Tn Allows Tariff Indexing For Water Project

The Tamil Nadu government has offered a tariff escalation of 8 per cent per annum to the BOOT (build, own, operate and transfer) operator for the Tiruppur water supply project. This is the first instance of water tariff being indexed in the country.

Currently, water tariff is determined by the state water supply board/authority. The municipalities or local bodies are expected to make collections based on this tariff.

The Tamil Nadu Corporation of Infrastructure Development (Tacid) had turned down demands by some bidders for linking the tariff to either any of the price indices, like whole sale price or the consumer price indices, or the exchange rate.

Officials at Tacid, which shortlisted the bidders, said the 8 per cent tariff escalation factor was arrived at after factoring in the operation and maintenance costs, administrative costs and a minimum rate of return to the project.

The shortlisted bidder for the project is the Mahindra-Bechtel-International Water combine.

The officials said that this tariff increase, however, would be done once in three years. They said the shortlisted bidder had accepted this condition laid down by the state government.

Among the operation and maintenance costs that were taken into account for fixing the tariff were power charges of the state electricity board and administrative costs.

According to the officials, linking the tariff to exchange rates was not essential since the foreign exchange component of the capital cost of $25 million was swapped and matching rupee funds released by Bank of India. However, the Mahindra-Bechtel-International Water combine would be expected to contribute to the equity of the New Tiruppur Area Development Corporation Ltd (NTADCL), which is the special purpose vehicle for the execution of the infrastructure project in area.

NTADCL had raised the $25 million through a floating rate note with a cross-border sovereign guarantee from the US government. The tenor of the note was 30 years with rate of six basis point over the US treasury. The water supply project involves supply of 185 million litres of water per day to the Tiruppur Municipal Corporation.

The cost of the entire project is expected to be around Rs 700 crore.

The officials said the project operators had obtained individual water supply agreements with all the exporters on the existing bulk price of about Rs 42 per kilo litre for an assured revenue flow to the BOOT operator. Retail consumption of water is expected to be only less by about 10 per cent of total consumption. Part of this retail supply (about 2 per cent) would be provided water free of cost. The remaining retail consumers would be provided water at Rs 6/kl, the officials said .

Advice for cost recovery methods for the project was provided by the USAIDs Financial Institutions Reform and Expansion Programme.