Safe water is essential for sustenance of life. It is needed in the household for drinking, cooking and cleaning besides bovine, agriculture and horticultural needs. Almost 100% of coverage in both water supply and sanitation, although recommended by the environment hygiene committee, as early as in 1949, is yet to be achieved. The variation in the per capita water supply ranges from 9 to 584 liter per capita per day (Ipcd) in urban areas and 5 to 70 lpcd in rural areas. The ninth plan strategy to have 100% coverage in sustainable water supply ensuring adequacy in terms of minimum per capita norms is yet to be translated on to the ground.
The world population living in cities is growing steadily. This is remarkable in developing countries where urbanization process create a landscape configured by networks of mid-sized cities and growing number of ‘plus million cities’ that pose unprecedented challenges to local governments. Additionally global and regional economic development processes are affecting the viability and competitiveness of local economics that ultimately challenges the future of urban agglomerations as a place to live, work and leisure. Process of urbanization has been more in the lesser urbanized countries and is expected to accelerate in the future. In India, growth of urban population during the past decade indicates higher growth for metrocities. Over the nest 40 years, India will overtake China and become the most populous country of the would. Although the rate of urbanization in India has been quite moderate during this century, due to low level of urbanization and a large population base, there has been a rapid growth of urban population and it has been doubling itself every 20 years.
The trend of rapid urbanization has resulted in urban economic activities making up an increasing share of GDP in all countries. Urbanization in India too has been a catalyst for economic growth. In 1950-51 urban India contributed to 29% of India’s GDP, which had reached 47% 1980-81, 55% in 1990-91 and is expected to grow more. Access to adequate levels of urban infrastructure presents a major constraint to improved urban productivity and also directly affecting the physical environmental and the quality of the citizens and thus the productivity and efficiency of cities. However recent changes have initiated a new look at these issues due to constraints and limitation in public sector financial investments, many technological and organizational innovations at both the policy and the project levels. At the policy level an important opportunity to face the challenge of rapid urbanization is presented by the surge towards decentralization adopted by governments throughout the world. In India, the government had taken a very significant step by 1992, by passing the 73rd and 74th constitutional Amendment Act thereby transferring many administrative and financial powers to local bodies. This makes urban local bodies the most important functionary in the provision of the urban services.
Water forms the lifeline of any society. In India, in spite of substantial emphasis on the water supply sector, as of 1991, about 85% of the urban population had access to safe drinking water. Though the coverage of water supply is this much, the level of service is very poor. While the government norms for urban supply of water is 140 liters per capita per day (lpcd), no Indian city comes near the target, the supply ranging from a low of 20 liters per capita per day to high of 80 liter per capita per day. According to ADB study on water availability, cities face the problems of water loss through pilferage and leakage.
The federal constitution of India provides for water supply and sanitation as a sate subject and, therefore, the states are vested with the constitutional right on planning, implementation and O&M including cost recovery of water supply and sanitation project. At the local level, the responsibility is interested by legislation to the local bodies like Municipal Corporation, Municipality, Municipal Council, Notified Area Committee / Authority as the case may be, for towns or on a state/regional basis with specialized agencies. The central government, Ministry of Urban Development and Poverty Alleviation formulate policy guidelines and provide technical assistance wherever needed. The expenditure on water supply and sanitation is met out of block loans and grants provided as planed assistance to the states, and out of loans from financial institutions like Life Insurance Corporation (LIC) Housing and Urban Development Corporation (HUDCO).
The traditional approach of funding investments in urban infrastructure through public grants and budgetary supports are grossly inadequate to meet the need of the sector. Therefore, urban organizations have to look for alternative sources for funding from financial institutions and municipal bonds which are available at competitive costs. In order to access these funds, there as need to develop commercially viable urban infrastructure projects which are bankable just any other commercial projects. In addition, savings in the operation and maintenance of the services can be achieved and private section participation (PSP). It can also improve operational efficacy, bring new technology and improve customer satisfaction,
In 1992, the Government of India (GOI) enacted the 74th constitutional amendment, which called for the decentralization of certain powers to urban local bodies (ULBs). This act recognized ULBs as the third tier of government. The constitutional amendment is designed to improve the financial and administrative management of ULBs and increase the urban sector resource base through improved taxaztion, user charge collections and efficient rule based transfer of resources to replace the former discretionary and unpredictable system. The governance of urban local bodies assume importance with adoption of the 74th Constitutional Amendment Act, which proposes to address issues raised with regard to the level of services delivered by the local bodies, through active participation and involvement of citizen groups, voluntary organization, academic institutions and corporate bodies. The Ministry of Urban Development and Poverty Alleviation (MOUD & PA) prepared a Model Municipal Law (MML) in 2003.
Urban centers performance as engines of Economic growth are facing problem because of urban infrastructure bottlenecks. Huge investments are required in urban infrastructure. Resources of this magnitude are unlikely to be available, there by increasing public health problems relating to inadequate water and sanitation services. Innovative financial mechanisms are therefore required to increase investments in this sector. These increases can be achieved by accessing capital markets and financial institutions. However, this will require a discipline of commercial viability and development of bankable projects with efficient project management systems. In this perspective, commercially viable projects would essentially be those which would be able to raise resources from the capital and financial markets largely on the basis of revenue streams from specific service linked user changes and dedicated sources (such as property tax and octori) [Mehta & Satyanaranana, 1995]. Commercial viability requires that there is (a) adequate hate of return as investment; (b) appropriate institutional structure; and (c) a risk assessment and mitigation plan (Mehta & Satyanarayana, 1995). Moreover, project development in a commercial formal is a very complex and time-consuming process and requires dedicated political and administrative leadership.
Various options for PSP in the sector are in function. The main can be distinguished by how responsibilities are allocated regarding ownership of assets and capital investment (Brook Lower, 1998). The responsibilities that are given to the private sector the greater will be its incentives to operate services better. The main option PSP options with corresponding allocations of responsibility are presented in
The Main option PSP- water & Sanitation
In practice, the PSP approaches are often a combination of described models in the table. For example, a public agency may involve as private agency in construction of a new water supply treatment plant on a BOT basis, whereas the existing system may be operated on a management contract basis.
For successful implementation of different PSP options, an analysis of various preconditions is necessary. These include: stakeholder support and political commitment, cost recovery and pricing, information base about the system, regularly framework and credit rating of the agency.
Pre-requisites for successful implementation of Different PSP
A number of options have emerged in PSP in the financing and management of urban services in India. Seven option have been identified in India: (a) Service contract (Chennai), (b) Local body financing through Municipal bonds and other source and implementation with private project management consultant (Ahmedabad), (c) Joint sector company to implement and finance the project (Tiruppur), (d), fixed price and fixed time contract with local body finance and a management contract for O&M (Pune) (e) BOT contract (Banglore), (f) Construction cum-BOT (Alandur), and (g) Concession (Karnataka towns).
Used service contract for public private partnership by giving out 70 out of the 119 city sewerage pumping station to private contractors for operation and maintenance. The system is working well, resulting in an increase in the contract period from one to three years. The Board gave service contract for O&M of the two sewerage treatment plants too.
The estimated cost of the project is ₹ 4,900 million and its is structure within an urban fiance framework. Ahemdabad Municipal Corporation (AMC) is implementing this project through 50 contracts and it has appointed a private project (programme) management consultant to supervise and co-ordinate the construction. The AMC accessed the capital Market in January, 1998, with a bond issue of ₹ 1,000 million to finance part of the project. This was the first public issue from a municipal authority in India without the state government guarantee.
This city with a 3.5 lakh population produces over 75 per cent of the country’s Knitwear Exports. The Tirrupur Exporters Association, Supported by the state and Local government, decided to involve the private sector participation, the New Tiruppur Area Development Corporation, was formed to implement the project. It is the first of its kind in India and will provide water to the industrial and domestic consumers.
Total estimated cost of the Pune water supply and sewerage proposed project was ₹ 735 crore and was to be implemented through an integrated turnkey construction contract within a fixed price and time format. It was proposed to have a five years management contract for the billing and collection of water charges in one third of the city. Pune Municipal Corporation was to arrange for financing the construction through its internal resources, grants from the state government and debt from various financial institutions. However, the corporation decided not to implement the project through private sector participation.
The Bangalore Water Supply and Sewerage Board (BWSSB) has proposed to implement the Cauvery Water Supply Scheme state IV (Phase 2), which will provide bulk water of 500 million liters per day to the city, on a BOT basis. The selected private firm will be responsible for construction and O&M of source, treatment as well as transmission of bulk water supply system over a long period (25 to 30 yrs.)
Used a construction contract for a 120 km sewage collection system, whereas the treatment plant of 24, MLD is with a BOT contract. Investment for the treatment plant and recover it over a period of 14 yrs. The local body will recover the costs through a combination of sewerage tax, sewerage change, connection charge, general revenues and support from the state government.
The Karnataka Urban Water Supply and Sewerage Board (KWSSB) has entered into a memorandum of understanding with the Angalian water company a U.K. based company, to participate in O&M and augmentation of water and sewerage systems in four cities of the state, namely Belgam, Hubli-Dharwad, Mysore and Mangalore. This participation is expected to be implemented through 20 to 25 years concession contract. The private company will first reduce unaccounted for water and improve operation efficiency. It will also arrange for financing new investments in the services.
Core Municipal Services are managed by the Private sector on a labour contract basis. Of the 42 contracts in operation, 19 performances - based services (PBS) contracts were prepared for managing the water distribution system and one for the transmission system. This was to increase the efficient operation of the system, and take specific steps to maximize the water billed, reduce leakage, detect illegal use of water, and take steps to mininise power consumption. The scope of work included systems operation, operation based on schedule of rates, water audit, energy audit, repairs and maintenance and advice. The contract envisaged provision of service for three years with annual performance reviews.
A wholly owned subsidiary of Tata Steel was formed in 2003 to provide and maintain urban service in the city. This private company provide very good urban services including power to its 7 lakh population. It entered into a management contact with Velia, a French company for O&M of water supply and sewerage services. This model is completely privately owned and not replicable model in near future.
The initial focus of new investments in this sector has been on provision of bulk water supply. However, BOT projects often do not address problems of existing water supply and sanitation systems such as high unaccounted for water, higher expenditure on energy and low cast recovery. Adding more bulk supply without improving existing distribution systems will further increase proportion of unaccounted for water and energy consumption leading to additional financial burden on the urban organizations. Therefore, there is need for a new paradigm for encourage PSP in water and sanitation sector in India. The focus must shift from bulk water supply to improved management of existing systems. A PSP can first help top improve operational efficiency of existing systems through controlling leakage, improving billing and collection and energy savings. Improvements in the Existing systems, as against large bulk water projects, can be initiated with small investments and have big pay off.
The process of developing urban projects in a commercial format is a relatively new trend in India. Unlike conventional projects, this type of project development requires considerable efforts in project documents, developing institutional arrangements for projects structuring, getting approvals, financial structuring, selection of contractors and management of project implementation.
The role of the government has to change from provider of the services to facilitator in developing the system. Strong administrative and political support from the urban local body is necessary to successfully implement an urban infrastructure project with PSP.
Successful implementation of commercially viable projects require continuous leadership and involvement of the local community.
There is need to develop a state level regulatory framework for the level, quality and price of the service provided as well as criteria and rules for PSP in the water supply and sewerage sector.
This is the most crucial issue for urban local bodies and the utility bonds. Present prices do not reflect the actual costs or willingness to pay for services. Recent studies on assessing people’s willingness to pay for urban services indicate that they are willing to pay much higher prices than they are currently paying when reliable and good quality services are provided (Vaidya, 1995).
Present accounting practices make it difficult to accurately assess the financial position of local authorities in general as well as particular services. For any debt instruments, accounting for separate revenue streams and service expenditure wil be necessary on a regular basis. There is therefore, a need to provide technical assistance and conduct training courses on appropriate accounting and financial management systems at the local level.
There is a need to emphasis on ensuring the access of low-income groups to these new systems (Mehta, 1998). Local level officials have to be made aware that specific masseurs are required to safeguard interests of the poor.
At present, there is no clear delineation of roles between policy maker and the provider. ULBs and water supply boards are policy maker as well as provider of services and not accountable to the consumers. Four strategies can potentially separate policy makers and providers are: decentralizing assets, using private participation in operations, charging for services, and relying on independent providers to give clients choice (WDR, 2004).