5. discussion on tirupur water supply project case...
TRANSCRIPT
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DiscussionDiscussionVenkata Santosh Kumar Delhi
IIT Madras
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Contents
1 Public Private Partnerships
2 Tirupur Water Supply Prjoject – Case Study
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Disclaimer: I promise to raise more
questions in your mind than provide questions in your mind than provide
answers at the end of this discussion
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Assumption: You all DID NOT go through
the case study circulated to youthe case study circulated to you
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As promised earlier some questions….
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How old are How old are
PPPs?
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Suez Canal
Concession obtained in 1850s to
construct the Suez Canal
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What is a PPP?
Public Private PartnershipPublic Private Partnership
project delivery arrangements where the private
sector takes on risks and responsibilities that are
traditionally accepted as belonging to the
government
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Why PPP?
Means of financing Better service
Capital Savings
Expertise Need for facilities
Operating savings
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When should you prefer PPP over EPC?When should you prefer PPP over EPC?
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Why not PPP?
Huge transaction costsHuge transaction costs
Private sector monopoly
Shift problematic responsibilities to private sector
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Based on the sessions so far
How do you define a successful PPP?How do you define a successful PPP?
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What is the best
partnership you came partnership you came
across in your life?
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I hope some of you
thought of Marriage!!thought of Marriage!!
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How are marriages arranged?
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Interaction
Expectations
Commitment
Initiation
Proposals
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Projects are no different!!
Project go
through various
iterations
Be Prepared to
abandon
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Why is project selection and
shaping very important?shaping very important?
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Successful Project shaping and award
are only half work done
Successfully awarded projects may not be
successful
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The case of
Tiruppur Water Supply Project
Every one is wise on retrospection
Think from the perspective of decision maker
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The Tirupur Water Supply Project
Tamil Nadu Tirupur
Tamil Nadu Tirupur
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Was there a need for the project?
• Tirupur was home to a booming textile industry
• Textiles are water intensive
• Unpredictable water supply
• Drought had severely impacted the industry in the • Drought had severely impacted the industry in the
early 1990s
• THERE WAS A GENUINE NEED FOR THE PROJECT
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Shaping the Project
• Tirupur Exporter’s Association drew the
government’s attention to the water situation
• IL&FS – a private infrastructure financing and • IL&FS – a private infrastructure financing and
consulting firm was called in to consult
• Given the high costs, IL&FS suggested PPPs
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Structuring the Project
• Government of Tamil Nadu insisted on the following
• Water would be supplied at subsidized rates to Tirupur
Corporation and wayside villages
• A sewerage treatment plant was to be constructed in Tirupur
• In return, industry could be charged higher rates for water• In return, industry could be charged higher rates for water
• IN 1996, GoTN, IL&FS AND TEA FORMED THE NEW TIRUPUR AREA DEVELOPMENT COMPANY LIMITED (NTADCL), TO IMPLEMENT THE PROJECT ON A BOOT MODEL
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The Agreement
• 28 YEAR CONCESSION PERIOD
• 20% IRR
GUARANTEED SUBSIDIZED SUPPLY TO • GUARANTEED SUBSIDIZED SUPPLY TO MUNICIPALITY AND NEARBY VILLAGES
• GOVERNMENT WOULD PREVENT GROUNDWATER EXTRACTION
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Lenders DelayLenders Delay
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Government ChangesGovernment Changes
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Successful award of the contract
No major issues during constructionNo major issues during construction
Largely completed on schedule
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What happened?
• Global recession had affected exports
• TNPCB had shut down several potential customers
• Water efficient technologies introduced
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• Good rains had led to smaller players extracting groundwater
• Demand at 30% of estimated
NTADCL WAS IN CONSIDERABLE FINANCIAL DISTRESS
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Success at award is only the beginning
of the partnershipof the partnership
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Dynamics play out through out the life
of the projectof the project
How many of them are you prepared for?
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How are PPPs different from
other projects?other projects?
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‘The basic physical and organizational
structures and facilities (e.g. buildings,
roads, power supplies) needed for the roads, power supplies) needed for the
operation of a society or enterprise’
– Oxford Dictionary
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Society is involved
Water supply to domestic users…
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Huge investments are involved
1023 crores in case of Tiruppur
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Technological challenges
Can government agencies master all the
technological advances?
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Sticky Contracts
We cannot just move away from the
present contract and find a new partner
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Contracts are incomplete
on such long projects
What do you do when contract does not
say anything about a situation?
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Ultimate responsibility
with the government
and the public agencyand the public agency