1

ADB – Workshop on PPP in Water

Water Management ContractsKey Principles

Anand K Jalakam+91-99720-01819

anandkjalakam@gmail.com

2

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

3

Water Utility Service Regime PUMP

SOURCE TREATMENT STORAGE CUSTOMER

MEASUREMENT

4

Strategic Business UnitsPUMP

SOURCE TREATMENT STORAGE CUSTOMER

MEASUREMENT

Bulk Retail

5

Key Operational Functions

WTW OHT

WRU CORD’NPROTECTIONMANAGEMENTMONITORING

MECH & ELECCHLORINATIONQUALITY& SAFETY

PRODUCTIONVALVINGLABORATORYFACILITY MGMT

DISTRIBUTIONMAINTENANCEREPAIRS

CUSTOMER SERVICEMETER READINGBILLING & COLLECTIONDEBT MANAGEMENT

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

PLANNING,WATER SAFETY, ENGINEERING, ASSET MANAGEMENT, PROCUREMENT, IT

DEMAND MGMTVALVINGREPAIRS

SOURCEPUMP METER

6

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

7

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)

8

A - Integrated Municipal Management

Consumers

Shahdol Municipal Council

Urban Development Department (UDD)

Pol

icy,

Sub

sidy

, Reg

ulat

ion

Wat

er S

ervi

ces

Use

r Cha

rges

9

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 levelWeaknesses 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

10

B - Dedicated Municipal Management

Mumbai, PuneNagpur, Surat

Consumers

Ujjain Municipal Corporation

Urban Development Department (UDD)

Pol

icy,

Sub

sidy

, Reg

ulat

ion

Wat

er S

ervi

ces

Use

r Cha

rges

Municipal Water Department

11

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 staffWeaknesses Limited career opportunities to staff Un-economical for small towns Councilor and operator conflicts leads to

controversies

12

C - Municipal Water Board/Company

Bangalore, ChennaiHyderabad, Delhi

Consumers

Municipal Water CompanyULB and PHEO Staff

Urban Development Department (UDD)

Pol

icy,

Sub

sidy

, Reg

ulat

ion

Wat

er S

ervi

ces

Use

r Cha

rges

Bhopal City Corporation

Gra

nt sup

port

Ass

ets, B

ulk

supp

ly

13

C – Municipal Water Board/CompanyAdvantages 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

14

D - Water Corporatisation

Electricity Cos’ Orissa, AP, Karnataka

Consumers

Urban Local Bodies(ULB1, ULB2,….ULBn)

Urban Development Department Independent Regulator

Pol

icy,

Sub

sidy

, Reg

ulat

ion

Wat

er S

ervi

ces

Use

r Cha

rges

Cap

ital

, sub

sidi

es

Regional Water Corporation

Fee

Con

trac

t

Reg

ulat

ion

15

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

16

E - Delegated Management (PPP)

Tar

iffs

Serv

ices

Customers

Indore City Corporaiton

Urban Development Department/ Independent Regulator

Pol

icy,

Sub

sidy

, Reg

ulat

ion

Use

r Cha

rges

Gra

nt sup

port

Private Water Operator

Fee

Con

trac

t

Belgaum, Hubli, Mysore Nagpur

17

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 ULBsDisadvantages Low information availability can hinder business

planning Large companies can exploit small municipal

authorities Some initial legal preparation required

18

Management Options

Management ServiceProviders

Full ServiceProviders

Technical Service Providers

Bulk SupplyProviders

19

Level of Private ParticipationPlanning Consultants PrivateDesign Consultants PrivateDetail Engineering Consultants PrivateFunding Multilaterals PrivateProcurement Consultants PrivateSupervision Consultants PrivateConstruction Contractors PrivatePlant Operations Contractors PrivateLeak repair Contractors PrivateConnections Lic. Plumbers PrivateValve Operations Staff PublicMeter reading Staff PublicBilling Staff PublicCash collection Banks PrivateContract Payments Staff Public

20

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

21

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

22

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

23

Performance Deliverables

Preparatory Phase– Service improvement plan– Annual Operating Plan – Information Management SystemService Improvement Phase– Incremental increase in cash collected per unit

volume of water sourced– Metering, increased coverage of HSCs– Response times– Service InterruptionsOperating Phase– Incremental performance improvements

24

Operator RemunerationPreparatory 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

25

Other Key Contract Principles

Dispute Resolution– Amicable Settlement– Adjudication - local– Courts

Indemnity– Historical defects– Negligence

Termination– Continuous default by either Party– Fraud– Insolvent

26

Experience in Karnataka

Parameter UnitBefore After

Supply Frequency Hours 2hr in 3-10days 24 hour StandardNumber 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

Total% change

27

Acknowledgements

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

“Thank you”anandkjalakam@gmail.com

+91-99720-01819