverallprocessofidentificationofthePublicPrivatePartnership(PPP)structureandtheprocessofimplementationofthesamehadbeendescribedinthetoolkitpresentedinSectionIofthisreport.Apreliminaryassessmentofthesamplecitieswasundertakenonthebasisofthistoolkit.

Asper thestepsdescribed therein, fordetermining thePPPstructuresuitable for thewater supply system and sewerage services in the city, the fi rst step undertaken hasbeenthatofidentifi cation of the problem areasintheexistingsystemofwatersupplyservicesofthecity.Asetofperformanceassessmentparametershavebeencompiledandthesameusedfordeterminingthestatusoftheservices.Theoutputfromthisprocesshas been compared with the water supply improvement projects which have alreadybeenidentifiedbythecityandforwhichDetailedProjectReports(DPRs)hadalsobeenavailabletoverifyifthecurrentissuesinthesystemhavebeenadequatelyaddressedintheproposedproject.

Asasecond steptotheentireprocess,a choice between public mode of funding and PPP based mode of project development has been assessed for the projectsalready identified in the city for the water supply services. A preliminary viabilityassessmentbasedonfinancials fortheprojects identifiedhasalsobeencarriedout.Basedonthe

outputofthepreliminaryassessmentanappropriatechoiceofoptionbetweenpublicandprivatemodeofdevelopingtheprojecthasbeenmade.

Asperstep three of theentireprocessofPPPdeterminationand its implementation,a choice of the suitable PPP structure for the water supply and sewerage serviceshasbeenrecommended.Forthestructureso identified,theriskshavebeen listedandallocatedbetweentheparties.

Asafi nal steptotheentireprocessofidentificationandimplementation of the PPP structure,thekeybiddingparameterwithreferencetothespecificPPPoptionhasalsobeenindicated.

1Summary of City Analysis

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Cities/Towns

Project Particulars Type of Ppp Structure

Remarks

Capital Cost

Investment Required

Jalna Rs. 331 crore

Rs 196 crore Performance management contract for operation and maintenance of the entire water supply services from source to consumer end

A PPP option for design, fi nance and construction of the proposed water supply project is not feasible since it requires total VGF support of approximately 85% of the project cost. With such high funding assistance required from the government, the project cannot be packaged under a PPP module.

The State government would need to assist in meeting the capital requirement of Rs 196 crore to augment the proposed works, and then to hand over the system to a private developer for O&M activity.

Sangli-Miraj-Kupwad

Rs. 254 crore

Rs 137 crore Integrated water supply contract only for design and construction of the proposed projects

Performance-based management contract for the entire water supply system

If the option of an integrated concession agreement for design, fi nance, construction and operation and maintenance of water supply networks is handed over as a single contract to the private developer, the total government support including grants and VGF funding assistance would be more than 65% of total project cost. Given the high grant assistance, the project would not be viable as a single PPP module.

PPP for the proposed project may be bifurcated into two separate contracts:

Private developer is required to undertake design, fi nance, and construct in the case of the proposed project; the developer will retain revenues from users for the concession period to recover investments.

A separate performance management contract for only the operations and maintenance of the water supply system woud be made in return for annual payments by SKMC.

Kolhapur Rs. 280.80 crore

Rs 198.9 crore Integrated concession agreement for design, fi nance, construction and operation and maintenance of the water supply and sewerage system

The private developer would be able to design, fi nance, construct the required projects and earn Rs 65 crore (NPV @ 14%) against a requirement of Rs 134 crore by KMC due to signifi cant operational effi ciencies brought in by the private developer.

Virar Rs. 5.2 crore Rs. 5.2 crore Service management contract for metering, billing and collection

Current water supply operations are assessed to be satisfactory

No major investment required

High scope of PPP in metering, billing collection activity since private operator to bring in high effi ciency resulting in additional water revenue.

Given the limited fi nancial capability of the ULB, it need not undertake lump sum investment in meters but, pay an annuity to the private operator.

SUMMARY OF PPP STRUCTURES FOR SAMPLE CITIESTable 27


10

10SMChasarrangedforthisinvestmentfrominternalfundsanddebt.

Cities/Towns


Remarks

Capital Cost

Investment Required

Navghar-Manikpur

Rs. 6 crore Rs. 6 crore PPP not applicable Current water supply operations are assessed to be satisfactory

No major investment required

Limited scope for PPP in metering, billing collection activity since ULB is highly effi cient in it’s billing and collection activity.

Limited investment needed for metering can be obtained through government grants

Chiplun Rs. 15 crore Rs. 7 crore Performance management contract for O&M of water supply services

The capital requirements for the ongoing project are being arranged by the council itself, and thus do not demand any PPP intervention for the proposed project.

The existing tariff would require to be revised and post revision, a private operator can be brought in to only operate and manage the water supply services on an annuity basis.

Akot Rs. 53 crore Rs. 36 crore Performance management contract for O&M of water supply services

If the option of an integrated concession agreement for developing and operating and managing the water supply services is considered, the VGF requirement is estimated to be approximately 76% of the capital cost after considering the UIDSSMT funding. This defeats the purpose of undertaking the project on a PPP basis.

The ULB with support from the State Government should invest in the physical infrastructure.

A PPP option for operating and managing the water supply services on an annuity basis can be explored by AMC.

Saoner Rs 7.39 crore

Rs. 73 lakh10 PPP not applicable Existing investment needs of SMC are being arranged internally and the project construction has commenced. In such a scenario, there is no scope for a private developer to undertake the proposed project.

PPP in operations and maintenance of the water supply system has limited scope since the town size is small and the existing collection effi ciency is high. Thereby, there is limited value addition which the private operator can provide to the ULB.

Shirpur Rs. 5.2 crore Rs. 5.2 crore PPP not applicable Current water supply operations are assessed to be satisfactory.

No major investment required.

Limited scope for PPP in metering, billing collection activity since ULB is highly effi cient in it’s billing and collection activity.

SWMC has the fi nancial capacity to install and maintain meters.

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Cities/Towns


Remarks

Capital Cost

Investment Required

Kulgaon-Badlapur

Rs. 26.85 crore

Rs 2.68 crore PPP not applicable The scheme is currently managed by MJP.

No need for huge capital investment currently.

The existing level of services has been largely assessed to be satisfactory and the current issues are being addressed in the project proposed.

KBMC has the fi nancial ability to undertake the proposed capital investment and would not require private participation for undertaking capital investment.

Given the existing level of services, there is no scope for a PPP intervention.

Ambernath Rs. 4.8 crore Rs. 1.2 crore The Scheme is currently managed by MJP.

No need for huge capital investment currently.

The existing level of services has been largely assessed to be satisfactory and the current issues are being addressed in the project proposed.

Given the existing level of services, there is no scope for a PPP intervention.


1. Brief introduction to JalnaJalna,theheadquartersoftheJalnadistrict,encompassesanareaof70.87sq.km.andhasacurrentpopulationof3lakh(2.35lakhasperthe2001Census).Thetotalnumberofhouseholdsinthecityis48,000.ThecityismanagedbytheJalnaMunicipalCouncil(JMC)with a revenuebudgetofRs 29.13 crore (2007-08) and a revenue surplusofRs 1.15crore.

Thecity’swatersupplysystemismanagedbyJMCitself.JMCincursadeficitofRs3.15croreonitswatersupplyoperations.Besides,JMChasliabilitiesofapproximatelyRs153croretowardsitswatersupplyoperations.Thus,thecityhasnoinvestmentcapacitytoundertakenewprojects.

2. Water supply system at JalnaJalna draws a total water supply of 19 MLD. The city has two water sources, i.e.,GhanewadiLake(sevenkmfromcity)andShahgadinGodavariRiver(60kmfromcity).Themajorityofthewater(13MLD)issourcedfromtheShahgadheadworkschemewhichhasbeen jointlydevelopedandoperated for Jalna andAmbadbyMaharashtraJeevanPradhikaran(MJP).

RawwaterfromShahgadheadworksissuppliedtotheWaterTreatmentPlant(WTP)atAmbadandthereon,treatedwateristransmittedthroughpurewatertransmissionmainsof26kmtoJalna.

Jalnareceivestreatedwatersupplyofapproximately38litrespercapitaperday(lpcd)attheconsumptionpoint.Waterisavailableforonehouronalternatedaysandissuppliedthroughindividualconnectionsandpublicstandposts.AbasicprofileofthewatersupplysystemofJMChasbeenpresentedintheTable28.

3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofJalna,theproblemareasintheexistingservicesintheexistingsystemneedstobecarriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.Asthefirstactivitywhichneedstobeundertakeninthisregard,theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisoftheassessment, thekey issues in the current systemwouldneed tobe identified and the

Jalna2

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existingprojectsreviewed.ItistobenotedherethattheassessmentpresentedhereforJalnaisbasedonlyonfewkeyparameters.Foradetailedreview,ashasbeendiscussedinVolumeIofthetoolkit,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.Thekeyperformanceparametersusedhavebeenpresentedbelow:

3.1 Compiling key parameters

Basedonthepreliminaryanalysisofthewatersupplyservicedata11anddiscussionswithJMCofficials,CRISILassessedthecurrentwatersupplysysteminJalna.Table29presentsthe key indicators for assessing the water supply system at Jalna and the inferencestherein.

3.2 Identifi cation of the key issuesAsindicatedearlier,thenextstagefollowingtheassessmentofthewatersupplyservicesin Jalna is that of listing of the key issues which is being faced in the city. After theassessmentoftheservices, theULBshouldnecessarilyclearly listdownall theserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Basedon the statusof thewater supply system, key indicators and the resultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Augmentationofbulkwatersourcetomeetthecurrentandfuturedemandofwater

Rehabilitation and/or replacement of existing transmission and distributioninfrastructuretoreducetechnicallossestominimumacceptablestandards

11Intheabsenceofawaterorenergyauditreport,thedataprovidedbytheMunicipalrepresentativeshasbeenconsideredforalltheassessments.Theactualtechnicallossesmaybemoreorlessthanthatstatedandcanbeverifiedonlyifwaterauditisundertakenalongwithconsumersurvey.

JALNA UTILITY PROFILE

Key infrastructure components

Bulk supply

Shahgad Head works

Ghandewadi Lake

Water Treatment Capacity

Treated water available for consumption

Storage Capacity

9 Elevated Storage Reservoirs

Distribution network

Direct Connections

19 MLD

13 MLD

6 MLD

15 MLD

38 lpcd

10.1 MLD

[Equivalent to 0.6 days of consumption]

22 km

16,814 (35% of total households)

Water Supply Financials (FY-2007-08)

Water Account Revenue

Annual O&M costs

Rs 1.09 crore

Rs 4.24 crore

Tariff

Flat Tariff

1/2 inch

20 mm

1 inch

Rs 806 per annum

Rs 1555 per annum

Rs 3662 per annum

Source: Jalna Municipal Council

BASIC PROFILE OF WATER SUPPLY SERVICES IN JALNATable 28


Installation of meters at all points of bulk distribution and consumption andadoptionofavolumetric-basedtariffsystem12

ImprovementinthefinancialstatusofwateraccountofJMCbyrevisionoftariffrateandstructure,increaseofcoverage,andimprovementincollectionefficiencies1314

12 It may be noted here that per capita water consumption calculations are rough estimates based on analysis of data made available by JMC offi cials. In the absence of water audit report, or estimates on the number of households being supplied with direct service connections, these are at best approximate estimates.

13 The estimate on losses is as per information provided by JMC offi cials.14 Figure refers to current revenue collections against current demand raised.

PERFORMANCE AREA NORM JALNA KEY INFERENCE

Bulk Water

Supply (Per capita treated water available for consumption)

135 lpcd 38 lpcd

Jalna needs to have minimum 135 lpcd of water supply available for consumption as per the CPHEEO norms; the water available at consumption point in Jalna is 38 lpcd (14.2 MLD)12. If the existing transmission and distribution losses are reduced from the current level of 45% to an average of 20%, the water available shall increase by 3.5 MLD and raise per capita availability for consumption to 50 lpcd. Thus, improvement in operational effi ciency shall help in increasing the supply to a limited extent. However, in order to solve the issue in the long term, the city needs to augment its water supply.

Raw water transmission loss

2% 10%Extremely high raw water transmission loss. The transmission losses are extremely high owing to corroded pipelines and theft.

Treatment

Capacity utilization of WTP 100% 100% Within the norms

Treatment Quality Good No improvement needed

Treatment Loss Less than 3% 2% As per norms

Transmission and Distribution

Losses Less than 15% 35% Approximately 15%13 is lost in pure water transmission.

In addition, 20% loss occurs during distribution.

Consumer

Coverage (Connections/Total Households) 100% 70% Assuming that one connection caters to two households,

the city should have ideally 24,000 connections.

Metering 100% 0%

In the absence of metering, JMC cannot realistically estimate the losses in the system and the consumption pattern. Also, in order to ensure that the tariff paid by the consumer is in line with the consumption, JMC needs to introduce a volumetric tariff system. Hence, all the water connections need to be metered.

Duration of water supply 24 hours 1 hour on alternate days

The current supply hours and frequency is not adequate.

O&M cost recovery 100% 26%

The cost recovery levels are highly inadequate. JMC needs to improve not only its operational and collection effi ciency, but also revise its tariff such that at least the operations costs are covered.

Unit production cost

Unit income

Rs. 6.12/KL

Rs. 1.58/KLThe revenue demand raised by JMC covers just 26% of its water production cost.

Collection effi ciency 100% 56%14 Poor level of collection effi ciency.

Source: CRIS analysis on the basis of the data provided by JMC

WATER SUPPLY INDICATORS AND INFERENCES (JALNA) Table 29

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3.3 Review of the water supply projects with approved DPRs

Having identified the key issues in the existing status of provisioning of water supplyservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewof the projects that have already been identified for Jalna under various schemes forimprovementofthewatersupplyservices.JMChasidentifiedthefollowingprojectsforthewatersupplysector.15

4. Step 2: Choice between public funding and PPP option

Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereonandabriefreviewoftheprojectsidentifiedbythecity,thenextstageintheentireprocessasindicatedinSectionIofthetoolkitisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationof theproject.Fordoingso the first step that is required tobeundertaken is thatofundertakingaviabilityassessment.

4.1 Viability assessmentAsmentionedearlierapreliminaryfinancialanalysishasbeenundertakentoassesstheviabilityoftheprojectsidentified.ThisassessmenthasbeenforthepurposedofassessingthecommercialviabilityoftheprojectifitistobedevelopedonaPPPmode.Theviabilityassessment undertaken in the following sections have largely focused on determiningwhetherthepublicsector,viz.,JMCortheprivatesectorhasthefinancialwherewithaltoundertaketheproject.Theinvestmentneedunderboththescenarioshasbeenlookedat.Additionally,forassessingtheviabilityoftheprojectfromtheprivatesectorperspectivetheoptionofaViabilityGapFund(VGF)hasalsobeenconsidered.16

ForundertakingthefinancialanalysisasetofkeyassumptionshavebeenusedwhichhavebeenindicatedinBox1.FromtheDPRreviewpresented,itcanbeobservedthatJalna

15 It is to be noted here that for the purpose of this assessment, a due diligence on the project components and costs has not been undertaken.

16 The grant is 80% of an approved cost of Rs. 123 crores.

POTENTIAL AREA OF INVESTMENT

SCHEME PROPOSED DETAILS

Augmentation of water drawn from Jaikwadi dam

Proposed under UIDSSMT scheme

It includes a source augmentation of 65 MLD, raw water rising main of 46 km and WTP of capacity 24 MLD.

Capex Required (DPR) - Rs 200 crore

Capex required (Escalated cost) - Rs 260 crore

Grant - Rs 111 crore16

JMC’s contribution-Rs. 12 crore contribution plus an escalation of Rs 136 crore.

Rehabilitation and expansion of the distribution network

MJP Scheme approved by GoM

It includes rehabilitation and expansion of 170 km of distribution pipeline.

Capex Required(DPR) - Rs 57 crore

Escalated cost - Rs 71 crore

Grant - Rs - 23 crore

JMC’s contribution-Rs. 34 cr contribution plus an escalation of Rs 14 crore.

PROPOSED WATER SUPPLY PROJECTS (JALNA)Table 30

Source: Project information as provided by JMC


planstoundertakeprojectsworthRs331croreby2011-12.Forthesame,JalnaneedstoarrangeforacapitalinvestmentofRs196crore.ThekeyassumptionsoftheanalysishavebeenoutlinedinBox1.

Based on the assumptions stated in Box 1, the preliminary financial assessmenthas been undertaken to review the viability of undertaking the project under twoscenarios.Thefirstscenario isOption1whereinthe investments identified fortheproposedprojectsismadebyJMC.Thesecondscenario,underOption2iswheretheinvestmentsidentifiedfortheproposedprojectsistobefullyfundedbytheprivatedeveloper.17

Option 1: Public funding-investments by JMC

JMC shall have to investRs 196 croreof capital investment (excluding grant amount)andinaddition,incurtheoperationscostofanaverageofRs23croreperannum.ThisresultsinanetcashoutflowofRs194croreconsideringthewatersupplychargeswhichshallaccruetoJMCandtheoperationalefficienciesofJMC.However,JMCgeneratesarevenuesurplusofonlyRs1.15croreandalreadyhasahugeliabilityofRs153crore.Insuchascenario,JMCshallnotbeabletoundertaketheprojectinanintegratedmanneronitsown.

Option 2: Private funding-investments by private operator

IftheentireinvestmentgapofRs196croreandtheoperationscostofanaverageofRs16croreperannum18upto2030isincurredbytheprivateoperator,theninspiteoftheprivateoperatorretainingthewatersupplyrevenues,theoperatorshallneedaviabilitygapfund(VGF)ofRs141crore.Thisisinspiteoftheimprovedoperationalandmanagerialefficienciesoftheprivateoperator.ThetotalgrantofRs134crore,coupledwithaVGFofRs141crore,shallresultin83%ofthetotalcostbeingfundedbytheGovernment.ThisshalldefeattheessenceofimplementingtheprojectonaPPPbasis.Hence,itisnotfinancially feasibleto implementandoperatethewatersupplysystemonan integratedbasisthroughPPP.

17 It is the weighted volumetric tariff calculated on the basis of the current tariff structure.18 The operations cost incurred by private operator is lower as compared to JMC since he brings in cost effi ciency

of 20%.

KEY ASSUMPTIONS Box 1PARTICULARS ASSUMPTIONS

Phasing of capital expenditure Over a period of 4 years

Raw water transmission losses 2%

Treatment Losses 2%

Distribution Losses 20%-in case of JMC

15%-in case of private operator

Tariff17 A volumetric tariff of Rs 6.42 per KL with a revision of 3% every year. The tariff is fi xed such that it covers the minimum production cost.

Collection Effi ciency Phasing from 56% to 70%-in case of JMC

Phasing from 70% to 95%-in case of private developer

Cost Reduction Effi ciency 0%-in case of JMC

20%-in case of private party up to 2012

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Table31presentstheinvestmentrequirementsundereachoptionoftheinvestment.

Hence,theoptionofdevelopingtheprojectonafullyGovernmentfundedmodeisnotviablegiventhehugeinvestmentneedandthelimitedfundavailabilitywithJMC.Also,theoptionofprivatesectorinvestmentisassessedtobenotviableinitspresentformofPPPstructure.Itis,therefore,prudenttoassesswhetherthePPPoptioncanbestillpursuedunderamodifiedformofPPParrangement.ThealternativePPPstructuringoptionshavebeenexploredinthesectionsbelow.

5. Step 3: Choosing the structure of the PPP arrangement

HavingassessedtheviabilityofdevelopingtheproposedprojectthroughapublicfundedorPPPmode,thenextstepdecisionwhichneedstobemadeisregardingthechoiceofPPPstructurewhichisbestsuitedtoaddresstheoverallneedsoftheproposedproject.

Sincetheintegratedproject includingoperationscannotbeundertakenonaPPPbasis,Option2whichrelatestothePPPscenariohasbeenfurtherreviewedusingalternativePPPstructuringoptions,viz.,Option2(a)and2(b)asindicatedbelow.

Option 2(a) Capital investment by private developer and revenue to be retained by the private developer

Thewatersupplyprojectshallbedesigned,financedandconstructedonaPPPbasisbytheprivatedeveloper.Inreturn,theprivatedeveloperwouldgettherevenuesearnedfromtheconsumersasuserchargesforafixednumberofyears.However,preliminaryanalysisshowsthatthiswillnotbefinanciallyfeasibleandthedeveloperwillneedanadditionalviabilitygapfunding(inadditiontothegrant)ofRs76crore.19

Option 2(b): Operations and maintenance of project under PPP on an annuity basis

Fortheoperationandmanagementofthewatersupplysystem,JMCcontractsanotherprivatepartywhowouldbegivenanannualfixedpaymenttooperatethewatersupplysystem of the town. The private operator would undertake all the operation andmanagementactivityatapredeterminedcostbillandcollecttherevenuesandtransfertherevenuestoJMC.

19 This is assuming that the tariff shall be a volumetric tariff covering the production cost.

PARTICULARSCAPITAL

EXPENDITURE (RS. Crore)

IN CASE OF INVESTMENT BY

JMC

IN CASE OF INVESTMENT BY

PRIVATE OPERATOR

DPR Cost 257

Escalated Cost 331

Grant 134

Investment Gap 196

Total investment required by JMC/Viability Gap to private sector

[NPV@14%] 199 148

INVESTMENT REQUIREMENT WITH A PPPTable 31

Source: Preliminary financial analysis


Fromananalysisofoptions2(a)and2(b), itcanbeconcludedthatPPPforthedesign,financeandconstructionoftheproposedwatersupplyprojectsmaynotbefeasible.Thus,theStategovernmentshallhavetoprovideadditionalfinancialsupportofRs196croretoJMCandputinplacethephysicalinfrastructurefortheproject.Thenaprivatedevelopercan be appointed as per option 2(b) to operate and maintain the project for a fixedpayment.However, if JMC is insistentonensuringcapital investment from theprivateoperator,thenitshallhavetoincreasethetarifforJMCshallneedtore-visittheprojectcostoftheproposedwatersupplysystemandundertakeprojectswhichneedimmediateattentiononly.

Therefore, as per the assessment undertaken above, the choice of PPP option foroverseeingtheoperationsandmanagementofthewatersupplyservicesforJMCisthatofaperformancebasedmanagementcontract.

The performance-based management contract is one where the private developer isrequired to undertake the activity of operation and maintenance of the entire watersupplysystemfromsourcetotheconsumerendincludingmetering,billingandcollectionof revenues.Herein, all thecapital investmentsneeded for improvement to thewatersupplyandsewerageserviceswouldhavetobebornebythepublicsector.TheoperatingstandardsareasprescribedbytheULB.TheprivatedeveloperisgiventherightstolevytheuserchargessetbytheULB,collectthechargesandhandoverthesametotheULB.Fortheactivitiescarriedout,theULBwouldmakeaperformancebasedpaymenttotheprivatedeveloper.

Thedetailsoftheobligations,risksandpaymentarrangementsundertheperformance-based management contract, as mentioned in Option 2(b), have been provided inSectionIIofthisreport.Additionally,thetermsheetforthiscontractstructurehasbeenattachedinSectionIVofthisreport.

6. Step 4: ProcurementForinitiatingtheprocurementprocess,JMCwouldneedtodevelopatransactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthepartiesinvolvedinthecontract,thecontractualrelationshipbetweentheparties,thenatureofthearrangement,theriskallocation, thetariff tobe levied,durationof thecontract, theperformance indicators,paymentterms,awardcriteriaandcontractmanagementstrategy.

ThesamehasbeendetailedinSectionIVofthetoolkit.

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Sangli-Miraj-Kupwad31. Brief introduction to Sangli-Miraj-KupwadIn1998,thetownsofSangli,MirajandKupwad(SMK)weremergedtoformasingleentitycalledtheSangli-Miraj-KupwadMunicipalCorporation(SMKC). Itencompassesanareaof118.18squirekmandhasanestimatednumberof106,000households.SMKChasatotalrevenuebudgetofRs93croreandgeneratesarevenuesurplusofRs5crore.ThewatersupplyworksaremanagedbySMKCitselfandthereexistsadeficitofRs1croreinit’swateraccount.Thus,thecityhasverylimitedinvestmentcapacitytoundertakenewprojects.

2. Water supply system at Sangli-Miraj-Kupwad SMKdraws a totalwater supply of 66MLD, ofwhich, 2MLD is purchased from theMaharashtra IndustrialDevelopmentCorporation(MIDC) fortheKupwadregion.ThepresentsourceofwatersupplytothecityistheKrishnariver.

Therearethreewatertreatmentplants(WTP)inthecitybasedatHirabaug,MalbungalowandMiraj.ThewateravailableatthethreeWTPsis71.4MLD.Thecityreceivestreatedwaterofabout106lpcdattheconsumptionpoint.

ThesupplyhoursvaryfromanaverageofthreetofourshoursadayinSangliandMirajtoanhouradayinKupwad.Thetotalnumberofdirectconnectionsinthecityis48,000,ofwhich85%aremetered.AbasicprofileofthewatersupplysystemofSMKhasbeenpresentedinTable32.

3. Step 1: Identification of the problem areaAsa first step toassessing thestatusof thewatersupplyservices in thecityofSangli-Miraj-Kupwad,theproblemareasintheexistingservicesintheexistingsystemneedstobecarriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.Asthefirstactivitywhichneedstobeundertakeninthisregard,theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed.Itistobenotedherethattheassessmentpresentedhereisbasedonlyonfewkeyparameters.Foradetailedreview,ashasbeendiscussedinSectionIofthetoolkit,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedinTable33.


3.1 Compiling key parametersBasedonthepreliminaryanalysisofthewatersupplyservicedata20anddiscussionswithSMKCofficials,CRISILassessedthecurrentwatersupplysysteminSangli-Miraj-Kupwad.Table33presentsthekeyindicatorsforassessingthewatersupplysystematSangli-Miraj-Kupwadandtheinferencesmadefromtherein.

3.2 Identifi cation of the key issuesThe next stage following the assessment of the water supply services in Sangli-Miraj-Kupwad is that of listing of the key issues which is being faced in the city. After theassessmentoftheservices, theULBshouldnecessarilyclearly listdownall theserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Basedon the statusof thewater supply system, key indicators and the resultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

ShiftingofrawwatersourcefromKrishnarivertoWarnatoimprovethewaterquality

Rehabilitation/replacementofexistingtransmissionanddistributioninfrastructuretoreducetechnicallossestominimumacceptablestandards

Installationofmeters

20 In the absence of a water or energy audit report, the data provided by the Municipal representatives has been considered for all the assessments. The actual technical losses may be more or less than that stated and can be verifi ed only if water audit is undertaken along with consumer survey.

SANGLI-MIRAJ-KUPWAD UTILITY PROFILE


Bulk supply

Sangli

Miraj

Kupwad


Malbungalow

Hirabaug

Miraj

Total


Storage Capacity



Connections

66 MLD

48 MLD

16 MLD

2 MLD

36 MLD

16.2 MLD

19.2 MLD

71.42 MLD

106 lpcd

18.5 MLD

240 km

48,000 [45 % of Total Households]



Annual O&M costs

Rs 15 crore

Rs 16 crore

Tariff Flat tariff

Volumetric tariff

Domestic

Non-Domestic

Special Categories

Rs 320 per month

Source: Sangli Miraj Kupwad Municipal Corporation

BASIC PROFILE OF WATER SUPPLY SERVICES IN SANGLI, MIRAJ AND KUPWAD Table 32

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PERFORMANCE AREA

TYPICAL NORM

SANGLI-MIRAJ-

KUPWADKEY INFERENCE

Bulk Water

Supply

[Per capita treated water available for consumption]

135 lpcd 106 lpcd As per CPHEEO norms, the total water supplied to consumers after treatment should be 135 lpcd. SMKC, currently, supplies 106 lpcd (i.e., 47 MLD). If the transmission losses are reduced from the existing level of 30% to an average of 20%, the water supply available for consumption shall increase by 5.1 MLD, and raise the per capita availability of water to 118 lpcd level at the consumers’ end. This indicates that the city has an immediate need of augmentation of its bulk water supply.

Quality Potentially need for improvement in quality

The banks at the upstream of the Krishna river house several sugar cane industries, which release a large amount of untreated industrial waste into the river. Thus, the water from the Krishna river, especially during the summers, is highly polluted due to high algae content. This results in poor quality of water to the city and overloading of the water treatment plant. Hence, there is a need to change the water source.

Treatment

Installed capacity of the WTP

100% 100% The installed capacity available is suffi cient for treatment of the current bulk supply. Also, the existing treatment plant is utilized to the extent of 92% indicating that there is no immediate need for augmentation of the WTP.

Treatment Loss Less than 3% As per norms


Losses Less than 15%

30% Very High Transmission Losses due to leakages from the old corroded pipes

Consumer

Coverage (Connections/Total Households)

100% 91% Assuming that one connection caters to two households, the city should have ideally 53,000 connections. Additional direct connections need to be provided and the public stand posts should be removed.

Metering/Total Connections

100% 85 % Only 60% of the meters are functional. Thus, meters need to be replaced.

Duration of water supply

24 hours Ranges from 1 hour to 4 hours a day

Not suffi cient. Needs to be improved, losses need to be reduced and operations made more effi cient.

Non revenue water Less than 20%

43% Against a revenue potential of Rs 25 crore21, SMKC raises a water demand of only Rs 14 crore. Thus, a reduction in the technical and commercial losses can generate additional revenue of Rs 11 crore.

O&M cost recovery 100% 93% The tariff in SMK is already high as compared to other cities. There is a need to increase operational effi ciency and reduce energy costs in order to improve cost recovery.

Unit production cost Unit income

6.48 Rs/KL

6.02 Rs/KL

There is a need to increase operational effi ciency and reduce energy costs in order to improve cost recovery.

Collection effi ciency 100% 82% Indicates a scope for improvement in collection effi ciency.

21

21 The revenue potential has been estimated by factoring in quantum of water supplied for distribution vis-a vis the cost involved in per unit production of water supply.

WATER SUPPLY INDICATORS AND INFERENCES FOR SANGLI, MIRAJ AND KUPWADTable 33

Source: CRIS analysis on the basis of data provided by SMKC



Having identified the key issues in the existing status of provisioning of water supplyservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforSangli-Miraj-Kupwadundervariousschemesforimprovementofthewatersupplyservices.SMKChasidentifiedthefollowingprojectsforthewatersupplysector.22


Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereonandabriefreviewoftheprojectsidentifiedbythecity,thenextstageintheentireisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject.Fordoingsothefirststepthatisrequiredtobeundertakenisthatofundertakingaviabilityassessment.

4.1 Viability assessmentAsmentionedearlier apreliminary financial analysishasbeenundertaken to assess theviabilityoftheprojectsidentified.ThisassessmenthasbeenforthepurposedofassessingthecommercialviabilityoftheprojectifitistobedevelopedonaPPPmode.Theviabilityassessment undertaken in the following sections have largely focused on determiningwhetherthepublicsector,viz,SMKCortheprivatesectorhasthefinancialwherewithal

22 It is to be noted here that for the purpose of this assessment, a detailed review of the projects proposed has not been undertaken.

POTENTIAL AREA OF INVESTMENT SCHEME PROPOSED DETAILS

Shifting of raw water source from Krishna river to Warna to improve the water quality


Project 1: For Sangli and Kupwad comprising source augmentation of 58 MLD, distribution network of 100 km, up-gradation of WTP, etc.

Project 2: For Miraj comprising of pumping station, elevated storage reservoir, distribution network, headworks at Krishna river and water treatment plant.

Capex Required (DPR) - Rs 145 crore

Capex Required (Escalated) - Rs 182 crore

JNNURM Grant - Rs 100 crore

SMKC contribution - Rs 11 crore plus escalation of Rs 71 crore

Rehabilitation/replacement of existing transmission and distribution infrastructure to reduce technical losses to minimum acceptable standards.

Under Sujal Nirmal Abhiyan Scheme. It includes a distribution network for the Kupwad region, construction of ESRs at Sangli and Miraj, up-gradation of WTP and construction of pumping stations.

Capex Required (DPR) - 28 crore

Capex required (Escalated)-Rs. 32 crore

Grant - Rs 16.8 crore

SMK contribution -Rs. 15.2 crore

SMKC would need to invest an additional Rs 40 crore for rehabilitation of the distribution network at Sangli.

No proposed scheme

PROPOSED WATER SUPPLY PROJECTS (SANGLI-MIRAJ-KUPWAD) Table 34

Source: Project information as provided by SMKC

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toundertaketheproject.The investmentneedunderboth thescenarioshasbeenlookedat.Additionally,forassessingtheviabilityoftheprojectfromtheprivatesectorperspectivetheoptionofaViabilityGapFund(VGF)hasalsobeenconsidered.

ForundertakingthefinancialanalysisasetofkeyassumptionshavebeenusedwhichhavebeenindicatedinBox2.FromtheDPRreviewpresented, itcanbeobservedthatSMKCplanstoundertakeprojectsworthRs254croreupto2011-12.Forthesame,SMKCneedstoarrangeforacapitalinvestmentofRs137crore.

CRISILundertookapreliminaryfinancialanalysistounderstandtheapplicabilityofPPP for the above-mentioned projects. The key assumptions of the analysis havebeenoutlinedinBox2.

BasedontheassumptionsstatedintheBox2,thepreliminaryfinancialassessmenthasbeenundertakentoreviewtheviabilityofundertakingtheprojectundertwoscenarios.ThefirstscenarioisOption1whereintheinvestmentsidentifiedfortheproposedprojectsismadebySMKC.Thesecondscenario,underOption2iswheretheinvestmentsidentifiedfortheproposedprojectsaretobefullyfundedbytheprivatedeveloper.23

Option 1: Investments by SMKC

SMKCshallhavetoinvestatotalofRs137crore(excludinggrantamount)andinadditionincurtheoperationscostofanaverageofRs37croreperannum24.ThisresultsinanetcashflowofRs123crore(NPV)consideringthattherevenuefromthewatersupplyshallaccruetoSMKCandtheoperationalefficienciesshallbeatamoderaterateasmentionedinTable35.However,SMKCgeneratesarevenuesurplusofRs5croreeveryyear.Thus,itisnotinapositiontoundertaketheinvestmentonitsown.

Option 2: Investment by private operator

If the entire capital gap of Rs 137 crore (including SMKC’s contribution) and theoperationscostofRs28croreperannumupto2030isincurredbytheprivateoperator,then theprivateoperator shall need a viability gap fundingofRs 50 crore.This is inspiteofimprovedoperationalandmanagerialefficienciesbroughtinbythedeveloperasmentionedinTable35andtherevenuebeingretainedbythedeveloper.Thetotalgrant

23 It is the weighted volumetric tariff calculated on the basis of the current tariff structure.24 The operations cost incurred by SMKC is higher as private operator as it has not cost effi ciency.

PARTICULARS ASSUMPTIONS



Treatment Losses 2%

Distribution Losses 20%-in case of SMKC


Tariff 23 A current weighted average tariff of Rs 12.04 per KL with 3% revision every year

Collection Effi ciency 82%-in case of SMKC


Cost Reduction Effi ciency 0%-in case of SMKC


ASSUMPTIONS OF PRELIMINARY FINANCIAL ANALYSISBox 2


ofRs116crorealongwiththeviabilitygaprequirementofRs50croreshallresultin65%ofthetotalcapitalcostbeingfundedbythegovernment.ThiswilldefeatthepurposeofundertakingtheprojectonaPPPbasis.Hence,itisnotfinanciallyfeasibleforaprivateoperatortoinvestandoperateanintegratedwatersupplyproject.

Table35presentstheinvestmentrequirementsundereachoption.

ThedetailsonthefinancialworkingsfortheabovementionedassessmentcanbefoundintheAnnexure.withthistoolkit.

SMKCcannotimplementtheprojectonitsownasitdoesnothavetheinvestmentcapacityofRs123crore.Ontheotherhand,theintegratedwatersupplyprojectandoperationscannotbedoneonaPPPbasis,sinceitresultsin60%offundingfromthegovernment.ThisoptionofPPPstructurehasbeenassessedtobenotviable.Itis,therefore,prudentto assess whether the PPP option can be still pursued under a modified form of PPParrangement.ThealternativePPPstructuringoptionshavebeenexploredinthesectionsbelow.


HavingassessedtheviabilityofdevelopingtheproposedprojectthroughapublicfundedorPPPmode,thenextdecisionwhichneedstobemadeisregardingthechoiceofPPPstructurewhichisbestsuitedtoaddresstheoverallneedsoftheproposedproject.

Sincetheintegratedproject,includingoperations,cannotbeundertakenonaPPPbasis,Option2whichrelatestothePPPscenariohasbeenfurtherreviewedusingalternativePPPstructuringoptions,viz,Option2(a)and2(b)asindicatedbelow:

Option 2(a): Capital Investment by private developer and revenue to be retained by private developer

Thewatersupplyprojectshallbedesigned,financedandconstructedonaPPPbasisbyaprivatedeveloper.TheprivatedevelopershallundertakeanetinvestmenttothetuneofRs137crore.ThisisinclusiveoftheJNNURMgranttobemadeavailabletosuchaprivateoperator.Preliminaryanalysisshowsthatoveraperiodof20years,theprivateoperatorshallearnRs95croreinsuchascenario.Thus,thebiddingparametershallbetheannuitypaymentwhichtheprivatedevelopershallmaketoSMKC.

PARTICULARSCAPITAL

EXPENDITURE

(RS. Crore)

IN CASE OF INVESTMENT AND OPERATIONS BY

SKMC


PRIVATE OPERATOR

DPR Cost 173

Escalated Cost 254

Grant 117

SMKC share (expected) but envisaged to be sourced from Private Operator [A]

18

Viability Gap from Private Sector [B] 119 [NPV@14%] [NPV@14%]

Total investment required (A+B) 137 123.22 50.08

INVESTMENT REQUIREMENT WITH A PPP Table 35


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Option 2(b): Operations and maintenance of project under PPP on an annuity basis

SMKCshallappointaprivateoperatorunderaperformancemanagementcontractfortheoperationsandmaintenanceoftheentirewatersupplysystem.Theprivateoperatorshallbepaidafixedamountonanannualbasis.

Inthisway,theSMKCshallhavetwoPPPcontracts, i.e.,an integrated water supply contract without operations and maintenance contractwhereinthedevelopershallinvestinthesystemandthewatersupplyrevenuesshallaccruetotheprivateoperator,andaperformance-based management contractfor the entire water supply systemwherein the private developer shall operate the entire water supply system, establishmetersandundertakebillingandcollectionactivities.TheprivatedevelopershallbepaidonanannuitybasisbySMKC.

Undertheintegratedwatersupplycontract,theprivatedeveloperwouldmakeinvestmentsin the projects identified by the ULB. However, the private developer would not berequiredtoundertaketheoperationsandmanagementforthewatersupplyoperations.Inreturnfortheinvestmentmadebytheprivatedeveloper,therevenueswhichaccrueto the ULB from the consumers as per the tariff levied would accrue to the privatedeveloperduringthetenureof thecontract.Theresponsibilityofsettingtariff, levyingtariff,collectionoftheuserchargeswouldremainwiththeULB.

The performance-based management contract is one where the private developer isrequired to undertake the activity of operation and maintenance of the entire watersupplysystemfromsourcetotheconsumerendincludingmetering,billingandcollectionof revenues.Herein, all thecapital investmentsneeded for improvement to thewatersupplyandsewerageserviceswouldhavetobebornebythepublicsector.TheoperatingstandardsareasprescribedbytheULB.TheprivatedeveloperisgiventherightstolevytheuserchargessetbytheULB,collectthechargesandhandoverthesametotheULB.Fortheactivitiescarriedout,theULBwouldmakeaperformancebasedpaymenttotheprivatedeveloper.

Thedetailsoftheobligations,risksandpaymentarrangementsundertheperformance-basedmanagementcontract,asmentionedinOption2(b),havebeenprovidedinsectionII.Additionally,thetermsheetforthiscontractstructurehasbeenattachedinsectionIVofthistoolkit.

6. Step 4: ProcurementFor initiating the procurement process, SMKC would need to develop a transactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthepartiesinvolvedinthecontract,thecontractualrelationshipbetweentheparties,thenatureofthearrangement,the risk allocation, the tariff to be levied, duration of the contract, the performanceindicators,paymentterms,awardcriteriaandcontractmanagementstrategy.

ThedetailsofthesamecanbefoundinthetermsheetinsectionIVofthistoolkit.


1. Brief introduction to KolhapurKolhapurcity,morepopularlyknownas“theDoorofKonkan,”isthedistrictheadquartersoftheKolhapurdistrictintheStateofMaharashtraandcoversanareaof66.82square.km with a current population of 5.64 lakh (4.85 lakh as per the 2001 Census). Thetotalnumberofhouseholdsinthecityis120,000.ThecityismanagedbytheKolhapurMunicipalCorporation(KMC)havingatotalrevenuebudgetofRs105crorein2007-08andgeneratinganoverallrevenuesurplusofRs7crore.ThetotalliabilitiesofKMCareestimatedtobeRs100crore.

ThewatersupplyworksforthecityismanagedbyKMC.Fromitswatersupplyservices,KMCgeneratesarevenuesurplusofRs1.53crore.KMChasunpaidliabilitiestothetuneofapproximatelyRs50croreforitswatersupplyoperations.

2. Water supply system at KolhapurKolhapur sources152MLDofwater from the riversofPanchaganga andBhogoti,andKalmbalake.Thesesourcesareatadistanceoflessthan10kmfromthecity.WaterfromthesesourcesissuppliedtothefourwatertreatmentplantslocatedatPulkhadi,Bauda,BalingaandKalmba,andpurewateristransmittedtothedifferentzonesofthecity.

Kolhapurreceivestreatedwatersupplyofapproximately103lpcdlevelsattheconsumptionpoint. Of the 127 MLD of water which is available for distribution, only 58.5 MLD isavailableforconsumptionsincetherestislostduetotechnicalandcommercialleakagesinthedistributionsystem.

Watersupplyhoursvarybetweenthe innercoreof thecityandtheperipheralareas.Whilethemainpartsofthecityreceivewatersupply for15hoursonanaverage,theperipheralareasreceivewaterforonly2hours.Thissupplyisreceivedthroughindividualconnectionsandthroughpublicstandposts.AbasicprofileofthewatersupplysystemofKMChasbeenpresentedintheTable36.

3. Sewerage system at KolhapurTheseweragesystem inKolhapur ismanagedbyKMC.Thecitygenerates80MLDofsewage,whichiscarriedthroughopenchannels/nallahsofDudhaliandJayanti,pumpedtotheSewerageTreatmentPlant(STP)atKasabaBawadaandfurtherdisposedoffintothePanchgangariver.

4Kolhapur

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Theexistingseweragenetworkmeasures50kmandprimarilycaterstotheneedsofthecorecityareas.Theperipheralareasofthecityarelargelydependantonseptictanksfromwhichsewageiscarriedtothenallahs.AbriefprofileoftheseweragesysteminthetownispresentedinTable37andthekeyinferencesdiscussedfurther.

4. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofKolhapur,the problem areas in the existing services in the existing system needs to be carriedout.Doingthiswouldhighlightthe interventionsrequired in improvementtothe levelofservices.Asthefirstactivitywhichneedstobeundertakeninthisregard,theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed.ItistobenotedherethattheassessmentpresentedhereforJalna isbasedonlyonfewkeyparameters.Foradetailedreview,ashasbeendiscussedinVolumeIofthetoolkit,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.Thekeyperformanceparametersusedhavebeenpresentedbelow:

KOLHAPUR UTILITY PROFILE


Bulk supply



Storage Capacity


5 Ground Storage Reservoirs


Connections

152 MLD

153 MLD

100 lpcd

30 MLD (Equivalent to 30% of treated supply)

15.1 MLD

400 km

83,000 ( 69% of total households)



Annual O&M costs

Rs 21.11 crore

Rs 19.58 crore

Tariff

Volumetric tariff

Upto 20,000 litres consumption

20,000-40,000 litres consumption

> 40,000 litres consumption

Rs.140 bi-monthly

Rs 8 per KL

Rs 9 per KL

Source: Kolhapur Municipal Corporation

BASIC PROFILE OF WATER SUPPLY SERVICES IN KOLHAPUR Table 36

KOLHAPUR UTILITY PROFILE - Sewerage System


Sewage generated

Sewerage Treatment Capacity

Kasaba Bawada

Sewerage network

Current disposal practice

80 MLD

45 MLD

50 km

Treated and untreated waste is dumped into the river Panchganga

Financials (FY-2007-08) Sewerage Revenues

Sewerage annual O&M costs (FY 2007-08)

No revenues from sewerage

Rs 10 lakh per annum

Sewerage Charges Tariff No sewerage charge levied


BASIC PROFILE OF SEWERAGE INFRASTRUCTURE IN KOLHAPURTable 37


4.1 Water Supply

Compiling key parameters

Basedonthepreliminaryanalysisofthewatersupplyservicedata25anddiscussionswithKMCofficials,CRISILassessed thecurrentwatersupply system inKolhapur.Table38presents thekey indicators forassessingthewatersupplysystematKolhapurandtheinferencestherein.26


26 The loss levels here take into account transmission loss, treatment loss and distribution loss. Treatment and raw water transmission loss has been estimated to be at minimal acceptable levels as understood from KMC offi cials.

PERFORMANCE AREA NORM KOLHAPUR KEY INFERENCE

Bulk Water

Supply (Per capita treated water available for consumption)

135 lpcd 103 lpcd Although Kolhapur sources water of 152 MLD (269 lpcd), the water available for consumption to the consumer is just 103 lpcd as a result of high transmission and distribution losses. If the existing transmission and distribution losses are reduced from the current level of 71% to an average of 22%, the water available shall increase by 64 MLD and raise per capita availability for consumption to 217 lpcd.

Thus, in order to increase the water supply, the city does not need to augment the source but focus on reduction of the existing transmission, treatment and distribution losses in the system.

Quality Poor Quality of Water

About half of the population of Kolhapur gets polluted water since the present source is located downstream of the sewage discharge. This is primarily due to the fact that major polluted nallahs like Jayanthi and Dhudhali carry waste water and sewage from the un-sewered parts of the city, and dump it into the Panchganga river. This has been causing pollution of the river downstream.

Raw water transmission Less than 2% 11% Extremely high raw water transmission losses. The transmission losses are extremely high owing to corroded pipelines and theft.

Treatment

WTP capacity 100% 99% The existing installed capacity of the WTPs is suffi cient and caters to the entire water supply. However, the WTP at Bawada is not functioning properly being obsulute, and requires up-gradation.

Treatment loss Less than 3% 6% The treatment loss is high on account of an obsolete treatment plant, resulting in more than acceptable levels of losses.


Losses Less than 15% 54%26 The transmission losses are extremely high due to corroded water transmission pipelines and illegal connections approximating to 10% of the total connections.

The losses are at alarming levels and require immediate intervention in terms of replacement, rehabilitation of pipelines, improved operational effi ciencies and reduction of illegal connections.

WATER SUPPLY INDICATORS FOR KOLHAPUR Table 38

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Identifi cation of the key issues

ThenextstagefollowingtheassessmentofthewatersupplyservicesinKolhapuristhatof listingofthekeyissueswhichisbeingfacedinthecity.Aftertheassessmentoftheservices, theULBshouldnecessarilyclearly listdownall theserviceand infrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Rehabilitation and/or replacement of existing transmission and distributioninfrastructuretoreducetechnicallossestominimumacceptablestandards

Augmentationor improvements to the existing treatment plant to reduce thetreatmentlosses

Improvementinthewaterqualityofthecitybyestablishinganadequateseweragesystemandimprovingitsefficiencies

Improved management of the distribution network including installation andmaintenanceoftheinstalledmeters

Sincethepollutionoftherawwatersourceinthecityisdirectlylinkedtotheexistingstatusofsewerageinfrastructure,ithasbeenjudgedprudenttoaddresstheissuesofthesewagesectorofthecity.Areviewofthesewerageinfrastructurehasbeencarriedout.Abriefontheseweragesectoranditsassessmentispresentedinthefollowingsub-sections.27282930

27 In the absence of accurate information on the number of households served by each connection, it has been assumed that one connection serves 2 households.

28 In some zones of Kolhapur water is supplied for only 2 hours in a day while few other zones in the city receive supply for 15 hours in a day.

29 Though a 100% O&M cost recovery is indicative of effi cient management of water supply system, in the case of KMC, this does not depict a correct picture owing to the high T&D losses, commercial losses and the high NRW loss levels.

30 Figure refers to current revenue collections against current demand raised.

PERFORMANCE AREA NORM KOLHAPUR KEY INFERENCE

Consumer

Coverage 95-100% 100%27 Assuming that one connection caters to two households, the city should have ideally 60,000 connections. The city has 23,000 connections higher than the ideal number of connections in addition to the 3000 public stand posts.

Metering 100% 100% All the connections are metered; however only 80% are functional, indicating commercial loss due to incorrect readings and approximations from the faulty meters.

Duration of water supply 24 hours 2-15 hours each day28

The supply hours vary across the city. Efforts need to be made to increase the current supply hours across the city.

O&M cost recovery 100% 100%29 The water account of KMC showed a surplus of Rs 1.53 crore in 2007-08. A full cost recovery indicates the implementation of rational tariff levels.


Unit income

Rs 3.53 per KL

Rs 3.80 per KL

The current per unit (KL) revenue realisation are at satisfactory levels.

Collection effi ciency 100% 67%30 Collection effi ciencies are low. KMC has arrears amounting to Rs 6 crore. The overall effi ciency levels therefore need to be improved substantially.

Source: CRIS analysis and data provided by KMC


4.2 Sewerage sector

Compiling key parameters

Basedonthepreliminaryanalysisofsewerageservicedata31anddiscussionswithKMCofficials,CRISILassessedthecurrentseweragesysteminKolhapur.Table39presentsthekeyindicatorsforassessingtheseweragesystematKolhapur.

Identifi cation of the key issues

Basedonthestatusoftheseweragesystem,keyindicatorsandtheinferences,thefollowingareashavebeenearmarkedforinvestmentonaprioritybasis:

AugmentationoftheSTPexpansionoftheseweragenetworkinthecityRehabilitation/replacementofexistingrisingmainsandpipelines


Havingidentifiedthekeyissuesintheexistingstatusofprovisioningofwatersupplyandsewerageservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforKolhapurundervariousschemesforimprovementofthewatersupplyservices.KMChasidentifiedthefollowingprojectsforthewatersupplysector.32



KEY SEWERAGE INDICATORS FOR KOLHAPURPERFORMANCE AREA NORM KOLHAPUR KEY INFERENCE

Sewerage Infrastructure

Coverage 95-100% 35%

The current sewerage pipelines cover only 35% of the total extent of the city. Geographically, the pipelines are present only in the core parts of the city, leaving the peripheral and newly developed areas un-sewered. Also, the existing pipelines are approximately 40 years old and corroded, requiring rehabilitation/replacement.

Treatment capacity 100% 38%

The existing STP has an installed treatment capacity of 45 MLD. However, the STP is obsolete as a result of which it treats a very small quantity of sewage. There is an immediate need to upgrade and augment the treatment capacity of the STP to ensure 100% treatment.

DisposalUntreated sewage disposed in the river

This results in contamination of the river, leading to health problems and violation of environmental norms.

Consumer

O&M cost recovery 100% 0 %Since KMC does not charge sewerage charges, the operations costs are met from the general budget of KMC.

Source: CRIS analysis on the basis of data provided by KMC

Table 39

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5. Step 2: Choice between public funding and PPP option33

Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereonandabriefreviewoftheprojectsidentifiedbythecity,thenextstageintheentireprocessisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject.Fordoingso,thefirststepthatisrequiredtobeundertakenisthatofundertakingaviabilityassessmentasindicatedbelow.

5.1 Viability assessmentAsmentionedearlierapreliminaryfinancialanalysishasbeenundertakentoassesstheviabilityoftheprojectsidentified.ThisassessmenthasbeenforthepurposedofassessingthecommercialviabilityoftheprojectifitistobedevelopedonaPPPmode.Theviabilityassessment undertaken in the following sections have largely focused on determiningwhetherthepublicsector,viz,KMCortheprivatesectorhasthefinancialwherewithaltoundertaketheproject.Theinvestmentneedunderboththescenarioshasbeenexamined.Additionally,forassessingtheviabilityoftheprojectfromtheprivatesectorperspectivetheoptionofaViabilityGapFund(VGF)hasalsobeenconsidered.

Fromtheaboveanalysis, itcanbeobservedthatKolhapurplanstoundertakeprojectsworthRs280croreby2011-12.KolhapurneedstoarrangeforacapitalinvestmentofRs198croretoexecutetheseprojects.

ApreliminaryfinancialanalysishasbeenundertakeninthecontextofexploringaPPP-basedalternativetofundtheprojectrequirementatKolhapur.ThekeyassumptionswhichhavebeenconsideredarepresentedatBox3.

BasedontheassumptionsstatedinBox3,thepreliminaryfinancialassessmenthasbeenundertakentoreviewtheviabilityofundertakingtheprojectundertwoscenarios.ThefirstscenarioisOption1whereintheinvestmentsidentifiedfortheproposedprojectsismadebyKMC.Thesecondscenario,underOption2iswheretheinvestmentsidentifiedfortheproposedprojectsistobefullyfundedbytheprivatedeveloper.

33 The approved cost is Rs. 32 crores only.

Proposed Area Of Investment

Scheme Proposed Details

Augmentation of capacity of water treatment plant and rehabilitation of transmission lines


It includes the augmentation of the WTP by 36 MLD, 60 km of distribution network, 10 km of raw water rising main and pumping machinery.

Capex Required(DPR): Rs 59 crore

Capex required (Escalated cost): Rs 70 crore

UIDSSMT grant: Rs 53.1 crore

KMC’s contribution: Rs 5.9 crore

plus escalation cost of Rs 12 crore

STP augmentation and expansion of the sewerage network

UIDSSMT:

80 MLD STP, pumping stations and distribution network

Capex Required (DPR): Rs 175 crore

Capex required (Escalated cost): Rs 210 crore

UIDSSMT grant: Rs 28.8 crore33

KMC’s contribution: Rs 3.2 crore

Plus escalation and unapproved cost of Rs 178 crore

PROPOSED WATER SUPPLY AND SEWERAGE PROJECTS AT KOLHAPURTable 40



Option 1: Public funding-Investment and operations by KMC3435

KMCshall have to invest a total ofRs 198.90 crore (excluding grant amount) and, inaddition,incurtheoperationscostofanaverageofRs46croreperannum36.ThisresultsinanetcashoutflowofRs134crore(NPV)consideringthattherevenuefromthewatersupplyandsewerageshallaccruetoKMCandtheoperationalefficienciesatamoderaterateasmentionedinTable40.Although,KMCgeneratesarevenuesurplusofRs7crore,ithasliabilitiesofmorethanRs100crore.Insuchascenario,KMCisnotinapositiontoinvestinthisproject.

Option 2: Private funding-Investment and operations by private operator

IftheentirecapitalgapofRs198.9crore(includingKMC’scontribution)andtheoperationscost ofRs 28 crore per annumup to 2030 is incurred by the private operator, thenthe private operator shall earn Rs 30 crore (net present value). This is primarily duetotheimprovedoperationalandmanagerialefficienciesbroughtinbytheDeveloperasmentionedinTable41andtherevenuebeingretainedbytheDeveloper.Thereby,theprojectcanbeundertakenonaPPPbasis.

Table41presentstheinvestmentrequirementsundereachoption.

34 It is the weighted volumetric tariff calculated on the basis of the current tariff structure.35 The tariff assumed is the weighted volumetric tariff calculated on the basis of the current tariff structure.36 The operations cost incurred by KMC is higher than private operator as it does not bring cost effi ciency.




Treatment Losses 2%

Distribution Losses 30%-in case managed by KMC

15%-in case managed by private developer

Tariff34 Rs 7.9535 per KL with 3% revision every year

Collection Effi ciency Phased from 67% to 80%-in case managed by KMC

Phased from 80% to 90%-in case managed by private developer

0%-in case managed by KMC

Cost Reduction Effi ciency 20%-in case managed by private party upto 2011

KEY ASSUMPTIONS Box 3

PARTICULARS CAPITAL EXPENDITURE

(Rs crore)

IN CASE OF INVESTMENTS

AND OPERATIONS BY KMC

IN CASE OF INVESTMENTS AND

OPERATIONS BY PRIVATE OPERATOR

DPR Cost 234

Escalated Cost 281

Grant 82

KMC share (expected) but envisaged to be sourced from Private Operator [A]

9.1

Gap from Private Sector [B] 189.8 [NPV@14%] [NPV@14%]

Total investment required Party A+B 198.9 134 -30.15

INVESTMENT REQUIREMENT WITH A PPP Table 41


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ThedetailsonthefinancialworkingsfortheabovementionedassessmentcanbefoundintheAnnexurewiththistoolkit.

Fromtheaboveanalysis, it isunderstoodthattheoptionofdevelopingtheprojectona fullygovernment fundedmode isnotviablegiven thehuge investmentneedand thelimited fund availability with KMC. However, the second option of investments beingmadebytheprivatedeveloperandalsotheoperationsandmanagementoftheservicesbeingmanagedbytheprivatedeveloperisassessedtobeviableoption.Thisisbecauseof the high operational efficiencieswhich the private developerwould bring in to theoperationsofwatersupplyandsewerageservices,whichwouldmaketheprojectviablefortheprivatedeveloper.


HavingassessedtheviabilityofdevelopingtheproposedprojectthroughapublicfundedorPPPmodeoffunding,thenextstepdecisionwhichneedstobemadeisregardingthechoiceofPPPstructurewhichisbestsuitedtoaddresstheoverallneedsoftheproposedproject.

Since the above mentioned structure wherein the private developer would make theinvestments inthedevelopmentofthewatersupplyandsewerageservices,andwouldalsooverseetheoperationsandmanagementofthesewerageservices,thefeasiblePPPstructureforKolhapuristhatofanintegratedconcessionagreementforwatersupplyandsewerageservicesincludingoperationsandmanagementofthesystem.

An integrated concession agreement for water supply and sewerage services is a PPPcontract wherein the private developer would be required to undertake investmentsforcreationofassets inthewatersupplyandseweragevaluechainandwouldalsoberequiredtoundertaketheoperationandmaintenanceoftheentiresystemfortheperiodof the concession.Asper this concession agreement, theprivatedeveloperwould berequiredtodesign,finance,construct,operateandmanagethewatersupplyandsewerageservicesfortheconcessionperiod.Thecapitalinvestmentrequiredforundertakingtheaugmentationworkswouldbemetwhollyorpartlybytheprivatedeveloper.Theprivatedeveloper would recover the investments made by way of collection and retain userchargesleviedonconsumers.Anychangetothetariff,therateofescalations,etc.wouldbedeterminedbytheULB.

Thedetailsoftheobligations,risksandpaymentarrangementsundertheperformance-basedmanagementcontract,asmentionedabovehavebeenprovidedinsectionIIofthistoolkit.Additionally, the termsheet for this contract structure is in section IVof thisreport.

7. Step 4: ProcurementForinitiatingtheprocurementprocess,KMCwouldneedtodevelopatransactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthepartiesinvolvedinthecontract,thecontractualrelationshipbetweentheparties,thenatureofthearrangement,theriskallocation, thetariff tobe levied,durationof thecontract, theperformance indicators,paymentterms,awardcriteriaandcontractmanagementstrategy.

ThedetailsofthesamecanbefoundinthetermsheetinsectionIVofthistoolkit.


1. Brief introduction to VirarVirar is a suburban city to thenorthofMumbai. It is located in theThanedistrictofMaharashtraandcoversanareaof19.6squarekm.Thecurrentpopulationofthecityis2.46lakh(1.19lakhasper2001Census)withatotalnumberof99,740household.ThecityisgovernedbytheVirarMunicipalCouncil(VMC).VMChasatotalrevenuebudgetofRs70crore(2007-08)witharevenuesurplusofRs39lakh.Besides,VMChasliabilitiesofapproximatelyRs17crore.

Watersupplyworks(i.e.fromsourceaugmentationtotreatment)forVirarismanagedaspartofajointschemewiththreeothercitiesviz.,Vasai,Navghar-Manikpur,andNalasopara.TheschemeismanagedbyajointcommitteeformedbythefourULBsandajointaccountismaintainedforthesame.

2. Water supply system at VirarVirar with a total water supply of 27 MLD draws water from two sources i.e. Suryaheadworks(17kms)andtheUzgaonheadworks(60kms).FromtheSuryaheadworks(100MLD)i.e.thejointschemeforfourcities,Virarissupplied20MLDandfromtheUzgaonheadworks7MLD.ThetotalquotaavailabletoViraris36MLD.

Thetotaltreatedwatersupplyavailableforconsumptionis21MLD(85lpcd).Waterisavailableforthreehourseverydayandissuppliedthroughindividualconnectionsandpublicstandposts.Thetotalnumberofdirectconnectionsis9200ofwhichnonearemetered.AbasicprofileofthewatersupplysystemofVMChasbeenpresentedintheTable42.

3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofVirar,ananalysisoftheproblemareasintheexistingservicesintheexistingsystemneedstobecarriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.As the firstactivitywhichneeds tobeundertaken in thisregard, theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed.Itistobenotedherethattheassessmentpresentedhereisbasedonlyonfewkeyparameters.Foradetailedreview,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyaudit

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fortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedinTable43.3738

3.1 Compiling key parameters39

Basedonthepreliminaryanalysisofwatersupplyservicedata37anddiscussionswithVMCofficials,CRISassessedthecurrentwatersupplysysteminVirar.Table43presentsthekeyindicatorsforassessingthewatersupplysystematVirar.

37The loss levels include transmission loss, and distribution loss. Treatment and raw water transmission loss have been estimated to be at minimal acceptable levels as understood from VMC offi cials. In the absence of meters, the leakages in the distribution network cannot be accurately established

38As per VMC offi cials, one connection serves 12 households39In the absence of a water or energy audit report, the data provided by the ULB representatives has been

considered for all the assessments. The actual technical losses may be more or less than that stated and can be verifi ed only through water audit.

VIRAR UTILITY PROFILE


Bulk supplyWater availability for consumptionWater Treatment Capacity

Surya headworks ( joint scheme)Uzgaon

Storage Capacity5 Elevated Storage Reservoirs

2 Ground Storage ReservoirsDistribution networkConnections

27 MLD85 lpcd

100 MLD20 MLD

4.9 MLD2.75 MLD70 km9200


Water Account Revenue Annual O&M costs

Rs 8.26 crore Rs 8.80 crore

Tariff Flat tariff structure Rate differs depending upon type of property and type of connection i.e. Rs 40 p.m. for slums, Rs 120 p.m. for fl ats, etc.

Source: Virar Municipal Council

BASIC PROFILE OF WATER SUPPLY SERVICES IN VIRARTable 42

PERFORMANCE AREA NORM VIRAR KEY INFERENCE

Bulk Water

Supply (Per capita consumption)

135 lpcd 85 lpcd Reduction of losses from 20% to 15% and utilisation of the entire quota of 36 MLD increases water availability to 120 lpcd. Hence, there is no urgent need to augment water supply to Virar.

Treatment

WTP capacity 100% 100% There may be a need to increase the capacity of the WTP if the water supply is increased. However, there is no urgent need for the same.

Treatment loss Less than 3% 2% Loss levels are as per acceptable standards


Losses Less than 15% 22%38 Moderate level of losses. Primarily distribution losses due to leaking pipelines. The loss level can be brought down by improved operational effi ciency including better leakage management.

Consumer

Coverage 95% to 100% 100%39 This is inclusive of only direct service connections.

Metering 100% 0% No meters have been meters installed at the consumer end; a fl at tariff structure is prevalent.

KEY WATER SUPPLY INDICATORS FOR VIRARTable 43


PERFORMANCE AREA NORM VIRAR KEY INFERENCE

Duration of water supply 24 hours 3 hours each day

Inadequate supply hours. The supply hours need to be increased.

O&M cost recovery 100% 94 % There exists a defi cit of Rs 50 lakh largely on account of high energy bills. Need to implement energy saving measures and ensure improved operational effi ciencies. Illegal connections need to be identifi ed and reduced.


Unit income

Rs 8.93/KL

Rs 8.38/KL

Per unit revenue realisation is at moderate levels. However, it can be further improved to ensure full cost recovery.

Collection effi ciency 100% 78%40 Collection effi ciencies need to be improved substantially.

Source: CRIS analysis and discussions with VMC officials

SL NO.

PROPOSED AREA OF INVESTMENT


1 Augmentation of water supply under the current joint scheme (Surya headworks) for the four cities

Project for source augmentation of 125 MLD for supply to all the municipal councils. To be executed by MMRDA

DPR Cost:

Rs 672.90 crore

2 Augmentation of water supply for Vasai-Virar Municipal Councils

Project for source augmentation of 300 MLD. To be executed by MMRDA

Capital Cost: Rs 1100 crore (approximate).

DPR currently under preparation

3 Installation of Meters No Proposed Scheme

Source: Virar Municipal Council and MJP

PROPOSED WATER SUPPLY PROJECTS Table 44

3.2 Identifi cation of the key issues40

The next stage following the assessment of the water supply services in Virar is thatof listingofthekeyissueswhichisbeingfacedinthecity.Aftertheassessmentoftheservices,theULBshouldnecessarilylistdownalltheserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Repairandrehabilitationoftheidentifiedstretchofdistributionnetworktoreducelossesduetopipelineleakages

Increasedoperationalefficienciesespeciallyatthedistributionend

Installation of meters at all points of bulk distribution and consumption andadoptionofavolumetricbasedtariffsystem

3.3 Review of the water supply projects Having identified the key issues in the existing status of provisioning of water supplyservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewof the projects that have already been identified for Virar under various schemes forimprovement of the water supply services. VMC has identified projects mentioned atTable44forthewatersupplysector.41

40 Figure refers to current revenue collections against current demand raised.41 It is to be noted here that for the purpose of this assessment, a due diligence on the project components and

costs has not been undertaken.

KnowledgeSeries122

ThesourceaugmentationprojectsmentionedinTable44arecurrentlyunderpreparationandnoapprovalsforeitheroftheprojectshavebeenreceived.Sincethecurrentproposalisatbestanestimateandnodecisionhasbeentakenonthesame,theseprojectshavenotbeenconsideredwhileexploringthePPPalternativesforwatersupplyoperationsatVirar.


Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereonandabriefreviewoftheprojectsidentifiedbythecity,thenextstageintheentireprocessisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject.

However, as per the project assessment, currently no major capital investment workis envisaged to be undertaken by the Council. Discussion with VMC officials indicatethatforreductionindistributionlosses,therehabilitationof26kmofpipelinewouldbeundertakenasapartofregularongoingcivilworksofVMC,andnoseparateprojectneedstobedevelopedforthesame.ThisindicatesthatthecurrentoperationsandmanagementofthewatersupplybyVMCissatisfactory.

Insuchascenario,thekeyareaofimprovementisinstallationofmetersandimprovedefficiencyinbillingandcollection.ApreliminaryfinancialanalysishasbeenundertakeninthecontextofexploringPPPforundertakingthemetering,billingandcollectionactivity.

4.1 Viability assessmentAsindicatedabove,thekeyareaofimprovementintheoverallwatersupplyservicesinVirar isthatof introductionofmetering inthesystem.ThismaybedoneunderaPPPstructurewhereintheactivityofmetering,billingandcollectionofwatersupplychargesisoutsourcedtoaprivateoperator.Theviabilityassessmenthavebeencarriedout inthecontextofassessingwhetherVMCshouldundertakethe investmentsrequired forinstallationofmeters,theiroperationandmanagementandalsogeneratebillsandcollectthesame,orwhetherthesameactivitycanbemanagedbetterbyaprivatedeveloper.

ForundertakingthefinancialanalysisasetofkeyassumptionshavebeenusedwhichhavebeenindicatedintheBox4.

BasedontheassumptionsstatedinBox4,thepreliminaryfinancialassessmenthasbeenundertakentoreviewtheviabilityofundertakingtheprojectundertwoscenarios.ThefirstscenarioisOption1whereintheinvestmentsidentifiedfortheproposedmetering,billingandcollectionactivity ismadebyVMC.Thesecondscenario,underOption2iswheretheinvestmentsidentifiedfortheproposedmetering,billingandcollectionactivityistobefullyfundedbytheprivatedeveloper.

Option 1: Public funding-Metering, billing and collection by VMC

VMCshallhave to investa totalcapitalexpenditureofRs5crore ( in the firstyear)and also incur an operations cost of Rs 1.3 crore per annum. With metering and avolumetrictariff,VMCshallearnwatersupplychargesofRs39croreby2013.VMCwitharevenuesurplusofjustRs0.39croredoesnothavethepotentialofincurringsuchkindofexpenditure.Thereby,itisnotinapositiontoincurthisinvestmentonit’sown.


Option 2: Private funding-Metering, billing and collection by a private operator

Ifaprivateoperatorundertakesthemetering,billingandcollectionactivity,thentheprivateoperatorshallincuratotalcapitalexpenditureofRs5crore(inthefirstyear)inadditiontoanoperationcostofRs1croreperannum.ThewatersupplychargesgeneratedshallbeRs45croreby2013.VMCshallhavetopayaminimumannuitypaymenttotheprivateoperator.

Thus,VMCcanundertakethemetering,billingandcollectionactivitythroughPPPwhereinVMC need not incur an expenditure of Rs 5 crore upfront and also earns additionalrevenueofaroundRs10croreupto2013asaresultof theoperationalandrevenuecollectionefficiencyoftheprivateentity.42


HavingassessedtheviabilityofdevelopingtheproposedprojectthroughapublicfundedorPPPmodeofthenextdecisionwhichneedstobemadeisregardingthechoiceofPPPstructurewhichisbestsuitedtoaddresstheoverallneedsoftheproposedproject.

Since the above mentioned structure wherein the private developer would make theinvestmentsfortheinstallationofthemetersandwouldalsoberesponsibleforoverseeingtheiroperationsandgeneratebillsandcollectthesame,thePPPstructuresuitablehereisthatofaPPPagreementforMetering, Billing and Collection.

Undertheservicemanagementcontractformetering,billingandcollection,theprivatedeveloperwouldberequiredtoundertakeinvestmentsforinstallationofmetersattheconsumerend,overseetheiroperationandmaintenance,maintainacomputerizeddatarecordingsystem,generatebillsandcollectuserchargesfromtheconsumers.Theprivatedeveloperwouldnotberequiredtoundertakeanyotheractivityintheentirechainofwatersupplyservices.Thetypeofmetertobeinstalledandthenumberofconnections

42 Virar Municipal Council has an existing tariff schedule of Rs. 8 per KL volumetric tariff in case of metered connections.

KEY ASSUMPTIONS Box 4


Cost of a meter ( including installation charges) Rs. 4000 per meter

Cost of computer software Rs. 1,00,000 (one-time cost)

Maintenance cost of meters 8% of capex.

Computer software maintenance cost 15% of capex.

Meter connection charges Rs. 1000 per meter

Increase in water tariff 3% per annum

Population growth rate (CAGR) 9.5% per annum

Tariff Volumetric tariff of Rs 8 per KL42

Collection Effi ciency78%-in case of VMC

95%-in case of PPP

Period of contract/evaluation Period of 5 years upto 2013

Cost Reduction effi ciency (O&M costs)0%-in case of VMC

20%-in case of PPP

KnowledgeSeries124

wherethemeteristobeinstalledwouldbespecifiedbytheULB.ThetarifftobeleviedwouldalsobedeterminedbytheULB.TheperformancestandardslaidoutbytheULBwouldspecifytherevenuecollectionstargettobeachieved,theextentofmeterfunctionallevels which need to be maintained, etc. The cost of purchase of the meter and theinstallationofthesamewouldbegenerallyrecoveredbytheprivatedeveloperfromtheconsumersaspartofthewatersupplyservicebills.

For theoperation andmaintenance activity undertakenby theprivatedeveloper, a fixedannuitypaymentismadebytheULB.Thisannuityamountwouldgenerallybethebiddingparameter.

6. Step 4: ProcurementForinitiatingtheprocurementprocess,VMCwouldneedtodevelopatransactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthepartiesinvolvedinthecontract,thecontractualrelationshipbetweentheparties,thenatureofthearrangement,theriskallocation, thetariff tobe levied,durationof thecontract, theperformance indicators,payment terms, award criteria and contract management strategy. The details can befoundinthetermsheetinVolumeIVofthistoolkit.


1. Brief introduction to Navghar ManikpurThecityofNavgharManikpurformsapartoftheThanedistrictofMaharashtra.LocatedincloseproximitytothesuburbancityofVirar,thecityhasanareaof16.5squarekmcoveringacurrentpopulationof2.16lakhresidents(1.16lakhasper2001Census).ThecityismanagedbytheNavgharManikpurMunicipalCouncilandhasanestimated54,000households.TheCouncil has a total revenue budgetofRs 60 crore (2007-08)with arevenuesurplusofRs62lakh.

WatersupplyworksforNavgharManikpurismanagedaspartofajointschemeof120MLDwiththreeothercities,viz.,Vasai,VirarandNallasopara.Together,thesefourcitieshavea jointcommitteewhichmanagesthebulkwatersupply, treatmentandsupplyoftreatedwatertothefourcities.NavgharManikpurMunicipalCouncilgeneratesrevenuestothetuneofRs7lakhfromitswatersupplyoperations.

2. Existing water supply system NavgharManikpurdrawsatotalwatersupplyof24MLD.However,itstotalquotaavailableunderboththeschemesis32MLD.Thetotaltreatedwateravailableforconsumptiontothecitizensis18.4MLD(85lpcd).Waterisavailableforthreehourseverydayandissuppliedthroughindividualconnections.Thetotalnumberofdirectconnections inthecityis5,541andtheseareallun-metered.AbasicprofileofthewatersupplysystemoftheCouncilhasbeenpresentedinTable45.

3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofNavgharManikpur, examination of the problem areas in the existing services in the existingsystemneedstobecarriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.Asthefirstactivitywhichneedstobeundertakenin this regard, the service assessment has been undertakenon the basis of a few keyperformancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed.ItistobenotedherethattheassessmentpresentedhereforNavgharManikpurisbasedonlyonfewkeyparameters.Foradetailedreview,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedinTable46.

6Navghar Manikpur

KnowledgeSeries126

3.1 Compiling key parametersBased on the preliminary analysis of the water supply service data43 of the NavgharManikpurMunicipalCouncilanddiscussionswithit’sofficials,CRISassesseditscurrentwatersupplysystem.Table46presentsthekeyindicatorsforassessingthesystem.4445


44 The loss levels here take into account raw water transmission loss, and pure water distribution loss. Treatment and raw water transmission loss has been estimated to be at minimal acceptable levels as understood from the offi cials. In the absence of meters, the leakages in the distribution network cannot be accurately established.

45 As per Navghar Manikpur Municipal Council offi cials, one connection serves 2 households.

PERFORMANCE AREA

NORM NAVGHAR MANIKPUR

KEY INFERENCE

Bulk Water


135 lpcd 85 lpcd Reduction of distribution losses from 20% to 15% and utilisation of the entire water supply quota of 32 MLD increases the water availability to 120 lpcd. Hence, there is no urgent need to augment water supply to Navghar Manikpur.

Treatment

WTP capacity 100% 100% No urgent need for increasing the capacity of the WTP.

Treatment loss Less than 3% 2% Loss levels are as per acceptable standards.


Losses Less than 15% 22%44 Moderate level of losses. Primarily frictional losses and can be brought down by improved operational effi ciency including better leak management.

Consumer

Coverage 95-100% 100%45 This is inclusive of only direct service connections.

Metering 100% 0% No meters have been installed at the consumer end; a fl at tariff structure is prevalent.

KEY WATER SUPPLY INDICATORS FOR NAVGHAR MANIKPURTable 46

NAVGHAR MANIKPUR UTILITY PROFILE


Bulk supply 24 MLD

Treated Water available for consumption 100 lpcd


Surya headworks (joint scheme)

Uzgaon

100 MLD

20 MLD

Storage Capacity



2.6 MLD

1.85 MLD

Distribution network 108 km

Connections 5541


Water Account Revenue Rs 7.75 crore

Annual O&M costs Rs 7.68 crore

Tariff Flat tariff structure Rs 120 p.m. for residential connections

Rs. 1500 p.m. for industrial connections

Source: Navghar Manikpur Municipal Council

BASIC PROFILE OF WATER SUPPLY SERVICES IN NAVGHAR MANIKPURTable 45



Aftertheassessmentofthewatersupplyservices,theULBshouldnecessarilyclearlylistdownalltheserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Needstoundertakealeakagestudytocapturethelossesinthedistributionsystem;and

Installmeterstounderstandthepatternofconsumptionandlevyanun-biasedtariff.

3.3 Review of the water supply projectsThenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforNavgharManikpurundervariousschemesforimprovementofthewatersupplyservices.FromdiscussionswiththeofficialsatNavgharManikpur,itisunderstoodthatprojectsintheareasindicatedinTable47arebeingplanned.

ThesourceaugmentationprojectmentionedintheTableiscurrentlyunderpreparationand no approval has been received. Since the current proposal is at best an estimateandnodecisionhasbeentakenonthesame,thisprojecthasnotbeenconsideredwhileexploringthePPPalternativesforwatersupplyoperationsatNavgharManikpur.


ThenextstageintheentireprocessisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeof developing and implementationof the project.As per the assessment,

46 Figure refers to current revenue collections against current demand raised.

PERFORMANCE AREA

NORM NAVGHAR MANIKPUR

KEY INFERENCE


Inadequate supply hours. The supply hours need to be increased.

O&M cost recovery 100% 100 % Full cost recovery indicates the implementation of rational tariff levels and an overall effi ciency in management of water supply activity.


Unit income

8.77 Rs/KL

8.85 Rs/KL

The current per unit (KL) revenue realisation are at satisfactory levels.

Collection effi ciency 100% 95%46 Collection effi ciencies are at satisfactory levels.

Source: CRIS analysis and data from Navghar Manikpur Municipal Council

SL NO.



1 Augmentation of water supply under the current joint scheme

Proposed project for source augmentation of 125 MLD for supply to all the municipal councils. To be executed by MMRDA.

Capex required (DPR):

Rs 672.90 Cr

2 Installation of meters No proposed scheme

Source: Navghar Manikpur Municipal Council and MJP

KEY WATER SUPPLY PROJECTS PLANNED/PROPOSED Table 47

KnowledgeSeries128

thereisnomajorcapitalinvestmentneededandtheoperationofthewatersupplysystemis at a satisfactory level. In such a scenario, theonly areaof improvement is ensuringthatall connectionsaremeteredandtheconsumersarechargedonthebasisof theirconsumption.Thiswillalsoreducethewastageofwater.

Therefore,thekeyareaofimprovementisinstallationofmetersandimprovedefficiencyinbillingandcollection.ApreliminaryfinancialanalysishasbeenundertakeninthecontextofexploringPPP,forundertakingthemetering,billingandcollectionactivity.

4.1 Viability assessmentAsindicatedabove,thekeyareaofimprovementintheoverallwatersupplyservicesinVirar isthatof introductionofmetering inthesystem.ThismaybedoneunderaPPPstructurewhereintheactivityofmetering,billingandcollectionofwatersupplychargesisoutsourcedtoaprivateoperator.TheviabilityassessmenthavebeencarriedoutinthecontextofassessingwhetherNavgharManikpurMunicipalCouncilshouldundertaketheinvestmentsrequiredforinstallationofmeters,theiroperationandmanagementandalsogeneratebillsandcollectthesame,orwhetherthesameactivitycanbemanagedbetterbyaprivatedeveloper.

Forundertakingthepreliminaryfinancialanalysis,asetofkeyassumptionshavebeenusedwhichhavebeenindicatedinBox5.

BasedontheassumptionsindicatedinBox,thepreliminaryfinancialassessmenthasbeenundertakentoreviewtheviabilityofundertakingtheprojectundertwoscenarios.ThefirstscenarioisOption1whereintheinvestmentsidentifiedfortheproposedmetering,billingandcollectionactivityismadebyNavgharManikpurMunicipalCouncil.Thesecondscenario,underOption2iswheretheinvestmentsidentifiedfortheproposedmetering,billingandcollectionactivityistobefullyfundedbytheprivatedeveloper.47

Option 1: Metering, billing and collection by Navghar Manikpur Municipal Council

TheMunicipalCouncilshallhavetoinvestatotalcapitalexpenditureofRs4crore(inthefirstyear)andalsoincuranoperationscostofRs1croreperannum.Withmetering

47 In the absence of any GB Resolution, the volumetric tariff of a town of similar nature has been considered.

KEY ASSUMPTIONSBox 5


Cost of a meter ( including installation charges) Rs. 4000 per meter

Cost of computer software Rs. 1,00,000 (one-time cost)

Maintenance cost of meters 8% of capex.

Computer software maintenance cost 15% of capex.

Meter connection charges Rs. 1000 per meter

Increase in water tariff 3% per annum

Population growth rate (CAGR) 2.55% per annum

Tariff Volumetric tariff of Rs 8 per KL47

Collection Effi ciency 93%-in case of both SWMC and PPP

Period of contract/evaluation Period of 5 years upto 2013

Cost Reduction effi ciency (O&M costs) 0%-in case of SWMC

20%-in case of PPP


andavolumetrictariff,theMunicipalCouncilshallearnwatersupplychargesofRs48croreby2013.

Option 2: Metering, billing and collection by a private operator

SincetheNavgharManikpurisefficientinthemanagementofitsoperationsandhasahighrevenuecollectionefficiency,thereislimitedscopefortheprivateoperatortobringinfurtherefficiency.Thereby,theprivateoperatortoowillincurthesameamountofcapitalexpenditureandgeneratealmostequivalentwaterchargesasmentionedinOption1.

Hence,PPP inmetering,billingandcollectionshallnotbehighlybeneficial toNavgharManikpurMunicipalCouncil. It can implement themetering activity byobtaining grantfromGovernmentschemesincludingMaharashtraSujalNirmalAbhiyan.


HavingassessedtheviabilityofdevelopingtheproposedprojectthroughapublicfundedorPPPmodeofthenextstepdecisionwhichneedstobemadeisregardingthechoiceof PPP structure which is best suited to address the overall needs of the proposedproject.

Since the above mentioned structure wherein the private developer would make theinvestmentsfortheinstallationofthemetersandwouldalsoberesponsibleforoverseeingtheiroperationsandgeneratebillsandcollectthesame,thePPPstructuresuitablehereisthatofaPPPagreementforMetering, Billing and Collection.

Undertheservicemanagementcontractformetering,billingandcollection,theprivatedeveloperwouldberequiredtoundertakeinvestmentsforinstallationofmetersattheconsumerend,overseetheiroperationandmaintenance,maintainacomputerizeddatarecordingsystem,generatebillsandcollectuserchargesfromtheconsumers.Theprivatedeveloperwouldnotberequiredtoundertakeanyotheractivityintheentirechainofwatersupplyservices.ThetypeofmetertobeinstalledandthenumberofconnectionswherethemeteristobeinstalledwouldbespecifiedbytheULB.ThetarifftobeleviedwouldalsobedeterminedbytheULB.TheperformancestandardslaidoutbytheULBwouldspecifytherevenuecollectionstargettobeachieved,theextentofmeterfunctionallevels which need to be maintained, etc. The cost of purchase of the meter and theinstallationofthesamewouldbegenerallyrecoveredbytheprivatedeveloperfromtheconsumersaspartofthewatersupplyservicebills.

Fortheoperationandmaintenanceactivityundertakenbytheprivatedeveloper,afixedannuitypaymentismadebytheULB.Thisannuityamountwouldgenerallybethebiddingparameter.

6. Step 4: ProcurementForinitiatingtheprocurementprocess,NavgharManikpurMunicipalCouncilwouldneedtodevelopatransactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthe parties involved in the contract, the contractual relationship between the parties,the nature of the arrangement, the risk allocation, the tariff to be levied, duration ofthe contract, the performance indicators, payment terms, award criteria and contractmanagement strategy.Thedetails canbe found in the termsheet in section IVof thisreport.

KnowledgeSeries130

1. Brief introduction to ShirpurShirpurisacitylocatedintheDhuledistrictofMaharashtra.Withacurrentpopulationof75,000(61,294asper2001Census),thecityinrecentyearshasseenanincreaseinitsindustrialactivity.Thecityisspreadoveranareaof9squarekmandhasanestimated12,000 households. The city is managed by the Shirpur Warvade Municipal Council(SWMC).SWMChasatotalrevenuebudgetofRs9.69crorewithasurplusinitsrevenueaccounttothetuneofRs3.76crore(2007-08).

ThewatersupplyworksinthecityismanagedbySWMCanditincursadeficittothetuneofRs9lakhfromitswatersupplyoperations.Thecity,however,hasnounpaidliabilitiesonitswateraccount.

2. Existing water supply system at ShirpurShirpurhasatotalwatersupplyof9MLD.Thecityhas2mainwatersourcei.e,Tapiriver(atadistanceof8.5km)andtheKarvandDam(atadistanceof8km).Thetreatedwateravailableforconsumptionis97lpcd.Waterissupplieddailyforoneandahalfhour.Thetotalnumberofdirectconnectionstothecityis9,249,allofwhicharenotmetered.AbasicprofileofthewatersupplysystemofSWMChasbeenpresentedintheTable48.

3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofJalna,theproblemareas in the existing services in the existing systemneeds tobe carriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelof,Theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed.ItHoweverforadetailedreview.TheULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedinTable49.

7Shirpur


3.1 Compiling key parametersBased on the preliminary analysis of water supply service data48 and discussions withSWMC officials, CRIS assessed the current water supply system in Shirpur. Table 49presentsthekeyindicatorsforassessingthewatersupplysystematShirpur.4950


49 As per SWMC offi cials, there is no loss at the distribution end. In the absence of bulk meters and consumer end meters, there is no accurate method to ascertain the loss level. It is assumed that minimum of 15% losses are inevitable due to friction and leakages. For analysis purpose, therefore the minimal loss levels have been considered.

50 SWMC offi cials indicate that one connection serves 5 households. However, it would be prudent for SWMC to undertake water supply audits and also maintain detailed consumer database to ensure full coverage levels.

SHIRPUR UTILITY PROFILE


Bulk supplyTapi river Karvand DamWater availability after treatmentWater Treatment Capacity

Ganesh Colony + Wazari RoadStorage Capacity

4 Elevated Storage Reservoirs2 Ground Storage Reservoirs

Distribution networkConnections

9 MLD4 MLD5 MLD97 lpcd

12 MLD

6.6 MLD2.3 MLD34 km9,249


Water Account RevenueAnnual O&M costs

Rs 0.97 croreRs 1.06 crore

Tariff Flat Tariff (Domestic (p.a)Non-Domestic (p.a)Special categories (p.a.)

Rs 1,000 Rs 4,600 Rs 2,000

Source: Shirpur Municipal Council

BASIC PROFILE OF WATER SUPPLY SERVICES IN SHIRPUR Table 48

PERFORMANCE AREA NORM SHIRPUR KEY INFERENCEBulk WaterSupply

(Per capita treated water available for consumption)

70 lpcd 97 lpcd The treated water available for consumption is 97 lpcd (7.3 MLD) which is higher than the CPHEEO norm of 70 lpcd for towns with piped water supply without sewerage systems. The city therefore does need to immediately augment its bulk water supply.

TreatmentWTP capacity 100% 100% The current installed WTP capacity is suffi cient and has

been operating as per the required standards.Treatment loss Less than 3% 3% The treatment loss levels are considered to be as per norm. Transmission and DistributionLosses Less than 15% 15%49 Minimal transmission losses. The current levels do not

therefore require replacement or rehabilitation of pipelines.Consumer Coverage (Connections/Total Households)

100% 100%50 On an average, in SWMC, each connection serves fi ve households. Therefore, the existing connections indicate full coverage. The city has no public stand posts.

KEY WATER SUPPLY INDICATORS FOR SHIRPUR Table 49

KnowledgeSeries132


The next stage is that of listing of the key issues which is being faced in the city.Aftertheassessmentoftheservices,theULBshouldnecessarilyclearlylistdownalltheserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Installationofmetersandadoptionofavolumetric-basedtariffsystem

Undertakingwatersupplyandenergyauditstoascertainlosslevels

3.3 Review of the water supply projects AsperdiscussionswithSWMCofficials,itisunderstoodthatcurrentlynoprojectshavebeenproposedinthewatersupplysectorforShirpur.


Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesin the city, identificationof key issues thereon and a brief reviewof the projectsidentified by the city, the next stage in the entire process is the choice that is tobemadebetween thepublicmodeof funding and implementationof theproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject.

Aspertheassessment,there isnomajorcapital investmentneededandtheoperationofthewatersupplysystemisatasatisfactorylevel.Insuchascenario,theonlyareaofimprovementisensuringthatallconnectionsaremeteredandtheconsumersarechargedonthebasisoftheirconsumption.Thiswillalsoreducethewastageofwater.

Therefore, the key area of improvement is installation of meters and improvedefficiencyinbillingandcollection.Apreliminaryfinancialanalysishasbeenundertakenin thecontextofexploringPPP forundertaking themetering,billingandcollectionactivity.

51 Collection effi ciency has been measured against current demand raised vis-à-vis the current collections.

PERFORMANCE AREA NORM SHIRPUR KEY INFERENCEMetering/Total Connections 100% 0% No meters are installed at the consumer end. A fl at tariff

system based on the pipe diameter is prevalent. Duration of water supply 24 hours 1.25 hours

each dayThe number of supply hours need to be increased.

O&M cost recovery 100% 91% The current cost recovery levels require to be improved. It would be important to review the fl at rates and adopt a volumetric tariff structure to refl ect more accurate revenue demand levels.


Rs.3.24/KL

Rs.2.95/KL


Collection effi ciency 100% 93%51 Collection effi ciency level is satisfactory.

Source: CRIS analysis and discussion with SWMC officials


4.1 Viability assessmentThekeyareaof improvement intheoverallwatersupplyservices inShirpur is thatofintroductionofmeteringinthesystem.ThismaybedoneunderaPPPstructurewherein theactivityofmetering,billingandcollectionofwatersupplycharges isoutsourcedtoaprivateoperator.TheviabilityassessmenthavebeencarriedoutinthecontextofassessingwhetherSWMCshouldundertaketheinvestmentsrequiredforinstallationofmeters,theiroperationandmanagementandalsogeneratebillsandcollectthesame,orwhetherthesameactivitycanbemanagedbetterbyaprivatedeveloper.

ForundertakingthepreliminaryfinancialanalysisasetofkeyassumptionshavebeenusedwhichhavebeenindicatedintheBox6.

Basedon theseassumptions, thepreliminary financial assessmenthasbeenundertakentoreviewtheviabilityofundertakingtheprojectundertwoscenarios.ThefirstscenarioisOption 1wherein the investments identified for the proposedmetering, billing andcollectionactivityismadebySWMC.Thesecondscenario,underOption2iswheretheinvestments identifiedfortheproposedmetering,billingandcollectionactivity istobefullyfundedbytheprivatedeveloper.52

Option 1: Metering, billing and collection by Shirpur Warvade Municipal Council

SWMCshallhavetoinvestatotalcapitalexpenditureofRs5crore(inthefirstyear)andalsoincuranoperationscostofRs1croreperannum.Withmeteringandavolumetrictariff, SWMC shall earn water supply charges of Rs 5 crore by 2013. SWMC with arevenuesurplusofRs3.76crorehasthecapacitytoinstallandmaintainmeters.

Option 2: Metering, billing and collection by a private operator

Since Shirpur efficiently manager of its operations and has a high revenue collectionefficiency, there is limitedscope fortheprivateoperatortobring in furtherefficiency.Thus, theprivateoperatormay also incur the sameextentof capital expenditure andgeneratealmostequivalentrevenuesfromwaterchargesasmentionedinOption1.

Hence, PPP in metering, billing and collection may not be highly beneficial to ShirpurWarvadeMunicipalCouncil.Itcanimplementthemeteringactivitythroughfundingfrominternal fundsorbyobtainingagrantfromgovernmentschemesincludingMaharashtraSujalNirmalAbhiyan.

52 In the absence of any GB Resolution, the volumetric tariff of a town of similar nature has been considered.

KEY ASSUMPTIONS Box 6PARTICULARS ASSUMPTIONS

Cost of a meter ( including installation charges) Rs. 4000 per meterCost of computer software Rs. 1,00,000 (one-time cost)Maintenance cost of meters 8% of capex.Computer software maintenance cost 15% of capex.Meter connection charges Rs. 1000 per meterIncrease in water tariff 3% per annumPopulation growth rate (CAGR) 2.55% per annumTariff Volumetric tariff of Rs 8 per KL52

Collection Effi ciency 93%-in case of both SWMC and PPPPeriod of contract/evaluation Period of 5 years upto 2013Cost Reduction effi ciency (O&M costs) 0%-in case of SWMC

20%-in case of PPP

KnowledgeSeries134

AKOT UTILITY PROFILEKey infrastructure components

Bulk supply

Wan Dam

Bore well

Water availability for consumption

Water Treatment Capacity ( for the joint scheme)

Storage Capacity

Elevated Storage Reservoirs


Connections

3.4 MLD

1.9 MLD

1.5 MLD

27.4 lpcd

16 MLD

1.81 MLD

38 km

6,913Water Supply Financials(FY-2007-08)

Water account revenue

Annual O&M costs

Rs 0.46 crore

Rs 1.44 crore

1. Brief introduction to AkotThecityofAkotisaclassBMunicipalCouncilintheAkoladistrictofMaharashtra.ThecityisgovernedbytheAkotMunicipalCouncil(AMC)andencompassesanareaof14.34squarekm.Withacurrentpopulationof1lakh(81,000asperthe2001Census)thecityhasanestimated18,600households.AMChasatotalrevenuebudgetofRs7.21crore(2007-08)andgeneratesarevenuesurplusofRs0.04crore.

Thewatersupplyworksincludingthebillingandcollectionactivityiscurrentlyoperatedand managed by Maharashtra Jeevan Pradhikarna (MJP). All the revenue income andexpenditureactivityforthewatersupplyworksaretherebyfullyoverseenbyMJP.

2. Existing water supply systemAkotwithatotalwatersupplyof3.4MLDdrawswaterprimarilyfromtheWanDam.Itreceiveswaterfromajointscheme(includingAkotand84villagesinthesurroundingareas) operated by MJP. The total treated water available for the citizens is 2.8 MLD(27.4lpcd).Waterisavailableforthreehourseachdayandissuppliedthroughindividualconnectionsandpublicstandposts.AbasicprofileofthewatersupplysystemofAMChasbeenpresentedintheTable50.

8Akot

BASIC PROFILE OF WATER SUPPLY SERVICES IN AKOTTable 50


3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofAkot,theexaminationofthisproblemareasintheexistingservicesintheexistingsystemneedstobecarriedout.Thiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.Theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria,Thekeyissuesinthecurrentsystemidentifiedandtheexistingprojectsreviewed.Itistobenotedherethattheassessmentpresentedhereisbasedonfewkeyparameters.Foradetailedreview,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedinTable51.

3.1 Compiling key parametersBasedonthepreliminaryanalysisofwatersupplyservicedata53anddiscussionswithAMCofficials,CRISassessedthecurrentwatersupplysysteminAkot.Table51presentsthekeyindicatorsforassessingthewatersupplysystematAkotandtheresultantinferences.54


54 In the absence of 100% metering, it is not possible to accurately estimate the actual levels of distribution loss. The loss level assumed here as per MJP offi cials.

AKOT UTILITY PROFILETariff Flat Tariff

Domestic (p.a)Volumetric Tariff

Commercial (p.a)DomesticCommercial

15mm: Rs 300 20mm: Rs 460 25mm: Rs 890

15mm: Rs 100 20mm: Rs 205 25mm: Rs 385Rs. 10.20 per KLRs. 46.20 per KL

Source: MJP and Akot Municipal Council

KEY WATER SUPPLY INDICATORS FOR AKOT Table 51PERFORMANCE AREA TYPICAL NORM AKOT KEY INFERENCE

Bulk Water

Supply


70 lpcd 29 lpcd The level of water supply to the city is highly inadequate. The city needs to augment its bulk water supply immediately.

The carrying capacity of the raw water transmission lines is inadequate to source additional raw water from the source. The size of the transmission lines need to be augmented.

Treatment

WTP capacity 100% 100% The installed capacity of WTP is part of the combined scheme for Akot and 84 surrounding villages. 22% of the installed capacity of WTP is utilized for Akot. If the bulk water supply to the city is augmented signifi cantly, there may arise, a need for augmentation of the WTP.

Treatment loss Less than 3% 3% Current loss levels are as per minimal acceptable standards.


Losses Less than 15% 15%54 The current loss levels are as per minimal acceptable levels.

KnowledgeSeries136

3.2 Identifi cation of the key issuesAftertheassessmentofthemainsupplyservices,theULBshouldlistalltheserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.Thefollowingareasappeartoneedinvestmentonaprioritybasis

Augmentationofbulkwatersupplytothecity

100%metering

Improvementintheoveralloperationalefficienciesofthesystem


AMCandMJPhave,undertheUIDSSMTscheme, identifiedtheprojectsmentioned inTable52forthewatersupplysector.55


Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereandtheprojectsidentifiedbythecity,thenext


Source: CRIS analysis based on data given by MJP and Akot Municipal Council

PERFORMANCE AREA TYPICAL NORM AKOT KEY INFERENCE

Consumer

Coverage 95% to 100% 74% Assuming that each connection serves two households, the city should have at least 9300 connections. The coverage needs to be improved.

Metering 100% 10 % All the connections should be metered.

Duration of water supply 24 hours 3 hours Inadequate supply hours.

O&M cost recovery 100% 32 % The high production cost coupled with poor collection effi ciency results in poor level of recovery.


11.24 Rs/KL

3.60 Rs/KL

Per unit realization is extremely low.

Collection effi ciency 100% 18% The level of collection effi ciency is extremely poor and needs to be improved drastically.

Source: MJP and Akot Municipal Council


Augmentation of bulk water supply to Akot city from the existing Wan Dam source and expansion of the distribution network in the city.


It includes augmentation of water supply by 21 MLD, construction of raw water rising mains, augmentation of the WTP capacity to 21 MLD, and expansion of the distribution network by 80 km

DPR cost: Rs 45 Cr, of which 20 cr is approved

Total capital cost(incl. escalation): Rs 54 Cr

UIDSSMT grant-Rs 18 Cr

AMC’s contribution-Rs 36 Cr

PROPOSED WATER SUPPLY PROJECTS (AKOT)Table 52


stageintheentireprocessisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject.Fordoingsothefirststepthatis required tobeundertaken is thatofundertakingaviabilityassessmentas indicatedbelow:

4.1 Viability assessmentAsmentionedearlierapreliminaryfinancialanalysishasbeenundertakentoassesstheviabilityoftheprojectsidentified.ThisassessmenthasbeenforthepurposedofassessingthecommercialviabilityoftheprojectifitistobedevelopedonaPPPmode.Theviabilityassessment undertaken in the following sections have largely focused on determiningwhetherthepublicsector,viz.,AMCortheprivatesectorhasthefinancialwherewithaltoundertaketheproject.Theinvestmentneedunderboththescenarioshasbeenexamined.Additionally,forassessingtheviabilityoftheprojectfromtheprivatesectorperspectivetheoptionofViabilityGapFunding(VGF)hasalsobeenconsidered.

Forundertakingthefinancialanalysisasetofkeyassumptionshavebeenusedwhichhavebeen indicated inBox7. From theDPR reviewpresented, it canbeobservedthatAkotplanstoundertakeprojectsworthRs54croreby2011-12.CRISundertooka preliminary financial analysis to understand the applicability of PPP to the above-mentionedproject.Thekeyassumptionsofthepreliminaryanalysishavebeenoutlinedin Box 7. Based on the assumptions indicated in Box 7, the preliminary financialassessment has been undertaken to review the viability of undertaking the projectundertwoscenarios.

Option1: Public funding-investments by AMC5657

AMCwouldhavetoinvestatotalofRs36crore(excludinggrantamount)andinadditionincurtheoperationscostofanaverageofRs3.5croreperannum58.Thisresultsinanetcashflow(NPV)ofRs37crore.However,AMChasarevenuesurplusofRs0.04croreonly.Thus,itisnotinapositiontoundertakesuchinvestment.

56 It is the weighted volumetric tariff calculated on the basis of the current tariff structure.57 As per MJP offi cials, Rs4.20 has been currently decided to be the new tariff rate post implementation of the

scheme. The current tariff of Rs. 10.20 per KL shall be applicable only up to 2011-2012.58 The operations cost incurred by AMC is higher than the private operator since it does not have cost effi ciency.

ASSUMPTIONS OF PRELIMINARY FINANCIAL ANALYSIS Box 7


Phasingofcapitalexpenditure Overaperiodof4years

Rawwatertransmissionlosses 2%

TreatmentLosses 2%

DistributionLosses 20%-incasemanagedbyAMC15%-incasemanagedbyAMC

Tariff56 Rs4.2057perKLwith3%revisioneveryyear

Collectionefficiency Phasedfrom18%to70%-incaseofAMCPhasedfrom30%to90%-incaseofprivatedeveloper

CostReductionefficiency(Onoperations) 0%-incasemanagedbyAMC20%-incasemanagedbyprivateparty(onlyupto2015)

KnowledgeSeries138

Option 2: Private funding-investments by private developer

IftheinvestmentgapofRs36croreandtheyear-on-yearoperationcostofRs1.35crore(considered up till 2030) is to be incurred by the private developer, then the privatedeveloperwouldrequireaviabilitygapfundingodRs23crore.Thisisinspiteofimprovedoperationalandmanagerialefficienciesbroughtinbythedeveloperandrevenueretainedbythedeveloper.TheexistingUIDSSMTgrantofRs17.6croreandtheVGFrequirementofRs23croreindicate76%ofthetotalprojectcostbeingfundedbytheGovernment.ThishighextentofgrantrequirementwouldthereforedefeatthepurposeoftakinguptheprojectonaPPPbasis.Hence,itmaynotadvisabletoundertaketheprojectonaPPPbasis.Table53presentstheinvestmentrequirementundereachoftheoptions.

ThisAMCmayfinditdifficulttoimplementtheprojectonitsownanditdoesnothavethefinancialcapabilitytomeettheinvestmentgap.Similarly,evenifaprivatedeveloperweretoundertaketheinvestments,theoverallaccountwouldcontinuetobeinadeficitanditshallnotbeprofitablefortheprivatedevelopereither.With76%fundingfromtheGovernment,itisnotfeasibletohaveaconcessionforthisprojectonaPPPbasis.


HavingassessedtheviabilityofdevelopingtheproposedprojectthroughapublicfundedorPPPmodeofthenextstepdecisionwhichneedstobemadeisregardingthechoiceofPPPstructurewhichisbestsuitedtoaddresstheoverallneedsoftheproposedproject.

Fromtheviabilityassessmentundertaken,itisobservedthattheinvestmentrequirementsfortheprojectarelargeandAMConitsownwouldnotbeabletodevelopandoperateandmanagetheproject.Also,assessmentoftheprivatesectorviabilityforundertakingtheprojectalsoindicatesthattheprojectisnotcommerciallyfeasibleforaprivatedevelopergiventhecurrentinvestmentrequirementsandtheoperationcostsinvolved.

InsuchascenariotheStateGovernmentshallhavetoprovideadditionalfinancialsupporttoputinplacethephysicalinfrastructurefortheproject.However,foroperationsandmanagementofthewatersupplysystem,aprivatedevelopercanbeappointedunderaperformancebasedmanagementagreement.

The performance-based management contract is one where the private developer isrequired to undertake the activity of operation and maintenance of the entire water

PARTICULARS CAPITAL EXPENDITURE

(RS. Crore)


AMC


PRIVATE OPERATOR

DPR Cost 45.6

Escalated Cost 53.5

Grant 17.6

AMC share (expected) but envisaged to be sourced from Private Operator [A]

1.95

Viability Gap funding for Private Sector [B] [NPV@14%] [NPV@14%]

Total investment required (A+B) 35.9 37 23

INVESTMENT REQUIREMENT WITH A PPPTable 53


supplysystemfromsourcetotheconsumerendincludingmetering,billingandcollectionof revenues.Herein, all thecapital investmentsneeded for improvement to thewatersupplyandsewerageserviceswouldhavetobebornebythepublicsector.TheoperatingstandardsareasprescribedbytheULB.TheprivatedeveloperisgiventherightstolevytheuserchargessetbytheULB,collectthechargesandhandoverthesametotheULB.Fortheactivitiescarriedout,theULBwouldmakeaperformancebasedpaymenttotheprivatedeveloper.

Thedetailsoftheobligations,risksandpaymentarrangementsundertheperformance-basedmanagementcontract,havebeenprovidedinsectionIIofthisreport.Additionally,thetermsheetforthiscontractstructureisinsectionIVofthistoolkit

6. Step 4: ProcurementForinitiatingtheprocurementprocess,AMCwouldneedtodevelopatransactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthepartiesinvolvedinthecontract,thecontractualrelationshipbetweentheparties,thenatureofthearrangement,theriskallocation, thetariff tobe levied,durationof thecontract, theperformance indicators,payment terms, award criteria and contract management strategy. The details can befoundinthetermsheetinsectionIVofthisreport.

KnowledgeSeries140

1. Brief introduction to Saoner SaonerisatownandatehsilheadquartersofthenorthpartofNagpurdistrictintheStateofMaharashtra.Thetownhasanareaof3.8squarekmandacurrentpopulationof30,000(28,712 as per 2001 Census). The town is managed by the Saoner Municipal Council(SMC)andhasanestimated8,000households.

ThewatersupplyworksaremanagedbySMCitself.SMCincurredadeficittothetuneofRs39lakhonitswatersupplyoperationsin2007-2008.TheCouncil,however,hasnounpaidliabilitiesonitswateraccount.

2. Existing water supply system Saonerhasatotalwatersupplyof1.86MLD,ofwhich,1MLDisfromtheKananriver(12kmfromcity)and0.86MLDfromtheKolarriver(2kmsfromcity).TherearetwoWaterTreatmentPlants(WTP)inthetownlocatedattheKolarheadworkssite,andtheotheratKhaparroad.

Saonerreceivestreatedwatersupplyofapproximately47litrespercapitaday(lpcd)attheconsumptionpoint.Watersupplyisprovidedonanaverageforanhoureachdayandis supplied through individual connections andpublic standposts.The townhas3,694directserviceconnections.AbasicprofileofthewatersupplysystemofSMChasbeenpresentedinTable54.

9Saoner

BASIC PROFILE OF WATER SUPPLY SERVICES IN SAONERSAONER UTILITY PROFILE

Bulk supply

Kanan river

Kolar river


Kolar river

Khapar road

Water availability after treatment

Storage Capacity



Connections

1.86 MLD

1 MLD

0.86 MLD

1.89 MLD

5 MLD

46 lpcd

11.5 MLD

32 km

3,694

Table 54


3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecityofSowner,theexaminationoftheproblemareasintheexistingservicesintheexistingsystemneedstobecarriedouttohighlighttheinterventionsrequiredinimprovementtothelevelofservices.The service assessment has been undertaken on the basis of a few key performancecriteria.Toidentifythekeyissuesinthecurrentsystemandtheexistingprojects.ItistobenotedherethattheassessmentpresentedhereforSaonerisbasedonlyonfewkeyparameters.Foradetailedreview, theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedinTable55.

3.1 Compiling key parametersBasedonthepreliminaryanalysisofwatersupplyservicedata59oftheSMCanddiscussionswiththerepresentativesofSMC,afewkeyindicatorsoftheefficiencyandadequacyofwatersupplyserviceshavebeendeveloped.TheseindicatorshighlightthekeyissuesfacedbySMCinthewatersupplysector.60


60 As per CPHEEO norms, the total water supplied to consumers after treatment should be 70 lpcd for towns with piped water supply and no sewerage system.

SAONER UTILITY PROFILE



Annual O&M costs

Rs 0.31 crore

Rs 0.52 crore

Tariff Flat Tariff

Domestic (p.a)

Non-Domestic (p.a)

½ inch: Rs 926

¾ inch: Rs 1,795

1 inch: Rs 4,022

½ inch: Rs 4,060

¾ inch: Rs 7,738

1 inch: Rs 16,872

Source: Saoner Municipal Council

PERFORMANCE AREA TYPICAL NORM

SAONER KEY INFERENCE

Bulk Water

Supply


70 lpcd60 47 lpcd The water available for consumption is very low. The sand content at the source is extremely high. As a result, the jackwell gets blocked and SMC is unable to draw suffi cient water. There is no need for augmentation of the source. The necessary machinery for sorting of sand needs to be set.

Treatment

WTP capacity 100% 100% The capacity of the existing treatment plant exceeds the requirement. Since the current bulk supply is much lower than the installed capacity, the utilization of the WTP is limited to 27%. There is no immediate need for augmenting the WTP capacity.

Loss Less than 3% 2% As per norms

KEY WATER SUPPLY INDICATORS FOR SAONER Table 55

KnowledgeSeries142


Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Bulkwatersupplyaugmentation

Increasingthewatersupplybysettingupasandsiftingmachinerynearthesource

Rehabilitationandorreplacementofexistingrawwater transmission linesandexpansionofdistributionnetwork

establishmentofmetersforallwaterconnections


ThenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforJalnaundervariousschemesforimprovementofthewatersupplyservices.InthecontextoftheissuesfacedatSaoner,SMChasproposedawatersupplyproject.TheDPRfortheproposedprojectisatpresentinitsfinalstagesofcompletionandtheprojectisyettobesubmittedforapproval.ThedetailsoftheproposedwatersupplyprojectsatTable56.Sincetheproposaliscurrentlybeingprepared,therearenoescalationcoststobeconsidered.

61 As per SMC offi cials, one connection serves one household unit.

PERFORMANCE AREA TYPICAL NORM

SAONER KEY INFERENCE


Losses Less than 15% 25% Moderate level of transmission losses. However, raw water transmission loss levels are high due to corroded pipelines and would need to be repaired/replaced to contain the losses to minimum acceptable standards. In the absence of consumer meters, accurate estimates of the distribution loss cannot be ascertained.

Consumer


46%61 Poor coverage levels. The low coverage has been accounted to inadequate distribution network. The current distribution network is a part of a 40-year-old scheme and requires expansion. Additional direct connections need to be provided.

Metering/Total Connections 100% 0 % All water connections need to be provided with meters.

Duration of water supply 24 hours 1 hour supply on an average

Current levels are not adequate and need to be increased.

O&M cost recovery 100% 25% Poor cost recovery levels. The current tariff levels would require revision. Additionally, SMC would need to pursue cost reduction effi ciency measures to contain the expenditure incurred.


Rs.7.66/KL

Rs.1.91/KL


Collection effi ciency 100% 87 % Indicates scope for improvement in collection effi ciency.

Source: CRIS analysis and data provided by SMC



ThenextstageintheentireprocessisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject.Fordoingsoassessmentisrequiredtobeundertaken.

4.1 Viability assessmentAsmentionedearlierapreliminaryfinancialanalysishasbeenundertakentoassesstheviabilityoftheprojectsidentified.ThisanalyzedhasbeenforthepurposeofassessingthecommercialviabilityoftheprojectifitistobedevelopedonaPPPmode.Theviabilityassessment undertaken in the following sections have largely focused on determiningwhetherthepublicsector,viz.,SMCortheprivatesectorhasthe financialcapacitytoundertaketheproject.Theinvestmentneedunderboththescenarioshasbeenexamined.Additionally,forassessingtheviabilityoftheprojectfromtheprivatesectorperspectivetheoptionofViabilityGapFunding(VGF)hasalsobeenconsidered.

From the project details, it can be observed that Saoner plans to undertake projectsworthRs7.39croreupto2011-12.Forthesame,SMCneedstoarrangeforacapitalinvestmentofRs73lakh.ItisunderstoodindiscussionwithSMCofficialsthattheprojectisalreadyunderwayandtheinvestmentgapwouldbemetbySMC.6263

SinceSMChasalreadyarrangedthefundingfortheproposedprojectsandinvestmenthasalreadybeenundertaken,theprojectwouldnotbeundertakenonaPPPbasis.However,

62 It is the weighted volumetric tariff calculated on the basis of the current tariff structure.63 As per SMC offi cials post implementation of the proposed scheme, a tariff rate of Rs 3.01 per KL has been estimated

to be implemented. From the year of implementation of the scheme an O&M of Rs 36 lakhs has been estimated by SMC. This estimate has been taken up as the base year O&M and escalated for the subsequent years.

PROPOSED WATER SUPPLY PROJECTS

POTENTIAL AREA OF INVESTMENT


Water supply augmentation, raw water transmission and expansion of the distribution network

Proposed under the Sujal Nirmal Abhiyaan scheme-

7.5 MLD source augmentation scheme including raw water rising main, pure water pumping main, 42 km of distribution network

Capex Required (DPR) - Rs 7.39 Cr.

GoM Grant - Rs 6.7 crore

SMC contribution -Rs. 73 lakh

Source: Data provided by SMC

Table 56

ASSUMPTIONS OF PRELIMINARY FINANCIAL ANALYSIS Box 8PARTICULARS ASSUMPTION

Raw water transmission losses 2%Treatment Losses 2%Distribution Losses 20%-in case of SMC


Tariff62 Rs 3.0163 with 3% revision every yearCollection Effi ciency 92 %-in case of SMC

95 %-in case of private operatorCost Reduction Effi ciency 0%-in case of SMC



KnowledgeSeries144

theoperationsandmanagementof thewatersupplysystemonthecompletionof thisprojectonaPPPbasiscanbeexplored.

CRISundertookapreliminaryfinancialanalysistounderstandtheapplicabilityofPPPfortheoperationsandmanagementofthewatersupplysystem.ThekeyassumptionsoftheanalysishavebeenoutlinedinBox.

GiventhefactthattheinvestmentneedsofSMCarecurrentlybeingmetwith,wehaveundertakenananalysistoreviewthepossibilityofaPPPinoperationsandmanagementofthewatersupplysystemalone.Twooptionshavebeenconsideredforthesame.Option1-O&MactivityisundertakenbySMCitself.Option2-O&Mactivityishandedovertoaprivatedeveloper.

Option 1: Operation and Management of water supply services by SMC

IfthewatersupplyoperationsweretobeundertakenbySMCfortheperiodupto2030,theCouncilshallgenerateanetrevenue(netpresentvalue)ofRs1.14crore.

Option 2: Operation and Management of water supply services by private developer

Ifthewatersupplyoperationsweretobeundertakenbyprivateoperatorfortheperiodupto2030,theCouncilshallgenerateanetrevenue(netpresentvalue)ofRs2.23crore.

Therefore,undertakingtheoperationsofthewatersupplysystemonaPPPbasisprovidesabenefittoSMCofRs1.10crore.IfSMCincreasesit’scollectionefficiencyfrom87%to95%andundertakesmeasurestoreducetheexpenditureonenergyandmanpower,thenitcanbridgethisgapofRs1.10crore.Hence,theremaybelimitedscopeforPPPforinvestmentand/oroperationsofthewatersupplysysteminSaoner.


1. Brief introduction to ChiplunThecityofChiplunformsapartoftheRatnagiridistrictinMaharashtra.Thecityhasatotalareaof14.69square.kmandacurrentpopulationof55,000(46,000asperCensus2001). It ismanagedbytheChiplunMunicipalCouncil(CMC)havingarevenuebudget(2007-08)ofRs18.46crorewitharevenuedeficitofRs2.07crore.Thecityhas4,935households.Withrespecttoitswateraccount,thecityhasadeficittothetuneofRs1.38crore.TherearenounpaidliabilitiesinthewateraccountofCMC.

2. Existing water supply system Chiplundraws9MLDofrawwaterfromtheVashistiriverlocatedatadistanceof½kmfromthecity.Ofthe9MLD,approximately7MLDofwaterissuppliedfromtheKherdiheadworksand2MLDfromtheGovalkotheadworks.RawwateristreatedattheWTPs,locatedatthesiteofthetwoheadworksandistransmittedtothecity.Thetreatedwaterissuppliedtoendconsumersthrougha30kmlongdistributionnetwork.

Thetotaltreatedwateravailableforconsumptiontothecitizensis6.9MLD(126lpcd).Waterisavailablefortwohourseveryday.Thecityhas5,668individualconnections.AbasicprofileofthewatersupplysystemofChiplunhasbeenpresentedintheTable57.

Chiplun10

CHIPLUN UTILITY PROFILEKey infrastructure components

Bulk supplyTreated water available for consumption Water Treatment Capacity

Kherdi headworks

Govalkot head worksStorage Capacity


2 Ground Storage ReservoirsDistribution network

Connections

9 MLD

125 lpcd

7 MLD

2 MLD

0.67 MLD

4.90 MLD30 km5668



Annual O&M costs


BASIC PROFILE OF WATER SUPPLY SERVICES IN CHIPLUN Table 57

KnowledgeSeries146

3. Step 1: Identification of the problem areaThe service assessment has been undertaken on the basis of a few key performancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobe identified and theexistingprojects reviewed.The assessmentpresentedhere isbasedonlyonfewkeyparameters.Foradetailedreview,CMCwouldberequiretocarryoutconsumersurvey,wateraudit, leakdetectionandenergyaudit fortheentirevaluechainofwatersupplyservices.

3.1 Compiling key parametersBasedonthepreliminaryanalysisofwatersupplyservicedata64anddiscussionswithCMCofficials,CRISassessedthecurrentwatersupplysysteminChiplun.Table58presentsthekeyindicatorsforassessingthewatersupplysystem.65


65 It has been assumed that one water supply connection serves 2 households. It is important for CMC to maintain a detailed consumer database with details of each connection. In the absence of accurate database, the water supply coverage levels would be only estimates.

CHIPLUN UTILITY PROFILETariff Flat tariff structure

Residential

15 mm

20 mm

Commercial

15mm

20 mm

Rs 806 p.a

Rs 1550 p.a

Rs 3500 p.a

Rs 4000 p.a

Source: Chiplun Municipal Council

KEY WATER SUPPLY INDICATORS FOR CHIPLUNPERFORMANCE AREA NORM CHIPLUN KEY INFERENCE

Bulk Water


70 lpcd 126 lpcd The supply of water to the citizens is very high as compared to the norms for a town with piped water supply and no sewerage system as per the CPHEEO norms. This indicates that the city has ample of water supply and there is no need for source augmentation.

Treatment

WTP capacity 100% 100% Existing installed capacity of the treatment plants is suffi cient. However, the WTP at Bawada is not functioning properly, being obsolete and requires up-gradation.

Treatment loss Less than 3%

2% Treatment loss is within the norms


Losses Less than 15%

22% Moderate level of losses.

The existing lines are approximately 30 years old and corroded and need replacement. The accurate estimate on distribution loss can be provided only once the meters are installed.

Consumer

Coverage 95-100% 100%65 This is inclusive of only direct service connections.

Table 58



Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:

Undertakingrehabilitationandrepairworksforthedistributionnetworkpipelines

Increasingthestaffandservicequality

Undertaking leak detection study to ascertain the extent of technical andcommerciallosses

Installationofmetersandadoptionofvolumetrictariff


ThenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforChiplunundervariousschemesforimprovementofthewatersupplyservices.CMChasidentifiedtheprojectsmentionedatTable59forthewatersupplysector.67

Inspiteofabundanceofwatersupply,Chiplunhasproposedaprojectforwatersourceaugmentation. This is with the objective of utilising the opportunity of the UIDSSMTfundingandcateringtoit’sfutureneeds.Thisincludestheconstructionofanewjackwellatthecurrentofftakepointforreducingtheenergycosts.

66 Figure refers to current revenue collections against current demand raised.67 It is to be noted here that for the purpose of this assessment, a due diligence on the project components and

costs has not been undertaken.

PERFORMANCE AREA NORM CHIPLUN KEY INFERENCE

Metering 100% 0% No meters have been installed at the consumer end; fl at tariff system is prevalent.


The supply hours and frequency is not adequate. CMC offi cials of the opinion that lack of staff is an issue resulting in poor service delivery in spite of abundance of water supply.

O&M cost recovery 100% 33% High O&M costs primarily due to high energy costs. CMC needs to undertake an energy audit and implement cost reduction measures.


Unit income

Rs 6.27/KL

Rs 2.07/KL

Per unit revenue realisation is very low primarily due to high operations cost.

Collection effi ciency 100% 95%66 High level of collection effi ciency.

Source: CRIS analysis and data provided by CMC

SL NO.



1 Augmentation of water supply, WTP system, rehabilitation of distribution system

UIDSSMT:

7.5 MLD source augmentation including Jackwell, intake well & pump house, pure water rising main works, distribution network rehabilitation

Capex Required (DPR)-Rs 9.56 Cr

Capex Required (Escalated)-Rs 15 Cr

UIDSSMT Grant: Rs 8.6 Cr

CMC contribution: Rs 0.95 Cr

Plus escalation: Rs 6.4 Cr

Source: Chiplun Municipal Council

KEY WATER SUPPLY PROJECTS PLANNED/PROPOSED Table 59

KnowledgeSeries148

Theproject is currently underway and is expected to be completed by January 2010.CMCiscurrentlyintheprocessofarrangingit’scontributiontotheproject.Alternativearrangements-chieflyexternalborrowings-areunderwaytomeettheremaininginvestmentrequirement.


Choice that is to bemade between the publicmodeof funding and implementationof the proposed project and the private or the PPP based mode of developing andimplementationoftheproject,itisfirstrequiredtoundertakeaviabilityassessment.

Fromtheprojectanalysis,itcanbeobservedthatChipluniscurrentlyintheprocessofimplementingprojectstothetuneofRs15crore,duetobecompletedby2010.Forthesame,CMCneedstoarrangeforacapitalinvestmentofRs7crore.ItisunderstoodindiscussionwithCMCofficialsthattheprojectisalreadyunderwayandtheinvestmentgapwouldbemetbyCMC.

SinceCMChasalreadyarrangedthefundingfortheproposedprojectsandinvestmenthasalreadybeenundertaken,theprojectcannotbeundertakenonaPPPbasis.However,theoperationsandmanagementofthewatersupplysystemonthecompletionofthisprojectonaPPPbasiscanbeexplored.

CRISundertookapreliminaryfinancialanalysistounderstandtheapplicabilityofPPPfortheoperationsandmanagementofthewatersupplysystem.ThekeyassumptionsoftheanalysishavebeenoutlinedinBox8.686970

GiventhefactthattheinvestmentneedsofCMCarecurrentlybeingmetwith,CRIShasundertakenananalysistoreviewthepossibilityofaPPPinoperationsandmanagementof the water supply system alone. The first scenario is wherein the investmentsidentifiedfortheproposedprojectsismadebyCMC.Thesecondscenario, iswheretheinvestmentsidentifiedfortheproposedprojectsaretobefullyfundedbytheprivatedeveloper.

68 It is the weighted volumetric tariff calculated on the basis of the current tariff structure.69 The current tariff structure is a fl at rate basis. The volumetric tariff has been arrived at after computing the per

KL cost of production. The tariff assumed here is an average of production cost of three consecutive years for the initial 3 years.

70 With the replacement of the jack well, the energy costs shall be reduced.

ASSUMPTIONS OF PRELIMINARY FINANCIAL ANALYSISBox 8



Treatment Losses 2%

Distribution Losses 20%-in case of CMC

15%-in case of private developer

Tariff68 Rs 3.569 per KL with 3% revision every year

Collection Effi ciency 98%-in case managed by CMC

98%-in case managed by private developer

10%70-in case managed by CMC

Cost Reduction Effi ciency 20%-in case managed by private party


Option 1: Operation and Management of water supply services by CMC

IfthewatersupplyoperationsweretobeundertakenbyCMCfortheperiodupto2030,theCouncilshallhavetobearanetloss(netpresentvalue)ofRs4.31crore.

Option 2: Operation and Management of water supply services by private developer

Ifthewatersupplyoperationsweretobeundertakenbyprivateoperatorfortheperiodupto2030,theCouncilshallgenerateanetrevenue(netpresentvalue)ofRs1.68crore.Thisisprimarilyduetothereductionofdistributionlossesandoperationscostasaresultofoperationalefficienciesbytheprivatedeveloper.

Thus,undertakingtheoperationsofthewatersupplysystemonaPPPbasisprovidesabenefittoCMCofRs6crore.Thereby,CMCmayconsiderundertakingtheoperationsandmanagementofthewatersupplysystemonaPPPbasis.


FromthepreliminaryfinancialanalysisithasbeenobservedthatfortheimprovementtothewatersupplyandsewerageprojectsintheChiplun,thesuitableformofPPPcontractisthatofofaperformancebasedmanagementcontract.

The performance-based management contract is one where the private developer isrequired to undertake the activity of operation and maintenance of the entire watersupplysystemfromsourcetotheconsumerendincludingmetering,billingandcollectionofrevenues.Allthecapitalinvestmentsneededforimprovementtothewatersupplyandsewerageserviceswouldhavetobebornebythepublicsector.TheoperatingstandardswouldbeasprescribedbytheCMC.TheprivatedeveloperisgiventherightstolevytheuserchargessetbytheULB,collect thechargesandhandoverthesametotheULB.Fortheactivitiescarriedout,theULBwouldmakeaperformancebasedpaymenttotheprivatedeveloper.

Thedetailsoftheobligations,risksandpaymentarrangementsundertheperformance-basedmanagementcontract,asmentionedinOption2(b),havebeenprovidedinsectionIIofthisreport.Additionally,thetermsheetforthiscontractstructurehasbeenattachedinsectionIVofthisreport.

6. Step 4: ProcurementFor initiating the procurement process, CMC would need to develop a transactionstructurewhichwouldcovertheaspectsrelatingtodetailsonthepartiesinvolvedinthecontract,thecontractualrelationshipbetweentheparties,thenatureofthearrangement,the risk allocation, the tariff to be levied, duration of the contract, the performanceindicators,paymentterms,awardcriteriaandcontractmanagementstrategy.ThedetailscanbefoundinthetermsheetinsectionIVofthisreport.

KnowledgeSeries150

1. Brief introduction to Kulgaon BadlapurThecityofKulgaonBadlapurisapartoftheThanedistrictofMaharashtra.ThecityismanagedbytheKulgaonBadlapurMunicipalCouncil(KBMC)andencompassesanareaof35.69squarekm.Ithasacurrentpopulationof1.91lakh(97,948asper2001Census).TherevenuebudgetofKBMC(2007-08)isRs24.6crore,witharevenuesurplusofRs11.76crore.

ThewatersupplyworksaremanagedbytheMaharashtraJeevanPradhikarna(MJP)asacombinedschemeforthetownsofKulgaon-BadlapurandAmbernath.ThewateraccountforKulgaonBadlapurfacesadeficitofRs16lakh(2007-08).

2. Water supply system at Kulgaon BadlapurKulgaonBadlapurdraws28MLDofrawwaterfromtheUlhasriver(3kmfromcity).Thetotalquotaavailabletothecityis35MLD.TheschemefromsourcetotheconsumerendisoperatedandmanagedbyMJP.Therefore,theonusoftheentireschemeincludingtheoperationsandmaintenancecosts,restspurelywithMJP.

As a part of the joint scheme, the city has one treatment plant. The citizens receivetreatedwaterof93lpcdforconsumption.Fourwardsinthecityreceivewatersupplyfor24hours.Thesupplyhoursintheremainingwardsvaryfrom3hoursto8hours.Thetotal

Kulgaon Badlapur11

KULGAON BADLAPUR UTILITY PROFILE


Bulk supplyWater Treatment CapacityTreated water available for consumption Storage Capacity

1Elevated Storage Reservoirs4 Ground Storage Reservoirs

Distribution networkConnections

28 MLD52 MLD 93 lpcd

10.1 MLD4.55 MLD114 km12,523


Water Account RevenueAnnual O&M costs


Tariff Flat TariffDomesticNon Domestic

Rs 7.6 per KLRs 34.65 per KL

Source: Kulgaon Badlapur Municipal Council

BASIC PROFILE OF WATER SUPPLY SERVICES IN KULGAON BADLAPURTable 60


numberofdirectconnectionsinthecityis12,523,allofwhicharemetered.AbasicprofileofthewatersupplysystemofKBMChasbeenpresentedintheTable60.

3. Step 1: Identification of the problem areaAsafirststeptoassessingthestatusofthewatersupplyservicesinthecity,theproblemareasintheexistingservicesintheexistingsystemneedstobecarriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.Asthefirstactivitywhichneedstobeundertakeninthisregard,theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisoftheassessment,thekeyissuesinthecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed. It is tobenotedherethattheassessmentpresentedhere for Jalna isbasedonlyonfewkeyparameters.Foradetailedreview,ashasbeendiscussedinVolumeIofthetoolkit,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.Thekeyperformanceparametersusedhavebeenpresentedbelow:

3.1 Compiling key parametersBasedonthepreliminaryanalysisofwatersupplyservicedata71anddiscussionswithKBMCofficials,CRISassessedthecurrentwatersupplysysteminKulgaonBadlapur.Table61presentsthekeyindicatorsforassessingthewatersupplysystematKulgaonBadlapur.72


72 KBMC offi cials indicate that one connection serves 5 households. However, it would be prudent for MJP and KBMC to maintain a detailed consumer database to ensure.

PERFORMANCE AREA

TYPICAL NORM

KULGAON BADLAPUR

KEY INFERENCE

Bulk Water

Supply


135 lpcd 93 lpcd As per CPHEEO norms, the total water supplied to consumers after treatment should be 135 lpcd. The bulk supply currently has an average of 93 lpcd. If the transmission losses are reduced from the existing level of 33% to an average of 20%, the water supply available for consumption shall increase by 4 MLD, and raise the per capita availability of water to 110 lpcd level at the consumers’ end. This indicates that the city does have an immediate need of augmentation of its bulk water supply.

Treatment

WTP capacity 100% 100% The current installed WTP capacity is suffi cient and has been operating as per required standards

Treatment loss Less than 3% 2% The treatment losses are within the norms.


Losses Less than 15% 33% High transmission losses due to leakages from the old corroded pipes. Current pipelines are 35 years old and have high extent of leakages.

Consumer


100% 100%72 On an average, in KBMC, each connection serves fi ve households. Therefore, the existing connections indicate full coverage. The city has no public stand posts.

KEY WATER SUPPLY INDICATORS FOR KULGAON BADLAPUR Table 61

KnowledgeSeries152


Aftertheassessmentofthemainsupplyservices,theULBshouldnecessarilyclearlylistalltheserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysystemin the city.However, the assessmentundertaken above indicates a largely satisfactorylevelofoperationsandmanagementofthewatersupplyservicesinthecity.Theonlyissuewhichrequiresattentioniswithreferencetotheareaofdistributionlosses.Thesearecurrentlyhigherthantheacceptablestandards.

3.3 Review of the water supply projects Having identified the key issues in the existing status of provisioning of water supplyservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewof the projects that have already been identified for Kulgaon Badlapur under variousschemesforimprovementofthewatersupplyservices.InthecontextoftheissuesfacedatKulgaonBadlapur,KBMChasproposedaprojectforrehabilitationofthedistributionnetwork.TheprojecthasbeenproposedunderUIDSSMT.


Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereonandabriefreviewoftheprojectsidentifiedby

73 Collection effi ciency has been measured against current demand raised vis-à-vis the current collections.

PERFORMANCE AREA

TYPICAL NORM

KULGAON BADLAPUR

KEY INFERENCE


100% 100 % All the existing connections are metered and a volumetric tariff system is operational.


24 hours 5 hours each day

Not suffi cient. Needs to be improved. This calls for reduction in the losses and effi cient operations of the system.

O&M cost recovery 100% 100% The cost recovery levels are satisfactory.


5.20 Rs/KL

5.80 Rs/KL

The revenue realizations against per unit production costs are high.

Collection effi ciency 100% 97%73 The collection effi ciency level is satisfactory.

Source: CRIS analysis and data provided by KBMC and MJP


Rehabilitation/replacement of existing transmission and distribution infrastructure to reduce technical losses to minimum acceptable standards


It includes rehabilitation of distribution network pipelines, repairs to MBR, 24 MLD WTP, and consumer survey.

Capex Required (DPR) - Rs 26.85 Cr.

Project is currently under review phase for approval, and at present no approvals have been received. No project escalation costs have been estimated.

If approved, KBMC’s share of the project is expected to be Rs 2.68 crore.

Source: Kulgaon Badlapur Municipal Council

PROPOSED WATER SUPPLY PROJECTSTable 62


thecity,thenextstageintheentireprocessasindicatedinVolumeIofthetoolkitisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject

ThecityhaslimitedscopeforPPPsincenomajorcapitalinvestmentisrequiredandtheoperationalefficienciesaresatisfactory.Also, ifany investmentsareneeded forsourceaugmentation in the future, KBMC with a revenue surplus of Rs 11.76 crore has thefinancialcapabilitytoundertakesuchinvestment.

Thereby,thereisnoscopeforPPPbasedinterventioninsupplyofwatersupplyservicesinKulgaonBadlapur.

KnowledgeSeries154

1. Brief introduction to AmbernathThecityofAmbernath is apartof theThanedistrict inMaharashtra.Managedby theAmbernathMunicipalCouncil,thecityencompassesanareaof38sq.kmandhasacurrentpopulationof2.5lakh(asperthe2001Census2.03lakh).Thecouncilhasaarevenueaccountbudget(2007-08)ofRs58crore,witharevenuesurplusofRs2.27crore.

ThewatersupplyworksaremanagedbytheMaharashtraJeevanPradhikarna(MJP)asacombinedschemeforthetownsofKulgaon-BadlapurandAmbernath.WithrespecttoexpensesincurredonAmbernathbyMJP,thewateraccountgeneratesasurplusofRs6crore.

2. Existing water supply systemAmbernathdrawsatotalwatersupplyof39MLDfromthreewatersources-theChikhaloliDam,theUlhasriverandtheBarviriver.Oftheabove,28MLDissuppliedbyMJP,5MLDfromMIDCandthebalance6MLDissuppliedbyAmbernathMunicipalCouncilitself.

Thecityreceivestreatedwatersupplyof106litrespercapitaday(lpcd)forconsumption.Waterisavailableforfourhourseachdayandissuppliedthroughindividualconnections.Abasic profileof thewater supply systemofAmbernathhas beenpresented in theTable63.

3. Step 1: Identification of the problem areaAs a first step to assessing the status of the water supply services in the city, theproblemareasintheexistingservicesintheexistingsystemneedstobecarriedout.Doingthiswouldhighlighttheinterventionsrequiredinimprovementtothelevelofservices.Asthefirstactivitywhichneedstobeundertakeninthisregard,theserviceassessmenthasbeenundertakenonthebasisofafewkeyperformancecriteria.Onthebasisof theassessment, thekey issues in thecurrentsystemwouldneedtobeidentifiedandtheexistingprojectsreviewed.Itistobenotedherethattheassessmentpresentedhere forAmbernath isbasedonlyon fewkeyparameters.Foradetailedreview,ashasbeendiscussedinSectionIofthetoolkit,theULBwouldberequiredtocarryoutconsumersurvey,wateraudit,leakdetectionandenergyauditfortheentirevaluechainofwatersupplyservices.ThekeyperformanceparametersusedhavebeenpresentedatTable64.

12Ambernath


3.1 Compiling key parametersBased on the preliminary analysis of water supply service data74 and discussions withAmbernathandMJPofficials,CRISassessedthecurrentwatersupplysystemofthecity.Table64presentsthekeyindicatorsforassessingthewatersupplysystematAmbernathandtheresultantinferences.


AMBERNATH UTILITY PROFILE

Key infrastructure components Bulk supply

Chikhaloli Dam

Ulhas river

Barvi river


Chikhaloli, Belavali


Storage Capacity




Connections

39 MLD

6 MLD

32 MLD

5 MLD

6 MLD

150 lpcd

3.5 MLD

4.42 MLD

64 km

6000



Annual O&M costs

Rs 11.33 crore

Rs 4.71 crore

Tariff Flat Tariff

Domestic (p.a)

Non-Domestic (p.a)

Rs 7.6 per KL

Rs 35.4 per KL

Source: Ambernath Municipal Council

BASIC PROFILE OF WATER SUPPLY SERVICES IN AMBERNATH Table 63

PERFORMANCE AREA

TYPICAL NORM

AMBERNATH KEY INFERENCE

Bulk Water

Supply


135 lpcd 106 lpcd As per CPHEEO norms, the total water supplied to consumers after treatment should be 135 lpcd. Ambernath as of date supplies 106 lpcd (i.e. 30 MLD). If the transmission losses are reduced from the existing level of 22% to an average of 20%, the water supply available for consumption shall increase by 1.8 MLD, and raise the per capita availability of water to 112 lpcd level at the consumers end. Though the supply levels do not meet the requisite norm, the availability can be considered adequate, and as not requiring any immediate source augmentation.

Treatment

WTP capacity 100% 100% The bulk of the treated water is supplied from the treatment plant at Kulgaon Badlapur. Though the utilization of the WTP is more than the installed capacity, there is no adverse effect on the quality of treated water supply.

WATER SUPPLY INDICATORS AND INFERENCES Table 64

KnowledgeSeries156


Aftertheassessmentofthemainsupplyservices,theULBshouldnecessarilyclearlylistdownalltheserviceandinfrastructurerelatedissuesbeingfacedbythecurrentwatersupplysysteminthecity.

However, based on the status of the water supply operations, the key water supplyindicatorsandkeyinferences,itcanbeassessedthattheoverallwatersupplyoperationsin thecityareatsatisfactory levels.However, there isscope for further improvementsuchasensuring100%coverageofthewatersupplyservices,higherfrequencyofsupplyand100%meteringtoalltheconnections.

3.3 Review of the water supply projects with approved DPRsHaving identified the key issues in the existing status of provisioning of water supplyservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforAmbernathundervariousschemesforimprovementofthewatersupplyservices.MJPhasidentifiedthefollowingprojectsforthewatersupplysector.76

Phase1of theproposedproject is currentlyongoingandexpenses towards the samearebeingmetbytheAmbernathCouncil.Forphase2oftheproject,theDPRhasbeenprepared.However,noapprovalshavebeenreceivedonthesame.

75 This includes effi ciency of current collections only. Arrears of water account are Rs. 25 crores. This is on inclusion of a number of villages to the jurisdiction. These arrears are spread over several years.


PERFORMANCE AREA

TYPICAL NORM

AMBERNATH KEY INFERENCE

Loss Less than 3% 2% Meets the norm


Losses Less than 15% 22% Moderate extent of transmission losses

Consumer


100% 88% Assuming that one connection caters to two households, existing coverage levels need to be improved.


100% 78% The connections provided by MJP are fully metered. However, those provided by the Ambernath Council are metered only to the extent of 5%. The remaining connections need to be metered.


24 hours 4 hours Not suffi cient. Needs to be improved. Calls for reduction in losses and more effi cient operations.

O&M cost recovery 100% 100 % The high recovery levels indicate satisfactory levels of operational effi ciency.


7.70 Rs/KL

9.70 Rs/KL

High revenue realization per unit against cost of production, indicating satisfactory levels of operational effi ciency

Collection effi ciency 100% 93%75 The current collections are high; however, further improvements can be made.

Source: CRIS analysis on the basis of data provided by MJP and Amberanth Council


4. Step 2: Choice between public funding and PPP option77

Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereonandabriefreviewoftheprojectsidentifiedbythecity,thenextstageintheentireprocessisthechoicethatistobemadebetweenthepublicmodeoffundingandimplementationoftheproposedprojectandtheprivateorthePPPbasedmodeofdevelopingandimplementationoftheproject

ThecityhaslimitedscopeforPPPsincethecurrentissuesinwatersupplyareadequatelycaptured in theon-goingprojectofMaharashtraSujalNirmalAbhiyaan.Theproposedwatersourceaugmentationprojectisnotanimmediateneedofthecityandiscurrentlyunder preparation. The DPR and project cost of the proposed project is yet to befinalised.Giventhatthereisnoimmediateneedforundertakinganycapitalproject,andalsoaccountingforthecurrentsatisfactorylevelsofoperations,itcanbeconcludedthatthereislimitedscopeorneedforPPP-basedinterventiontoimprovethewatersupplyservicedeliveryinthetown.

Thereby,thereisscopeforPPPbasedinterventioninsupplyofwatersupplyservicesinAmbernath.

77 Phase II of the project has not been considered as the DPR and the project cost is not approved as yet.

POTENTIAL AREA OF INVESTMENT SCHEME PROPOSED SCHEME PROPOSED

Augmentation of water supply, improvements to the existing water supply system including metering, repairs, etc.

Proposed under the Sujal Nirmal Abhiyaan scheme

Phase 1:Includes installation of bulk meters, re-assessment of properties to reduce illegal connections, implementation of spot billing, replacement of distribution lines, replacement of faulty consumer meters, and replacement of old transmission pipelines

Phase 2: Water supply augmentation scheme

Capex Required (DPR) - Rs. 4 Cr.

Capex Required (Escalated) - Rs. 4.8 Cr.

Sujal Nirmal Grant - Rs. 3.60 crores

Ambernath contribution -Rs. 40 lakhs plus escalation of Rs. 80 lakhs

Capex Required (DPR) - Rs. 15.56 crores77

Source: MJP and Amberanth Council

PROPOSED WATER SUPPLY PROJECTS Table 65

KnowledgeSeries158

ThecityofNaviMumbai,previouslyknownasNewBombay, is apartof theMumbaiConurbation.Thecitywithatotalareaof344squarekmwasdevelopedasatwincityofMumbai,andisconsideredtobeoneofthelargestplannedcitiesintheworld.Ofthetotalcitylimits,approximatelyanareaof108.63squarekmismanagedbytheNaviMumbaiMunicipalCorporation(NMMC).ThepartofthecitymanagedbyNMMChasacurrentpopulationofapproximately12lakh.Asperthebudgetof2008-09,NMMChasarevenueaccountbudgetofRs480crore,witharevenuesurplusofRs130crore.

1. Existing water supply systemNaviMumbaihasatotalwatersupplyof317MLD.Waterissuppliedfromthreesources,viz.,fromMorbeDam,CIDCOHetvaneandfromMIDCBarvi.NMMCpurchases32MLDofpotablewaterfromCIDCO;thewatersupplyof67MLDfromMIDCBarviisaback-uparrangementincaseofatemporaryshutdownoftheMorbeDam.

ThecityhasoneWTPwithinthemunicipallimitsof450MLDcapacityandtherearetwoWTPs,oneeachattheCIDCOHetvaneandMIDCBarvisiteof50MLDand160MLDinstalledcapacityrespectively.Thecityreceivesatreatedwatersupplyof200lpcdonanaverage.Thesupplyhoursvarybetweenaminimumdailysupplyoffourhourstoamaximumoftwenty-fourhoursinafewwards.Waterissuppliedthroughdirecthouseserviceconnections,numbering1,15,264,ofwhich75%arecurrentlymetered.AbasicprofileofthewatersupplysystemofNaviMumbaihasbeenpresentedintheTable66.

2. Assessment of the water supply systemBased on the preliminary analysis of water supply service data78 and discussions withNMMCofficials,CRIS assessed the currentwater supply systemof the city. Table 67presentsthekeyindicatorsforassessingthewatersupplysystematNaviMumbaiandtheresultantinferences.

ThewatersupplyserviceofNaviMumbaihasbeenassessedasperformingatfairlygoodlevels.Onallthekeyindicatorsofwatersupplyservices,NMMChasdeliveredasperthe


Navi Mumbai13


PERFORMANCE AREA

TYPICAL NORM

NAVI MUMBAI KEY INFERENCE

Bulk Water

Supply


135 lpcd 200 lpcd

The treated water supply at Navi Mumbai is high at 200 lpcd levels, much higher than the 135 lpcd norms set by CPHEEO. The current levels of losses in the system are at minimal levels and offer limited scope for reduction. The current water supply levels are assessed to be adequate and therefore there is no immediate need for bulk water supply augmentation.

Treatment

WTP capacity 100% 100%

The installed WTP capacity is 450 MLD of which only 250 MLD is currently being utilized. The current WTP availability is suffi cient and hence does not require any augmentation

Loss Less than 3% 2% Meets the norm


Losses 15% 17%

Minimal acceptable levels of transmission losses. Of these losses, approximately 4% losses are attributed to theft. NMMC can take measures to check these instances of theft and further bring down the loss levels.

Consumer


100% 100%Individual connections are provided to all units within the municipal area.

NAVI MUMBAI UTILITY PROFILE


Bulk supply

Morbe Dam

CIDCO Hetvane

MIDC Barvi


Navi Mumbai

CIDCO Hetvane

MIDC Barvi


Storage Capacity

Elevated Storage Reservoirs

Ground Storage Reservoirs


Connections

317 MLD

218 MLD

32 MLD

67 MLD

450 MLD

50 MLD

160 MLD

200 lpcd

74.95 MLD

124.50 MLD

721 km

1,15,264



Annual O&M costs

Rs 54.89 crore

Rs 14.34 crore

Tariff Volumetric Tariff

Residential

Commercial

Institutional

Rs 4.75 per m3

Rs 30 per m3

Rs 11 per m3

Source: Navi Mumbai Municipal Corporation

BASIC PROFILE OF WATER SUPPLY SERVICES IN NAVI MUMBAI Table 66

WATER SUPPLY INDICATORS AND INFERENCES Table 67

KnowledgeSeries160

requirednormsandstandards.Intheinstanceswheretherehasbeenashortfallsuchasmeteringlevels,effortsarecurrentlyongoingtoachievetherequiredstandards.

NMMChasbeenabletosustaingoodservicedeliverystandardsonaccountofacombinationofreformmeasuresandstringentmeasureswhichhavefocusedonimprovingthestandardsofoperationalefficiency.OnesuchmeasureistheuseofGIS-basedsoftwarefortrackingcasesofillegalconnections.

3. Proposed water supply projectForfurtherimprovementstoitswatersupplyservices,NMMChasproposedaprojectunderJNNURM.AbriefonthesameisatTable68.

Tomanageitswatersupplyservices,NMMChasengagedaprivatedeveloperforoperationandmaintenanceoftheentirewatersupplysystem.ThetypeofPPPcontractimplementedbyNMMCisaPerformance-basedservicecontractfortheoperationandmaintenanceofwatersupplyservices.Foraclearunderstandingonhowthecurrentcontractoverseesandensuresefficientmanagementofwatersupplyservicesinthecity,thesamehasbeenstudiedanddetailsofthePPPstructurearepresentedinthesectionbelow.

PERFORMANCE AREA

TYPICAL NORM

NAVI MUMBAI KEY INFERENCE

Metering/Total Connections 100% 78%

Though the current extent of metering is less than the required norm, NMMC is currently undertaking measures such that 100% metering is achieved within the following six months. It is also to be noted that with effective operations of the metering system and rational tariff levels, per head water consumption has been reported to have reduced.


24 hours4 hours to 24 hours

Most wards receive 24 hours of uninterrupted water supply. Only a few wards receive water for four hours. However, in these wards, the supply frequency is twice a day.

O&M cost recovery 100% 100 % The high recovery levels indicate satisfactory levels of operational effi ciency.


1.27 Rs/KL

9.70 Rs/KL

High revenue realization per unit against cost of production indicate satisfactory levels of operational effi ciency.

Collection effi ciency 100% 97%

The current collections are high; however, further improvements can be made. The total collections include an arrear component of Rs 24 crore. However, this is a one-time accumulated arrear from areas which were previously not included in NMMC municipal limits and have been recently included.


Improvements to the existing water supply services by increasing coverage, better metering system, rehabilitation of the distribution network, etc.

Development of SCADA system

Remote reading system of meters

Additional 42,000 meters in the slums

Rehabilitation to 150 km of distribution network

150 MLD WTP

Capex Required (DPR) - Rs 230 Cr.

Source: NMMC

PROPOSED WATER SUPPLY PROJECTSTable 68


4. About the PPP structureNMMChasenteredintoaperformance-basedoperationandmanagementcontractwithaprivateoperatorfortheoperationandmanagementofthewatersupplyservicesatNaviMumbai.Asperthiscontract,theprivateoperatorisrequiredtooperateandmanagethewatersupplyservices fromthepointoftheelevated/GroundStorageReservoir(eSRs/GSRs)totheconsumerend.Theoperatorwouldbesuppliedwithtreatedwaterfromthetreatmentplantthroughthepurewatertransmissionlinesandtherefrom,alltheactivitieswouldhavetobemanagedbytheoperator.

Thereforeasper thecontract, theactivitiesofbulkwater supply sourcing, rawwatertransmission,andtreatmentattheWTParetheresponsibilitiesofNMMC.Thefocusofthiscontractistoensureimprovedservicesatthedistributionend,inclusiveofmetering,billingandcollection.Theprivateoperatoristhereforenotrequiredtomakeanycapital-basedimprovementstothewatersupplysystemsuchasaugmentation,andreplacement/rehabilitation.Thefollowingactivitieshavetobeperformedunderthisagreementbytheprivateoperator:

OperationsandmanagementofeSR/GSRs,pumpsandthedistributionnetwork

Maintenanceofwatersupplypressuresandchlorinationofwateratthedistributionend

Operationandmaintenanceofthedistributionnetworkincludingleakdetectionandmanagement

ProvisionofnewwaterconnectionsasperULB’sdirections

Installationofbulkandconsumerendmetering,billingandcollection

CivilworksincludingrepairsandmaintenanceofthewaterassetsfromtheeSRpointtodistributionendincludingmeters,borewells,andpublicstandposts

Consumerredressal

NMMCwillsettheuserchargestobeleviedandcollected,andtheprivateoperatorwillberequiredtogeneratethebillsasperthesettariffstructure,collecttherevenuesandhandoverthesametoNMMC.Theprivateoperatorwouldbepaidonanannuitybasisafixedcontractpricefortheseactivities.Inaddition,thecontractalsooffersincentivesforperformancelevelsoverthesetstandards.Withreferencetotheexpenditureincurredonoperationandmaintenanceofthewatersupplyservices,aspertheagreement,NMMCwould be required to bear the expenses for purchase of bulk water, energy charges,chemicals/chlorineandanymajorcapital investmentworktotheexistingwaterassets.Theexpensesonlabourengagedforoperationandmaintenanceactivityandcivilworkshastobebornebytheprivateoperator.

5. Key roles and responsibilities of NMMC and Private Operator

ThekeyrolesandresponsibilitiesofthestakeholdersaregiveninTable69.

Figure 18 presents a holistic view of the entire transaction under a distribution cumrevenuecollectioncontract.

ThoughNMMCwouldfacilitateobtainingnecessaryclearancesandpermitsrequiredforoperations,thefinalresponsibilityofobtainingalltheapplicablepermitswouldrestwith

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PARTICULARS PRIVATE OPERATOR NAVI MUMBAI MUNICIPAL CORPORATION

Primary Task

Operate and maintain the distribution network inclusive of operation of pumps, ESR/GSRs, chlorination, civil works, metering, billing and collection

Operate and manage the water supply system till the point of ESR/GSR

Undertake major capital investment works for the entire water supply system

Provide permits, rights of operation to private developer

Provide all necessary equipments required for the O&M activity

Oversee operation and maintenance activity of distribution network

Tariff Generate bills as per set tariff Determine user charges, tariff structure

Operating Expense

Pay all expenses related to labour employedPay for raw water purchase, water testing charges and electricity consumption

Bear expense on repairs to assets Bear expenses on chlorination of water

Install meters, incur operation and maintenance expense on the meters

Bear any other O&M expense related to distribution network

Capital Expense

Bear all capital expenditure works including augmentation of the existing system, replacement and or complete rehabilitation of the distribution network

Asset OwnershipOnly gets rights of operation of the assets, and is required to hand over the assets at the end of the tenure of the contract

Take over assets at the end of the contract period


Treats


Operates

Builds

Operates

Builds

Operates

Fixes Tariff

Sources bulk water

Pvt.Developer

Annual fixed payments as per contract price

Collects revenue from households and passes on to NMMC

Household

Distributes

NMMC

STRUCTURE OF WATER SUPPLY PERFORMANCE MANAGEMENT CONTRACT FOR O&MFigure 18

the private developer. In addition, during the period of the contract, if there are anydisruptionsinsupplyofbulkwater,electricity,etc,theprivatedeveloperisobligatedtomaketherequisiteinterimarrangements.


Asperthecontract,theprivatedeveloperinadditiontocarryingouttheoperationandmaintenanceactivity, isrequiredtoundertakeoverallsystemandenergyauditsonaregularbasis.Thecontractspecifiesthepotentialincreaseinthescopeofworkwhichmaybeaskedoftheprivatedeveloper.NMMCmayneedtoincreasethelengthoftheexistingdistributionpipelines,connections,andthenumberofcriticalpressurepoints. The contract specifies the maximum range by which these could increase,beyond which the contract price/annual payment would be revised for the privatedeveloper.

6. Key features of NMMC’s Performance Management Contract

Someoftheuniquefeaturesandriskmitigationmeasureswhichformapartoftheexistingcontractarelistedbelow.

Thecontractclearlylistsdowntheperformancecriteriawhicharetobemetbytheprivatedeveloperforoperationsandmanagementofthesystem.Forinstance,alongwiththeregulartasks,theoperatorisrequiredtoundertaketheenergyandsystemaudit.Theseauditsaremeanttofacilitateleakdetection,fixincorrectconnections,reducepowerconsumption,etc.Against thesemeasures, theprivatedeveloperisprovidedwithaclearincentive/penaltysystem.Forexample,foreveryperKLreductioninwaterlosslevelbeyondthebenchmark,aperunitrevenueincentiveofRs2ismentioned.Similarly,fordetectionofeachcaseofillegalconnection,anincentivevaluehasbeenfixed.Suchrevenue-linkedincentivesforencouragingtheprivatedevelopertooperatethesystembetterhavebeenbuiltin.

Similartothe incentives,stringentpenaltieshavebeenbuilt intothecontract.For instance, thepenaltyvaluehasbeen fixed incasemorethanthespecifiedoccurrences of private developer not providing water supply at specifiedpressure levels are reported. Such penalties are applicable for any deviationin water quality levels, loss levels, increased power consumption, inadequatesystem maintenance, delay in meter readings, unauthorised sale of water orprovisionofnewconnection,non-attendancetocustomercomplaintswithintheprescribedtime-lines,etc. Ifthetotalamountchargedaspenaltyexceeds10%ofthecontractprice fortheconcernedoperatingyear,NMMCwouldreviewwhetherthecontractneedstobecontinuedwiththeoperatororterminated.

Tobeabletoensureeffectiveimplementationoftheincentivesandpenalties,NMMChasalsodetailedinthecontractthesystemofregulationandmonitoring.NMMCwouldcomparethewaterbillamountgeneratedateachzonetothewatersuppliedasperrecordsandincaseofanydifferenceintheexpectedandactualbill amount, seekadetailedexplanation fromtheprivateoperatoronthesame.

Initsefforttoensureimplementingconsumerresponsibility,NMMChasauthorizedtheprivateoperatortoimposestringentpenalties.Forexample,ifawatertankisfoundtobeoverflowing,apenaltyof100%ofaverageamountof4monthswouldbeimposed.

Failureof theoperator todispenseanyof the requireddutieswould result inNMMCundertakingthesameserviceattheoperator’scost.

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7. Risk sharing between NMMC and the private developer

ThekeyriskswhichneedtobebornebytheprivatedeveloperandtheULBarestatedatTable70.

Sl. No RISKS PRIVATE OPERATOR NMMC

1 Commissioning Risk

2 Design Risk

3 Operations Risk

4 Financial Risk

5 Payment Risk

6 Performance Risk

7 Change in law Risk

8 Force Majeure Risk

KEY RISK-SHARINGTable 70

SeCTIONIVTermSheets


1. Performance management contract for entire water supply system

1.1 Problem Defi nitionTheULBhaslowlevelsofoveralloperationalefficiencies.Thecurrentsupplyofwater,theexistinginfrastructurethoughatsatisfactorylevels,theULBisunabletofullyrecoverthecost incurredonoperationandmaintenanceactivity.Thelowcostrecoveriesmaybeattributedpartlytolowtarifflevels,butisalsoaffectedbyinefficientmanagementofthewatersupplyservicessuchasinadequatemonitoring,highextentoftheft,poorleakdetectionandmanagement,lowlevelsofcollectionefficiency,etc.Additionallytheentirewater supply systemmaynothave adequateextentofmetering.As a result, theULBwouldrequire toensurebettermanagementof theentirewatersupplysystemwithasinglefocusonimprovisationofoperationalefficienciesandfullcostrecovery.

1.2 Need for PPPTheULBneeds PPP to largely improve the service deliverymechanism.TheULBhashistoricallyseenpoortomoderateoperationalstandardsandorhaveseenminimalyearonyearoperationalimprovementtothewatersupplysystem.TheULBthereforeneedsanimprovementincurrentoperationallevelsincludingreductionofenergycosts,reductionoftransmissionanddistributionlosses,improvementincollectionefficiency,etc.Thereby,theULBneedsaprivateoperatorforbringingaboutoperationalefficienciesintheoverallmanagementandprovisioningofwatersupplyservices.

1.3 PPP structureThePPPstructuredesignedfortheabovementionedproblemdefinitionisaPerformanceManagementContractforoperationandmaintenanceoftheentirewatersupplysystem.Under such a structure, theprivatedeveloperwouldbe required to carryout all thewatersupplyoperationsstarting fromsourcingofbulkwater fromtheexistingsourcetotransmissiontotreatmentplant, treatment, storageandsupply throughtheexistingdistributionnetwork.Additionallyintheabsenceofbulkmetersandmetersatconsumerend,theprivatedeveloperwouldalsoberequiredtoinstallthesame,operateandmaintainthemeters,readandrecorddata,generatebillsandengageincollectionactivity.Fortheactivitiesundertaken,theprivatedeveloperwouldbepaidonanannuitybasis.Thisannuitysumistobetreatedastheimportantfinancialbidparameter.

1Term Sheets

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1.4 Objective of the PPP structureThisPPPstructureaimstoimprovetheoperationalefficienciesofthewatersupplysystembyensuringimprovedoperationalrecoveries,reducedlosses,andimprovedcollectionefficiency.

SN ITEM DESCRIPTION

1 Preparatory work by ULB

Undertake a consumer survey to gauge the number of direct connections, unauthorized connections, etc.

Undertake a technical survey (Water audit study, leak detection study, energy audit study) to gauge the current status of the water supply system including the technical losses in the system.

Analyze the effi ciency of the treatment plant and collect detailed information on the number of pumps and staff

Decide on the quality and type of meters to be installed in the city

Undertake a survey of the raw water transmission, pure water transmission and distribution network on a GIS platform

Undertake a Valve operation study

Undertake a customer regularization pla

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6.

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2 Information to be provided to the private operator by the ULB

Contract of ULB with Water resource department for drawing of water source

Contract of ULB with the Electricity Board for supplying power to the water supply system and the tariff details

Design of the water supply system including jackwell, elevated storage reservoirs, main balance reservoirs, water treatment plant, raw water transmission lines, distribution network, etc.

Details of the existing connections-number and type

Details of quality of bulk meters and customer meters

Details of quality of leak detection equipment

Tariff structure of water connection charges, water supply charges, penalties for illegal connection/non-payment of water supply charges and escalations to both if applicable

Contour Maps and Network maps

Quality standards of water to be maintained

Disposal standards for the inerts generated at water treatment plant

Operation and Maintenance standards of reservoirs

Specifi cations and standards of handover of assets at end of the contract period

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3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

3 Tenure of the PPP contract

Generally 5 to 10 years. Depends on the fi nancial feasibility of the project, the life of the water assets and political will.

4 Roles and Responsibilities of the Developer

Take over of all the water supply systems from source till the distribution point including jack wells, pipelines, WTP, electrical substations, storage reservoirs, pumping stations, meters, valves etc

Operate pumping stations, jack wells for drawing of bulk water from the source

Operate and maintain the pumping stations

Operate and maintain the Main Balancing Reservoir(MBR)

Operate valves for raw water transmission from the source to WTP

Repair and maintain the raw water transmission pipelines

Operate and maintain the WTP as per the procedure and quality standards specifi ed by the ULB

Operation and maintenance of the storage reservoirs; Operate outlet valves of ESRs/HSRs to supply water as per operating schedules

Operate and maintain the existing connections

Operate valves in the distribution network for effi cient and equitable water distribution

Minor repairs to the water supply assets for a period of - years

Daily checks to water pressure levels

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4.

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6.

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8.

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12.

MODEL TERM SHEETTable 71


SN ITEM DESCRIPTION

Establish bulk meters at the water treatment plant, storage reservoirs and measure the input and output volumes

Maintaining overall cleanliness and hygiene standards for the entire water supply assets being maintained; avoiding conditions of water logging and mosquito breeding in ESR/GSR/HRS complexes

Dispose the waste generated and other inerts from the water treatment plant as per applicable environmental norms

Check quality of treated water and operating chlorinators to add chlorine dosage as required; collect the water samples for various locations including and submit it to the Laboratory for testing on daily basis;

Recording & reporting of the reading of bulk fl ow meters at various inlet and outlet on daily basis

Establish meters for all the consumer connections, operate and maintain the meters(100% metering)

Record on a monthly basis, water meter readings of Customer and register the same in an appropriate computer database, printing of water bills, distribution of water Bills and notices to consumer as per instruction of Engineer-in-charge;

Provide new connections to households and maintain the connections

Providing security for Facilities and/or System at all times

Daily data recoding regarding working hours of each pump, power factor, power consumption to be collected, recorded and submitted to the Executive Engineer in charge of the ULB (Water Supply)

13.

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16.

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Undertake an overall system audit and connection audit including leak detection, recording and rectifi cation of incorrect customer connection, detection of faulty meters, illegal use of water, reduce energy consumption by regulation of meters once every ___ years

Undertake replacement of damaged or leaking pipelines upto ___ meters

Undertake maintenance of public wells and bore wells including de silting, disinfection, and any repair

Develop and maintain a public awareness system to inform about system breakdown, shutdown, supply shortage

Arrange the water tankers to public in the time of water crises/power failure.

Pay the Water Resource Department for the off take of water from the water resource in accordance with the contract between the water resource department and the ULB

Pay for the electricity consumption for the operation and maintenance of the water supply system and bear power tariff escalations if any.

Bear all expenses for chemicals required for operating water treatment plants.

Arrange for the man-power for the operation and maintenance of the water assets as per the contract and for undertaking the scope of work as defi ned in the contract. Bear all the establishment expenses for operating and maintaining the water assets including the salaries and wages of the staff deployed by the Developer, uniforms, safety equipments, undertake medical tests at pre described intervals etc

Ensure that the raw water transmission losses are within the range as specifi ed in the performance standards

Submit records on water quality maintained at different points in the value chain to the ULB

Ensure that the operation and maintenance standards are as per specifi ed levels

Submit a plan to the ULB outlining the details of the operations and maintenance activities timelines and the phasing of metering, reducing unauthorized connections, etc.

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Charge penalty to consumers if the water supply charges/water connection fees are not paid within the specifi ed time limit.


Maintain a record of all assets purchased by Developer

Assess the gross yearly demand of raw water and submit it to ULB for approval and facilitate the further submission to the water resource department.

14.

15.

16.

17.

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SN ITEM DESCRIPTION

Abide by all applicable bye laws, notifi cations, amendments to labour laws etc

Provide a supriendent as an authorized representative of the private developer and would be the key point of contact for the ULB.

Undertake extensive campaigning and awareness programs for metering of connections

Supervise Procurement/Supply chain management

Defi ne & implement customer service policy applicable to the Developer’s employees

18.

19.

20.

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22.

5 ULB’s obligations

Responsible to sign the contract with the Water Resource Department for off-taking water from the water source

Responsible to sign contract with the Electricity department for supply of electricity for the water supply operations

Replacement of pumping stations, if need be

ULB to ensure that the pipes for raw water transmission are closed in order to avoid raw water transmission losses due to evaporation and theft Replacement of the raw water transmission pipelines, distribution network pipes, WTP augmentation, major repairs, and reconstruction works etc if need be.Fix the tariff for water supply consumer wise and the escalations Facilitate approvals neededMonitor the operations of the DeveloperMaintaining administrative control over the personnel, Facilities and/or System;Alter water supply timings, quantities, pressures and zoningProvide tentative list of staff and labour required Implement capital expenditure as per the Capital Investment Plan

Enable access to the water assets, free from encumbrances

Permit peaceful use of the water assets

Provide support to the Developer for regularizing illegal connections

Disconnect the water connection if the consumer does not pay the water supply charge and the penalty within the specifi ed time limit

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4.

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6.7.8.9.10.11.12.

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6 Monitoring mechanism

Developer shall undertake periodic inspection of water assets and submit reports to an Independent Engineer. The Independent Engineer shall review the maintenance reports and inspect the water assets at least once in three months and submit an O&M inspection report to ULB.

The private developer would have to undertake quality assurance tests for the construction activity underway or already completed, at the behest of the ULB.

Developer would oversee the performance standards being met, and maintain records of the same and provide access to the development authority or ULB as and when required.

1.

2.

3.

7 Performance Standards

Performance standards shall be set up on the basis of the existing baseline fi gures.

Water treatment plant to function at a minimum capacity of ___%Coverage - Cover a minimum of __% of total households in the range of the main trunk lineWater supply should be minimum ___ lpcd. It shall be measured as - [(Quantity measured at ESR)*(1-Distribution loss(%)]

Raw water transmission loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water received at WTP)/quantity of water pumped at intake works)*100]

Water treatment loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water discharged from WTP)/quantity of water received at WTP)*100]

Pure water transmission loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water discharged from ESR)/quantity of water discharged from WTP)*100]

Distribution loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water billed in a zone)/quantity of water discharged from ESRs)*100]

Supply water for minimum ___ hours per day

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8.


SN ITEM DESCRIPTION

Frequency of supply should be minimum ___ days a week

The pressure of water supply should be maintained at ___ such that it fi lls--litres bucket in less than - seconds.

Consumer complaints not to exceed ___ per month

Consumer complaints to be redressed within 24 hours from the time of lodge of complaint

Water quality to be maintained as per the CPHEEO norms

Frequency of billing should be 2 months

Collection effi ciency to increase to __ within __ years

Quality of meters as per __-standards

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8 Payments As per the fi nancial feasibility, the private developer would be required to make a fi xed license fee payment to the ULB every ____ months;

The private developer shall have to submit a Performance Security in the form of a Bank Guarantee, which the ULB has the right to encash in case of non-adherence to performance standards and event of default.

All the operational of the water assets would have to be borne by the private developer.

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9 Risk Mitigation Strategies

The second ranked bidder shall be issued the letter of award, if the Developer does not sign the agreement within the ____ days of acceptance of letter of award.

If the developer does not pay the fi xed payment, then ULB shall encash the equivalent amount due from the payment security. Developer to replenish the payment security within - days from such encashment. If Developer fails to replenish the security, then it shall be an Event of Default.

The developer shall have to submit a plan to the ULB outlining details of the operations and maintenance plan. The developer shall be allowed to commence operations only once the ULB approves the plan.

The liabilities of the bulk water supply contract between the water resource department and the ULB shall rest with the developer (except changes in the tariff paid to the water resource department, as the case may be). If the supply of water falls short and is not available, then the developer shall have to arrange for water supply through private tankers for the citizens.

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In case the developer does not pay the water resource department/State electricity department, then ULB shall en cash the equivalent amount due from the performance security. In the event of the developer not confi rming to and meeting the performance standards, the ULB is liable to declaring the same as an event of default and use the performance guarantee sum against the same. If Developer ceases to operate all/or any substantial part of the water supply and distribution assets for a period of - consecutive hours without prior consent of the ULB, then ULB can immediately enter any/all of the water supply assets and operate the system. Any delay in payment to ULB shall attract a penal interest of-% per annum quarterly compounded.The ULB is liable to impose an Event of Default notice in the case of the developer selling treated water to any party other than the ULB. If the private developer under reports the revenue from sale of surplus water and or does not share the prescribed amount as per agreement from this sale to the ULB, then it would be considered as an Event of Default.

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10 Consequences of default

a) Developer Event of Default

ULB has the right to make good any shortfall from the performance securityULB reserves the right to claim from the Developer any costs, expenses or loss it may have incurred by reason of breach or failure on part of the Developer.Developer shall deliver to ULB all papers including forms used, receipt books, promotional materials and other documents.Hand-over all assets to ULB

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SN ITEM DESCRIPTION

b) ULB Event of Default

ULB shall pay the developer an amount equal to Rs--lakh, book value of developer’s assets and payments for payments outstanding from the ULB.

11 Qualifi cation Criteria (RFQ/RFP)

Technical criteria:Developer should have undertaken a similar project for a population size of ___.

Developer should have operated and managed __ water supply project from bulk supply to distribution end for a a city with water supply of __ MLD

Developer should have operated and managed one project requiring installation or operation and management of ___ number of meters

Financial criteria:Developer should have a minimum net worth equivalent to 25% of the estimated project cost for which bids have been invited

Developer should have an average net cash accruals over the past 3 years of Rs ___ crore

Holding Companies with a direct holding of more than 50% equity n the Lead Consortium Member can be considered for the evaluation of fi nancial criteria.

12 Bidding Parameter

If the private developer is given the right to collect and retain the user charges, the bidding parameter would be the highest bi monthly or annual fi xed payment to be paid as royalty/license fee to the ULB

If the private developer is not given the right to retain the user charges, the bidding parameter would be the lowest price at which the private developer would undertake the operation and maintenance activity.

1.

2.

2. Integrated Concession and Management of Entire Water Supply and Sewerage system

2.1 Problem Defi nitionTheULBfacesadualproblemofpoorwatersupplycoupledwithabsenceofaseweragesystem.Thereexistsshortageofthecurrentwatersource,highlycorrodedrawwaterand pure water transmission mains, high treatment losses, old distribution networkwith leakagesandhighnumberof illegalconnections.TheULBisunabletorecoveritsoperationalcostsfromthecurrentwaterrevenueduetoinadequatetariffs,lessnumberofdirectconnectionsandpoorcollectionefficiency.Asaresult,theULBneedstoinvestintheaugmentationandupgradationoftheentirewatersupplysystemaswellimprovementinoperationalefficiencies.

In addition to poor water supply, the city also lacks as adequate sewerage system. Aminisculepercentageofthetotalareaandpopulationiscoveredthroughanundergroundseweragenetwork.Sewageflowthroughopendrainsisquitecommon.Inmajorpartsofthecity,theULBhassetseptictankswhicharecleanedperiodically.Thecitydoesnothaveasewagetreatmentplantandtheentiresewagethatisgenerateddisposedintotheriver/sea(freshwater).Thisresultsincontaminationofwaterandattimesalsoaffectsthequalityofwatersuppliedtothecitizens.

2.2 Need for PPPThe ULB needs PPP to enhance the public resources as well to improve the servicedeliveryforwatersupplyaswellastheseweragesystem.TheULBneedstoundertakehugeamountofinvestmentintheaugmentationofthebulkwatersource,rehabilitationofwaterpipelines,settingupofaseweragenetworkandestablishingsewagepumpingstationsandsewagetreatmentplants.TheULBdoesnothavetherequiredinvestmentcapacitytoarrangeforfundsfortheplannedcapitalinvestment(inspiteofGovernmentgrants).


Also,theULBneedsanimprovementincurrentoperationallevelsincludingreductionofenergycosts,reductionoftransmissionanddistributionlosses,improvementincollectionefficiency,etc.Thereby,theULBneedsaprivateoperatorfrombringingininvestmentsforundertakingtheoutlinedprojectsaswellastobringinefficienciesinthesystem.

2.3 PPP structureThePPPstructuredesignedfortheabovementionedproblemdefinition,isanIntegratedConcessionandManagementcontract for theentirewatersupplyaswellasseweragesystem of the city. In such a structure, the private operator will invest capital in theaugmentation andupgradationof theentirewater supply systemandestablishmentofthe sewerage systemasoutlined in theDetailedProjectReport,establishmeters, andmanagetheentiresystem.ThePPPoperatorshallalsoundertakethebillingandcollectionactivityforwatersupplyaswellasseweragesystemandretaintherevenuecollected.Iftheprojectisfinanciallyviablethen,thebiddershallmakeanannualpaymenttotheULB.Ontheotherhand,iftheprojectisnotfinanciallyviableandneedsViabilityGapFunding(VGF),thentheprivateoperatorshallquotetheVGFamount.ItispossiblethattheVGFneeded for theprojectshallexceedthecapof40%. Insuchascenario, theULB/StateGovt.shallneedtopayashadowtarifftotheprivateoperator.

2.4 Objective of the PPP structureThisPPPstructureaimstoaugmentthecurrentcapacityofthewatersupplysystem,reducethetechnicalandcommerciallossesintheentirewatersupplysystem,establishacompletenetworkofseweragesystemandtreateddisposalofthesewagegeneratedinthecity.

2.5 Detailed Term SheetThetermsheetatTable72outlinesthedetailedworkingofanIntegratedConcessionandManagementcontractfortheentirewatersupplyandseweragesystemincludingthepreparatoryworktobeundertakenbytheULB,thekeyobligationsoftheDeveloperandtheULB,themonitoringmechanism,thepaymentstructure,theperformancestandardstobeadheredtobytheprivateoperatorandkeyclausesforriskmitigationrelatedtothePPPstructure.

SN ITEM DESCRIPTION


Undertake a technical survey to gauge the current status of the water supply system including the technical losses in the system Undertake a technical survey to gauge the characteristics of the sewage generated, the design of the sewerage network and the technology to be adapted for the Sewerage Treatment Plant(STP)Design in detail the sewerage network considering the contours and physical features of the cityUndertake a consumer survey to gauge the number of direct connections, unauthorized connections, etc. Analyze the effi ciency of the water treatment plant and collect detailed information on the number of pumps and staffDecide on the quality and type of meters to be installed in the cityUndertake a survey of the raw water transmission, pure water transmission and distribution network on a GIS platformUndertake a Valve operation studyUndertake a customer regularization planPrepare a comprehensive metering policyPrepare the performance criteria as per the current levels of performance

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3.

4.

5.

6.7.

8.9.10.11.

DETAILED WORKING OF AN INTEGRATED CONCESSION MANAGEMENT CONTRACT Table 72

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SN ITEM DESCRIPTION


For water supply systemContract of ULB with Water resource department for tapping of water source Contract of ULB with the Electricity Board for supplying power to the water supply system and the tariff detailsDesign of the water supply system including jackwell, elevated storage reservoirs, main balance reservoirs, water treatment plant, raw water transmission lines, distribution network, etc.Condition of the water assets for quantifying the cost required for rehabilitation/renovation of assetsDetails of quality of bulk meters and customer metersDetails of quality of leak detection equipmentTariff structure of water connection charges, water supply charges, penalties for illegal connection/non-payment of water supply charges and escalations if applicableDetailed Project Report (DPR) of the projects to be undertakenContour Maps and Network mapsQuality standards of water to be maintainedDisposal standards for the inerts generated at water treatment plantOperation and Maintenance standards for all the water supply assets in the value chain Specifi cations and standards of handover of assets at end of the contract periodHistory of payments of end users, if available.

1.2.

3.

4.

5.6.7.

8.9.10.11.12.13.14.

For sewerage systemDesign of the sewerage system including sewerage network, pumping stations, sewage treatment plant, rising main, etc.Technology specifi cations of the sewerage treatment plantCondition of the sewerage assets for quantifying the cost required for rehabilitation/renovation of assetsTariff structure of sewerage connection charges, sewerage charges, penalties for illegal connection/non-payment of sewerage charges and escalations if applicableDetailed Project Report (DPR) of the projects to be undertakenDisposal standards for the inerts generated at sewage treatment plantOperation and Maintenance standardsSpecifi cations and standards of handover of assets at end of the contract period

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2.3.

4.

5.6.7.8.

3. Tenure of the PPP contract

The tenure of the PPP contract is generally defi ned in terms of the years of operation and ranges between 25-30 years.

4. Roles and Responsibilities of the Developer

Development, design, engineering, fi nance, procurement, construction, completion, commissioning, implementation, management, administration, operation and maintenance of the water supply source, water treatment plant, water supply network, sewerage network including pumping stations, sewage treatment plant and meters.Taking over the existing assets of the Water Supply scheme, including the jackwell, pumping stations, electrical installations, water treatment plants (WTPs), water storage reservoirs, connecting pipelines and distribution system, from source to tap for the operation, maintenance and repairs.Construction of raw water intake pumps, jackwells, suction mains, transmission pipelines, WTP and other works as per the DPR specifi cations.Extraction of raw water from the source and supply the required levels to the cityOperation and maintenance of the newly constructed WTP and the old WTPUndertake extensive campaigning and awareness programs for metering of connectionsIncreasing the piped water supply by providing new connections.Treat the water and ensure that there are no impurities in water at the point of saleMaintenance of a minimum average water supply level of - liters per capita per day (lpcd) with due pressure and required quality.Construction and maintenance of sewerage rising mains, transmission pipelines, pumping stations, STP and other works as per DPR specifi cationsDispose off the sewage treated effl uents at a water body as specifi ed by the ULB and as per technical specifi cations

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4.5.6.7.8.9.

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11.


SN ITEM DESCRIPTION

Construct, operate and maintain the STP in accordance with applicable laws related to pollution control, environmental standards as applicable.Prepare detailed designs with all requisite specifi cations for the construction works and obtain approval for the same. Procure all the necessary raw materials for the construction works, hire labour or sub contract the construction activityUndertake rehabilitation works for operating and maintaining the assets for a period of - yearsManaging regularization of illegal connections and impose penalties in case of illegal connectionsEstablishing meters, reading meters and recording the water consumptionDeployment of operations and maintenance staffDeveloping and maintaining a consumer redressal systemCollecting water supply system and sewerage system related data and performance reporting to the ULBObtain the necessary approvals Ensure fi nancial closure of the projectPay for the electricity consumption for the operation and maintenance of the project and bear power tariff escalations if any. Arrange for power supply back up in case of power failure.Provide access to the offi cials of the ULB to carry out inspection activity of the construction activity and operations and management works.Shall be solely and exclusively responsible for the recruitment, transportation, accommodation, payment of salaries, wages, taxes as applicableDefi ne and implement procurement policy for the employees of the DeveloperSelect suppliers and sub-contractors for the project as per the terms and conditions of the concession agreementManage sub-contracts as per the terms and conditions of the concession agreement

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5. ULB’s obligations

Responsible to sign the contract with the Water Resource Department for off-taking water from the water source; ensure supply of water to the developer at a pre-decided tariff as the case may be.

Facilitate or assist in obtaining necessary or applicable permits

Provide land to the developer on lease basis or on terms agreed upon for the period of concession for undertaking construction activity, operation and management of the water and sewerage assets.

Provide necessary permissions for possession and access of the site to the private developer

Ensure that all necessary authority required by the private developer for drawing of raw water, in quantum as required by the developer is provided.

Undertake independent supervision of the construction activity underway and monitor the operations.

Provide all necessary accounts, invoices, statements, demands, notices, insurance demands and other correspondence which are applicable to assets under private developer’s possession during concession period

Grant right of way to the site to the Developer

Undertake independent checks at frequent intervals to assess the water quality standards of the treated water supplied from the treatment plant and the disposal standards of the treated sewage

Authorize the Developer to collect, retain, appropriate, recover and enforce water supply and sewerage charges from the consumers

Grant the right to charge penalty to consumers in case of non-payment of water supply and sewerage charges

Provide a capital grant to the Developer on the completion of specifi ed milestones (applicable only if JNNURM funding/Viability Gap Funding is being provided to the project)

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Obtain permission from the concerned authority for discharge of sewage in a water body adjacent to the STP.

Issue a notifi cation banning the use of ground water after the Developer is in a position to offer water connections to all consumers and cancel all existing permissions given for extraction of ground water

Assist the bidder in obtaining uninterrupted electric power supply from the State Electricity Board for the implementation of the Project. In case of any interruption in the power supply beyond - hours continuously or - hours per month, the cost incurred by the Developer for the generators shall be borne by the ULB.

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6. Monitoring mechanism

The construction activity would be overseen by an independent consultant appointed by the ULB, and quarterly progress reports of the same would be generated.

Developer shall undertake periodic inspection of water assets and submit reports to an Independent Engineer. The Independent Engineer shall review the maintenance reports and inspect the water and sewerage assets at least once in three months and submit an O&M inspection report to ULB.



ULB shall at all times have access to the project site to inspect and examine the works, materials, equipment and workmanship.

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7. Performance Standards


Construction of the required assets to be completed as per the phasing of the DPR


Water treatment plant to function at a minimum capacity of ___%




Quality of meters as per __ standards

Coverage (water supply and sewerage) should be a minimum of __% of total households in the range of the main trunk line

Distribution loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water billed in a zone)/quantity of water discharged from ESRs)*100]

Water should be supplied for minimum ___ hours per day and minimum ___ days a week


Treated sewage disposed should be as per specifi ed CPHEEO norms


Revenue collection effi ciency at __% of the total bills generated



All performance standards to be achieved within the set time frame by the ULB

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8. Payments If the project is fi nancially feasible: The private developer shall pay the ULB a fi xed royalty of Rs-per month. In this case, the private developer shall also have to submit a payment security in the form of _____ equivalent to 3 months of fi xed payment payable to ULB.

If the project needs Viability Gap Funding: The ULB shall pay the private developer the amount of VGF in installments on the completion of specifi ed milestones. The private operator shall retain the water revenue and make no payment to the ULB.

In all cases, the private developer shall have to submit a Performance Security in the form of a Bank Guarantee, which the ULB has the right to encash in case of non-adherence to performance standards and event of default.

All the operational and capital expenditures for design, construction, operation of the water assets would have to be borne by the private developer.

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9. Risk Mitigation Strategies



The Developer shall have to submit a plan to the ULB outlining in details the construction plan and the operations and maintenance plan. The Developer shall be allowed to commence construction and operations only once the ULB approves the plan.

The ownership of the project assets constructed during the concession period would be transferred to the ULB on the completion of the assets.

If the developer does not undertake construction activity or operations as per the specifi ed schedule, the ULB would issue notice of default and a cure period would be given to the developer for course correction. In case the developer fails to respond to the notices issued within 30 days of issue date, the contract would stand terminated.

The liabilities of the bulk water supply contract between the water resource department and the ULB shall rest with the Developer (except changes in the tariff paid to the water resource department, as the case may be). If the supply of water falls short and is not available, then the Developer shall have to arrange for water supply through private tankers for the citizens.

In case the developer does not pay the water resource department/State electricity department, then ULB shall encash the equivalent amount due from the performance security.

In the event of the developer not confi rming to and meeting the performance standards, the ULB is liable to declaring the same as an event of default and use the performance guarantee sum against the same.

If Developer ceases to operate all/or any substantial part of the water supply and distribution assets for a period of-consecutive hours without prior consent of the ULB, then ULB can immediately enter any/all of the water supply assets and operate the system.

Any delay in payment to ULB shall attract a penal interest of-% per annum quarterly compounded.

The ULB is liable to impose an Event of Default notice in the case of the developer selling treated water to any party other than the ULB.

If the private developer under reports the revenue from sale of surplus water and or does not share the prescribed amount as per agreement from this sale to the ULB, then it would be considered as an Event of Default.

In case of any decrease or increase in the cost of the running of the Project due to escalation in power tariff by the State Electricity Board beyond-% in any given year and variation in the cost of Rs-/KL of bulk water purchased, the proportionate additional cost shall borne by the ULB.

Consumer shall be liable to pay both water supply and sewerage charges, irrespective of the fact whether consumer avails both water supply and sewerage connections facility or not

Consumer shall be responsible for safety of the meter and shall be responsible for the loss of meter due to theft, damage by fi re or accident

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10. Consequences of default


ULB has the right to make good any shortfall from the performance security

ULB reserves the right to claim from the Developer any costs, expenses or loss it may have incurred by reason of breach or failure on part of the Developer.

Developer shall deliver to ULB all papers including forms used, receipt books, promotional materials and other documents.

Hand-over all assets to ULB

Transfer all rights, titles and interest in the project assets to the ULB

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ULB shall pay the developer an amount equal to Rs--lakh, book value of developer’s assets and payments for payments outstanding from the ULB. This amount paid shall be after deducting the grant or viability funding.

Return the performance security to the Developers

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11. Qualifi cation criteria

Technical Criteria

Developer should have experience in construction of one water supply project

The developer should have handled operation and maintenance of water supply services for a city with 50% of ____ direct connections

The developer should have undertaken one project requiring construction of __ MLD WTP, ___km water transmission pipelines

The developer should have undertaken one project requiring construction and operation and maintenance of ____ MLD of STP with ___ km network line

Financial criteria:

Developer should have a minimum net worth equivalent to 25% of the estimated project cost for which bids have been invited

Developer should have an average net cash accruals over 3 years of Rs--crore


12. Bidding Parameter

If the project is fi nancially feasible: The bidding parameter shall be the fi xed royalty of Rs-per month payable to the ULB. The private developer quoting the highest royalty shall be selected as the Successful Bidder.

If the project needs Viability Gap Funding: The bidding parameter shall be the total amount of Viability Gap Funding payable by the ULB to the private developer. The private developer quoting the least VGF shall be selected as the Successful Bidder.

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13. Staffi ng The deploying of staff to private operator by the ULB shall be the decision of the ULB. The ULB may explore the transfer of employees on deputation for a year and on the completion of a year, the employees can be provided with an option of continuing to work with the developer or joining back the ULB. This shall need to be further detailed in the contract documents during the tendering process.

3. Metering Billing and Collection

3.1 Problem Defi nitionTheULBhassufficientandfrequentwatersupplycoupledwithanefficienttransmissionanddistributionsystem.TheULBmayneedinvestmentinup-gradationofthesystem,butisfinanciallycapableofundertakingthesame.However,theULBisnotinapositiontorecoverit’soperationalcostasaresultoflowrevenuedemand,highcommerciallossandpoorcollectionefficiency.Asaresult,inordertounderstandthewateractuallyconsumedbythecustomersandincreasetherevenuefromwater,theULBneedstoestablishmetersandundertakemeasurestoimproveit’sefficienciesinbillingandcollection.


3.2 Need for PPPSincetheULBhasafairlywellmanagedandsufficientwatersupplysystem,theonlyscopeforPPPisinestablishingameteringsystemandbringinginoperationalandmanagementefficienciesinbillingandcollection.TheneedforPPPisnoturgentbutdesirablefromthepointofviewofincreasingtherevenuepotentialoftheULB.

3.3 PPP structureThe PPP structure designed for the above mentioned problem definition, is aMetering,BillingandCollectioncontractfortheentirecity.Insuchastructure,theprivate operator shall establish bulk water meters, meters at important points inthedistributionnetwork andmeters at consumptionpoints.Theprivateoperatorshall also be responsible for regular maintenance and repairs of such meters.Further the operator shall also read the meters, prepare bills, issue the bills andcollectthemoneyfromthecustomers.Acomputerisedsystemshallbemaintainedby theprivateoperatorcontaining adetaileddatabaseon thenumberand typeofmeters,theconsumptionpatterns,thefunctionalityofmeters,therevenuedemand,the collections due, etc. However, the tariff for the water consumption, fees forestablishingmetersandthepenaltyforabsenceof/non-functioningofmetersshallbesetbytheULB.TheprivateoperatorshalltransfertherevenuecollectedfromtheuserstotheULB.Inreturnfortheservice,theULBshallpayafixedannualpaymenttotheprivateoperator.

3.4 Objective of the PPP structureThis PPP structure aims to reduce the commercial losses in the system and bring inoperationalefficienciesintherevenuemanagementofthewatersupplysystem.

3.5 Detailed Term SheetTermsheetatTable73outlinesthedetailedworkingofaMeteringBillingandCollectioncontract for the entire water supply system including the preparatory work to beundertakenbytheULB,thekeyobligationsoftheDeveloperandtheULB,themonitoringmechanism,thepaymentstructure,theperformancestandardstobeadheredtobytheprivateoperatorandkeyclausesforriskmitigationrelatedtothePPPstructure.

SN ITEM DESCRIPTION

1. Preparatory work by ULB

Undertake a water auditDecide on the most suitable and affordable type of meter to be installed in the cityUndertake a consumer survey to gauge the number of direct connections, unauthorized connections, slum connections, connections charged by general rates, metered connections, etc. Undertake a technical survey of all the existing water supply distribution linesUndertake leak testsUndertake a Valve operation studyUndertake a customer regularization planIf meters are existing, then prepare a list of functional meters

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DETAILED WORKING OF A METERING BILLING COLLECTION CONTRACT Table 73

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2. Information to be provided to the private operator by the ULB

Details of the number and type of bulk meters and customer meters to be established

Tariff structure of water supply charges, penalties for illegal connection/non-payment of water supply charges and escalations if applicable


Details of existing meters, if any, their functionality, cost and usage

A database of consumers, their current status of billing, the water consumed by the consumers

Regularization plan, if any

Meter replacement policy, if any

Meter reading policy, if any

Current billing & collection policy, if any

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3. Tenure of the PPP contract


4. Roles and Responsibilities of the Developer

Procure and establish bulk fl ow meters and consumption meters at households

The meters installed should be as per the technical specifi cations provided by the ULB

Recording on a monthly basis, water meter readings of the consumer and registering the same in an appropriate computer database

Undertake extensive campaigning and awareness programs for metering of connections

Printing of bills, distribution of water bills and notices to the concerned consumer as per the instruction of the ULB

Collections from consumers as per the billing procedure

Collections of arrears from consumers due to the ULB for the period prior to the signing of the contract

Operation and maintenance of the meters

Deployment of staff for operations and maintenance of meters and billing and collection

Recoding and reporting of the reading of the bulk fl ow meters at the various inlets and outlets on a daily basis

Doing announcement for the recovery of water bills, shut down of water supply and public awareness as guided from ULB from time to time

Obtain the necessary approvals

Develop a database of consumers in an appropriate software technology and provide hardware and set up a billing system for the water consumed by the consumers

The bill collection arrangements shall include arrangements with local banks having branch offi ces at suitable locations in project area. In addition the private operator, shall make his own arrangements for water supply bill collections at various locations in the project area

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5. ULB’s obligations

Facilitate in procuring, obtaining and maintaining applicable permits

Provide all necessary accounts, invoices, statements, demands, notices and other correspondence which are applicable

Prepare a list of arrears and credit balance of consumers due to the ULB and hand-over to the Developer

Pay the bulk water charges, energy charges and the water testing charges

Responsible for supply of adequate water for distribution

Adherence to water supply timings, quantities, pressures and zoning

Grant the right to the private operator to charge delayed payment interest upto-% per month on the principal amount outstanding from consumers. Private developer shall not be allowed to charge interest on the delayed payment charge

Disconnect water supply connection of any consumer delaying payment of Water Supply Bill beyond-months from the due date of the payment of bills

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SN ITEM DESCRIPTION

6. Monitoring mechanism

The ULB shall supervise the operations of the private developer at all times and notify the operator of any defects that are found.

The reading of meters, functionality of meters and the applicability of tariff would be overseen by an Engineer-in - Charge from the ULB, and monthly progress reports of the same would be generated.

Developer shall undertake periodic inspection of meters and submit reports to the Engineer-in - Charge. The Engineer-in - Charge shall review the maintenance reports and inspect the meters at least once in three months and submit an O&M inspection report to ULB.


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7. Performance Standards

Quality of meters as per __ standards

Frequency of billing - months


100% of all property connections (individual and shared) must be metered and computerized records of the readings must be maintained

All performance standards to be achieved within the set time frame by the ULB


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8. Payments The revenue from water supply charges collected by the private developer shall be transferred to the ULB.

The ULB shall pay a fi xed amount of Rs-per month to the private developer.

In all cases, the private developer shall have to submit a Performance Security in the form of a Bank Guarantee, which the ULB has the right to en-cash in case of non-adherence to performance standards and event of default.

All the operational and capital expenditures for the scope of work assigned to the private developer would have to be borne by the private developer.

The ULB may provide for a bonus to the Developer if the performance standards are met before the time limits and as per the quality specifi cations. This shall be as per the terms and conditions of the Agreement and will be the choice of the ULB.

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9. Risk Mitigation Strategies


If the developer does not transfer the revenues to the ULB or there is a shortfall in the revenue transferred, then ULB shall en-cash the equivalent amount due from the performance security. Developer to replenish the performance security within - days from such encashment. If Developer fails to replenish the security, then it shall be an Event of Default.

The Developer shall have to submit a plan to the ULB outlining in detail the plan for establishing meters, the billing procedure and the detailed computerized system to be established.

The meters established during the contract period would be transferred to the ULB on the expiry/termination of the agreement.

If the developer does not undertake the operations as per the specifi ed schedule, the ULB would issue notice of default and a cure period would be given to the developer for course correction. In case the developer fails to respond to the notices issued within 30 days of issue date, the contract would stand terminated.

In the event of the developer not confi rming to and meeting the performance standards, the ULB is liable to declaring the same as an event of default and use the performance security sum against the same.



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10. Consequences of default






ULB shall not make any payment to the Developer.

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ULB shall return the performance security to the Developer after deducting any payments due from the private developer to the ULB

11.. RFQ criteria Technical Criteria

The developer should have undertaken one project installation and operation and maintenance of ____ meters

Financial criteria:



12. Bidding Parameter

The bidding parameter shall be the fi xed payment of Rs-per month payable to the private developer by the ULB. The private developer quoting the least fi xed payment per month shall be selected as the Successful Bidder.

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SN ITEM DESCRIPTION

1 Scope of the Project

Prepare detailed designs with all requisite specifi cations for the construction of the Water Treatment Plant

Undertake detailed engineering for the approved designs of the treatment plant

Procure all the necessary raw materials for the construction of the raw water intake wells, pipelines, and the WTP

Arrange for construction activity of the raw water intake and the WTP, hire labour or sub contract the construction activity

Construction of raw water intake pumps, jackwells, suction mains, transmission pipelines Water Treatment Plant, installation of electrical sub station, boundary wall with gate and guardroom, and all related electrical works.

Construction of a tank for storage of treated water

Extraction of raw water from the source and supply the required levels to the city

Installation of bulk meters, reading meters and recording the water intake and output levels

Treatment of the raw water as per process and standards specifi ed

Transmission of treated water to the storage reservoir

Arrange for disposal of brine and other wastes generated from the treatment plant as per environmental norms and standards specifi ed

Operation and maintenance of the raw water intake equipments and the newly constructed WTP

Ensure an agreed production capacity and treated water at all times

Deployment of operations and maintenance staff

Undertake water quality norms at all times

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CONCESSION AGREEMENT FOR THE DEVELOPMENT, OPERATION AND MAINTENANCE OF BULK WATER SUPPLY SYSTEMTable 74


SN ITEM DESCRIPTION

Undertake rehabilitation works for operating and maintaining the assets for a period of - years

Collecting water supply system related data and performance reporting to the ULB

Levy and collect water charges from the ULB for supply of treated water

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Determine the quantum of bulk water demand and the extent of off take permissible

Undertake a technical survey to gauge the current status of the bulk water supply system including the technical losses in the system.


Determine the water quality standards to be adhered to

Decide on the quality and type and number of bulk meters to be installed

Undertake a survey of the raw water transmission network on a GIS platform


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Contract of ULB with Water resource department for drawing of water source

Contract of ULB with the Electricity Board for supplying power to the water supply system and the tariff details

Design of the water supply system including jackwell, elevated storage reservoirs, main balance reservoirs, water treatment plant, raw water transmission lines.

Details of quality of bulk meters

Details of quality of leak detection equipment


Quality standards of water to be maintained

Disposal standards for the inerts generated at water treatment plant

Operation and Maintenance standards for the bulk water supply treatment system

Specifi cations and standards of handover of assets at end of the contract period

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Draw necessary permit applications with all particulars to be submitted to relevant government authorities for clearances, no objection certifi cates and all necessary approvals

Arrange for all the fi nance required for design, engineering, procurement, construction, operation and maintenance of the WTP and the raw water intake assets

Obtain the necessary approvals from concerned departments and submit copies to the ULB

Provide to the ULB all necessary documents to facilitate fi nancial closure

Furnish to the ULB all details of the institutional arrangement being developed for construction, operation and management of the water assets as required. Details of SPV being formed if any; details on partners, technology partners, equity stake of the partners etc.

Take over of the site from the ULB for construction and development of the WTP plant

Prepare detailed designs of the raw water intake systems, the water treatment plant, and all other technical specifi cations of all the machinery to be used for off take of water and treatment of the raw water and obtain approvals from the ULB for the designs

Prepare a capital investment plan and submit to the ULB for review

Provide project cost estimates and obtain approvals

Assess the gross yearly demand of raw water and submit it to ULB for approval and facilitate the further submission to the water resource department.

Arrange for supply of power supply for raw water intake, construction activity, operation and maintenance of the WTP during the period of contract.

In case of power failure arrange for back up power supply

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Undertake all raw material procurement as per the prescribed standards.

Make all necessary arrangements for transportation of raw material to the site. Bear all expenses for purchase and transport of raw materials. In case of escalations in costs of raw inputs due to delays, bear the increased cost.

Arrange for sub contracting of construction activity for WTP and laying of transmission lines if required

Monitoring of work and progress achieved by sub contractors of construction activity if applicable

Undertake construction of all internal roads, guard house etc at the site of the WTP

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Establish bulk meters at the water treatment plant and measure the input and output volumes

Arrange for removal of all construction debris, raw materials, hazardous waste and other materials to ensure maintaining a neat and clean project site.

Pay for the electricity consumption for the operation and maintenance of the water supply system and bear power tariff escalations if any.

Bear all charges if any for temporary or permanent access to the site eg lease rentals etc

Bear all expenses for chemicals required for operating water treatment plants, and maintaining water quality standards

Arrange for the man-power for the operation and maintenance of the water assets as per the contract and for undertaking the scope of work as defi ned in the contract. Bear all the establishment expenses for operating and maintaining the water assets including the salaries and wages of the staff deployed by the Developer

Operation and maintenance of the storage reservoirs

Operate and maintain the pumping stations

Ensure that the raw water transmission losses are within the range as specifi ed in the performance standards

Repair and maintain the raw water transmission pipelines

Operate and maintain the Water Treatment Plant as per the procedure and quality standards specifi ed by the ULB

Submit records on water quality maintained at different points in the value chain to the ULB

Ensure that the water treatment losses are within the range as specifi ed in the performance standards

Dispose the waste generated at the water treatment plant as per CPHEEO norms

Bear all expenses involved in safe and effective disposing of waste generated from the waste treatment procedure

Install meters to read the input and output volume at the storage reservoirs, operate the meters and replace if need be

Undertake frequent quality checks at the storage tanks and maintain security

If the pumping station breaks down, then the Developer should re-route the water to another pumping station or supply water through tankers.


Carry out energy audit at all pumping stations and water audit at water treatment plants on an annual basis.

Undertake all necessary safety precautions for prevention of accidents at the project site

Undertake all necessary obligations of the ULB which are applicable at the site.

Ensure that the site handed over by the ULB for construction and operations activities is used only for activities as stated by the ULB in the agreement

Provide access to the offi cials of the ULB to carry out inspection activity of the construction activity and operations and management works.

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SN ITEM DESCRIPTION


Responsible to sign the contract with the Water Resource Department for off-taking water from the water source; ensure supply of water to the developer free of cost or at a pre-decided tariff as the case may be.

Provide permissions to undertake any technical site survey without causing of disruption to existing water supply system

Provide land to the developer on lease basis or on terms agreed upon for the period of concession for undertaking construction activity, operation and management of the water asset.

Provide necessary permissions for possession and access of the site to the private developer

State the activities for which the land/site handed over to the private developer can be used

Ensure that all necessary authority required by the private developer for drawing of raw water, in quantum as required by the developer is provided.

Undertake independent supervision of the construction activity underway.

Facilitate or assist in obtaining necessary or applicable permits

Ensure the developer access to electricity supply of electricity for the operation and maintenance of the water treatment plant

Provide all necessary accounts, invoices, statements, demands, notices, insurance demands and other correspondence which are applicable to assets under private developer’s possession during concession period

Provide guidelines/norms to be followed for water treatment process

Guarantee purchase or payment of--installed capacity of treated water from the treatment plant.

Fix the water production capacity level for the take or pay arrangement. The minimum treated water supply against which payment is guaranteed is to be stated.

Fix the tariff for treated water supply by the private developer. Both the fi xed amount plus the variable factor along with margin or range for tariff escalations to be stated.

Monitor the operations of the Developer.

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State if the private developer has the right to sell surplus treated water beyond required capacity to any third party.

Undertake independent checks at frequent intervals to assess the water quality standards of the treated water supplied from the treatment plant



Provide technical or other assistance if requested for by the private developer

Impose penalties on default by the developer

Undertake or facilitate dispute resolution in the instances of differences arising between the developer and any third party

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Time for construction of the required assets to be completed within ___ months of the date of commencement Time frame for achievement of the performance standardsRaw water transmission loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water received at WTP)/quantity of water pumped at intake works)*100]

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Water treatment plant to function at a minimum capacity of ___%Water treatment loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water discharged from WTP)/quantity of water received at WTP)*100]Pure water transmission loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water discharged from ESR)/quantity of water discharged from WTP)*100]Water quality to be maintained as per the CPHEEO normsQuality of meters as per __ standards

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8 Payments The ULB has to make a minimum fi xed payment for--MLD of treated water made available by private developer at all times. For every additional MLD over the fi xed quantity a predetermined variable charge has to be paid by ULB to the private developerThe private developer shall have to submit a Performance Security in the form of a Bank Guarantee, which the ULB has the right to encash in case of non-adherence to performance standards and event of default.All the capital costs and operational expenses of the water assets would have to be borne by the private developer.

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The second ranked bidder shall be issued the letter of award, if the Developer does not sign the agreement within the ____ days of acceptance of letter of award.If the ULB does not pay the fi xed payment to the private developer for the fi xed quantity of, then it shall be an Event of Default.The Developer shall have to submit a plan to the ULB outlining details of the construction and operations and maintenance plan. The Developer shall be allowed to commence construction and operations only once the ULB approves the plan. The liabilities of the bulk water supply contract between the water resource department and the ULB shall rest with the Developer (except changes in the tariff paid to the water resource department, as the case may be). If the supply of water falls short and is not available, then the Developer shall have to arrange for water supply through private tankers for the citizens.In case the developer does not pay the water resource department/State electricity department, then ULB shall encash the equivalent amount due from the performance security. In the event of the developer not confi rming to and meeting the performance standards, the ULB is liable to declaring the same as an event of default and use the performance guarantee sum against the same. If Developer ceases to operate all/or any substantial part of the water supply and distribution assets for a period of-consecutive hours without prior consent of the ULB, then ULB can immediately enter any/all of the water supply assets and operate the system. Any delay in payment by ULB shall attract a penal interest of-% per annum quarterly compounded.The ULB is liable to impose an Event of Default notice in the case of the developer selling treated water to any party other than the ULB.

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ULB has the right to make good any shortfall from the performance securityULB reserves the right to claim from the Developer any costs, expenses or loss it may have incurred by reason of breach or failure on part of the Developer.Developer shall deliver to ULB all papers including forms used, receipt books, promotional materials and other documents.Hand-over all assets to ULB

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ULB shall pay the developer an amount equal to Rs--lakh, book value of developer’s assets


The lowest per KL treated water supply charge to be levied by the private developer would be the key bidding parameter

12. Staffi ng The deploying of staff to private operator by the ULB shall be the decision of the ULB. The ULB may explore the transfer of employees on deputation for a year and on the completion of a year, the employees can be provided with an option of continuing to work with the developer or joining back the ULB. This shall need to be further detailed in the contract documents during the tendering process.


SN ITEM DESCRIPTION

13 Qualifi cation criteria

Technical CriteriaDeveloper should have experience in construction of one water supply project for source augmentation of __ MLDThe developer should have undertaken one project requiring construction of __ MLD WTP

Financial criteria:




SN ITEM DESCRIPTION

1 Scope of the Project

Taking over the existing assets of--Water Supply scheme, comprising of sources at--with all pumping stations, electrical installations, water treatment plants (WTPs), water storage reservoirs, connecting pipelines and distribution system, from source to tap for the operation, maintenance and repairs.

Extraction of raw water from the source and supply the required levels to the city

Design and construct new Water Treatment Plant as per capacity specifi ed including raw water intake pipes, pump houses, suction mains, and structures for crossing of drains, roads, electrical sub station, boundary wall with gate and guardroom, and all related electrical works.

Construction and laying of transmission lines as per design capacity specifi ed

Upgradation works for the existing WTP

Operation and maintenance of the newly constructed WTP and the old WTP

Undertake effective disposal of waste generated from the treatment plant

Deployment of operations and maintenance staff

Maintenance of a minimum average water supply level of - liters per capita per day (lpcd) with due pressure and required quality.

Undertake rehabilitation works for operating and maintaining the assets for a period of - years

Managing the existing and expanding distribution network

Increasing the piped water supply by providing new connections.

Managing regularization of illegal connections and impose penalties in case of illegal connections

Establishing meters, reading meters and recording the water consumption

Reduction of water losses in distribution of water

Undertaking the billing and collection of the water revenues

Recovering the cost of supply of water from the consumers as per the tariff set by the ULB/development authority

Developing and maintaining a consumer redressal system

Collecting water supply system related data and performance reporting to the ULB

Effi cient operation and maintenance by institutional strengthening, business process and distribution improvement

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

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17.

18.

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20.

CONCESSION AGREEMENT FOR DEVELOPMENT OF THE BULK WATER SUPPLY SYSTEM AND OPERATION AND MAINTENANCE OF THE ENTIRE WATER SUPPLY SYSTEM

Table 75

KnowledgeSeries188

SN ITEM DESCRIPTION


Undertake an assessment to determine the quality of the bulk water supply system, to determine the augmentation and replacement works required and to identify the overall losses in the system

Undertake a consumer survey to gauge the number of direct connections, unauthorized connections, etc.

Undertake a technical survey to gauge the current status of the water supply system including the technical losses in the system.


Decide on the quality and type of meters to be installed in the city

Undertake a survey of the raw water transmission, pure water transmission and distribution network on a GIS platform


1.

2.

3.

4.

5.

6.

7.


Contract of ULB with Water resource department for drawing of water source Contract of ULB with the Electricity Board for supplying power to the water supply system and the tariff detailsDesign of the water supply system including jackwell, elevated storage reservoirs, main balance reservoirs, water treatment plant, raw water transmission lines, distribution network, etc.Details of the existing connectionsDetails of quality of bulk meters and customer metersDetails of quality of leak detection equipmentTariff structure of water connection charges, water supply charges, penalties for illegal connection/non-payment of water supply charges and escalations if applicableSite details in terms of area of operationContour Maps and Network mapsQuality standards of water to be maintainedDisposal standards for the inerts generated at water treatment plantOperation and Maintenance standards of reservoirsInformation on existing points of chlorination in the distribution networkCapital Investment Plan for the distribution system, expansion planManuals for consumer service standardsWater demand projections Information on potential bulk consumers outside the project site where water can be soldSpecifi cations and standards of handover of assets at end of the contract period

1.2.

3.

4.5.6.7.

8.9.10.11.12.13.14.15.16.17.

18.


Generally 25-30 years. Depends on the fi nancial feasibility of the project, the life of the water treatment plant, the distribution network, demographic growth pattern and political will.


Draw necessary permit applications with all particulars to be submitted to relevant government authorities for clearances, no objection certifi cates and all necessary approvalsProvide to the development authority all necessary documents to facilitate fi nancial closurePrepare necessary designs and detail all other technical specifi cations of all the machinery to be used for off take of water and treatment of the raw water and obtain approvals from the development authority or ULB for the designs and construction plansUndertake extensive campaigning and awareness programs for metering of connectionsProvide project cost estimates and obtain approvalsProvide the development authority capital investment plan for undertaking construction work of the WTP and the laying of transmission linesAssess the gross yearly demand of raw water and submit it to ULB for approval and facilitate the further submission to the water resource department.Undertake all raw material procurement as per the prescribed standards

1.

2.

3.

4.

5.6.

7.

8.


SN ITEM DESCRIPTION

Arrange for removal of all construction debris, raw materials, hazardous waste and other materials to ensure maintaining a neat and clean project siteArrange for sub contracting of construction activity for WTP and laying of transmission lines if requiredMonitoring of work and progress achieved by sub contractors of construction activity if applicableUndertake construction of all internal roads, guard house etc at the site of the WTP

9.

10.

11.

12.

Establish bulk meters at the water treatment plant and measure the input and output volumesMake monthly payments of fi xed license fee to the ULB/development authority as agreed to in the contractPay for the electricity consumption for the operation and maintenance of the water supply system and bear power tariff escalations if any.Bear all charges if any for temporary or permanent access to the siteBear all expenses for chemicals required for operating water treatment plants, and maintaining water quality standardsArrange for the man-power for the operation and maintenance of the water assets as per the contract and for undertaking the scope of work as defi ned in the contract. Bear all the establishment expenses for operating and maintaining the water assets including the salaries and wages of the staff deployed by the DeveloperOperate and maintain the Main Balancing Reservoir(MBR)Operation and maintenance of the storage reservoirsOperate and maintain the pumping stationsRepair and maintain the raw water transmission pipelinesOperate and maintain the Water Treatment Plant as per the procedure and quality standards specifi ed by the ULB and maintain permissible loss levelsSubmit records on water quality maintained at different points in the value chain to the ULB

Dispose the waste generated at the water treatment plant as per CPHEEO norms

Establish meters to read the input and output volume at the storage reservoirs, operate the meters and replace if need be

Undertake frequent quality checks at the storage reservoirs and maintain security

If the pumping station breaks down, then the Developer should re-route the water to another pumping station or supply water through tankers.

Chlorinate the water at points as specifi ed by the ULB

Submit a plan to the ULB outlining the details of the operations and maintenance activities timelines and the phasing of metering, reducing unauthorized connections, etc.

Provide new connections to households and maintain the connections


Establish consumer meters, provide 100% metering, read the meters and operate and maintain the meters

Levy of water charges from the consumers

Charge penalty to consumers if the water supply charges/water connection fees are not paid within the specifi ed time limit.


Carry out energy audit at all pumping stations and water audit at water treatment plants on an annual basis.

Undertake debt service payments as per fi nancial agreements

Undertake all necessary safety precautions for prevention of accidents at the project site

13.

14.

15.

16.17.

18.

19.20.21.22.23.

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25.

26.

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28.

29.

30.

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32.

33.

34.

35.

36.

37.

38.

39.

KnowledgeSeries190

SN ITEM DESCRIPTION


Responsible to sign the contract with the Water Resource Department for off-taking water from the water source

Bear cost escalations in the tariff of bulk water supply as charged by water resource department

Arrange for the supply of electricity for the operation and maintenance of the water supply system

Replacement of pure water pumping stations, if need be

ULB to ensure that the pipes for raw water transmission are closed in order to avoid raw water transmission losses due to evaporation and theft

Replacement of distribution network pipes, expansion to the distribution network major repairs, reconstruction works etc if need be.

Fix the tariff for water supply consumer wise and the escalations

Facilitate approvals needed

Monitor the operations of the Developer

Maintaining administrative control over the personnel, Facilities and/or System;

Alter water supply timings, quantities, pressures and zoning

Provide tentative list of staff and labour required

Implement capital expenditure as per the Capital Investment Plan



Provide support to the Developer for regularizing illegal connections.

Disconnect the water connection if the consumer does not pay the water supply charge and the penalty within the specifi ed time limit

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.





1.

2.

3.


Time for construction of the required assets to be completed within ___ months of the date of commencement

Time frame for achievement of the performance standards


Water treatment plant to function at a minimum capacity of ___%


Water supply should be minimum ___ lpcd. It shall be measured as - [(Quantity measured at ESR)*(1-Distribution loss (%)]


Coverage - Cover a minimum of __% of total households in the range of the main trunk line

1.

2.

3.

4.

5.

6.

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8.


SN ITEM DESCRIPTION

7 Distribution loss should be in the range of--% to--%. It shall be measured as [((1-quantity of water billed in a zone)/quantity of water discharged from ESRs)*100]

Supply water for minimum ___ hours per day

Frequency of supply should be minimum ___ days a week





Collection effi ciency to increase to __ within __ years

Quality of meters as per __-standards



9.

10.

11.

12.

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14.

15.

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17.

18.

19.

8 Payments Payment by private developer to ULB bi monthly as license fee

The private developer shall have to submit a Performance Security in the form of a Bank Guarantee, which the ULB has the right to encash in case of non-adherence to performance standards and event of default.

All the operational of the water assets would have to be borne by the private developer.

Private developer to share ___% of the revenue earned from the sale of surplus water to consumers other than those identifi ed by the ULB

1.

2.

3.

4.

9 Staffi ng The deploying of staff to private operator by the ULB shall be the decision of the ULB. The ULB may explore the transfer of employees on deputation for a year and on the completion of a year, the employees can be provided with an option of continuing to work with the developer or joining back the ULB. This shall need to be further detailed in the contract documents during the tendering process.




The Developer shall have to submit a plan to the ULB outlining details of the operations and maintenance plan. The Developer shall be allowed to commence operations only once the ULB approves the plan.

The liabilities of the bulk water supply contract between the water resource department and the ULB shall rest with the Developer (except changes in the tariff paid to the water resource department, as the case may be). If the supply of water falls short and is not available, then the Developer shall have to arrange for water supply through private tankers for the citizens.

In case the developer does not pay the water resource department/State electricity department, then ULB shall encash the equivalent amount due from the performance security.

In the event of the developer not confi rming to and meeting the performance standards, the ULB is liable to declaring the same as an event of default and use the performance guarantee sum against the same.

If Developer ceases to operate all/or any substantial part of the water supply and distribution assets for a period of-consecutive hours without prior consent of the ULB, then ULB can immediately enter any/all of the water supply assets and operate the system.

1.

2.

3.

4.

5.

6.

7.

KnowledgeSeries192

SN ITEM DESCRIPTION


The ULB is liable to impose an Event of Default notice in the case of the developer selling treated water to any party other than the ULB.


8.

9.

10.







1.

2.

3.

4.


ULB shall pay the developer an amount equal to Rs--lakh, book value of developer’s assets and payments for payments outstanding from the ULB.


The bidding parameter would be the highest bi monthly or annual fi xed payment to be paid as royalty to the ULB

13 Qualifi cation criteria

Technical Criteria

Developer should have experience in construction of one water supply project for source augmentation of __ MLD

The developer should have undertaken one project requiring construction of __ MLD WTP

Developer should have operated and managed __ water supply project from bulk supply to distribution end for a city with water supply of __ MLD

Financial criteria:




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