India - Time to get water sector privatised

Sushi Shyamal


Move may be essential to ensure supply to the masses

Privatisation of water in India is nowhere near being successful yet, in spite of an early start over a decade ago. Most of the public private partnership (PPP) models initiated have lost steam either on account of public agitation or unattractiveness of the scheme for the private sector.

An estimated $43 billion would be required for 100% coverage of the urban population under safe water supply and sanitation services by 2021.

The National Water Policy 2002 states, “Private sector participation should be encouraged in planning, development and management of water resources projects for diverse uses, wherever feasible.”

However, private sector participation in water has occurred primarily in areas of water treatment and sewage treatment. The few privatisation initiatives in water supply and distribution are also concentrated on meeting the requirements of the industrial sector and not for domestic/ residential consumption. The few projects developed on PPP — namely the Cochin industrial water supply, water supply to Borai Industrial Growth Centre in Chhattisgarh and Haldia industrial water supply — are all restricted to supply of water to industrial consumers. One of the few success stories in urban water supply is the build, own, operate and transfer (BOOT) contract awarded to a consortium led by IL&FS to develop the Rs 1,300 crore water supply and distribution project in Tiruppur.
The project transfers water from the river Bhavani and supplies 185 million litres of water per day to nearly 1,000 textile units and more than 1.6 million residents in Tiruppur and its surrounding areas.

India has 16% of the world’s population and only 4% of the world’s water resources, which are depleting rapidly. The demand for water is expected to grow from 40 billion cubic metres (bcm) currently to around 220 bcm in 2025.

Water availability in the country is currently at 1,800 cubic metre per capita per year, just above the water stress benchmark of 1,700 cubic metre, and not far from the water scarcity benchmark of 1,000 cubic metre. India is thus plagued with a demand-supply gap in the water sector, accentuated by poor transmission and distribution networks, water theft and declining availability of water resources.

According to a World Bank study of the 27 Asian cities with populations of over a million, Chennai and Delhi are ranked as the worst performing cities in terms of hours of water availability per day, while Mumbai is ranked as the second-worst performer and Kolkata the fourth worst.

Water supply and sanitation is a state government responsibility under the Constitution of India. As per 73rd and 74th Constitutional Amendments, the state government may give the responsibility and powers to the urban local bodies (ULBs). At present, the state governments plan, design and execute water supply and sanitation schemes through water boards or public health engineering departments, whereas the operation and maintenance of these facilities are undertaken by the ULBs.

The Brihanmumbai Municipal Corporation (BMC) governs the water supply to the city of Mumbai. While water sourcing and supply costs Rs 24 per 10,000 litres, the BMC charges Rs 6 for 10,000 litres for domestic consumption, which is cross-subsidised by the industrial and commercial users at Rs 150 for 10,000 litres. The city’s current water sources, namely the Vehar, Tulsi, Tansa and Vaitarna lakes, have a total capacity of supplying 3,420 million litres per day (mld) of water as against a demand of 4,250 mld. The current demand-supply gap of 830 mld in the city is expected to increase to 2,000 mld by 2010. This is further aggravated by a 20-25% loss in leakage and pilferage through a 100-year-old water distribution system. The city needs a new distribution system, taking into account the city’s suburban growth and catering to its largely increasing population.

Globally, privatisation has been the key to assured supply of water for commercial and residential consumption. A case in point is the city of Manila, Philippines, which tackled its water shortage problem through privatisation way back in 1997. MWSS, a government owned entity, supplied 4,000 mld of water to a population of 13 million spread across 40 municipalities. Rapid population growth, a need for improvement in services and need for uniform distribution necessitated the government to seek help from the private sector. Thus, MWSS privatised metropolitan Manila’s water and sanitation network under two separate concession arrangements that were granted on build, operate and transfer (BOT) basis for 25 years, resulting in two special purpose vehicles — Manila Water Company Inc operating the east zone and Maynilad Water Services Inc operating the west zone of metropolitan Manila.

Would the metropolitan city of Mumbai follow Manila’s example? Can the water supply and sewerage systems across the city be divided into two concessions on a similar zonal split?

There are immense opportunities in the sector and the government agencies need to take a proactive approach by inviting private participants to help the sector.
The arguments against water privatisation are many; the key one being that water is a free resource and a social right, and privatisation of water supply might lead to creation of monopolies. But in a city like Mumbai, where slum dwellers pay Rs 5 per can (5 litres), water is no longer a free resource. Contrarily, privatisation can ensure efficient supply of this necessary resource to the masses.

The writer is associate director, Ernst & Young. Views are personal.