18% Return Likely On Tirupur Water Supply Project

The water supply and sewerage project for the Tirupur municipal area is expected to offer a minimum internal rate of return (IRR) of 18 per cent during the concession period of 30 years, officials said here yesterday.

The project is being taken up on a build-own-transfer basis as part of the Tirupur area development project at the initiative of the Tirupur Exporters Association, the state government and the Infrastructure Leasing & Financial Services Ltd (IL&FS).

Sources said the rates have been arrived at after factoring in the financing and depreciation costs at current market rates. However the effective rate of return to the BOT operator is likely to be much higher, in view of the five-year tax holiday provided in the last budget for such projects.

 

This rate of return has been arrived at on the basis of a water supply tariff of Rs 25 per kilo litre (1000 litres) of water to the region. But these tariffs are on a weighted average basis, indicating an element of cross subsidy in favour of domestic consumers.

Four bidders have been short-listed for the Tirupur area development project for the final round to be held in April this year, sources said. This is for the first phase of the project, expected to cost Rs 600 crore.

The bidders were short-listed after a series of whetting by the state government in association with IL&FS. In the initial phase held late last year, 40 companies had pitched in for the most ambitious infrastructure project in the country.

For the implementation of the project, a special purpose vehicle, the New Tirupur Area Development Corporation, has been formed with equity participation by the Tirupur Exporters Association, financial institutions, the state government and the Centre. Sources said the final round would consist of a technical bidding and a commercial bidding. The technical bidding is based on the parameters prescribed by the nodal agency, IL&FS.

The 18 per cent rate of return becomes significant since the response to BOT-based water supply projects has so far not been enthusiastic, neither private firms nor public sector undertakings have evinced much interest. This IRR has the potential to become a standard for similar urban projects, especially for municipalities planning to enter the bond markets for raising funds.

The 18 per cent rate is also close to the rates that the Housing & Urban Development Corporation is charging some municipalities for financing urban water supply projects.