Nagpur, 24x7 Water Supply Project

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In November 2011, Nagpur Municipal Corporation (NMC) awarded a 25-year concession (including initial rehabilitation and construction period of 5 years) to a consortium of Veolia Water India (a subsidiary of Veolia Water,France) and Vishvaraj Environment Limited (a subsidiary of Vishvaraj Infrastructure Limited, India) for the 24x7 drinking water service operation and maintenance, in the state of Maharashtra. This contract follows a successful pilot demonstration project(awarded in July 2007) between Nagpur Municipal Corporation and Veolia Water India in the Dharampeth zone of the city, where 150,000 citizens (including 30,000 slum inhabitants) enjoyed access to 24x7 safe water supply (PPI Project ID 4599). Under the contract, the consortium was responsible for management of drinking water production, treatment, transport, storage and distribution through to the consumer's tap. The operator would have to deliver a continuous supply of drinking water to to the entire population of Nagpur,including the third of the population living in the city's slums, 24 hours a day and 7 days a week, up from the current 2-12 hours a day. The contract included an initial 5-year works program, mainly to rehabilitate and upgrade the city's 6 water production plants and repair the 2,500 km of pipe network. The production capacity of the system would eventually be close to 750 million liters/day (from current 550 MLD) and leakage from the network, which was currently 60%, would gradually be lowered to international standards. The project involved connecting up 2.7 million people (about 350,000 to 450,000 homes) to the distribution network. The amount of water available per person would be increased from 90 liters/day to 130 liters/day over the next 5 years. An average of 6000 to 8000 water meters a month would have to be installed to meet this target. To be able to complete all of the rehabilitation and extension works in the space of 5-years,the operator would employ the 430 people who worked for Nagpur Municipal Corporation and who would join the new company. This is the first time that an Indian city had decided to outsource the entire operation and maintenance of its water service to a private operator for such a lengthy term. The consortium of Veolia Water India (50%) and Vishvaraj Environment Limited (50%)established Orange City Water (OCW),a special purpose vehicle,to implement the project. The consortium won the tender through international competitive bidding, conducted by Nagpur Municipal Corporation (NMC), by quoting the lowest management fees of US$ 0.15 (INR 7.90) for each cubic metre of water billed and paid for. Nagpur city’s current average tariff was around INR 14.00/m3 ($0.26/m3). Under the contract, the SPV was to recover the capital costs and operating costs including returns through this management fees during the term of concession.There would be performance based incentives as well as penalties during the O&M period. Under the contract, the government had retained important risks, notably the responsibility for furnishing and paying for raw water supply, as well as electricity cost risk. It had also kept key rights – to connect and disconnect customers and to set consumer tariffs. The concession agreement was signed on 13th March 2012. The project attained financial closure on 30th March 2012. The grant/debt/equity ratio of the project was 47/38/15. The estimated capital cost of the project at the time of financial closure was US$ 115.6mn (INR 5780mn @50 INR/USD). Financing comprised a 14-year term loan of US$ 44.2mn (INR 210mn),sponsor equity of US$ 17.1mn (INR 855mn) and Government Grant of US$ 54.3mn(INR 2715mn). The grant of INR 2715mn would be provided by Central Government (through JNNURM Fund) to an extent of INR 1939.3mn and by State Government to an extent of INR 775.7mn. The term loan had a 3-year grace period and a repayment schedule of 44 quarterly installments. The lead arranger for the debt was IDBI and oth