New Delhi: India Infrastructure Initiative (III), a trust promoted by infrastructure finance company IDFC Ltd and consultancy Feedback Ventures Pvt. Ltd, signed an agreement with the United States Agency for International Development (Usaid) to promote urban water supply and sanitation projects.
These will be implemented through joint initiatives of the government and private companies, or the so-called public-private partnerships (PPPs).
Water supply and sanitation PPPs are “a little more complicated because some of the tariff structures that are involved in that area are not always on the most financially viable terms,” said George Deikun, director, Usaid. “You have a high level of subsidy, in many states, in the provision of water and sanitation, and there it becomes more complex in putting together a project that is economically viable because you have to factor in the subsidy side of it and the cost recovery side from beneficiaries.”
III and Usaid plan to capitalize on opportunities that could be created through the government’s project to improve urban infrastructure under the ambitious Jawaharlal Nehru National Urban Renewal Mission, which would cover 63 cities.
Both entities plan to collaborate on preparing project reports on financially viable urban water supply and sanitation projects, and follow that by advising the government on picking the best available bidder for its PPP. The PPP principle, under which the private partner builds and maintains the asset, is based on fixing user charges for infrastructure, be it roads or water supply.
PPPs in water supply are considered one of the most challenging projects as fixing user charges on water is a politically controversial issue. Executives in the infrastructure industry cite just one successful case of a PPP in water supply: the project in Tirupur, a textile cluster in Tamil Nadu. It took eight-and-a-half years to get the Tirupur water PPP running, and fixing user charges was relatively easy as most of the beneficiaries were commercial entities in the cluster.
The environment for a PPP in urban water supply and sanitation has improved recently as urban body finances have changed for the better in the wake of financial support from the mission and because a few state governments have shown the political willingness to hike user charges for some beneficiaries, said Suresh Kumar, chief operating officer of III.
III has started working on project report on a 24-hour water supply project for Morbi, a town in Gujarat with a population of about 200,000 people.
“Even if there is a case for a person willing to pay, there will be questions on why are we asked to do this,” said Tushar Pandey, country head, strategic initiatives, government, at Yes Bank Ltd, who worked on the early phases of the Tirupur project. “You will have to insulate major contracts from political changes.”
There were no financial projections made by either III or Usaid on the kind of investment that water supply and sanitation PPPs could attract. A retired bureaucrat, who was part of the team that originally prepared the mission, but who did not want to be identified, said about 35% of the mission’s financial support was expected to go towards urban water supply and sanitation.
Alison Granito contributed to this story.