Aurangabad City Water Utility Company Limited

active

In 2011, the City of Aurangabad in Maharashtra state, awarded a 20-year concession (including 3 years of construction period) to a consortium led by SPML Limited to operate and maintain its water system, including bulk water systems,and reconstruct the distribution infrastructure for 24/7 continuous water supply in the city. The concession contract required the operator to manage the entire water supply chain, including constructing new assets, rehabilitating the existing distribution system, and making significant service improvements. The contract could be extended by a maximum of 10 years to accommodate increase in the share of private financing and/or changes in scope of the project. Aurangabad Municipal Corporation (AMC) managed the water supply to the city of 1.2 million population (expected to reach to 2 million in next 20 years). Aurangabad received water from Jayakwadi dam which was 45 kms away from the city and 159 mts below the city elevation, requiring pumping over a long distance. The bulk water off-take and transmission facility had a capacity of 156mld. Leakages in raw water transmission pipes led to a loss of 15mld of raw water. Distribution system leakages led to further losses of 44 mld of treated water. As a result, the city supplied only 88 mld to consumers.The city currently had 100,000 meters installed of which 97% were domestic and 3% for commercial and industrial use.The city currently levied a flat monthly tariff, and cost recovery was approximately 48.5%. The
scope of project included construction of 292 MLD
head
works in Jaikwadi
Dam
and
47 kms
long new
parallel
water
pipeline of 2000mm
dia of MS
pipe,10MLD master balancing reservoir at Nakshtrawadi, 17 numbers of new master balancing/elevated
service
reservoirs,
192
MLD
water treatment
plant,approach bridge, 42kms of transmission
mains,
pumping
machinery
&
electrical
installation,
rehabilitation
of
1290
kms
existing
water pipeline
to supply potable grade water (as per
CPHEEO
norms)
to
Aurangabad. The
main
focus
of
the contract
was
to
achieve
operational
efficiency
through
Non
Revenue
Water
(NRW)
reduction
from
existing 58%
to
15%
in
3
-years'
time,
metering,
computerized
billing
and
collection
and
installing
SCADA
systems along
with
GIS
and
network
modeling
for
a
consumer
base
of
250,000 connections.
In 2006, AMC invited private participation for building a parallel bulk water supply line under a BOT arrangement. The city had received several responses, but the financial bids were deemed unaffordable. Moreover, without rehabilitation of the distribution network, the benefit of increased bulk water would not be realized because of high distribution losses. Therefore, AMC decided to pursue both bulk supply augmentation and partial rehabilitation of distribution network. AMC decided to pursue a concession model in which the operator would have end-to-end responsibility to source and distribute water. The end-user tariff would be fixed by the AMC upfront and escalated during the term of the contract at a predetermined rate. The operator would be provided an annual grant to bridge the gap between cost recovery tariff and that fixed by AMC. This would also be the bidding parameter and the operator requiring the lowest annual grant would be selected. The General Body of AMC formally resolved to pursue a PPP arrangement in August 2009. A revised RFQ was launched in end of August 2009. 11 consortia submitted RFQs and 9 were shortlisted for the proposal stage. However, because of stringent contract conditions, only 2 companies submitted bids. The financial bid of one of the consortium was not accepted since it was conditional, so the remaining bidder, a consortium led by SPML Limited, was accepted in March 2011. SPML consortium had become the lowest bidder by requesting the lowest grant from Aurangabad Municipal Corporation. A Letter of Intent was issued to the preferred bidder in April 2011 and the concession agreement was signed in September 2011. The consortium of SPML (58.8%), Essel Infraprojects (21.2%), Vatech Wabag (10%), and National Water and Sewerage Corporation, Uganda (10%) incorporated Aurangabad City Water Utility Company Limited (on 30 December 2011), a SPV, to execute this concession. SPML had inducted Essel Limited into the consortium by diluting its equity stake in 2012. The concession agreement enumerated service standards including 100% coverage, 24-hour continuity of supply, water loss (15% in the entire chain), complaint redressal (at least 80% within 24 hours), water quality (potability), and at least 95% functional meters. 25% of the annual grant was linked to the achievement of service standards. If the operator was unable to maintain a service standard above the requirements, the annual grant was to be reduced by a proportion equal to the weightage of the service standard. The operator's revenue model was based on user charges and the AMC annual grant. The operator levied and collected user charges based on the pre-specified tariff that differentiates between domestic and non-domestic consumers. During the construction and rehabilitation phase, the tariff structure was on a flat monthly basis. On completion of this phase, the tariff structure would turn volumetric. Consumers in the higher categories of consumption were levied a higher per unit rate for the entire consumption. The tariff was indexed every 3-years at an average rate of approximately 7% per annum during the term of the contract. SPML had commercial freedom in all other respects and retained the upside of (i) optimization of capital expenditure, (ii) operating efficiency, and (iii) commercial efficiency such as maximizing connections, consumption, and collections. The operator would establish a collection account into which all the user charges collected from the customers were deposited. This account would be used to make predetermined payments such as electricity payments, raw water payments, and salaries to employees deputed from AMC to the operator. The surplus after these payments would be transferred on a monthly basis to a water payment account for use by the operator. AMC would provide an annual grant to the operator from the 1st year of the contract. This would be increased at the rate of 6% per annum during the term of the contract. AMC would deposit this grant into the water payment account. In addition, AMC would also maintain a water payment reserve account in which 1.5 times the annual grant would be maintained throughout the duration of the contract as a payment security to the operator. The operator was required to bear escalation in electricity costs and raw water costs up to 10% and 15% per annum, respectively. The operator would also bear the risk of raw water unavailability up to 50% of the allocated quantity as well as revision in salaries of the employees deputed to the operator by AMC. The grants would be provided in pre-specified installments by the national and state governments. If the grants were delayed or withheld for any reason, the operator had the responsibility to mobilize additional financing, which would be compensated by AMC. The annual grant by AMC was also a source of financing since it was available upon the 1st year of contract. A part of this grant could be used to finance operating expenditure, since the existing water operations were in deficit. The residual amounts were available for the incremental expenses the operator might incur in O&M of the existing system or to partially finance capital expenditure for new assets. The project had achieved financial closure in October 2013. The project cost was estimated at US$ 135.1mn (INR 7920mn @58.6 INR/USD) - this included the original project cost US$ 61.4mn (INR 3600mn), and cost escalation in original scope US$ 25.6mn (INR 1500mn) and cost escalation because of increased scope US$ 47.9mn (INR 2810mn). Government of India (through JNNURM) would finance 80% of the original project cost (INR 2880mn). The state government of Maharashtra would finance 10% of the original project cost (INR 360mn) and 50% of the cost escalation (INR 750mn).The private operator was required to finance the residual costs of US$ 66.9mn (INR 3920mn). The concession agreement was signed at the end of 2011, subsequent to which the operator started carrying out preparatory activities. The contract was to have been effective 6-months after signing, but this period had been extended. Permission from state government was awaited for hand over of assets to the operator.