The Union government has started laying the groundwork for privatisation of water distribution in urban India, with the Ministry of Urban Development preparing a model concession agreement that would serve as the framework for public-private participation (PPP) in the water sector in all cities.
Special emphasis would be on implementing the model in the 100 Smart Cities and 500 cities chosen for infrastructure augmentation under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). The mission statements for both list water supply and management as a major thrust area.
Ministry sources said the model is expected to be finalised over the next few months. It will address issues such as user fee, tariff indexation to inflation to mitigate risks for the private party, metering of water connections at the household-level and risk allocation between the public sector and the private entity.
Currently, water utilities are almost entirely publicly owned and controlled. In a series of meetings with state government and municipal representatives across the country this month, the Union ministry tried to push the model by presenting case studies from Manila, Philippines, as well as Nagpur. Officials also cited World Bank figures to state that currently, only 20 per cent of water connections in India are metered, and non-revenue water is, on an average, 40 per cent. The PPP route would be used to reduce non-revenue water and plug leakages, they said.
“The PPP model will help meet the resource gap and ensure private sector efficiency. Under AMRUT and Smart Cities project, the cities are expected to get funding over and above the Central assistance through investments coming from the PPP model,” a ministry official said.
The Central government funding for Smart Cities accounts for only 10 per cent of the total estimated project cost, while for AMRUT, it varies between a third to half of the project cost. While state governments and urban local bodies have to contribute some amount, a majority of the funding is to be garnered from private investments.
According to sources, the PPP models being explored by the ministry range from a management contract, where the private player would take care of the operations and management for fixed fee, to the Rehabilitate Operate Transfer (ROT) model, where the private party would assume a greater role. In the ROT model, the water distribution infrastructure would be handed over to the private player, which will have to refurbish and augment the network and collect user fee in return.
Sources said the private firms will eventually be allowed to raise user fee as and when they improve the quality of service.
However, the ministry is learnt to be treading cautiously on the issue as attempts in early 2000s to have World Bank-assisted PPP models in metros such Delhi and Mumbai failed due to opposition from political and civil society. Three years ago, the Delhi Jal Board, despite protests, managed to launch a pilot PPP water management projects in three localities in the capital.
In a report released last year, the World Bank said that of the 65 developing countries that have tried PPP in the water sector, 24 discontinued the private operator by 2007-end and a majority of the remaining PPPs were renegotiated shortly after the contract period began. The international research group Transnational Institute, in a November 2014 report, documented 180 cases in 35 countries over the last 15 years, where cities chose to take public control of water supply after terminating or not renewing the contract with multi-national water corporations such as Veolia and Suez. The report notes that there were very few recent cases of water sector privatisation on a large city-wide scale, which include Nagpur (by a Veolia subsidiary) and Jeddah in Saudi Arabia.