High Hopes

Sector growth to be driven by government initiatives and new technologies

A little over one-third of the population, close to 500 million Indians, live in cities and generate the bulk of India’s national income, accounting for about 70 per cent of the GDP. The urban population is growing rapidly, both due to migration from rural areas as well as the urbanisation of rural settlements, which are being rapidly built up. This rapid urbanisation has led to a significant increase in the demand for civic services, which includes managing urban water resources and liquid waste. And this demand already far outstrips the available service capacity.

Over the past three to four years, the government has paid greater attention to improving water supply and sewage management practices, especially in urban areas. As a result, the water supply and sewerage sector has witnessed a surge in activity in terms of launch of new programmes and schemes and project uptake during this period. While a huge demand-supply gap still exists, rising government expenditure and increasing private sector interest have provided the much-needed impetus to the sector.

Certainly, the country has made remarkable progress in meeting urban water supply and sanitation requirements in the past couple of years. Bigger cities have built basic infrastructure facilities and are striving to provide world-class services of round-the-clock water at adequate pressure and quality and 100 per cent treatment and reuse of sewage. Tier II and Tier III cities too are undertaking projects to increase the coverage of water supply and sewerage services in urban and semi-urban areas.

Nonetheless, urban local bodies (ULBs) have not yet been completely successful in addressing inherent issues such as delays in project implementation, low or negligible levels of private sector participation, lack of financial autonomy and technical expertise, intermittent water supply, high level of non-revenue water (NRW), inadequate wastewater collection and treatment infrastructure, and high water consumption levels. The experience so far suggests that there is great scope for improving service delivery and scaling up infrastructure investments. More private sector investment could easily come in if the current constraints are addressed. Although project implementation has been slow, there are enough success stories to provide a roadmap for the future.

Increasing urban population, widening gap between sewage generation and treatment

The demand for water from different consumer segments has been increasing steadily. As a result, given the fixed supply of water resources, the per capita water availability continues to decline. Waste water generation too is increasing rapidly, and in the absence of proper measures for treatment and management, the already depleting freshwater reserves are being polluted.

According to India Infrastructure Research, total water supply in Class I and Class II cities was estimated at 103,000 million litres per day (mld) in 2018, as compared to 62,300 mld in 2014, an increase of over 13 per cent. Increased water consumption has also led to an increase in sewage generation, which increased from 49,800 mld in 2014 to 82,400 mld in 2018. During the same period, sewage treatment capacity increased from 23,270 mld to 26,070 mld. The widening gap between sewage generation and treatment is indicative of the lower-than-required investment in treatment infrastructure.

Over the course of the past few years, the sector has witnessed some important trends. Decentralised sewage treatment plants (STPs) have been commissioned, recycling and reuse has gained more acceptance, energy generation from sewage is receiving greater focus, and advanced membrane-based treatment technologies are being deployed.

Government initiatives: Massive infrastructure creation and expansion plans

Given the current state of the sector, the government is taking several steps to improve the country’s water supply infrastructure. Schemes such as the Smart Cities Mission (SCM), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the Namami Gange Mission and the Swachh Bharat Mission have been designed to help scale up capacities. An estimated investment requirement of over Rs 3 trillion has been envisaged for the four ongoing schemes for the next three to four years.

Clearly, the focus is not only on capacity creation. Equal emphasis is being laid on improving ULB capacity, reducing NRW, enhancing transparency and increasing efficiency in service provision. While progress on the project front has been slower than desirable, a large number of projects are currently at different stages of implementation and many are now on the verge of completion.

Public-private partnership (PPP) experience: A mixed bag

The private sector has an important role to play in the water supply and sewerage sector, given the limited resources with government agencies, and lack of financial autonomy and capacity at the local level to execute projects. Thus, the case for more public-private partnerships (PPPs) in the sector is strong. The experience of key completed PPP projects suggests that the private sector has been able to enhance efficiency as well as bring in investments.

Since the late 2000s, there have been some notable changes in the type of PPP formats being used. The mix of PPP models are build-operate-transfer (BOT), long-term concession agreements and management/performance-based contracts. The government has also experimented with 24×7 water supply projects, and a number of demonstration projects were executed on a PPP basis. With regard to waste water projects, private players have executed mostly low-risk operations and maintenance contracts with a focus on management of treatment facilities – STPs and pumping stations. A new PPP format, the hybrid annuity model, which is a mix of engineering, procurement and construction and BOT, is also being experimented with in the sewerage sector. The Nagpur 24×7 water supply project, the Tiruppur industrial water supply project, the Kolhapur STP project and the Salt Lake City (Nabadiganta Industrial Township Authority, Sector-V) water distribution and sewerage system project are a few successful PPP concession agreements in the sector.

Over the past two to three years, particularly after the launch of new centrally sponsored schemes, the scope of PPP contracts has widened. In fact, the government is relying on the private sector to bridge the skill gap and bring in professional and technical expertise in the implementation and management of infrastructure projects.

Smart initiatives: IT penetration slowly increasing

The water supply and sewerage sector has made rapid strides in deploying information technology (IT). The role of IT in urban governance is becoming increasingly important, particularly as the rise in the number of consumers puts pressure on ULBs. Applications such as those for enterprise resource planning, smart metering, revenue management, customer relationship management, etc., are being deployed to automate business processes. Also, advanced solutions such as supervisory control and data acquisition (SCADA) systems, geographic information systems, satellite surveillance and remote sensors are being deployed for monitoring collection, distribution and treatment systems.

The implementation of smart initiatives by ULBs in the country has, unfortunately, been asymmetrical, varying from city to city. A few big ULBs in Mumbai, Ahmedabad, Surat, Pune, Delhi, Bengaluru and Chennai have successfully automated their business processes and introduced online systems to improve customer experience. However, only a handful of smaller ULBs have made any headway in this field.

New focus areas: Greater attention needs to be paid to capacity building, recycling and reuse, rationalising user charges and NRW

More recently, the government’s focus has shifted to capacity building of ULBs. A number of initiatives have been introduced for improving the operational and financial performance of these local bodies. The government has also been incentivising and encouraging ULBs to become self-sufficient and to mobilise resources through instruments such as municipal bonds. A credit rating exercise is being carried out by 463 cities under AMRUT. Of these, 161 cities have been rated as creditworthy and 35 have been rated A- and above. Five cities – Pune, Hyderabad, Indore, Amravati and Bhopal – have together raised Rs 26.8 billion in the past two years through the issue of municipal bonds. Other cities too are expected to raise finance through this route going forward. As part of the reform process under AMRUT and the SCM, a number of ULBs are shifting to computerised accounting systems and e-service delivery platforms.

Given the depleting freshwater resources and excessive groundwater extraction, ULBs are exploring alternative sources of water such as treated sewage and desalinated water. Also, growing consciousness among ULBs to reduce their NRW levels is increasing the demand for technology advancements. ULBs are steadily deploying SCADA systems, sensors and other technologies to improve monitoring of water distribution systems and manage operational costs. Further, they have also begun to take steps towards improving their billing and collection processes.

Conclusion

The water supply and waste water sector has a positive outlook and offers significant opportunities for various industry stakeholders. Growing urbanisation and greater emphasis on achieving 100 per cent water supply and sewerage coverage will be the two biggest drivers in the sector.

Given the existing service backlog, the private sector will have to play an important role in improving operational efficiency. The learnings and experience from projects currently under implementation will contribute to the successful award and execution of upcoming projects.

Over the next year, investment in the sector, besides the customary focus on asset creation, will be directed towards improving water use efficiency and encouraging waste water recycling and reuse. The challenge will lie in expanding network coverage, and encouraging a large number of civic agencies to implement these initiatives. Eventually, the successful and timely completion of projects will depend on project structuring, political support, credible and updated data systems, revenue streams and the financial health of ULBs.

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