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Sustained growth of the Indian economy is essential for all-round development of thecountry. Within this requirement, sustainable infrastructure development is critical forproviding the backbone for economic activities as well as for ensuring that resources areconserved and used most efficiently, given the limited and the fast depleting nature ofthese resources.
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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
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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:govindmohan1@yahoo.co.in
AparnaBhatiaDirectorDepartmentofeconomicAffairMinistryofFinanceGovernmentofIndiaTel:+911123094443email:aparna.bhatia@nic.in
Asian Development Bank
AshokSharmaDirector,FinancialSectorPublicManagementandTradeDivisionSouthAsiaDepartmentAsianDevelopmentBankTel:+6326326755email:asharma@adb.org
AnoujMehtaSeniorInfrastructureFinanceSpecialist&FocalPointforPPPs(India)Tel:911124107200email:anoujmehta@adb.org
Government of Maharashtra
ManuKumarSrivastavaPPPNodalOfficerSecretaryUrbanDevelopmentGovernmentofMaharashtraMantralayaMumbaiTel:+912222846757email:sec_ud2@maharashtra.co
AjaySaxenaPPPexpert–MaharashtraAsianDevelopmentBankTel:+912266157390email:asaxena.consultant@adb.org
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
6 NavgharManikpur 125
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
Table19: KeyrolesandresponsibilitiesoftheprivatedeveloperandtheULB 76
Table20: KeyrisksandrolesandresponsibilitiesoftheprivatedeveloperandtheULB 77
Table21: KeyrolesandresponsibilitiesoftheprivatedeveloperandtheULB 80
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
Table35: InvestmentrequirementwithaPPP 109
Table36: BasicprofileofwatersupplyservicesinKolhapur 112
Table37: BasicprofileofsewerageinfrastructureinKolhapur 112
Table38: WatersupplyindicatorsforKolhapur 113
Table39: KeysewerageindicatorsforKolhapur 115
Table40: ProposedwatersupplyandsewerageprojectsatKolhapur 116
Table41: InvestmentrequirementwithaPPP 117
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
Table53: InvestmentrequirementwithaPPP 138
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
Table65:Proposedwatersupplyprojects 157
Table66:BasicprofileofwatersupplyservicesinNaviMumbai 159
Table67:WatersupplyindicatorsandInferences 159
Table68:Proposedwatersupplyprojects 160
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
Box3: Keyassumptions 117
Box4: Keyassumptions 123
Box5: Keyassumptions 128
Box6: Keyassumptions 133
Box7: Assumptionsofpreliminaryfinancialanalysis 137
Box8: Assumptionsofpreliminaryfinancialanalysis 143
Box9: Assumptionsofpreliminaryfinancialanalysis 148
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 3
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 5
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 9
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 11
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 13
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 15
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 17
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 19
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.
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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
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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
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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
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INDICATOR UNIT NORM FORMULA DEFINITION RATIONALE REMARKS
Service level performance parameters
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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INDICATOR UNIT NORM FORMULA DEFINITION RATIONALE REMARKS
Service level performance parameters
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
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INDICATOR UNIT NORM FORMULA DEFINITION RATIONALE REMARKS
Service level performance parameters
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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INDICATOR UNIT NORM FORMULA DEFINITION RATIONALE REMARKS
Service level performance parameters
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
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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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 33
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 35
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 37
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 39
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 41
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 43
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.
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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
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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
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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.
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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
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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
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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
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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
Concession agreement
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
Concession agreement
for bulk supply system
Concession agreement
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.
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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.
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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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 63
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
Technical ProposalFinal Commercial Offer
Submission of Proposal
Consortium FormationShortlisting
Project ScopeContracts
Receipt of RFQ/Issue RFP
Consortium FormationShort listing
Technical ProposalFinal Commercial Offer
Submission of ProposalIssue of RFP
Project ScopeContracts
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)
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 65
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
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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
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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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 73
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 75
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.
PARTICULARS PRIVATE DEVELOPER URBAN LOCAL BODY
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
KEY ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULBTable 19
STRUCTURE OF CONCESSION AGREEMENT FOR WATER SUPPLY AND SEWERAGE SERVICESFigure 14
Treats
Builds infrastructure
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 77
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 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.
RISKS PRIVATE DEVELOPER ULB REMARKS
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.
7 Performance Risk The risk that the water supply system performs such that the performance criteria are met shall reside with the private entity.
8 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.
9 Force Majeure Risk Any additional cost incurred by any party due to force majeure shall have to be borne by the respective party.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 79
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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PARTICULARS PRIVATE DEVELOPER URBAN LOCAL BODY
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
Oversee the O&M expenses
Bear expense on repairs to assets Facilitate negotiations for bulk water and electricity purchase
Labour charges, chemical charges
Any other O&M expense
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
KEY ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULBTable 21
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
Builds infrastructure
Operates
Builds
Operates
Builds
Operates
Sources bulk water Distributes
A detailed list of obligations and responsibilities of the stakeholders is presented inSectionIVofthisdocument.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 81
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.
8 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.
9 Force Majeure Risk Any additional cost incurred by any party due to force majeure 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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 83
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
Builds infrastructure
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 85
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
Oversee the O&M expenses
Labour charges, chemical charges
Facilitate negotiations for bulk water and electricity purchase
Any other O&M expense
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.
Take over assets at the end of the concession 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.
7 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.
8 Force Majeure Risk Any additional cost incurred by any party due to force majeure shall have to be borne by the respective party.
KEY RISK-SHARING FRAMEWORKTable 24
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 87
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
Builds infrastructure
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 89
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.
Sl. No RISKS PRIVATE
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.
Sl. No RISKS PRIVATE
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.
7 Performance Risk The risk that the water supply system performs such that the performance criteria are met shall reside with the private entity.
8 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.
9 Force Majeure Risk Any additional cost incurred by any party due to force majeure shall have to be borne by the respective party.
SeCTIONIIICaseStudiesofSampleCitiesofMaharashtra
CONTeNTS
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
9 Saoner 140
10 Chiplun 145
11 KulgaonBadlapur 150
12 Ambernath 154
13 NaviMumbai 158
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 93
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
KnowledgeSeries94
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 95
10
10SMChasarrangedforthisinvestmentfrominternalfundsanddebt.
Cities/Towns
Project Particulars Type of Ppp Structure
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.
KnowledgeSeries96
Cities/Towns
Project Particulars Type of Ppp Structure
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 97
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 99
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
KnowledgeSeries100
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 101
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 103
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 105
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
Key infrastructure components
Bulk supply
Sangli
Miraj
Kupwad
Water Treatment Capacity
Malbungalow
Hirabaug
Miraj
Total
Treated water available for consumption
Storage Capacity
15 Elevated Storage Reservoirs
Distribution network
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]
Water Supply Financials (FY-2007-08)
Water Account Revenue
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
Transmission and Distribution
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 107
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,thenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforSangli-Miraj-Kupwadundervariousschemesforimprovementofthewatersupplyservices.SMKChasidentifiedthefollowingprojectsforthewatersupplysector.22
4. Step 2: Choice between public funding and PPP option
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
Proposed under UIDSSMT scheme
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
Phasing of capital expenditure Over a period of 4 years
Raw water transmission losses 2%
Treatment Losses 2%
Distribution Losses 20%-in case of SMKC
15%-in case of private operator
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
90%-in case of private operator
Cost Reduction Effi ciency 0%-in case of SMKC
20%-in case of private operator
ASSUMPTIONS OF PRELIMINARY FINANCIAL ANALYSISBox 2
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 109
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.
5. Step 3: Choosing the structure of the PPP arrangement
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
IN CASE OF INVESTMENT AND OPERATIONS BY
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
Source: Preliminary financial analysis
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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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 111
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
Key infrastructure components
Bulk supply
Water Treatment Capacity
Treated water available for consumption
Storage Capacity
18 Elevated Storage Reservoirs
5 Ground Storage Reservoirs
Distribution network
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)
Water Supply Financials (FY-2007-08)
Water Account Revenue
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
Key infrastructure components
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
Source: Kolhapur Municipal Corporation
BASIC PROFILE OF SEWERAGE INFRASTRUCTURE IN KOLHAPURTable 37
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 113
4.1 Water Supply
Compiling key parameters
Basedonthepreliminaryanalysisofthewatersupplyservicedata25anddiscussionswithKMCofficials,CRISILassessed thecurrentwatersupply system inKolhapur.Table38presents thekey indicators forassessingthewatersupplysystematKolhapurandtheinferencestherein.26
25 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.
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.
Transmission and Distribution
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
KnowledgeSeries114
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 production cost
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 115
4.2 Sewerage sector
Compiling key parameters
Basedonthepreliminaryanalysisofsewerageservicedata31anddiscussionswithKMCofficials,CRISILassessedthecurrentseweragesysteminKolhapur.Table39presentsthekeyindicatorsforassessingtheseweragesystematKolhapur.
Identifi cation of the key issues
Basedonthestatusoftheseweragesystem,keyindicatorsandtheinferences,thefollowingareashavebeenearmarkedforinvestmentonaprioritybasis:
AugmentationoftheSTPexpansionoftheseweragenetworkinthecityRehabilitation/replacementofexistingrisingmainsandpipelines
4.3 Review of the water supply projects with approved DPRs
Havingidentifiedthekeyissuesintheexistingstatusofprovisioningofwatersupplyandsewerageservicesinthecity,thenextactivitytobeundertakenisthatofundertakingabriefreviewoftheprojectsthathavealreadybeenidentifiedforKolhapurundervariousschemesforimprovementofthewatersupplyservices.KMChasidentifiedthefollowingprojectsforthewatersupplysector.32
31 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.
32 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.
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
Proposed under UIDSSMT scheme
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
Source: Kolhapur Municipal Corporation
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 117
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.
PARTICULARS ASSUMPTIONS
Phasing of capital expenditure Over a period of 4 years
Raw water transmission losses 2%
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
Source: Preliminary financial analysis
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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.
6. Step 3: Choosing the structure of the PPP arrangement
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 119
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
5Virar
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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
Key infrastructure components
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 Supply Financials (FY-2007-08)
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
Transmission and Distribution
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 121
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 production cost
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
SCHEME PROPOSED DETAILS
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.
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ThesourceaugmentationprojectsmentionedinTable44arecurrentlyunderpreparationandnoapprovalsforeitheroftheprojectshavebeenreceived.Sincethecurrentproposalisatbestanestimateandnodecisionhasbeentakenonthesame,theseprojectshavenotbeenconsideredwhileexploringthePPPalternativesforwatersupplyoperationsatVirar.
4. Step 2: Choice between public funding and PPP option
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 123
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
5. Step 3: Choosing the structure of the PPP arrangement
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
PARTICULARS ASSUMPTIONS
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
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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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 125
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.
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3.1 Compiling key parametersBased on the preliminary analysis of the water supply service data43 of the NavgharManikpurMunicipalCouncilanddiscussionswithit’sofficials,CRISassesseditscurrentwatersupplysystem.Table46presentsthekeyindicatorsforassessingthesystem.4445
43 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.
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
Supply (Per capita consumption)
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.
Transmission and Distribution
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
Key infrastructure components
Bulk supply 24 MLD
Treated Water available for consumption 100 lpcd
Water Treatment Capacity
Surya headworks (joint scheme)
Uzgaon
100 MLD
20 MLD
Storage Capacity
6 Elevated Storage Reservoirs
5 Ground Storage Reservoirs
2.6 MLD
1.85 MLD
Distribution network 108 km
Connections 5541
Water Supply Financials (FY-2007-08)
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 127
3.2 Identifi cation of the key issues46
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.
4. Step 2: Choice between public funding and PPP option
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
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% 100 % Full cost recovery indicates the implementation of rational tariff levels and an overall effi ciency in management of water supply activity.
Unit production cost
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.
PROPOSED AREA OF INVESTMENT
SCHEME PROPOSED DETAILS
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
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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
PARTICULARS ASSUMPTIONS
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 129
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.
5. Step 3: Choosing the structure of the PPP arrangement
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 131
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
48 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.
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
Key infrastructure components
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 Supply Financials (FY-2007-08)
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
3.2 Identifi cation of the key issues51
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.
4. Step 2: Choice between public funding and PPP option
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.
Unit production cost Unit income
Rs.3.24/KL
Rs.2.95/KL
There is a need to increase operational effi ciency and reduce energy costs in order to improve cost recovery.
Collection effi ciency 100% 93%51 Collection effi ciency level is satisfactory.
Source: CRIS analysis and discussion with SWMC officials
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 133
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
Distribution network
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 135
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
53 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.
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
[Per capita treated water available for consumption]
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.
Transmission and Distribution
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
3.3 Review of the water supply projects with approved DPRs
AMCandMJPhave,undertheUIDSSMTscheme, identifiedtheprojectsmentioned inTable52forthewatersupplysector.55
4. Step 2: Choice between public funding and PPP option
Havingundertakentheassessmentoftheexistingstatusofthewatersupplyservicesinthecity,identificationofkeyissuesthereandtheprojectsidentifiedbythecity,thenext
55 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.
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.
Unit production cost Unit income
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
POTENTIAL AREA OF INVESTMENT SCHEME PROPOSED DETAILS
Augmentation of bulk water supply to Akot city from the existing Wan Dam source and expansion of the distribution network in the city.
Proposed under UIDSSMT scheme
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 137
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
PARTICULARS ASSUMPTIONS
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.
5. Step 3: Choosing the structure of the PPP arrangement
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)
IN CASE OF INVESTMENT AND OPERATIONS BY
AMC
IN CASE OF INVESTMENT AND OPERATIONS BY
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 139
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
Water Treatment Capacity
Kolar river
Khapar road
Water availability after treatment
Storage Capacity
2 Elevated Storage Reservoirs
Distribution network
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 141
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
59 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.
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
Water Supply Financials (FY-2007-08)
Water Account Revenue
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
(Per capita treated water available for consumption)
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
3.2 Identifi cation of the key issues61
Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:
Bulkwatersupplyaugmentation
Increasingthewatersupplybysettingupasandsiftingmachinerynearthesource
Rehabilitationandorreplacementofexistingrawwater transmission linesandexpansionofdistributionnetwork
establishmentofmetersforallwaterconnections
3.3 Review of the water supply projects with approved DPRs
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
Transmission and Distribution
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
Coverage (Connections/Total Households)
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.
Unit production cost Unit income
Rs.7.66/KL
Rs.1.91/KL
There is a need to increase operational effi ciency and reduce energy costs in order to improve cost recovery.
Collection effi ciency 100% 87 % Indicates scope for improvement in collection effi ciency.
Source: CRIS analysis and data provided by SMC
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 143
4. Step 2: Choice between public funding and PPP option
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
SCHEME PROPOSED DETAILS
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
15%-in case of private operator
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
20%-in case of private operator
Source: Preliminary financial analysis
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 145
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 Elevated Storage Reservoirs
2 Ground Storage ReservoirsDistribution network
Connections
9 MLD
125 lpcd
7 MLD
2 MLD
0.67 MLD
4.90 MLD30 km5668
Water Supply Financials (FY-2007-08)
Water Account Revenue
Annual O&M costs
Rs 0.68 croreRs 2.06 crore
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
64 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.
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
Supply (Per capita consumption)
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
Transmission and Distribution
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 147
3.2 Identifi cation of the key issues66
Basedonthestatusofthewatersupplysystem,keyindicatorsandtheresultantinferences,thefollowingareasappeartoneedinvestmentonaprioritybasis:
Undertakingrehabilitationandrepairworksforthedistributionnetworkpipelines
Increasingthestaffandservicequality
Undertaking leak detection study to ascertain the extent of technical andcommerciallosses
Installationofmetersandadoptionofvolumetrictariff
3.3 Review of the water supply projects with approved DPRs
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.
Duration of water supply 24 hours 2 hours each day
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 production cost
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.
PROPOSED AREA OF INVESTMENT
SCHEME PROPOSED DETAILS
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.
4. Step 2: Choice between public funding and PPP option
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
PARTICULARS ASSUMPTIONS
Raw water transmission losses 2%
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 149
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.
5. Step 3: Choosing the structure of the PPP arrangement
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
Key infrastructure components
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 Supply Financials (FY-2007-08)
Water Account RevenueAnnual O&M costs
Rs 5.92 croreRs 5.31 crore
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 151
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
71 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.
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
(Per capita treated water available for consumption)
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.
Transmission and Distribution
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
Coverage (Connections/Total Households)
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
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3.2 Identifi cation of the key issues73
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.
4. Step 2: Choice between public funding and PPP option
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
Metering/Total Connections
100% 100 % All the existing connections are metered and a volumetric tariff system is operational.
Duration of water supply
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.
Unit production cost Unit income
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
POTENTIAL AREA OF INVESTMENT SCHEME PROPOSED DETAILS
Rehabilitation/replacement of existing transmission and distribution infrastructure to reduce technical losses to minimum acceptable standards
Proposed under UIDSSMT scheme
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 153
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 155
3.1 Compiling key parametersBased on the preliminary analysis of water supply service data74 and discussions withAmbernathandMJPofficials,CRISassessedthecurrentwatersupplysystemofthecity.Table64presentsthekeyindicatorsforassessingthewatersupplysystematAmbernathandtheresultantinferences.
74 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.
AMBERNATH UTILITY PROFILE
Key infrastructure components Bulk supply
Chikhaloli Dam
Ulhas river
Barvi river
Water Treatment Capacity
Chikhaloli, Belavali
Water availability after treatment
Storage Capacity
2 Elevated Storage Reservoirs
2 Ground Storage Reservoirs
Distribution network
Connections
39 MLD
6 MLD
32 MLD
5 MLD
6 MLD
150 lpcd
3.5 MLD
4.42 MLD
64 km
6000
Water Supply Financials (FY-2007-08)
Water Account Revenue
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
[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. 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
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3.2 Identifi cation of the key issues75
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.
76 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
TYPICAL NORM
AMBERNATH KEY INFERENCE
Loss Less than 3% 2% Meets the norm
Transmission and Distribution
Losses Less than 15% 22% Moderate extent of transmission losses
Consumer
Coverage (Connections/Total Households)
100% 88% Assuming that one connection caters to two households, existing coverage levels need to be improved.
Metering/Total Connections
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.
Duration of water supply
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.
Unit production cost Unit income
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 157
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
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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
78 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.
Navi Mumbai13
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 159
PERFORMANCE AREA
TYPICAL NORM
NAVI MUMBAI KEY INFERENCE
Bulk Water
Supply
[Per capita treated water available for consumption]
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
Transmission and Distribution
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
Coverage (Connections/Total Households)
100% 100%Individual connections are provided to all units within the municipal area.
NAVI MUMBAI UTILITY PROFILE
Key infrastructure components
Bulk supply
Morbe Dam
CIDCO Hetvane
MIDC Barvi
Water Treatment Capacity
Navi Mumbai
CIDCO Hetvane
MIDC Barvi
Water availability after treatment
Storage Capacity
Elevated Storage Reservoirs
Ground Storage Reservoirs
Distribution network
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
Water Supply Financials (FY-2007-08)
Water Account Revenue
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
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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.
Duration of water supply
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.
Unit production cost Unit income
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.
POTENTIAL AREA OF INVESTMENT SCHEME PROPOSED DETAILS
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 161
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
KEY ROLES AND RESPONSIBILITIES OF THE PRIVATE DEVELOPER AND THE ULBTable 69
Treats
Builds infrastructure
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 163
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
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 167
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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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 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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MODEL TERM SHEETTable 71
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 169
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)
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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.
Operate and maintain the existing connections
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.
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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
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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
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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2.
3.
4.
5.
6.7.8.9.10.11.12.
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14.
15.
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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.
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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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3.
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6.
7.
8.
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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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11.
12.
13.
14.
15.
16.
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
1.2.
3.
4.
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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).
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 173
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
1 Preparatory work by ULB
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
1.
2.
3.
4.
5.
6.7.
8.9.10.11.
DETAILED WORKING OF AN INTEGRATED CONCESSION MANAGEMENT CONTRACT Table 72
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2 Information to be provided to the private operator by the ULB
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
1.
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
1.
2.
3.
4.5.6.7.8.9.
10.
11.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 175
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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
12.
13.
14.
15.
16.
17.18.19.20.
21.22.23.
24.
25.
26.27.
28.
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.
13.
14.
15.
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.
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.
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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2.
3.
4.
5.
7. Performance Standards
Performance standards shall be set up on the basis of the existing baseline fi gures.
Construction of the required assets to be completed as per the phasing of the DPR
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 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 norms
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
The pressure of water supply should be maintained at ___ such that it fi lls--litres bucket in less than - seconds.
Treated sewage disposed should be as per specifi ed CPHEEO norms
Frequency of billing should be 2 months
Revenue collection effi ciency at __% of the total bills generated
Consumer complaints not to exceed ___ per month
Consumer complaints to be redressed within 24 hours from the time of lodge of complaint
All performance standards to be achieved within the set time frame by the ULB
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5.
6.
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8.
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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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3.
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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 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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3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
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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 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
1.
2.
3.
4.
5.
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. This amount paid shall be after deducting the grant or viability funding.
Return the performance security to the Developers
1.
2.
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
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 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.
1.
2.
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.
ToolkitforPublicPrivatePartnershipsinUrbanWaterSupplyforMaharashtra 179
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
1.2.3.
4.5.6.7.8.9.
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
Contour Maps and Network maps
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
1.
2.
3.
4.
5.
6.
7.
8.
9.
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 5-7 years.
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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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.
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.
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7. Performance Standards
Quality of meters as per __ standards
Frequency of billing - months
Revenue collection effi ciency at __% of the total bills generated
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
Performance standards shall be set up on the basis of the existing baseline fi gures.
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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
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 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.
Any delay in payment to ULB shall attract a penal interest of-% per annum quarterly compounded.
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 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
ULB shall not make any payment to the Developer.
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b) ULB Event of Default
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:
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
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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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
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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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2 Preparatory work by ULB
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.
Analyze the effi ciency of the treatment plant and collect detailed information on the number of pumps and staff
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
Undertake a Valve operation study
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3 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.
Details of quality of bulk meters
Details of quality of leak detection equipment
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 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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4 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.
5 Roles and Responsibilities of the Developer
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.
Maintain a record of all assets purchased by Developer
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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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 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
Enable access to the water assets, free from encumbrances
Permit peaceful use of the water assets
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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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.
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7 Performance Standards
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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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 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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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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b) ULB Event of Default
ULB shall pay the developer an amount equal to Rs--lakh, book value of developer’s assets
11 Bidding Parameter
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.
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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:
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
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.
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
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CONCESSION AGREEMENT FOR DEVELOPMENT OF THE BULK WATER SUPPLY SYSTEM AND OPERATION AND MAINTENANCE OF THE ENTIRE WATER SUPPLY SYSTEM
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2 Preparatory work by ULB
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.
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
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3 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 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
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4 Tenure of the PPP contract
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.
5 Roles and Responsibilities of the Developer
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
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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
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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
Operate and maintain the existing 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.
Maintain a record of all assets purchased by Developer
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
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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
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
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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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.
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7 Performance Standards
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
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 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]
Water supply should be minimum ___ lpcd. It shall be measured as - [(Quantity measured at ESR)*(1-Distribution loss (%)]
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]
Coverage - Cover a minimum of __% of total households in the range of the main trunk line
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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
The pressure of water supply should be maintained at ___ such that it fi lls--litres bucket in less than - seconds.
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
Consumer complaints not to exceed ___ per month
Revenue collection effi ciency at __% of the total bills generated
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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
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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.
10 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.
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.
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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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11 Consequences of default
a) Developer Event 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
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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.
12 Bidding Parameter
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:
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
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.
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