Financing for Development of Clean Water and Sanitation Schemes in India

Development Finance Impact Project – Digital Artifact

World Bank Group
Financing for Development 
                                                                      9th December 2015

Financing for Development of Clean Water and Sanitation Schemes in India

Clean Water and Sanitation for all is one of the 17 Sustainable Development Goals which the international community has committed itself to achieve by 2030.  Supplying clean water and building the necessary sanitation infrastructure in many of the villages, towns and cities in India poses huge challenges. It is the responsibility of the civic body i.e. panchayat, municipality, municipal corporation, development board etc. to supply clean water and provide sanitation services to the residents. Most of the civic bodies in India are not in position to meet the goal of clean water supply and sanitation to the swelling populations due to lack of financing for development of the infrastructures. The annual budgets of government and civic body allocate funds for water supply and sanitation; but, the provision in the budgets for this sector is too modest to provide standard services to the public. A vast population in India does have access to clean water supply in required quantity and also lacks hygienic sanitation facilities and its consequence is horrendous  – suffering and death of many people, particularly children, due to water-borne diseases. We need new approach and innovative financing to build clean water supply and sanitation infrastructure in India. The sector has got immense opportunity for private sector investment especially under Public-Private-Partnership (PPP) model. Next to air, water is the most primary requirement for living creature to survive. Water shortage is already affecting many parts in India. Therefore, it is high time to initiate building clean water supply & sanitation facilities across the villages, towns and cities in India. The most prudent approach for supplying clean water and sanitation would be PPP model where the public partner would be the local civic body. In order to finance the water supply & sanitation project, the civic body should be allowed to issue project specific tax free bond to raise money clearly mentioning the project for which the bond is being issued so that local residents, commercial establishments and industries who are the beneficiaries of the project become more interested to buy the bond. The money thus raised by the civil body can be given as loan to the private partner of the PPP project. The rate of interest of such loan should be more than the bond interest but less than the prevailing market rate of loan, so that it creates a win-win situation for the civic body and its private partner. The civic body being a government entity as well as a local body certainly is more trustworthy as investment destination than a private organization to the common people. If there is any allocation of budget of the civic body for the project, the same can be given as loan to the private partner in marginally lower interest rate than market rate. These mechanisms can help the private partner to access cheaper debt than the market rate while resulting in financial profit for the civic body too in addition to achieving the principal goal of providing clean water and sanitation facilities to the households, commercial establishments & industries. The users should be charged for the water consumption as well as sewage disposal. The civic body should not provide any subsidy to the users. If there is any requirement of affirmative action for the economically weaker sections of the area, the civic body may pay more interest to them if they buy bond issued by the civic body for the particular project. This arrangement may inculcate saving habits for the people of the area while helping to build an infrastructure which would benefit them directly. This initiative may be appealing to the local residents, commercial establishments & industries as they can reap the benefits of saving money and at the same time enjoying the benefits of the infrastructure their invested money has brought out immediately in their locality.

An open untreated sewerage channel in New Delhi, India

Development and Management of Water Bodies in the state of West Bengal, India through PPPs for Productive Use

World Bank Group

Public-Private Partnerships (PPP): How can PPPs help deliver better services?

22 June 2015

Final Project - Digital Artifact (Resource)

Development and Management of Water Bodies in the state of West Bengal, India through PPPs for Productive Use 

Agriculture is the main source of livelihoods for most of the households in rural areas in the State of West Bengal in India. However, irrigation system is not developed in most of the places and the farmers mainly depend on rains and exploit ground waters to irrigate their crops. The rural population in West Bengal is about 62 million.

Thousands of water-bodies like rivers, streams, channels, lakes, ponds, swamps of various shapes and sizes are to be found across the state of West Bengal. Most of these water bodies are located on the land owned by Government of West Bengal and primarily engendered by rainfall during rainy season.

Despite receiving moderate to heavy rainfall during rainy season of about 3 months in a year, which often causes devastating floods at many places, there are no concerted efforts for development and management of the water bodies for productive use. The water bodies can be converted to water reservoirs and be operated for the purpose of irrigation, water supply, flood control, fisheries, recreation (like boating) and electricity generation by setting up hydropower plant under Public Private Partnerships. A large numbers of the water bodies have already been repaired, renovated and restored under Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS), the flagship programme of Government of India to provide minimum 100 days works in a year to every rural household to do unskilled manual work. De-silting of the water bodies, excavation, peripheral embankment, construction of small scale engineering structures like check dam, anicut, escape, weir, trenches, intermediate and linked drains, diversion channels etc have been carried out in many water bodies under MGNREGS. However, utilization of these water-bodies in a professional way under PPPs to help deliver better services to the people by means of irrigation, water supply, flood control, fisheries and hydropower plants is hardly given a thought.

PPPs can be very effective and efficient approach for development, operation and maintenance of water bodies to serve the above-mentioned public purposes. Government of West Bengal owns most of the water bodies; but it lacks money and manpower resources to develop, operate and maintain such water-bodies scattered across the length and breadth of the State.  Small and Medium Private Enterprises will be suitable for these kind of PPPs. Preferably, local unemployed persons can form private enterprise to develop and manage these projects. The requirement of capital investments to develop and manage the water bodies to serve the intended purposes are not very high and can be sourced by private enterprise as loan from the Banks / Financial Institutions.

The responsibility of Government of West Bengal would be to identify the water bodies and to prepare Detailed Project Reports to assess the technical feasibility and economic viability of the scheme. Since the water-bodies belong to Government of West Bengal, there is no requirement for land acquisition for the Government. 

The scheme may be auctioned for allotment to the private party based on the selection criteria of the highest percentage free sharing of the produce / output of the project by the private party with the Government. Private partner will also need to pay upfront premium to the Government of West Bengal at the time of allotment of the project which may be decided by the Government based on the economic viability of the scheme. There will be a fixed concession period after which the project will be re-auctioned. The private partner will earn revenues from the users of waters for irrigation and water supply, recreational users, fish production, electricity generation etc as the particular scheme is intended for. 

The entire development and operational risks as well as demand risks will rest on the private partner.  

The tariff for the water use will be determined by the market i.e. mutually-agreed tariff by the project proponent and the prospective users; so as the price of fish produced and tariff of the electricity generated by the project. 

Irrigating crops from such schemes would be cost effective to the farmers during non-rainy season because, due to over-use, the underground water levels have already been dropped substantially and it requires high installation, operation & maintenance cost to extract ground water using pump sets. During summer time the pumps often fail to extract water.

Government of West Bengal, initially, may take up some water bodies for development and management through PPPs on pilot projects basis.

Sample Photograph: A Lake in West Bengal, India