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Strategic Roadmap for Institutional Restructure of Urban Water and Sewerage Services in Orissa

Indo-US Financial Institutions Reform and Expansion Project

September 2006

Contents

Acknowledgements...... 6

Acronyms ...... 7

Executive Summary...... 9

Section 1 ...... 15 1.1 Introduction ...... 15 1.2 Objectives of the Study...... 15 1.3 Study Methodology ...... 15 1.4 Aim of the Report ...... 15

Section 2 ...... 16 2.1 Urbanisation in Orissa...... 16 Chart 1 Population Growth Trend ...... 16 2.2 Class I Towns (100,000 & above)...... 19 2.3 Class II Towns (50,000-99,999)...... 20 2.4 Class III Towns (20,000-49,999)...... 20

Section 3 ...... 22 3.1 Urban Water and Sewerage Sector in Orissa...... 22 3.2 Status of Water Services as per PHEO ...... 25 3.3 Sewerage and Sanitation Services ...... 26 3.4 Institutional Framework in Orissa...... 27

Section 4 ...... 29 4.1 Public Health Engineering Organisation ...... 29 4.2 Financial Review ...... 29 4.3 Operations, Maintenance and Management...... 30 4.4 Income from Water Charges...... 31 4.5 Water Tariffs ...... 33 4.6 Investments Proposed during 2006-2013 ...... 34 4.7 Organisation Review...... 35

Section 5 ...... 37 5.1 Orissa Water Supply and Sewerage Board ...... 37 5.2 Financial Review ...... 38 5.3 Organisational Review...... 40

Section 6 ...... 42 6.1 Urban Water Sector Policy Framework ...... 42

6.2 Water under Indian Constitution ...... 42 6.3 UN Resolution 1977 ...... 42 6.4 The Millennium Development Goals ...... 42 6.5 10th Five Year Plan...... 43 6.6 National Water Policy...... 43 6.7 Orissa State Water Resources Policy ...... 44 6.8 JN National Urban Renewal Mission ...... 46 6.8.1 Mandatory reforms ...... 46 6.9 Orissa Municipal Corporation Act ...... 46 6.10 Orissa Municipal Act 1950...... 47 6.11 Policy Framework for Urban Drinking Water in Orissa ...... 47

Section 7 ...... 49 7.1 Urban Water Sector in - Institutional Framework ...... 49 7.2 Water Sector Reform in India...... 50 7.3 Reform Initiatives in Other States ...... 51 Chart 11 Urban Water Institutional Structure in Karnataka...... 53

Section 8 ...... 55 8.1 Summary of Water Services in Orissa ...... 55 8.2 Strategic Road Map for Orissa...... 55 8.3 Criteria for Selecting an Appropriate Management Structure ...... 56 8.3.1 Operational Autonomy ...... 56 8.3.2 Responsiveness to Consumers...... 57 8.3.3 Efficiency ...... 57 8.3.4 Commercial Viability ...... 57 8.3.5 Capacity to Grow and Transform ...... 57 8.3.6 Ability to Manage Staff ...... 57 8.3.7 Flexibility to Meet Growth Requirements ...... 57 8.3.8 Ability to Manage within Justifiable Budgets ...... 58 8.3.9 Synchronise with the Administration Boundaries ...... 58 8.4 Options for Management Structures ...... 58 8.5 Option A - Integrated Municipal Management (IMM) ...... 59 8.5.1 Strengths of Integrated Municipal Management...... 60 8.5.2 Weaknesses of Integrated Municipal Management ...... 60 8.6 Option B – Dedicated Municipal Management (DMM)...... 61 8.6.1 Additional Strengths of Dedicated Municipal Management...... 62 8.7 Option C - Municipal Water Board ...... 62 8.7.1 Strengths of the Municipal Water Board ...... 63 8.7.2 Weaknesses of the Municipal Water Board...... 64 8.8 Option D – Regional Water Corporation...... 64 8.8.1 Strengths of Regional Water Corporation Structure...... 65 8.8.2 Weaknesses of Regional Water Corporation ...... 66 8.9 Option E – Delegated/Outsourced Management (DOM) ...... 66 8.9.1 Strengths of Delegate Management...... 68 8.9.2 Weaknesses of Delegated Management...... 68

Section 9 ...... 69 9.1 Way Forward...... 69 9.2 Key Issues for Moving Forward ...... 69 9.3 Recommendations...... 70 9.4 Action Plan ...... 70 9.4.1 Short-Term Actions ...... 70 9.4.2 Medium-Term Actions ...... 71

Section 10 ...... 72 References ...... 72

Section 11 ...... 73 Appendices ...... 73

List of Tables Table 1 Population Growth in Orissa State...... 16 Table 2 Urbanisation in Orissa...... 18 Table 3 Orissa State Urban Population...... 19 Table 4 Status of Water Supply in Orissa State...... 22 Table 5 Urban Water Supply Status in Orissa ...... 25 Table 6 Water Supply Status in the Major Cities in Orissa ...... 25 Table 7 Status of Sanitation Facilities in Orissa State...... 26 Table 8 PHEO – Capital Outlays 2004-07 ...... 30 Table 9 Major Investments during 1990-2006 ...... 30 Table 10 PHEO - Operation and Maintenance Outlays 2004-07...... 31 Table 11 PHEO Cost Recovery ...... 32 Table 12 Income from Water Charges...... 33 Table 13 Urban Water and Sewerage Tariffs in Orissa ...... 33 Table 14 Proposed Major Investments during 2006-2013...... 34 Table 15 Staff Status in PHEO...... 35 Table 16 OWSSB - List of Projects Implemented...... 38 Table 17 OWSSB Financial Review ...... 39 Table 18 OWSSB Staff Status...... 41 Table 19 Institutional Structures in Urban Water Sector in India...... 49 Table 20 Institution Structure of Urban Water in Maharashtra State ...... 51 Table 21 Institution Structure of Urban Water in Karnataka State...... 51

List of Charts Chart 1 Population Growth Trend...... 16 Chart 2 Urban Population growth projected trend in Orissa...... 17 Chart 2 Water Supply Status in the Indian States ...... 23 Chart 3 Percentage Urban Households with a Tap as per NSS 2002...... 24 Chart 4 Orissa – Urban Water Institutional Structure ...... 28 Chart 5 Breakup of Management Costs ...... 31 Chart 6 PHEO – Expenditure vs. Income ...... 32 Chart 7 Review of Budgeted Income and Collection...... 33 Chart 8 PHEO Organisation Chart ...... 36 Chart 9 OWSSB Budget Performance Review ...... 38

Chart 10 Urban Water Institutional Structure in Karnataka...... 53 Chart 11 Management Restructure Proposed in the State of Karnataka ...... 54 Chart 12 Integrated Municipal Management...... 59 Chart 13 Dedicated Municipal Management...... 62 Chart 14 Municipal Water Board Management Structure ...... 63 Chart 15 Regional Water Corporation ...... 65 Chart 16 Delegated/Outsourced Management Structure ...... 67

Indo US FIRE (D) Project

Acknowledgements

In writing this report and making recommendations for reforms in the urban water sector in Orissa I have benefited from the experiences of many urban policy experts and managers of water supply systems at the field level. My sincere thanks are due to all of them for their valuable inputs and advise.

On behalf of USAID FIRE (D) Project, I would like to particularly acknowledge the support and encouragement by Mr. N C Vasudevan, IAS, Principal Secretary, Urban Development and Dr. Arun Kumar Panda, IAS, Special Secretary Urban Development in Government of Orissa.

Most of the information on the existing situation of water services in Orissa and the prevailing institutional structure has been collected thanks to the active cooperation of Mr. Dilip Kumar Padhi, Chief Engineer and Mr. Sanjeev Kumar Das, Assistant Chief Engineer in PHEO.

There had been good ground level intellectual and information support from Prof. Ramana (XIMB), Piyush Rout (CMAO) and V R Kalyankar (MJP), and many others who deserve my sincere appreciation.

I hope this effort would enrich the ongoing dialogue and debate on reforms in the urban water sector and provide some guidance to the State of Orissa in its efforts to bring about improvements in this area in the state.

Comments and suggestions are welcome and I humbly request that those who have any suggestion can contact me at the following address either by email or by snail mail.

Anand K Jalakam Project Development Specialist USAID Fire (D) Project E8/14, Vasant Vihar New Delhi – 110057 Email: [email protected]

Orissa Water Sector Reform 6 Indo US FIRE (D) Project

Acronyms

ADB Asian Development Bank BCC City Corporation BDA Bhubaneswar Development Authority BPL Below Poverty Line BWSSB Bangalore Water Supply and Sewerage Board CA Constitution Amendment CBO Community Based Organisation CE Chief Engineer CMAO City Managers Association of Orissa CMC City Municipal Council CPHEEO Central Public Health and Environmental Engineering Organisation CUM Cubic Meter DMM Dedicated Municipal Management DOM Delegated/Outsourced Management EE Executive Engineer FIRE Project Financial Institution Reform and Expansion Project FY Financial Year GoI Government of India GoO Government of Orissa IAS Indian Administrative Service iDeCK Infrastructure Development Corporation (Karnataka) Limited IMM Integrated Municipal Management JBIC Japanese Bank for International Cooperation JNNURM Jawaharlal Nehru National Urban Renewal Mission KL Kilo Litre KUIDFC Karnataka Urban Infrastructure Development and Finance Corporation KUWASIP Karnataka Urban Water Supply Improvement Project KUWSDB Karnataka Urban Water Supply & Drainage Board LPCD Litres Per Capita Per Day MDG Millennium Development Goals MJP Maharashtra Jeevan Pradheekaran MWB Municipal Water Board NA Notified Area NGO Non Governmental Organisation NRW Non Revenue Water NSS National Sample Survey O&M Operations and Maintenance OMC Act Orissa Municipal Corporations Act OWSSB Orissa Water Supply and Sewerage Board PHEO Public Health Engineering Organisation

Orissa Water Sector Reform 7 Indo US FIRE (D) Project

SCs Scheduled Castes SHG Self Help Groups STs Scheduled Tribes ToR Terms of Reference UDD Urban Development Department UfW Un-accounted for Water UGD Under Ground Drainage ULB Urban Local Body USAID United States Agency for International Development WATSAN Water and Sanitation WB World Bank

Orissa Water Sector Reform 8 Indo US FIRE (D) Project

Executive Summary

Introduction Indo-USAID Fire (D-III) Project is supporting the Government of Orissa (GoO) in pursuing a multi-track programme of technical assistance to improve management and delivery of urban services and enhance the financial management and sustainability of the Urban Local Bodies (ULBs.) One of the areas identified for support was to draw up a State-Level Roadmap for Urban Water Sector reform. The main objective for instituting this reform is to devolve responsibility for water services to the ULBs in tune with the 74th Amendment of the Constitution.

Urbanisation in Orissa Orissa State with a population of 36.8 million (2001 census) has a very low level of urbanization, with only 15% of its population (5.5 million) living in towns and cities. There are totally 103 urban local bodies, out which 2 are Municipal Corporations, 33 are Municipalities and the remaining 68 are Notified Area Councils (NACs). Slightly less than half (44%) of the urban population live in 7 cities including Bhubaneswar, which is the capital of the State.

Water Services in Orissa As per the National Sample Survey 2002 only 55.4% of urban households in the state have a tap in the premises. Provision of sewerage services is even poorer in the State and only two cities, Bhubaneswar and , are partially covered.

Institutional Framework for Water Services The overall administrative responsibility for water supply lies with the Department of Housing and Urban Development headed by a Cabinet Minister supported by the Principal Secretary. The Public Health Engineering Organisation (PHEO), a government department, has been the functional agency primarily responsible for the provision of urban and rural water services. Until 1991, PHEO was responsible for all functions related to providing water and sewerage services, i.e., planning, resource mobilization, infrastructure development, operations and maintenance of the water services under the Housing & Urban Development.

During 1991, based on the advice of institutional funding agencies, the Government, through an Act, setup the Orissa Water Supply and Sewerage Board (OWSSB). The Board at present is the primary developer of infrastructure relating to water supply and sewerage in urban areas. Consequent to setting up of OWSSB the responsibility of PHEO has been limited to operations and maintenance including revenue collection.

During the year 2003, the Government notified the Orissa Municipal Corporation Ordinance in tune with the 74th Constitutional Amendment for devolving responsibility for local governance to the city corporations. According to this legislation all activities related to planning, development and management of water and sewerage services now rests with the city corporations. Decentralization in practice is yet to be effected.

Public Health Engineering Organisation As present, PHEO manages the water and sewerage services in the 103 local bodies and two census towns except the Notified Area Committee, which is being

Orissa Water Sector Reform 9 Indo US FIRE (D) Project managed by the Paradeep Port Trust. The activities of PHEO broadly comprise the following:

 Planning water and sewerage services  Construction of minor capital works of water and sewerage services  Operation, maintenance and management of the services which includes:  Water supply schemes in 103 ULBs and 2 census towns  Maintenance of over 18,000 hand pumps  Billing and collection of water charges  Maintenance of water and sanitation facilities in government buildings  Monitoring and quality control.

The total budget for 2006-07 for PHEO is Rs.152 crore; Rs.58.5 crore (as Plan outlay) towards capital account primarily for extending services for improving coverage and efficiency; and Rs. 93.5 cr (as Non-Plan outlay) towards operations and maintenance of the services.

Operations and Management During 2006-07, PHEO budgeted to spend about Rs.93.5 crore on operation, maintenance and management of water and sewerage services in the state. Nearly half of the management costs go towards electricity charges indicating significant over usage of energy considering the location of cities next to large rivers. The other important element is the low management cost for wages, which is just 15%. While this level of wages is very encouraging when compared to many other states, it needs to be ascertained whether these budgeted numbers are accurate as many state water utilities charge the wage bill in different categories. The fact of a low wage bill also places greater emphasis on the unavoidable electricity consumption charges.

One of the main problems in PHEO’s management is the very low percentage of cost recovery (30%). The main reasons for the low recovery percentage are low coverage, low levels of tariffs and infrequent tariff revision, and high physical and commercial losses in the operations. There is no proper system of cost accounts maintained by the department, and unit costs of supply, even at a macro level, have not been calculated, let alone determining the cost of services city-wise or area-wise, and for different sections of the population.

Water Tariffs Historically tariffs are low and there has been no regular periodic revision. Decisions are taken on an ad hoc basis without any reference to actual cost of supply. Tariffs were revised in 2005 after a gap of nine years. In 1996, the Government ordered that there shall be an automatic increase of water tariffs at the rate of 10% every year and the structure of tariffs and the annual rate of increase would be reviewed every 5 years. Now that the State has a very reform minded administration, tariffs were again revised during July 2006.

Organisation Review PHEO’s urban water services wing is headed by Chief Engineer (PH Urban) and supported by 4 regional Superintending Engineers and 13 divisional Executive Engineers apart from the internal office supporting staff. The entire urban wing

Orissa Water Sector Reform 10 Indo US FIRE (D) Project comprises 7280 staff persons. The ratio of staff per 1000 connections of 36 is very high when compared to the Asian average of 6 per 1000 connections.

Orissa Water Supply and Sewerage Board GoO set up the Orissa Water Supply and Sewerage Board (OWSSB) through the Orissa Act 12 of 1991. For all practical purposes, it is an organization that is parallel to the PHEO with almost the same responsibilities. Some very important duties and functions that the Act entrusts to the Board are preparation of state plans, review and fixing of water tariffs, establishment of state standards on water supply and sewerage services, appraisal of all water supply and sewerage schemes in the state, assessment of manpower and training in the state, etc.

None of these functions is being performed by the Board at present. It only acts as an agency that executes some new capital projects. Consequently, the Board is heavily under utilized. The Board has so far implemented 10 water supply schemes.

The Board, for all practical purposes, depends on the Government for all decisions, which delays the implementation of its projects at all stages, including disbursement of loan installments. Implementation of relatively bigger water supply schemes in the state practically started with the establishment of the Board. But the Board was not strengthened enough in terms of capacity building in keeping with the requirements to handle the schemes. Project execution necessitates committed personnel. The Board, however, is not free to appoint/post committed persons, since it draws its technical personnel from PHEO, and finance and administrative officers from concerned State departments.

Financial management in the Board requires immediate improvement for managing the high-level investments being planned in the immediate future. GoO is planning to entrust the development of sewerage schemes proposed for funding by 12th Finance Commission, Japanese Bank for International Cooperation (JBIC) and JNNURM.

Policy Framework for Urban Drinking Water in Orissa Evolving from various global, national and state policy frameworks discussed above it is proposed to formulate a State Urban Drinking Water Policy for Orissa. The critical components of the policy would necessarily be to provide adequate and equitable water services, access to the urban poor, accountable intuitional framework, decentralization, community participation, tariff reform, capacity enhancement, focus on O&M, outsourcing, and economic regulation.

Strategic Road Map for Orissa Based on the analysis and experience of different reform initiatives in different states in India the key issues for Orissa state would be the separation of the roles for policy, regulation, planning, implementation and management of water services. The accountability and extent of functional autonomy coupled with full cost recovery and financial sustainability of services are crucial for achieving the objectives of improving the services.

Options for Management Structures There are at least five potential options that the ULBs can use to structure their future water service organizations:

Orissa Water Sector Reform 11 Indo US FIRE (D) Project

(A) Integrated Municipal Management (IMM) - ULBs can operate their water distribution services as an integral part of their core functions (B) Dedicated Municipal Management (DMM) – ULBS would institute a dedicated water department with ring-fenced budgets (C) Municipal Water Board (MWB) – Municipal Water Boards manage the service provision with staff deputed from PHEO and/or OWSSB (D) Regional Water Utilities – In place of the present PHEO, there could be two regional public utilities providing management services on a simple performance based contract to the ULBs (E) Delegated/Outsourced Management (DOM) – water services could be delegated or outsourced on a performance based management contract to a public or private company.

Option A - Integrated Municipal Management (IMM) In this case, the municipal engineering department would be responsible for all the functions of water and sewerage services including planning, finance, construction, management, operations and maintenance. In some municipalities the employees are responsible for all other civic services like solid waste management, roads, street lighting, etc. Responsibility is based on a defined geographic area like a few wards. Generally the revenue collection functions are separate. They are managed by dedicated revenue staff that collect property taxes, water taxes and water charges. (Ex: Gadag and Ramanagaram in Karnataka; and Srikalahasti and Kurnool in Andhra Pradesh.)

Option B – Dedicated Municipal Management (DMM) A variation on the integrated administration model is the separate or ring-fenced water department within the ULB. This option is typically seen in metropolitan cities (Mumbai, Pune), which have grown sufficiently large to justify dedicated water departments with the sole responsibility of managing the water and sewerage services. All accounts and funds pertaining to water services are ring-fenced and separately maintained, and in effect a small water corporation or board is managed within the municipal governance structure.

Option C - Municipal Water Board The Municipal Water Board (MWB) is set up with a management structure much like a corporation or board, but all assets are owned by the ULB (Chennai, Bangalore, Hyderabad and Delhi). The MWB is governed by a board of directors that manages the functions of water service provision. Employees are initially deputed from the ULB and PHEO and then absorbed into the MWB cadre statutes that regulate public sector companies or public corporations. They work for the MWB rather than the ULB. The MWB is generally governed by a legislative act and a set of bye-laws that governs its functions and its employees. It has its own set of personnel policies and its own internal regulations.

Option D – Regional Water Corporation Under this option, the state department, PHEO, could be divided into autonomous Regional Water Corporations (RWCs) of appropriate number (two or maximum three) and size and these RWCs would enter into performance based contracts with the ULBs. While these are public sector entities, which are susceptible to the general ills of public corporations, they would provide relatively better services subject to the principles of sound delegated management contracts.

Orissa Water Sector Reform 12 Indo US FIRE (D) Project

Option E – Delegated/Outsourced Management (DOM) The ULB can appoint a private/public or joint sector company, contractor, CBO or NGO, or any other legally constituted entity that has the capacity to provide the services, to act as a water service agency (WSA) on its behalf. In the contract model, the assets of the water service (pipes, equipment, and infrastructure) remain the property of the ULB, and the WSA is required by contract to maintain them. Under a management contract certain ULB staff may be deputed to the management control of the private operator or contractor.

Way Forward This section presents some key issues that can be inferred from the discussion from previous sections and gives suggestions for ways to move forward. And finally, a short- and medium-term action plan for next steps is suggested.

Key Issues for Moving Forward ULBs will need assistance in making the transition from the present situation to taking full responsibility for service provision. Relationships among all the key stakeholders are critically important and necessary. Government orders supported by a legal framework will be necessary. Developing a Bhubaneswar Water Board or a Regional Water Corporation would be a first step, but ensuring an effective service provider is the real challenge under the limitation of applicability of service rules to the present staff. The specific strategy for transfer of water services to ULBs will need to be developed and sustained. Structured efforts are required to make it work. Quick decisions by the State are crucial for implementation, as delays would derail the process. Required legal and regulatory changes would need to be initiated and put in place to support the reform. Specific attention is required for selection and deployment of staff to the new institutional structure, and for deputation and eventual absorption into the new accountable structure.

Recommendations From among the five management structures discussed in the previous section, the appropriate option for Orissa would need to be chosen. It is suggested that a consultative workshop be organized to discuss the options with various stakeholders and a consensus decision be evolved based on the likelihood of acceptability by the PHEO staff. A detailed business plan for the chosen option should be developed and approved by the State for implementation. The following steps describe the phased implementation of this reform process:  Initiate budget reform in PHEO so as to improve clarity in costs for capital and operations.  Introduce ring-fenced budgeting so that capital and operating costs can be clearly allocated to each ULB for improving transparency and equity in allocation of resources.  Develop performance based budgeting followed by performance based contracting with each ULB.  On gaining clarity in costs and income, introduce a pilot regional water corporation for the capital region of Bhubaneswar. This corporation would provide management services on a simple performance based management contract. This could again be done on a phased approach as follows: o Ring-fenced engineering and project management unit within PHEO for Bhubaneswar or/and Cuttack.

Orissa Water Sector Reform 13 Indo US FIRE (D) Project

o Simple performance based management contract with respective city corporations. o Provide functional autonomy by converting into a Municipal Water Board. o On reaching reasonable financial strength, corporatize into a company format. Action Plan If the Government of Orissa finds this “issues and options report” acceptable and wants to move the process along, a number of specific short-and medium-term actions should take place. Short-Term Actions  Discuss the issues and options proposed in this report in a consultative workshop, which could be organized by USAID during the middle to end of September 2006 through the City Managers’ Association of Orissa (CMAO). Invite all key stakeholders, citizen associations, representatives, mayors, chair persons, etc. and record the suggestions and objections on the suggested options.  Constitute a high-level steering committee for instituting the reforms.  The steering committee could be chaired by the Chief Secretary with membership from Finance, Law, with the Housing & Urban Development Department being the member convener. The steering committee would meet as and when required based on the advice of the member convener.  A working group could be constituted under the chairmanship of the Principal Secretary, HUDD, with the Special Secretary, HUDD, as convener and membership from Chief Engineer (PH Urban) and Member Secretary OWSSB and Municipal Commissioners, Bhubaneswar and Cuttack. The working group shall meet at least once a month to review progress and finalize the preferred option.  Incorporate the proceedings of the workshop and finalize the preferred option.  USAID would provide technical support for preparing the business plan for the chosen option.  The steering committee would approve the business plan and seek the approval of GoO. Medium-Term Actions  Develop a program for the transition process, with enough detail on the scope of work including detailed legal framework.  Develop terms of reference for required technical assistance; this could be explored to be sourced from JBIC by synchronizing the large investments being planned for sewerage schemes.  Draw up and implement an awareness and consensus building program involving all stakeholders, citizen groups, and the media over the next six months to build a political, administrative and public acceptability for reforms. This would be through a series of consultations at various levels of stakeholders and articles, etc. in the local newspapers and interviews on TV and other media.  Begin implementation of the transition process.

Orissa Water Sector Reform 14 Indo US FIRE (D) Project

Orissa Water Sector Reform – Strategic Roadmap for Institutional Restructure of Urban Water and Sewerage Services

Section 1

1.1 Introduction

Indo-USAID Fire (D-III) Project is supporting the Government of Orissa (GoO) in pursuing a multi-track program of technical assistance to improve management and delivery of urban services and enhance the financial management and sustainability of the Urban Local Bodies (ULBs.) One of the areas that was identified for support was to draw up a State-Level Roadmap for Urban Water Sector reform. The main objective for instituting this reform is to devolve the responsibility for water services to the ULBs in tune with the 74th Amendment of the Constitution.

The FIRE (D) team visited the state and on the basis of several discussions at the State and city level agreed on a framework of support to the State. It was agreed that a study would be undertaken of the present organisational setup and service levels, to identify areas needing improvement, and suggest possible options for decentralization of the services.

1.2 Objectives of the Study

The major objectives of the study are to develop and institute:  Strategy for reform for improving water and sewerage services  Legislative reform to comply with the provisions of 74th Constitutional Amendment  Institutional restructure plan including enabling framework for outsourcing the services.

1.3 Study Methodology

The methodology adopted in the study is through focused discussions with senior management of respective stakeholder organisations, collection of historical data and analysis. This report is based on data made available at the macro level. It provides adequate information for taking decisions on a possible course of action. However, before taking on implementation of the reforms and restructuring, a detailed analysis and financial due-diligence would have to be undertaken.

1.4 Aim of the Report

This report analyzing the urban water scenario in Orissa provides the contextual relevance for initiating the institutional reform of the urban water sector and suggests some of the available options for improving the services. The report initially provides a summary view of the existing institutional status in Orissa including the operational and financial performance of the water sector; reviews the policy support basis for undertaking sector reforms; provides a glimpse of reform initiatives in other Indian States; suggests different possible options for reforming the institutional structure duly evaluating the strengths and weaknesses of the proposed options, and finally recommends a way forward in the form of an immediate and medium-term actions required.

Orissa Water Sector Reform 15 Indo US FIRE (D) Project

Section 2

2.1 Urbanisation in Orissa

Orissa State with a population of 36.8 million (2001 census) has a very low level of urbanization, with only 15% of its population (5.5 million) living in towns and cities.

The rate of economic growth in the 90’s in Orissa (4.3%) has been low in comparison with the national average (6.7%.), The agricultural sector accounts for 32% of the GSDP and 62% of total employment. Around 17.5 million people live below the poverty line predominantly concentrated in the western and southern districts of the state.

The population growth in the state in the past three decades, including the growth of urban population, is depicted in the Table 1 and Chart 1 below.

Table 1 Population Growth in Orissa State Year Total Urban % 1981 26.4 3.1 11.74% 1991 31.7 4.2 13.25% 2001 36.8 5.5 14.95%

Chart 1 Population Growth Trend

45

40

35

30

25

20

15 Population in Milliions Population 10

5

0 1981 1991 2001

Total Population Urban Population

It can be seen above that the rate of growth of urban population is significantly less than the overall growth rate of state confirming low urbanisation charecteric of the State.

Orissa Water Sector Reform 16 Indo US FIRE (D) Project

As per Census of India1, the urban population in Orissa is expected to reach the level of 100lakhs by 20026 as shown in the following chart. Chart 2 Urban Population growth projected trend in Orissa

12000

10000

8000

6000

4000

2000

0

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Population in 1000s

Out of the thirty districts in the state only five have more than 20% urban population. with an urban population of 5,517,238 as per 2001 census. The district wise urban population is shown in Table2 in the next page. The low level of urbanisation of the state at 15% as against the national average of 27.7% can ben seen from Table 2 below.

Out of the thirty districts in the state only five have more than 20% urban population. with an urban population of 5,517,238 as per 2001 census. The district-wise urban population is shown in Table 2 in the next page. The low level of urbanisation of the state at 15% as against the national average of 27.7% can be seen from Table 2 below.

1 Population projections for India and States 2001-2026, May 2006

Orissa Water Sector Reform 17 Indo US FIRE (D) Project

Table 2 Urbanisation in Orissa Parameter Details Total state population 2001 census (million) 36.8 Total urban population 2001 census (million) 5.5 Share of urban population (%) 15 Districts with more than 20% urban population 5 Districts with 10% - 20% urban population 10 Districts with urban population less than 10% 15

A comparative study2 among the districts of Orissa reveals Khurda to be the most urbanised district in the State. This is due to location of Bhubaneswar city, which is the state capital and administrative centre with people mostly engaged in non- agricultural activities. The Bhubaneswar M. Corp. itself has 100 percent urban population (648,032), which is quite high as compared to the proportion of the total population of the district. Past records also reflect that Bhubaneswar town has had a very high growth rate of population since 1971-81 (107.80%) and 1981-91 (87.74%). This is obvious due to the migration from all parts of the State to the capital in search of jobs and better education.

The districts of (4.3%) and (4.5%) have the least percentage of urbanisation as per 2001 census records. Along the coastal belt, only and districts have more than 10% urban population, though has the highest population in the whole of Orissa. The major urban centre in the district is which is a Class I town with an urban population of 307,792. Puri city, the headquarters of the same district, which is famous as a place of pilgrimage, contributes an urban population of only 13.6% in 2001.

2 Orissa Urban Population: An Over View, Siddhartha Patnaik, Orissa Over View November 2004.

Orissa Water Sector Reform 18 Indo US FIRE (D) Project

Table 3 Orissa State Urban Population3 Orissa State Urban Population

Code No. State District Total population Urban population % of urban population 1991 2001 1991 2001 1991 2001 1 2 3 4 7 8 9 10 Orissa 31,659,736 36,804,660 4,234,983 5,517,238 13.38% 14.99% 1 1,207,172 1,346,336 80,547 103,541 6.67% 7.69% 2 442,154 509,716 159,328 185,885 36.03% 36.47% 3 Sambalpur 813,589 935,613 205,458 253,778 25.25% 27.12% 4 234,238 274,108 17,275 20,096 7.37% 7.33% 5 Sundargarh 1,573,617 1,830,673 525,005 629,194 33.36% 34.37% 6 1,337,026 1,561,990 166,874 213,023 12.48% 13.64% 7 Mayurbhanj 1,884,580 2,223,456 116,249 155,700 6.17% 7.00% 8 Baleshwar 1,696,583 2,024,508 154,152 220,368 9.09% 10.89% 9 1,105,834 1,333,749 109,841 141,071 9.93% 10.58% 10 1,149,501 1,302,005 63,235 74137 5.50% 5.69% 11 Jagatsinghapur 933,789 1,057,629 76,092 104,449 8.15% 9.88% 12 Cuttack 2,053,192 2,341,094 485,861 641,130 23.66% 27.39% 13 Jajapur 1,386,177 1,624,341 53,431 72,980 3.85% 4.49% 14 947,870 1,066,878 78,112 92,914 8.24% 8.71% 15 Anugul 961,037 1,140,003 110,123 158,416 11.46% 13.90% 16 Nayagarh 782,647 864,516 26,244 37,066 3.35% 4.29% 17 1,502,014 1,877,395 516,281 805,706 34.37% 42.92% 18 Puri 1,305,365 1,502,682 163,479 204,028 12.52% 13.58% 19 Ganjam 2,704,056 3,160,635 423,753 556,359 15.67% 17.60% 20 Gajapati 454,708 518,837 46,769 52,888 10.29% 10.19% 21 Kandhamal 546,281 648,201 35,662 44,094 6.53% 6.80% 22 Baudh 317,622 373,372 15,458 18,025 4.87% 4.83% 23 Sonapur 476,815 541,835 34,830 40,068 7.30% 7.39% 24 1,230,938 1,337,194 129,420 154,323 10.51% 11.54% 25 469,482 530,690 25,765 30,038 5.49% 5.66% 26 Kalahandi 1,130,903 1,335,494 78,163 100,219 6.91% 7.50% 27 713,984 831,109 89,326 115,407 12.51% 13.89% 28 Nabarangapur 846,659 1,025,766 42,117 59,270 4.97% 5.78% 29 1,029,577 1,180,637 171,705 198,449 16.68% 16.81% 30 422,326 504,198 34,428 34,616 8.15% 6.87%

The number of towns in Orissa has grown by almost one and a half times since 1971. It is interesting to note that more than 50% of the towns in Orissa have a population of below 20,000. One of the major reasons for such a low urban population distribution is because of the fact that Orissa has an agrarian base and even today about 62% of the population is dependent on agriculture for their livelihood. The decadal growth of urban population from 1981-1991 was high due to the economic potential from creation of jobs, better civic amenities and education facilities, and emergence of some new corporate sectors in the major cities and towns of Orissa. The distribution of the urbanised population in terms of the various classes of towns in Orissa is as follows.

2.2 Class I Towns (100,000 & above)

Among Class I towns, Bhubaneswar and Cuttack have the maximum population. , which stands third in the list of Class I towns, has undergone a tremendous increase in the growth rate of 87.02% due to establishment of Rourkela

3 Census of India 2001

Orissa Water Sector Reform 19 Indo US FIRE (D) Project

Steel Plant in 1971-81. Subsequently, there had been a decrease in growth rate to 23.58% during 1981-91 as the level of migration has either stabilized or decreased.

2.3 Class II Towns (50,000-99,999)

The decadal growth rate in the Class II towns in the State has been falling. The major Class II towns are Bhadrak, Bolangir, , , , Jharsuguda, , Bargarh, and . It has been observed that there is a continuous migration of population from these Class II towns to Class I towns for jobs and education. Bhubaneswar, being the state capital, all the institutes and corporate sectors want to locate there. There is also a natural tendency for people to migrate from smaller towns to the capital.

2.4 Class III Towns (20,000-49,999)

The majority of Class III towns in Orissa are the result of rural development. In the course of time, some industrial activities have given a boost to employment and economy generation developing the rural areas into urban centers. The major Class III towns of the State are Rayagada, Paradip, Dhenkanal, , Keonjhar, Rajgangapur and Parlakhemund.

There are totally 103 urban local bodies, out which 2 are Municipal Corporations, 33 are Municipalities, and remaining 68 are Notified Area Councils (NACs). Slightly less than half (44%) of the urban population lives in 7 cities including Bhubaneswar, which is the capital of the State. The state map (Figure 1) is provided in the next page.

Orissa Water Sector Reform 20 Indo US FIRE (D) Project

N W E ORISSA MAP Tiringi S an kh # . J H A R K H A N D Balisankara R. Kaurmunda l R Bahalda S M oe (Roads, River & Urban Areas) K th Scale - 1: 1,000,000 Mandira ou Kutra Rreservoir Rourkela M S Rairangpur NAC Jamada # M Bijatola Saraskana # Bisra Subdega Bargaon # Bisoi W E S T B E N G A L Tangarpali Lefripada Rajgangpur Lathikata # Sundargarh M Kusumi # Barbil M Kuliana Sundargarh Sundargarh M Suliapada Bamra # Champua Raruan Bangiriposi Baripada M # Hemgiri Kirimira Koira Joda Jashipur Baripada Laikera Samakhunta B Jharsuguda M Sukruli u NAC d # Gurundia h Morada a Jaleswar NAC # Kolabira Jhumpura b # NAC a Rasgovindpur # Mayurbhanj l B a # n Jharsuguda a Khunta i Karanjia g t a S NAC a Brajarajnagar M Lahunipara u r R b # Kuchinda a Betanati a Bonaigarh Keonjhar . r Jharsuguda n Barsahi n Bhogarai i a r Rengali R Saharpada Basta e Patna Gopabandhunagar k Lakhanpur Banspal Keonjhar M . . h Ambabhona Udala a R R # i Baliapal . NAC d Udala NAC Hirakud n # Rreservoir Sambalpur la Nilgiri M # Sambalpur M Jamankira a Balesore Deogarh M ThakurmundaS Nilgiri NAC Burla NAC # Reamal # # # Bhatli # Rengali Ghatgaon Kaptipada Bargarh M Atabira Keonjhar Rreservoir OupadaBalasore Bargarh Deogarh Anandpur Remuna LEGEND : # Sambalpur Soro NAC Pallahara District Name : Bhadrak Bargarh Maneswar Jujumara # Tileibani NAC Bahanaga Block Name : Bhadrak Barpalli NAC Khaira Sohella # Hatadihi Soro Town Name : Bhadrak M # Naktideul Harichandanpur Bheden Simulia Urban Aea Barpali Basudevpur NAC (Population wise) Rairakhole NAC Bonth # Bijepur Ghasipura # Kanhia Bhadrak M # 5000 - 25000 Jharbandh Ulunda # Basudevpur Rairakhole Kankadahad NAC NAC Danagadi Bhadrak # 25001 - 50000 # Dunguripali # Sukinda Korei Padmapur (Rajbarsambar) M Vyasanagar M # 50001 - 100000 Sonepur Kishorenagar Chendipada # # Tihidi GaIsilet Binika NAC # Talcher # Bhandaripokhari 100001 - 200000 Road NAC Paikamal Agalpur B Bhadrak # ra Parajanga NAC h Bhuban # Dhamnagar # 200001 - 1000000 ma Jajpur M ni Kamakhyanagar Sonepur M Boudhgarh NAC R. Rasulpur # Nowapara Sonepur # # AngulBanarpal Athamallik # NAC Dhenkanal Jajpur Dasrathpur State Border Tarabha NAC Khaprakhol NAC Bolangir M Athamallik NAC Gandia Jajpur District Border # # Odapada Dharmasala # # Dhenkanal Binjharpur Rajakanika Puintala Dhenkanal M Rajnagar National Highway Patnagarh Bolangir Kantamal Boudh Angul Badachana Bari Aul Tarava # Hindol PattamundaiNAC State Highway Belpara Tangi Chowdwar M Derabasi # Railway Komna Mahanga Kendrapara Khajuripada Athagarh NAC Kendrapara M Deogaon Harbhanga # Block Boundary Athagarh Salipur # NAC Bolangir NAC Narsinghpur # Kendrapara Tureikela # Phulbani # Cuttack M River/Reservoir Nuapada Gania TigiriaCuttack M Baranga Marshaghai Gudvella A Banki NAC # Nischintakoili Urban Area Phiringia HAN Baramba Cuttack Mahakalapara C H H A T I S H G A R H AD Muribahal I R Dampada# Sadar Garadpur Khariar IVE Paradeep R Banki) Bhubaneswar M Raghunathpur NAC Tirtol M Boden Titilagarh NAC Karlamunda Banki # Biridi # Daspalla Khandapara NAC Bhubaneswar M Kujanga # Khandapara # Bhapur Khariar # Balianta # Titilagarh Chakapad Jatni . Jagatsinghpur M Rampur Tikabali Khurda M R Bolagarh NAC Nuagaon Begunia Jatani M Kantapara # a # y Nayagarh NAC # Jagatsinghpur Narla G.Udayagiri NAC l Khurda Balipatna u # Niali # # k i Nayagarh Kesinga 47402 Khurda Naugaon Ersama h Nayagarh NAC Balliguda Phulbani s # G Udayagiri u Nimapara NAC Sinapalli JaganathprasadR Pipili Ballikuda Delanga Nimapara Golamunda Ranpur Devi R. Raikia Tumudibandha Odagaon Kanas Kakatpur Bhanjanagar NAC Tangi SatyabadiPuri Raigarh . Gop Astaranga Bhawanipatna # Belguntha NAC R i NAC Umarkote av Junagarh NAC Bhawanipatna M rg Banpur a # # Daringabadi Belguntha h Puri MPuri Dharmagarh # K. Kotgarh Buguda NAC NAC B Chandahandi # Lanjigarh # Chilika # Junagarh Sorada NAC NAC # Lake Brahmagiri Muniguda # Polasara NAC Sorada # Umarkote NAC NAC Khalikote NAC Koksara AskaGanjam Kodala # Jharigaon Kalahandi # # Kalampur . R Aska NAC

i # # Kabisuryanagar NAC Krushnaprasad l V Chandrapur Th Rampur a an b sh l a ad Sergarh # # Nawarangpur g Rayagadaha Hinjili NAC Purusottampur a a r a # NAC N R Papadahandi Jaipatna Bissam . NAC g Dabugaon Sanakhemundi Ganjam Cuttack Hingilicut Ganjam NAC n Kalyansinghpur NAC # Gudari # Chatrapur NAC e # Tentulikhunti Indravati Gudari NAC B # pur Digapahandi Berhampur M atra . Kasipur hh R Nabarangapur M Padmapur C i Kosagumunda f at Kolnara # v Nowarangpur # NAC # ra Rayagada M Nuagada Gopalpur NAC o nd Nandahandi R_Udayagiri # Rengaliguda I NAC Ramanguda # # NAC Gajapati Chikiti y Rayagada # Kotpad Boriguma a Gunpur Laxmipur B

Jeypore Dasmanthpur Gumma Kashinagar Kundra Bandhugaon NAC

# Parlakhemundi M Jeypore #M Koraput NAC Narayanpatna Kasinagar Koraput # (Gosani) # Boipariguda Upper Koraput Kolab # Semiliguda Lamptaput Sunabeda Figure 1 NAC Mathili . R b la o Nandapur K Khairput Malkangiri Pottangi Jalaput Malkangiri# NAC Malkangir Kudumuluguma Korukunda Podia Balimela NAC #

Kalimela

Orissa Water Sector Reform 21 Indo US FIRE (D) Project

Section 3

3.1 Urban Water and Sewerage Sector in Orissa

The status of water services in Orissa state as per the Census of India 2001 is shown in the following table.

Table 4 Status of Water Supply in Orissa State4

Source of drinking Total Location water households % Urban % Total Total 7,870,127 100 1,087,248 100 Tap 687,284 8.73 499,114 45.91 Hand pump 2,240,821 28.47 117,999 10.85 Tube well 2,123,509 26.98 169,229 15.56 Well 2,247,230 28.55 274,146 25.21 Tank, Pond, Lake 146,271 1.86 5233 0.48 River, Canal 208,173 2.65 8357 0.77 Spring 173,380 2.2 5459 0.5 Any other 43,459 0.55 7711 0.71 Within Premises Total 1,494,093 100 566,334 100 Tap 386,425 25.86 336,173 59.36 Hand pump 217,226 14.54 22,896 4.04 Tube well 205,779 13.77 39,966 7.06 Well 677,824 45.37 166,428 29.39 Tank, Pond, Lake 5,194 0.35 259 0.05 River, Canal 0 0 0 0 Spring 0 0 0 0 Any other 1,645 0.11 612 0.11 Near Premises Total 3,952,297 100 294,153 100 Tap 206,143 5.22 105,525 35.87 Hand pump 1,486,048 37.6 57,994 19.72 Tube well 1,154,847 29.22 64,973 22.09 Well 934,119 23.63 59,862 20.35 Tank, Pond, Lake 46,190 1.17 1,118 0.38 River, Canal 63,291 1.6 2,405 0.82 Spring 51,019 1.29 1,217 0.41 Any other 10,640 0.27 1,059 0.36 Away Total 2,423,737 100 226,761 100 Tap 94,716 3.91 57,416 25.32 Hand pump 537,547 22.18 37,109 16.36 Tube well 762,883 31.48 64,290 28.35 Well 635,287 26.21 47,856 21.1 Tank, Pond, Lake 94,887 3.91 3,856 1.7 River, Canal 144,882 5.98 5,952 2.62 Spring 122,361 5.05 4,242 1.87 Any other 31,174 1.29 6,040 2.66

4 Census of India 2001

Orissa Water Sector Reform 22 Indo US FIRE (D) Project

Orissa has been at the lower end of population coverage with respect to water supply facilities. As per the 2001 census, out of the 7,870,127 total households in the State only 1,494,093 households have a drinking water source within the premises of the house. This works out to 19% coverage. Orissa ranks at 33 (third from lowest) in the country.

Chart 3 Water Supply Status in the Indian States5

Percentate holds with water within premises

Manipur Dadra & Nagar Haveli Orissa Chhattisgarh Mizoram Jharkhand Meghalaya Tripura Nagaland Madhya Pradesh Tamil Nadu Andhra Pradesh Jammu & Kashmir Karnataka West Bengal Arunachal Pradesh Himachal Pradesh Rajasthan Assam Bihar Daman & Diu Haryana Uttaranchal Sikkim Uttar Pradesh Gujarat Andaman & Nicobar Maharashtra Pondicherry Goa Kerala Delhi Chandigarh Lakshadweep Punjab India

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

Percentage of households with water within the premises

However, out of the 19% households with a drinking water source within the premises, about half (8.73%) get drinking water through a tap and the remaining households depend upon groundwater or untreated surface water. While the overall status of the entire state is dismal, the situation in urban households is better. The percentage of households with a tap within the premises is about 45.91%.

This status is also confirmed from the National Sample Survey 2002, which indicates that 55.4% of urban households in the State have a tap in the premises. The

5 Census of India 2001

Orissa Water Sector Reform 23 Indo US FIRE (D) Project comparison of status of water supply in the urban households as per the NSS 2003 is shown in the following chart.

Chart 4 Percentage Urban Households with a Tap as per NSS 20026

Lakshadweep Bihar Assam Kerala Uttar Pradesh Orissa D&N Haveli Jharkhand Nagaland West Bengal Mizoram Tripura Manipur Madhya Pradesh Chhattisgarh Haryana Andhra Pradesh Punjab Uttaranchal Rajasthan Tamil Nadu Goa Delhi Karnataka Meghalaya Arunachal Pradesh Maharashtra Gujarat A&N Islands Jammu & Kashmir Himachal Pradesh Daman & Diu Chandigarh Pondicherry Sikkim India

0 10 20 30 40 50 60 70 80 90 100

Percentage of urban houesholds with a tap

It can be seen above in the NSS figures that in Orissa 55.4% of urban households have access to piped water supply. However, according to the National Family Health Survey, 1999, only 21% of urban households have private taps or house service connections. This implies that delivery to the last point is lagging far behind.

6 National Sample Survey 2002, Government of India.

Orissa Water Sector Reform 24 Indo US FIRE (D) Project

3.2 Status of Water Services as per PHEO

The water supply status at the end of March 2006, according to the data provided by PHEO, is shown in the following table.

Table 5 Urban Water Supply Status in Orissa7

Parameter Status Number of Urban Local Bodies 103 Total urban population (2001 Census) (lakhs) 55 Total urban house holds (2001 Census) ‘000s 1,087 Total number of wards 1757 Wards covered by water supply 1059 Wards partially covered with water supply 497 Wards not covered with water supply 201 Population covered by piped water supply (lakhs) 39 Proportion of coverage (%) 63 Installed capacity of water supply mld 666 Average production mld 640 Average rate of supply lpcd 116 House service connections ‘000s 186 Stand posts ‘000s 19 Hand pumps/tube wells 18

The detailed status of water services in the ULBs is provided at Appendix 1. The status of water supply in the major cities is shown in the following table.

Table 6 Water Supply Status in the Major Cities in Orissa8

ULB Population Demand Production 2001 2006 mld mld LPCD Cuttack 535 615 92 115 187 Bhubaneswar 647 804 121 206 256 Puri 157 179 27 21 117 Berhampur 308 349 21 33 95 Sambalpur 154 170 10 21 123 Rourkela (CT) 224 254 16 27 105

An analysis of the above indicates the following status:

7 PHEO Website. 8 Sectoral Report on Urban Water Supply and Sanitation, PHEO, June 2006.

Orissa Water Sector Reform 25 Indo US FIRE (D) Project

 While the 2001 Census of India indicated coverage of nearly 46% of households with a tap within the premises, PHEO records the number of house service connections as only 17% of households. This implies that most of the water sources are privately owned or developed by citizen societies and not provided by PHEO.  This could also indicate the possibility of large numbers of illegal connections.  Considering the socio-economic status of the State and its urban population, and providing for 120 lpcd for non-poor and 50 lpcd for poor, the supply at the consumer end needed would be 450 mld. As against this, the production capacity is about 666 mld indicating a surplus of 166 mld. Had it not been for the high level of physical distribution losses (over 40%) the present production capacity would have been adequate. But the present deficit is around 100 mld. This points to the need for devoting more attention to improvement in the distribution system, rather than in capacity augmentation.  There is a skewed coverage among the ULBs with much of the resources being concentrated in Bhubaneswar city. While the level of supply in Bhubaneswar is 256 lpcd, more than double the State average, the coverage in several ULBs is far lower than the average service level in the State.  It also indicates that access to networks and efficiency of the system is very low.  The state has reasonably good water resources and surplus electricity, but the low level of drinking water coverage and service levels clearly points to the need for reform in the sector, and the need to strive for greater efficiency and accountability to the citizen. Restructuring of the institutional framework and capacity building would be required for this.

3.3 Sewerage and Sanitation Services

Compared to water supply, the provision of sewerage services is even worse in the State. Only the Cities Bhubaneswar and Cuttack are partially covered. The status of sanitation as per the Census of India is shown below.

Table 7 Status of Sanitation Facilities in Orissa State9

Census of India 2001 - Distribution Of Households By Availability Sanitation facilities in Orissa State

Total Urban Sanitation facility households % households % Total number of households 7,870,127 100.00 1,087,248 100 Households having bathroom facility within the house 827,124 10.51 532,117 48.94 Type of Latrine Within The House Total 7,870,127 100 1,087,248 100 Pit Latrine 312,527 3.97 103,055 9.48 Water Closet 691,403 8.79 468,113 43.05 Other Latrine 168,277 2.14 77,767 7.15 No Latrine 6,697,920 85.11 438,313 40.31 Type of Drainage Connectivity For Waste Water Outlet Total 7,870,127 100 1,087,248 100 Closed Drainage 386,215 4.91 213,238 19.61 Open Drainage 1,246,340 15.84 411,813 37.88 No Drainage 6,237,572 79.26 462,197 42.51

9 Census of India 2001

Orissa Water Sector Reform 26 Indo US FIRE (D) Project

3.4 Institutional Framework in Orissa

The institutional framework for providing water services is slightly complex in Orissa state. The organisation structure is shown in Chart 3 in the next page.

The overall administrative responsibility for water supply lies with the Department of Housing and Urban Development headed by a Cabinet Minister supported by the Principal Secretary. The Public Health Engineering Organisation (PHEO), a government department, has been the functional agency primarily responsible for the provision of urban and rural water services. The state water & sewerage sector has two vertical service divisions one each for urban and rural water services. Until 1991, PHEO was responsible for all functions related to providing water and sewerage services, i.e., planning, resource mobilization, infrastructure development, operations and maintenance of the water services under the Housing & Urban Development. Consequently, upon the creation of the Rural Development Department (RDD) in the State, the Rural Water Supply & Sanitation (RWSS) Organisation was also created, which is responsible for water and sanitation services in the rural areas of the State.

During 1991, under the advice of institutional funding agencies, the Government, through an Act, set up the Orissa Water Supply and Sewerage Board (OWSSB). The Board at present is the primary developer of infrastructure relating to water supply and sewerage in the State’s urban areas. Consequent to setting up OWSSB the responsibility of PHEO has been limited to operations and maintenance, including revenue collection.

Orissa Water Sector Reform 27 Indo US FIRE (D) Project

Chart 5 Orissa – Urban Water Institutional Structure

Minister, HUUD & Chairman, OWSSB

Principal Secretary Vice-Chairman, HUUD OWSSB

Special Secretary, Director, Chief Engineer-cum- HUUD Municipal Admn Member Secretary, OWSSB

Chief, Engineer, PH (Urban)

During the year 2003, the Government notified the Orissa Municipal Corporation Ordinance in tune with the 74th Constitutional Amendment for devolving the responsibility for local governance to the city corporations. According to this legislation all activities related to planning, development and management of water and sewerage services now rests with the city corporations. Decentralization in practice, however, is yet to be effected.

In line with the provisions of the Ordinance, the Government is now contemplating to decentralize water and sewerage services and devolve their responsibility to the ULBs. It is also proposed to explore the option for outsourcing of services with the objective of improving overall efficiency of service provision and compliance with the Municipal and Municipal Corporation Acts.

The performance of PHEO and OWSSB is further discussed in detail in the next section.

Orissa Water Sector Reform 28 Indo US FIRE (D) Project

Section 4

4.1 Public Health Engineering Organisation

As present, PHEO manages water and sewerage services in the 103 local bodies and two census towns except the Paradeep Notified Area Committee, which is being managed by the Paradeep Port Trust. The activities of PHEO broadly comprise the following:

 Planning water and sewerage services  Construction of minor capital works of water and sewerage services  Operation, maintenance and management of the services which includes:  Water supply schemes in 103 ULBs and 2 census towns  Maintenance of over 18,000 hand pumps  Billing and collection of water charges  Maintenance of water and sanitation facilities in government buildings  Monitoring and quality control.

Besides this, PHEO is in charge of implementation of the following capital outlay programs in the State:

 State Plan comprising of:  Implementation of water supply schemes funded by the State Government  Central Sponsored Plan (AUWSP) for ULBs with less than 20,000 population  Water supply schemes under RLTAP funded by GoI  Water supply schemes under PMGY funded by GoI  PMNRF Grant program – water supply schemes under drought mitigation program  SRC Grant – restoration of water supply services affected by drought, flood and cyclone.

4.2 Financial Review

The total budget for 2006-07 for PHEO is Rs.152 crore; Rs.58.5 crore (as Plan outlay) towards capital account primarily for extending services for improving coverage and efficiency; and Rs. 93.5 crore (as Non-Plan outlay towards operations and maintenance of the services.

The capital outlays in the past 3 years are presented in the following table:

Orissa Water Sector Reform 29 Indo US FIRE (D) Project

Table 8 PHEO – Capital Outlays 2004-0710

Head of Account 2004-05 2005-06 2006-07

Water Supply Rs. lakhs Rs. lakhs Rs.Lakhs State sector HUD Department -negotiated loan 486.74 1164.20 1072.20 JNNURM state share GA Department 28.93 136.63 25.00 Special Component Plan negotiated loan - - 250.32 Tribal Area sub-plan negotiated loan 147.32 299.17 389.84 Capacity development of PHEO - - 0.03 Sub-total state sector 662.99 1600.00 1737.39 District Sector HUD Department 132.18 436.97 1187.93 Special Component Plan - - 170.63 Tribal Area sub-plan 1384.37 1431.15 1072.44 Sub-total district sector 1516.55 1868.12 2431.00 Total state plan for water supply 2179.54 3468.12 4168.39 Sewerage and Sanitation HUD Department -negotiated loan 50.83 153.40 160.00 GA Department 24.54 88.78 25.00 External aided projects 1500.00 Sub-total for sewerage 75.37 242.18 1685.00 Total state plan for water and sewerage 2254.91 3710.30 5853.39

The major investments made during the period 1990-2006 are presented below.

Table 9 Major Investments during 1990-200611

Program of funding No. of Investment towns Rs. crores HUDCO Loans 9 206 Accelerated Urban Water Supply Program (AUWSP) 34 67 Revised Long Term Action Plan (RLTAP) 9 39 Total 52 312

4.3 Operations, Maintenance and Management

During 2006-07, PHEO budgeted to spend about Rs.93.5 crore on operation, maintenance and management of water and sewerage services in the state. The outlays on these Non-Plan expenses during the past 3 years are shown below.

10 Orissa State Budgets. 11 Sectoral Report on Urban Water and Sanitation, PHEO, June 2006.

Orissa Water Sector Reform 30 Indo US FIRE (D) Project

Table 10 PHEO - Operation and Maintenance Outlays 2004-07

Head of Account 2004-05 2005-06 2006-07 Non Plan Rs. lakhs Rs. lakhs Rs.Lakhs 2215- Water supply and Sanitation 01 water supply 7772.34 8944.06 9059.00 02 Sewerage and sanitation 67.17 100.00 300.00 Total 7839.51 9044.06 9359.00

Breakup Wages 1478.01 1486.50 1376.16 Electricity 4065.20 3800.02 4000.00 Materials and supplies 1882.44 2657.54 2682.84 Maintenance of critical wate supply 346.69 1000.00 1000.00 Maintenance of urban sewerage systems 67.17 100.00 300.00 Total 7839.51 9044.06 9359.00

The analysis of management costs shows the following distribution.

Chart 6 Breakup of Management Costs

3%

15%

11%

29%

42%

Wages Electricity Consumables Emergency Sewerage maintenance

It can be seen above that nearly half of the management costs go towards electricity charges indicating significant over usage of energy considering the location of Orissa cities next to large rivers. This is unlike many southern India cities where pumping of over 500 – 1000m is required. Also these electricity costs are not based on actual consumption, since no proper account is maintained of electricity consumption. Payments are being made on an ad hoc basis.

The other important element is the low management cost for wages, which is just 15%. While this level of wages is very encouraging and appreciable when compared to many other states, it needs to be ascertained whether these budgeted numbers are accurate, as many state water utilities charge their wage bills in different categories. The fact of a low wage bill also confirms unavoidable electricity consumption charges.

4.4 Income from Water Charges

Orissa Water Sector Reform 31 Indo US FIRE (D) Project

One of the main problems in PHEO’s management is the very low percentage of cost recovery. There is no proper system of cost accounting maintained by the department. Unit costs of supply, even at a macro level have not been calculated, let alone determining the cost of service city- wise or area-wise, and for different sections of the population. The historical trend of expenditure and income is presented below. Table 11 PHEO Cost Recovery12 Rupees Crores Financial Year Expenditure Income Recovery Rs. Cr Rs. Cr % 2001-02 60.21 17.82 30% 2002-03 66.13 21.72 33% 2003-04 68.03 22.34 33% 2004-05 94.94 23.09 24% 2005-06 98.96 27.21 27% Chart 7 PHEO – Expenditure vs. Income

100.00 90.00 R 80.00 s 70.00

60.00 C r 50.00 o 40.00 r 30.00 e 20.00 s 10.00 0.00 2001-02 2002-03 2003-04 2004-05 2005-06 Financial Year

Expenditure Income

It can be seen above that cost recovery levels in the past are under 30% and that too these are based on direct operating costs and do not include depreciation and debt service charges. The main reasons for the low recovery percentage are low coverage, low levels of tariffs and infrequent tariff revision, and high physical and commercial losses in the operations.

There was a budget provision of Rs.35.30 crore towards water taxes during 2005-06 against which collection was only Rs.27.62 crore as per preliminary accounts. The demand against ULBs and government institutions for Rs.7.20 crore and Rs.11.91 crore, respectively, is submitted for verification from the concerned agency. The

12 Sectoral Report on Urban Water and Sanitation, PHEO, June 2006.

Orissa Water Sector Reform 32 Indo US FIRE (D) Project historical trend of revenue collection as against budgeted income for the last 5 years is presented below.

Table 12 Income from Water Charges Financial Year Budget Target Collection Percentage Rs. Cr Rs. Cr % 2001-02 18.00 17.82 99.01% 2002-03 29.50 21.72 73.62% 2003-04 32.45 22.34 68.85% 2004-05 33.67 23.09 68.58% 2005-06 35.30 27.21 77.07%

Chart 8 Review of Budgeted Income and Collection

40.00 35.00 30.00 25.00 20.00 15.00 Rs. Crores 10.00 5.00 0.00 2001-02 2002-03 2003-04 2004-05 2005-06 Financial Year

Budget Target Collection

4.5 Water Tariffs

Water tariffs in Orissa state are fixed by the State Government as per the Orissa Water Works (Urban Local Bodies) Rules, 1980. The tariff is worked out by PHEO and proposals are sent to the Housing and Urban Development Department. Changes in water tariff require the approval of the Cabinet. Neither PHEO nor the ULBs have any autonomy on tariff fixation. There also has been no regular periodic revision of tariffs. Decisions are on an ad hoc basis without any reference to actual cost of supply. Tariffs were revised in 2005 after a gap of nine years. In 1996, the Government ordered that there shall be automatic increases in the water tariff at an annual rate of 10% and the tariff structure and the annual rate of increase would be reviewed every 5 years. Now that the state has a very reform minded administration, tariffs were again revised during July 2006. The tariffs prevailing at present in the State are shown in the following table.

Table 13 Urban Water and Sewerage Tariffs in Orissa

Orissa Water Sector Reform 33 Indo US FIRE (D) Project

Category Unit Rate in Rupees effective from Rate Aug-96 Nov-05 Jul-06 Water Supply charges Consumption charges Domestic metered Rs/Kl 1.50 2.54 Domestic un-metered up to 2 taps Rs/month 30.00 50.00 For extra taps each Rs/month/tap 10.00 17.33 Non Domestic Rs/Kl 3.50 8.00 8.40 Commercial Rs/Kl 3.50 8.00 8.40 Industrial Rs/Kl 3.00 8.00 8.40 Public stand posts Rs/month 30.00 100.00 105.00 Connection charges Domestic Rs/Connection 3000.00 3000.00 Private apartments up to 25 flats Rs/Connection 10000.00 10000.00 26 to 50 flats Rs/Connection 20000.00 20000.00 More than 50 flats Rs/Connection 30000.00 30000.00 Institutional Rs/Connection 4000.00 5000.00 5000.00 Industrial/Commercial Rs/Connection 5000.00 6000.00 6000.00 Public stand post Rs/Connection 3000.00 3000.00

Sewerage charges Service charges Domestic Rs/month 20.00 20.00 Institutional up to 4 WC Rs/month 100.00 100.00 Institutional more than 4 WC Rs/month 200.00 200.00 Domestic sewage from private apartments, commercial and industrial establishments 4" sewer Rs/month 200.00 200.00 6" sewer Rs/month 500.00 500.00 8" sewer Rs/month 800.00 800.00 Connection charges Domestic Rs/Connection 1500.00 1500.00 Private apartments up to 25 flats Rs/Connection 5000.00 5000.00 26 to 50 flats Rs/Connection 10000.00 10000.00 More than 50 flats Rs/Connection 15000.00 15000.00 Institutional Rs/Connection 2000.00 2500.00 2500.00 Industrial/Commercial Rs/Connection 2500.00 3500.00 3500.00

4.6 Investments Proposed during 2006-2013

Based on growth trends, the urban population is expected to reach a level of 10m by the year 2021. PHEO has made preliminary assessments on the infrastructure requirements of urban areas to meet future demand, as well as the environmental needs to provide a sustainable standard of living to the citizens. The anticipated investments are detailed below. Table 14 Proposed Major Investments during 2006-2013

No. of Investment Rs. Crores Program of funding towns Water Supply Sewerage JN National Urban Renewal Mission (JnNURM) 2 755 500 Revised Long Term Action Plan (RLTAP) 4 72 255 UIDSSMT 29 1079 1902 Total 35 1906 2657

Orissa Water Sector Reform 34 Indo US FIRE (D) Project

4.7 Organisation Review

PHEO is a state government organisation operating under various state rules. The operation and maintenance of water and sewerage works is regulated by “The Orissa Water Works (Urban Local Bodies) Rules, 1980” (amended from time to time). The employees and staff are governed as per the “Orissa Engineering Service Rules 1941”, “Orissa State Civil Service Rules”, etc. At the apex of the administrative and governing responsibility is the Housing and Urban Development Department. The Housing Department is headed by a Cabinet Minister in charge of Works & Housing programs. Urban development is headed by a separate Cabinet Minister, both supported by the Principle Secretary, Housing and Urban Development Department.

The department has separate vertical functional divisions for urban and rural water and sanitation services. For the purpose of this report, the review is undertaken on the division dealing with urban water services only. The urban water services wing is headed by a Chief Engineer (PH Urban) supported by 4 regional Superintending Engineers and 13 divisional Executive Engineers apart from the internal office supporting staff. The entire urban wing comprise the following personnel.

Table 15 Staff Status in PHEO

Staff status in PHEO Category Staff Engineers 269 Ministerial 659 Daily wages field staff 3359 Temporary field staff 2993 Total 7280 Performance indicators Number Staff per 1000 connections 36 Average number of staff per ULB 71 Ratio of Engineers to Ministerial 2 Ratio of Engineers to field staff 24

The ratio of staff per 1000 connections of 36 is very high when compared to the Asian average of 6 per 1000 connections. Bangalore Water Supply and Sewerage Board (BWSSB) operates with about 2500 staff servicing about 500,000 connections, which works out to a ratio of 5, and the staff deals with both water and sewerage services, including development and management. BWSSB in the past decade has introduced administrative reforms and out sourced most of the operational services pertaining to water and sewage treatment plants, leak repairs, annual maintenance of mechanical and electrical equipments, etc. and has optimized management costs significantly.

It must be recognized that the PHEO operations are spread over the entire state, among 103 ULBs, and hence it would require a relatively greater number of staff than a city utility like BWSSB. Even so, a ratio of 36 seems to be very high,

Orissa Water Sector Reform 35 Indo US FIRE (D) Project particularly considering there is also staff in the Orissa Water and Sewerage Board, which has been entrusted with development works. At the same time, the wage bill discussed in the previous section shows that wages are only about 15% of the operating costs. This conflicting situation needs to be further analysed and the correct position needs to be established. This is an area where there is an immediate need for rationalization.

The organisation structure of PHEO is shown below.

Chart 9 PHEO Organisation Chart

Chief Engineer, P.H. Urban

S.E. S.E. S.E.P.H,Circle S.E.P.H,Circle S.E.P.H,Circle S.E.P.H,Circle (P & M) (Design) Cuttack Berhampur Sambalpur Bhubaneswar

A.C.E. A.C.E. E.E. (P.H.) (P & D) (D)

E.E.P.H E.E.P.H E.E.P.H E.E.P.H E.E.P.H E.E.P.H E.E.P.H Division-I Division-II Division Division I Division II Division III Division Cuttack Cuttack Baripada Bhubaneswar Bhubaneswar Bhubaneswar Puri

E.E.P.H E.E.P.H E.E.P.H E.E.P.H E.E.P.H E.E.P.H Division Division Division Division Division Division Berhampur Bhanjanagar Koraput Sambalpur Bolangir Rourkela

Orissa Water Sector Reform 36 Indo US FIRE (D) Project

Section 5

5.1 Orissa Water Supply and Sewerage Board

During 1991, based on funding stipulations when the State proposed capital schemes for institutional finance from Housing and Urban Development Corporation (HUDCO), GoO set up the Orissa Water Supply and Sewerage Board (OWSSB) through the Orissa Act 12 of 1991. The copy of the act is attached at Annexure 2. The Board was set up with the following management structure:

(a) Minister, Urban Development, as Chairman (b) The Vice Chairman of the Board to be appointed by Government (c) Additional Secretary, Finance-cum-Director, Institutional Finance as ex-officio member (d) Director of Municipal Administration, ex-officio member (e) Chairmen of Municipalities of three Revenue Divisions in the State to be nominated by the State Government as ex-officio members (f) Two non-official members to be nominated by the State Government (g) Two technical members to be nominated by the State Government (h) A person in the rank of Chief Engineer of Public Health Engineering to be appointed by the State Government as Member Secretary.

As per the Act, the duties and functions of the Board included all necessary services in regard to water supply, sewerage and sanitation to the State Government and Local Bodies and on request to private institutions and individuals. It is meant to perform the duties and functions, which are being performed by the PHEO (as may be specified by the State Government).

For all practical purposes, it is a parallel organization to PHEO with almost the same responsibilities. Some very important duties and functions that are entrusted to the Board as per the Act are preparation of draft state plans, review and fixing of water tariff, establishment of state standards on water supply and sewerage services, appraisal of all water supply and sewerage schemes in the state, assessment of manpower and training in the state, etc., which are hitherto being done by the PHEO.

None of these functions, however, is currently being performed by the Board. The Board only acts as an agency executing some new capital projects as entrusted to it by the HUDD from time to time. In other words, though the anticipated activities of the Board, as per the Act, are as important as (or even more than) those performed by the PHEO, hardly any of these responsibilities are being managed at present. Consequently, the Board is heavily under utilized.

During 1993, GoO instituted ‘The Orissa Water Supply and Sewerage Board Regulations, 1992, for the functioning of the Board, including setting up of various committees for recruitment, purchases, tenders, etc. GoO also instituted the OWSSB Rules, 1992, in 1994. But the byelaws have not yet been notified. The present Rules and Regulations are not comprehensive and are grossly inadequate to run the day- to-day activities of the Board. This shortcoming is further intensified by the absence of byelaws.

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The Board has so far implemented 10 water supply schemes as shown in the following table. Table 16 OWSSB - List of Projects Implemented Water Supply Projects executed by Orissa Water Supply & Sewerage Board

Estimated cost Population Design Population Total capacity of Source of Water Sl. City (Rs.in lakhs) 2001 (in lakhs) system (in mld) Supply 1 2 3 4 6 8 9 1 Bhubaneswar 5571.00 647302 17.00 115 Naraj Barrage 2 Cuttack 2856.98 535139 7.00 139 Tube well 3 Kendrapara 1283.87 41404 1.59 27 River Luna 4 Jajpur Road 505.89 40736 0.74 4 Tube well 5 Sambalpur 3545.31 161200 4.30 49 6 Jeypore 1619.34 74500 1.97 32 Kolab Reservoir 7 Rourkela 3396.28 200000 4.00 55 River Brahmani 8 Angul 489.50 38022 0.81 14 Raniguda Tank 9 Titilagarh 1360.00 30251 0.45 6 River Tel 10 Talcher 100.00 34984 0.60 4 River Brahmani Total 20728.17 1803538 38.46 445

5.2 Financial Review

There appears to no proper system of financial planning in the Board. Each year there have been major shortfalls in capital expenditure as compared to budgeted as can be seen from the chart below. Chart 10 OWSSB Budget Performance Review

9000 8000 R 7000 s 6000 l 5000 a 4000 k 3000 h s 2000 1000 0 2001-02 2002-03 2003-04 2004-05 BudgetFinancialAcutal Year

The financials of OWSSB are detailed in the following table.

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Table 17 OWSSB Financial Review13

2001-02 2002-03 2003-04 2004-05 2005-06 Head of Account Actuals Actuals Actuals Actuals Budget 1 2 3 4 5 6 Receipts All number Rs. Lakhs Surplus carried forward 980.14 719.36 653.00 516.85 466.47 Grants and contributions from GoO 1070.88 1361.00 1370.28 1142.00 830.00 Deposit works 300.00 153.00 GoI - NRCD program 167.00 350.00 2443.66 Hudco Loan 422.58 767.64 Revenue from tenders and interest 14.00 17.06 32.00 23.00 10.00 Total receipts 2787.60 3018.06 2222.28 2031.85 3750.13

Expenditure Pay, Allowances, travel 140.10 160.32 158.96 150.95 139.35 Administration and misc 43.25 38.26 60.15 64.32 65.91 Capital expenditure Water supply 602.00 917.50 664.31 800.00 850.00 Sewerage 50.61 5.27 215.95 500.00 2500.00 Tools and plants 0.77 5.51 Survey and investigation 1.13 0.55 0.11 0.15 Extraordinary charges Refund of loan 53.11 Repayment of loan 522.90 390.38 291.00 Payment of interest 408.06 249.62 309.00 50.00 Gurantee commission 151.02 Total expenditure 1917.94 1816.36 1705.43 1565.38 3555.41 Investments in securities 869.66 1201.70 516.85 466.47 194.72

It can be seen from the above that while OWSSB has been receiving funds for capital development, expenditure has been significantly less. The primary reasons for this under performance are:  The Board, for all practical purposes depends on the Government for all decisions, which delays the implementation of projects at all stages, including disbursement of loan installments.  Implementation of relatively bigger water supply schemes in the State practically started with the establishment of the Board. But the Board was not strengthened enough in terms of capacity building in keeping with the requirement to handle the schemes.  Project execution necessitates committed personnel. The Board, however, is not free to appoint/post identified committed persons, since it draws its technical personnel from PHEO, and finance and administrative officers from concerned State departments.

It is said that in some years the loans received from financial institutions were returned as unspent balances even though the commitment charges were paid. On the other hand, there have been instances when OWSSB could not avail of agreed loan installments for various projects because of the following:

13 OWSSB Budget extract.

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 The Board executed most of the works with HUDCO loan assistance and the support of State guarantees. Though the State initially indicated its guarantee commitment at the planning stage, there was significant time lost for the actual guarantee to be in place resulting in delays in implementation.  The history of repayment of loans by the State has also caused some delays in further release of loans, resulting in delays in implementation of some of the projects.

Financial management in the Board requires immediate improvement for managing high-level investments being planned in the immediate future. GoO is planning to entrust the development of sewerage schemes proposed for funding by the 12th Finance Commission, Japanese Bank for International Cooperation (JBIC) and JNNURM. The level of investments would be over Rs.150 crore per year and the Board needs to immediately plan for deploying the right level of project implementation staff and qualified key financial managers. The Board also needs to initiate measures to improve managerial autonomy and authority in the areas of procurement, contract award, project management and cash flow management.

5.3 Organisational Review

A review of the Board Act indicates that the Member Secretary, who is the Chief Executive Officer, does not possess the required authority to take decisions for the normal functioning of the Board. When the Board was created it was expected that it would have the necessary powers to act as an autonomous body to implement capital schemes. However, one finds that OWSSB has significantly less authority in decision-making even when compared to that of PHEO. The provisions in the Act are very rudimentary defeating the very purpose of functional autonomy and resulting in very low accountability. While the Board can be compared to the Tamilnadu Water and Drainage Board (TWAD) in terms of functional responsibilities, the TWAD Board Act provides for much superior functional management structure, autonomy and accountability.

The Board has so far appointed 9 Junior Engineers and the entire remaining staff is on deputation from PHEO and other state agencies. The annual expenses on salaries are about Rs.2.5 crore. Normally for this level of salaries, OWSSB should be operating a minimum capital program of Rs. 30 crore per year vs. capital expenses last year of around Rs. 15 crore. This indicates a high level of overstaffing in the organization.

OSWWB manages procurement by purchase and tender committees. However, powers of approval rests mostly with the State Government and hence decision- making some times is very slow and time consuming affecting the implementation of projects. For example, procurement of civil works valued at Rs. 1 crore for Cuttack Sewerage Ph II has taken over 1.5 years to decide resulting in loss of time and cost overruns. While the works are now complete, the Board could not hand over the completed assets, as there are no clear protocols on the transfer of infrastructure assets created.

The Board had earlier hired consultants for preparation of an organisational improvement study, but the recommendations were never implemented.

Orissa Water Sector Reform 40 Indo US FIRE (D) Project

The staff position in the Board is shown in the following table. Table 18 OWSSB Staff Status Category Number of Staff Sanction in Place Engineers 57 33 Ministerial 65 53 Subtotal 122 86 DLR staff 107 Grand total 193

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Section 6

6.1 Urban Water Sector Policy Framework

The policy framework governing urban water and sewerage services originates from the Constitution of India and as part of the Government of India’s commitment towards several United Nations policies or agreements. These are further elaborated by the National Water Policy and specific state level policies. All these converge with the decentralisation of services consequent to the 74th Amendment of Constitution.

6.2 Water under Indian Constitution

The Seventh Schedule of the Constitution of India allocates the responsibilities between Centre and state into three categories as per the List I, Union List, the List II, State List and the List III, Concurrent List. ‘Water’ is a matter included in Entry 17 of the State List and hence is allocated as a State subject and responsibility.

Entry 17 List II – State List Water, that is to say, water supply, irrigation and canals, drainage and embankments, water storage and water power are subject to the provisions of Entry 56 of List I.

With the Constitution (Seventy-Fourth Amendment) Act, 1992, Article 243W, Powers, Authority and Responsibilities of Municipalities, etc., endowed the municipalities with the responsibility for the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule of the Constitution. The Twelfth Schedule lists the various responsibilities of municipalities among which Item 5 pertains to Water Supply for domestic, industrial and commercial purposes and Item 6 pertains to public health, sanitation conservancy and solid waste management.

6.3 UN Resolution 1977

India was a signatory to the UN Resolution passed at the UN Water Conference in 1977 as under:

“All people, whatever their stage of development and their social and economic conditions, have the right to have access to drinking water in quantum and of a quality equal to their basic needs.”

Thus the right to access to drinking water is fundamental to life and there is a duty on the State under Article 21 of the Indian Constitution to provide clean drinking water to its citizens.

6.4 The Millennium Development Goals

At the international level of policy making, the Millennium Development Goals (MDGs) commit the international community to an expanded vision of development, one that vigorously promotes human development as the key to sustaining social and economic progress in all countries, and recognizes the importance of creating a global partnership for development. The Goals have been commonly accepted as a

Orissa Water Sector Reform 42 Indo US FIRE (D) Project policy framework for measuring development progress and, in 2000, the member states of the United Nations unanimously adopted the Millennium Declaration with these goals in mind. Goal 7 of the MDGs resolves among other things to: • Halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation.

6.5 10th Five Year Plan

Government of India’s Tenth Five Year Plan provides the basis and approach towards institutional reform in the Urban Water Sector. The relevant portions of the Tenth Plan in the present context are extracted hereunder.

“6.2.3 Provision of basic amenities will continue to be among the core activities of the ULBs. The efficient performance of these responsibilities requires proper institutional structure, unambiguous decentralisation of powers, adequacy of resources, support of the State Governments and their entities, and a concerted effort to build up capabilities in the various sections of the ULB machinery. During the Tenth Plan, some key areas of water supply and sanitation, urban transport, alleviation of urban poverty, the housing needs of slum-dwellers, and reforms in the urban sector with a view to strengthening the institutional and resource base of ULBs will have to be taken up for special attention.”

“6.2.6 Within this overall perspective, the Tenth Plan envisages completing the task at hand, namely, 100 per cent coverage of rural and urban populations with safe drinking water as per the stipulated norms and standards on a sustainable basis. However, the focus should not only be on the investment requirements to augment supplies or install additional systems in sanitation and water supply. Instead, greater attention must be paid to the critical issues of institutional restructuring, managerial improvement, better and more equitable service to citizens who must have a greater degree of participation. Tenth Plan must also focus on achieving sustainability of the sector through the adoption of adequate measures in operation and management (O & M), the financial health of the utilities through efficiency of operations and levy of user charges, and conservation and augmentation of water sources. In view of the 73rd and 74th Constitutional Amendments, the task of providing and managing water supply and sanitation cannot be separated from the issue of functional and financial autonomy and strengthening of capacity in both rural and urban local bodies. External assistance, involvement of the private sector, and institutional/market finance are necessary to augment resources and to encourage/participatory and innovative management practices.”

6.6 National Water Policy

Government of India issued a National Water Policy in 2002, which includes some relevant provisions to a pro-poor urban water and sanitation policy. With respect to drinking water, the policy specifically states that “adequate safe drinking water should be provided to the entire population both in urban and in rural areas.” With respect to participatory approaches, the policy advocates that users of services, in addition to government agencies, be involved in various aspects of planning, design,

Orissa Water Sector Reform 43 Indo US FIRE (D) Project development and management of water resource schemes, and that “necessary legal and institutional changes should be made at various levels for this purpose”. The Policy while allocating highest priority for drinking water, stresses that the Institutional Arrangements should be such that ‘maintenance aspect’ is given importance equal or even more than that of new constructions. In line with the National Water Policy, some states like Karnataka and Maharashtra have instituted State Policies and the extract of the Karnataka Urban Drinking Water Policy is shown in the following page.

6.7 Orissa State Water Resources Policy

With the advent of the National Water Policy, Orissa State framed a water resources policy to provide impetus to focus actions towards efficient management of water resources and sustaining the environment. The stated objectives of the policy are: i. Development of water resources available within the category of utilizable resources to the maximum possible extent for economic development, especially by efficient use of water for agriculture. ii. Maximum economic benefits through judicious conductive use of both surface and groundwater. iii. Judicious allocation of water resources to different sectors with drinking water occupying top-priority in order to satisfy the basic needs of the people. iv. Promotion of equity, social justice and balanced regional development. Special efforts should be made to extend the benefits of water use primarily by extending irrigation facilities to economically backward areas and chronically drought prone areas. v. Provision of adequate water for drinking and industrial use. vi. Provision of flood protection and drainage facilities. vii. Regulation of land use in flood and drainage prone areas. viii. Maintenance of water quality to internationally acceptable standards. ix. Optimization of economic benefits by multi-purpose use of water for hydropower generation. x. Preservation and enhancement of fisheries and wild life. xi. Provision of social justice and adequate rehabilitation measures for persons displaced or adversely affected by project construction so that project- affected persons are as well or better off than that of their previous situation. xii. Planning process and mechanisms should aim at resolution of conflicts between users within and between inter-state river basins. xiii. Promotion of citizen participation in all aspects of water planning and management. xiv. Handing over of operation and maintenance of irrigation systems to the users in due course. xv. Economic, financial and physical susceptibility through effective operation, maintenance and management, and also based on the principle that the beneficiaries pay for the services provided. xvi. Observance of safety standards in respect of storage dams and other water-related structures.

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Extract of Karnataka Urban Water Policy - Institutional Arrangements Government of Karnataka: The Government of Karnataka will continue to be responsible for: • Policy formulation • Ensuring provision of the bulk of the resources required for capacity creation • Regulation, monitoring and evaluation of the efficiency of operations, including prescribing reporting requirements, procurement procedures, etc. • Setting minimal service standards • Encouraging the use of public private partnerships as well as private sector participation to achieve the sector goals • Promotion of the economic and commercial viability of water supply systems and the exploitation of economies of scale and scope by appropriate aggregation options • Institution of necessary incentives for urban local bodies and other service providers to implement sector reforms • Ensuring co-ordination and collaboration among the various agencies both at the policy and operational level through the establishment of appropriate committees and agencies.

Urban Local Bodies (ULBs): In accordance with the principle enshrined in Article 243(W) of the Constitution of India read with the Twelfth Schedule, ULBs will be responsible for water supply and sewerage services from water catchments to waste water treatment. The Government of Karnataka, however, will have the responsibility to monitor that ULBs provide quality services in accordance with the standards prescribed at the State level. ULBs will have the choice of providing the services directly through public bodies or through appropriate private sector participation (PSP) arrangements. Given, however, the paramount need for financial and commercial viability of the operations, the State will monitor strictly policies relating to minimal tariff operations for autonomy of the municipal water operations, etc.

KUWS&DB and BWSSB: The Karnataka Urban Water Supply and Drainage Board will continue to be responsible for capacity creation and augmentation in all ULBs and O&M in selected ULBs for the present. Over the medium-term, the KUWS&DB will be restructured and its role redefined. In the longer-term the KUWS&DB could become a publicly owned independent provider of technical assistance and management support to ULBs who do not have adequate capacity. Similarly, the appropriate role of BWSSB will be defined in the action plan for Bangalore City and surrounding areas.

Private Sector Participation (PSP): To improve efficiency in service provision, and to continuously update technology and ultimately bring in private investment into sector, the GoK will actively encourage private sector participation. Given the current state of the sector, PSP will necessarily have to be gradual. Preparatory work for PSP in the sector like fostering a culture of commercialization, encouraging out sourcing, building local capacity and most importantly identifying and expediting the necessary legislative, institutional and regulatory changes that are necessary for PSP will be undertaken in the meanwhile. Given the very different sizes of urban areas in the State, the GoK will allow a range of different PSP methods of service provision and service.

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6.8 JN National Urban Renewal Mission

Government of India launched the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) with the aim of to create “economically productive, efficient, equitable and responsive cities”. The focus of the Mission is in the areas of: (a) integrated development of infrastructure services; (b) securing linkages between asset creation and maintenance of long run project sustainability; (c) accelerating the flow of investment into urban infrastructure services; (d) planned development of cities including peri-urban areas, outgrowths, and urban corridors; (e) renewal and re-development of inner city area; and (f) universalisation of urban services so as to ensure their availability to the urban poor.

The Mission requires the state governments and cities seeking assistance to undertake reforms in order to achieve the Mission objectives. The reforms are in two parts (i) Mandatory and (ii) Optional. The following Mandatory Reforms at both state and municipal level provide the basis for the Orissa Government in initiating the reform of the water sector.

6.8.1 Mandatory reforms

State Level (i) Effective implementation of decentralisation initiatives as envisaged in the Constitution (Seventy-Fourth Amendment) Act, 1992;

Municipal Level (iv) Levy of reasonable user charges, with the objective that full cost of operation and maintenance is collected within seven years; (vi) Provision of basic services to urban poor, including security of tenure at affordable prices.

The expected outcomes of implementation of JNNURM relevant in the present context are:

 Universal access to a minimum level of services;  Financial sustainability of municipalities and other service delivery institutions; and  Transparency and accountability in urban service delivery and management.

Thus the policy background discussed above provides the context for initiating water sector reform in the State of Orissa.

6.9 Orissa Municipal Corporation Act

Following the 74th Amendment of Constitution of India, GoO has enacted the Orissa Municipal Corporation Ordinance, 2003, and created two city corporations at Bhubaneswar and Cuttack. The remaining ULBs are governed by the Orissa Municipalities Act, 1950, as amended from time to time.

Orissa Water Sector Reform 46 Indo US FIRE (D) Project

As per the provisions in the respective governing municipal acts, the responsibility to provide water and sewerage services to the citizens lies with the local municipal government. The provisions pertaining to water and sewerage services in the Orissa Municipal Corporation Ordinance, 2003 are extracted and attached at Appendix 2.

Chapter IV, Clause 24 of the Ordinance specifies the Obligatory duties of the Corporation among which the following provisions prescribe the responsibility for provision of water and sewerage services.

Extract of Clause 24 of Orissa Municipal Corporation Ordinance, 2003, Obligatory Duties of Corporation “It shall be incumbent on the Corporation to make adequate provision on the following matters, namely:- (iii) the collection, removal, treatment and disposal of solid wastes, sewage, offensive matter and rubbish and the preparation of compost manure from such solid wastes, sewage, offensive matter and rubbish; (xvii) the management and maintenance of all Corporation water works and the construction or acquisition of new works necessary for sufficient supply of water for public and private purposes;”

6.10 Orissa Municipal Act 1950

Chapter XIV, Clause 196 of the Orissa Municipal Act, 1950, prescribes the responsibilities of the municipalities in regard to the provision of water and drainage services to the citizens.

Extract Clause 196, Orissa Municipal Act, 1950 Subject to the rules as may be prescribed and in accordance with sanction granted under such rules the municipality shall- (a) provide a sufficient supply of water for the domestic use of the inhabitants; (b) provide and maintain a sufficient system of drainage and conservancy; and (c) cause the public roads to be sufficiently lighted.

6.11 Policy Framework for Urban Drinking Water in Orissa

Evolving from the various global, national and state policy frameworks discussed above it is now proposed to formulate a State Urban Drinking Water Policy for Orissa, for which the critical components of the policy would necessarily be:

(a) Provision of adequate drinking water as a basic necessity (b) Increasing access – MDG goal for 2015 Tenth Plan aims for 100% coverage (c) Equity in supply and improved access to services to urban poor (d) Institutional restructuring – “fixing institutions not pipes” (e) Decentralization of responsibility for water service provision to ULB’s (f) Greater citizen involvement (g) Tariff reform, financial viability and sustainability

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(h) Capacity improvement (i) Focus on maintenance and optimizing the performance of existing assets (j) Outsourcing and private sector participation (k) Economic regulation

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Section 7

7.1 Urban Water Sector in India - Institutional Framework

Table 19 immediately below indicates that, in fact, there are many different models for the delivery of water in Indian cities. Table 19 Institutional Structures in Urban Water Sector in India

Agency type Jurisdiction Responsibilities Examples O&M Capital Works Entire state SSA SSA Kerala

Large cities City level agency SSA Uttar Pradesh State level Specialist Agency (SSA) Karnataka, Small Cities Local Government SSA Maharastrha, Tamilnadu Public Health Engineering Organisation Entire State PHEO PHEO Orissa, Rajasthan (PHEO) Small cities Local Government PHEO Andhra Pradesh Bangalore, Metropolitan Specialist Agency (MSA) Metro Politan Cities MSA MSA Hyderabad, Chennai Specialist Municipal Undertaking (SMU) Metro Politan Cities SMU SMU Mumbai, Pune Andhra Pradesh, Large Municipal Municipal Water Departments (MWD) MWD MWD Gujarath, Corporations Tamilnadu Source: Bridging the gap between infrastructure and Service, January 2006, World Bank.

The above table shows the institutional structures prevailing in the different states in India. At present the PHEDs or State Level Water Agencies are in need critical reform and restructuring. Water supply is basically a municipal function, to be executed by the ULB (urban local body) or municipal body. Urban local bodies are instruments of self-governance; they are elected bodies with tenure of normally five years, responsible for urban management and governance. The 74th Amendment of the Constitution of India (1992) broadened the traditional role of the municipal bodies to include all aspects of development, civic services and environment in the cities, going beyond the traditional role of providing basic amenities of civic life. However, most ULBs are financially very weak, and are unable to take any initiative in improving or upgrading their infrastructure. Often, more than one body is involved in different aspects of water supply leading to unhealthy overlapping of responsibilities and dilution of responsibility. Further, these bodies have little autonomy on personnel and financial matters.

With the advent of the 74th Amendment, many state governments have proceeded with decentralisation of water services by devolving the responsibility of service provision to the respective local municipal governments. But this is more on paper than on ground, as several cases of municipalisation of water services have resulted in rapid deterioration of services (Hubli-Dharwad and Mysore in Karnataka). The State had to intervene by partially withdrawing the service. In the case of Hubli- Dharwad, while the supply was earlier once in two days, it deteriorated to less than once in 10 days. With the intervention of the State the supply was improved in the last year and is back to once in every two days.

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At the same time there are successful municipal examples of historically good water services in cities like Mumbai, Pune, Nagpur, Surat and Ahmedabad, but the primary reason for this is the efficient municipal institutions in these cities, which have evolved over time and also the financial strength of these cities due to the facility of Octroi income. In the case of rural water supply, the transfer of responsibilities to gram panchayats has been in vogue for over two decades. There has been successful learning and demonstration of community management in the rural sector.

7.2 Water Sector Reform in India

The 74th Constitutional Amendment and the Orissa Municipal Corporation Ordinance, 2003, mandating the state government to transfer responsibility for water supply and sanitation (WSS) services to ULBs, provides an opportunity to drive far- reaching reforms. The state government can articulate public service obligations that will accompany this devolution of responsibility, define policies, provide fiscal and financial incentives, and offer technical support for ULBs to meet their service and financial obligations, particularly during the critical transition leading to complete empowerment of the ULB. The state can also define the regulatory framework to ensure accountability and to balance relations between service providers and customers.

Government of India (GoI) has issued guidelines14 for reform in the water sector, which set the primary objectives of water sector reform as to:  Ensure that all segments of the urban population have convenient, equitable and affordable access to a sustainable level of water supply and sanitation services, which are at least sufficient for basic health and hygiene;  Create an efficient, demand-responsive, transparent and sustainable water supply and sanitation industry;  Balance relations between suppliers and consumers of water and sanitation services, encouraging consumers to become more organized and responsible, while also protecting them from the monopoly power of service providers.

Other reform objectives would include replacing public funding of water and sanitation services with private capital and user charges, rationalizing public sector employment, injecting modern utility operational and management skills, depoliticizing operational investment and pricing decisions, and creating creditworthy WSS utilities.

To achieve sector reform objectives, GoI indicated the key principles of policy and institutional framework to be founded on:  Public service obligations (to fulfill social objectives of the sector) and policy for meeting economic demand in a demand-responsive manner (with tariffs reflecting the cost of providing different levels of service);  A separation of service provision from policy making and regulation, with a robust responsibility-accountability framework for major aspects – planning, design, construction, financing, operations and regulation, including the role of the private sector in this framework;

14 Urban Water and Sanitation Services, Guidelines for Sector Reform and Successful Public-Private Partnerships, Ministry of Urban Development and Poverty Alleviation, Government of India, January 2004.

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 Competition, starting with high cost and value inputs of the water supply and sanitation business, and including benchmarking the performance of different service providers in the state and country;  Efficiency reliability and sustainability of water resources and water supply and waste water management, including through PSP for improving WSS;  Balanced rights and obligations of service providers and consumers; and  Incentives to improve services to the poor.

7.3 Reform Initiatives in Other States

The structure of urban water sector in Maharashtra and Karnataka states is presented below for reference purposes. Table 20 Institution Structure of Urban Water in Maharashtra State

Institution Functions Maharashtra Water Supply State-level institution. Formulates and and Sanitation Department implements policies, operates and (WSSD) maintains regional water supply schemes in both rural and urban areas. (Maharashtra Jeevan Government body for urban water Pradhikaran (MJP) supply. Formulates and executes schemes and is under process of restructure. Operates bulk supply schemes and charges ULBs. Maharashtra Industrial Responsible for promoting industrial Development Corporation development in the state; the (MIDC) organization undertook development of industrial water services and provides bulk supply to some ULBs. Urban Local Bodies (ULBs) Elected municipal bodies or local self- governments providing urban governance and responsible for development and provision of civic amenities and economic development.

Table 21 Institution Structure of Urban Water in Karnataka State

Institution Functions Government of Karnataka Policy formulation, regulation, tariff (GoK) fixing, funding, guarantees. Karnataka Water Board Developing, planning, project (KWB) formulation, project implementation, bulk supply operations in few ULBs. Urban Local Bodies (ULBs) Owner of assets, responsible for service provision, tariff setting, bulk and distribution management, billing, collection, customer service, debt servicing.

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In line with recent trends in water sector reforms, Government of Maharashtra has initiated a restructuring plan for MJP as summarized below.

Road Map for MJP Restructuring As an integral part of a water and sanitation sector reforms road map Government of Maharashtra (GoM) proposes to restructure the Maharashtra Jeevan Pradheekaran (MJP). The idea is to segregate the multiple roles being played MJP and restructure it into independent units that offer services to the local governments through a competitive process. It is proposed to restructure the MJP based on the broad competencies of (i) engineering and project management (ii) O&M and construction, and (iii) financing. The GOM intends to separate the financing role of MJP and to merge it with the Govt.

Engineering and Project Management Company An independent company to provide consultancy services to the local governments and others in the fields of: survey, scheme designs, research and development, and project management for the clients both within and outside the State. This successor entity of MJP would be a company formed under the Indian Companies Act, 1956, and put on an equal footing with private firms to enable them to compete on a level playing field. It will have to compete for contracts from concerned local bodies and others.

O&M Company The present O&M functions within MJP will be consolidated into a new O&M company and expanded to allow it to obtain management contracts and construction contracts on its own merit of technical and management capability from prospective clients. This successor entity of MJP would also be a company formed under the Indian Companies Act, 1956, and put on an equal footing with private firms to enable them to compete on a level playing field. It will have to compete for contracts from concerned local bodies and others.

The new company can also bid for either O&M contracts, construction contracts or a combined contract based on demand from the ULBs and others, either in the State or outside.

Financial Support to the Successor Entities The newly created service companies are expected to generate their own operational finances over a period of time. Till the time they achieve full financial capacity, they would need some support from the State. This support has to be designed in a way that it provides incentives for performance and growth, rather than dependency. World Bank: Terms of Reference for Restructuring of Maharashtra Jeevan Pradhikaran, April 2006.

The institutional structure for the water sector in Karnataka State is depicted in the following chart.

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Chart 11 Urban Water Institutional Structure in Karnataka Urban Development Department (GoK) Policy Regulation Grant funding Guarantees

Tariff approval Funding Guarantees

Financial Institutions KUWSDB Funding Development Planning Funding Project formulation Implementation Bulk supply Funding Debt service Fee

Urban Local Bodies (ULBs)

Asset ownership assets

Service provision Bulk supply & Distribution Billing & Collection Debt servicing

The structure described above for Karnataka has been in vogue over the past 2 decades and has several organisational deficiencies like over staffing, no accountability in asset performance, time and cost over runs, etc. In terms of ensuring service delivery, there is significant gap between the required service levels and the levels prevailing in the ULBs at present. This situation coupled with the 74th CA has now prompted the state to restructure KUWSDB as per the following proposal of corporatised organisational entities. This proposal has been under discussion. While a policy decision has been taken by the State, it is not implemented yet.

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Chart 12 Management Restructure Proposed in the State of Karnataka15

Policy GoK Regulator

SFC grants Monitoring of GoK share performance

O & M and PMC fees

PMCOMs ULBs Financiers

O&M Lend directly or PMC through intermediaries agreement TRA set up for each scheme

Delivery of services

Consumer

The proposed restructuring of the Karnataka Urban Water Sector is shown above. As per the proposed structure, the ULB is the center of water service responsibility and is also responsible to the consumers. The present Karnataka Urban Water Supply and Drainage Board (KUWSDB) has been proposed to be restructured into 2 or 3 Project Management Companies (PMCOMs) which would provide services of O&M and asset development on a fee basis to the ULB. All the funding would be directly managed by the ULBs and a State Level Regulating Agency is proposed to be set up, which in addition to regulating service levels and tariffs in the State would also regulate the contractual relationships between ULBs and PMCOMs,

15 Restructuring Options for Karnataka Urban Water Supply and Drainage Board, IDeK, July 2002.

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Section 8

8.1 Summary of Water Services in Orissa As detailed in the Sections 3, 4, and 5, the deficiencies in Orissa’s water services can be summarized as below.  Low coverage and service level  Intermittent water supplies in spite of having major river sources  Focus on asset creation, rather than distribution and customer service  Low water tariffs, infrequent revision and low cost recovery  No accountability in service provision  Low involvement of local body governments  No ring-fencing of finances and accounts  Ad hoc planning of capital asset building  Highly beaurocratic decision-making  Poor information availability and management  Insignificant use of information technology

8.2 Strategic Road Map for Orissa

In tune with 10th Plan provisions and the experiences of other water utilities in India and elsewhere in the developing world, the State of Orissa needs to immediately initiate institutional reform in the urban water sector. This is first to improve service to the citizens and also to ensure compliance with the principles of decentralisation of governance as per the 74th CA, and the mandatory reforms prescribed under JNNURM.

Based on the analysis and experience of different reform initiatives in different states in India discussed in the previous sections, the key issues that emerge in the context of Orissa state are:

 need for separation of existing functions of PHEO and OWSSB and the extent to which these functions need to be separated. This is in regard to policy formulation, regulation, planning, financing, implementation and management of services.  accountability in service provision both in terms of service levels and ensuring financial discipline.  extent of management autonomy needed for professional and prudent operations and service provision.  full cost recovery for the services rendered.  achieving sustainability of services.  involvement of ULBs in planning and as well as management.  management of human resources.

Some of the important factors that affect the potential transfer of water supply services to ULBs are:

 Many ULBs in Orissa do not have reliable water supply service; quality of water is suspect.  Incomplete information about the existing bulk water system, distribution systems hamper planning for system development and for the transfer of authority to the ULBs.

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 Current operation, maintenance, and repair programs and practices are not sufficient to maintain the water supply infrastructure to acceptable standards.  ULBs, which will ultimately be responsible for water supply provision, are not adequately involved in the planning process.  Providing reliable and sustainable water services to all ULBs requires very high capital investments.  ULBs currently do not have the capacity to operate, maintain, or repair the facilities, which they will become responsible for.  Transfer of state employees to municipal services is highly complex and difficult and municipal governments hold the right to refuse the transfer of staff affecting their own service systems.  Present revenue generation in the ULBs is so low that it would be difficult for them to sustain the services  Ownership issues for the assets already created are highly complex.

As per the above mentioned factors, the situation in Orissa state requires significant preparatory work primarily in improving the capacity of municipal governance so that the municipalities prepare themselves in financial terms and professional management expertise for taking over water service provision from the present state level agencies. As such, while the long-term vision is for the municipalities to totally integrate service provision into their respective functions, medium-term transitional arrangements of mixed management structures need to be explored.

8.3 Criteria for Selecting an Appropriate Management Structure

The structure for water supply management is the primary and fundamental decision ULBs need to take in developing financially sustainable, well-run water and sewerage services. This management structure will determine how services are delivered, reporting relationships, and processes for decision-making regarding policies, regulation, service levels, and growth and sustainability aspects. It will also determine the relationships with civil society organisations (i.e., RWAs, NGOs, CBOs) and political structures (the municipal council). Any management structure chosen will need to have an organisation that can ensure compliance with the criteria detailed below. The management structure within or outside the ULB should be responsible for day-to-day operations and supervise staff. It should be lead by a professional manager, not an elected public representative (as in the case of OWSSB). The manager needs to be held accountable for his or her performance and for the performance of the management organisation.

8.3.1 Operational Autonomy

The management structure needs to be able to respond quickly and effectively to consumer requests without being pulled in several directions at once or needing to check with the municipal council for every decision. It needs to be able to consider all of its customers in making decisions, not only a chosen few who have the right influence. The organisation should operate within a functional autonomy, for example, in sanctioning water connections and disconnection in case of default. The staff needs to be able to perform its jobs as professionals, with the minimum amount of bureaucratic systems and procedures. The management structure should minimize interference and maximize operational autonomy.

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8.3.2 Responsiveness to Consumers

The management structure needs to allow for coordination and integration with local community based organisations (CBOs). Such CBOs provide the logical link through which services can be coordinated, specifically while servicing the urban poor. During the initial transition phases of setting new management structures, close coordination will be important in addressing sensitive issues like unauthorized connections, payment of services, conservation, and equitable distribution of scarce resources. CBOs can be channels for consumer education or awareness campaigns. CBOs may also be useful in assuming the responsibility for the management of community level assets like public taps, community toilets, etc. Eventually, the institutional setup should provide for such CBOs to work on a community partnership mode.

8.3.3 Efficiency

The management structure needs to have flexibility and capacity to save on costs. It needs to be able to purchase equipment as quickly, transparently and economically as possible without going through multiple levels of decision-making.

8.3.4 Commercial Viability

The management organisation should be a commercially viable entity with a critical mass of operations and consumer base so as to justify management costs. The operations shall service the right mix of domestic, commercial and industrial customers for ensuring balanced cost recovery from cross subsidies and to balance the social and economic priorities of the ULBs and state.

8.3.5 Capacity to Grow and Transform

The organization needs to be able to join with other water service providers in the area to achieve economies of scale and to avoid unnecessary duplication or overlaps. If future situations necessitate, where the organisation can serve consumers more effectively by merging with neighboring ULBs, the management structure should permit this facility.

8.3.6 Ability to Manage Staff

For the proposed organization to operate cost effectively, employees must be held accountable for results. It will be absorbing civil service employees deputed from state agencies. Thus, an essential ingredient of autonomy will be the ability to manage the staff and hold them accountable for results. ULBs need to ensure incentivized performance within the limitations of rules for seniority, promotion, and transfers for ensuring effective daily management. At the same time, ULBs must ensure that sound personnel policies are set in place within the organisation to protect employee rights and guard against unfair hiring practices. In the absence of functional autonomy in the organisation, the staff will change with each administration, continuity will be lost, and training costs wasted.

8.3.7 Flexibility to Meet Growth Requirements

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With urbanization, populations grow and the service area of ULBs will become increasingly complex. Issues of forward planning are important for meeting the future needs. The management structure will need to have access to good staff for planning, either though contractual services or with core employees. The agency will need to be able to reorganize periodically, to develop efficiencies through setting up teamwork approaches, and to grow.

8.3.8 Ability to Manage within Justifiable Budgets

As mentioned earlier, the budget and the income must be maintained separately by ring-fencing each ULB and also the general accounts within the ULBs. There will not be enough income from water service to support other municipal functions. The water services thus would be, by nature and design, a nonprofit public service; any surplus generated should be used to improve and expand service, to provide incentives for improved staff performance. The initial transition period would require State subsidies.

8.3.9 Synchronise with the Administration Boundaries

The proposed management structure, as far as possible, shall operate within the administrative boundaries of the State. The operational jurisdiction shall synchronise with that of the ULB’s or district or a defined regional area like the PHEO Circle.

8.4 Options for Management Structures

There are at least five potential options that the ULBs can use to structure their future water service organization:

(A) Integrated Municipal Management (IMM) - ULBs can operate their water distribution services as an integral part of their core functions (B) Dedicated Municipal Management (DMM) – ULBS would institute a dedicated water department with ring-fenced budgets (C) Municipal Water Board (MWB) – Municipal Water Boards managing the service provision with staff deputed from PHEO and/or OWSSB (D) Regional Water Utilities – In place of the present PHEO, there could be two regional public utilities providing the management service on a simple performance based contract to the ULBs (E) Delegated/Outsourced Management (DOM) – the water services could be delegated or outsourced on a performance based management contract to a public or private company.

While Options A, B and C have been prevailing in different parts of India, Options D and E are now being tested in a few cities. For example, the proposed restructuring of KUWSDB discussed in the previous section is one such example of Option D, regional utilities. The recent Operating Consultant Contract in the World Band- funded Karnataka Urban Water and Sanitation Project (KUWASIP) is an example of Option E, delegation to a private company.

In the context of Orissa State, Options A and B are preferred in the long-term, while options C and D would be the transitional structures duly ensuring service continuity and improvement in the immediate and medium-term.

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All the five structures have been time tested in different parts of the world and there has been good experiences and lessons learnt specifically in the Latin American and African countries.

Each option is detailed below in terms of their strengths and weaknesses in the context of Orissa State.

8.5 Option A - Integrated Municipal Management (IMM)

The integrated municipal management option is presently prevalent in several small cities in India. In this case, the municipal engineering department would be responsible for all the functions of water and sewerage services, including planning, finance, construction, management, operations and maintenance. In some municipalities the employees are responsible for all other civic services like solid waste management, roads, street lighting, etc. Responsibility is based on a defined geographic area like a few wards. Generally the revenue collection functions are separate. These are managed by dedicated revenue staff that collect property taxes, water taxes and water charges. (Ex: Gadag and Ramanagaram in Karnataka, and Srikalahasti and Kurnool in Andhra Pradesh.) Chart 13 Integrated Municipal Management

Housing and Urban Development Department (HUDD)

Public Health Engineering Orissa Water and Sewerage Organisation (PHEO) Board (OWSSB) Regulation Policy, Subsidy, Subsidy, Policy, Fee Staff Urban Local Body (ULB) Assets/Bulk Water Services Water UserCharges

Consumers

In this option, management of all municipal functions such as water, sanitation and solid-waste management are combined under service stations for 5 – 10 wards. An Assistant Executive Engineer (AEE) reporting to the Municipal Commissioner may provide supervision for water, streets, and all municipal infrastructure as one

Orissa Water Sector Reform 59 Indo US FIRE (D) Project department. The bill collector or revenue inspector would be responsible for billing and collection. Bills may be paid directly at the municipal office, sent as checks by post, or in some instances, collected through the local post offices or banks. Income from water services becomes part of the municipal budget. The mixed administration model serves small populations reasonably well, especially towns that have simple water and sewerage systems with fixed tariff regimes.

The direct budgeting and financial management provides the facility that any excess income from one service is used to fund other service. For example, Pune and Surat cities subsidize water services from octroi and other general revenues. Technical staff report to the AEE, and the other service functions (consumer, billing, etc.) report directly to the Commissioner, who essentially is the administrative head of all departments.

PHEO would need to depute its operating staff to the ULBs and OWSSB would continue to be the capital asset developer. The financing arrangement would be that the ULB would get capital grants or operating subsidies directly from the State and also borrow funds from Financial Institutions.

8.5.1 Strengths of Integrated Municipal Management

 This option is simple to administer and works well for small towns/cities.  Compliant with 74th CA and also with JNNURM mandatory reform on decentralisation of services.  In the mixed-services version, economies may exist in the delivery of different services by the same department or individual.  Managerial control rests with the Municipal Commissioner and Standing Committees. Scarce and more costly managerial skills rest with one person, thus administration budgets are lower, compared to other options.  Consumers can place all responsibility with one agency, the municipality, essentially the Municipal Commissioner or Municipal Council, and can approach through their councilor for service and complaints.  Councilors become familiar with the service and commercial aspects of water management.

8.5.2 Weaknesses of Integrated Municipal Management

 In this option, it is difficult to link tariffs with service delivery. All revenues are considered part of “general revenues”, rather than water service revenues and are often mixed in a common account. As personnel serve multiple municipal functions, it becomes difficult for the manager to track where funds are being spent properly.  In the mixed administration model, the chief of water services does not have direct control over all staff working in the water area, making it difficult to monitor performance by achievement of results.  As the public image of government run services is often poor, consumers may be reluctant to trust political management and desire professional management.  As civil service employees, the staff has little incentive to perform its work efficiently because of requirements for grading levels for public servants; staff pay cannot be based upon performance.

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 There would be low ownership and accountability among the deputed PHEO staff and the ULB would not be able to exercise management control over the deputed staff.  The water department will not likely have a dedicated utility budget, unless investment priorities are set by the council.  The Municipal Commissioner or Standing Committee needs to approve all expenditures, although usually lacking any training in water management. The result is often delays and energy spent convincing or educating them about water service functions.

8.6 Option B – Dedicated Municipal Management (DMM)

A variation on the mixed administration model is the separate or ring-fenced water department within the ULB. This option is typically seen in metropolitan cities (Mumbai, Pune), which have grown sufficiently large to justify dedicated water departments with the sole responsibility of managing water and sewerage services. All water staff and departments that are involved in water services would report to the Executive Engineer or Chief Engineer as per the requirement of the city. The chief of water services would report directly to the Municipal Commissioner and Council. All accounts and funds pertaining to water services are ring-fenced and separately maintained, and in effect a small water corporation or board is managed within the municipal governance structure.

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Chart 14 Dedicated Municipal Management

Housing and Urban Development Department (HUDD)

Public Health Engineering Orissa Water and Sewerage Organisation (PHEO) Board (OWSSB) Regulation Policy, Subsidy, Subsidy, Policy, Fee Staff Urban Local Body (ULB) Assets/Bulk Dedicated Water Department Water Services Water UserCharges

Consumers

As this is a slight variation of the Option A, all the strengths and weaknesses mentioned at sections 8.6.1 and 8.6.2 hold good in this case also. However, due to the creation of a dedicated water department within the ULB, it improves the strengths by reducing certain weaknesses of Option A.

8.6.1 Additional Strengths of Dedicated Municipal Management

 Ring-fenced budgets facilitate accountability  Possibility of fixing rational tariffs based on dedicated budgets  Ensuring transparent subsidies from general revenues both for operational sustainability and urban poor service delivery  Improved operational and management control of staff  Possibility of designing output-based performance incentives  Facility for staff to gain core skills in water utility management

8.7 Option C - Municipal Water Board

The Municipal Water Board (MWB) is set up with a management structure much like a corporation or board, but all assets are owned by the ULB (Chennai, Bangalore, Hyderabad and Delhi). The MWB is governed by a board of directors that manages the functions of water service provision. Employees are initially deputed from the ULB and PHEO and then absorbed into the MWB cadre statutes regulating public sector companies or public corporations. They work for the MWB rather than the ULB. The MWB is generally governed by a legislative act and set of byelaws that govern its functions and its employees. It has its own set of personnel policies and its own internal regulations. The membership of the board of directors is dictated either

Orissa Water Sector Reform 62 Indo US FIRE (D) Project entirely by the ULB or by the ULB and State Government, but it must be ensured that there is total accountability to the ULB, and interference by the State Government is only on very broad policy or overall funding issues.

MWB could operate on an ‘arms length’ basis and could organize financing of development on behalf of the ULB. It can also use the strength of its own balance sheet. Assets are owned by the ULB, and the MWB operates on its behalf to meet the service levels decided by the municipal or state water policy. For example the policy could require “24 hours of service per day to all consumers who pay at the most cost- effective tariff” or “private connections to urban poor households who can pay an affordable subsidized tariff.” Chart 15 Municipal Water Board Management Structure

Housing and Urban Development Department (HUDD) Grant support Grant

Orissa Water Supply and Sewerage Board(OMWSSB) Regulation Policy, Subsidy, Subsidy, Policy, Capital

Municipal Water Board (MWB) supply

ULB and PHEO Staff Assets,Bulk Water Services Water UserCharges

Consumers

8.7.1 Strengths of the Municipal Water Board

 The MWB is protected from daily interference in its management processes by the byelaws governing the public corporation and by the board, which serves as a bridge between the political powers and the MWB management.  Civil society can be directly represented in governance by inclusion on the board of directors. Broad representation of the public can be structured into the board governance as well.  Legally the MWB can be structured to have all the autonomy necessary to operate as an incorporated economic unit: ability to contract for services, board participation, flexible structure with checks and balances for

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management, and capacity to enter into financing arrangements with national and international funding agencies.  Ownership is protected; the ULB maintains ownership of assets and public trust is provided for.  Improved, modern administrative and management procedures can be formulated by the agency itself. It can modify the management structure or decentralize into Strategic Business Units (SBUs) as required.  Financial planning such as tariffs can be formulated by the agency with the approval of the board and the local council. Budgets can be developed by the staff and approved by the board; revenues can be retained to cover operating costs. Financing for capital costs can come from a variety of sources.  In this model, tariffs and service delivery are linked; the MWB retains the revenue collected and has responsibility for budgeting and accounting for operations and maintenance. Linking revenues and expenditures provides an incentive to operate more efficiently.  Personnel may be easily engaged or hired within regulations established by the agency. Remuneration may take a variety of forms, including bonuses and incentive pay.  The organizational culture of a company differs greatly from a government department. The employees’ sense of identity and loyalty can be very strong and positive if the company is well managed (e.g., BWSSB).  MWB can be authorized to borrow from the private sector to finance water and wastewater systems; however, agencies are only able to borrow if they are creditworthy, which means tariffs must be high enough to cover O&M and capital costs.

8.7.2 Weaknesses of the Municipal Water Board

 As this option requires a sound legal framework it needs a good amount of initial planning and development. While the OWSSB was modeled on this option, functional autonomy is very limited and hence it has been struggling to meet targets and achieve objectives.  The staff, which will be deputed to a MWB or ULB, if not carefully selected, would generally be unwanted in their parent department.  As it requires a separate board for each ULB, it is only feasible and economical for large cities and in the present context the capital city, Bhubaneswar.  Councilors who want to control the water service directly may feel at a disadvantage, having to work though a board of directors to receive attention.  If the relationship between the board and the ULB is not carefully regulated, there can be loss of accountability to the consumers.  It will take a thereto-five year education and training period for staff to learn to work as a team in a corporate structure. Staff training will be required and outside technical assistance will be needed, with financing from the state government.

8.8 Option D – Regional Water Corporation

This option is based on the principles of delegation and competition by comparison. Under this option the state department, PHEO, could be divided into autonomous

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Regional Water Corporations (RWCs) of appropriate number (two or maximum three in the present case) and size. These RWCs would enter into performance based contracts with the ULBs. While these are public sector entities which are susceptible to the general ills of public corporations, they would provide relatively better services subject to the principles of sound delegated management contracts. The PHEO has four circles and depending upon the economies of scale and geographical distribution of ULBs, these can be made into 2-3 regional utilities. The primary advantage of this structure is the introduction of competition by comparison in service provision. There could be further un-bundling of functional responsibilities like bulk supply, distribution and billing and collection under this option as has been implemented in the Orissa Electricity Reforms, but for the water sector un-bundling would be sub-optimal considering the low level of urbanization and low value and size of business.

All the utility operations from supply of water, asset management, customer services, billing and collection presently being handled by PHEO would continue with the RWC. They could be improved in a more transparent and accountable structure linked to incentives.

All the financial transactions like organizing funds, borrowing, and state subsidies would be routed through ULB. The RWC would be paid on a simple performance based management contract between RWC and ULB. Chart 16 Regional Water Corporation Housing and Urban Development Department (HUDD) Regulation

Regional Water Corporation Regulation Policy, Subsidy, Subsidy, Policy, Capital, subsidies Capital, Fee

Contract Urban Local Bodies (ULB1, ULB2,….ULBn) Assets, Bulk supply Bulk Assets, UserCharges Water Services Water Consumers

8.8.1 Strengths of Regional Water Corporation Structure

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 The primary strength of this model is the facility of competition by comparison which leads to efficiency gains.  The monopoly issue with the present PHEO and OWSSB is addressed and it would be easy to exercise management control by the State.  With the facility of benchmarking, it provides a good basis for future regulation of services.  It would have improved operational autonomy and would be insulated from day-to-day political interference.  Payments would be linked to performance as against costs, as being practiced at present, and hence facilitate optimization of costs.  Staff would have better career growth possibilities unlike a municipal department, which would be generally stagnant without growth.  Would be acceptable to the present staff in PHEO and OWSSB, as their services would continue to be protected instead of instituting cumbersome integration procedures with municipal staff.  Higher willingness for PHEO and OWSSB staff to get absorbed into the regional corporation, rather than into a local municipal service and their career prospects are protected.  Facilitates ease of redeployment of staff between different ULBs so as to address excess or shortages.  ULBs can be provided with freedom to choose their operator from among the regional utilities  The ULBs can be provided with training in contract management in a very short period and they need not learn the core skills of water utility operations.  Future disinvestment feasible in conformity with the present day principles of liberalization.

8.8.2 Weaknesses of Regional Water Corporation

 Initial preparations and legislative amendments required for ensuring sound organisational structures. This is more particular when considering the structural weaknesses of OWSSB.  Considering the low level urbanisation with small size municipalities, it may not be economical to create more utilities.  Requires legislative support for revenue recovery aspects.  A regulatory system is required to ensure benchmarking and competition by comparison. However, these could be addressed to a limited extent through contractual regulation between the ULB and the Regional Utility.

8.9 Option E – Delegated/Outsourced Management (DOM)

The Orissa Municipal Corporation Ordinance, 2003, Clause 185(2) provides for involvement of the private sector in the development of infrastructure for ensuring quality service. This provides the gateway for the ULB to outsource water service provision to private agencies so as to act as an agent to operate and maintain the infrastructure and to bill and collect tariffs on its behalf. The ULB can appoint a private or public or joint sector company, contractor, CBO or NGO, or any other legally constituted entity that has the capacity to provide the services and to act as a water service agency (WSA) on its behalf. In the contract model, the assets of the

Orissa Water Sector Reform 66 Indo US FIRE (D) Project water service (pipes, equipment, infrastructure) remain the property of the ULB, and the WSA is required by contract to maintain them. The ULB may also require that the WSA provide certain equipment, such as vehicles and office equipment, under the terms of the contract. The contractor is responsible for all the operational staff and their remuneration. Under a management contract certain ULB staff may be deputed to the management control of the private operator or contractor (e.g., KUWASIP contract for Hubli-Dharwad, Belgaum and Gulbarga in Karnataka State). The terms of the contract may specify that all collected revenue remain the property of the ULB and be directly turned over to it for its own accounting purposes, or the ULB may charge the contractor with maintaining an auditable financial management function for the authority in trust. This model is sometimes referred to as a “public-private partnership” and is not “privatisation”. Use of the private sector to perform services contracted by ULBs has been practiced in India and Orissa for a variety of functions (garbage collection, security services, typing services, etc.). Privatisation is a model that is not discussed here; it involves selling or leasing all infrastructure assets to a “for profit” company that operates as a regulated private utility.

Chart 17 Delegated/Outsourced Management Structure

Housing and Urban Development Department (HUDD) Grant support Grant Regulation Orissa Water Supply and Private Company Sewerage Board(OMWSSB) Regulation Policy, Subsidy, Subsidy, Policy, Fee Capital supply Contract Urban Local Bodies

(ULB1, ULB2,….ULBn) Assets,Bulk Water Services Water User ChargesUser

Consumers

It can be seen above that in this model there is likelihood of PHEO staff being left out as excess, if the private operator chooses his own staff. OWSSB continues to provide the services of capital asset creation, as it may be very expensive and not bankable for private companies to finance the assets in Orissa State. The experience across India to source privately financed infrastructure in the water sector is not very satisfactory as the efficiency of present management and prevailing water tariffs are very low.

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8.9.1 Strengths of Delegate Management

 Competition in selecting a designated operator gives the ULB the advantage of obtaining services at the lowest bid that is credible.  Competition by comparison and benchmarking can ensure enhanced services.  The private sector is often far more efficient than the public sector, and this can be reflected in good quality services to the consumers.  If the contracting firm does not perform, it can easily be terminated and replaced by another agency.  A private sector management structure would be flexible and has sufficient authority to take day-to-day operational decisions like response times for customer complaints, leakage repairs, energy conservation, etc. It can set performance standards for its staff and more easily reward good performance.  Incentives for good performance can be built into the contract to stimulate higher levels of performance and greater consumer satisfaction.  The contractor can be required to provide regular communication with the community and civil society structures and serve the public interest within the terms of contract.  Tariffs are totally regulated by the local authority.

8.9.2 Weaknesses of Delegated Management

 The communication linkage between the ULB may facilitate ample room for collusion and corruption.  Under this model, it may be easier to avoid interaction with civil society structures and CBOs unless clear linkages are contractually structured.  Contract management requires skills and expertise within the ULB on the same level as the contractor. Training in contract management will be required for the supervising staff.  Attitudes towards private sector management may be negative, and councilors may feel that this model does not allow local people to learn how to do the work, unless the contractor is required within the terms of reference to hire a certain percentage of local staff.  The ULB and the public are unfamiliar with this way of conducting public services, and a period of learning and adjustment would be required on both sides to be able to learn to work with it.  Requires legal and legislative amendments.

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Section 9

9.1 Way Forward

This section presents some key issues that can be inferred from the previous discussion and suggests ways to move forward. And finally, a short- and medium- term action plan for next steps is suggested.

9.2 Key Issues for Moving Forward

 ULBs will need assistance in making the transition from the present situation to taking full responsibility for service provision.  Transformation will require resources in two forms: technical assistance and financial assistance. Funds will be needed for the transition and capacity- building program and for the necessary equipment to establish appropriate water service agencies. Financial support and appropriate tariff revisions will be required to subsidize the transition from the present loss-making operations to fully sustainable O&M.  The most appropriate organization within the Orissa governmental structure to support the development of reformed water services is the Housing and Urban Development Department, which has some limited experience from the establishment of OWSSB. However, Orissa state being the first in introducing power sector reforms can take some lessons from this exercise, since many of the issues are similar.  Relationships among all the key stakeholders are critically important and necessary; Government orders supported by a legal framework will be necessary.  Developing a Bhubaneswar Water Board or a Sambalpur Regional Water Corporation would be a first step, but ensuring an effective service provider is the real challenge under the limitation of applicability of service rules to the present staff.  The specific strategy for transfer of water services to ULBs will need to be developed and sustained; structured efforts are required to make it work.  Quick decisions by the State are crucial for implementation as delays would derail the process  Legal and regulatory changes required shall be initiated and put in place to support the reform.  A transition program moving from the current situation to the future must be broadly focused, with attention to human capacity building at all levels. Technical areas—treatment, networks, maintenance and repair, NRW reduction, stores, inventory, tools and equipment, workshop facilities, etc.— will need attention as well.  The capacity-building program should be locally focused. Local staff or potential staff with the most appropriate skills should receive training and support from a number of different sources.  Specific attention is required for selection and deployment of staff in the new institutional structure, and deputation and eventual absorption into the new accountable structure.  Medium-term optimization plan for the staff including the methods of incentives for performance.

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9.3 Recommendations

From among the five management structures discussed in the previous section, the appropriate option for Orissa would need to be chosen. It is suggested that a consultative workshop needs to be organized to discuss the options with various stakeholders and a consensus decision to be evolved based on the likelihood of acceptability among the PHEO staff. A detailed business plan for the chosen option would need to be developed and approved by the State for implementation. The following steps describe the gradual implementation of the reform process:  Initiate budget reform in PHEO so as to improve clarity in costs for capital and operations.  Introduce ring-fenced budgeting so that the capital and operating costs could be clearly allocated to each of the ULBs for improving transparency and equity in allocation of resources.  Develop performance based budgeting (Karnataka State has introduced at a higher department level) followed by performance based contracting with ULBs.  On gaining clarity in costs and income, introduce a pilot regional water corporation for the capital region of Bhubaneswar. This corporation would provide management services on a simple performance based management contract. This could again be done on a phased approach as: o Ring-fenced engineering and project management unit within PHEO for Bhubaneswar or/and Cuttack. o Simple performance based management contract with respective city corporations. o Provide functional autonomy by converting it into a Municipal Water Board. o On reaching reasonable financial strength, corporatize it into a company format.  Form staffing structures within PHEO with clear units responsible for the two corporations and the cluster of ULBs, which will come ultimately under the jurisdiction of the regional level water utilities.  Review and improve the antiquated byelaws governing water services.  Evaluate the requirement of other regional utilities for the remaining ULBs and set up an improved corporation based on the lessons learnt from the pilot.  Explore outsourcing of services to ensure economy and efficiency.

9.4 Action Plan

If the Government of Orissa finds this “issues and options report” acceptable and wants to move the process along, a number of specific short- and medium-term actions should take place. The short-term timeframe proposed is the six months from September 2006 through January 2007. The proposed medium-term timeframe extends through July 2007.

9.4.1 Short-Term Actions

 Discuss the issues and options proposed in this report in a consultative workshop which could be organized by USAID during the middle to end of September 2006 through the City Managers’ Association of Orissa (CMAO).

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Invite all key stakeholders, citizen associations, representatives, mayors, chair persons, etc. and record the suggestions and objections on the suggested options.  Constitute a high-level steering committee for instituting the reforms.  The steering committee could be chaired by the Chief Secretary with membership from Finance, Law, and the Housing & Urban Development Department being the member convener. The steering committee would meet as and when required based on the advice of the member convener.  A working group could be constituted under the chairmanship of the Principal Secretary, HUDD, with the Special Secretary, HUDD, as convener and membership from Chief Engineer (PH Urban) and Member Secretary OWSSB and Municipal Commissioners, Bhubaneswar and Cuttack. The working group shall meet at least once in a month to review the progress and finalize the preferred options.  Incorporate the proceedings of the workshop and finalize the preferred option.  USAID would provide technical support for preparing the business plan for the chosen option.  The steering committee would approve the business plan and seek the approval of GoO.

9.4.2 Medium-Term Actions  Develop a program for the transition process, with enough detail on the scope of work, including the detailed legal framework.  Develop terms of reference for the technical assistance; this could be explored to be sourced from JBIC synchronizing the large investments being planned for sewerage schemes.  Conduct an open solicitation and request for proposals to procure a technical assistance team as a contractor. Pending funding, this solicitation and proposal process could take place from March through June 2007.  Draw up and implement an awareness and consensus building program involving all stakeholders, citizens groups and the media over the next six months to build political, administrative and public acceptability for reforms. This would be through a series of consultations at various levels of stakeholders and articles, etc. in the local newspapers and interview on TV and other media.  The working group would undertake the project management.  Begin implementation of the transition process.

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Section 10

References

1. Sectoral Report – Urban Water Supply and Sanitation, PHEO, June 2006, Government of Orissa, Housing & Urban Development Department. 2. Manpower requirement of different organisations, PHEO, January 2006, Government of Orissa, Housing & Urban Development Department. 3. India: Urban Water and Sanitation Services, Guidelines for Sector Reform and Successful Public-Private Partnerships, Ministry of Urban Development and Poverty Alleviation, Government of India, January 2004. 4. The Orissa Ordinance no. 1 of 2003, The Orissa Municipal Corporation Ordinance 2003. 5. USAID - Environmental Health Project, Activity Report no.30, Issues and options for transfer of Water distribution Responsibility to Local Government Structures in the Bushbuckridge, Hazyview, and Nsikazi North Areas of South Africa by Dan Edwards, Robert Firestine, Jonathan Hodgkin, Carolyn McCommon, November 1997. 6. USAID - Environmental Health Project, Strategic Paper No.1, Case studies on decentralisation of water supply and sanitation services in Latin America January 2001. 7. Scaling Up Drinking Water Services by Junaid K. Ahmad, David Savage and Vivek Srivastava. 8. Restructure of the Water Sector in Indonesia: An institutional and Legislative Challenge, A preliminary assessment by Mishka Zaman, February 2002. 9. Corporatisation and Privatisation of water supply, Roger Kerr, AIC conferences 6th Annual NZ water summit, February 1998. 10. Restructuring options for Karnataka Urban Water Supply and Drainage Board, July 2002, infrastructure Development Corporation (Karnataka) Ltd.

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Section 11

Appendices

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