Demand and Issues of Urban Infrastructure
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Case Study of The Financial Model For Water Supply Project
According to the RICS recent survey only 4% of the people want to live in Urban Area. This shows the reverse in standard of living requirement which was dream of living in the urban area. What has gone wrong? We know that gypsies used to settle were they could find water. It can be said that water is such an important element for development of any place irrespective of urban or rural area.
In India 30% of the total population live in Urban Area and contribute to 60% of the total GDP (Gross Domestic Product). 31% is the increase in the population in last decade compared to 18% in the rural area. So it is necessary to boost urban infrastructure by public as well as private intervention institution.
Creativity is the service of the age that generate Ideas that become product and service. The downturn of the economies has advantage of new invention which is also true in case of maximization profit. With increase in the demographic of ages, climate, cultures and immigration it is difficult to take the risk of demand of the urban area. The risk of controlling the demand must be taken by government agency to encourage the private parties for excellence service in Infrastructure.
1.2 Research Aim and Objective
To develop financial model for water supply projects using “JNNURM toolkit”. This can be used to analyze the relationship between performance and sustainability in PPP method of procurement.
To study the preparation of Urban Infrastructure and Investment plan for the city.
To evaluate the feasibility of water supply service in particular.
Role of PPP in Urban Infrastructure.
1.2.3 Main Hypothesis
Need for Urban Infrastructure and their implementation under governance of JNNURM scheme. To promote sustainable investment and innovative PPP method of procurement increase in the efficiency at municipality level by vigilance. Freedom should be given to private parties to make them comfortable.
1.3 Outline Methodology of Study
We will first try to figure out what is the need of the curbing population of that particular city. The cities are in a desperate need of finance for carrying out the reviving projects. But the previous schemes and projects by the municipalities and state governments have failed miserably on the grounds of implementation (ie, time management) and utilization of funds. So there is a need to gather finance for the reviving project for the curbing infrastructure .The story does not end here, there is also a need to govern the utilization of fund.
There is a new scheme which is growing popularity by the Government of India along with State government and the municipalities. The buzz word in this scheme is the governance of the project because there is a proper channel how to control the funds issued by the government. Also the government of India will regularly monitor the implementation of the project. Along with this there is a unique proposal of submitting the CDP (City Development Plan) for approval.
So our approach would be to find a method of relating the increase in population and need of the same in coming 20 years as well as to arranging and managing finance considering all the factors like inflation, operation and maintenance cost. For this we would study CDPs of various cities and also study their approach in solving the future infrastructure problems. Also we would compare various CDPs and comment on their efficiency.
Since we are talking of CDPs preparation and involvement of private parties we will try some case study and prepare the financial appraisal of the same. We would critically analyze whether the project is financially feasible under JNNURM (Jawaharlal Nehru National Urban Renewal Mission) scheme
1.3.1 Literature review and the pilot study
This literature review the following subject of India
City Development plan
Finance scheme for city development plan
Pilot Study consists of Theoretical approach. Study of a practical approach to prepare CPD for water supply project under guidelines of JNNURM scheme toolkit.
1.3.2 Main Study
Case study:- Feasibility of water supply project under JNNURM scheme using Financial appraisal calculation and role of PPP in such project. The name of the city under case study has been changed due to sensibility of the case as it is live project. The name of the city will not effect on research subject of development of financial appraisal model because scenario is well detailed.
The approach of this study by Quantitative and Analytical
Comparison of CPD between different states: - selected 4nos of states for comparison.
The approach is Quantitative by reading the CPD’s of different states and comparing them.
1.3.3 Writing Up
Chapter-2:-City Development Plan
Chapter-4:- JNNURM Scheme
Chapter-5:- Case Study
Chapter-6:- Comparison of CPD between different states
2 City Development Plan
2.1 Geographical Information
29 states and 6 union territories*
Andaman and Nicobar Islands*
Dadra and Nagar Haveli*
Daman and Diu*
Jammu and Kashmir
* Union territory
Table 1 India: Development Indicator
“According to a United Nations study (1995), by the year 2015, ten of the world's fifteen largest cities will be in Asia (excluding Japan); three of these will be in India. In 1950, this same region claimed only three of the world's fifteen largest cities, whilst India claimed only one.
These projections suggest that demographic growth in India's large cities will be high, partly due to national population growth and partly due to immigration. The logistic model used by the United Nations, the World Bank, and other international agencies for the projection of urban population world-wide suggests that India is poised for rapid urbanisation, along with several other countries in south and East Asia. “
SIZE: As per Census 2001, only 28% of the 1.1 billion Indians live in urban areas. Expected to increase to 40% by 2021. About 60% of the country’s GDP originates from urban areas. Allocation of US$12 billion by the Government of India under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for a period of 7 years for improving urban infrastructure across 63 cities. Key metro cities Mumbai, Kolkata, Delhi, Bengaluru, Chennai, Hyderabad and Ahmedabad allocated 47.5% percent of these funds.
STRUCTURE:JNNURM functions under the overall guidance of a National Steering Group (NSG) which comes under the purview of Ministry of Urban Development
JNNURM is aimed at fast-track planned development of identified cities. Key highlights
Integrated development of urban infrastructure projects
Renewal and redevelopment of inner city areas
Provision of basic services to urban poor
Funds to be channelised through Urban Local Bodies who will be responsible for implementation
Implementing agencies to leverage sanctioned funds to attract private sector investments through PPP contracts
Investments of more than US$50 billion would be required in the next 5 years to improve and build urban infrastructure
JNNURM is the single largest initiative of Government of India for planned development of cities
Opportunity for private players to partner with Urban Local Bodies (ULB) in development of urban infrastructure such as
Water supply and sanitation
Urban transportation including roads, highways, expressways, Mass Rapid Transport Systems (MRTS) and metro projects
Solid waste management
POTENTIAL: A large component of development work will be through public-private partnership. Water supply and sanitation in urban areas to attract investments over US$30 billion.
100% FDI under the automatic route permitted for townships, housing, built-up infrastructure and construction-development based projects subject to minimum scale norms
JNNURM will provide grants/viability gap funding for projects
“Urban Local Bodies (ULBs) of India are the constitutionally provided administrative units that provide basic infrastructure and services in cities and towns. According to Census of India 1991, there are 3255 ULBs in the country classified into four major categories:
Large urban areas are governed by Nagar Nigams, often simply called corporations. The area under a corporation is further divided up into wards. Individual wards or collections of wards within a corporation sometimes have their own administrative body known as ward committees.
Smaller urban areas are governed by Nagar Palika, which are often referred to simply as municipalities. Municipalities are also divided into wards, which may be grouped together into ward councils. One or more representatives are elected to represent each ward.”
“What is worse, many ULBs have accumulated ‘large’ debts and face serious problems in servicing them. Besides the restriction to a small resource base poor planning process, lack of periodical revision of municipal tax rates / user charges, and poor information system and records management are some of the basic weaknesses in the present municipal administration.” The
“Infrastructure Problem : In spite of its prominent role in Indian economy, urban India faces serious problems due to population pressure, deterioration in the physical environment and quality of life. According to estimates nearly one third of the urban India lives below poverty line. About 15 percent of the urbanites do not have access to safe drinking water and about 50 percent are not covered by sanitary facilities. There is a huge and widening gap between demand and supply of essential services and infrastructure. “
2.4 Schemes for development of urban development
The ongoing schemes of Urban Infrastructure Development in the mega cities, and Integrated Development of Small and Medium Towns (IDSMT) do not meet the requirement of infrastructure development of all cities/towns in the country. There is, therefore, need to have a comprehensive scheme for infrastructure development of all cities/towns in the country. Other scheme like Urban Reforms Incentive Fund (URIF) also needs to be subsumed in the said comprehensive scheme. Funding is linked to reforms which are classified into “mandatory” and “optional” as detailed below:
Mandatory Reforms—State level:
Repeal of Urban Land Ceiling and Regulation Act
Reform of Rent Control Laws so as to stimulate private investment in rental housing schemes.
Rationalisation of Stamp Duty to bring it down to no more than 5 per cent within the next five years.
Introduction of independent regulators for urban services.
Mandatory Reforms –Core (at ULBs level):
Double entry system of accounting for Urban Local Bodies
Adoption of public disclosure law – disclosure of medium-term fiscal plan and quarterly performance reports.
Passage of community participation law.
All special agencies currently involved in delivering urban civic services to be brought under the supervision of ULBs, thus creating a uniform accountability platform.
A Bangalore Action Task Force (BATF) kind of citizen’s technical advisory group should be constituted for each city to guide the process of urban reforms.
Urban development authorities discharging city Planning functions and the new city development function should associate the ULBs more closely.
Introduction of e-governance, Global Information System (GIS) and Monitoring Information System ( MIS)
Reform of Property Tax laws.
Levy of reasonable user charges.
Revision of byelaws to streamline the approval process.
Simplification of legal and procedural frameworks for conversion of agricultural land for non-agricultural purposes
Introduction of Property Title Certification System in ULBs.
Earmarking at least 20-25 per cent of developed land in all housing projects for the poor.
Introduction of computerized process of registration of land and property
Revision of bye-laws to make rain water harvesting mandatory
Bye-laws for reuse of reclaimed water
Administrative reforms, i.e. right sizing of the ULBs.
It is important to note that the contribution of urban sector to GDP is currently expected to be in the range of 60 percent. In this context, enhancing the productivity of urban areas is now central to the policy pronouncements of the Ministry of Urban Development. Cities hold tremendous potential as engines of economic and social development, creating jobs and generating wealth through economies of scale. They need to be sustained and augmented through the high urban productivity for country's economic growth. National economic growth and poverty reduction efforts will be increasingly determined by the productivity of these cities and towns. For Indian cities to become growth oriented and productive, it is essential to achieve a world class urban system. This in turn depends on attaining efficiency and equity in the delivery and financing of urban infrastructure.
The India Infrastructure, Report, 1996, assessed the total annual investment needs of water supply, sanitation and roads sectors at Rs. 28,036 crores per year on an average during 1996-2006. Where as funds to that extent are not available. To overcome these constraints and challenges, the Ministry of Urban Development has initiated institutional, fiscal and financial reforms. First generation urban sector reform - known as the 74th Constitutional Amendment Act of 1992, recognizes the principles of local self governments and empowers urban local bodies with financial resources through Central Finance Commission and State Finance Commissions. Subsequently, in order to strengthen these local bodies, second generation reform have also been started. In the last decade, enormous progress has been made in removing impediments to efficient investment.
Resource Mobilization Effort:
In August, 1996, the Central Government guidelines entitled 'Urban Development Plans Formulation and Implementation' were circulated to all State Governments for adoption. These guidelines, apart from other issues, suggest innovative approaches for fiscal resource mobilization. In the backdrop of the New Economic Policy, it was suggested that the traditional system of funding based on Plan and budgetary allocations be reduced and ultimately withdrawn due to fiscal deficit.
Subsidies need to be rationalized and urban development plans and projects need to be placed on a commercial format by designing commercially viable urban infrastructure services and area development projects. This can be achieved by restoring a proper match between functions and source of revenue by giving additional tax measures. Other innovative resource mobilization measures include using land as resource, increase in the non-property taxes and using public private partnership in service delivery.
2.4.1 Second Generation Reforms
The participation of the private sector in financing and the delivery of infrastructure at the municipal level, especially in the water and sanitation sector, require a regulatory framework to protect consumers, apply environmental standards and support the delivery to the poor. As there are a variety of models of regulation from centralized to decentralized systems, guidelines will be developed at the National level to ensure consistency across the country. Appropriate training programme and capacity support to regulators will also be developed in partnership with the private sector and urban research institutions.
The Central Government is in the process of preparing model legislation for facilitating private sector participation in urban infrastructure. This is necessary as the present legislative scenario does not encourage private sector participation in this field. A model Municipal Act which will be recommended to the State Governments would include modification and simplification of Municipal bylaws, provision for enhanced borrowing, allowing the entry of private sector and authorizing concessionaires to penalize users for non payment of tariffs.
Municipal Accounting System:
The Task Force constituted by the O/o C&AG of India had recommended for introduction of accrual basis of accounting system for the urban local bodies (ULBs) and suggested model budgeting and accounting formats for that purpose. The Task Force Report was circulated to all States/UTs for adoption of accrual basis of accounting system as well as the budget and accounting formats. Further to provide a simplified tool kit to the ULBs for recording the accounting entries, Ministry of Urban Development in cooperation with the Office of C&AG of India has prepared a National Municipal Accounting Manual (NMAM) and circulated to all States/UTs in January, 2005.
The Manual comprehensively details the accounting policies, procedures, guidelines designed to ensure correct, complete and timely recording of municipal transactions and produce accurate and relevant financial reports. The NMAM would help the States prepare their state-level accounting manuals in accordance with their own requirements for use by the ULBs. This initiative is expected not only to enhance the capacities of ULBs in municipal accounting leading to increased transparency and accountability of utilization of public funds for the development of urban sector but also will help in creating an environment in which urban local bodies can play their role more effectively and ensure better service - delivery.
Public private partnership guidelines:
Central Government will develop guidelines for involvement of the private sector in infrastructure, which will ensure competitive biding process in a transparent manner. These guidelines will not only protect the consumers but also ensure integrity of the process. This would support municipalities in designing the PPP process on the lines of the BOT Centre in Philippines or the PPP in the Ministry of Finance in South Africa. Chapter4 included the issues related to PPP.
2.4.2 Fiscal incentives
Foreign direct investment (FDI):
Hitherto Foreign Investment Promotion Board (FIPB) allowed direct investment in providing urban services on a case to case basis. This scenario has changed with the decision of the Central Government removing restrictions on FDI in urban infrastructure facilities which are now open both under FIPB and the automatic route as per sector specific guidelines. Guidelines have since even issued for FDI in development of integrating township including housing and building material.
Since independence, externally assisted urban sector projects have accounted for US$ 2300 million. A review of these projects indicated a need to adopt a programme approach rather than a project approach for availing external assistance. It also indicated the need to encourage a multiple donor scenario and tapping low cost funds for urban infrastructure.
Tax free municipal bond:
Municipal bonds were successfully issued by several Municipal Corporations like, Bangalore, Ahmadabad, Ludhiana, Nagpur, Nasik, and Madurai for raising resources for urban infrastructure. The Central Government had announced tax exemption in case of bonds issued by Municipal / Local Governments. Guidelines were issued by this Ministry on 8.2.2001 for regulating issue of tax free municipal bonds. Under the guidelines, such bonds will be issued for raising resources for capital investment in creation of new infrastructure as well as augmentation of existing systems. Tax free bonds worth Rs. 100 crore by Ahmadabad Municipal Corporation have been permitted for improving infrastructure. Hyderabad Municipal Corporation has also been permitted to issue tax free municipal bonds for Rs. 82.5 crore.
Pooled financing for municipal infrastructure:
Traditionally, municipal corporations and urban local bodies have relied on subsidized funds for providing urban services which constraints the constraints the introduction of user charges and efficient project operation and maintenance. In view of the huge resource gap, direct access to capital market would now be an accepted viable option. However, access to capital market requires financial discipline and enhanced credit rating. It has been the experience that only bigger municipal corporations are in a position to take the advantage of the resources available in capital market.
Medium and smaller municipalities are unable to do so due to weak financial position and lack of capacity to prepare viable project proposals. A State level pooled financing mechanism is being proposed for smaller and medium municipalities. The objective of a State level pooled finance mechanism is to provide a cost effective and efficient approach for smaller and medium sized ULBs to access the domestic capital markets for urban infrastructure and to introduce new institutional arrangements for mobilising Urban Infrastructure Finance.
Government of India is also encouraging citywide reforms and restructuring so as to ensure that cities are managed efficiently and become creditworthy (to attract private finance ) which will enable them to prepare long term plans for infrastructure investments and implement poverty alleviation programmes.
Citywide reforms and restructuring will, however, result in significant transaction costs during the period of transition. Leaving cities to finance these costs by themselves will delay and make it difficult to implement these reforms. It is to partly offset this disadvantage that the Ministry of Urban Development is proposing to set up a performance based City Challenge Fund for catalyzing city level economic reform programmes. The resources from the Fund would be given as grants but should ideally be matched by equal allocations either from the cities themselves or from the respective State governments. Access to the fund would be on a competitive basis.
Establishment of an urban academy:
The proposed Urban Academy is visualized as a centre of excellence in Urban Matters such as urban water supply, sanitation, urban transport, urban governance, municipal finance, etc. It will be a n ideal town-planning habitat, wherein experts from India and abroad can experiment with new layouts, building materials, landscaping, heritage preservation etc., and it will have Synergic links with all other institutions specializing in urban matters. This will coordinate all Training and Capacity Building Initiatives and effort of change management forums.
In conclusion, it is evident that the New Economic Policy launched in India in 1991-92, did see several important initiatives in the urban sector designed to encourage private sector participation in urban infrastructure projects. These initiatives would need to be taken to their logical conclusion. A series of new Reform Measures are being put together for implementation during 10th Plan Period. Through these, we hope to reverse the declining standards of urban infrastructure in the country.
Public Private Partnership
Procurement addresses how the industry organizes itself to deliver construction projects. Contracts define the rules governing the relationships between the many organizations involved in each project.
Construction industry clients are faced with a perplexing array of skills and resources which must be combined effectively to develop a building (or other constructed facility) that will fulfill their needs. All but the simplest of buildings involve the management, design, assembly and commissioning of large amounts of raw materials using appropriately-skilled labor provided by multiple organizations over a long period of time. The flow of money between Organizations must be formally organized, as must the distribution of responsibility and risk among them.
While the technical complexities of the design solution itself are addressed by the specialized skills of construction industry members, the interaction of these organizations must be structured by the selection of an appropriate procurement route and the effective administration (i.e. day to day running) of the associated form of construction contract. At the project outset, clients will usually seek advice on the selection of a procurement route to bring the required organizations together.
Figure 1 Example of a cost and Time Overruns in Public Sector Projects.
In response to these problems, two key joint industry and government reports were published to stimulate innovation in construction industry practice: the Latham Report in 1994 and the Egan Report in 1998.
In the first report – “Constructing the Team” – Sir Michael Latham commented:
“Implementation begins with clients. Clients are at the core of the Process and their needs must be met by industry”
“Rethinking Construction” proposed five drivers for change in the construction industry:
1. Committed leadership
2. A focus on the customer
3. Integrated processes and teams
4. A quality driven agenda
5. Commitment to people
In the public sector, HM Treasury launched the “Achieving Excellence in Construction” initiative in 1999 to improve the performance of Government in its client role by publishing “Achieving Excellence in Construction Procurement Guides”  which addresses the following issues:
1. Initiating action
2. Project organization
3. Project procurement lifecycle
4. Risk and value management
5. The integrated project team
6. Procurement and contract strategies
7. Whole-life costing
8. Improving performance
9. Design quality
10. Health and safety
Public sector clients are generally concerned with certainty of budget and quality and, above all else, ensuring public accountability as they are spending public money.
Clients who build regularly – perhaps continuously –can be considered experienced
Construction projects can be structured in a variety of ways as “No single procurement route” is suited to all situations and so is required to link the Client’s business requirements before an appropriate project structure can be recommended.
The Office of Government Commerce defines these terms as follows :
“Procurement strategy: The procurement strategy identifies the best way of achieving the objectives of the project and value for money, taking account of the risks and constraints, leading to decision about the funding mechanism and asset ownership for the project. The aim of a procurement strategy is to achieve the optimum balance of risk, control and funding for a particular project.”
“Procurement route: The procurement route delivers the procurement strategy. It included the contract strategy that will best meet the Client’s needs. An integrated procurement route ensures that design, construction, operations and maintenance are considered as a whole; it also ensures that the delivery team work together as an integrated project team.”
Figure 2 The relationship of procurement strategy to procurement route
“A Public Private Partnership (PPP) is an umbrella term for arrangements agreed – often with legal force – between public and private sector organisations to their mutual benefit.
The Private Finance Initiative (PFI) is one form of PPP developed by the Government in which the public and private sectors join to design, build or refurbish, finance and operate new or improved facilities and services to the general public. PFI schemes generally involve a consortium of private sector companies, who collaborate to form a Special Purpose Vehicle (SPV) which then contracts with the public sector to provide services such as hospitals, schools and roads to specifications provided by public sector bodies.”
3.1 Procurement method issues
Construction industry has complex analysis mere by dual component of land and building. It has fuzz boundaries. The fragmentation of the industry between contractor, consultant, project management etc creates the industry highly volatile. It can also be argued the reduction of professionalism if it is at only contractor. So it is expected to carry multitude of negative aspects of Investment which is derived from present consumption. In Economics term Investment is the process of trading present consumption for new capital. Present trading can be alternative to investment in other than the construction industry.
Individual participant have significant approach to price and quantity.
“This definition illustrates several key characteristics of PFI schemes:
A service, rather than capital assets, is purchased.
PFI schemes run for a long time. The public sector typically requires procures the provision of a service over a 25 to 35 year period.
Buildings or other infrastructure is usually constructed by the private sector as a consequence of the need to provide the agreed service. The PFI agreement will define the level of service required (such as providing a maintained, lit, warm, clean and catered hospital, for example) and the private sector will finance the design and construction of new or adapted facilitates as necessary to accommodate that service.
Because the public sector is purchasing a service, rather than assets, it will not own those assets unless the transfer of their ownership is agreed when setting up the scheme (see Section 6.6.5).
Subject to any specification imposed by the public sector client, the private sector is free to use whatever means it considers appropriate when constructing the assets. This can lead to design quality and performance shortcomings (see Section 6.6.4).
The private sector puts itself at risk when securing the finance required to construct any capital assets required by the scheme. In return, it will expect to be paid for managing this risk. This raises the overall cost of PFI schemes above that of non-PFI procurement where financing risks are minimal as they are borne by the public sector with funding traditionally provided and underwritten by the Treasury.”
3.2 Role of PPP in Infrastructures
“In the projects from the Public Private Partnership (PPP) and Private Finance Initative (PFI) programmes, the public sector contracts to purchase services – rather than any particular building – from the private sector in the long term. The delivery of these services usually, but not always, involves the construction of new facilities. The capital cost of construction is financed by the private sector, thereby exposing them to financing risks. In principle, this incentivises the private sector to manage this risk by providing an efficient construction solution, the cost of which is recovered from the service charge in the long term.”
Figure 3 Typical Structure of a PFI scheme
Figure 4 A typical PFI Scheme cash flow
Figure 5 Typical Allocation of Risks between Public sector client and Private Sector Consortium members
3.3 Advantage of PPP
Figure 6 Summary of procurement route suitability to typical client
PFI projects have consequentially proven to be substantially more reliable than other procurement methods, as reported by the National Audit Office, to Parliament
“Most construction work under the Private Finance Initiative is being delivered on time and at the cost expected by the public sector. Central government has generally obtained a much higher degree of price certainty and timely delivery of good quality built assess, compared to previous conventional government building projects.”
A single contract is established between the public sector client and a private sector company typically owned by a large construction contracting organization specializing in PFI schemes
3.4 Drawback in PPP
So what’s wrong with producing a complete design at the start, fully detailed, engineered, coordinated and measured so the Contractor can do what it is expected to do: build it on time, within budget and to the required quality? Of course, there will always be Clients who need their buildings urgently and who are prepared to take the risks associated with fast-track
procurement. But if we took the time to fully analyse the Client’s needs, and tested and questioned the brief at the start, I am sure that most sensible Clients would see the merit of taking a more measured approach to procurement, to give them the cost, time and quality certainty they expect.
“PFI schemes are complex, comprising many agreements formed between three different types of organisation:
1. The public sector client (for example, an NHS Trust or a Local Authority).
2. The private sector provider of the required service.
3. Funders and investors (senior debt and equity providers).”
Figure 7 Current UK PFI revenue expenditure commitments (for project agreed at April 2007
3.5 Form of Contract
The fourth version of these standard contracts (known as SoPC4) has recently been published. The three main objectives of these contract forms remain unchanged and are similar to those of the standard forms of contract used in non-PFI procurement routes. They seek to:
promote a common understanding of the main risks which are encountered in a standard PFI project;
allow consistency of approach and pricing across a range of similar projects; and
reduce the time and costs of negotiation by enabling all parties concerned to agree a range of areas that can follow a standard approach without extended negotiations.
3.6 Development in PPP in the world
ADB’s experience in the infrastructure sectors, institutional and financial reforms, and innovative financial products will help promote the PPP modality in India. The Japan Special Fund, through ADB, will provide a $2 million technical assistance grant to help government agencies in India develop a number of pilot PPP projects which can eventually serve as models for future projects. All infrastructure sectors covered under this initiative include urban development, transport, water, health and education sectors.
“The ADB-IIPDF partnership will play a crucial role in actually demonstrating the benefits of PPPs through setting forth replicable PPP models with well-balanced risk and bankability structures. These should catalyze much needed private sector capital and efficiencies along with competitive commercial co-financing into the infrastructure sectors and eventually help promote equitable outreach of infrastructure services to the common man,” said Anouj Mehta, Senior Infrastructure Finance Specialist (PPPs) at ADB’s Indian Resident Mission.
ADB has supported India’s plan to bring in more public-private partnerships through two advisory technical assistance grants. The Indian government will provide $5.7 million equivalent from its India Infrastructure Project Development Fund (IIPDF) on a project-by-project basis. The project sponsor agencies will contribute $500,000 to cover project-specific office facilities, administrative support, and workshop facilitation””
“A summary of procurement contracts awarded to companies and consultants from India for goods and works, and consulting services can be found at www.adb.org/Documents/Fact_Sheets/India/procurement.asp.
Clients can take the following measures to ensure speed in building:
Clients must organise their decision making processes to ensure they do not hold up progress.
Clarity and firmness of the design brief are essential.
Choose Contractors and designers with care.
Clients must establish good relationships with those that they employ. Punitive contracts will make any trust between parties difficult to achieve.
Clients should arrange for payment patterns that create incentive. Bonuses and cost target rather than penalties for delay.
Above all, Clients should take a strong interest in the progress of the project
Figure 8 Typical PFI consortium appointment process
4.1 What is JNNURM?
Figure 9 Jawaharlal Nehru & Dr.Manmohan Singh
Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is a massive city modernisation scheme launched by Government of India. It envisages a total investment of over $20 billion over a period of 5-6 years. It is named after Pt. Jawaharlal Nehru, the first Prime Minister of Independent India.
The scheme was officially inaugurated by the prime minister, Dr. Manmohan Singh on 3 December 2005 as a programme meant to improve the quality of life in the cities.
“The JNNURM recognizes that a general lack of accountability of Municipal Corporations (MC) and other government agencies in the quality of service delivery is hampering economic growth and increased prosperity of urban citizens. In today’s rapidly globalizing economy, Indian municipalities, especially the 63 strategically important ones now targeted by the JNNURM.
4.2 Implementation of Urban development under JNNURM
As part of the JNNURM, the first and important step is to formulate a City Development Plan (CDP). It is both a perspective and a vision for the future development of a city and envisages a consultative process. CDP essentially needs to address the following:
Where are we now?
Where do we want to go?
What do we need to address on a priority basis?
What do we need to address on a priority basis? What interventions do we make in order to attain the vision?
The process for preparation for City Development Plan is divided into four steps
Figure 10 Steps in CPD
4.4 Frame work and process
Framework: The framework has been evolved to provide incentives for reforms in urban development and thereby facilitate sustainable investments in urban infrastructure. At the national level, the JNNURM shall be steered by the NSG. The NSG, a coordinating arm of the Government of India, shall provide policy oversight and evolve policies to facilitate the achievement of JNNURM objectives. The NSG shall review the agenda of reforms and may add additional reforms to the identified reforms.
Process Flow: This section provides an overview of the process for accessing funds under the JNNURM. It reflects on the path that a project proposal originated by the ULB shall take for its sanction by the CSMC. The flow chart also reflects on the JNNURM policy directives that shall flow from the NSG across the institutional framework The Government of India believes that the process of formulating the policy framework for JNNURM would continuously evolve depending upon the feedback from the institutional entities established for JNNURM.
Submission of Applications for Funding: In accordance with the process envisaged, the ULB/parastatal agency may seek assistance from the JNNURM for the following:
To prepare a City Development Plan (CDP), Detailed Project Report (DPR)
Training and Capacity Building, community participation, information, education and Communication,
Investment Support Component: Grant for project implementation
Figure 11 GoI Fiscal Framework for JNNURM
“The foundational pillars of the JNNURM are: urban infrastructure, housing, provision of basic services to the urban poor and improving urban governance. The components under the Sub-mission on ‘Urban Infrastructure and Governance’ include water supply, sewerage, solid waste management, storm water drains, urban transportation including roads and mass rapid transit systems at the city level. The Sub-mission on ‘Basic Services to the Urban Poor’ includes affordable shelter, security of tenure, water and sanitation as well as provision of education, health and social security by convergence in the efforts of various departments/agencies at the slum/lowincome neighborhood level.
The objective of this sub-theme is to discuss key issues and emerging challenges under JNNURM. The sub-theme seeks to share experiences/lessons of Urban Local Bodies and facilitate interaction for showcasing successful infrastructure projects being implemented in the JNNURM cities. The subtheme will also focus the discussion on measures taken in various JNNURM cities for initiating more inclusive processes and projects and their impact on the urban poor in accessing land, housing and basic services.”
Figure 12 JNNURM Frame work and Process
4.4 List of ongoing projects
See Appendix-List of Sanctioned projects.
63 cities were included in JNNURM and recently added Tirupati and Probundar going upto total 65 cities under Mission cities.
Table 2 Projects – Sectorwise sanction (as percentage of Project value)
03 May 2009 Indian express: After handing over the distribution of electricity in two cities to private hands, the Government of Uttar Pradesh is set to try out the model with the urban water supply as well. Initially, this will be done in one zone each of both Lucknow and Allahabad. The bids are to be invited soon. The idea is to ensure 24x7 supply of water and to check its wastage,” said a Government official. Once successful, the project would gradually be implemented in other places, he added. The authorities have already identified Mumfordganj zone in Allahabad for this venture, although in Lucknow, they are yet to identify the most critical area.
The Government started toying with the idea under the Jawahar Lal Nehru National Urban Renewal Mission (JNNURM) after being asked by the Centre to use innovative projects for bringing improvement in the water supply. At present, water requirement in the urban areas is 6,500 million litres a day (MLD), while the current supply through a pipeline is only 4,575 MLD. The gap is met to some extent through hand pumps.
There are about one lakh hand pumps in urban areas. The officials in the UP Jal Nigam claim that there is no shortage of water but there are shortcomings in its management of the same. “Over 40 per cent water gets wasted either by the users or during the supply”, said an official. The Government aims to ensure hundred per cent safe drinking water supply through pipelines in both urban and rural areas. It hopes this trial of water supply through public private partnership (PPP) model will provide an answer.
These key issues are also being incorporated in the first-ever state policy on drinking water, a rough draft of which is already prepared. A water policy was formulated in 2002, but that focused only on irrigation which comprises 97 per cent of water usage.
4.5 Success ratio analysis
32 projects out of 465 projects have been completed. Appendix-List of completed projects & Sanctioned projects.
“Karnataka has privatised water supply distribution in Mysore city, making it India's biggest city water supply scheme to be handed over to the private sector, for operations and maintenance. Jamshedpur Utilities & Supply Company Ltd, a wholly-owned subsidiary of Tata Steel Ltd, recently won the Rs 152-crore project. The private operator will be given 60 days to start mobilisation before the formal transition takes place. Officials said that the Rs 190-crore project would be financed through the Centre's Jawaharlal Nehru National Urban Renewal Mission to the extent of 80 per cent. KUWSDB and MCC will equally contribute the remainder. Jusco will operate the system for six years and progressively bring about improvements in the current water supply scheme. The scheme will be monitored on "performance parameters", officials noted, adding that the project will be divided into two zones - east and west - with respective contract value of Rs 80 crore and Rs 70 crore. Discussing the current water supply scenario, KUWSDB officials said that Mysore city's population was now around 1 million, growing by over 25 per cent since the Census 2001 that placed the headcount at 0.78 million. The existing system has a nameplate capacity of 220 million litres per day against which the quantum handled is 180 mld. However, transmission and distribution losses are around 40-45 per cent, due to lacunae in the distribution network. Mysore city gets water from the Cauvery river, which is mainly treated at the Hongally and Melapur water treatment plants, and then distributed through a 1,200-km pipeline network.The private operator is committed to bring about a drastic cut in these losses (technically, zero losses) over the next four years. This will constitute phase-I of the project, where the initial 12 months will involve remodelling of the existing hydraulic system and preparation of the capital investment plan, followed by three years of rehabilitating the distribution network. In the subsequent two years, Mysore city is envisaged to have a round-the-clock water supply, officials of the urban body said. The total water demand in Mysore is estimated at 35.25 million gallons per day (mgd), out of which 32.63 mgd can be fulfilled in the best case. For Karnataka, the Mysore project is an important milestone in its endeavour to improve city water supply in PPP mode. Officials said that the state had a very encouraging experience when pilot projects of this type were taken up in Hubli-Dharwad, Gulbarga and Belgaum cities which aceived 24/7 water supply.”
In the cities of Hubbali, Belgaum and Gulbarga in the state of Karnataka, the private operator Veolia increased water supply from once every 2-15 days for 1-2 hours, to 24 hours per day for 180,000 people (12% of the population of the 3 cities) within 2 years (2006-2008). This was achieved by carefully selecting and ring-fencing demonstration zones (one in each city), renovating the distribution network, installing meters, introducing a well-functioning commercial system, and effective grass-roots social intermediation by an NGO, all without increasing the amount of bulk water supplied. The project, known by its acronym as KUWASIP (Karnataka Urban Water Sector Improvement Project), was supported by a US$39.5m loan from the World Bank. It constitutes a milestone for India, where no large city so far has achieved continuous water supply. The project is expected to be scaled-up to cover the entire area of the three cities. 
JNNURM projects lag over land, utilities and personnel problems by Rahul Chandran in Timesofindia
“JNNURM projects looks if the centre Government has lot of funds to be distributed to inefficient city administrators those have no capacity to handle so much money they got. Come and see all the projects of Vadodara city. Public are crying of dug roads all over the city. No safety to public. It looks the JNNURM have no transparency as promised in the JNNURM norms. I say all the three Nodal agencies are looting the Public Money through JNNURM projects. Municipal Corporations are well known for the rampant corruptions they are given too much money without proper audits and checking the projects. In long run JNNURM will be proved a big failure if not properly checked and audited all every level.
Posted On 6/4/2009 9:42:17 PM http://www.livemint.com/2009/06/03233633/JNNURM-projects-lag-over-land.html”
5 Feasibility of Water Supply project in particular-Case Study
5.1 Summary for Augmentation to Indrapur Water Supply Scheme
Indrapur city the ancient of Maharashtra State is a major centre of education culture and commerce. It is practically at the centre of India. Indrapur is situated at a latitude of 21o-9’ North and longitude of 79o-6’ East at an altitude of 310m appox above sea level. Maximum average and minimum rainfalls are 1933mm, 1205mm and 606mm respectively. All major highways and railways pass through Indrapur. Recently Indrapur is in lime light for its road infrastructure, cleanliness and upcoming Cargo Hub.
The Indrapur Municipal Corporation (IMC) manages water supply and waste water collection and disposal as also solid waste management within the corporation limits having an area of 217.56 Sq.km.
Table 5 Gap in Demand and Supply
Existing Point of Drawl of Shivsagar Water:
Shivsagar reservoir at Navegaon Khairy is a major source of water supply to Indrapur city. Raw water for the existing Shivsagar Phase I, II, III (Ph-I) schemes, is drawn from the right bank canal at R.D. 48.5 Km at Javali sump and pump house. Raw water from Javali is pumped to Rankala for treatment and further distribution. As could be seen from the above table it is necessary to take up Augmentation to Indrapur water supply immediately, for which Shivsagar reservoir at Navegaon Khairy is already identified as source in view of the existing reservation in the Shivsagar reservoir.
Water Reservation from Shivsagar :-
In the Shivsagar reservoir at Navegaon Khairy, for Indrapur water supply there is a water reservation of 112 Mm3/year & additional 78 Mm3/year (upto Dec-2005), Total 190 Mm3/year. Out of which 112 Mm3/year water is being drawn for Shivsagar-I and Shivsagar-II. Out of the remaining 78 Mm3/year (213 Mld) 37 Mm3(100 Mld) water is drawn for Shivsagar-III, Shivsagar-I scheme. While drawing water for Shivsagar-I, II & III, Phase-I, through canal lot of water is lost through leakages in the Shivsagar right bank canal.
The irrigation dept. has been insisting for the transportation of the entire water through pipe line instead of canal. The arrangement will give Irrigation dept. adequate time for efficient maintenance of Shivsagar Right Bank Canal. Pipe line works will however be done in phases depending on the availability of funds.
For transportation of water 78 Mm3/year (213Mld) for Indrapur City, by M.S. pipe line of 1930 mm O.D from Shivsagar reservoir to Javali, by identified shortest route of 27.36 Kms., the following sub works are necessary and the approximate cost details thereof are as follows.
Table 6 Cost of Project
The Main Objectives of Shivsagar – IV Scheme are:-
To enhance the water availability for Indrapur city by (78-37 Mm3) = 41 Mm3 i.e. 113 Mld to meet the water requirement of Indrapur City for the year 2011.
Conserve water losses through canal which at present is about 30%
In the event of non availability of water from Shivsagar reservoir for Cargo Hub for some reason or the other, the quantum of water to be transported, from Shivsagar reservoir to Javali, in the second phase of laying of pipe, will be reduced in view of it’s inclusion in the above stated scheme.
In this case we have evaluated financial model in the perspective of a private concessionaire. The concessionaire gets water from the government at the water main and the scope of work of the concessionaire is to collect water from the water main, take it for treatment to the WTP and then supply it to ESR/GSR. Further distribution to the end users will be carried out by ULB. The total work is divided in to three phases (Phase-I- Water main and E & M, Phase -II- Water Treatment Plant, Phase -III-ESR/GSR) construction period of all phases is assumed three years. In the financial feasibility the assumptions made, that have thrust on the basis of bidding are O & M expenses includes all spares, admin expenses is 4%, Inflation on income is 4%, Loan repayment period is 4 years, Escalation in Water Tariff is 0.03 Rs per year, Grant available from the government under JNNURM is 70%.
Table 13 Cash Flow
5.2 Comments on the Financial Appraisal
Most of the commercial activity perhaps other than agriculture and village merchandise takes place in urban areas. Therefore, to a large extent, urban India is the engine of productivity and growth in the country. This is manifest in the increasing contribution of urban sector to national income. So government has to now focus on the growth of urban infrastructure and should have the vision to transform Indian cities into world class cities rather than spending only on dams, bridges and highways. The most active step taken by government of India is the JNNURM scheme where in it focuses on transforming the ailing cities to the cities of international standard.
As Internal Rate of Return (IRR) is 18.17%, it is good for any investor to invest in such project. Privatization of Water Supply Scheme is very new to us as well as for Urban Local Body (ULB) it is new approach of urbanization. It will be beneficial for ULB as it reduces the efforts of connection of water line, collection of tariffs and operating and maintenance. These efforts can be utilized in other areas for the betterment of society. This privatization approach is also beneficial to end users as they get better services.
The basis of Bidding for this type of project is the cost of per unit of water supply at ESR/GSR. In this case the unit cost of water supply is Rs.1.45.
In risk analysis the most sensitive factors affecting the rate of return are Construction cost, Raw Water available for treatment and O & M expenses. In these the most vulnerable factor which fluctuates the IRR intensely is O & M expenses. In scenario analysis we have considered eight different scenarios ranging from most pessimistic to most optimistic. Probability of occurrence of pessimistic scenarios is less.
The uncertain factors which may affect are term loan interest will increase during operating period, government will not able to grant, rate of inflation will increase, technical failure of design, disputes raised in future due to ambiguity in contract conditions.
6 Comparison of various CPD Plan
1. Source of water
(a) Large gap in demand supply.
(a) Exploits both surface and ground water the ratio is 1:9 but main source is river Tapi.
(a) Sufficient water is available. Main source is surface water.
(a) Rely mainly on surface water. Meets demand at present future but source will have to be added in near future.
(a) Lack of metering, age old transmission and distribution mains lead to high non-revenue.
(a) Population coverage is around 95% which is satisfactory.
(a) 60 % of the pipeline is old and prone to cracking and damage.
(a) Domestic water connection serves 85% of the population, rest are fulfilled by stand post.
(b) Operation and maintenance cost recovery is only 60%.
(b) Water pressure is less due to aged network. Use of GI pipes leads to leakage and contamination which increases the maintenance cost.
(b) Original two zones are no more relevant and have been tampered by cross connection which leads to more leakage, contamination and power consumption.
(b) Onus of installing meter lies is on consumers and so reliability of the meters is doubted.
(c) Length of water distribution is very low.
(c) Water reaches only 50% of the property tax assessment and 40% of the residential units.
(c) Non revenue water level is very high. Only 50% of the treated water is billed.
(a) Transmission and distribution loss is 30% of the water supply.
(a) Great revenue loses incur due to leakages.
(a) Treatment losses are very high, which is around 22 %.
(a) Water supply coverage and access to be enhanced to 100% by 2015.
(a) Uninterrupted water supply.
(a) Water for all.
(b) Water supply hrs to be increased to 12 hrs by 2010 and by 2015 to 24hrs.
(b) Water supply for 24x7.
(c) To get down non revenue to 30% by the year 2010.
(c) Focus on safety, equity and reliability.
(d) 100% O&M cost recovery by 2010.
(d) Decreasing the losses to a minimum level in next 10 years.
(a) Carryout studies and prepare a comprehensive water sector development plan.
(a) To ensure quality Surat municipality has already taken steps for making the whole water supply system ISO: 9001 certified.
(a) NWCMC needs to carryout water supply study, including a diagnosis of the current water supply system i.e. mapping of the existing system.
(a) Additional schemes need to be designed for sourcing more surface water for the city.
(b) To encourage poor people to enter into water supply system corporation has proposed to reduce the connection cost and lessen the documentation procedures.
(b) Modernization of Existing Infrastructure of Water Supply
(b) Leak detection and energy audits to identify rehabilitation and refurbishment measures before embarking on a long-term source augmentation and distribution network plan.
(b) To maintain the ground water levels, rainwater harvesting should be made compulsory for all new building projects.
-- Implementation of SCADA (Supervisory Control And Data
-- On-line Ultrasonic Flow meters on all the transmission mains
-- For accurate measurement of water being supplied and water
-- To detect the leakages and un accounted water flow in the
-- To monitor and control the pumping operations
(c) Proposal for implementing UFW reduction measures in all parts of the city as an immediate measure by conducting leak detection studies, rehabilitation of pipelines etc.
(c) The entire system shall be augmented and structured in a sustained process.
(c) A scientific zoning system needs to be worked out the revised scheme should attempt to salvage as much as possible of the existing network of over 500 km in an integrated manner.
(c) Natural water bodies like nallahs must be conserved.
(d) Removing of public stand post and legitimizing illegal connections will help corporation in reducing revenue loss to the extent of 5-10 %.
(d) Leak detection studies apart from studies on the quality and quantity of water drawl at the consumer end and explores ways and means for effective water supply systems.
(d) A comprehensive operations manual needs to be prepared and the municipal staff to be trained in operating the system in a scientific manner.
(d) Natural water bodies like nallahs must be conserved.
(e) The corporation has proposed to establish a regulatory authority to enable to facilitate, monitor and thus be able to deliver the benefits of universal household water service to the urban poor.
(e) The members of the hydraulic department shall undergo training in project planning, implementation, monitoring and evaluation. The significance of people’s participation in water conservation shall also be realized.
(e) Should conduct a leak detection study.
(f) To modernize financial management by taking efforts on revising accounting, auditing, and internal control standards and computerizing customer databases.
(f) The entire system shall be augmented and structured in a sustained process.
(f) Regular checks to verify the quality of water being supplied.
(g) To below poverty line water connection is being given at a minimum amount of Rs 1200, Which can be paid in installments.
(g) Finding an alternative source of water for improved sustainability of water supply to citizens.
(g) PSPs must be removed in the slum areas.
(h) French water club is associating with VMC for augmentation of water supply scheme in vijayawada.
(h) Procurement of quality meters and conversion of un-metered connections to metered ones and revision of tariff with political willingness.
(h) To minimize wastage of water, metering should be introduced for all the water connections.
(i) Involve private sector in operation and maintenance on contract basis.
(i) Tariffs should be designed to discourage wastage.
(j) Conduct an energy audit, which accounts for the bulk of its operational expenses.
Comments on the Comparison
If we study the CDP of various cities we find that Nagpur and Nanded are quite systematic and simple to understand. All the CDPs are well structured showing the need, vision and strategy. But all of them are missing on detailed plan to carry out the strategy. All CDP’s are clear about their vision except Nanded.
Obstacles: Mainly there are two problems in water supply in near future. Either there is a scarcity of source of water or there is a problem in distribution network. Nanded has sufficient water for near future but other cities like Nagpur, Surat and Vijayawada have to find new sources of water for fulfilling the demands of near future.
Operation and maintenance: There is a lot of work to be done starting from searching new source of water to operation and maintenance. But surprisingly only Surat has planned of giving the operation and maintenance to private parties. All the cities have great amount of loses occurring due to leakages, treatment, transmission and distribution losses. There is a need to check the loses and surprisingly each of the city development plan speaks of reducing the losses but none of them have given concrete plans or any methodology how they are going to reduce the losses.
Reach to people: Among the four cities Surat has got a reach of 95 % population which is excellent in comparisons to others.
Environmental issues : Only Nagpur CDP focuses on Environmental issues related to water carrying out surveys to know the quality of water.
Connection Charges and Database: Vijayawada CDP has put stress on making the connection of water supply easy and cheap for the below poverty people which will ultimately increase the revenue of the municipality. None of the other municipalities have given a thought over it. Also Vijayawada is one step ahead in maintaining database by computerizing customer databases
Collection efficiency: The best solution to increase collections of bills is to give it to private parties. All CDPs are missing on this front .Surat has mentioned in its CDP of making its whole water supply system ISO: 9001 which is a very welcome step and other city municipalities should take a lesson from it. Surat CDP has proposed to involve Private parties in operation and maintenance which will not only increase the efficiency of the system but also make the municipality profitable in long term .
Conservation of water: A very good proposal of making rain water harves
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