The private sector has a key role to play in the water sector due to the limited resources available with urban local bodies (ULBs). Besides, with growing urbanisation and a greater need for investment in the sector, it has become imperative to involve private players for building capacity. In the past few years, state governments and ULBs have engaged with private players in public-private partnership (PPP) projects to leverage the latter’s technical expertise and attract investments. Besides, the government’s flagship programmes such as the Smart Cities Mission and the NamamiGange Mission have further encouraged the participation of private players in the water sector.
In the water network management segment, private sector involvement has greatly improved service delivery and offered cheaper operation and maintenance (O&M) of existing infrastructure. The 24×7 water supply project in Nagpur is one of the most successful PPP projects in the sector.
ULBs are also looking at new business models to ensure the profitability and viability of water and wastewater projects. While private sector participation (PSP) has been beneficial for customers as well as ULBs, the overall experience of private players in the sector has not been very encouraging.
Experience so far
The involvement of the private sector in water network management services has impacted both customers as well as ULBs. Customers have benefited from increased coverage, improvement in water quality and quicker redressal of complaints. Besides, customers in slum areas have also gained from PSP as they have received water at their doorstep. As for ULBs, which typically lack both the technical and financial capability to handle water network management services, the private sector has been a one-stop solution to bridge the gaps. There has been improvement in service levels and revenue collection from water services due to greater coverage and better data collection efficiency. For example, as a result of PSP, the data collection efficiency in Nagpur is now close to 92 per cent.
Until a few years ago, contracts in the water sector were being awarded on a fragmented basis, giving various responsibilities such as design, implementation and operations to different parties. More recently, there has been a convergence between responsibility and accountability, with these now resting with a single entity. There has also been an emergence of performance-based O&M contracts in the sector. However, in such contracts it is crucial to ensure that the private players do not bear risks related to issues that are beyond their control. For instance, the implementation of the Nagpur 24×7 water supply project was affected after funding was stopped in 2014 as the government decided to replace the Jawaharlal Nehru National Urban Renewal Mission with the Atal Mission for Rejuvenation and Urban Transformation. It took about four years for the Nagpur Municipal Corporation to put a replacement mechanism in place, greatly impacting funding and, therefore, the provision of water services in the city. There is thus a need to predefine the risks and responsibilities of the private sector during the contract stage itself, so that they do not bear responsibility for factors beyond their control.
At present, the government broadly follows two models to rehabilitate or replace the existing water supply infrastructure. In Tier II cities, where the existing infrastructure is poor, the ULBs and state governments are undertaking 100 per cent replacement of existing pipelines. This addresses the problem of outdated and poor infrastructure straight away. This model is being followed in many cities in Karnataka. In cities such as Delhi and Nagpur, where the existing infrastructure is of better quality, 60-70 per cent of the existing pipelines are being retained. Therefore, only 30-40 per cent of the existing infrastructure is being replaced. However, the rehabilitation of the water network infrastructure is capital intensive. Therefore, the extent of replacement and rehabilitation is largely dependent on the spending capability of the government.
Impact of Covid-19
Every crisis comes not only with its own set of challenges but learnings as well. Covid-19 greatly affected construction activities due to reverse migration of the workforce. It completely halted projects, though these are now gradually restarting. Supply chain disruptions in essential inputs such as steel, cement, stone chips and sand have further affected project implementation. ULBs are under severe stress due to liquidity constraints, and this is a matter of great concern for water and wastewater infrastructure projects. As the government is struggling to mobilise funds, the execution of projects that are yet to break ground will be impacted and the number of infrastructure projects that were to come up in the next couple of years will fall.
As water supply is an essential service, O&M services have continued despite the pandemic. However, there has been an increase in operational costs due to monetary incentives provided to the workers involved in sanitation and other services. On the positive side, the Covid-19 outbreak has presented opportunities to move away from the traditional structure. From the customer service point of view, it offered a great opportunity to the utilities to digitalise their metering, billing and collection services.
The road ahead
PPP projects in the water sector were first conceived in the 1990s. However, the response was not very positive owing to inaccurate data systems and lack of returns on investment. Since then, the water sector has witnessed some notable changes in the type of PPP formats being used, with greater focus on the needs of the private sector.
At present, water utilities are unable to meet the challenge of greater demand for water resulting from increasing urbanisation and rising populations. To bridge the gap between demand and supply, there is an urgent need to improve the financial and technical capability of ULBs. Sustainability in the sector can be achieved by implementing both pricing and non-pricing mechanisms. It is important to price water properly, keeping in view water security for the poor as well as its scarcity as a resource. Further, the deployment of digital technologies for operational maintenance of water services is extremely crucial to ensure efficient management.
The water sector suffers from issues of inadequate funds with the ULBs, lack of mapping of existing assets such as transmission lines and peripheral lines, and low private interest and investment, among others. In a bid to address these issues, some cities (such as those under the Smart Cities Mission) have taken a leap towards large-scale digitalisation. That said, gaps pertaining to manpower and technical know-how still remain. These can be addressed by increased private sector involvement, which can go a long way in assisting utilities in deploying more advanced technologies and rehabilitating the existing water supply network.
However, the private sector has had a mixed experience in the sector so far. The return on the capital employed has not been sufficient for the private entities. Therefore, the government needs to formulate a holistic policy framework to encourage PSP in the sector, ensuring returns on investment. It needs to clearly define the roles and responsibilities of the stakeholders involved and ensure fair risk sharing and stable revenue streams for the private players.
Based on a panel discussion among Suresh Sharma, Chief Executive Officer (CEO), Sadhan Engineers Private Limited; SouravDaspatnaik, Managing Director, Swach Environment; and S.V.K. Babu, Deputy CEO, Veolia, at a recent India Infrastructure conference