Management Contract For Pune Water Supply

The Pune Municipal Corporation will use management contract to improve the revenue flow for its water supply project.

Outright privatisation is not possible because this will require amendment to the state's Water Act. All states have retained the monopoly on water distribution. Maharashtra is, however, trying to improve efficiencies in distribution and revenue collection.

The Pune water supply project is being implemented on a deferred payment basis by the Pune Municipal Corporation. The project is divided into three parts: construction, operation and maintenance, and billing and collection.

For the operation and maintenance contract, the municipality has offered a fixed fee, with indexation to the consumer price index from the second year. The municipality has also offered reimbursement of variable costs, particularly energy costs. This could lead to an increase in operating costs.

For the billing and collection contract, the municipality has offered a lump-sum fee for meeting a minimum collection target and a 10 per cent incentive for exceeding it. In addition, the municipality has offered a management fee of Rs 1.5 crore per annum.

Pune Municipal Corporation has an annual realisation of about Rs 67 crore from water charges. Taxes comprise about 74 per cent of the income flow and the remainder is accounted for by connection charges and tariffs from metered connections.

Shortlisted bidders have bid for all three parts of the project. Among them are Larsen and Toubro and a consortium of companies comprising Mumbai-based Zoom Developers, Hanjin Engineering Company of South Korea and Peter Oates of the UK.

The state government has already offered substantial sales tax reductions for the project, bringing the capital cost down by almost Rs 100 crore from the original estimate of Rs 735 crore. Pune Municipal Corporation is expected to meet about 33 per cent of the cost of the project. The remaining portion of the capital cost is being met through deferred credits by participants and debt funds.

Debt funds have been raised through terms loans from Hudco and ICICI at around 17 per cent. They have been extended on a limited recourse method to debtors through an escrow account created through Octroi receivables of the Pune Municipal Corporation.