Solving India’s Water Problems Requires Public-Private Partnerships

One in two Indians does not have access to drinking water. About two-thirds of rural households and more than a quarter of urban households do not yet have a connection to running water. Water-borne diseases kill approximately 200,000 people each year. The crisis threatens to spread.

In response, the government has redoubled its efforts to develop infrastructure in the water sector. It has deployed ambitious projects in the field of water. The Jal Jeevan mission, launched in 2019, aims to provide a working tap connection to all households in rural India by 2024. Jal Sakthi, launched in the same year, focuses on water conservation in 1592 blocks under water stress in 256 districts. The Atal Mission for Urban Rejuvenation and Transformation (AMRUT), launched in 2015, aims to cover all households in 500 cities with connection to running water, as part of facilitating housing in cities.

These projects are indeed producing results. When the Jal Jeevan mission was launched, only 3.29 crore out of 19 crore households had access to tap water. But in about 27 months, Jal Jeevan added five new tap water connections. AMRUT has so far provided over one million tap connections in urban areas of India, while in its second phase (AMRUT 2.0) aims to cover all urban households with tap connections within 4 378 statutory cities by 2026.

The expenses for these projects have been enormous. With a budget of US $ 90 billion, Jal Sakthi represents the world’s largest investment in hydraulic infrastructure. The Jal Jeevan Mission is a massive $ 50 billion project. The indicative spend for AMRUT 2.0 alone is US $ 37 billion.

In addition, annual budget allocations for water have increased steadily in recent years. In the last five years to 2020, the water and sanitation budget was around 1% of GDP, but it was increased to 2.2% in 2021.

An idea that doesn’t make sense

But public funding alone is not the answer to water problems. Despite plentiful public funding, private sector involvement is inevitable for India to reduce fiscal pressure and deliver its ambitious water projects in a sustainable, efficient and timely manner. The National Water Policy 2002 (and its revised version in 2012) explicitly stresses the need to attract the private sector in the planning, development and management of water projects – throughout the life cycle of the project. .

One of the ways to attract private participation is the public-private partnerships (PPP) approach. In general, PPPs are based on contracts and concessions (technically they are awarded on some form of clean build transfer and own build operate and transfer models), in which the government typically retains control. basic asset ownership, while private companies or even NGOs run the show. PPPs can be ideally suited because they can eliminate public misgivings about water, a public good owned 100% by private companies. In addition, all PPP projects in the field of water supply have an objective of universal coverage (for the benefit of low-income populations) and the obligation to respect common service standards.

Globally, PPP has proven to be a viable model of “shared service delivery” – not just a source to fill the funding gap. It allows citizens to enjoy the best of both worlds: government resources and the efficiency of the private sector. Revenues are linked to the performance of private companies. In other words, a PPP within PPP, in which the former stands for Pay Per Performance which links the returns of private companies to their performance to achieve agreed service levels and operational efficiency. Therefore, PPPs are a win-win solution for government, private and public.

Teething problems

The adoption of the PPP model in the water sector gained worldwide recognition in the 1990s – although initially PPPs encountered strong public opposition in many places. As the learning curve was steep for both the public sector and private companies, many PPPs launched with great fanfare and popular support have also failed for technical reasons.

Inferior due diligence, poor project preparation, unrealistic goals or standards, imbalanced transfer of financial risks, awarding contracts to companies that did not have adequate capacity or funding were some of the causes of the failure. often cited failure. In several cases, the rates set were too low to allow for cost recovery. They barely covered the operating and maintenance costs.

Overall, water remains unattractive for the private sector. It is not in a position to attract PPPs like transport or energy – or even health care or education. PPPs in the water and sanitation sector (implemented between 1990 and 2012) represented less than 2% of total PPPs – and in terms of investment, the share of PPPs in water did not was only 0.2%.

The dimensions are numerous and disparate. From a financial point of view, water is capital intensive. It has significant fixed costs and it only pays off over a long period of time. Consequently, the financing of projects by the banks was not granted. The corporate bond market is not yet fully developed in India. From a social or political perspective, water is a vital human need – not just an economic resource. Putting a price tag on it is a politically charged subject. Political instability and policy reversals are part of any dynamic democratic environment, where the termination or expropriation of the PPP cannot be easily ruled out.

Emerging viability

But the scenario started to change for the better. In recent years, India has achieved considerable success in even attracting multinational companies to PPP in the water sector. “Piped Water in Indian Cities: A Review of Five Recent Public-Private Partnership Initiatives”. a World Bank report lists a number of gradual changes in India that bode well for the future of PPPs in water. The report finds that it is recognized that PPPs can be pursued for efficiency gains, in addition to attracting private finance. To boost investor confidence, the Ministry of Finance introduced Viable Gap Funding which paved the way for national grants of around 20% of the project cost when a project is in the construction stage, and grants for the project. State or local agencies an additional 20% for operational support. .

The number of PPP projects reaching financial close has also increased. According to the government’s PPP database, the water sector attracted around Rs 16,000 crore in infrastructure projects, in December 2019.

Building on the momentum

The government needs to learn from the policy lessons by examining what has worked and what has not worked in PPPs in the water sector to make it a much more attractive proposition for PPPs. Since the mitigating factors in PPP projects are mainly financial in nature, the focus should be on creating economically justifiable and commercially viable water PPPs. What is urgently needed are tariff reforms and dynamic pricing, as initial tariffs often prove to be unsustainable. A sense of discretionary regulation, as opposed to that fixed by predetermined rules, is therefore essential. To minimize consumer resentment over tariffs, efforts should be made to make the process of setting and collecting water tariffs fair and transparent.

Having strong dispute resolution mechanisms, clear legal and regulatory frameworks and other supporting institutions are among the other key factors that attract and support private participation in the water sector.

Experts stress that the government must first and foremost demonstrate increased ownership and oversight of PPPs. In India, the responsibility for providing last mile water to households lies with local agencies. Clarity of roles is important to avoid intergovernmental conflicts between municipalities, states and national bodies. There must be a high degree of coordination between them. National bodies can help municipalities design and deliver PPPs by evolving standard contractual arrangements, frameworks and guidelines that municipalities can use.

If only India can minimize the political, regulatory and financial risks of PPPs in the water sector, it will go a long way in attracting a steady flow of private finance, knowledge and capacity in the water sector. This in turn will help the country achieve its goal of providing every citizen with safe drinking water before the water crisis gets out of hand.



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The opinions expressed above are those of the author.



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