Approaches to Capital Financing and Cost Recovery Public Disclosure Authorized in Sewerage Schemes Implemented in India

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Approaches to Capital Financing and Cost Recovery Public Disclosure Authorized in Sewerage Schemes Implemented in India WATER AND SANITATION PROGRAM: GUIDANCE NOTE Public Disclosure Authorized Approaches to Capital Financing and Cost Recovery Public Disclosure Authorized in Sewerage Schemes Implemented in India: Lessons Learned and Approaches for Future Schemes Public Disclosure Authorized March 2016 Public Disclosure Authorized The Water and Sanitation Program is a multi-donor partnership, part of the World Bank Group’s Water Global Practice, supporting poor people in obtaining affordable, safe, and sustainable access to water and sanitation services. Approaches to Capital Financing and Cost Recovery in Sewerage Schemes Implemented in India: Lessons Learned and Approaches for Future Schemes Acknowledgments The authors gratefully acknowledge the support provided by the Central Public Health and Environmental Engineering Organization, Ministry of Urban Development, Delhi. The team wishes to thank the cities of Hyderabad, Chennai, Bengaluru and Pune for the data and support provided. The team would like to thank Almud Weitz, Regional Team Leader, Water and Sanitation Program – South Asia for her support and encouragement for the study and the report. The team further appreciates the insights and critique provided by our reviewers. Reviewers included Poonam Ahluwalia Khanijo, Raghava Neti and William Kingdom, World Bank, apart from officials from the Ministry of Urban Development. The Task Team Leader for supervising the development of this Guidance Note has been Joseph Ravi Kumar. The research and drafting team comprised Shubhra Jain and Gayathri Ramesh. The responsibility of all errors and omissions rests with the drafting team. 2 www.wsp.org 1 Approaches to Capital Financing and Cost Recovery in Sewerage Schemes Implemented in India: Lessons Learned and Approaches for Future Schemes Contents Abbreviations and Acronyms 3 Executive Summary 4 1. Introduction 10 1.1 Status of Sewage Generation and Treatment in India 10 1.2 Impacts of Untreated Sewage 10 1.3 Efforts to Provide Adequate Sanitation 11 1.4 Key Challenges to Successful Implementation of Sewerage Projects 11 1.5 Study Objective 12 2. The Case of Tamil Nadu 13 2.1 Introduction 13 2.2 Evolution of Sewerage Projects in Tamil Nadu 14 2.2.1 Sewerage Schemes Implemented under NRCP 15 2.2.2 Sewerage Schemes Implemented under TNUDP III 18 3. Review of Capital Financing of Sewerage Schemes Implemented in Tamil Nadu 20 3.1 Scope of Capital Financing Review Study 20 3.2 Study Approach 20 3.3 Project Overview 20 3.4 Financing Sewerage Schemes in Tamil Nadu 22 3.4.1 Financing Capital Expenditure through Public Deposits 24 3.4.2 ULB Focus on Collection of Deposits 27 4. Review of O&M Cost Recovery in Sewerage Schemes 29 4.1 Study Objective and Scope 29 4.2 Study Findings: Options for Cost Recovery 29 4.3 User Fee and Sewer Taxes Major Components of Cost Recovery 31 4.4 Impact of Power Generation from Sludge Reduction in O&M Costs 33 4.4.1 Power Generation from Biogas Digestion at STPs 33 4.4.2 Capital Expenditure and Financial Returns for Biogas Plant 34 4.5 Revenue Generation from Sale of Treated Wastewater 34 5. Conclusion 37 References 39 2 www.wsp.org 1 Approaches to Capital Financing and Cost Recovery in Sewerage Schemes Implemented in India: Lessons Learned and Approaches for Future Schemes Annexes 1 Legislative and Policy Enablers Prevalent in Tamil Nadu 40 2 Case Study on Alandur 41 3 Questionnaires 46 4 Site Visit Reports 56 5 Salient Features of Selected Schemes 64 6 Sewerage Scheme being Implemented though PPP in Thoothukudi 66 7 Municipal Bye-Laws for the Town of Pallavaram 67 8 Pamphlets and Communication Material Used by ULBs 75 9 Cost Estimation Details for HSCs Provided by Karur Municipality 78 List of Tables ES1 Public deposit collection from towns in Tail Nadu for capital financing 8 ES2 Cost recovery approaches adopted by various ULBs 9 1 Level of urbanization in Tamil Nadu 13 2 Status of sanitation in urban areas in Tamil Nadu 13 3 Improvements in urban sanitation in Tamil Nadu achieved between 2001 and 2011 14 4 History of sewerage projects implemented in Tamil Nadu 16 5 Sewerage projects implemented under NRCP 17 6 List of sewerage projects implemented under TNUDP III 18 7 Implementation arrangements under TNUDP III 19 8 Cities selected for capital financing analysis 20 9 Project details in eight Tamil Nadu cities 21 10 Comparison of cost of sewerage schemes implemented under different programs 22 11 Funding sources for sewerage schemes in Tamil Nadu 23 12 Household deposit collection and HSC connection efficiency 25 13 Impact of deposit collection on ULB and debt service burden 26 14 Reduction in annuity on account of pubic deposit collection 26 15 Collection of public deposit at different stages of the project 27 16 Cities included in the study on cost recovery options for sewerage scheme 29 17 Revenue sources to meet O&M expenses in select cities across India 30 18 Mode of allocation of funds towards sewerage schemes 30 19 User fees and O&M met through user fees and sewer tax collection 32 20 User fees required to meet O&M expenses in Tamil Nadu cities 32 21 Potential for power and costs savings from power generation at STPs 33 22 Power generation and savings in power costs at STPs 34 23 Payback period for capital expenditure on power generation 34 24 Industrial tariff levied for fresh water in different cities/states 36 25 Cost recovery options for sewerage schemes 37 A1 Roles and responsibilities of stakeholder organizations 42 A2 Means of finance and component-wise breakdown of project costs 43 A3 Revised initial user charges for underground drainage network 44 List of Figure 1 Share of different funding sources in overall project cost 23 List of Boxes 1 Typical Approach to Determine the Means of Finance 24 2 ULB Efforts for Collection of Public Deposits 28 3 Determining User Fees for Sewerage Projects 31 4 Experience on Wastewater Recycling and Reuse from Indian Cities 35 2 www.wsp.org 3 Approaches to Capital Financing and Cost Recovery in Sewerage Schemes Implemented in India: Lessons Learned and Approaches for Future Schemes Abbreviations and Acronyms ASP Activated Sludge Process kg kilogram BOD Biochemical Oxygen Demand m Meter BOT Build Operate Transfer m3/d cubic meter per day BOOT Build Own Operate Transfer MASP Modified Activated Sludge Process BWSSB Bangalore Water Supply and MBBR Membrane Based Bio Reactor Sewerage Board MBR Membrane Bio-reactor CAPEX capital expenditure mg/l milligram per liter CMA Commisionerate of Municipal MLA Member of Legislative Assembly Administration MLD million liters per day CMWSSB Chennai Metro Water Supply and MoEF Ministry of Environment and Forests Sewerage Board MoUD Ministry of Urban Development COD Chemical Oxygen Demand MP Member of Parliament CPCB Central Pollution Control Board MW Megawatt CPCL Chennai Petroleum Corporation Limited NGO nongovernmental organization CPHEEO Central Public Health and Environmental NRCP National River Conservation Programme Engineering Organization O&M Operation and Maintenance DBFOT Design Build Finance Operate and PPCL Pragati Power Corporation Limited Transfer PPP Public Private Partnership DBOT Design Build Operate and Transfer RO Reverse Osmosis DPR Detailed Project Report SMC Surat Municipal Corporation EA Extended Aeration SPS Sewage Pumping Station EPC Engineering, Procurement and STP Sewage Treatment Plant Construction TMC Thoothukudi Municipal Corporation FAB Fluidized Aerobic Bioreactor TNEB Tamil Nadu Electricity Board GDP Gross Domestic Product TNPCB Tamil Nadu Pollution Control Board GoI Government of India TNUDF Tamil Nadu Urban Development Fund GoTN Government of Tamil Nadu TNUDP Tamil Nadu Urban Development Project HH Households TNUIFSL Tamil Nadu Urban Infrastructure Financial HPEC High Powered Expert Committee Services Limited HSC House Service Connection TSS Total Soluble Solids IRR Internal Rate of Return TWAD Tamil Nadu Water and Drainage Board kL Kiloliter UGD Under Ground Drainage km2 square kilometer UIDSSMT Urban Infrastructure Development kWh kilowatt hour Scheme for Small and Medium Towns JNNURM Jawaharlal Nehru National Urban ULB Urban Local Body Renewal Mission WSP Water and Sanitation Program 2 www.wsp.org 3 Approaches to Capital Financing and Cost Recovery in Sewerage Schemes Implemented in India: Lessons Learned and Approaches for Future Schemes Executive Summary This report aims to highlight some of the successful financial only about 20 percent of sewage generated in urban India is management practices adopted by Urban Local Bodies actually treated before disposal. (ULBs) in India when implementing sewerage schemes. The findings are presented in two parts – the first part of the The Water and Sanitation Program (WSP, 2011) estimated report discusses the approach adopted for capital financing of that the total annual economic impact of inadequate sewerage schemes in the state of Tamil Nadu, and the second sanitation in India amounted to a loss of INR 2.4 trillion part presents the findings from a review of the operational (US$53.8 billion) in 2006, which was equivalent to about 6.4 expenditure and revenue generation of various ULBs across percent of India’s Gross Domestic Product (GDP) in 2006. the country. The aim of the report is to share successful capital financing and cost recovery practices adopted by Several programs and schemes have been implemented to ULBs in India and enable improvement in provisioning address the challenge of inadequate sanitation in India. Efforts of sewerage systems (only where feasible and economically are being made both by the central government and state viable, typically only in larger towns with a population and local governments. While some states lag in providing greater than 50,000) and ensure availability of sufficient sewerage infrastructure (as compared to the national average funds for proper Operation and Maintenance (O&M) of the of <30 percent treatment capacity), others have been schemes implemented. more successful in the same effort.
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