Speeches & Remarks 2006

Public-Private Partnerships Can Help Solve India's Water and Sanitation Challenges

by David C. Mulford
U.S. Ambassador to India

(This signed article appeared in the March 22, 2006 edition of The Hindu)

Water and its management are a critical issue in India and there is an urgent need for investment in water and sanitation infrastructure across the country.   Since 1992, countries around the world have marked World Water Day every March 22 to promote awareness and understanding about issues related to water.  This year it is timely to highlight effective ways to attract the resources and expertise necessary to support such investment.

Partnerships between public and private entities have a proven record for raising project financing and bringing in technical expertise for infrastructure projects, including water and sanitation.  They can accelerate solutions and enhance operations and service.

Investment in water and sanitation has indisputable economic benefits.  The World Health Organization (WHO) estimates that every U.S. dollar invested in water and sanitation generates an economic benefit of $3 to $34, depending on the type of water system installed and the region where the investment is made.  Whatever the exact number, investment in water and sanitation not only improves service and quality of life, but also has a direct impact on the economy generally.

On February 7th in Chennai the Tamil Nadu Chief Minister inaugurated a public-private partnership that is now providing water and sewerage services to thousands of Tirupur area residents.  The project was initiated in the mid-1990s when the Tirupur Exporters Association recognized the need to improve the area's infrastructure to remain competitive in the knitwear industry but did not have the resources to finance the project.

The solution was to establish the New Tirupur Area Development Corporation, Limited, a group of private and public entities, which became the first public-private partnership in the water and sanitation sector in South Asia operating on a Build-Own-Operate-Transfer (BOOT) basis.  Today, thanks to this initiative, Tirupur residents now receive water every day for 4-6 hours, as opposed to receiving water only on alternate days at the best of times prior to the project.  Household water connections have increased by 8,000 and local industry now has a reliable source of water.  One hundred percent of new domestic users have paid for the water connections to access high quality water - the fee covers the capital costs of each new connection.

The Tirupur project is a great example of how private sector involvement in public service delivery can dramatically improve access to water and sanitation.  In India, where about 13% of the world's population that is un-served for water and 43% of the world's population that is un-served for sanitation resides, such improvements show the way forward.

The Tirupur project illustrates convincingly that private sector participation can provide the necessary complement to government investments to make it happen.  It also demonstrates that the private sector can provide important services to the poor - and at lower costs lower than those paid by so-called beneficiaries of government subsidies.

With a focus on the poor from the outset, the public-private partnership in Tirupur covered the water and sanitation needs of the entire city population, including close to 80,000 slum residents.

In India, virtually all water and waste water systems are currently managed by the public sector, and most fail to meet the needs of the citizens or businesses they serve. Enlisting the private sector in the water sector brings finance, reduces waste and lowers costs when supported by effective governance and transparency.

For instance, virtually no single city or utility in India has the capacity to manage a comprehensive program to reduce leakages or lost revenues.  A number of utilities continue to lose close to 50% of their water to leaky pipes, illegal connections and unbilled or unpaid for water.   Not only is the water itself wasted, so is the energy required to treat and pump the water.  By using performance-based management contracts to draw on the technical and managerial skills of the private sector, public utilities can enhance their ability to tackle such operational and maintenance problems and improve service to their customers.

Navi Mumbai near Mumbai has shown how to improve water and sanitation services by using performance-based contracts to manage its water distribution and transmission system.  The results are astonishing.  Revenues were increased by almost 45% the year following the introduction of the new contracts!  The city was also able to reduce unnecessary expenditures - over a two-year period the city reduced its annual energy consumption by Rs. 45 lakh on sewerage contracts alone.  Significantly, customer complaints to the utility decreased to almost zero.  Performance based contracts allowed the utility not only to provide better service to its customers, but also at lower operational costs.

Some argue that public private partnerships result in higher water tariffs.  But this will only happen when tariffs are too low in the first place and operating costs are not being recovered.  The fact is there must be revenue to cover operating costs, and it either comes from tariffs or government subsidies.

If tariffs are too low and revenues come from subsidies, water and energy wastage increases because there is minimal investment and no incentive to conserve water or repair inefficient distribution systems.  On the other hand, public policy makers must bear in mind that if tariffs are increased, they must be linked with better services. If subsidies are required, they must be carefully targeted for the poor and most needy sectors of society.

While opponents of private sector participation argue that it will result in increased tariffs and negatively impact the more than 260 million Indians living on less than a dollar a day, the fact is that most of the poor in India today do not have access to any piped water at all!  In fact, in order to get water many of India's urban poor currently pay up to ten times more per liter of water from unregulated private water vendors than their more fortunate neighbors do from the public utility, and often this higher priced water is unclean.

The private sector can and does contribute sorely needed investment capital as well as vital technical and management expertise.  In the case of Tirupur, the private sector raised the financing - Rs. 1,023 crore - necessary to finish the capital-intensive project.  This public-private partnership also took responsibility for the design, construction, operations and maintenance of the project.  Independent auditors and engineers have been engaged by the local government and project partners to oversee the project.  The U.S. Government, through the Agency for International Development (USAID), was proud to help underwrite the risk by providing a partial guarantee and technical assistance to this public-private partnership, an important first model in India to address the critical issue of water service delivery.

So how do we move this model with its positive benefits forward?  Governments at all levels should think creatively about how to work with appropriate private sector partners to address crucial water and sanitation issues.  In addition, we must work together to create a legal and regulatory environment that allows for creative private sector participation in financing, designing and operating infrastructure.  Subsidies for water and sanitation services must be rationalized and targeted more appropriately.  Only then will India begin to seriously address its water and sanitation issues and capitalize on the investments in infrastructure that is waiting to spur economic growth and improve the lives of its citizens.