Tirupur water and sewage project, India:
The project is the first build-own-operate-and-transfer (BOOT) effort in South
Asia. The water project is expected to supply the Tirupur area with 185 million liters of
water per day and service nearly 1,000 textile units and more than 1.6 million residents in
Tirupur and surrounding areas.
Three reasons most often cited as justification for the privatization of water
services in Tirupur are: regular and cheap water supply for the towns textile and
manufacturing industry; improving the living standards of its poorest people; and
reduction in pollution because water will be 'soft' rather than 'hard.'
The reasons for the polluted ground water in Tirupur are not hard to find. Every
day, the textile industry uses 90 million liters of water and discharges 87 million liters of
wastewater into a dry riverbed, from where it percolates into the underground water
system. The ground water in Tirupur is undrinkable because it is very saline and polluted
with chemical dyes. Additionally, over 50,000 tons of solid waste produced every year lie
in heaps in and around the city. As a result of the polluted groundwater, tankers bring
water from farms up to fifty kilometers away and many farmers have now given up
farming and instead supply water to industry. This has lead to mining of water in an
unsustainable manner. Also, when the water gets too deep to be extracted, the farmers
cannot get back to farming because the fields are too dry.
Under the proposed scheme, the one billion dollar knitwear industry will receive
115 million liters per day (mld) of water. Tirupur municipality, which includes 60,000
slum dwellers, will get 26 mld, while 792 rural settlements in its neighborhood will share
the remaining 36 mld.
The figures clearly show that industry is more important than people for the New
Tirupur Area Development Corporation (NTADCL), which is behind a consortium of
three companies executing the water and sanitation project. These are India's Mahindra &
Mahindra, Bechtel, the biggest US water transnational corporation (TNC), and Britain's
United Utilities.
The project is on a Build-Own-Operate-and-Transfer (BOOT) basis with a 30year time stipulation, at the end of which it is to be transferred to the government. Bechtel
is in charge of the 55-km pipeline to deliver water from the Bhavani River into a complex
system of 25 reservoirs, which will be constructed by the Indian company Mahindra &
Mahindra together with Larsen & Toubro. According to the project document, United
Utilities and NTADCL will run the joint venture at a "fixed operation and maintenance
fee" that will be recovered entirely from Tirupur municipality.
Water- Commodity or Human Right?
Newspaper reports say that the Mahindra & Mahindra-led consortium has agreed
to fix the rate at Rs 45 (US$ 1) per thousand liters (kl) per day, revealing that an
agreement has been reached, but no one is telling how this is to be divided between
industry and domestic users. A 1998 report states domestic consumers will be charged Rs
5 (US$ 0.10) per thousand liters per day while industry will pay the rest, but officials
have not corroborated it.
Is water a commodity or a human right? Developing country governments that are
under the charmed spell of the pro-privatization World Bank, Asian Development Bank
and other multilateral organizations have come around to a consensus that water is a
commodity. On the other hand, civil society groups firmly believe that water is a natural
resource that belongs equally to all people and should stay a public utility.
Indian groups cite water projects controlled by Bechtel in Bolivia and the
Philippines as examples of what India should avoid. Bechtel took over the water supply
in Cochabamba city, Bolivia, in end-1999. In the space of a few months the price of
drinking water had risen by two and half times. The reason was a government guarantee
to the powerful water firm that user fees would remain the same in dollars, so every time
the local currency fell the price would spiral. By January 2000, an aggrieved population
had taken to the streets demanding the privatization deal be cancelled. The government
had no choice but to give in, although Bechtel now threatens it with a $25 million legal
battle for breach of contract.
Guaranteeing Profits and Opening Markets
Has the government of Tamil Nadu similarly guaranteed profitability to investors
in the Tirupur project? One such hedge against risk is the creation before the commercial
operation of the project of a "Water shortage fund." This special fund, created by the state
government, will be parked in a public deposit account to be drawn by NTADCL. It will
be large enough to pay the interest and operative expenses of the project in the event of a
water shortage in the Bhavani river. Project authorities confidently state the fund is only
of "notional" value because in the last roughly 15 years, the water flow level has
consistently stayed above the NTADCL's requirements.
Finances for the project include both debt and equity funds. The total equity
component will be borne by the state government, Tirupur Exporters Association and the
central government via the Infrastructure Leasing and Financial Services Ltd. Loans from
international financial institutions and deep discount bonds will also contribute to
meeting the project cost. The US Agency for International Development (USAID) has
provided loan guarantees for $25 million. According to the USAID website, this program
"advances U.S. national interests: economic prosperity through opening markets." The
US looks at this project as "Another outstanding example of the type of relationship
between India and the United States that needs to be encouraged" and it was under the
presence of the U.S. Ambassador to India at the time, Richard F. Celeste, that the project
agreement was signed.
The investment has been secured, but the investors will not bear the liabilities in
case of depletion of water resources and default on conservation. How does the
government propose to guarantee the water flow in the Bhavani? In the Bolivian
experience, and closer to home in central India's Chhatisgarh state where a section of the
semi-perennial Sheonath river, studded with villages on its banks has been handed over to
one individual, people are charged for collecting rainwater from their roofs or water from
their wells. But pressure from civil society groups and left party politicians might have
forced the government to rethink the project.
Typically, development institutions have answered people's lack of access to safe
drinking water by instituting "user-pays" systems by privatizing community assets and
effectively handing them over to the global water industry. Ahead of the Kyoto
conference, Tim Connor from AID/WATCH, which campaigns against private
participation in essential water supply, said the policy is being pushed through in three
ways: imposing it as a condition of loans and debt relief; bankrolling water TNC's in
preference to public enterprises; and persuading governments like in Ghana to sell water
utilities to reduce national debt in 2001.
"Globalization Challenge Initiative", a Washington-based NGO conducted a
review of IMF loan policies in 40 countries for the year 2000, and found that 12
agreements contained conditions imposing water privatization. These were mainly
countries in Africa; the smallest, poorest and most debt-ridden nations.
The modus operandi is clear -- neglect development of water resources, claim a
"resource crunch" and allow existing systems to deteriorate. The poor and marginalized
residents of Tirupur who have been hardest hit by scarce clean water due to industrial
pollution, will be most affected by the private water industry since water will become a
commodity they can ill afford.
Foundation stone was laid in June,2002.
--------------------------------------------------------------------------------------------------________________________________________________________________________
TIRUPPUR AREA DEVELOPMENT PROJECT
</TD< TR>
Sector: Financing,Sewerage,Water Supply
Focus: Capital Investment,Operation & Maintenance
Project Type
Water Supply: Distribution,Source
Development,Treatment,Transmission
Sewerage: Collection,Treatment
Financial Sources: Bonds,Central Government,Financial
Institutions,Own Sources,Operator Finance,State Government
Means of Private Sector Participation: Build-operatetransfer,Financing
Project Status: Financial Closure
Project description
Background: Tiruppur is located in Tamil Nadu state and has a
population of 235,000 (as per Census 1991). Tiruppur is India’s largest producer
of cotton knitwear, accounting for over three-fourths of the country’s knitwear
exports. Water is key to the operation of this industry. The city lacks adequate
water supply and so the industries have turned to groundwater and private tankers
for getting assured supply of water. The municipal area also does not have a
sewage collection and treatment system and an organized drainage system.
Moreover, slum areas also lack adequate sanitation facilities.
In 1990, in response to these acute urban infrastructure problems, the people of
Tiruppur and the Tiruppur Exporters Association (TEA), asked the Government
to improve the basic infrastructure of the area. In 1991, the Tamil Nadu
government announced the launch of the Tiruppur Area Development Project to
address all infrastructural requirements including water supply, sewerage, roads,
telecommunications and power. It was decided to set up a special purpose vehicle
(SPV) for this with participation of the Tamil Nadu government, TEA and
IL&FS. USAID and the World Bank have also committed long term aid for this.
In 1994 an SPV called the New Tirupur Area Development Corporation Limited
(NTADCL) was set up.
Project Components: Once operational the water project will supply Tiruppur
with 185 million litres of water per day and service nearly 1000 textile units and
over 1.6 million residents in Tiruppur and its surrounding areas. The detailed
project components are:(a) a treated piped water supply of 60 million liters per
day (MLD) to Tiruppur municipality and 21 adjoining towns and village
panchayats; (b) a treated water supply of 100 MLD to over 700 dyeing and
bleaching industries within the Tiruppur Planning Area; (c) a sewerage system
for Tiruppur; and (d) onsite sanitation facilities for 88 designated slum areas
within Tiruppur municipality.
Implementation Arrangements: The three partners, TACID, TEA and IL&FS,
together designed the Tiruppur Area Development Project (TADP) as a publicprivate partnership, with technical assistance from the FIRE (D) Project. A public
limited company with private sector participation, NTADCL was formed in 1995
to implement the project. The NTADCL will contract out the construction and
maintenance of the systems to a Build, Operate and Transfer (BOT) consortium,
which is the Mahindra Consortium (Mahindra & Mahindra, United International,
North West Water, and Bechtel). USAID has provided long term (30 years) loan
guarantees for US$ 25 million with IL&FS to help finance this project.
Financing Plan: The estimated cost of the project is Rs. 12000 million. In the
financing plan for the project, equity (including grants) will be Rs. 3900 million.
This will be contributed by the union government,IL&FS, the Tamil Nadu
Corporation for Industrial Infrastructure Development, the Tiruppur Exporters
Association and the Mahindra-led consortium - the EPC contractor-cum- BOOT
operator. The project has a debtcomponent of Rs. 6.98 billion. There is also a
subordinate debt of Rs. 750 million. While the return on equity amounts to 21 per
cent, the average cost of debt is 17 per cent. Investments in the water supply and
sewerage systems are proposed to be recovered through a composite water
charge. The pricing of water supply to industry has been determined on the basis
of its opportunity cost, considered to be the rates paid to private tankers.
Therefore, the price for industry will be five to six times the amount charged to
domestic users.
Current Status: The project development process has taken a period of over five
years. The Project achieved its financial closure in the first quarter of 2002. The
foundation stone for the project was laid on June 20, 2002 by the Chief Minister
of Tamil Nadu. The water and sewerage components of the project are slated for
completion within three and six years respectively. This is the first public-private
partnership project to access commercial funds for the water sector in India. The
Tiruppur experiment is going to be the benchmark for private initiatives in the
sector and it will build a strong case for private financing of water projects in
India in the future.
Sources:
1) The FIRE Project.
2) Raman (1998). “Learning from Experience of Tiruppur Area Development
Project,” presentation made at the National Seminar on Infrastructure
Development organised by the Confederation of Indian Industries, October 2123, 1998, New Delhi.
3) FIRE Project (1998). “Tiruppur Area Development Programme: Focus on
Urban Infrastructure and Private Sector Participation”, Project Note No. 13,
prepared by the FIRE Project in association with the IL&FS.
4) Ramchand, K. (1995). “Financing of Urban Infrastructure: The Tiruppur Case
Study,” presentation material IL&FS (mimeo). 5) "Ambitious Initiatives:
Tiruppur Project finally achieves financial closure" Indian Infrastructure,
February 2002.
Total Project Cost(Rs. in Million):12,500.00
At Prices(Year):1998-99
Partner Institutions
1) Tiruppur Municipality
2) Tiruppur Exporters Association (TEA)
3) Infrastructure Leasing and Financial Services, Ltd. (IL&FS)
4) The Tamil Nadu Corporation for Industrial Infrastructure Development, Ltd.
(TACID)
5) New Tiruppur Area Development Corporation (NTADCL)
6) Indo-US Financial Institutions Reform and Expansion (FIRE) Project
Contact Details
Managing Director
New Tiruppur Area Development Corporation Ltd. (NTADCL)
85 Santhome High Road
Chennai
600028
Tamil Nadu
Phone:044-4933354/4933342
Fax:91-44-4916269</FONT< td>
Email:ntdcl@vsnl.com</FONT< td>
Date of Updation:31/07/2002</FONT< td>