Delhi's pipedream

A privatised water distribution project built around a flawed contract and a non-operational treatment plant is likely to result in higher tariffs and denial of water to large sections of the national capital's poor residents.

AMAN SETHI in New Delhi

"DELHI Jal Board [DJB] marches ahead in its effort to provide safe potable drinking water to the citizens of Delhi," claims the website of the Union Ministry of Water Resources. Self-congratulatory proclamations aside, the website provides a host of telephone numbers, project proposals and a regularly updated "What's new" section. What the website does not contain, and DJB officials are reluctant to share, is a copy of the Sonia Vihar Water Treatment Plant contract signed between the DJB and Degremont, Indian subsidiary of the global public utilities giant Suez Lyonnaise.

The Sonia Vihar Water Treatment Plant, worth an estimated Rs.880 crores, is built on the basis of a design-build-operate contract with Degremont. Designed to treat and supply 140 million gallons a day (MGD) of water to South and East Delhi, the plant was supposed to be an example of thoughtful and visionary planning. It was conceptualised keeping in mind the completion of the Tehri Dam project in Uttaranchal (then part of Uttar Pradesh) in the early 1990s. The assumption was that the two projects would be complete around the same time and complement each other. The Central Public Health and Environmental Engineering Organisation cleared the project in 1998 and the plant was expected to be up and running in two years.

Unfortunately, things that could have gone wrong, did. While the plant is complete, the Tehri dam is yet to deliver the 300 cusecs of water that Delhi was promised. Meanwhile, the DJB and the Delhi government have been left clutching at straws. Under pressure from its own farmer lobby, Uttar Pradesh has refused to part with its own share of Ganga water, making the absence of a formal water-sharing agreement embarrassingly evident. (Water from the Tehri dam was to reach Delhi via the Upper Ganga Canal in Muradnagar in Uttar Pradesh.) Efforts to get water from Haryana too failed, despite interventions by Prime Minister Manmohan Singh and Delhi Chief Minister Sheila Dixit.

A non-operational Sonia Vihar plant has meant that Delhi's 24X7 water supply scheme, a fond hope at best, is now a distant dream. The 24X7 water project, which was to receive water from the Sonia Vihar plant, is a vital part of the administration's attempts at making Delhi a "world-class city". A significant part of the 140 MGD of water processed by the plant has been allocated to DJB operating zones South II and South III, where a pilot project is under way. As per the project, the water distribution services of these two zones will be handed over to private corporations, on the condition that they supply treated water, at a specified pressure, round the clock for five years. After the trial period, the DJB will invite tenders for all 21 zones in Delhi, paving the way for dramatic water sector reforms in the national capital.

SO why are the Sonia Vihar documents not available? A possible reason could be that the contract terms are indefensible. The contract imposes stiff penalties on the DJB and offers Degremont easy incentives.

The DJB must ensure that the plant receives an adequate supply of water, in the absence of which it is liable to pay for base service charges and inventory charges for consumables and chemicals. Estimates for such penalties range between Rs.50,000 and Rs.80,000 a day. In media statements DJB officials have explained that Degremont is yet to invoke the penalty clause, but concede that should the situation demand the company is in a position to claim damages.

The contract provides incentives and bonuses for over-production and energy savings. While performance-based incentives make sense, the parameters set for Degremont are far below those set for other DJB plants. "The Degremont plant has been allowed 232 Kwhr [kilowatt hour] per million litres of water treated while DJB plants, of similar capacity, consume between 170-180 Kwhr per million litres of water. The contract is designed in a way to ensure that the company always meets its targets," says Virender Kumar Gaur, general secretary of the Municipal Workers Lal Jhanda Union.

The contract is solely for the management of the plant. The DJB owns the plant and must pay for its maintenance and major repairs. The contract requires that Degremont pay for minor repairs, but union members explain that if left unattended, minor snags soon attain major proportions. Not only is the contract restrictive, but the Central Vigilance Commission (CVC) has raised concerns regarding the tendering process. The CVC has asked its techinical examination committee to examine why the contract, which was originally worth Rs.295.75 crores, has been awarded for almost Rs.900 crores without a re-tendering process.

What is particularly disturbing is that the issue is not about one bad contract that can be re-negotiated in five years. Sonia Vihar must not be evaluated as a stand-alone project, but as a template for the future of water production and distribution in the national capital. According to a DJB report published in July 2004, the 24X7 water supply scheme is expected to cost approximately $185 million over the next 10 years, with at least 60 per cent of the funding coming via loans from the World Bank.

Arvind Kejriwal of Parivartan, a non-governmental organisation (NGO), alleged that World Bank funding could have influenced the way the project was conceived. Kejriwal explained how the World Bank had "micro-managed" the tendering process for the consultancy contract that was eventually awarded to Price Waterhouse Coopers (PwC). Correspondence between the DJB and the World Bank, made available to Frontline, shows that the World Bank repeatedly objected to the selection process until PwC won the contract.

The PwC report published in July 2004 and the GKW Consult report that followed in January 2005 are littered with World Bank jargon. Phrases such as "subsidy transparency", "full cost recovery" and "depoliticisation of tariff" - World Bank terminology for corporatisation and commoditisation of public services and utilities - appear frequently, as do references to the need to eliminate all subsidies and cross subsidies. Trilegal, a legal consultancy firm, has even drawn up a draft contract agreement for privatised water distribution.

The 24X7 project is based entirely on these reports. However, none of these documents is readily available to the public. The only way to obtain copies of these reports and contracts is through specific submissions made under the Right to Information Act. Not surprisingly, there has been limited public resistance to the programme - hardly anyone knows what it is about.

According to the conditions in the contract drawn up by Trilegal, each distribution company is contract-bound to ensure uninterrupted water supply at a specified pressure to the operating zone under its control. If it fails to meet this target, the company will have to compensate the DJB and its consumers in the form of penalties and lost bonuses. While this seems to be an unusually fair contract by World Bank standards, like most such proposals, it comes with a catch. Uninterrupted water supply is possible only if the DJB supplies each zone with water on a 24X7 basis. If the DJB fails to maintain its end of the contract, the company is free from its contractual obligations. DJB officials privately admit that water distribution within an operating zone is the easiest part of the complex process of water delivery. If the DJB is going to ensure that water reaches the input point of every zone, why have a private company to distribute it?

Another loophole that is bound to be exploited is that the contract does not force the company to ensure that every household in the zone gets water 24X7. The contract requires every operating zone to be divided into several district metering areas (DMAs). As long as the input point of the DMA is provided with a constant supply of water, the company is deemed to have done its duty and can claim its incentives. Thus, contractually, there is nothing to stop the company from supplying water for a limited period of time to each house in a DMA and still claim to supply water 24X7. Essentially, the entire project revolves around paying private companies to distribute water from the operating zone input to the DMA input.

The project ignores the glaring fact that, in spite of the Sonia Vihar plant, Delhi will face a massive water deficit by 2015. There will not be enough water for 24X7 supply. Supporters of the project claim that the increased efficiency of the private sector implies that water losses are minimised, thereby ensuring that there is enough water. They point to the fact that almost 60 per cent of DJB water is classified as non-revenue water (NRW). A specific clause in the draft contract requires that the companies collectively bring down the NRW percentage from 59 per cent to 23 per cent in five years.

The NRW classification is probably the most dangerous clause in the entire reform process. NRW is water that the DJB does not earn from. It includes losses owing to leakages and theft, but more important, includes all water supplies to slums, unregularised colonies, standposts and public taps. Without these provisions, a significant percentage of Delhi's working class population would go without water. According to projections by the Central Statistical Organisation, 30 per cent of Delhi's population lives in recognised slums, not including pavement dwellers, river-side dwellers and the homeless.

The easiest way to reduce NRW percentages is to cut off supply to these areas, making available water for those who can pay. An engineer in the DJB said most water leakages occurred in "rising mains" - the massive pipelines that carry water from water treatment plants to reservoirs. Leakages in the distribution sections are significantly lower. Thus, handing over distribution to a private company will not help reduce leakages. It will mean that most of Delhi's population shall live without water.

THE diversion of water from low-revenue sources to high-revenue sources is symptomatic of a growing trend towards the appropriation of common goods and resources by the corporates and the elite. It implies that water is no longer seen as a community good, but as an economic service rendered to an individual. This allows for a scenario where water is subject to the laws of demand and supply, just like any other commodity in the market. Invariably, this means that a privileged few gain access to uninterrupted water supply at the cost of a vast impoverished majority. PwC, GKW Consult and the World Bank have already recommended that water tariffs be raised, and the DJB move towards full cost recovery of water services will make water prohibitively expensive.

It is important to see "tariff rationalisation" for what it is. Privatisation of a sector is possible only in an assured profit scenario. Without guaranteed returns, it is not a viable proposition for a corporate entity. Water privatisation will succeed only if water tariffs are raised to a point where the company actually makes a profit or the government provides "incentives" in the form of assured profit. Water sector reforms are a strange parody where the state withdraws subsidies for its citizens on the grounds of "unsustainability" and hands over the same subsidies to the corporates in the form of "incentives".

PwC, GKW Consult and the World Bank seem to know that water is a politically sensitive issue. Hence most reports call for a dispassionate "depoliticisation" of the issue. The Delhi Water and Wastewater Reforms Bill, 2004, drafted by PwC, urges the government to set up an independent "Delhi Water and Wastewater Regulatory Commission" to regulate a privatised water market in the capital. According to the Bill's clauses, the commission will be a three-member panel where at least two members shall be "from outside government with at least 15 years experience in private industry or academic and research institutions". The bill disallows membership to parliamentarians and legislators or anyone who holds any post in a political party. It is as if the World Bank is acknowledging that often democratic processes seem to result in policy decisions that are in the public interest.

In its defence, the Delhi government has repeatedly stated that the project is still on the drawing board. It says that the privatisation of distribution services will be on a trial basis for the first five years and will be implemented only after a thorough evaluation. But like the documents of the contracts and tenders, the results of the "thorough evaluation" may probably be withheld from the public for as long as possible. By the time the information filters down into the public domain, it might just be too late.