ADB – Workshop on PPP in Water

Water Management Contracts

Key Principles

Anand K Jalakam
+91-99720-01819
anandkjalakam@gmail.com

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 Presentation Structure

 Water utility operational functions

 Policy issues for sustainable O&M
 Management Structures for O&M
 Key issues for delegation
 Key principles of contracting

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 Water Utility Service Regime
PUMP
SOURCE TREATMENT STORAGE CUSTOMER

MEASUREMENT

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 Strategic Business Units
PUMP
SOURCE TREATMENT STORAGE CUSTOMER

MEASUREMENT

Bulk Retail

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 Key Operational Functions
PLANNING,WATER SAFETY, ENGINEERING, ASSET MANAGEMENT, PROCUREMENT, IT

PRODUCTION DEMAND MGMT DISTRIBUTION

VALVING VALVING MAINTENANCE
LABORATORY REPAIRS REPAIRS
FACILITY MGMT

PUMP METER
SOURCE
WTW OHT

WRU CORD’N MECH & ELEC CUSTOMER SERVICE

PROTECTION CHLORINATION METER READING
MANAGEMENT QUALITY& SAFETY BILLING & COLLECTION
MONITORING DEBT MANAGEMENT

ACCOUNTS, FINANCIAL CONTROL, HUMAN RESOURCES, SAFETY, AUDIT, LEGAL

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 Policy issues for sustainable O&M
Governance
 Operational autonomy
 Ability to manage staff
 Flexibility in decision making
 Transparent subsidies

Management
 Responsiveness to consumers
 Efficiency
 Commercial viability
 Capacity to grow and transform

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 Possible options for reform

A. Integrated Municipal Management (IMM)

B. Dedicated Municipal Management (DMM)
C. Municipal Water Company (MWC)
D. Regional Water Corporation (RWC)
E. Delegated/Outsourced Management
(DOM)

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 A - Integrated Municipal Management
Urban Development Department
(UDD)

Policy, Subsidy,
Regulation
Shahdol Municipal Council

Water Services
User Charges

8 Consumers
A – Integrated Municipal Management

Advantages
 Simple to administer
 Managerial control with Municipal Commissioner
 Customers can deal with one agency for all
services
 Democratisation at the grass-root level
Weaknesses
 Low accountability
 Key staff does not belong to ULB
 Difficult to link tariffs to service delivery
 Less focus on water
 Councilor and operator conflicts leads to
controversies
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 B - Dedicated Municipal Management
Urban Development Department
(UDD)

Policy, Subsidy,
Regulation
Ujjain Municipal Corporation

Municipal Water Department

Water Services
User Charges

Mumbai, Pune
Nagpur, Surat

10 Consumers
 B – Dedicated Municipal Management
Advantages
 All the strengths of Option A holds good
 Ring-fencing of water account leads to improved
financial control and discipline
 Tariffs can be linked to service levels
 Transparent subsidies to poor can be ensured
 Possibility of performance incentives to staff
Weaknesses
 Limited career opportunities to staff
 Un-economical for small towns
 Councilor and operator conflicts leads to
controversies
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 C - Municipal Water Board/Company
Urban Development Department

Grant support
(UDD)

Policy, Subsidy,
Regulation
Bhopal City Corporation

Assets, Bulk
supply
Municipal Water Company
ULB and PHEO Staff

Water Services
User Charges

Bangalore, Chennai
Hyderabad, Delhi

Consumers
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 C – Municipal Water Board/Company
Advantages
 Protected from daily interference from policy makers
 Civil society can be included in management
 Functional autonomy but ownership with ULB
 Tariffs and service delivery can be linked
 Better financial planning and management

Weaknesses
 Require detailed initial planning and preparation
 Staff who are deputed may be unwanted by the parent
agency
 Not economical as each ULB requires a separate agency
 Require elaborate training to induce corporate culture
 Councilors involvement low hence they may resist
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 D - Water Corporatisation
Urban Development Department
Independent Regulator

Regulation

Policy, Subsidy,

Capital, subsidies
Regulation
Contract
Urban Local Bodies
Regional Water Corporation
(ULB1, ULB2,….ULBn)
Fee

User Charges

Electricity Cos’
Water Services

Orissa, AP, Karnataka

14 Consumers
 D – Regional Water Corporation

Advantages
 Facility to regulate by comparison
 Payments and performance can be lined
 ULBs can choose any utility
 Electricity unbundling experience in the state

Weaknesses
 Initial preparation and legislative support required
for sound organisational structure
 Regulatory regime required for ensuring
competition
 Low competition as there can be max 2/3 regional
utilities
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 E - Delegated Management (PPP)
Urban Development Department/
Independent Regulator

Grant support
Policy, Subsidy,
Regulation
Indore City Corporaiton
User Charges

Contract

Belgaum, Hubli, Mysore

Fee
Nagpur
Private Water Operator
Services

Tariffs

Customers
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 E - Delegated Management
Advantages
 Suitable for medium to large size ULBs
 Performance based incentive linked contracts
feasible
 Contractual Regulation possible
 ULB would gain value time for policy
 Contract management skills sufficient for ULBs
Disadvantages
 Low information availability can hinder business
planning
 Large companies can exploit small municipal
authorities
17  Some initial legal preparation required
 Management Options

Management Service Full Service

Providers Providers

Technical Service Bulk Supply

Providers Providers

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 Level of Private Participation
Planning Consultants Private
Design Consultants Private
Detail Engineering Consultants Private
Funding Multilaterals Private
Procurement Consultants Private
Supervision Consultants Private
Construction Contractors Private
Plant Operations Contractors Private
Leak repair Contractors Private
Connections Lic. Plumbers Private
Valve Operations Staff Public
Meter reading Staff Public
Billing Staff Public
Cash collection Banks Private
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Contract Payments Staff Public
 Key Contractual Issues - 1
 Imperfect Baseline Data
– Either a Baseline study (with consultants) or
– Include as contractual obligation as a
preparatory period + Contract rebasing or
readjustment
 Scoping of Work
– Bulk supply vs Distribution services
– Service improvement planning
– Business Planning
– Billing and Collection
– Procurement
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 Key Contractual Issues - 2
 Contract management capability
– ULB being the Obligator for service
– SLA can support contract administration
– Technical Auditor
 Payment to Operator
– Availability of funding stream
– Payment security
– Incentives

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 Key Contractual Principles
 Selection methodology – Transparent bidding
 Parties to Agreement
– ULB as obligator
– Operator as service provider
– SLA as contract administrator
 Contract Phasing
– Preparatory Phase
– Service Improvement Phase
– Operating Phase
 Obligations of parties
 Risk Allocation
– Operating, Market, Collection
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 Performance Deliverables
Preparatory Phase
– Service improvement plan
– Annual Operating Plan
– Information Management System
Service Improvement Phase
– Incremental increase in cash collected per unit
volume of water sourced
– Metering, increased coverage of HSCs
– Response times
– Service Interruptions
Operating Phase
– Incremental performance improvements
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 Operator Remuneration
Preparatory Phase
– One off Set up costs
– Annual Operating Costs
– Fixed Fee
Service Improvement Phase
– Rehabilitation costs
– Annual Operating Costs
– Fixed Fee + Performance Fee
– Share of positive cash accrual
Operating Phase
– Annual Operating Costs
– Fixed Fee + Performance Fee
– Share of positive cash accrual

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 Other Key Contract Principles
Dispute Resolution
– Amicable Settlement
– Adjudication - local
– Courts
Indemnity
– Historical defects
– Negligence
Termination
– Continuous default by either Party
– Fraud
– Insolvent
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 Experience in Karnataka

Parameter Unit Total

Before After % change
Supply Frequency Hours 2hr in 3-10days 24 hour Standard
Number of connections Number 16,399 24,145 47%
Volume of water supplied Cum/month 664,350 554,847 -16%
Volume of water consumed Cum/Conn/month NA 20
Non Revenue Water % >45% 6% -39%
Revenue billed in the Zone Rupees/month 1,383,243 2,880,826 108%
Maintenance Cost Rupees/month NA 129,697

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 Acknowledgements

 KUIDFC
 BWSSB
 KUWSDB
 KRWSSA
 USAID FIRE Project
 WSP-SA, World Bank

“Thank you”
anandkjalakam@gmail.com
+91-99720-01819

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