KARNATAKA URBAN WATER SUPPLY

IMPROVEMENT PROJECT
(KUWASIP)
 CONTENTS

 Introduction
 Karnataka water supply PPP model
 Details
 Project Description
 Project Timeline
 Stakeholders
 About Project
 PPP Context
 PPP Structure
 Role Of Private Player During O And M Phase
 Financing Information
 Process Analysis
 Key Challenges
 Risk Allocation Framework
 Performance Levels
 Shortcomings, Issues And Outcomes
 Key observations
 Impacts
 INTRODUCTION

KARNATAKA WATER DETAILS

SUPPLY PPP MODEL
• Karnataka is a state located in the
Country: India south-western part of India and has
Centre/State/ULB: 29 select wards in about 61 million inhabitants in 30
three pilot cities of Gulbarga, Belgaum and districts (Government of India (GoI),
Hubli-Dharwad, Karnataka 2011a). In 2005, the Government of
Sector: Urban Basic Services Karnataka in partnership with the
Sub-Sector: Water Supply World Bank initiated the KUWASIP.
Award Date: April 2005 • The cities of Gulbarga, Belgaum and
Type of concession: Performance based Hubli-Dharwad were selected for
management contract. piloting 24/7 water supply.
Project preparation (Stage I) and • The targeted beneficiaries of the
contracting out of construction (Stage II) project were about 200,000 people
within a period of 1 year 9 months living in five pilot zones (two in Hubli-
followed by operation and maintenance Dharwad, two in Belgaum and one in
(O&M) for 2 years Gulbarga), equalling 7 to 14 per cent
of the population in each city (World
Bank, 2004).

Source: http://abhinavinfo.com/idd_kannada/assets/pdf/case_studies/CS_Karnataka.pdf
 PROJECT DESCRIPTION

PROJECT TIMELINE STAKEHOLDERS

2000: World Bank project (technical and Contracting Authority:

financial assistance) for water supply and Karnataka Urban Water Supply and
sewerage in northern districts of Drainage Board (KUWSDB)
Karnataka, with KUIDFC as the nodal Karnataka Urban Infrastructure
agency Development Finance Company Limited
2002: Initiation of the Karnataka Urban (KUIDFC)
Water Sector Improvement Project Municipal administrations of Gulbarga,
(KUWASIP) Belgaum and Hubli-Dharwad
2003-04: Conduct of a two stage Concessionaire
competitive bidding process Joint Venture between Compagnie
2005: Selection of Concessionaire and Generale Des Eaux (CGE) and Seureca
commencement of preparatory stage by Oversight Arrangement
the Concessionaire Concessioning Authority through a
2008: Completion of stages I and II and technical auditor – Fichtner Consulting
commencement of O&M stage Engineers India Private Limited

Source: https://www.wsp.org/sites/wsp/files/publications/WSP_Karnataka-water-supply.pdf
 ABOUT PROJECT
• The project involved Need: The water sector in Karnataka
refurbishment/rehabilitation of the suffers from the following issues:
Private • Rehabilitation existing distribution network of the • Chronic inefficiencies, Unreliable
develope works
• Operation and select five demonstration zones in service quality and limited coverage.
r maintenance
the three Urban Local Bodies. • At the technical level, problems
• It was followed by the operation and include sub-optimal resource
management of water distribution allocation, Mismatched capacity
systems on a PPP basis. investments, Lack of requisite
• Funding for • Under the PPP structure, the private technical manpower, Poor operation
capital
Public investment developer’s responsibility included and maintenance (O&M) practices,
party compensated
replacement of the distribution Un-economic tariff structure / levels,
by the World
Bank through pipelines, installation of bulk water Poor collection efficiency, High levels
KUIDFC
meters and consumer meters, and of unaccounted and non-revenue
setting up of a computerized billing • Water sector information systems
system. are deficient
• The rehabilitation activity was funded • Poor service coverage; service

Duration • 3 years and 6 by KUIDFC as a capital grant coverage in all the three participating
months
amounting to INR 42 crores. ULBs was estimated to be less than
50%.
 PPP CONTEXT
• Commencement of World Bank (WB) project (financial and technical assistance) in 2000,
for addressing institutional/infrastructural deficiencies in the neglected northern districts
of Karnataka.
• The project envisaged development of management contracts, wherein private operators
would undertake planning, design and management of services in various ULBs in these
districts.
• Initiation of the Karnataka Urban Water Sector Improvement Project (KUWASIP) by
KUIDFC in 2002 under the WB programme, and decision to demonstrate 24X7 supply
through a pilot project.
• The project was aligned with the strategies enunciated by the Urban Drinking Water and
Sanitation Policy (2002) of the Government of Karnataka.
• Amendment of the Karnataka Municipal Corporations Act in January 2005, making
provisions for private sector participation in municipal water supply and allowing
deputation of ULB employees to private companies in case of PPP projects.
SECTORAL CONTEXT
• Coverage of water supply (average) in the 3 pilot cities was as low as 50%.
• Per capita consumption in Gulbarga was 46 LPCD and that in the other 2 cities about 123
LPCD, as against the accepted standard of 135 LPCD.
• Service reliability was low with average supply in the range of 2-6 hours of water supply
once in 3-5 days.

Source: http://abhinavinfo.com/idd_kannada/assets/pdf/case_studies/CS_Karnataka.pdf
 PPP STRUCTURE
• (a) Beneficiary: the three ULBs viz.
Belgaum, Gulbarga and Hubli-
Dharwad
• (b) Sponsor: the GoK through its two
entities the Karnataka Urban
Infrastructure Development and
Finance Corporation (KUIDFC), and
the Karnataka Urban Water Supply
and Drainage Board (KUWSDB)
• (c) Developer: the private developer
responsible for rehabilitation and
operations.
• The private developer’s responsibility
included replacement of the
distribution pipelines, installation of
bulk water meters and consumer
meters, and setting up of a
computerised billing system. The
rehabilitation activity by the private
developer was funded by KUIDFC.

Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
ROLE OF PRIVATE PLAYER DURING O AND M PHASE
• During the O&M phase of the
project, the private developer was
required to meet the following
performance targets:
• Ensure 100 per cent
individual house service
connections in the
demonstration zones
• Supply treated water to all
the customers
• Ensure reduction in
distribution losses as per
targets set
• Bill generation and
distribution to consumers for
payment as per the tariff set
by the ULBs.
• Bill collection was the
responsibility of the
respective ULBs
• The private developer was
compensated through a management
fee paid for the period of the
contract. The fee included a fixed
component of 60 per cent and a
variable component of 40 percent,
with the latter based on meeting the
performance targets.
• In addition to this, further incentives
were to be provided to the private
developer for achievement of targets
beyond a set level. This incentive was
over and above the operator fee
remuneration.
• Post the rehabilitation phase,the
private developer was only provided
the right to operate and maintain the
facilities.
 FINANCING INFORMATION
• The total cost for the
construction/rehabilitation activity
was capped at INR 42 crores
• The ULBs did not bear the debt
burden for the capital costs.
• The operator fee of INR 22 crores was
paid from the revenues accruing to
the
• Delays during the course of the
implementation of the project, led to
escalation in the compensation to be
paid to the operator by KUIDFC and
the operator fee was increased to INR
28 crores.
• Estimated project cost- approximately
INR 62 crores
• World Bank’s loan based assistance
to the project - INR 45 crores.
Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
• The project was structured with
financial incentives to the private
developer for efficient execution -
bonus set at 25 per cent of the
remuneration decided.
• During the rehabilitation and
construction phase of the project, the
private developer was able to reduce
the capital costs by over 25 per cent
and was eligible to avail the
incentives as set
• During the course of execution of the
O&M phase of the project, the
private developer was able to bring
about savings of greater than 25 per
cent in the O&M expense, reduction
in the losses to less than 15 per cent
and also increase the billed water
supply to over 25 per cent.
 PROCESS ANALYSIS
PPP Project
Inception
Preparation
• Launch • Assessment by Tata Consultancy
• Identification of 3 ULB’s with poor water Engineering (TCE)
supply levels • Identified that the water supply service
• 5 demonstration zones with 24*7 water delivery were extremely poor in the
supply three ULBs
• This assessment was followed by
estimation of capital investment, and a
review of the financial position and
capacity of the three Municipal
Corporations.
• A project for rehabilitation, operation
and maintenance of a 24x7 water
supply system in the demonstration
zones on a PPP basis was prepared.
Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
Procurement
• a two stage bidding process was
followed, i.e. the Request for
Qualification (RFQ) stage followed by
the Request for Proposal (RFP) stage
• At the RFQ stage -From the 30 bidders,
seven were selected and invited to
submit their proposals.
• Only international players in the water
business being eligible for undertaking
the project
• The lowest quote was received from the
French company Compagnie Generale
des Eaux was selected as the preferred
bidder.
• The quote was of INR 22 crores.
 PROCESS ANALYSIS
Development
Preparatory period A
• Duration-6 months where pvt developer
undertake an assessment of the existing
water supply,prepare the draft
investment requirement,detailed
designs, get approval from KUIDFC and
KUWSDB on the designs submitted.
Preparatory period B
• Duration-9 months,where pvt developer
first arrange for finances for the
investment amount as identified in the
Draft Investment Report approved by
KUIDFC, following the receipt of
approvals, the developer was required
to commence the construction works,
manage all installation works, provide
service connections and demonstrate
the efficient working of the system, also
undertook a consumer survey in the
project zone to ascertain the number
and type of connections which were to
be provided.
Period C
• Private developer was required to
undertake O&M of the entire
distribution system for a period of 2
years.
Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
Delivery
• The O&M activity was to be undertaken
over a time period of 104 weeks.
• The performance targets were:
• Continuous pressured water supply to
every connected property
• Emergency stoppages to reduce to
maximum of four for less than 12 hours
in a year
• Redressal of customer complaints
• 100 per cent metering of all property
connections
• 100 per cent of customer meters read
every month and a bill for water issued
• Reduction in losses from the
distribution network
• System connection requests to be
fulfilled within 7 days
• Set up customer service and support
centre at easily accessible locations and
operated on a 24 hour basis.
• All customer queries and complaints to
be responded within 24 hours and
redressed within 7 days
Exit
• The O&M activity managed by the
private developer was completed in
March, 2010.
• The same contract was renewed for
interim operation and maintenance
from April, 2010 to March, 2012.
• Post conclusion of the contract, the
entire distribution system including the
assets created by the private developer
would be handed over to the respective
ULBs for O&M activities.
• As a part of the exit activity, the private
developer has provided training to the
existing staff at the three ULBs with
respect to handling the system post
termination of the contract.
• The private developer has raised
concerns regarding the skills of the
existing staff to be able to effectively
manage the system post its exit.
 KEY CHALLENGES
• Improved bulk water supply in demo
zones and towns were essential for
the demonstration of service level
improvements. Delay in completion
of such prioritized work has had
serious implications.
• HDPE pipes were used by the
operator during replacement of
entire distribution network of water
supply, as the existing pipes could not
withstand the pressure, but there
was resistance by KUWS&DB in
accepting the new material
• Adoption of volumetric tariff system
was delayed by the State government
because of public concerns raised in
the demonstration zone.
Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
• To suppress the anxiety prevailing
amongst the political class and the
public-related to volumetric billing
and usage of water meter- ULBs
adopted flat tariff for six months so
that in the meantime consumers
could moderate their consumption
and adapt to the billing system.
• Extensive efforts were made to
ensure local political support for
regularization of unauthorized
connections, providing new
connections to slum dwellers as per
state’s pro-poor policy.
• Social intermediation and
communication teams were
strategically placed to put forth the
right messages at the right time.
 RISK ALLOCATION FRAMEWORK
RISK TYPE SENSITIVITY RISK PERIOD PRIMARY RISK BEARER

Delay in obtaining permits High 0-3 months Private developer

Design Risk High Private developer

Construction Risk High 0-2 years Private developer

Construction cost over runs High 0-2 years Private developer

Performance risk during the Low 0-2 years Private developer

transition phase between
construction and
commencement of O&M
management

Change in Scope Risk - - -

Market Risk High 2 years Government

Operations Risk High 0-4 years Private developer

Financial Risk Private developer

Force Majeure Government and Private

developer

Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
 PERFORMANCE LEVELS

Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
http://abhinavinfo.com/idd_kannada/assets/pdf/case_studies/CS_Karnataka.pdf
 SHORTCOMINGS, ISSUES AND OUTCOMES
• The project was delayed (by more
than a year) in Stage II which involved
contracting out works as envisaged
under the Improvement plan,
primarily due to the detailed
procurement specifications laid down
by the World Bank.
• The Project suffered initially due to
public non acceptance. However this
was addressed by KUIDFC and the
World Bank, by undertaking
systematic Information, Education
and Communication activities (IEC).
• Following the delay in procurement
processes, the period of the
concession had to be suitably
extended to accommodate the delay.
• No other issues have emerged during
project implementation
Source: https://www.indiawaterportal.org/sites/default/files/iwp/NUWAwards_KarnatakaUrbanWaterSectorImprovementProject_KUIDFC_2009_0.pdf
• Continuous pressured (24/7) water
supply has been operationalized in all
the five Demonstration Zones viz., (1)
Belgaum (South) (2) Belgaum (North)
(3) Gulbarga (4) Hubli and (5)
Dharwad during 2007-08 and the
O&M period commenced from
3.4.2008.
• The following are the perceivable
differences in the Demo Zones,
where continuous water supply is in
operation. Per capita supply of --
lpcd, as against 135 lpcd assumed
• Equitable water supply to all
customers without operating a single
valve Scientific pressure
management without throttling the
valves.
• Continuous pressured (24/7) water
supply has been operationalized in all
the five Demonstration Zones viz., (1)
Belgaum (South) (2) Belgaum (North)
(3) Gulbarga (4) Hubli and (5)
Dharwad during 2007-08 and the
O&M period commenced from
3.4.2008.
• The following are the perceivable
differences in the Demo Zones,
where continuous water supply is in
operation. Per capita supply of --
lpcd, as against 135lpcd assumed
• Equitable water supply to all
customers without operating a single
valve Scientific pressure
management without throttling the
valves.
 KEY OBSERVATIONS
Pre project assessment critical:
• Before tendering out the project, it is
important that the government
undertakes a first level service
assessment of the project area to be
able to indicate the status of the
physical infrastructure and the service
delivery gaps, and later on the basis of
the assessment, ascertain the nature
of rehabilitation works required and
the investment needed. Such an
assessment would give a realistic
picture of the on ground situation to
the government and also post award
of bids, to the private developer.
These studies include:
o Water audit studies
o Energy audit studies
o Consumer survey
o Pre-feasibility studies
• Effective facilitation of project
implementation by the government:
Project awareness activities, which
were initiated by KUIDFC, to
familiarize the consumers with the
proposed project. Additionally,
several NGOs and PIUs were brought
together to facilitate effective
implementation of the project.
• The project incorporated a strategic
communication during the
preparation and implementation of
the project involving door-to-door
distribution of questions,
establishment of public information
centres so that transparent access to
information was made available to
all, meetings, media tours,
information sharing with media, and
paid-advertisements.
• Government needs to provide full
cooperation to the private developer
at various phases.
• It has been observed that there were
delays during the demonstration
phase of the project due to the non-
availability of bulk water for supply
by KUWSDB.
• Further, the ULBs did not provide
sufficient and prompt information,
and also did not release the
payments to the developer on time.
• It is important that such payments
are made on time to the private
developer. There were also delays in
getting permits.

Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
http://abhinavinfo.com/idd_kannada/assets/pdf/case_studies/CS_Karnataka.pdf
 KEY OBSERVATIONS
• Project ownership by the • Appropriate time allocation for • Proper preparation for takeover by
implementing agency and the different phases of the project is the ULBs and KUIDFC: The private
participating ULBs is important critical that the private developer be developer has provided training to
• To identify what potential users want provided reasonable time for the existing staff of the three ULBs for
and what resources they are willing to achievement of the various tasks managing the system post hand over
apply to finance and manage installed enlisted under each phase of the by the private developer.
systems, it is also required that correct project. • It is important that these skills are
and relevant information be collected • In the context of a situation where well absorbed by the officials and the
during preparation. the ULBs have a poor information management of the system
• Consultation and participation of the base of the existing infrastructure understand well for effective
consumers and other stakeholders are level and service delivery status, it is implementation and continuance of
crucial for successful implementation important that sufficient time be smooth operations of the system by
of the project. provided to undertake a detailed the ULBs.
assessment in order to arrive at an • In designing similar projects, it would
accurate situation analysis. be helpful to carry out
comprehensive benefit monitoring
and evaluation.

Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
http://abhinavinfo.com/idd_kannada/assets/pdf/case_studies/CS_Karnataka.pdf
 IMPACTS
Consumers are benefitting
• Households received continuous
water supply at the designed
pressure, with water in taps inside
their homes, even in third-storey
apartments.
• The water which came out of the
pipes was potable and anecdotal
reports suggest that health has
improved.
Water consumption has reduced
• Contrary to expectations, the
provision of 24/7 water supply
resulted in less water being
consumed. People tended to
conserve water when they were sure
of reliable supply and were made
aware of the value of water and cost
of its provision.
Source: https://www.pppinindia.gov.in/documents/20181/27199/Compendium_July8.pdf/74f766db-c9ba-4ff9-8492-a0ff4493103f
http://abhinavinfo.com/idd_kannada/assets/pdf/case_studies/CS_Karnataka.pdf
O&M costs are being covered
• In 2003, before the project began,
the three participating urban local
bodies recovered less than half of the
Operations and Maintenance (O&M)
costs of their water supply systems.
• The project aimed to cover 80
percent of O&M costs by the end of
the initial two-year maintenance
period and achieve a billing and
collection efficiency of at least 70
percent by the end of the project.
• In March 2011, when the project
ended, over 80 percent of consumers
were paying their bills, enabling the
municipal corporations to recover
O&M costs, along with arrears.
THANK YOU