Tuesday, March 29, 2011

Tirupur water supply PPP: stubborn secrecy

Despite a ruling by the Madras high court, the concessionaire has refused to share with the public information about the project, which otherwise has not fulfilled its tall promises, find researchers of a Madhya Pradesh-based NGO.

Located in Coimbatore district of Tamil Nadu, Tirupur is an industrial town that is home to a vibrant garments industry. In 1995, Tamil Nadu government and IL&FS promoted New Tirupur Area Development Corporation Ltd (NTADCL) as a special purpose vehicle (SPV) to implement the Tirupur Area Development Programme (TADP).
TADP primarily included Tirupur water supply and sewerage project (TWSSP) which became operational in April 2005
The concession agreement allows NTADCL to develop, construct, operate and maintain a 185 million litre per day capacity water supply project and sewerage facility.
The total project cost is Rs 1023 crores; NTADCL is to supply 185 million litres per day (mld) of raw water -- 100 mld water to industries, 36.3 mld to ‘wayside’ villages and 48.7 mld to domestic and non-domestic users within Tirupur Municipality (TM).
The concessionaire (NTADCL) also has the mandate to increase non-domestic water supply by additional 65 mld in case the demand for water from the industries exceeds the allocated 100 mld.
The project draws water from Bhavani river from an intake station located about 55 km from Tirupur. NTADCL is also to collect and treat 30 mld sewage and connect about 9000 new households to the sewerage network by 2014.
There is also provision for 255 low-cost public toilets in all the 88 slums of the Tirupur town, which, the concessionaire claims, will benefit about 60 percent of Tirupur town.
While IL&FS holds 27.17 per cent equity in NTADCL, the state government holds 17.04 per cent, according to the facts presented in the Madras high court in early 2010 in a lawsuit that is discussed below.
AIDQUA Holdings, a Mauritius-based company, holds 27.89 per cent and public-sector insurance companies hold 10.85 per cent.
Manthan’s studies
Manthan Adhyayan Kendra, an NGO based in Badwani, Madhya Pradesh, that tracks privatization of water projects, has been studying the project since 2006 and made in 2007 field visits to Tirupur town, some villages in the neighbourhood, some of the industries, as well as Chennai where head offices of the most of the agencies involved are located.
The Manthan team met slum dwellers, corporators, political workers, industrialists, journalists, lawyers, environmental consultants, water engineers, trade unionists, etc. The representatives of IL&FS and NTADCL refused to meet the Manthan team or respond to its communications.
The following were the findings of Manthan’s Gaurav Dwivedi as included in a presentation he made in August 2008 at the ‘Third international conference on public policy and management’ at IIM-Bangalore.
No improvement in water supply to village panchayats and slums
The project promised improved supply of potable water to Tirupur municipality and village panchayats, which, according to census estimates, have population of of 4.5 lakh each.
Interviews with slum dwellers of Tirupur municipality confirmed that they still have to buy water from the colonies with regularized connections or from water tankers, who sell it for Rs two to Rs five per pot.
They still have to wait long hours for the tankers to deliver water or walk long distances to fill their pots from the colonies.
The project documents claim that water supply to the municipality would be 25 mld out of the total 185 mld.
The concern with this claimed benefit is that the project is not directly related to the issues of water supply, distribution and extension of services; it just delivers water at the input points of the municipality and the village panchayats. In all 21 panchayats were promised 35 mld water from TWSSP.
The concession agreement states that all the panchayats should have contractual agreements with NTADCL for potable water supply, but local sources claimed that NTADCL was supplying water only to 10.
In some of the panchayats, water is supplied once in 10-12 days. The panchayat presidents have long been demanding that NTADCL should increase the allocated water supply to the villages.
Tirupur’s high migrant population – about two lakh in number at any given time during the year -- further stress the water supply.
According to media reports, local people have staged road blockages and protests against NTADCL, demanding an increase in the quantity of water supplied to the VPs. Water supply increased after such actions, albeit marginally.
Tariffs for domestic users are Rs five/KL and Rs 3.5/KL in the municipality and rural areas, respectively, which, project authorities claim, are subsidized by tariffs for industrial areas. Industrial users pay in the range of Rs 23-45/KL.
Tariffs for domestic consumers are slated to be reviewed after the first two years of the operations.
The concession agreement requires the concessionaire to introduce ‘subsidy correction factor’ to gradually end the subsidization of domestic tariffs.
Preliminary assessment shows that while the supply of water to the local polluting dyeing and bleaching industry has improved, the project has not been able to improve access and affordability of water for the lowest rung of the Tirupur society, i.e. slums-dwellers and panchayats.
All risks covered
Tirupur water supply and sewerage project exemplify public sector’s eagerness to assume the risks for and on behalf of the private sector.
The state government has provided the private partner guarantees against risk concerning quality, quantity, regulation and control, and use by others of the water flowing in Cauvery upstream of the abstraction area.
The state government has undertaken to regulate the use of ground water in Tirupur region for non-domestic purposes. It has agreed to extend the concession period of 30 years if NTADCL is not able to generate expected returns from the project within that period.
The government has also agreed to reviewing tariffs and changing the formula to calculate tariffs to make it more likely that NTADCL will recuperate its investment and make profits.
No claims from riparian or any other users of raw water from Cauvery can be brought against NTADCL for withdrawal of water from the river.
The state government will bear the expenditure on land acquisition, if any, and rehabilitation, relocation and resettlement of persons displaced by the project. The TM will lease project sites with all clearances.
The state government has guaranteed that any change in law or tax regime would not adversely affect NTADCL returns from the project. NTADCL would be granted exceptions under Tamil Nadu Land Reforms Act in relation to the leased land in case of any future change in the law.
The state government would have to mitigate any action or suit that may have material adverse effect on NTADCL.
The government would ensure that the wayside villages would enter into service agreements with NTADCL for purchase of potable water and discharge their dues.
The state government has undertaken not to use its ‘sovereign immunity’ in any lawsuit or asset.
NTADCL would be compensated for losses suffered during the concession period on account of lack or delay in any clearances, or any clearance revoked, not renewed or additional clearance not given by the state government.
The Tirupur municipality will also fulfill several obligations, including assisting the state government in rehabilitating the displaced, bearing the cost of acquisition and in amending water by-laws under Tamil Nadu District Municipalities Act, 1920.
The municipality will provide exemption, waiver, remission of taxes and levies of octroi, water taxes and property taxes during the period of concession.
The municipality would have to mitigate any legal action that may have material adverse effect on NTADCL.
The state government has agreed to provide the concessionaire ‘water shortage period fund’ (WSPF) of Rs 75 crore to make up for loss of revenue during the period when water supply is disrupted on account of shortage of water.
A ‘debt service reserve fund’ (DSRF) of Rs 50 crore has been created to provide against the risk of the concessionaire not able to generate revenues from its operations to service its debt.
Financial assistance
The state government would facilitate the financing of the project by permitting the creation of security interests over the facilities and systems and the establishment of suitable financial arrangements.
The state government would co-operate with NTADCL in financial closure, including changes in project agreement as requested by the lenders.
Confidentiality clause
A clause in the concession agreement states that neither of the parties to the agreement shall, at any time before the expiry of or termination of the contract, divulge or permit its officers, employees, agents or contractors to divulge to any other person, except on conditions of confidentiality and execution of confidentiality bonds, any of the contents of this agreement or any information relating to the negotiations concerning the operations, contracts, commercial or financial arrangements or affairs of the other party.
Transparency and accountability
Vital information about the project, such as that related to operations, shareholding, debt, revenue, expenditure and profits, remains unavailable to the public.
The project authorities have only PR propaganda for the media and the citizens, making it difficult to for anyone to make an independent assessment of the project.
The officials did not respond to any of the several attempts made by Dwivedi, the author of this report, to communicate with them. Finally, an RTI request elicited the response, which was terse in stating that since ‘NTADCL is not a public authority under the RTI Act,’ the information requested would not be provided.
Dwivedi then made an appeal to the Tamil Nadu state information commission, which decided in March 2008 that NTADCL was very much a ‘public authority’ and must answer the RTI request within the next 15 days.
NTADCL appealed to the Madras high court against the decision of the information commission.
In April 2010, the Madras high court upheld the decision of the information commission, ruling that NTADCL must be considered a ‘public authority’ under the RTI Act because it was essentially carrying out an activity that constitutionally belonged to the State.
“The activity that is undertaken by the petitioner company is essentially a power vested in the municipal authority under article 243(W) read with items 5 and 6 of the XII schedule to the Constitution,” the order passed by justice K. Chandru said.
NTADCL argued that since it was not “substantially financed” by the government, it could not be deemed a public authority under Section 2(h) of the RTI Act.
The court took the view that since the law did not specify the proportion of funding required for an entity to become “substantially financed”, it “will have to apply proper test in each case and apply the provisions of the RTI Act to those authorities.”
The order also relied on the Comptroller and Auditor-General’s (duties, powers and conditions of service) Act, 1971, which allows CAG to audit the accounts of any body or authority that has received no less than Rs one crore in public funding, to contend that NTADCL was “substantially financed” by the government.
“The office of the CAG can audit the accounts of the petitioner company after getting prior approval from the state government…. It cannot be contended that the petitioner company will not come within the term ‘public authority’ under Section 2(h)(d).”
The court observed that the PPPs “must explain to the people about their activities”.
“Every citizen has a right to know the working of such bodies, lest they may be fleeced by such companies,” the order said.
NTADCL has, however, stuck to its guns, appealing the order to a division bench of the Madras high court, where the case is pending as in October 2010.
(This article is entirely based on the study of Tirupur water supply and sewerage project by Manthan Adhyayan Kendra, an NGO based in Badwani, Madhya Pradesh, which tracks privatization in the water sector. The full study can be accessed on Manthan’s website at http://www.manthan-india.org/IMG/pdf/PPP-Tiruppur_Paper_IIMB_Conference_for_Website.pdf)

1 comment:

john son said...

Your information about water supply is really useful. Thanks for sharing this informative article.
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