HYBRID ANNUITY BASED PPP MODEL

H. Subramaniam
March 3, 2016
HYBRID ANNUITY BASED PPP MODEL

I was recently invited to a conference organized by National Mission of Clean Ganga, and Ministry of Water Resources. This was a good learning on the new hybrid annuity-based Public Private Partnership (PPP) model being suggested in the creation of sewage treatment infrastructure along the Ganga basin.

Over INR 4000 crores have been invested in sewage treatment through Ganga Action Plan and other government initiatives in the last 30 years. These have been singularly ineffective in addressing the issues. There is a gap of more than 6000 MLD between the sewage generation and existing capacity. In addition, most existing plants are non-functional, inadequate and inefficient. With increased urbanization, this gap is projected to worsen in the next 10 years. The states of Uttar Pradesh, Bihar, Uttarakhand, Jharkhand and West Bengal are facing the brunt of this problem. Ganga and all our rivers are heavily polluted due to this problem.

To address this challenge, the Government of India is now proposing the hybrid annuity-based PPP model, which has worked successfully in the highways sector. Going forward, no projects would be coming out on EPC basis in the belt. Under this new model, upto 40% of the capital cost would be paid by the government during the construction phase (typically 18 to 24 months from award). The balance would be paid as annuity payments by the government over 15 (to 20 years) of the project, covering the remaining capital investment and annual O&M cost. The payment is linked to pre-defined performance standards.

An SPV will be created for each project, which will have majority stake by the Government of India, minority stake by the State Government and a supervisory role for NMCG. The SPV will have a tripartite MOU with the state government and the Urban Local Body (ULB). Under the contract, a tripartite agreement will be signed between SPV, ULB and Concessionaire. The payment to the concessionaire will be made by the SPV. To guarantee the same, a separate bank account would be created with 2 years liabilities set aside through budgetary support. This is meant to assure availability of funds at all times. This amount would be supplemented through Clean Ganga Fund or multilateral funding (from World Bank / JICA), if needed. This is 100% central government funding, and there is no state contribution - which is expected to speed up projects. About 6000 MLD STP infrastructure is planned to be developed through this mechanism.

To create the baseline data for all these projects, 5 PSUs - EIL, EPIL, NBCC, WAPCOS and NPCC - have been appointed to do the field assessment studies. They are supposed to submit their reports by end-March, which can be used by the bidders. All these projects would be technology neutral. It would only mandate the performance outcomes. Bidder can suggest any technology meeting those objectives, and the annuity revenue would be disbursed, based on achievement of those outputs.

The government is trying to create a market for the recycled water produced from these STPs. It has signed / will sign agreements with Railways, Power, Petroleum and Industry Ministry, so that all bulk users in that geographical belt would be mandated to purchase this water. However, no treated water revenue is being considered in the current evaluation, and that is a subsequent bonus, as the demand gets created gradually.

If the project is successfully implemented in the Ganga river, the government wants to extend it to other river basins across the country. Naturally, all this is talk and we would need to see how the execution happens on the ground. It will be interesting to study the implication of this model on the wastewater treatment industry, and how it adapts to the opportunities and challenges presented.

H Subramaniam H. Subramaniam is Editor, EverythingAboutWater magazine. He can be reached at subrah@eawater.com.

Send us your comments at: mayur@eawater.com