On Privatisation of Delhi Jal Board

23 September 2005
Dr. Manmohan Singh
Prime Minister, Government of India
New Delhi
Dear Dr. Manmohan Singhji,
We are writing to you regarding the impending privatisation of water supply in Delhi. The Delhi Jal Board (DJB) is undertaking a “Delhi Water Supply and Sewerage Project” partly funded by the World Bank which will lead to 21 zones of the Jal Board being handed over to various private companies. The World Bank-initiated project has raised a number of questions which have not been satisfactorily answered by the Delhi government, or, the Delhi Jal Board.
The terms and conditions associated with the loan given by the World Bank are onerous and one-sided. For instance, the conditions enable the Bank suggest any modifications to the list of pre-qualified bidders. The government is obliged to make such changes. The consultancy contract decided in November 2001 showed blatant interference by the Bank.
More pertinently, the experience of implementing such World Bank dictated privatisation of water supply around the world has been huge increases in tariffs and deprivation of water for the poorer sections. In the case of Delhi, the cost of salaries for those who manage a zone (Rs. 11 lakh per month) and the free writ given to the companies to spend on operational expenses and capital investments are certain to lead to massive tariff hikes.
The government invests close to Rs. 1000 crores every year in the DJB and the World Bank loan amounts to only Rs. 120 crores annually for a period of six years. The government does not require such a small amount of money at a huge cost of interest payouts and one-sided terms and conditions.
We are enclosing a detailed note regarding the deleterious impact the water privatisation project will have on the citizens of Delhi. They have already suffered the consequences of the privatisation of power supply in the capital.
We request you, therefore, to intervene to see that the project is not implemented and the loan application to the World Bank withdrawn. After wide discussions, it will be possible to ensure a public water utility which is both efficient and accountable.
Yours sincerely
Prakash Karat
General Secretary, CPI(M)
A. B. Bardhan
General Secretary, CPI
Debabrata Biswas
General Secretary, AIFB
Abani Roy
Secretary, RSP
Note on the Impact of the Delhi Water Supply
and Sewerage Project
The Delhi Government and the Delhi Jal Board (DJB) is poised to launch a “Delhi Water Supply and Sewerage Project”. Ostensibly, this Project is meant to address the serious problems faced by the people of Delhi on account of water and sewer. The Project, which is partly funded by the World Bank, proposes to make several fundamental changes in the institutional and legal structures of the DJB. The World Bank has also guided the preparation of this Project through the international consultancy firm, Price Waterhouse Coopers (PWC), which has been associated with similar projects in other countries. The Bank is to consider and approve the Delhi Government proposal, forwarded through the Union Government, at a meeting in November. The implementation of this Project, far from solving the serious problems related to water supply and sewerage faced by the people of Delhi, would only aggravate the situation, lead to greater inequities in water distribution and cause social unrest.
The Project : Major Dimensions and Problems
The Project is envisaged as a long-term one (2005-2012), with the first phase to be taken up in parts of Delhi and later expanded to cover the whole metropolis. The Project prepared by the Delhi Government/DJB, closely following the Report prepared by PWC, is based on the following assumptions:
  • Current failures can be overcome by purely managerial measures
  • Only privatisation in some form or other is the solution
  • Tariffs must rise and gradually lead to "full cost recovery"
  • Subsidies, if any, should be minimal, targeted and "transparent"
We believe that these assumptions are completely flawed as has been proved through the disastrous experience of introducing such “reforms” in water distribution in several developing countries like Tanzania, Colombia and Bolivia. The major dimensions of the Project and their problems are listed below.
  1. Unbundling of the water utility with supply of raw water, treatment and bulk distribution and retail distribution, each being handled by different parties. While supply of raw water will be the responsibility of the DJB, the other two functions would be performed by various parties handling different treatment plants and as many as 27 distribution zones. Unbundling has in fact been gradually taking place over several years. Major Maintenance and Repairs works have already been contracted out to private parties with no accountability leading to huge infructuous expenditure and massive corruption. The Sonia Vihar treatment facility, which is now lying idle, which was to be operated by Ondeo Degremont (subsidiary of the French MNC Suez Lyonnaise) on a 10-year contract is an eye-opener for such “unbundled” services.
  2. Private parties to be given Management Contracts ostensibly with performance targets, and incentives (bonuses) and disincentives (penalties), but without any transparency. The secrecy clauses, which specify the bonuses and penalties, are more likely to leave the entire arrangement at the mercy of the contractors. The performance targets are based on a presumption of raw water supply by the DJB. If the DJB is unable to supply the requisite quantity of raw water with due regularity, then the contractors handling downstream functions would have no or reduced liability. The effect of such an arrangement is already clear in the case of the Sonia Vihar plant on which the DJB has spent over Rs.200 crore and has guaranteed high returns but since it has failed to secure water supply from UP, it is obliged to pay the MNC a hefty penalty for every day the plant is not operating. Inevitably, under such an arrangement, the private contractors will control the utility without accountability while the DJB will be held responsible for failures.
  3. All capital expenses are to be incurred by the DJB according to requirements specified by the contractors and consultants appointed for the purpose. This is ostensibly because all assets would still vest with DJB. But in effect it would hand over a blank cheque to the contractors as regards expenditure to be incurred by the DJB, without any accountability either to the DJB or the consumers.
  4. Tariffs to be set by a Regulator whose task, significantly, will include "facilitating" privatisation and “ensuring remunerative returns" to service providers. In other words there exists a built-in bias towards cost recovery in order to favour the private contractors. It is noteworthy that as per the PWC recommendations, a good proportion of tariff hikes (200-300% for most consumers in Delhi) have already taken place before the privatisation so that the private parties are sheltered from public criticism. Steeper tariff increases have occurred in similar World Bank assisted projects in Chennai, Hyderabad, Bangalore and Mumbai where water tariffs range from Rs.5-10/k.Litre compared to Rs.3 for higher brackets in Delhi currently.
  5. Placing all DJB workers under the private contractors who would have freedom to transfer, “rationalize” and otherwise deal with the work force. However, the workers would continue to be paid by the DJB. This is a strange arrangement indeed where the contractors managing the workforce would be absolved from all responsibility towards them. Moreover, the employees of private water companies managing a zone would be paid salaries of $24,000 per month per person (Rs. 11 lakhs approximately), which for all the zones in Delhi taken together would come to Rs 105 crore of additional expenditure per annum.
  6. Metering and collection of revenues to be handled by DJB. This implies that while the DJB has to do the “dirty job”, the private contractors will sit back and collect fees, and reimbursement of running expenses (which they will determine). At present the DJB has raised tariffs claiming these revisions were necessitated by its huge losses. In effect, the more inefficient the DJB is, the more would be the losses it will incur and higher the tariff that will be “required”. Once privatization occurs, the private contractors would submit accounts of expenditures and incomes, claim huge deficits and press for higher tariffs to cover the same, exactly as has happened with power tariffs in Delhi. It is the consumers who would have to pay more.
The essential fallout of these measures would be steep rises in water tariffs. Eventually, the higher-income consumers and favoured commercial users who can afford to pay would benefit from increased supplies while the poor who cannot afford to pay would be denied water supply. Moreover, the private contractors and consultants would reap profits at the expense of the public exchequer. Such restructuring of the DJB is therefore totally unwarranted.
The “24x7” Scheme: Exacerbating Inequitable Distribution of Water
The total demand of water for Delhi is currently estimated at about 750 MGD (million gallons daily). Delhi receives around 1670 MGD of raw water from different sources such as the Yamuna, Upper Ganga canal flowing in the NCR and from groundwater. With losses during treatment estimated at 30-40% and losses during distribution estimated at a further 30-40%, the DJB supplies only about 600 MGD of treated water to consumers. Delhi thus faces a minimum shortfall of about 30 MGD to meet current demand not to mention the increased future demand due to expansion of the city and its population
Consumers in Delhi receive highly erratic and inadequate water supply of very poor quality in terms of potability. There is huge disparity in water distribution between different regions of Delhi ranging from half to three times the planned minimum daily requirement of 160 LPCD (litres per capita per day). New settlements in Delhi are coming up without any piped water supply and unplanned expansion of the metropolis is putting further pressure on water supply. All this is leading to severe public resentment often spilling out into the streets.
It is in this backdrop that the current Project is being launched. The first phase of the Project would initiate unbundling of upstream services such as treatment and bulk supply, and start retail distribution in two Zones (South-I and II) under the so-called “24x7 Scheme” for round-the-clock water supply. Under the Scheme, each Zone will be supplied bulk treated water metered at the entry point to the Zone. But the contractor is supposed to provide 24x7 supply contingent upon the supply received from the DJB. As in the case of the Sonia Vihar plant, the contractor will have only benefits without any accountability or responsibility. Given the constraints on the availability of water in Delhi, the only way the DJB (or the bulk-supply contractor) can provide the requisite quantity of treated water for round-the-clock supply, is by reducing supply to some other area.
Delhi already suffers from gross inequities in distribution of water, with supply ranging from a low of 120 LPCD (litres per capita per day) in parts of South and North Delhi to over 400 LPCD in NDMC and some Cantonment areas. Under the 24x7 Scheme and its successors, the problem of inequitable distribution of water will only get exacerbated, a sure recipe for social unrest.
The World Bank and PWC: Dubious Role
The World Bank had advanced a loan of $2.5 million to the DJB in 1999 to enable it to hire a consultant to draw up the roadmap for “reforms”. It is amply clear from media reports that in addition to dictating the agenda for the so-called reforms, the Bank had intervened in the award of the consultancy contract to Price Waterhouse Coopers (PWC) in November 2001. PWC had lost in the normal bidding process, not once but thrice. But the World Bank intervened every time to ensure that PWC finally gets the contract, despite strong protests from the DJB officials.
The Terms and Conditions associated with this loan enabled the Bank to impose a consultant/contractor of their choice on the DJB by giving the Bank sweeping powers to intervene at critical stages of the bidding process, thus rendering the entire bidding process irrelevant. The conditions enabled the Bank to suggest modifications (additions/deletions) to the list of pre-qualified bidders. The Government was obliged to make such changes. After a company was selected for award of contract following the completion of the bidding process, the Bank declared the bidding process “inconsistent with the provisions of Request For Proposals”. The Bank invoked this clause and forced the DJB to cancel bids and invite fresh bids. In the second round of bidding, when PWC again failed to qualify, the Bank forced the DJB to remove the evaluation of one of the members of evaluation committee.
Despite this experience, the Delhi Government has applied for a loan of $ 150 million from the World Bank through the Union Government, in order to implement the recommendations made by PWC and various other World Bank consultants. All those terms and conditions, which have been used by the Bank to browbeat the DJB and the Delhi Government in awarding the consultancy contract to PWC, would apply to this loan as well. This loan would also be advanced at the commercial rate of interest.
The Government invests close to Rs 1000 crore every year in the DJB. The World Bank loan, which would be received over a period of six years (about Rs 110 crore per year), does not seem to be a significant amount when compared to the annual investments made by the Government. The question therefore arises whether such a loan is at all required? At the commercial rate of interest and with a sovereign guarantee, such an amount can be easily raised from the domestic debt market. The loan from the World Bank has such terms and conditions associated with it that are stiff and give supreme powers to the Bank to take final decisions to the total exclusion of the Governments, elected representatives and the people. Moreover, as we have already noted, the Project proposed to be implemented through this loan would damage the water and sewer sector of Delhi irreversibly and could even lead to social unrest.

The Left Parties believe that there are problems in the functioning of the DJB. Many people in Delhi do not get water for days together. There are serious problems about water quality too. There is therefore an urgent need to improve the functioning of the DJB. However, the solution lies in transforming the DJB into an efficient and accountable public service provider and not in its privatisation. In view of the above the Left Parties are putting forward the following proposals before the Union Government and the Delhi Government.
  1. Withdrawal of the Delhi Government’s application (forwarded by the Union Government) for the World Bank loan for restructuring the DJB.
  2. Review of the Delhi Water Supply and Sewerage Project through a transparent process of public hearings and consultations with all stakeholders.
  3. Formulation of a revised comprehensive plan for improving water supply and sewerage in Delhi including institutional restructuring as may be necessary with full participation of relevant statutory bodies such as CGWA, NCR Planning Board etc.