Tamil Nadu government has persuaded Mahindra & Mahindra and US-based Bechtel to reduce the costs for the Tiruppur Water project. Bechtel and Mahindra & Mahindra are Engineering Procurement Construction (EPC) contractors for the project.
The EPC contractors have settled for a price of Rs 850 crore as against the initial price of Rs 1,250 crore.
This reduction in the EPC price is expected to reduce water tariffs in the region. The New Tiruppur Area Development Corporation Limited (NTADCL) is the concessionaire for implementation of the project.
NDATCL managing director P Raman said negotiations are still on with the contractors over certain details, which include an equity stake by M&M and Bechtel. The consortium will remain the operation and maintenance contractor for the project during the 30 year concession period.
Revenue flows to the EPC contractor, is to be created out of an escrow account out of the Tiruppur Municipal Corporation's receivables. The NTADCL has also entered into individual take or pay arrangements with bulk water users and members of the Tiruppur Exporters Association (TEA). The take or pay arrangement is for a minimum of 185 million litres per day which the municipality will have to lift or make payment for on a deemed supply basis.
Sources said revenue flows would not be guaranteed by the state government.
Instead, there may be a cushion arrangement which would include a security deposit consisting of 3 months receivables of the municipality and another deposit consisting of 3 months receivables of bulk water users, equivalent to a consumption of 100 million litres per day. The project is also to be backed by a water shortage fund set up by the state government. The revenue flows, worked out on the basis of a weighted average tariff of Rs 34 per kilolitre, is expected to generate an equity rate of return of at least 20 per cent.
The Tiruppur Water project will be the first such projectto take off. Other proposed projects include those in Goa, Pune and Kochy. The Panjim project for which Reliance was short listed is now faced with pre-construction risks. Pune and Kochi projects have been abandoned at the pre-construction stage and consequently do not allow bidders to take advantage of force majeure clauses in the agreement.
Financial closure of the Tiruppur project is expected next February, once the EPC contractors firm up the equity stake in the project.