1. Private Sector Participation in Water Supply and Sewerage : Experiences in India presentation at Strengthening Urban Management: India Unlocking the Potential of Indian Cities ASCI-WBI, January 20-24, 2003 V. Satyanarayana Senior Infrastructure Finance Advisor INDO-USAID FINANCIAL INSTITUTIONS REFORM AND EXPANSION (FIRE) PROJECT

2. STRUCTURE OF PRESENTATION Global Experience - Glance Private Sector Participation (what happened and what is going on) Need for Focus on Public Sector Reforms Way forward

3. INVESTMENT REQUIREMENTS Investment Short Falls - Ninth Plan Period For urban water and sewerage services (at 1996-97 prices in crores) Annual Requirements10,000 to 30,000 Resource Flow Estimates1800 to 3000 (Central, State, Local and Institutional Finance) Requirements are 5 to 10 times the likely resources

4. GLOBAL FINANCIAL MARKETS Private capital flows - $ 754 billion - for infrastructure in developing countries (1991-2001) $ 38 billion for water and sanitation in private sector projects in developing countries India - infrastructure attracted - around $ 4 billion India - urban water sector attracted - around 100 million dollars

5. INDIAN FINANCIAL MARKETS Primary markets (equity and debt) during last year –Size well over Rs 1000 billion per year Only six cities accessed the market (6 billion during last four years) Significant liquidity in the banking and financial sector Too much money chasing too few projects Urban sector (HUDCO and others)

6. PSP:What has happened 1994-99 ? Strong local initiative for urban reforms including private sector participation Approximately, 28 cities have attempted private sector participation in variety of forms such as BOT, BFT, etc –Hyderabad, Tiruppur, Bangalore, Chennai, Pune, Goa, Kolhapur, Surat, Cochin, Vijayawada, Vishakapatanam, Nagpur, Kakinada, Baroda, Dewas, etc Excellent initiative and energetic and eager leadership

7. PSP:What has happened 1994-99 ? Focus on capacity augmentation rather than distribution Inadequate considerations for financial viability Lack of project development ability No state level commitment or support Only limited attention paid to institutional restructuring and reforms Only Tiruppur, Jamshedpur and Alandur are successful

8. PSP: What is going on 2000-03 Change of mindset and moderate consensus Consensus on need to concentrate on distribution and service quality rather than capacity augmentation Emerging focus on public sector reforms (institutional restructuring) Emerging state level support framework and commitment for reforms Central level framework being put in place

9. What is going on 2000-03 (new initiatives) Bangalore management contract –Vivendi and Lyonnaise have submitted proposal for two pilot areas on MOU basis in April 2000 Management contracts for 13 medium towns in Karnataka –Three year initiative Mumbai management contract –Part of the city, Three year initiative

10. What is going on 2000-03 (new initiatives) Sangli municipal water supply Jamshedpur (signed on November 16, 2002) Vishakapatnam industrial water Greater Noida Navi-Mumbai Management Contracts Delhi sonia vihar water treatment plant Zahirabad in AP (Hyderabad metro water) Some of these will emerge as models

11. What is going in Solid Waste (new initiatives) Following Supreme Court regulatory intervention, momentum is slowly building up PSP in solid waste is more pronounced than water Approximately 70 projects in several cities are underway –PSP in collection, transportation and disposal Slow but excellent progress Lesson is that regulatory framework is paving the way for improvements

12. What is going on 2000-02 (New Initiatives - Sangli) Sangli Water Supply Project – Management Contract with the support from the IL&FS and FIRE Project The general body passed a resolution to under take the private sector participation for efficiency improvements in November 2000 Support from the State Restructured Capital Grants Program Two Phases - Phase I Management Contract and Phase II Concession Procurement is underway Dithering in decision making owing to elections

13. PARADOX Of Private Sector Participation ….those who are best able to manage themselves will attract private sector participation and the rest will be left out in the process what is necessary is public sector reforms at state and local level……

14. REFORM PROCESS IN MAHARASHTRA Government of Maharashtra initiated development of policy framework in January 2000 Sukthankar Committee for rural and urban water established in Jan 2000 The Committee submitted the report in March 2001 after extensive consultations Concurrent implementation

15. Summary Recommendations Urban Sector (1) Demonstration Projects (Sangli PSP) Restructuring of WSS Institutions Creating Incentives for Reforms Support Framework for Capacity Building Independent Regulatory Framework

16. Summary Recommendations Urban Sector (2) Separation of roles for policy, regulation and operations Accountability as the guiding principle for institutional restructuring ULBs to be a facilitator rather than provider To set up independent and autonomous City Water Supply Entities (CWSEs) Professionalise management with appropriate incentives

17. Summary Recommendations Urban Sector (3) Form of CWSEs may –Municipal enterprise/undertaking –Company (government ownership to private) –Mutual co-operative (may be difficult unlike rural sector) –Form of long-term concessions with private sector Enhanced role for community Focus on efficiency improvements

18. Summary Recommendations Urban Sector (4) Restructuring of existing state level water board to create downward accountability Create Incentives for Reforms through restructuring of State Grants (need and output based) Restructured Capital Grants Program to create incentives for efficiency improvements such as leakage reduction and energy savings (30 percent of the state grants are reserved for this purpose) –Issued guidelines for water and energy audit –Issued guidelines for private sector participation –Implementation in Sangli and Nashik

19. SUMMARY/LESSONS 90s have witnessed change – needs to be scaled up Numerous attempts at reforms across the country, but very few isolated islands of innovation Lack of comprehensive reforms and address of harder issues such as tariffs and coverage Lack of creditworthiness of cities Emerging State and Central Support (need to move to implementation at state and local levels) Need to talk of 100s of “islands of innovations” rather than few dozens Appropriate time to implement structural reforms

20. Critical Issues in Going Forward Leadership –(with vision, conviction and courage) Mindset and communication Structures with accountability (Governance reforms) Urgency (to initiate and complete action)