SEWAGE TREATMENT PLANT
IN PPP MODE
RAJENDRA RATNOO
PRIYANK BHARTI
VIJAY NEHRA
MANMEET NANDA
EKROOP CAUR
ARTI KANWAR
1
Table of Contents
1. Project overview
3-4
2. Rationale of the Project
5
3. Project Design
6-8
4. Financial Proposal
8 - 10
5. Project Evaluation
11 - 13
6. Recommendations
13 - 14
7. Tables
2
1. Project Overview
Paramount to sustainable development in many regions around the
world is the effective management of water resources. Water of
sufficient quantity and quality is a necessary resource not only for
agriculture, industry and tourism, but also for everyday life in cities
and villages. This is particularly the case in the City of Rajkot in the
state of Gujarat, which lies in the dry Saurashtra belt. There has been
a severe shortage of water supply in recent years owing to an out
dated distribution system and an almost fully utilized water supply
system in conjunction with poor management of water resources.
Rajkot has witnessed rapid industrialization, which accounts for 40%
of the city’s GDP and 70% of its employment. This has put further
pressure on its scarce water resources. Due to limitations regarding
availability of raw water in the Rajkot region, the Rajkot Municipal
Corporation (RMC) has acknowledged that a supplementary source of
water is essential considering the arid/ semi-arid climate conditions
prevailing in the Saurashtra region.
The sewage of the old city is presently being collected through a
pipeline network of about 300km long collective system with 7
3
intermediate
pumping
stations.
The
whole
network
covers
approximately 60 sq.km of area with coverage of a population of 6.5
lakhs. The capacity of the Sewage Treatment Plant is 44.5 MLD. The
treatment plant is designed to give full treatment to sewage by
adopting the principle of Extended Aeration Process. The treated
sewage is then used for irrigation purposes and by discharging in the
Aji-II reservoir. However the existing STP is inadequate to cater to the
present quantity of sewage generated which is about 90 MLD and as
such RMC is required to enhance the capacity of the existing sewage
treatment plant by 45 MLD.
With this backdrop in mind, RMC decided to augment its water
resources by treating the remaining sewage water and using it to meet
the
growing
industrial
requirements.
This
option
of
enhancing
supplementary sources of water i.e. Recycle-to-Reuse (R-to-R) option
for wastewater generated was by far unexplored.
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2. RATIONALE OF THE PROJECT
2.1
With
minimum
the
adoption
of
suitable
state-of-the-art
technology,
80% water (36 MLD water out of 45 MLD of wastewater)
can be recovered from existing wastewater of potable quality. It would
be useful for industrial applications.
2.2 The recycling of wastewater would automatically augment existing
raw water sources for domestic applications/ usage. Currently Rajkot
City receives water supplies for only 20 minutes daily.
2.3
The recycling of wastewater would improve the environmental
milieu in and around Rajkot City by restricting open land disposal of
wastewater and availability of additional water for consumers.
2.4
The availability of additional amount of water for industrial and
processing purposes would motivate local industrialists for further
expansion of their processes and industries. It would directly bring
economic gains to them. Rajkot is currently a major centre for
automobile and engineering parts manufacturing in the Small and
Medium Enterprises (SME) segment.
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3. PROJECT DESIGN
With the above observations, RMC decided to improve and upgrade the
management of the City’s wastewater management through the public
private partnership mechanism. It is proposed to establish a 45 MLD
Sewage Treatment Plant (STP) to enhance its wastewater treatment
capacity from the existing 44.5 MLD to 90 MLD.
3.1 The current project is for the Development, Financing, Operation
and Management of 45 MLD STP in an integrated manner, to be taken
up
on
Build-Own-Operate-Transfer
(BOOT)
Model,
through
PPP
Mechanism. The duration of concession for this project shall be for 30
years in the first instance and can be further extended on mutual
agreement between the RMC, concessionaire and other consortium
partners.
3.2 The land for the project shall be provided by RMC on lease for the
complete duration of the concession period along with uninterrupted
power supply for the project operation. The cost of power shall be
borne by concessionaire.
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3.3 RMC shall ensure minimum supply of 45 MLD of sewage to the
concessionaire.
3.4 RMC shall play no role in the consumption and reuse of potable
quality recovered water. It shall be concessionaire’s sole responsibility
to identify their customers and evolve their own marketing plans for
selling the recovered water.
3.5 The selection of BOOT Agency for this project was on Swiss
Challenge Mode and Jindal Water Infrastructure Limited was adjudged
to be preferred bidder (first party).
3.6 The duration of O&M Period shall be 28 years.
3.7 The concessionaire was to ensure and be fully responsible for the
quality
and
standards
of
services,
material,
with
subsequent
independent checks on work activities.
3.8 RMC has in principle agreed to transfer the control of development,
operation, maintenance and management of 45 MLD STP to private
agency which is financially and technically capable.
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3.9 The enabling legal framework was developed based on elaborate
benchmarking
of
service
standards
and
under
the
Gujarat
Infrastructure Development Board Act, 1999 (Amended in 2006).
3.10 The concessionaire will be responsible for organizing finances
from their own as well as external resources.
3.11 The
concessionaire
will
evolve
a
Marketing
Plan
for
the
sustainability of the project.
4. Financial Proposal
4.1 Given that this is an infrastructure project, a Debt Equity ratio of
70:30, which is commonly used for infrastructure projects in India, has
been considered for the financial analysis. For the loan repayment, a
repayment schedule of 7 years has been adopted without any
moratorium period. The interest on long term debt has been taken as
12% in keeping with the present interest regime. The cost of the
project from equity and debt will include:
 Civil Works
 Non Civil Works
8
 Land Cost
 Maintenance and operating cost
The entire project is expected to be completed in 2 years (24 months).
Other costs including operating costs and maintenance will be derived
from the revenue generated from the project. All Operating and
Maintenance costs are to be increased annually by 3%.
Based on the technical scheme prepared by JWIL, the cost of project
[CAPEX] is Rs 84 crores. This amount is inclusive of standard financial
model assumptions such as interest during construction, contingency,
cost of administrative expenses and working capital etc. This CAPEX is
applicable for a STP using Reverse Osmosis (RO) technology and the
quality of water is ensured through the tertiary treatment process.
4.2
The base rate per Kilo-liter (KL) for the treated water shall be Rs
24 per KL. This figure may change based on the production and
consumption pattern and fluctuation in the cost parameters of project
components during the implementation period, however not exceeding
3%.
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4.3
If during Stage I of project implementation, the recycled water
demand pattern requirement is for non-RO quality recycled water,
then the cost parameters of the project would change.
4.4
The operating expenditure (OPEX) figures shall also vary based
on the sewage quality fluctuations and treatment strategy agreed
between JWIL and RMC for both RO quality recycled water and non-RO
quality recycled water.
4.5
As JWIL is responsible for producing and marketing the recycled
water through its investments, RMC agreed to exclude itself from
playing any role in the fixation of tariff at any stage of the project. It is
agreed between JWIL and RMC that the rate of recycled water shall
fluctuate based on the water quantity and quality demand patterns of
consumers within Rajkot region. However, while working out the
financials, the concessionaire has assumed price escalation of recycled
water at the rate of 3% per annum.
4.6
The financial closure of the project shall be undertaken within
12-14 months of signing of agreement subject to the establishment of
viability of project in Stage -1 and cash flow securitization.
10
The financial structuring of the project shall be made during the Stage
I of project development. JWIL will arrange for finances through their
own (parent company) as well as external resources for the project
development and management.
5. Project Evaluation
5.1 Assumptions
The major assumptions made while analyzing the project are as
follows:
1. Demand for recycled water produced by the STP is 100%
(excluding the obligations in respect of RMC)
2. Cost over runs are zero
3. Inflation rate is taken to be 5% annaually
4. Interest rate is assumed to be 12% for both long and short term
loans.
5.2 Decision Criteria
The project will be considered viable if:
1. NPV is positive and IRR is more than the WACC
2. Average ADSCR is more than 1
3. Economic benefits are substantial
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5.3 Financial Results and Interpretation
The IRR for the period of the first ten years of project period, in real
terms, from the total investment point of view is 4.6% which is less
than 13.2% which is the weighted average cost of capital and the
NPV is negative. However at the end of 30years the IRR is 15.19%
and the NPV is positive to the tune of 1049.00 lacs.
In nominal terms, the IRR at the end of ten years is 9.84% and the
NPV is negative. At the end of 30 years, IRR is 20.95% and the NPV
is positive to the tune of 6093.00 lacs. This is indicative of the
inherent viability of the project.
ADSCR in the first four years of operation is less than one. The
concessionaire will resort short term borrowing to bridge the gap.
However from the fifth year of operation over the loan repayment
period, the DSCR is consistently more than one. The net cash flow
after fourth year of operation is favourable.
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From the economic point of view, in real terms, the EIRR is 15.19%
which is more than the EOCK which is 12%. The NPV at EOCK of 12%
is Rs. 1860.67 lacs, proving yet again the viability of the project.
The major risk in the project is associated with the inflow of revenues.
The concessionaire has assumed 100% off take of its recycled water
i.e. 33 MLd. Hence for the purpose of analyzing the viability of the
project, a sensitivity analysis of demand of recycled water was
undertaken. The results indicate that IRR and NPV, in nominal terms,
will be positive even if the demand falls short by around 40% from the
total estimated demand.
The other assumption made is that there are no cost overruns. In
carrying out a sensitivity analysis of cost overrun it is seen that even
at 10% cost overrun, the IRR is 8.07% and NPV is positive.
5.5 Recommendation
The construction of STP and its operation and maintenance for 30
years in PPP mode with a debt equity ratio of 70:30 is both financially
and economically viable. There are immense gains for RMC since it is
13
creating usable water out of sewage and thereby augmenting its very
scarce water resources. The project is resulting in substantial savings
in terms of capex and opex for RMC. The concessionaire is bringing in
technology to facilitate the process of acceptability of treated water.
Furthermore, the enhanced capacity of the city of Rajkot for sewage
treatment will significantly reduce the negative impact of releasing
untreated
sewage
into
the
environment.
The
project
is
also
environmentally sound in as much as it will use biogas generated
during treatment of sewage to meet part of its power requirements.
The entire project has been premised on the basis that sewage can be
considered a resource in these times of increasing water scarcity.
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