Marubeni, L & T Bid For Water Supply Project In Bangalore

Several global majors have made preliminary bids for the Bangalore water supply project, based on the build-own-operate-transfer (BOOT) format, despite the lack of a counter-guarantee from the Centre.

The companies that have tendered pre-qualification bids include Marubeni of Japan, Baywater Surrey Engineering PLC, United Utilities PLC and Boris Construction Plc of the UK, Tasman Asia Pacific Ltd of Australia, and two Malayasian companies Hume Industries and Joe Harland. The Indian companies which have bid for the project include Larsen and Toubro and Nagarjuna Industries. Incidentally, United Utilities has also been shortlisted for the Tiruppur water supply project.

The Karnataka government has offered a concession period of 30 years for the project, with a pay-or-take arrangement of 500 million litres per day (mld). This arrangement is intended to offer investors a minimum cash flow even if the offtake per day falls below 500 mld. The project involves pumping potable water from a distance of about 100 kilometres, from the river Cauvery to reservoirs located on the outskirts of Bangalore.

Sources said financial bids for the project would be decided on the basis of the lowest weighted average tariff. The weighted average tariff is not known at present.

The pay-or-take arrangement carries only a state government guarantee. The absence of a Central counter-guarantee was cited as one of the reasons for the failure of the Hyderabad water supply project. Besides, shortlisted bidders had quoted tariffs up to Rs 30 per kilolitre of water on a weighted average basis, which the Andhra Pradesh government found too high.

Representatives of investing companies said project tariffs were not clear in the case of many water supply projects, since periodic escalation of tariffs has not been factored into them.

Such an escalation factor becomes essential if the foreign currency depreciation is to be compensated and the internal rate of return is to be kept to a minimum level of about 18 per cent.

The IRR is fairly certain only in the case of Tiruppur, since the Tamilnadu Corporation for Infrastructure Development has set a price cap of Rs 25 per kl on a pay-or-take arrangement of up to 240 mld.

This arrangement is expected to generate an IRR of about 18 per cent.

Foreign companies are allowed to hold up to 74 per cent equity in water supply projects. Bangalore is the fourth water supply project that has been offered on a BOOT basis. The others include Vizag and Tiruppur. Cochin is also expected to soon offer a similar project.