Proposal for Implementation of a 150 MLD Desalination Project for Kutch Industries at

Bhadreshwar by Kathari Water Management (a 100% owned water platform of India’s

Largest Green Fund, managed by Eversource Capital)

[1] Kutch District Profile

Kutch is the largest district of India. It is a major industrial hub which comprises of ~250 Large
and medium industries and ~6,000 small and micro (MSME) industries.
Post earthquake in 2001, state government announced fiscal incentive package for
rejuvenation of the economy. Against an investment of INR 2,500 Crs before earthquake, the
region has received an investment of over INR 1,50,000 Crs after the catastrophe. The region
has become a major area of revenue for the state. The region hosts various industries such
as steel, minerals, textile, pipes, cement, food and others.
With over INR 2 lac crore of committed investments in next few years, the region is likely to
strengthen its position as a strong manufacturing hub. Some of the notable future projects are
world’s largest proposed renewable energy park of 30 GW capacity, Green hydrogen facilities,
Triton Electric Vehicle in e-mobility.

[2] Water Demand and Supply

After the surge in the industrialisation in Kutch, the water utility finds it difficult to meet the
water requirements of the industry. The estimated demand in the region is about 220 Million
Litres Per Day (MLD). Although Gujarat Water Infrastructure Limited (GWIL) has committed to
supply 135 MLD through an agreement, it manages to meet only -60 MLD demand due to the
deficit in its water source - Narmada water. Additionally, there are several small and medium
industries that are not part of the GWIL commitment list and agreement. Inclusion of these
industries could result in another unserved water demand of 70 MLD. Industries resort to
tanker water supply to fulfil its water needs, albeit being an expensive temporary solution.
Upcoming significant investments, will further accentuate the demand supply gap in the
absence of any new water source. The industrial investment worth INR 1,50,000 and double
the investment in pipe line, cannot function without assured water supply from multiple
sources. Based on previous studies the unmet demand is in the region of 150 MLD.
Presently the industries are paying on the average a tariff of Rs 60 per kl for water which is
being supplied by GWIL. This tariff is being escalated at the rate of 10% per annum.

[3] Need for a Desalination Project

To enable the industries to operate without interruption and meet the region’s overall water
demand, Government of Gujarat proposed Federation Of Kutch Association (FOKIA) to build
a desalination project in 2006 jointly with industries. Desalination plant offers a reliable and
stable water throughout the year. The need for desalination plant is reinforced by the new
upcoming investments. To reiterate in other words, only large desalination plant can offer a
reliable water source to meet the fast-growing water needs of Kutch region. The 2016 Fitcher
(india) Pvt Ltd report also emphasised the need for a desalination which was duly accepted
by the Gujarat state.
Various attempts have been made over the years for the desalination plant, details of which
are captured in Annexure.

[4] Project Capacity, Costs and Implementation time frame

Given the strong water demand including the unmet demand and to substitute Narmada water,
the desalination plant shall be sized for a capacity of 150 MLD. Indicative cost of the project
would be INR1,350 Crs (excludes distribution network costs) based on the recently awarded
contracts. On inclusion of the project development cost of INR 150 Crs, the overall project cost
would be INR1,500 Crs (excludes GST). The project envisages sea water intake system,
desalination unit and brine disposal management.
Including the time required for obtaining environmental clearances and land approvals etc, the
project could be implemented over a 42-month time frame.

[5] Role of Govt of Gujarat, FOKIA and SPV

Several large desalination projects have been awarded in the recent past to the private sector
for implementation. However, the last few projects awarded have either not progressed or
have been cancelled.
Developing and implementing a large desalination project requires clear division of scope
between the private sector and Government as well as active support from the Government
and end users for making it successful. Without the above, it would be difficult to attract private
investment into these projects.
Project Implementation Agency: Existing SPV – Kutch Water Distribution Co Ltd (KWDC)
would be the implementation agency for the project.
Clear Identification of Scope: Treated water distribution and sales shall be under the scope of
government agency (GWIL) that caters to the water supply to the industries. This agency shall
continue to expand and operate the distribution network. KWDC will supply the treated water
at the plant boundary to the state agency in-charge of the distribution network. The agency
will sign take or pay offtake contract with KWDC.
Role of various agencies
- Role of Government of Gujarat and its agencies :
▪ Land allotment for the project of approx. 35 to 40 acres at a suitable site
▪ Develop and manage the water distribution from the desalination plant
to the beneficiary industries
▪ Bill and collect the water tariff from the industries and deposit into a
designated escrow account
▪ Provide the necessary offtake guarantee for volume and tariff to the
SPV to enable financing of the project by the SPV
▪ Provide the necessary policy support to enable use of renewable
energy by the SPV for production of water and ensure policy stability
▪ Provide all other statutory approvals as may be required for the project
- Role of FOKIA and beneficiary industries
▪ Commitment to offtake the required quantity of water at the agreed tariff
 ▪ Contribute to the equity of the SPV
- Role of SPV (KWDC)
▪ Undertake development of the project such as the required ground
studies and environmental approval prior to start of construction
▪ Implementation of the project and continued operation of the project for
the period of the contract as per the statutory and performance
requirements as mandated under the contracts
▪ Arrange the necessary financing of the project
- Equity Holding at KWDC
▪ The present equity holding at KWDC is 23% with FOKIA and 77% with
Government of Gujarat, with no paid up capital. It is proposed to use
KWDC as the SPV for setting up the desalination project by inducting
an investor into the SPV.

[6] Identified Investor in the SPV

FOKIA has received the preliminary interest from Kathari Water Management as a potential
investor into the SPV. Kathari Water Management (Kathari) is a 100% owned water platform
of India’s largest Green Fund, managed by Eversource Capital. Eversource Capital is an equal
joint venture between Everstone Group, one of Asia’s premier investment manager with assets
in excess of US$7 billion across private equity, sustainability and climate impact, logistics,
digital and venture capital; and Lightsource bp, a global leader in development and
management of solar energy projects.
Eversource has raised the largest single country climate fund (Green Growth Equity Fund) in
the emerging markets with a focus on energy transition and circular economy businesses and
has investments in clean energy, clean water, green mobility, solid waste management and
climate finance. The fund has received anchor investments from the Government of India
(through NIIF) and Government of UK (through FCDO) and has many other leading global
investors.
Kathari invests in water and wastewater assets and generate returns over a period under the
BOO (Built Own Operate) or BOT (Built Own Transfer) models. Kathari is seeking to invest in
Desalination, Water Treatment, Wastewater Treatment and Sewage Treatment plants targeted
at the municipal and industrial sector. In addition, Kathari also invests in product and services
companies which can actively contribute to water conservation including treatment in the
urban ecosystem especially within residential and commercial buildings.
Kathari Water has already invested in Government of India (GoI) managed National Mission
for Clean Ganga’s (NMCG) 187 MLD three sewage treatment plants. The project also involves
renovation and modernisation of 13 Sewage Pumping Stations and associated network. The
project is expected to be operational by 4QCY24.
Eversource through it’s platform companies have wide expertise in executing large and
complex project in various sector. Eversource has a utility scale renewable portfolio (Ayana
Renewables) of 4,130 MW with 1,290 MW operational capacity. Additionally, another operating
portfolio of ~405 MWp and 600 MWp under development across states such as Karnataka,
Tamil Nadu, Rajasthan and Maharashtra through its another company - Radiance Renewable.
Eversource also operates in solid waste management projects through EverEnviro that
handles 8,400+ TPD of solid waste in 12 cities and has other investments in e-mobility and
NBFC.
Kathari is willing to partner Government of Gujarat & FOKIA to set up desalination plant
through an investment in KWDC. Kathari shall invest upto 76% of equity requirements and the
balance 24% shall be contributed by FOKIA and state agencies. Kathari, being a climate
focused investor, aims to source green power for the power intensive desalination plant.
Involvement of the investor in KWDC minimises the burden of fund contribution for the project
from Government of Gujarat.

[7] Implementation Framework

The SPV would undertake all the initial development work such as land identification,
bathymetry studies, water quality tests etc and prepare the detailed technical requirements of
the project. Thereafter, the SPV would invite bids from qualified DBO contractors for
implementation of the Project in a transparent manner. The DBO price arrived from the bid
process as well as other costs of development would form the basis for arriving at the water
tariff. The water tariff would be calculated to deliver an acceptable post tax project IRR at the
SPV level.
Government of Gujarat agency would be responsible for ensuring distribution of the water
generated to the industries and providing such guarantees to enable financing of the project.

[8] Policy Support

The following policy support is required from Government of Gujarat:

[a] State to provide guarantee for 90% of the desalination capacity at the water tariff
finalised
[b] State to develop or upgrade the distribution network and undertake the metering, billing
and collection of water to the industries in the region. State would be paid INR 10 per
kl (indicative) of water billed and collected as transportation charges
[c] State to amend the renewable energy policy for water projects to enable annual
banking as well as allow setting up of capacity equal to 100% of the contract capacity

[9] Way Forward

[a] Approval from Government of Gujarat for the above proposal for onboarding an
investor ( Kathari water management) into KWDC, based on principles outlined
above
[b] Approval from Government of Gujarat for providing necessary policy support to the
SPV for implementation of the Project
[c] Execution of necessary documentation to enable the SPV to start developing the
Project on the lines outlined above
Annexure

Timeline of Steps Taken

1. 2006: Gujarat Industrial Development Corporation (GIDC), Gujarat
Infrastructure Development Board (GIDB) and Principal Secretary of Water
Supply agreed to form a special purpose vehicle (SPV)
2. 2007: On behalf of Kutch Water Industrial Development Company (KWIDC),
GIDB invited various bids through RFP to award desalination project on
DBOOT/BOOT basis. For various reasons, the process was withheld.
3. 2008: In April, Kutch Water Distribution Company Limited (KWDC) – SPV
formed by GWIL, GIDC, GIDB and FOKIA. The Authorized capital of KWDCL
was INR 5 Crs with no paid-up equity. FOKIA had a 23% stake in this company.
The objective of this company was to treat water and distribute it to the
industries.
4. 2016: On 13 April 2016, Fitchner prepared detailed project report (DPR)
highlighted the need for take or pay guarantee to execute the project. GIDC
and KWDC agreed that GIDC will provide a back-to-back guarantee for this
project. On 27 May 2016, GIDC was requested to provide a take or pay
guarantee and equity investment.
5. 2018: On 27 Sept 2018, as per meeting called by GIDC, it was decided to go
ahead with the project as per Fitchner’s recommendation. For the project cost,
25% was to be contributed by FOKIA, 15% by GoG grant/subsidy and 60%
through loan.
6. 2021: On 5 April 2021, Industry and Mines Department asked FOKIA to invite
a meeting on the project, to which FOKIA responded via mail.