PPP in waste water management - A Look at China

Every individual, community, city and nation grows till a tipping point after which it needs to evolve and adapt to its environment in order to sustain itself and prosper. With a population of 1.2 billion people and counting, it is safe to say that India has long reached its tipping point.

At this juncture, any government, right winged or left, would find itself stressed and lacking resources to provide stable and well built infrastructure such as roads, health care, electricity, water and waste management. Even with 2013-2014 witnessing a gross tax collection of ₹13.64 trillion (US$210 billion) and not including regulatory fees collected, our nation struggles to create adequate systems. One must take into consideration that the Government needs to provide for several facilities and infrastructure in one amongst many others such as scientific research, agriculture, military defence etc. However, the need of the hour cannot be ignored. It is imperative that citizens have access to basic necessities such clean drinking water in order to ensure good health, prevention of diseases and an acceptable standard of living across various strata of society.. In light of these challenges a partnership between the Public Sector and the Private Sector is often a highly sought after solution. A model which allows governments to execute ambitious projects with the assistance of privately owned, better managed and streamlined corporations while overseeing and regulating the projects, PPP (Public-Private Partnerships) seems like a great way ahead. Yet, over the last two decades several individuals and organisations seem to have developed the opinion that PPPs cause more losses and damage. Perhaps we should look at our neighbour, the People's Republic of China with the eye of a student and with the intention to benchmark our own PPPs.

With 600 million people residing in 655 cities (as per 2008 reports), China is experiencing rapid urbanisation. If the country were to follow current trends, just the urban population itself is projected to pass the 1 billion mark in 2030. This roughly breaks down to 8 mega-cities with over 10 million human beings in each of them.

Accelerated growth has come at its own cost. Social, economic and ecological issues have become a pressing matter for the Chinese government. Sustainability models which were once ignored are now being revisited and studied in order to tackle the obstacles expected in the coming decades.

So what exactly is China doing?

Sector by sector, China is developing Public Private Partnerships. Wastewater Treatment is at the forefront of their priority list because of it's direct impact on the life of Chinese citizens. With growing air pollution also becoming a major concern, the government wants to ensure they resolve the issue of waste water management as soon as possible. PPP are being considered for several reasons such as to reduce the inefficiencies of state run activities and to take advantage of additional financing brought in by private investors. Their model includes:

• Methods to ensure that groups of every economic class receive drinking water

• Increase in accountability and improvement in the governance of managing authorities

• Allowance for a higher level of public participation

• Systems which encourage local bodies to take on the tasks and responsibilities of water management.

It has not been an easy or short path. China began to sow the seeds for PPP back in the 1990s by deregulating the water sector. This allowed private and foreign investors to contribute towards the water supply and waste water management infrastructure.

China has explored several models ranging from complete privatisation of projects to foreign investors holding majority stakes in joint ventures

There are currently an estimated 400 water supply and wastewater PPP projects in the PRC and most of them run on a Build-Operate-Transfer model, allowing for several private players to form partnerships. Treatment of waste water from Shanghai, The Huangpu River and Yangtze River provide surface water sources for urban areas, the population of which exceeds 17 millions.

The Shanghai ZhuyuanYoulian No. 1 wastewater treatment project (ZY1WWTP) is the first mega-ton wastewater treatment plant (WWTP) in Shanghai, which has the capacity of treating 1.7 million m3/day. The JV benefitted from private capital investment, bank loans and was also assisted by the indirect subsidisation provided by the local government. bank loans.. It is worthy of note that in return the JV had to provide an online monitoring system and allow third-party quality checks. This is a great example of how important government involvement and vigilance is.

Under these conditions, the plant serves 23.5 million residents and carries out a minimum treatment of 1.4 million m3 /day.

The service fee that was attached to the PPP is almost 40% below the government's own projected cost.

The Chinese government has been successful in transferring the financial burden of the project from the public to the private sector by aligning the performance of the JV to a variable service fee.

Mr. Arun Lakhani, a leading expert and advisor on PPPs and the MD of Vishvaraj Infrastructure Limited is a great believer in a strong and long lasting relationship being formed between the public and private sector. "Our national highways and expressways now competing with international standards and getting international recognition, stand testament to the fact that Public-Private-Partnerships are a successful model when executed with equal accountability, efficiency and honesty", said Mr. Lakhani.

There is much to be learned from our neighbours across the border and it would be wise of India to pay heed to the rising need for PPPs in major public sectors. With appropriate regulation, monitoring and political will the Indian government can give the Indian Infrastructure scenario the boost it needs to support our growing nation and compete with other first world countries.

Challenges to PPP in Water Management

Traditionally provision of water for drinking and domestic usage has been the domain of government but due to the pressure of increasing population, rapid urbanization and other developmental trends the government is struggling to fulfil this basic need.

This has led to government looking at Public Private Partnerships as a way to deal with the issue of water supply. But it is not as simple as just starting a PPP venture and the problem taking care of itself.

Although PPPs in water sector in India were started way back in 1990s, the progress of these PPP ventures has not been a smooth affair,Inspite of the government having instituted the National Water Policy of 2012 with provision intended for the privatization of water-delivery services.

So what are the reasons for such a situation? Why is successful implementation of PPP for water management in India proving difficult?

To understand more about the factors affecting successful private partnerships in water management we spoke to Mr. Arun Lakhani – MD Vishvaraj India,the first company to have successfully implemented 24x7 water supply to the city of Nagpur under a PPP model.

• Lack of Trust Factor:
  In India there is a long standing bias against the private sector as the perception is that the private sector is always looking at making profits at any cost.
  
  This inherent lack of trust is one of the biggest challenges facing PPPs in water sector in India. So even though the projects might get a go ahead with the support of the government, it usually ends up achieving limited success without the buy of the public in general.
  
  On top of that, private companies usually demand commercial secrecy. This in turn means that the populace does not have access to crucial information. Such a situation can only harm PPPs in the long run.
  
  "Private partners in PPP must put in place trust building measures that will eliminate the distrust factor" says Lakhani.

• Securing Finance Is Not Easy:
  As a commercial entity banks offer loans to corporate entities at higher interest rate. The reason is that the private sector has a lot of risk associated with it which has often resulted in higher percentage of payment default.
  
  In addition, it is generally the private partner who has a larger financial investment in the project than the public partner. Inability to raise adequate funding often leads to high risk, mismanagement and eventual failure of projects.

• Lack of Political Will:
  Another key challenge facing the PPPs in water sector is the dynamics of politics. There is no denying that political will plays a very crucial role in determining the success of PPP projects.
  
  To understand this challenge we don’t need to look too far. One of the prime examples of positive political will is the Alandur Sewerage project.
  
  The municipal chairman had personally pursued the private sector to become a part of the project. Backed by strong political leadership, support of opposition parties and the public resulted in a successfully completed project inspite of various hiccups during execution.
  
  On the other hand, we have the Pune Water supply project. The project, which even after fulfilling the government regulation, did not happen thanks to change in national and local political landscape.

• Low Entry Barrier:
  The entry point for private partners in water sector PPPs is quite low. As a result of this, inexperienced private players enter the PPP domain which, instead of benefitting the country, has only resulted in failure by encouraging the emergence of unorganised and unqualified players spoiling the market for the experts.

• Tariffs associated with water sector PPP:
  The tariffs associated with water sector PPPs are one of the reasons why such undertakings are less feasible. The subsidized tariffs of PPP ventures make it very difficult for private players to even cover operational and maintenance cost of the project.
  
  Besides, it has been observed that the local bodies have often been found strapped for cash to be paid to the operator (in this case the private partner). Until the subsidies related to tariff are properly dealt with,it will always be a major obstacle in successful implementation of water sector PPP.
  
  It is important that the consumers are convinced that paying tariffs (set as per the project requirements) will be beneficial for them in long run.
  
  The road is long and arduous however; the rapidly declining state of sustainable water supply in the country has made it imperative the Government does more to assist private partnerships than instituting a policy change.

Accelerating Public Private Partnerships in India

India has been witness to a fairly high growth on the economic front. The last decade has brought out the focus on India as next super power along with China. One of the major contributors to this growth has been the Public Private Partnership (PPP) ventures.

Unfortunately, the 2008 global recession affected this economic growth and PPP was one of the areas affected. Although PPP sector experienced slow growth, it was not entirely due to recession. There are other major reasons why the PPP sector has not achieved success it was expected to.

We spoke to Mr. Arun Lakhani – MD Vishvaraj India, one of the leading private players in PPP ventures to understand how the growth of PPP be accelerated in India. But before that, let's take a look at the current situation.

Current PPP Scenario in India:
The infrastructure sector in India has seen significant amount of investment in the past few years. It is expected that almost half of this investment will be coming from private players with the Government contributing to the other half of the investment.

India is a dynamic market for businesses and there is no dearth of willing participants for Public Private Partnerships. However, the ground reality is that the PPP ventures have not seen a hundred per cent success.

Some landmark projects such Nagpur 24x7 water supply, led by Vishvaraj Infrastructure have achieved phenomenal success while other have just about managed to cross the line. This is happening even after various initiatives have been undertaken by the Indian government to facilitate growth of PPPs.

So we discussed four fundamental ways in which the Government can accelerate growth in PPP

• Make PPP Data Accessible:
  There is an evident lack of a single repository of information regarding various PPP ventures executed in India. There is no central point which could act as a source of information for those who want to access data on policies, frameworks, successful models etc.
  
  Such an information database can act as a critical reference point for future PPP projects and act as a guide for companies and government bodies looking to implement PPP ventures for various projects.
  
  An information portal of this nature would also bring about transparency to the entire process. Data such as reports, agreements, status would be available for interested parties.

• Have A Dedicated PPP Regulatory Authority:
  Currently there is no regulatory authority for PPP in India. If there is to be a sustained growth of PPPs then having an independent authority to administer PPPs is essential. Having such an authority in place ensures PPP ventures are not affected by unwanted outside interferences in it execution.
  
  'A glance at nations like UK, US, Australia will give us a compelling reason as to why there is a need for such authority in India too. Not only will it help in disciplined growth of PPP but it will also attract foreign investors to India' Says Lakhani.
  
  Even the local private players who want to participate in PPP will receive encouragement and guidance.

• Increase financing:
  The private sector is highly dependent on banks for their financial needs. Unfortunately, due to the limits imposed by Reserve Bank of India, banks can only offer loans to a single business entity up to a certain limit. This has resulted in private partners in PPP becoming helpless when there is a huge financing required for PPP ventures, which is more often than not.
  
  One of the key issues plaguing this model in India is the limited financial support for private partners by banks. Although the banks try their best at offering financial help to the PPP venture, unfortunately it just is no sufficient.
  
  There is a need for creating more financial channels for private partners in PPP so that they can take on ventures that require heavy financial investments.

• Every Aspect of PPP Must Be Given Equal Importance:
  It has been observed that various aspects of PPP ventures such as government clearances, feasibility study and acquisition are not given adequate importance.
  
  In fact, the attitude that is evident is that planning a project and getting a partner for it is all that is required to ensure the success of the PPP venture and the rest will take care of itself.
  
  The aspects of PPP, mentioned above, are often put on secondary pedestal which eventually contribute to the delays in completion of PPP ventures.
  
  So, if we look at it small changes in governance models can contribute highly to the success of such ventures in India ensuring that we are no more considered 3rd world country but rather an economic super power.

PPP to Manage Urban Water Supply

In a country like India with a population of more than a billion and a large section of the population living in rural areas resources like water are worth their weight in gold.

Changing climatic conditions, irregular rains, lack of waste water management and pollution in lakes, rivers and local water bodies have led to a water crisis across the country. Although the government is trying to solve this problem at various levels the effort has not been very successful.

It has come to a stage where participation of private players must be considered to tackle the situation prevailing in these areas. But this is not as easy as it appears. Water privatization has been contentious topic and needs to be handled delicately.

To understand more about Public-Private-Partnerships in water and waste water management we spoke to Mr. Arun Lakhani, MD Vishvaraj Infrastructure Ltd. one of the leading organisations taking up PPP projects in India. Here's what he had to say about one of their landmark projects – Nagpur 24x7 water project.

The Project:
Nagpur is the third largest city in the state of Maharashtra and the seat of the annual winter session of the Maharashtra state assembly, "Vidhan Sabha". The city needs about 540lts a day for its population of 2.5million people.

For the first time in India a government body – Nagpur Municipal Corporation build a Public Private Partnership to deliver 24x7 water supply to an urban city. One of main challenges was that such a venture had never been tried before. The Nagpur water PPP project was first of its kind in India and took some time to design an acceptable and sustainable structure.

As the driving force behind this project Lakhani spearheaded the project with a clear plan and transparent processes. The venture has been successful and now a model for future projects.

The New Challenge:
Currently, Vishvaraj Infrastructure is implementing new projects in five districts of Karnataka; Magadi, Bidar, Basavakalyan, Shahabad and Yadgir.

The aim behind these projects is to create 3.81 lakh water connections across these five cities. Simultaneously, it also plans to lay 922 kilometres of pipeline.

The outcome of the project will be that more than 81,000 people will be receiving drinking water directly in their house taps. A goal that will greatly decrease the disease rate and increase sanitation and hygiene. The main goal of these projects is to overhaul the water distribution system in these five cities.

Talking on how the concerns regarding water privatization, it must be noted that the private partner is responsible for operations and providing tap water connections to the households of the targeted cities.

The Government body is responsible for deciding tariff and development plan for the city.

One thing that must be highlighted is that ever since the project has been implemented, people have been regularly paying bills without follow-ups. This shows how much receiving clean drinking water at home has impacted the lives of people.

Various state governments have now started turning to PPPs to manage drinking water supply to urban and rural areas.

Managing Risks for PPP

Risk can be said to be chance of a particular event happening; often a bad one. Every business is bound to have certain risks attached with it. Public Private Partnerships (PPP) is no different. But what makes it different from others is that the private partner is the one who often ends up taking risks.

To understand how to mitigate risks in Public Private Partnership we spoke to Mr. Arun Lakhani, leading PPP expert with the BJP government.

Lakhani says the first step towards an efficient mitigation plan is identifying and classifying the risks involved.
This should be done even before commencing procurement stage. It greatly helps in having a clear picture of where risks can be minimized to the maximum. It also helps the private partners to be ready for any eventuality that might occur and avoid last minute patch solutions.

Based on how PPP works, risks can be classified into multiple sections. Some of the major areas are:

• Production: This involves risks associated with planning, design, maintenance, repairs, construction, environmental etc.

• Commercial: Mainly involves risks related to demand, collection, capacity availability, policy changes, technological changes.

• Contextual: It consists of risks related with finance, rules & regulations.

In addition at the time of contract preparation it is important that both the partners must know about the risks associated with the project. Every risk associated with the project must be clearly explained. Besides, the causes that can lead to such risks occurring must also be slept out. This will help partners to be ready with the solution in case any such situation arises. It is very important that both partners are aware of the possibility of risks and their corresponding impact. The contract stage is a key stage in PPP and is an ideal time to execute such acts.

The second important step according to Lakhani is Risk Allocation.
It is crucial that risks are allocated between the partners so that neither suffers unjust losses due to unforeseen risks.This would help private partners in PPP to minimise the risk and also get work done at the same time.

Third and most important step is identifying solutions for risk minimization says Lakhani.
Now that the risks have been identified, it is also important that solutions for them are also in place for any contingency. After carefully studying the risks, the PPP partners must develop strategies that minimize them. It would be even better if these probable solutions are documented as it will help in future. Even better would be to take these risk minimising measures even before the contract is assigned.

In conclusion the true success of any PPP venture is when it becomes a win-win situation for both parties involved in it. In order to have a long lasting partnership, it is important the project is done with utmost transparency. Identifying, assessing and fair allocation of the risks involved with the project is one of the best ways to achieve it.

"More than that, it will establish trust between both parties that is so crucial for business venture" Arun Lakhani.

Need to Understand Chemistry of Political Challenge to "PPP"

A Public Private Partnership (PPP) by default is a political project, and has associated political challenges. This kind of challenge does not exist only in developing countries, but it still shows its presence in most developed countries as well. In fact in terms of number of projects that are being built in most advanced countries on PPP Model, are much more than what group of newly developing countries might have been planned.

Thus, way of dealing with such challenges might be different but one thing is certain that corporate companies associated with implementation of PPP Projects have to study the ways to address the political challenges if any. On many occasions these kinds of challenges are imaginary and do not exist as we think of them to be.

We spoke to Mr. Arun Lakhani, one of the key PPP experts with the BJP government to understand political influence on PPP projects. He explained his point of view with a small example illustrated below-

Once the Regional Manager of a nationalized bank in INDIA was directed by its head office that the Hon Chief Minister, in whose native village they said bank was going to open new branch especially for agricultural financing, should be invited for inauguration. Earlier that village was being serviced by same bank for almost a decade, from another nearby branch having adopted that village. The entire infrastructure like building, interior decoration of proposed branch with all required installation was in place. Even the entire staff was posted and joined the proposed new branch aviating to commence functioning. The Regional manager of the bank had a friend who was quite close with the CM and promised him that he will fix time to meet HON CM. Accordingly; he arranged the meeting between HON CM and the Regional Manager of the said bank to give personal invitation for inaugurating proposed branch. The Regional manager went as per appointment given by HON CM. Just as the Regional manager of bank and his friend were called in CM chamber, formal talks and introduction session took few minutes.

There after the real business started. Hon CM asked the purpose for which duo had come. The regional Manager of the bank explained the purpose and wished that HOM CM should suggest date and time for the inaugural function depending on availability of the time for HON CM. In fraction of seconds HON CM sent message to his PA to check on which day the function can be fixed. Until the PA could verify appointment schedules of HON CM, some casual discussion went on for few more minutes. Suddenly HON CM remembered ‘something’ and re-enquired the name of the Bank. He then said that, few years back there was an incidence when he had forwarded a few [about ten numbers] tractor loan proposals to the bank by the applicant farmers which expressed little dissatisfaction. The Regional Manager had recently taken charge and was unaware and became all most panicky suspecting that he might not have privilege of opening new branch at the hands of HON CM. HON CM immediately read what was being thought in the mind of the Regional manager as also read his face that may have been like—"shabda vachuni kalale sare shabdancha palikadale" [[English spelt Marathi words]]. HON CM broke the ice. He said that he could have understood if few proposals earlier recommended by him might have been Non Viable. He had concern that perfectly viable proposals also were rudely rejected by then the bank management and all proposals then were brushed aside which had hurt him.

YET

HON CM suggested to the Regional manager that if he can promise to review proposals freshly and arrange to disburse only viable proposals, HON CM would come and be the chief guest function. The function was smoothly conducted and the common friend who also came had told the Regional manager that HON CM had told him to convey to the bank that persons in politics have to do things like recommending loans etc but it is never intended to imply that authorities should over rule the set norms. Political masters have to show concern to general public at large when they are approached in group by public. What executive wings or for that matter anybody coming in their association, should understand that even Political person be understood in non political fashion.

The moral of the story

"Political challenges can be at gram sabha level, nagar palika level, maha nagar palika level, state level or at national level, there are ways to understand political minds at all these levels. The chemistry would be similar no political person wants to be inimical" says Lakhani.

While anybody deals in completion of projects, especially of the PPP MODEL, he or she has to understand the chemistry of politics in matured and dispassionate manner. Understanding publically functioning is the challenge that one can only unfold with little bit of psychological mind set. This can make win- win situation for not only for PPP MODEL but also for Political figure and People –two more P letters in our new way of life in developing nations.

The Ganga Story: Balancing Environment & Efficiency

It is undeniable that no matter the size of a PPP project, it will always have some level of impact on environment around it.But the sad part is that quite often environmental sustainability is the last thing in the mind of developers. As a result more harm is done to it than good. Hence it is always stressed upon that outcome of a PPP project must be more than just a physical entity.

It thus becomes very important that development and protection of environment must go hand in hand. Besides, it must also achieve a vision of a just and sustainable world.

One of the prime examples where balancing efficiency and environment is a must is river Ganga says Arun Lakhani, MD Vishvaraj Infrastructure Ltd. and leading expert on PPP and water conservation.

The Ganga Story:
Perhaps there is no other river in the world that is as revered, spoken about and controversial as the Ganga.

Although the current government has started an initiative to restore the legendary river to its glory, there is much more that needs to be done says Lakhani.

It starts with PPP projects around Ganga. One of the biggest mistakes that are made is to underestimate their contribution to pollution of the river.Under the surface of Ganga flows huge, in fact millions of gallons, of industrial waste, effluents. This happens due to lack of planning.

It cannot be denied that starting and finishing the project in quickest time possible is what most PPP project are all about. Environmental factors are given least preference (until it happens to be around heritage sites or forest or similar zones).

The outcome of such lethargic attitude is shocking. The least of these is the spread of waterborne diseases. The polluted water has affected the free flow of river water making it stagnant.

So bad is the condition that even cleansing of river will be a monumental task; but it must be done.

The Solution:
River Ganga is in dire condition and it needs immediate attention.

It begins with inculcating a habit of making environmental sustainability a core consideration in the Ganga Cleanup initiative (or anywhere else for that matter).

Policies need to be drafted to prevent any further deterioration of the river. Extra care needs to be taken when any new projects are given the green light.

"Given the poor waste management record until now near Ganga, there must be stricter policies that ensure it does not remain so. In fact, it would be better if there can be projects that can minimise or even better remove the current problems that ails the river Ganga" says Lakhani.

Water is a priceless resource. It is the duty of those parties involved to ensure that it is utilised wisely (not only by themselves but also by the people who visit Ganga).

It is not as though river Ganga is the only one facing such problems. There are multiple such instances around the world. But our priority is must be to repair the damages done to it and remove it from the state of degradation and crisis.