Salt Lake Water Supply and Sewerage Network

PROJECT APPRAISAL & FINANCE

CIA I

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Submitted To:                                                                           Submitted By:

Dr Ansuman Chatterjee                                                   V.Chaithanya Lakshmi Devi

Associate Professor                                                                             1527960 – F2

SALT LAKE WATER SUPPLY AND SEWERAGE NETWORK

Brief Description of the Project

The government of West Bengal has decided to construct a water supply and sewerage network in order to develop IT and ITES (Information Technology Enable Services) in Sector V. As of now, they are not having the good infrastructure facilities like water and sewerage facilities. The existing companies are depending on the ground water, leading to the issues related to the reducing the level of the ground water and the overflow of sewerage water is going into the river causing pollution. This is making some companies shift their services to the other states.

Govt. appointed Kolkata Municipal Development Authority (KMDA), KMDA along with Nabadiganta Industrial Township Authority (NDITA) formed a plan for the water and sewerage network. The project was planned to implement under Built-Operate-Transfer (BOT) PPP in both design and finance.  Along with the water and sewerage network they need to construct Elevated Storage Reservoir (ESR), Underground Reservoir (UGR), sanitary network and a pumping station and waste treatment system.

The private developer selected was the consortium of JUSCO and Voltas Ltd. They formed SPV- Nabadiganta Water Management Limited (NBWML). The total cost requirement for the project is Rs.70.09 cr., Rs. 26.06 for water supply, Rs.36.15 Cr. For sewerage and Rs. 7.87 for additional requirements mentioned. Of which 35% is funded by the central government under the scheme Jawaharlal Nehru National Urban Renewal Mission (JNNURM). With this they can achieve NPV as Rs.1.4 Cr. and Equity IRR of 16.4% with 60:40 debt to equity ratio. The purchase of the water is from the Kolkata Municipal Corporation (KMC) for Rs.5/KL. The stake holders involved in this project are KMDA, NDITA, NBWML, JNNURM, KMC and the IT and ITES services.

The contract was handed over in Dec 2007 with construction starting from May 2008. But due to the land acquisition risk by the government there is 6 months delay in the delivery of the project which is actually estimated to deliver on March 2010 to August 2010.

The private developer has given a concession period of 30 years till 2039, where they can collect Rs.25/KL as tariff with 10% increase for every five years. They are allowed to collect one-time fee of Rs. 10 per square feet to build the project. They should manage the operating and maintaining activities for a period of 30 years, after which can be handed to KMDA and NDITA due to termination of the agreement.

Risk Identification

The risk identified in the project are

Delay in land acquisition. This mainly by the government in handing over the land free of cost area to the private developer before pre-construction phase caused delay to start construction. This risk caused delay in the project for 6 months

Design Risk: The project had to be completely developed by the private developer for the ultimate population in 2039 which is the prediction that may cause the risk if the water supply is insufficient for the population for the coming 30 years.

Construction Cost Risk: If there are any increase in the cost of materials or civil costs the cost will raise because the project capital is estimated based on the available costs. If any such cost over runs are there private developer should bare.

Revenue Risk: The revenues for the private developer are extremely sensitive to changes in the population and variations in the demand for the water supply services in the project area.

Operation Risk: NDITA agreed to the adequate supply of water and if any discrepancies by NDITA to supply water will affect the operations.

Financial Risk: The financial risk arise if the expected capital cost raises and the revenue earned by them won’t meet the profit.

Force Majeure: These are the risks arises due to the uncertain activities.

Risk Mitigation Plan

Delay in land acquisition: In this project there is the delay of 6 months which is finally solved by creating awareness in the people leaving there through several road shows. The government has to deal with free land acquisition issues before completing the necessary formalities required to start a project because it is mainly responsible. It is better to mention them before the project procurement stage to ensure smooth functioning by creating awareness to get approval from the public living.

Design Risk:  KMDA and NDITA didn’t assess the feasibility of the infrastructure where they need to develop the project regarding the suitability of the project where they lack in the basic infrastructure. Finally, the detailed project report is approved by them. If any risks raised it should be on both the government and private developer. As it is having high impact, they should do the feasibility and technical studies before deciding project plan to know the status of the infrastructure and service gaps which are ascertain. This kind of assessment will give a real picture to government and private developer