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Rs 9,000 cr private investment stuck -- Water supply: Need for proper policy norms

G. Rambabu

NEW DELHI, July 10

OVER Rs. 9,000 crores of private sector investment in urban water supply has been stuck due to the lack of a clear legal, financial and administrative framework. Unless the Centre formulates a policy statement in conjunction with the State Governments on the potential roles for private sector participation, the situation is only going to deteriorate, according to Mr. Harindran Nair, Associate Director, KPMG Consulting Private Ltd.

He pointed out that, as of now, very few private sector participation (PSP) projects in water supply have really taken off. There are many more such projects which have got stuck.

India's urban water supply sector faces many problems and is currently bound by a vicious circle of circumstances. Many urban water supply (UWS) providers are not financially viable and are unable to maintain services without extensive subsidies. The exi sting UWS services also fall short of full coverage of the population and are often of low quality due to insufficient funding of operation and maintenance, he said.

While the traditional response has been to centralise control at the State level, there is need to concentrate scarce skills and provide technical assistance to the cities and it is time to move on the option of private sector participation, Mr. Nair sai d.

In fact, he noted, the Chennai Metropolitan Water Supply & Sewerage Board (CMWSSB) was one of the very few Boards which had actually got around to implementing the private participation option.

Mr. Nair noted that KPMG was mandated by the Department for International Development (DFID) to conduct a situation analysis of CMWSSB's water supply operations and develop options for future ownership and management structures, including private partici pation options. It also advised CMWSSB on the preferred option so as to achieve long-term financial viability of its operations.

However, in a similar project in which KPMG was involved in neighbouring Karnataka, the situation has been just the opposite. The Bangalore Water Supply and Sewerage Board (BWSSB) had initiated the process with much promise.

KPMG carried out a water demand assessment study and projected annual water requirements across various user categories up to the year 2015. However, although bids were called, and private parties short-listed, the project has been languishing for over s ix months now.

The problem is that the procedures to be followed by water entities/private sector participation operation in adopting PSP models has not been clearly outlined by the Government.

``It is time for the Government to encourage an incentive framework to encourage private sector participation. The Central Government, in conjunction with the external agencies should guide the State Governments in formulating the legal, financial and ad ministrative framework for private sector participation. This should include the establishment of an effective monitoring/regulatory mechanism to ensure efficiency improvement,'' he noted.

It is necessary to disaggregate/unbundle the regulatory and operation functions for providing water services. This may be done through a tariff regulatory authority or an urban utility commission to ensure a fair price to the consumers as well as to the service providers.

More inquiry is necessary in this area in incorporating the lessons from the power sector in India and such commissions in other countries to develop appropriate regulatory services, he said.

Mr. Nair pointed out that guidelines and standard documentation for inviting offers for private sector participation may also be developed by the same group. But first, regulatory tariff mechanisms should be instituted to ensure that the tariff reflect e fficient delivery of services. This would ensure that efficiency (including unaccounted for water) leading to high cost is controlled so that the high cost due to operational inefficiency is not passed on to the consumer.

He also recommended that separate accounts and budgets for water supply should be maintained by the local bodies to ensure transparency in costing of services and tariff rates.

``Introduction of rationalised tariffs and planned achievements for cost recovery should be considered as prerequisite for borrowings from the financial institutions and transfer of funds from State or Central Government to the local bodies,'' he noted.