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Indian governments, both state and federal, have shunned the capital-rich private sector for decades, throwing up legal and regulatory hurdles. Today, government officials have expressed greater interest in private-sector involvement and have opened the gates for ADB’s new Water Financing Program (WFP) to increase water investments. |
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| Keiichi Tamaki Senior Urban Development Specialist |
India is making good progress increasing infrastructure for water supply and sanitation in urban and rural areas. However, it is still lagging behind other countries in expanding reliable and sustainable services. The water supply in most cities is still intermittent, mostly between two and four hours a day.
“In India, we see lots of publicity about Information Technology and the difference that it is making in the economy, but when we look at the ground-level reality in infrastructure, such as water supply, it is in a deplorable state,” says Keiichi Tamaki, who works in ADB’s South Asia Department.
While India houses 14% of the world’s population, the country has only 4% of the total average annual river run-off. A number of areas are already in crisis, including in the most populated and economically productive parts of the country. Estimates reveal that by 2020, India’s demand for water will exceed all sources of supply.
At the same time, 70% of India’s irrigation needs and 80% of its domestic water supplies come from groundwater—in the past a successful practice—but that has lowered groundwater tables and depleted aquifers. It is no longer sustainable. The picture is further muddied by unclear rules governing the allocation of water rights of the country’s interstate rivers, which drain some 90% of India’s territory.
The main barrier now to increased investment is the difficulty of linking funds available to viable investment projects. “Indian towns and cities are not yet credit worthy. The commercial banks are not ready to help them and they need support in conceptualizing and producing a project,” says Hun Kim, Director of ADB’s South Asia Urban Development Division.
What is missing, Tamaki says, is a workable model that can connect available funds with projects and be replicated in other parts of the country, or region.
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| Constructing an irrigation canal in India |
In the 1990s, then Finance Minister Manmohan Singh (now Prime Minister) helped jumpstart reforms that have cleared room for the new economy to emerge, and made way for visionary politicians keen on partnering with the private sector.
“It was a pleasant surprise,” says Tamaki. He, however, notes that Indian governments are realizing they are in a “furious competition” for investment with countries such as the PRC and, to retain the interest they have already attracted, they need to attend with greater urgency to infrastructure.
Funds are available for meeting these challenges. For example, ADB is supporting India’s Jawaharlal Nehru National Urban Renewal Mission (JNNURM)—a national fund created to encourage sustainable urban development and expected to invest about $11 billion in developing infrastructure in 63 of the largest cities in India over the next 7 years. ADB’s support will help build capacity for identifying and preparing projects, among others.
“We have the WFP and they have JNNURM. We can take advantage of that,” notes Hun Kim, Director of ADB’s South Asia Urban Development Division. |
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| India Country Dialogue at the Water Financing Program Conference, September 2006 |
To address India’s investment barriers, the Government asked ADB for financing totaling $270 million through the newly-created Multitranche Financing Facility (MFF). Serving as a line of credit, the funds will be drawn down over an 8-year period to finance an overhaul of the infrastructure and institutions governing the state’s water supply.
It will improve urban services for 4.3 million people, improve and sustain infrastructure services, and promote private-sector participation in selected sub-sectors, with the aim of bringing in a proper incentive framework for efficient and equitable service provision.
To involve the private sector, companies will be invited to bid for either a 10-year lease-style contract (on water utilities), in which the contractor is expected to put up some funds itself, or a shorter-term management contract sending a private management team to a water utility.
The first requires private contractors to bring partial bridge financing for the construction, and operation and maintenance costs of subprojects in exchange for annuity-like and performance-based payments over a 10-year period. The second recognizes that the risks of the first may dissuade prospective private companies, and the companies are instead invited to bid for a so-called “performance-based management contract,” under which the contractor is responsible for overall management and provision of services, typically over a 5 to 6-year period.
“Our money,” Tamaki says, “is attempting to create a demonstration effect. We hope that through it there will be a continuous flow of money, which is already available in India and looking for decent investment opportunities, into these and other utilities.” However, Tamaki also admits that ADB funds are just a “drop in the bucket.”| © 2008 Asian Development Bank Privacy | Terms of Use |
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