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Sep 20, 2000 - inputs provided by N.N. Prasad, former vice chairman, Kanpur. Development Authority (KDA). .... like bridges, flyover, bypass, etc., coordination between ...... Godavari district of Andhra Pradesh to Rs 45 in Mehasana district of ...

206 India Infrastructure Report 2002

8

URBAN INFRASTRUCTURE

8.1 MANAGEMENT OF INFRASTRUCTURE PROJECTS IN URBAN LOCAL BODIES: CASE STUDY OF KANPUR DEVELOPMENT AUTHORITY1 Bithin Datta Kanpur is a typical growing city in India, beset with enormous infrastructure bottlenecks. The sewerage system needs to be entirely redone, the system, which was originally designed to cater to a population of 3–4 lakhs, now serves a population as large as 40 lakhs. Water supply in the city is very poor, which forces most people to go in for their own boreholes. There is also the problem of poor drainage facilities, causing waterlogging and the deterioration of the road network. Overcoming the resulting traffic bottlenecks would require the construction of around 10–11 flyovers. Thus, Kanpur’s need for immediate improvement of its infrastructure cannot be overemphasized. The main infrastructure provider in the city is the Kanpur Development Authority (KDA). Typical of government organizations, one of the major causes of failure of the KDA to perform to its potential is the cumbersome and inefficient procedure for planning and implementation of projects. The objective of this paper is, hence, to highlight the factors that are crucial to the KDA emerging as an efficient and economic provider of infrastructure services in Kanpur.

The KDA, the largest body of its kind in Uttar Pradesh (UP), has been responsible since its inception for providing

infrastructure related development to Kanpur city. Set up in 1974, today the organization has jurisdiction over an area as large as 300 sq. km, which includes 312 villages. As much as 12,000 hectares of land was obtained virtually free of cost as these belonged to the Gram Samaj. As quoted by one of their officials, ‘this vast land bank is one of the principal reasons behind the financial stability of the organization’. A careful appraisal of the changing trends in the income and expenditure pattern of the organization for the last five years would be helpful in obtaining an insight into its financial status (see Tables 8.1.1 and 8.1.2). Over the last five years (1995–2000), the net income has increased while the amount of loan taken has decreased substantially which is definitely a positive sign. Also, the contribution of government grants is almost negligible in the activities of the KDA. Grants if any are generally project specific. Financially, KDA seems to be in a sound position. During the last few years, KDA has made appreciable efforts to streamline its functioning and implement infrastructure projects critically needed for this urban area. The main projects taken up by KDA involve housing, urban transport, water supply, sewerage and drainage. Noteworthy projects planned for 2000–1 include the Mandhana–Bhauti road bypass, New Transport Nagar, multiplex on Parvati Bagla Road, Ispat Nagar, and Jawahar Puram Yojna. Amongst

1 This article was written during the early part of 1999. Since then the working and thinking within the KDA could have changed. The author wishes to acknowledge the cooperation extended and inputs provided by N.N. Prasad, former vice chairman, Kanpur Development Authority (KDA). Thanks are also due to Darshan

Singh, chief engineer, Mohan Karan, chief of planning, D.R. Yadav, superintending engineer, R.N. Singh, executive engineer, A. Gani, chief accounts officer, and D. Ganguly, financial consultant of KDA. The author is also grateful to Nandita Basu, sr. project associate, IIT Kanpur for contributing to the preparation of this article.

THE KANPUR DEVELOPMENT AUTHORITY (KDA)

Urban Infrastructure 207 Table 8.1.1 Annual Income of KDA In lakhs of Rupees Opening Balance House/land Loan Others Net Income

1995–6

1996–7

1997–8

1998–9

439.70 3527.94 1230.42 361.59 5119.95

2123.71 2116.39 403.48 1147.79 3668.38

1862.53 2549.62 639.96 1832.57 5022.15

2298.58 3182.96 212.68 3047.4 6443.04

1999–2000 3176.23 3756.57 62.32 4000.07 7818.96

Source: Information provided by the Chief Accounts Officer and Financial Consultant to KDA.

the projects executed in the past, there are some success stories and some glaring failures. For example, while many of the housing colonies built by KDA have been much in demand, hundreds of houses built for economically weaker sections (EWS) lie in ruins.

PROCEDURE

FOR

PLANNING

AND

IMPLEMENTATION

Before looking at the factors that affect its performance, it may be worthwhile to list the procedures normally followed by KDA in the development of an infrastructure project: 1. First, a master plan is prepared in which the land use pattern (recreational, industry etc.) are designated. 2. If it is a housing project, then the area to be acquired is earmarked. 3. Land is acquired through district magistrate under Land Acquisition Act 1894. 4. A tentative map of the area is prepared by plane table surveying and contouring. 5. Cost of the project is ascertained. For a housing project, the cost includes (i) land acquisition cost, (ii) survey cost, (iii) cost incurred for levelling of site, (iv) road development cost, (v) drainage and sewer lines cost, (vi) water supply cost, (vii) electrification cost, and (viii) costs incurred for providing parks, etc. The Public Works Department (PWD) schedule is utilized for fixing these rates. To these charges are added administrative charges, establishment charges, profit and interest for half the

construction period at the rate of 18–21 per cent. Based on these cost estimates, the per unit price of the developed land is determined. No market evaluation of demands etc. is incorporated in this estimate. 6. The source of finance is ascertained. Apart from some project specific funding from the government and organizations like HUDCO (Housing and Urban Development Corporation), the KDA funds its projects by (i) leasing out acquired land, (ii) taking money in instalments from the proposed owners of the houses in the developed plots, (iii) taking loans from some agency like HDFC, banks etc., to which 3–4 per cent collection charge plus interest is added. The total money is to be realized by selling off the houses. 7. Based on these data, a project proposal is prepared, which is ratified by a recommending committee comprising of the Secretary, Chief Engineer, Chief Accounts Officer, and concerning executive engineers and finally endorsed by the Vice-Chairman (VC). 8. After this process, tenders are called for submissision. The KDA has registered contractors. They are grouped according to the maximum value of the project that can be awarded to them, ranging from Rs 10,000 to Rs 2.5 crores. For projects worth Rs 5 crore or less, the norm is to subdivide the work amongst smaller contractors, to ensure rapid pace of construction. Larger projects might be given to a single contractor. (As stated by an official of the KDA). 9. Tender documents have adequate clauses to account for cost escalation arising due to delay on the part of the

Table 8.1.2 Annual Expenditure of KDA In lakhs of Rupees

1995–6

1996–7

1997–8

1998–9

Overhead Expenses Repayment of Loan Development Work Construction Work Others Net Expenditure

689.05 1589.89 387.13 206.91 562.96 3435.94

771.48 567.41 1340.94 398.9 850.83 3929.56

818.43 576.60 1754.99 112.17 1323.91 4586.10

1120.66 1165.13 1985.83 136.35 1157.42 5565.39

Source: Information provided by the Chief Accounts Officer and Financial Consultant to KDA.

1999–2000 1240.94 1231.72 2934.94 317.46 1640.67 7365.73

208 India Infrastructure Report 2002 contractor. A penalty at the rate of 1 per cent of the value of the work for each day’s delay subject to a maximum of 10 per cent may be levied by the Vice-Chairman. But as stated by one KDA official, these clauses are entirely one-sided, as there is no penalty clause for delay due to KDA’s slip-ups. 10. The lowest bid is normally selected. 11. During the construction stage, weekly, monthly, and yearly monitoring is done by the KDA at different levels starting from Assistant Engineer to Vice-Chairman and government officials. But user participation is sadly lacking. 12. Supplies are generally the responsibility of the contractors. It is to be noted that for major infrastructure projects like bridges, flyover, bypass, etc., coordination between various agencies is essential. Also approval has to be obtained from various agencies like the State Secretariat, Ministry of Urban Development, PWD etc. Some other agencies like the Nagar Nigam, Railways, etc. may also share the cost of the project, the modalities of which need to be worked out. Completing these formalities may take years (for example, a planned overbridge), at times with some unnecessary duplication. Also, the functioning of KDA is hardly free from the general problems of waste and inefficiency in government agencies. At times, the allocation of funds or implementation of projects are based on inadequate exploratory or feasibility studies, on incomplete information, and in some cases probably dictated by various compulsions. The problem of adequate maintenance is less important as many of the projects once completed are transferred to the owners or the municipal corporation (Nagar Nigam). A more detailed analysis of the problems can be accomplished by studying (i) problems in the planning stage and (ii) problems in the implementation stage.

PROBLEMS

IN

PLANNING

One of the principal causes of failure of many infrastructural projects is the lack of proper technical and commercial/ economic feasibility studies that should be done prior to the project approval. Decision making, whether in a single or

multiple decision maker situation, is acceptable only when reliable and all relevant information are available to the decision makers. The other issue is the viewpoint to be considered while deciding on the implementation of the project. The users’, viewpoint may be in conflict with that of the politicians or financiers.

Technical Feasibility Studies Technical feasibility studies in small urban projects, like the land development projects undertaken by the KDA, may not be a potential problem. But, even here lack of reliable data collection sometimes lead to unforeseen hurdles. For example, in a sewerage project, the topographic data collected may be erroneous. It would then be a problem connecting the branch sewers to the main sewer line that is connected to the waste treatment plant, examples of which exist in some developed colonies. The entire project then becomes a bottleneck once implemented. Right from the inception of the project, honest and efficient quality control and supervision is necessary. In the design stage, small sized consultant firms may be engaged, who neither have the expertise nor the incentive for proper and especially economically efficient design. Thus once a completed project is transferred to the owners or the Municipal Corporation for maintenance, it becomes a perpetual problem.

Commercial/Economic Feasibility Studies Commercial/economic feasibility studies are grossly inadequate. Pricing of developed plots/housing colonies are generally based on land acquisition and other initial incurred costs such as surveying cost. The land cost may be based on present land use pattern and not future developments. More importantly, market survey for determining the cost of developed properties may be negligible or absent. The sale price of a building in a developed plot is normally based on the costs incurred. The location of the developed area, however, may not be suitable for the targeted population and hence they might be unwilling to pay the desired sum. Public sector attempts to provide low-income housing have not met with much success. One main reason is that in most

Box 8.1.1 Failed Housing Projects Studies of the failed EWS housing projects indicate a lack of market driven choice of location as a probable cause of failure of these projects. Especially, those EWS housing areas that are situated a long distance away from the centre of activity in the city have not been successful, primarily because the targeted occupants are supposed to be daily wage earners. Under the Swarna Jayanti Vihar Scheme, houses (LIG, MIG, EWS and HIG) were to be constructed at Koyla Nagar in Satabari (1991–2). Reportedly, a sum of Rs 1.75 crore was spent on creating infrastructure such as roads, sewers etc. However, this project failed to take off primarily because its location was such that basic amenities such as schools, banks, and shopping areas were not located in the vicinity of this housing project. Another reported reason was that potential buyers of HIG/MIG plots did not like the idea of staying in the immediate neighbourhood of the EWS and hence backed off.

Urban Infrastructure 209 developing economies, formal building regulations are largely unrealistic, mandating oversized plots and rights-of-way and setting standards for infrastructure and building materials that result in structures that low-income households cannot afford. Thus before venturing into such projects, it is imperative that market surveys be done to ascertain the saleability of the plots to the targeted population (see Box 8.1.1). As stated by a number of KDA personnel, this was the root cause behind the failure of many housing projects undertaken by them. However, the recent trend in the organization is towards hiring private agencies to do market surveys, especially for housing plots far off from the main city.

Integrated Planning Integrated planning according to a master plan is more efficient and prevents fragmented development. Piece-wise planning is in vogue in most urban development projects, without integration of the entire system, and may lead to infrastructural bottlenecks. For example, multi-storeyed flats have come up in premises previously occupied by single bungalows without a commensurate increase in the existing infrastructural facilities such as sewerage, roads, and water supply. However, the development of a master plan requires detailed and time-consuming studies, reliable data, large investment, long-term commitment, and expert technical input. Urban infrastructure management agencies need to commit to such planned development. Integrated development according to master plans also needs adequate budget commitments to be planned ahead for a number of years. Integrated planning may also result in large sized projects, which can attract private participation and/or reputed and large contractors. The ultimate outcome might be an overall improvement in the quality of the finished project.

Capacity Expansion Capacity expansion of infrastructures such as roads, flyovers, overbridges, water supply, sewerage, water treatment projects, etc. must be a part of initial planning. Most often, due to illegal and unplanned development, it becomes impossible to expand the facilities as planned, at a future date. Premature initial investment, instead of planned capacity expansion, have often absorbed resources that could otherwise have been devoted to maintenance, modernization, or improvements in service quality. Construction of projects catering to the demands for more than 20 or 30 years leadtime may not be economically feasible or efficient in a developing country like India. This may be one of the most important problems of infrastructure enhancement or development in most urban areas. This problem has led to a chain of bottlenecks, which is very difficult to solve.

Political Will and Administrative Support Many problems faced by urban development authorities like the KDA need administrative solution and political will. A solution may be technically feasible but immensely costly if proper political support is not available for other less costly alternatives. Timely land acquisition and demolition of unauthorized structures that hamper public utility services are examples where political will and administrative determination, rather than technical solutions, are necessary to overcome problems. A good example of administrative determination is the recent shifting of the UP State Road Transport Corporation’s (UPSRTC’s) bus stand. This particular bus stand, located in the congested commercial area adjacent to the Kanpur Central railway station, caused major traffic jams. The bus stand was shifted to a low-lying marshy area, part of which was inhabited by slums, near ‘Afeem Kothi’ crossing in a record 4–5 months. Unfortunately, the planners did not anticipate and plan for the resulting gridlock on the adjacent railway overbridge on the GT (Ground Trunk) road.2 Traffic here is especially bad in late evenings when heavy vehicles are allowed to ply on this section of the GT road.

PROBLEMS

IN

IMPLEMENTATION

Cycle Time Between Project Planning–Decision Making– Allocation Of Funds–Implementation Many projects remain in the planning stage while some projects are selected for implementation but await allocation of funds. Final decision making is pending for implementation of other large projects mainly due to budgetary constraints. Even when a project is selected for construction, and provisional allocation of funds have been approved, many ground realities may prevent actual implementation. Some projects are halted after the start of construction due to legal challenges, inadequate budgetary allocation, or changes in priority. A glaring example is the Mandhana–Bhauti road3 bypass, which has been bogged down for years, mainly due to land acquisition and funding problem amongst others.4 The enormous delay between the planning stage and actual implementation of especially large infrastructural projects is an ubiquitous problem resulting in cost escalation and failure to meet the demands as the construction horizon is reached even before the completion of the project. This is also a disincentive for efficient and 2 The

GT road connects a large part of the city to Kanpur Central railway station. 3 Mandhana–Bhauti road would enable through traffic on the GT road to bypass Kanpur city. 4 Now it is proposed to be completed as a BOT (build, operate and transfer) or BFOT (build, finance, operate and transfer) project.

210 India Infrastructure Report 2002 quality construction. At least a penalty clause for delays due to reasons under the control of the contractor and the contract awardees may partially act as a deterrent.

Lack of Coordination Amongst Infrastructure Providers and Bureaucratic Red Tape As pointed out by the VC of KDA, lack of effective coordination amongst infrastructure providers is one of the principal bottlenecks in the implementation of large projects. An ideal example is the case of a rail overbridge in the city that was initially planned to be funded by the KDA, Nagar Nigam, and the government. Accordingly, the share of the expenditure was decided. However, due to its poor financial condition, the Nagar Nigam was unable to honour its commitment. Ultimately, KDA agreed to foot the share of the Nagar Nigam. However, a new problem cropped up when it was found that the cost estimates did not include additional Rs 2 crores for removing some existing utilities. Therefore, financing for the project had to be renegotiated. Another associated problem is the large number of clearances necessary before work can actually start. Clearances are required from the State Secretariat, ministry of Urban Development, PWD, Railways, etc. Moreover, there was confusion regarding the nodal agency that would oversee the implementation. Such problems can delay the project implementation by years, as shown in the railway overbridge case.

Award of Contracts One problem with many urban infrastructure management organizations is the coterie of contractors who are associated with most projects. Large contracts are awarded only to prequalified contractors. It is suspected that even the set of prequalified contractors come to an understanding on who will submit the lowest bid for a particular project. An unhealthy outcome of this is that the assignment of work to particular contractors are most probably mutually decided before the tender submission. Therefore, much leverage may not be left with the organization in assuring the right choice for award of contract. This also may discourage some good, especially outstation, firms. Moreover, contracts are awarded on the basis of lowest bid, and using this as a sole criterion may not always be the best choice. However, the real remedy is to attract better, reputable, out-of-state contractors and encourage private participation. This will also discourage mutual understanding between the contractors, and improve the quality of work. Otherwise the contracting process is virtually devoid off the competition aspect.

Therefore, right from feasibility study to implementation/ construction, the supervision/monitoring is done in-house. In some cases, this may result in a conflict of interest, coverups and improper monitoring. One major fallout of the lack of regular and rigorous supervision is that illegal encroachment or occupation may at times remain unattended and may ultimately become an unmanageable problem.5

Abandoned Projects There may be a network of projects in the urban infrastructure area that remain incomplete or abandoned for years but are shown as continuing for accounting purposes. The concept of sunk cost must be used to choose better alternatives rather than trying to keep them alive on paper for psychological or accounting reasons. One such example where further development work was stopped after spending Rs 175 lakhs is the Swarna Jayanti Vihar Scheme started in 1991–2. However, the scheme is being revived by the KDA.

PRIVATE PARTICIPATION Lack of adequate infrastructural facilities like roads, water supply, electricity, etc. can be identified as the root cause of failure of many housing schemes. To amend this situation, the KDA has recently taken under its wing some major infrastructural projects like development of transportation, sewage treatment, and drainage facilities for the city of Kanpur according to a master plan. It includes construction of quality roads, flyovers, macro level drainage network, etc. These projects need huge investments, to the tune of Rs 1000 crores, which is way beyond the capacity of the KDA. As pointed out by the former Vice-Chairman of the KDA, extensive private participation in infrastructural projects may be the best option available, if not the only one. The relevant factors for private participation are:

Pricing/Tariff Willingness of private participation is very obviously entirely dependent on the financial viability of the infrastructure projects. In water supply or sewerage projects, the tariff/ prices charged from the users are negligible compared to the expenditures incurred. With the present rules, regulations, and absence of market determined price/tariff structure in particular, the probability of attracting private participation would remain very small. Fortunately, some recent market surveys have shown that consumers are willing to pay substantially higher charges if good quality service is ensured.

Supervision/Monitoring During Project Implementation 5

The entire responsibility of quality control during construction lies with the implementing agency (KDA).

Many times, local contractors are preferred as it is expected that they have the means to implement the project due to their political connections.

Urban Infrastructure 211

Mode of Operation The KDA has recently shifted its emphasis on both build, operate and transfer (BOT) and build, finance, operate and transfer (BFOT)6 projects (for example Mandhana–Bhauti bypass road, multiplex, bus terminus, etc.). The KDA is the monitoring authority for construction and implementation of these projects. There is a possibility that this might serve as a deterrent for private participation, as it would harbour corruption and most probably political interference. It is much more desirable to ensure actual user participation in the monitoring of the project even at the implementation stage.

doubt, property taxes may provide possible means for compensating the low infrastructural service charges paid by users. The user fees charged should cover operation and maintenance, and other associated costs. Proper accounting of annual property tax and incorporating infrastructural service charges may be a possibility. For example, the KDA is involved in the construction of a large-scale drainage network for Kanpur city. Many of these macro level drainage networks cover already built up areas where land development fees may not be realized.7 In order to attract private participation at any stage, such projects may be partially funded by municipal bonds8 and partially by investing operators with some revenue sharing arrangement.

Rules and Norms Pricing/tariffs, however, is not the only factor holding back private participators from functioning as infrastructure service providers. Rules and regulations as they exist need to be thoroughly modified to reflect present day scenarios. For example, cost escalation is a ubiquitous problem in government projects. These cost escalations may result due to problems such as delay in land acquisition, unexpected problems in supply of raw materials, illegal encroachment on urban land even during the project implementation, or due to internal problems in the government organization. All these aspects need to be examined and suitably addressed to decrease institution related risks to private participants and to prevent astronomical escalation of planned project costs. Hence, contract documents should be modified to incorporate proper penalty clauses both for the contractor and the government organization as the case may be. It is a widely accepted view that the setting up of a statutory regulatory system to provide clear and transparent enforcement of the terms of the contract and agreements will actually facilitate private participation.

Legislative Reforms To encourage adequate private participation, legislative reforms are mandatory. For example, the KDA is trying to involve private organizations in urban transportation projects. But for private parties to realize their investment in such a project, there should be adequate legislations concerning toll collection from all vehicles, including vehicles owned and operated by government agencies.

Property Tax and Municipal Bonds In the KDA, the administrative costs such as employee salary form a large part of the total annual expenditure. No 6 In a BOT scheme, land is provided at a discounted price, which has to be repaid by private agency in instalments. Land acquisition is the responsibility of the private party in the BFOT scheme.

ENCOURAGING SIGNALS

AT

KDA

A positive step taken in Kanpur city, based on the initiative of the KDA, is the formation of a Task Force headed by the Vice-Chairman of KDA and involving CEOs of the Railways, Electricity Board, KDA, Nagar Nigam, telephone department, etc. The objective is to ensure better coordination among different departments to overcome the problems arising out of overlapping jurisdiction, and therefore facilitate faster planning and implementation. It is no doubt true that efficient management of such an entity depends to a great extent on the nature of political support and the priorties of those at the helm of affairs. The KDA cannot be an exception. With all its inherent problems and conflicts typical of government agencies involved in infrastructure develop-ment, a desire for better management and quality control through a clean and strict administration is becoming amply evident at the KDA. There is a conscious effort at involving nationally reputed organizations as well as institutions like the IITs in various activities of the KDA. The present goal seems to be towards enhancing accountability, quality control, and also to utilize independent inputs including those of the targeted users. These endeavours highlight the attitude of the top management, without whose endorsement reform would be an unrealized dream within the present set-up. 7 Alandur, a selection grade municipality adjacent to Chennai, is a remarkable example where residents paid 23 per cent of the capital cost for constructing an underground sewerage system. In addition, they agreed to pay monthly average charges which were 3 to 7 times higher than the water charges than in nearby Chennai. See Section 8.5. 8 KDA was the first development authority in India on the verge floating ‘development bonds’. The ICRA had rated the KDA bond as A+, which is a clear acknowledgement of the financial status of the organization. Unfortunately, with the departure of the then Vice Chairman M.N. Prasad, the priorities and management outlook seems to have changed drastically. This may be another example of shifting political goals.

212 India Infrastructure Report 2002

8.2 TRANSFER OF DEVELOPMENT RIGHTS: AN ALTERNATIVE TO CONVENTIONAL LAND ACQUISITION Bhavin Kothari It is mandatory for every city to undertake the preparation of ‘Development Plans’. Such plans typically take into account the expected increase in population and the demand for services including infrastructure. The spatial layout of the planned or expected activities is what constitutes the ‘Development’ or ‘Master’ plan. Typically for the planned municipal and related services, land would have to be acquired. In most cities, the local bodies as well as the state government own a very small part of the land. Hence, land would have to be acquired from private parties for public purposes. The actual implementation of development plans reveals that in the metropolitan areas only a small fraction of the proposed targets in the plans are actually achieved. In determining the ‘fair price of land’ to be acquired, governments generally try to rely on the past records of sales transactions. These are rarely reported or recorded correctly since transaction taxes are high and the role of ‘black money’ in the economy is large. Today, local bodies or the state governments do not have adequate funds to acquire the necessary land even at the recorded low rates. Land owners, on the other hand, are always opposed to the reservation being proposed on their land, because upon acquisition of the land, the amount of compensation receivable would tend to be typically a fraction of its traded price. The other associated (transaction) costs of acquisition are high. Local authorities are therefore either unable to acquire lands or are slow to buy notified land, because of tight budgetary resources. When the local authority fails to buy the notified land within the specified period, the reservation on the land is automatically deemed to be deleted. This under acquisition of land therefore puts a severe brake on the provision of public services and in bringing about improvements in the city. The citizen, ultimately, bears the cost of poor amenities and services. Acquisition processes can take a very long time. The legal procedures to be followed for acquiring land are cumbersome, dilatory, and costly, resulting in inordinate delay. Even after acquiring the land, city corporations have to remove the encroachments. Encroachments may have continued from the earlier users, but can also come up after acquisition, before actual possession. Hence, even after acquiring the parcels of land, it is usually not possible for corporations to put the same to immediate use. Plot owners, when faced with acquisition, may even encourage encroachments, so as to create hurdles in the acquisition proceedings. While it

is possible to correct for some of the distortions in the land market (See Morris 2001, 3iNetwork 2001), nevertheless some of these would remain. A pragmatic solution to this problem could be the use of ‘Transfer of Development Rights’.

TRANSFER

OF

DEVELOPMENT RIGHTS (TDR)

The Urban Development Plans Formulation and Implementation (UDPFI), Government of India (GOI 1996), define Transferable Development Rights as, ‘Development Right to transfer the potential of a plot designated for a public purpose in a plan, expressed in terms of total permissible built space calculated on the basis of Floor Space Index or Floor Area Ratio allowable for that plot, for utilisation by the owner himself or by way of transfer by him to someone else from the present location to a specified area in the plan, as additional built up space over and above the permissible limit in lieu of compensation for the surrender of the concerned plot free from all encumbrances to the Planning and Development Authority.’ The TDR as a mechanism utilizes the real estate market, rather than the market for land, to compensate the landowner, whose development rights have been curtailed. It allows for the transaction of development rights as buildable area. It aims at enabling the use of land for public purpose at little or no cost to the public exchequer. Transfer of Development Rights (TDR) programmes have been used to achieve various purposes, such as (i) landmark preservation; (ii) open space preservation; (iii) preservation of fragile lands; (iv) as a primary system of land use regulation; (v) as a method of encouraging the construction of moderate and low income housing; (vi) as a method of regulating the location and timing of community growth; (vii) and to provide for acquisition of land under reservation for urban services. The US has used TDRs in a variety of ways (see Table 8.2.1). The predictability of development could be increased and thus planning for public services could be improved without alienating the owner completely of the intangible value of his property. Transfer of Development Rights (TDR) programmes do not need ‘correct’ prices in land markets. To the extent that the distortions are similar at both locations, it works, since the acquirer does not have to grapple with absolute price as such. The advantages to the municipal corporation when TDRs are used are many: (i) Monetary compensation is avoided

Urban Infrastructure 213 Table 8.2.1 TDR Programmes at Various Urban Centres Montgomery County

New Jersey

1. Objective

Preserve agriculture

Environmental protection

Preserving landmarks

To replace zoning

2. Transfer limits

Within country

Across counties

Within districts

Within county

3. DR based on

Acreage

Suitability of land for development

4. Person getting DR 5. DR Bank 6. Value of right

Farmers in agricultural area Yes In multiples of five acres

All farmers

Difference between Acreage allowed and consumed FSI Landmark owner All landowners

No Varied according to type of land

Yes Equal to area of unutilised FSI

when the property owner opts for TDRs; (ii) The acquired land is available free of title disputes, encroachments, and encumbrances. Thus the corporation can put the land to immediate use. Consequently, implementation of the master plan can be speeded up. The advantages to the plot owner are: (i) Compensation is given in the form of buildable area as against monetary compensation. An individual plot owner can earn, by selling his development rights, an amount, that could be many times the government compensation in traditional acquisition; (ii) Since much less time is taken for the entire procedure, the plot owner gets the development rights faster. The values not captured in the ‘market price’ as recorded would be reflected in this instrument. Moreover, in a situation of appreciating property prices, the instrument would incorporate land value appreciation. Markets in the instrument would allow the individual choice, including selling the same to developers working in areas with potential to add to built-up area. The system of TDR though would presume the existence of a market for the instrument. This means that developers adding to the density are participants in that market. For good values and to prevent cartelization, two or more growth centres or a very high level of dynamism is required. In order to make TDRs work, it is necessary to ensure that the market for the Development Rights is allowed to exist. Similarly, identification of land values (into certain categories) in all areas of city and indexing them before giving the TDR is necessary. On the user side, it is also desirable that heavily congested areas are not allowed to be used for fresh increase in Floor Space Index (FSI) or density.

Chicago

Virginia

No Depending on use

Mumbai, India To acquire reserved land for social amenities Within the limit of MCGM (Municipal Corporation of Greater Mumbai) Allowable built-up space All landholder having land under reservation No Equal to the Area of permissible FSI (built-up space)

A clear definition of the receiving zones and high-density growth centres would also be desirable.

TDRS

IN

MUMBAI

Mumbai’s population grew from 82 lakhs in 1981 to 99 lakhs in 1991, that is, by 20.45 per cent over the decade. On this score, and also because of rising incomes, the demand for amenities increased. Little vacant land was available to add to public functions and services. Compulsory land acquisition was the only measure used by the corporation until recently. However, it met with little success. Of the total land area reserved in the Development Plan (1964–81) for providing various amenities for the projected growth of the city, not even 10 per cent of the area could actually be acquired during the entire tenure of the Plan! Finally on 25 March 1991, the state government, allowed the use of TDRs. This was the first time that TDRs were used in any city in India. However, TDRs have not replaced compulsory land acquisition, and remain currently only an alternative to compulsory land acquisition. The interesting feature about the real estate market in Mumbai is that it does not deal with land, but deals with buildable area. Due to the long existing FSI based control in Mumbai since 1964, there now exists a profitable market in buildable area or the right to develop, as distinct from the market in urban land itself. The TDR has created a sub-market where the buildable area can be bought and sold. This is seen in advertisements for TDR sales in the newspapers. This market for rights, was given a boost during the real estate boom. The sale value of TDRs to the possible compensation from government ranges between 3 to 5.

214 India Infrastructure Report 2002 Table 8.2.2 TDRs in Mumbai Price Reduction due to TDRsa Bandra: Rs 3500 to Rs 1000 per sq. ft. Andheri: Rs 1800 to Rs 800 per sq. ft. Kandivali–Borivali: Rs 600 to Rs 300 per sq. ft.

The TDR Clubb

Floating Stockc

Mayfair Housing–HDFC: 10 lakh sq. ft. Tata Housing: 30,000 sq. ft. Dorab Dubash: 80,000 sq. ft Ajmera Developers: 1,00,000 sq. ft. Hoechst Marion Roussel: 8,000 sq. ft. Procter & Gamble: in negotitation

The Lok Group: 1.5 lakh sq. ft.

Source: The Economic Times, Mumbai, 28 September 1998. a In relation to conventional land acquisition; b Groups approved for using TDR;

c

Swadeshi Mills: 8 lakh sq. ft. Dorab Dubash: 80,000 sq. ft. Ajmera Developers: 8 lakh sq. ft. An estimated 35 lakh sq. ft.

Total built up space still available.

8.3 ISSUES IN MUNICIPAL WATER SUPPLY: A CASE STUDY OF KANPUR Mukesh Sharma

The twenty-first century will witness fresh water becoming scarcer and scarcer and conflicts for its appropriation and use increasing. Thus, an improved management of water saving policies needs to be evolved. In this section, we look at both management and pricing issues associated with municipal water supply in the city of Kanpur. The city of Kanpur has an old, inadequate, poorly maintained water supply system with huge water losses every year. Table 8.3.1 presents the salient data on the existing water supply system. Although the water supply system has undergone modernization from time to time, several of its features are more than a hundred year old.

CURRENT WATER PRICING The Government of Uttar Pradesh has notified water prices in its official Gazette of 10 December 1994 for the city of Kanpur. The water pricing for domestic users in 1994 was as follows: 1. Metered (Rs per KL): 2.00 2. Minimum charges (Rs per year): The above rates were effective in the year 1994. The current practice is to increase the water charges by about 7.5 per cent every year for metered as well as non-metered houses. That is how the current water rate got increased

Table 8.3.1 Salient Data on Municipal Water Supply in Kanpur Parameter Population Served Quantity of Water Supplied Consumption Pattern Duration of Supply Number of Connections Tariff (see next subsection ‘Current Water Pricing’) Metered Flat Rate (average) Annual Water Production Cost Annual Revenues Annual Financial Losses Non-Revenue Water Usage (losses) Water Wastage (unaccounted losses) Public Utility and Stand Post Notes: MLPD is million litres per day; LPCD is litres per capita per day; KL is kilolitres.

Value 21.25 lakh 280–310 MLPD 110–120 LPCD 4–6 hours per day 1.71 lakh Rs Rs Rs Rs Rs

3.23 per KL 696 per year 5440 lakh 1950 lakh 3490 lakh

30 per cent 10 per cent

Urban Infrastructure 215

Annual tax valuation of property

Table 8.3.2 Tax Valuation and Size of Connection Size of pipe connection

Upto Rs 360 Rs 361–2000 Rs 2001–3500 Rs 3501–5000 Rs 5000 or more

from Rs 2.00 (in 1994) to Rs 3.23 per KL today (see Table 8.3.1). There is no scientific basis for the initial water price (in 1994) and for raising the water price by 7.5 per cent each year. However, the interesting feature of the water pricing in Kanpur is that differential water pricing is inbuilt in the system depending on the annual tax on the property and the size of the water connection (See Table 8.3.2). Nonetheless, the fact remains that revenue collections are far below the cost, and Kanpur Jal Sansthan is running into huge losses each year.

WATER LOSSES

AND

REVENUE COLLECTION

Unaccounted for water (UFW) represents water that has been collected, treated, and then transported using expensive water supply infrastructure, chemicals, energy, and staff but

15 mm

20 mm

25 mm

360 480 720 960 1200

540 720 1080 1380 1800

840 1080 1680 2040 2400

let to get out of the distribution system for no benefit at all to the utility. In simple terms, UFW is money lost. Box 8.3.1 shows the composition of UFW and the manner in which it can be determined. The average water consumption in Kanpur (that is 110– 20 LPCD) is less than the national average (130–75 LPCD). The most significant drawback of the Kanpur water supply is the huge amount of water wastage of around 30 per cent and negligible revenue collection from public utilities (for example parks, fire-fighting, etc.) and stand posts which takes away about 10 per cent of water. In other words, UFW for Kanpur water supply is 40 per cent, which fetches no revenue resulting in an annual loss of about Rs 14.15 crore. The additional revenue losses of Rs 20.75 crore can be attributed to severe underpricing of water at the rate of Rs 3.23 per KL, as against a production cost (pumping,

Box 8.3.1 Composition of UFW C. Njiru Unaccounted for water comprises of two main categories: commercial (also known as revenue or administrative) losses and physical (or technical) losses. Commercial losses are due to: • Non-metering (where flat rates do not cover costs) • Incorrect billing such as unbilled or under-billed consumption resulting from faulty metering, especially under-metering (due to inaccuracies in measurements, outright theft, and inadequate database of connected properties) • Illegal connections and unknown use (domestic, commercial, agricultural, industrial) • Legal but uncharged connections (fire-fighting, unmetered public fountains, and stand posts) • Overdue payment of bills • Treatment works losses, transmission and distribution mains cleaning and flushing. Physical (technical) losses or water actually lost through leaks often constitute a large proportion of UFW. Physical (technical) losses generally consist of: • • • • •

Transmission losses Losses due to service reservoir leakage and overflows Losses in the distribution network Losses in the service pipes or connection Losses and wastage on a customers’ premises (especially high where billing is on flat rate).

Leaks may stem from poorly constructed plants, reservoirs, and networks, ageing systems and house connections, accidents, and poor maintenance. Physical losses can be quantified and pinpointed through zoning of the distribution network and installation of bulk flow meters at strategic points in the network.

216 India Infrastructure Report 2002 electricity, chemical treatment, salary, etc.) of Rs 4.97 per KL. The total annual financial losses of Rs 34.9 crore are against the operation and maintenance cost alone. If the financial losses are to be estimated against the total cost,9 the losses can run into several hundred crore rupees. The ever-increasing losses result not only in increased liability in terms of electricity bills (which are not paid), but also the funds are not available for investment into routine maintenance and modernization to minimize water losses.

What Can Be Done? A simple economic tool for managing the water supply could be demand and supply. However, water being a basic necessity shows low elasticity as people in any case need some minimum amount of water irrespective of the cost. As stated above, it may not be a good idea to do full costing of water because of poor affordability and willingness to pay for water, especially in view of the present quality of water and service which is for less than 4 hours a day. The affordability or ability to pay is judged by estimating the average income in an area and then taking a percentage of income as the assumed ability to pay for that service. Table 8.3.3 presents water charges as a share of income in various countries. The World Bank recommends that the maximum water price should not exceed 3.3 per cent of total income of the family. The annual average income of a family in an urban city like Kanpur can be taken as Rs 36,000. The present water cost in Kanpur for a family of five persons works out to be 2.2 per cent of total income. This obviously is very high compared to other countries. The percentage share for the rich families will come out to be much less. These simple calculations suggest that in the present circumstances, the poor and average family cannot be taxed any further. Two methods by which the cost of water can be reduced are: • Invest in minimizing UFW, which is a whopping 40 per cent. • Invest in cost-effective/energy efficient pumping and water treatment.

Minimizing UFW A simple calculation will show that if UFW is reduced to 15 per cent (by reducing water losses by 50 per cent and making public utilities pay), additional revenue of about Rs 10 crore can be generated annually. Carrying out water audits can help to manage UFW. A water audit measures UFW and how much is lost at each stage of the system (collection, production, transmission, 9 Total

cost = Administrative costs (cost of raw water as resource) + Financial costs of supply and treatment(operation and maintenance) + Depreciation cost + Opportunity costs of alternative water uses + Debt payment and interest + Return on equity + External cost imposed on society and the environment of water pollution.

Table 8.3.3 Water Charges as Share of Income (per cent) Country Denmark France Germany Greece Spain UK

Existing price

Full cost

0.8 1.1 1.0 0.4 0.4 1.2

0.9 1.5 1.2 1.6 1.2 1.3

Source: Ringskog (2000).

service reservoirs, distribution, house connections, metering, and billing), and should be carried out regularly to inform management of the state of the entire system. Water audits can easily reveal the extent of UFW. The water audit provides a diagnosis of water losses in the water supply infrastructure and should be a regular activity of operation and maintenance tasks. If the water audit shows that UFW is excessive (say, more than 10–15 per cent), then a programme should be put in place to arrest the situation. Strategies to reduce UFW should be developed after a water audit has determined the level and likely composition of UFW. Jeffcoate and Saravanapavan (1987) have documented techniques for locating and evaluating water losses.

PUMPING AND WATER TREATMENT The major financial cost of water as product is from pumping and treatment. Technological and process considerations for reducing costs and increasing efficiency associated with pumping and water treatment are given below.

Energy Reduction • Utilize gravity flow and minimize pumping as far as possible. • Selection of efficient devices (per unit of water production), such as pumps and motors (for cleaning sludge in sedimentation tanks). • Consider adjustable-speed drive pumps over fixed-speed drive pumps to cater for varying load/demand (especially useful for moderate to small-sized treatment, pumping water to the treatment plant, piping network, etc.). • Optimize and minimize timing and duration of the backwash procedures for sand filters, de-sludging10 of sedimentation tanks, etc.

Process Efficiency Improvements • Adjust the doses of chemicals (alum, chlorine, etc.), depending on variations in raw water quality. The raw water 10

Sludging decreases the effective capacity of sedimentation tanks.

Urban Infrastructure 217 quality has significant seasonal variations. Both sub-optimal and excessive doses are harmful for human and aquatic health. • Have proper estimation of head loss in pipe network and minimize the loss of potential energy through network modifications.

• Regular desilting and dredging of canals and open channel to prevent head loss. • Reclamation of filter backwash water. The filter backwash water can be very significant at 1–2 per cent of total water supply. It must be reclaimed/recycled or else, in addition to water loss, it causes problem of water pollution.

8.4 WATER REFORMS THROUGH WATER MARKETS: INTERNATIONAL EXPERIENCE AND ISSUES FOR INDIA Nirmal Mohanty • Shreekant Gupta In recent decades India has witnessed rapid growth in demand for water particularly in domestic and industrial sectors due to population growth, urbanization, industrialization, and rising incomes. This growth in demand has not been matched by an increase in supply. The problem is compounded by pollution of water, which has reduced its suitability for various uses. At the same time, in traditionally water intensive sectors of the economy such as agriculture, the costs of irrigation have increased significantly. Under these circumstances, it is more important than ever before to use water efficiently. It is also necessary to anticipate and address inter-sectoral conflicts over the allocation and use of water. The standard approach so far has been to advocate reform of water pricing across sectors to reflect the scarcity value of water. This advocacy is based on theoretical and empirical evidence on the need and desirability of such reforms including willing-to-pay studies. Nevertheless, major users of water, particularly of irrigation water, have resisted these reforms so far. In this context, economic theory tells us that markets increase economic efficiency by allocating resources to their most valuable uses. In other words, if certain conditions are met, markets provide the correct incentives and lead to efficient resource use. Therefore, one way to change the incentives so that water users support the reallocation of water, and to achieving a more efficient allocation of water, is through water markets. These allow water users to buy and sell water, thus changing the whole incentive structure and breaking the logjam of water pricing reforms—when water users can gain from reallocation they would be willing to sell water or pay a higher price for new supplies. This paper explores the role of water markets, particularly in the context of India’s water supply and sanitation sector. It begins with a discussion on the deficiencies of the current systems of water allocation and how water markets could be an improvement over them. In particular, we draw out the advantages of water markets over administered efficiency

pricing (that is, pricing marginal units of water at their marginal cost). This is followed by a review of international experience with water markets. We highlight the fact that water markets have existed in several countries with varying degrees of success and that they are hardly a novel idea. More important, informal water markets have been in existence in India and this experience is reviewed in the next section. This is followed by a discussion on the modalities of introducing formal water markets in India. After describing briefly how formal water markets could be an improvement over informal markets, we examine the legal and institutional problems in implementing formal water markets in India and identify measures required to establish such markets including enabling legislation. The final section offers summary conclusions.

WATER MARKETS

AND THEIR

RATIONALE

Apart from water markets there already exist numerous non-market mechanisms for allocating water in most countries. These usufructuary rights to water have evolved either explicitly through laws and regulations or implicitly through conventions. These water rights are generally based on one of three systems: first-come, first-served allocation (also known as prior appropriation rights), allocation based on proximity to flows (or riparian rights), and public allocation (Sampath 1992, Holden and Thobani 1996, Haddad 2000). Whereas queuing for water is the basic approach of the prior appropriation doctrine, the location of one’s land determines water rights under the riparian doctrine. Under this approach whoever owns land along (above) the water has the right to ownership/reasonable use of the water. Finally, public allocation involves publicly administered distribution of water. ‘Under this system, public authorities decide how to allocate water using guidelines or laws establishing priorities and often specify the uses to which the water can be put’ (Holden and Thobani 1996: pp. 2)

218 India Infrastructure Report 2002 Most developing countries follow variants of the last approach where essentially the rights are allocated free— though there may be a charge for water use (typically based on the amount of irrigated area), the water rights themselves are obtained without charge.11 The track record, however, of administered systems of water allocation has not been impressive—water is typically underpriced and wastefully used and the delivery is high cost and unreliable (see Holden and Thobani 1996 for details). While this is well known, the important point to note here is that none of these systems fulfil the conditions for well-defined property rights to water, which in turn are essential for water markets to exist. In this context, the question could well be asked, ‘why not use administered efficiency-based pricing of water as an intermediate policy between managed quantity allocation and water markets?’ There are three reasons why water markets could be preferred to administered efficiency pricing (that is, pricing marginal units of water at their marginal cost)12. First is the reduction in information costs since buyers and sellers of water generate the necessary information on the value of marginal product and opportunity costs of water. As is the case with all markets, different values are measured and compared by prices, and the way price signals coordinate dispersed information and preferences is one of the great advantages of water markets (over alternative systems of water allocation). Second and perhaps more important, if the value of the prevailing usufructuary water rights (formal or informal) has already been capitalized into the value of irrigated land, then imposition of administered pricing is (correctly) perceived by right holders as expropriation of those rights. In effect, this would result in a capital loss for irrigated farms. This could explain the strong resistance by these groups to establishing administered efficiency prices. Establishment of transferable water rights would formalize the existing situation (where irrigated land is more expensive), rather than being viewed as a usurpation of these rights. Finally, the administrative solution presumes ‘far-seeing, incorruptible, influence-free’13 administrative bodies that are able to design and implement the ‘correct’ prices. In practice, this may often not be the case: these bodies could be captured by interest groups or they may be short-sighted and unable to estimate future demand, or they may be unable to set and collect appropriate water charges. 11 The water rights themselves under any of these systems are defined volumetrically as a share of the stream or canal flow or of the water available in a reservoir/lake, or in terms of shifts or hours of availability at a certain intake. 12 This discussion is based on Holden and Thobani (1996), and Rosegrant and Binswanger (1994). 13 Holden and Thobani (1996), pp. 5.

In sum, water markets have at least two clear advantages (and for a third reason may be no worse than) as compared to administered efficiency pricing. First, information costs are reduced since buyers and sellers of water generate the necessary information on the value of marginal product and opportunity costs of water. As is the case with all markets, different values are measured and compared by prices, and the way price signals coordinate dispersed information and preferences is one of the great advantages of water markets (over alternative systems of water allocation). Second, establishment of transferable water rights would formalize the existing situation (where irrigated land is more expensive), rather than being viewed as a usurpation of these rights. Thus, their implementation should be more feasible politically as compared to administratively imposed water pricing reforms. For water markets to work, property rights to water must be private, exclusive, and transferable (Bauer 1997). In this context, secure ownership provides an incentive to invest in greater productivity of the resource, while freedom to exchange provides the flexibility to reallocate the rights according to changing demand and other conditions. The role of the state should be minimal in this setting and should be restricted to protecting property rights, enforcing contracts, and reducing transaction costs and barriers to exchange. In fact, it can be argued that much of the current inefficiency in the water sector in India is due to excessive state regulation and subsidies, which have distorted patterns of water use. As a corollary then, freer markets would help in ‘getting the prices right,’ and in strengthening the incentives to conserve water as demand increases since any water saved could be sold. Another important rationale for water markets is the relationship between markets and liberty. In contrast to non-market allocation which gives the state leverage in noneconomic spheres as well, private property creates a space for individuals where the state cannot trespass. ‘Private property [the necessary precursor to markets] has thus been viewed . . . as a bulwark against the dictatorial authority of governments.’ (Cooter and Ulen 1996: pp. 109) In this context, by creating entitlements where none existed earlier, these markets can potentially be a tool for empowerment. Holders of water rights would be sought after (irrespective of their socio-economic status) by those who would like to buy these rights. Similarly, environmentalists can also purchase water rights in order to preserve a valued wetland or to increase a waterway’s flow. Without a market mechanism, environmental groups would have to depend on the state to achieve the same end (Haddad 2000). In fact, this is already happening in several states in western United States—the Oregon Water Trust, the Washington Water Trust, and

Urban Infrastructure 219

Western United States (California in particular) provides one of the earliest instances where water markets have been proposed to alleviate water shortages. According to the 1922 Colorado River Compact, allotments for use of the Colorado River are divided among seven western states and Mexico. California currently uses approximately 5.2 million acre-feet (maf )14 per year, more than its 4.4 million acrefeet allotment. Several groups such as the San Franciscobased Pacific Research Institute and Montana-based Political Economy Research Centre (PERC)15 have argued that water markets are the key to redressing this imbalance and to achieving a more efficient allocation of water. Most of California’s Colorado River allotment goes to the Imperial Irrigation District (IID, with 2.8 maf ) and the Metropolitan Water District (MWD, with 500,000 acrefeet). The MWD has spent $2 billion over the past decade to increase efficient water use in anticipation of rising demand. This has obviously resulted in a high price of water and MWD currently sells water for $431 per acre-foot. On the other hand, agricultural water is extremely cheap—IID sells water to farmers for $14 per acre-feet. Thus, there are enormous potential gains from trade. Further, studies show that farmers are sensitive to changes in water price— increasing the price of agricultural water by 10 per cent decreases demand by 20 per cent. In other words, the demand is price elastic. Thus, a marginal reduction in subsidies for agricultural water would reduce its use by this sector. It is not necessary (as some have argued) that agricultural output would decline as a consequence. Increasing the price of agricultural water would simply give agricultural communities an incentive to use water more efficiently, for example, by using new technologies and planting high value crops such as nuts, fruits, and vegetables that are less water intensive (Fowler 1999). Further, even if water markets

reduced agricultural production, it would probably be on marginally productive lands and crops (where in the first instance cultivation took place because of cheap water). In this context, it has been estimated that agricultural water use could decline by as much as 15–20 per cent through conservation without significant decreases in production (Wahl 1989). The Western Governors’ Asso-ciation Water Efficiency Working Group (1987: pp. 110) concluded ‘it does not appear that water markets present the threat to traditional lifestyles or natural areas that is feared.’ In fact, with a growing population and urbanization, water is undoubtedly California’s most precious resource. In this context, numerous trends indicate that a significant reallocation of water from agricultural to urban regions is likely to occur in western states in the coming decades, and a reallocation of as much as 15 per cent of current agricultural usage is plausible (Haddad 2000). If cities in California were to get 15 per cent of what agriculture in California currently uses, urban water availability would rise by more than half. This would be more than enough to meet new urban demands well into this century. It is also increasingly clear that markets will play an important role in this reallocation.16 All of this has important implications and parallels to the Indian situation as discussed below. Also of interest is that transfers have already been taking place in California. Under an agreement the Metropolitan Water District (MWD) in southern California is already acquiring 106,000 acre-feet of water per year for 35 years from the Imperial Irrigation District (IID). The water comes entirely from increases in water-use efficiency brought about through techniques such as lining irrigation canals or replacing them with pipes to reduce waste. By paying for these improvements, MWD was able to acquire the conserved water without reducing the number of acres irrigated within IID (Reisner and Bates 1990). As is the case for India (see section on Water Markets in India below), irrigators in California have been trading water among themselves for years, both formally and informally, and trading even occurs in some districts supplied with federal water. Members of the Westlands Water District (WWD), for example, negotiated roughly 4500 transfers during 1990–1 alone. In March 1996, WWD introduced an electronic bulletin board system that enables farmers to buy and sell annual entitlements to federal water using a personal computer and a modem (Anderson and Snyder 1997). Perhaps the most established market for federal water operates in the Northern Colorado Water Conservancy

14 An acre-foot is the amount of water necessary to cover an acre of land one foot deep, approximately 326,000 gallons. 15 http://www.pacificresearch.org/issues/enviro and http://www.perc. org/brfwatermar.htm.

16 ‘Water reallocation and marketing, for better or worse, are part of our future in the West, and we must prepare to face the challenge.’ Shupe, Weatherford, and Checchio as quoted in Haddad (2000), pp. 19.

Nevada’s Great Basin Land and Water are three recent groups that have used water markets to acquire water rights and convert them into instream flows. The Oregon Water Trust for instance has been able to increase flows on more than 25 different streams and rivers flowing into the Columbia River (Landry 1998). In sum, the private space created by market mechanisms can be used to achieve socially valued ends.

INTERNATIONAL EXPERIENCE WITH WATER MARKETS Western United States

220 India Infrastructure Report 2002 District near Fort Collins, Colorado. Annual water entitlements within the district are freely transferable. About 30 per cent of the water delivered to the district each year passes through the rental market, with rents ranging from $5 to $7 per acre-foot (Wahl 1989). There are also numerous examples of water trading between agricultural and urban users in western United States in the states of Utah, Arizona, Colorado, and Nevada. For instance, groundwater in Arizona was made freely transferable by law in 1980. Following this, the cities of Phoenix, Tucson, Mesa, and Scottsdale acquired more than 50,000 acres of farmland in order to retire the fields and to utilize the water. A study by researchers at the University of Arizona found that during the late 1970s and during the 1980s there were about 6000 transactions in Utah, 1455 in New Mexico, and 1500 in Colorado (Steinhart 1990). With respect to legislation, the leading proposal for water markets in California is embodied in the Model Water Transfer Act for California, which provides a detailed framework for institutional reform of this sector. Though it did not go far when introduced in the state senate in 1997 (S.B. 15), the Model Act remains influential since it still represents the best thinking on water markets in the state (Haddad 2000). The Model Act endorses voluntary water transfers because they provide flexibility in resource allocation and because they promote reallocation based on the principle of economic efficiency. At the same time, it also acknowledges the importance of protecting other parties who might be adversely affected by water transfers. One of the major aims of the Model Act is to streamline the cumbersome administrative process of review and approval of long-term (market-like) water transfers. At present this process severely limits the number of transfers that can take place. Among other key provisions, the Model Act proposes to strengthen ownership rights to water. The objective is to assure the rights owners that if they decide to part with water rights temporarily, their doing so will not be viewed as an indication that they do not really need the water and therefore should eventually give it up.

Australia Water markets have not been confined to the United States alone. Led by South Australia in 1983 and followed by New South Wales in 1989 and Victoria in 1991, Australian states have started allowing transfers of water entitlements through markets. Transferable rights were a response to increasing scarcity of water. As in the case of India, informal markets had already evolved before the state enacted legislation during the 1980s that codified water trading. Prior to this, farmers transferred water entitlements through ‘dual ownership’ whereby they purchased two landholdings and transferred water from one to the other. The fact that they chose to

do this despite the high transaction costs associated with such transfers indicates the gains from water trading. In this context, it has been estimated that water transfers along the Murray–Darling River Basin stretching over 2500 kilometres led to a significant increase in farm incomes. In 1988–9 this increase in income was $5.6 million through 280 transfers of 85,000 megalitres of water. In 1990–1 the increase was $10 million comprising 437 transfers of about 120,000 megalitres. It is further noted that if ‘benefits of this scale can be obtained by a system of water transfers circumscribed by regional barriers, the benefits that would flow from the redefinition of water property rights to allow the free transfer of water between regions . . . would be greater still’ (Sturgess and Wright 1993: pp. 23–4).

Chile With its 1981 Water Code, Chile established secure, transferable water rights.17 With these rights, individuals can buy or lease water quite easily. The aim of the Code was to strengthen private property, increase private autonomy in water use, and favour free markets in water. As a corollary, the Code sharply curtailed the state’s role in water management and irrigation. Water rights in Chile are now completely separate from land ownership and can be freely bought, sold, mortgaged, and transferred like any other piece of real estate. The National Water Directorate (Direccion General de Agua, or DGA) is the state water rights agency. It grants requests for new rights free of charge whenever the water is physically or legally available. If the water is not enough for all applicants, the DGA is required to hold a public auction and sell the new rights to the highest bidder (Bauer 1997). Rights-holders do not pay taxes or fees either for acquiring the rights or for keeping them over time. Once constituted, water rights are governed by private or civil law rather than public or administrative law. They are subject to the general system of real estate title registration, and are protected as private property under the Constitution. In principle, all water rights are supposed to be measured in volume per unit time (for example, litres per second), but in practice many are expressed as shares of canals. Holders of water rights can freely change the locations and types of uses of water rights without approval from the DGA. In sum, ‘the Code does not mandate or establish a market in water rights, but tries to set up the legal preconditions for such a market to emerge spontaneously’ (Bauer 1997: pp. 641). 17 The Constitution of Chile, passed in 1980, reiterates this principle by stating, ‘The rights to private individuals, or enterprises, over water, recognized or established by law, grant their holders the property over them.’ (Chapter III, Article 24).

Urban Infrastructure 221 In practice, sales and transfers of water rights separate from land are not common in Chile. Further, only about 20 per cent of water needs are met through water markets. Most of the water rights transactions that occur are between irrigators within the agricultural sector. Inter-sectoral sales are less common but have occurred when cities such as Santiago (as well as some smaller cities in the north) have expanded into rural areas. Trading in Chile has been limited by a number of factors. Some of these are unique to that country such as its topography that makes it difficult and expensive to move water from one basin to another, or from downstream to upstream areas within the same basin. Further, unlike the case of California discussed above, the existing water infrastructure is too rigid or otherwise inadequate to move large amounts of water. Among economic factors that have limited trading, many owners of water rights have held on to them in anticipation that their value will increase in the near future. So far the prices have not been bid up ‘partly because in fact water is not yet as scarce in most of Chile as popular myth would have it. Those who need water and have the means to pay for it have cheaper alternatives than buying existing rights, or they simply buy land with associated water rights’ (Bauer 1997: pp. 649). In sum, the Chilean experience with water markets is one of mixed success and is ‘something for other countries to learn from rather than to copy’ (Bauer 1997: p. 651). Two key lessons emerge from the Chilean experience for India. First, water users strongly favour the increased legal security that private property rights provide. Not only have stronger property rights increased the autonomy of local canal associations, they have also encouraged investment in agricultural water use, particularly by those growing high value export crops like fruits. The second lesson is that the original decision to privatize water rights without legal obligations to use was perhaps incorrect, as it weakened the market incentives.

WATER MARKETS

IN

INDIA

Before we review the Indian experience with water markets, it is important to distinguish between formal and informal markets. In formal markets, water rights are clearly and universally assigned, with legal validity for freely negotiated sale of these rights. In case of informal markets, there is neither clear assignment of rights nor legal sanction to trade. Thus, in formal water markets enforcement of trades occurs by recourse to legal and institutional measures, whereas in the case of informal markets (which simply arise from spontaneous response of water users to changes in demand– supply situations), such recourse is not possible (Easter et

al. 1998). Also, formal markets are often defined with respect to water rights, while informal markets operate for volume of water.

Extent of Water Markets in India Water markets that exist in India are informal and are generally limited to localized water trading between adjacent farmers, and the practice is quite common especially for groundwater. Although found in many parts of India, the occurrence of groundwater markets is not uniform. While water markets are widespread in Gujarat, Punjab, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, and West Bengal, they are most developed in Gujarat. The extent of area irrigated through water markets, which is often considered to be a surrogate for the magnitude of water trading, varies across regions as well as over time depending on a number of factors such as rainfall, groundwater supply, cropping patterns, and the cost and availability of electricity (Saleth 1994). In water scarce pockets of Gujarat, Tamil Nadu, and Andhra Pradesh, a substantial area is irrigated through groundwater markets. Several micro studies illustrate the degree of variation in use of water trading in India. In terms of area irrigated through groundwater markets, estimates vary from 80 per cent for northern Gujarat (Shah 1993) to 60 per cent in Allahabad district in Uttar Pradesh (see the 16-village sample study in Shankar 1992) to 30 per cent in the Vaigai basin, Tamil Nadu (Janakarajan 1994). Some studies report no water trading in their study area (Shah 1993). There is no systematic estimate at the national level of the magnitude of water trading. The area irrigated through water markets has been projected to be about 50 per cent of the total gross irrigated area with private lift irrigation systems (Shah 1993). Other estimates, using a methodology based on pumpset rental data, put the figure at 6 million hectares or 15 per cent of the total area under groundwater irrigation (Saleth 1999).18 Assuming a net addition to output of $230 per hectare per year (based on the difference between the average irrigated and rainfed yields as reported by Government of India), the total value of output due to water sales is estimated to be $1.38 billion per year.

Nature and Characteristics of Informal Water Markets in India A review of the functioning of informal water markets in India can improve our understanding of the market and provide useful insights, which could form the basis for designing formal markets. 18 It is assumed that pumpset rentals inherently involve water sales for all fixed pumpsets permanently fitted to wells or connected to electric power lines.

222 India Infrastructure Report 2002 Localized and Fragmented: As stated earlier, water markets in India are mainly limited to the irrigation sector—that is, one irrigator selling water to another irrigator. Water trading in India is localized, fragmented and are over short distances and periods. Unlike in Chile, western USA and Australia, the institutions, legislation, and regulatory framework do not exist in India for more formal transactions. In some rare cases, however, water purchases for nonirrigation uses have been reported. For example, brick-kilns purchasing water was reported by Shankar (1992); and urban domestic users purchasing water in Tamil Nadu was observed by Palanisami (1994) and Janakarajan (1994). Mainly Driven by Surplus Supply: The emergence of groundwater markets typically depends on rainfall, groundwater supply, availability and cost of energy, cropping pattern etc. Most water sales do not involve any reduction in irrigation by sellers (Saleth 1999). Most of the sellers are large farmers owning deep wells and large capacity pumpsets and the buyers are usually small farmers without wells or pumpsets, though there are non-poor farmers who rely on groundwater markets due to farm fragmentation or inadequacy of water in own wells. By providing access to the use of groundwater and irrigation assets to resource poor farmers, groundwater markets have promoted equity. Monopoly Power: The existing informal markets are small and unbalanced and are typically characterized by a weak bargaining position for buyers. Buyers often do not have a choice because of low density of wells, compounded by uneven topography and potential for seepage losses (Shah 1993), which gives sellers a degree of monopoly power. Further, there is evidence of buyers being tied down to sellers from contiguous plots, as sellers can and do refuse conveyance of water through their plots to other possible suppliers (Janakarajan 1993, 1994). Monopoly power helps sellers not only in raising prices but also in compromising the quality of service they offer. Influenced by Social Factors: Social factors and agrarian relations sometimes determine the development of water markets. For example, in Bihar it has been found that it was the water buyers’ position in the social network, particularly their social proximity to sellers, rather than their ability to pay, that determines their access to water (Wood 1995). Moreover, there were several cases of price discrimination with prices being lowered for favoured clients. In Paldi village in Gujarat, there is evidence of many water transactions being ‘bundled into existing landlord–tenant relations’ (Dubash 2000). Thus, out of 20 wells sampled, eleven sold water—five separately and six to tenants. Widely Varying Terms of Payment: Terms of water payment vary widely and differ by crop and by season. Payments can be made through cash transaction or non-cash contracts.

Cash payments are made on the basis of time, volume, or area irrigated. Hourly price ranges between Rs 3 in West Godavari district of Andhra Pradesh to Rs 45 in Mehasana district of Gujarat (Shah 1993). Non-cash contracts, which typically take the form of sharecropping (that is, seller collects a water rent in the form of a share of the buyer’s output), are not uncommon19, and have been found to be incentive compatible (Aggarwal 1999). These contracts work as ‘double-sided’ incentive, providing the seller an incentive to ensure that water supply is timely and reliable and the buyer an incentive not to shirk in the application of labour. Sometimes the market displays a feudal character. In Tamil Nadu, there are cases where water buyers have to offer labour services such as operating the pump and irrigating the well owners’ fields for a paltry sum or none at all (Janakarajan 1993, 1994). Groundwater Overexploitation: There is some evidence of decline in groundwater table caused by competitive water withdrawal due to intense water marketing activities (Moench 1992). Under the current legal system, there is ‘open access’ to groundwater and the access to groundwater is governed by de facto water rights system (see below). As long as this is the case, overexploitation of groundwater cannot be avoided, since water price tends to reflect pumping costs and other related factors, and do not fully capture the scarcity value of groundwater. The problem is compounded by electricity and diesel subsidy.20 In addition to reducing ecological sustainability, one important side effect of this phenomenon is that poor farmers who do not have the resources to deepen their wells are driven out of farming. The regulatory response, which has been in the form of well spacing and depth norms, has largely failed. Besides, since these norms can take effect only when a farmer applies for a concessional loan or well permit and electric connection, they mostly restrict resource-poor farmers, thereby raising questions about fairness.

INTRODUCING FORMAL WATER MARKETS

IN

INDIA

In India, there has been no explicit policy statement in favour of water markets.21 At the same time, though there 19

For example, in some parts of Gujarat water is provided to tenants by the land and well owners, where the buyer receives onequarter of the crop, while the seller receives three-quarters. Of the three-quarters that water sellers receive, half is on account of land and one quarter is on account of water. 20 ‘Suggestions to replace the electricity and diesel subsidies with an adjustment in terms of trade through higher purchasing power, while having other problems, would work to attenuate (but possibly not remove) the overexploitation of groundwater in water-constrained systems.’ Morris (2000). 21 The National Commission on Agriculture recognizes only rental market for lift irrigation systems and not water markets.

Urban Infrastructure 223 is no legal basis for informal markets to exist and function, the state has followed a policy of non-interference vis-à-vis such markets. As we saw in an earlier section, regulations, albeit ineffective, have aimed at ecological sustainability. Under such a policy and regulatory regime, informal markets have grown and served a useful purpose. Why do we then need formal markets? Some of the major benefits that a formal market is expected to yield are: • This would allow water transfers to take place on a large scale and also between sectors, thus allowing a reallocation of water to higher productive use. For instance, as discussed earlier, farmers instead of producing low-value, water intensive crops might sell water to a neighbouring city if it fetches them a higher price. At the same time, the possibility of large-scale inter-sectoral transfers could postpone or make unnecessary construction of costly hydraulic infrastructure. La Serena City, for example, was able to meet its water needs by purchasing water rights from farmers and this was attained at much less cost as compared to building a dam. • Secondly, the nature of informal markets is such that trading cannot be regulated. In contrast, since property rights are well defined in formal markets, trading can be regulated. Regulation can lead to better resolution of the negative side effects of trading such as aquifer depletion or monopoly creation or equity issues, more effectively. • Thirdly, formal markets, based on an explicit water right system, can help potential investors and water companies gain secure long-term access to water, which is one of the important prerequisites to attract private investment into the water sector. • Fourthly, legally well-defined and registered property rights reduce transaction costs involved in water trading. These costs include monitoring and enforcement costs, conveyance costs, and costs of designing contracts. Low transaction costs would encourage trade and thereby expand the scope of the market. • Fifthly, in a formal water market regime small farmers and the poor will gain water rights, which would empower them, and can serve as additional collateral. • Finally, informal markets generate neither any fiscal revenue for the government nor funds and incentives for investment in infrastructure. Clearly, formal markets that retain and extend the potential gains of informal markets and counteract many of their negative features are preferable. Before introducing formal water markets with tradable property rights, however, some legal and institutional issues would have to be resolved. These are discussed below.

Legal and Institutional Measures Manage Surface Water on a River Basin Basis: Indian law treats all surface water as state property. Under the Indian

Constitution, while the central government is responsible for regulation and development of inter-state rivers and river valleys, state governments are responsible for water supplies, irrigation and canals, drainage and embankments, water storage etc. Under the de facto interpretation of these responsibilities, the power of the states has emerged as preeminent and water has come to be perceived as a state subject. This has serious ramifications for inter-state water development and allocation. The fragmentation of basins by state boundaries and lack of cooperation between them is a critical issue. In the absence of legal clarity on what individual states’ shares are, each state has argued for as large a share as possible. It is therefore important to introduce necessary legal arrangements to facilitate the management of surface water on a river basin basis, before formal water markets can be introduced. Clarify Legal Position on Individual Usufructuary Rights for Surface Water: There is also a lack of clarity on individual usufructuary rights for surface water, as the legislation has failed to devise a system for providing secure, defensible, and enforceable surface water rights. Although courts have upheld the riparian rights—individuals abutting upon a (natural) stream can use water without disturbing a similar benefit to other riparians—as natural rights, individualized rights of abstraction and use of such water can only be established through time-consuming litigation (World Bank 1999). Furthermore, states’ sovereign rights over surface water have in the past been challenged in courts by riparian landowners, who claimed that their rights had been infringed upon by the government in pursuit of its irrigation projects.22 Unless surface water rights are better clarified and in favour of individuals, conflict and litigation will grow in the future and formal water markets will not be possible. Separate Rights to Groundwater from Rights to Land: Under the law of riparianism applicable in India, ownership of groundwater accrues to the owner of the land above. By virtue of these laws, groundwater is ‘attached like chattel’ to land property and cannot be transferred separately from the land to which it is attached (Singh 1992). This has constrained the potential for inter-sectoral allocation. For example, a municipality is not authorized to have access to groundwater from the neighbouring farms without purchasing those farms. To establish an active water market, rights to water use must be authorized separate from land. Establish Limits for Withdrawal of Groundwater: Under the current laws, there are no quantitative limits on groundwater withdrawal by individual users. This provision 22 Both the Madras High Court in 1936 and the Bombay High Court in 1979 have established that the Government’s sovereign rights do not amount to absolute rights.

224 India Infrastructure Report 2002 together with the provision of tying land rights with water rights has serious equity implications, because it allows larger farmers with higher pumping capacity and deeper tube wells to have a disproportionate claim over water than others. Further, sellers can get a payment from the very group whose water rights get infringed by the seller’s activities (Saleth 1994). Besides, withdrawal limits will promote efficient water use. Furthermore, in a theoretical sense, an efficient operation of a market is critically dependent on the prior existence of an effective legal institution of property rights establishing the initial resource endowments of individuals. There is therefore a need to specify water withdrawal limits by individuals in volumetric terms.23 Although establishing individual withdrawal limits can promote equity and efficiency, ecological sustainability requires collective withdrawal limits keeping in view annual recharge.

have successfully established formal water markets. In doing so, we have to avoid their mistakes and make necessary changes to suit our specific needs. So far, only two countries have tradable water rights at the national level—Chile and Mexico. As discussed earlier, parts of western United States such as the states of Colorado and California, and the province of Alberta in Canada have also adopted these regimes. Since water markets have been quite successful in Chile, we draw on the Chilean experience.

Broaden the Market: It is not enough to give users the option to buy and sell water. Institutional and organizational changes are necessary to broaden the market and make it more competitive. For example, canal infrastructure need, to be improved to make sure that trading can take place over a larger area—for example, by joining different systems. Similarly, management may have to be improved so that buy and sell orders are easily executed. Improved control structures are also necessary, which would allow managers to easily increase the flow in one canal and decrease it in another.

Initial Allocation of Rights: The initial allocation of water rights should be made to the existing users without any charge based on their historic uses. Since existing users will be assigned formal trading rights, the regime will be politically more acceptable. If however, the government were to snatch all the illegally obtained rights, and correct all its past mistakes, there are good chances that the proposed legislation will never be approved. But how does one identify the actual users? Using ‘block titling’ method, public authorities can allocate rights in blocks to local institutions such as water user associations, based on historical use. These associations, which would represent all users, could verify the claims for rights. Adequate watch by the regulatory bodies at central and state levels will minimize chances of expropriation by the rich and powerful. Proper information campaign can reduce chances of rights not being claimed for. The rights should be registered with a public registry. To ensure fiscal autonomy for the registry, there should be nominal registration charge to meet its operational costs. These water rights may be defined either in volumetric terms (that is, in actual litres/second, hours, years etc.) or as a share of the total flow, whatever that flow may be. Although defining water rights is technically difficult, it is actually being undertaken in Chile as noted earlier and in other countries. Hence, ground-level implementation expertise can be obtained from their experience.

Create Conflict-resolving Institutional Arrangements: Further, institutional arrangements are needed for resolving conflicts over water rights. Toward this end, committees of water users comprising elected representatives of the community can be created. The role of such groups would depend on how clearly water rights are specified and how well they are established and distributed to users. If water rights are unclear, and the distribution contentious, conflicts would be difficult and complicated. In such cases, courts rather than committees of users will be the conflict resolving institution.

Operational Measures In addition to creating an enabling legal and institutional framework, a number of issues have to be addressed to ensure smooth implementation of water trade regime. The transition can take several years partly because water allocation often evokes emotional response and partly because of opposition from those who stand to gain from the status quo. One way of designing and implementing tradable water rights is to follow the steps adopted by countries that 23

In addition to legislative efforts, quantification of ground water rights in an operational context requires technological changes.

Conduct an Information Campaign: A draft version of the law may be prepared and given wide publicity. This has to be accompanied by a campaign highlighting the fact that benefits of water trade can lead to mutual gains. This would help overcome the opposition by vested interests and remove apprehensions that the incognizant public may have about its efficacy. It should be made clear that the concerns of the farmers and other user groups would be accommodated.

Assignment of New Rights: The newly discovered water rights and rights that are not used by others could be assigned through auction conducted in an open and transparent manner. If there are no competing claims, the petitioner may be given rights over it by charging a minimum reservation price. Protecting the Rights of Third Party: It has to be ensured that trades do not infringe on the water rights of third

Urban Infrastructure 225 parties. This is particularly important where reuse of return flows are substantial. One way is to specify that all water rights have both a consumptive and non-consumptive portion. While the consumptive portion can be sold without restriction, the non-consumptive part can be sold only if it does not deprive other water users. Thus if farmers were to sell their rights to a water company whose return flows do not return to the same aquifer or river, they could sell only the purely consumptive part of their right. For transfers within the same water basin, however, owners can sell their entire water rights. Calculation of the consumptive portion on a case-bycase basis is difficult. It may however, be suitable to calculate average that specify the volume of water consumed by certain crops or activity. These published volumes are all that the owners would be free to sell to those whose return flows do not return to the same aquifer or river. It is applicable for both surface water and ground water. This practice reduces the need for each seller to justify the consumptive portion of water. Protection Against Monopoly Through Taxes and Regulations: Since there are likely to be a large number of consumptive users in India who will demand high prices to give up their rights, there is little chance of monopoly being developed. There are however, two cases under which monopoly might emerge. One is when the new nonconsumptive rights are assigned. This happened in Chile where big companies started acquiring rights over rivers essentially to pre-empt future competition, although there was no use of the water at the time. They did not have to pay anything for these rights, since in Chile, new rights are granted without charge if these are no competitors. To minimize chances of monopoly arising on this count, there is a need to impose taxes on holdings of water rights (analogous to land taxes) without use rather than to require the holders to exercise the rights within a prescribed period. The second case under which monopolies could develop is when large volumes of new water rights (consumptive or non-consumptive) are awarded to private entities while privatizing large hydraulic projects. To protect against this, an appropriate regulatory framework should be developed. Protection Against Pollution and Depletion: There is no need to change water quality standards while establishing tradable water rights. If quality standard or its enforcement is to be improved, it can be done independently of the laws that establish water rights. Experience shows that laws that threaten forfeiture of rights for water polluting activities are difficult to enforce. A more effective and more credible alternative is to impose escalating fines. Water markets can actually create incentives to excess pumping of water for sales, making groundwater aquifer more prone to depletion. A mechanism can be introduced within the

framework of formal markets if the law provides for registration of groundwater rights. For example, associations of ground water users can be formed who, with public assistance, can collectively monitor the water table and each other’s use. For example, if aquifers do not recharge adequately, the association could reduce the extraction limits of its users proportionately.

CONCLUSION Water markets have been in operation in many parts of the world including India. Although informal water markets have been in existence for decades, formal markets with clearly assigned, private, and transferable water rights are of relatively recent origin. In Chile, western USA, and Australia, where there are developed formal water markets, there have been significant gains from water trading, particularly from trades between agricultural and urban users as water gets reallocated to more productive uses. In many instances, water trading has alleviated water shortages. International experience also shows that formal and developed water markets strengthen the incentives for conservation and more efficient use of water. For example, farmers have responded by switching to water-saving technologies and high-value, less water intensive crops. The Indian experience with water markets has been positive, although there have been only limited gains as markets have remained informal, localized, and primitive. Thus, while these markets have led to some efficiency gains and have expanded the scope for many resource poor farmers to access irrigation, intersectoral water transfers have not taken place so far. The current challenge in India is therefore to establish formal water markets, which will expand the scope of trading and make inter-sectoral water transfers possible. Further, since formal water markets have a legal basis, effective regulation can be designed to address the issue of ecological sustainability. These markets will be of significant relevance to the urban sector, which has been suffering from acute shortages of water, but has not been able to access informal markets. While it is true that in urban areas tariff rationalization and reforms at the distribution end can improve efficiency in water supply and use, nevertheless, additional measures will be required in view of the fast growing urban population. Formal water markets can provide low cost solutions to augmentation of water supply relatively quickly. In this context, it is estimated that if 5 per cent of the water being used for irrigation is transferred to the urban sector, the latter’s water requirements can be met for the next fifty years. With respect to further steps, it is desirable that a beginning be made by selective piloting of water markets in a few specific locations. This is important to gain handson experience with the functioning of formal water markets in India. This suggestion is consistent with the views of the Government of India and the World Bank (World Bank 1999: pp. 56–7).

226 India Infrastructure Report 2002

8.5 ALANDUR SEWERAGE PROJECT: A UNIQUE EXPERIMENT OF PUBLIC PARTICIPATION IN PROJECT FINANCING Mukesh P. Mathur Alandur municipality (AM) is a selection grade municipality located 14 km south of Chennai and forms a part of the Chennai Metropolitan Area. With a very limited industrial base, Alandur has developed into a residential suburb of Chennai. Alandur is the first municipality in the country where initiative has been taken to finance, develop, and implement the sewerage project on a commercially viable basis by using PPP (public– private partnership) as an option. Presently, this project is under construction. This paper is based on data collected from Alandpur Municipality (2000) and NIUA (2001). The distinguishing feature of the Alandur project has been the willingness of the residents to make a substantial contribution (around 23 per cent) towards project financing. Basic information on Alandur is given in Table 8.5.1. The town had no sewerage system, and the majority of its residents were using water-borne sanitation facilities for disposal of night soil. The households either have septic tanks or holding tanks, and the municipality collects the sewage periodically in tankers and disposes them in lowlying areas outside the municipal limits. The sewage overflow from septic tanks was let off into open storm water drains.

Water from these drains finally accumulated as stagnant water in the south-eastern corner of the town and had become a breeding ground for mosquitoes, and had also affected the groundwater sources.

PROJECT PARTICULARS In 1996, the AM approved a proposal to provide an underground drainage system. The proposed sewerage system was to be designed for the targeted population of about 3 lakh persons and planned to be completed in five years period from its inception date. The project had the following components: sewerage network consisting of a main sewer line, branch sewer lines and manholes; sewage pumping station; and sewage treatment plant. The length of the proposed system was 120 km, including 19 km for main sewer and 101 km for branch sewer lines. A pumping station and a sewage process treatment plant having the capacity of 24 Mlpd are proposed to be constructed at Perungudi, located about 6 km south-east

Table 8.5.1 Basic Information on Alandur Particulars Area Population: 1991 Census 2000 Estimated 2027 Estimated Civic status Number of wards Households Existing water supply source Quantity supplied Per capita supply No. of bore wells No. of open wells No. of public fountains Sewerage Existing liquid waste disposal Existing solid waste disposal Municipal finances (1999–2000) Total revenue receipts: Revenue expenditure:

Statistics 19.5 sq. km 125,444 (approximately one-fourth of the population lives in slums.) 165,000 300,000 Selection Grade Municipality 42 19,800 Palar River 4.5 millions litres per day (Mlpd) 33 litres per capita per day (lpcd) 211 28 199 No sewerage system at present. A majority of households have septic tanks. Open storm water drains without treatment. (Total length of drains is about 60 km) Open dumping at Pallikaranai, located about 4 km from the municipality. Rs 664 lakh Rs 369 lakh (Surplus Budget)

Source: Alandur Municipality (2000); NIUA (2001).

Urban Infrastructure 227 from the municipal limits of the town.24 Land for installing the pumping station and sewage treatment plant was already in the possession of the municipality. The treated effluent from the plant will be used for forestation. The work of the proposed project will be carried out in two phases. In the first phase which was proposed to be completed by the middle of, 50 per cent of the branch sewers, main sewers, pump house including installation of machinery, pumping main, and one 12 Mlpd capacity sewage treatment plant will be completed and commissioned. The expected date of completion of Alendur Sewarage Project (ASP) is 31 March 2003.25 Alandur Sewarage Project has a construction contract for the sewage collection system. Besides construction, the contractor will also operate and maintain the sewerage system26 for a period of five years from the date of completion of the construction on a fixed fee basis. Thereafter, O and M of the sewerage system would be the responsibility of the municipality, for which the AM has prepared a detailed staffing plan. The concerned staff will be trained during the project construction and the initial five-year maintenance periods. The sewage treatment plant was built on a build, operate and transfer (BOT) basis. The BOT operator is expected to make capital investment for the treatment plant and recover it over a period of 15–20 years. The collection of tariff and provision of new connections during the O&M phase would be undertaken by the municipality directly. The Tamil Nadu Urban Infrastructure Financial Services limited (TNUIFSL) was the nodal agency to coordinate and plan activities related to the project such as preparing detailed engineering reports, cost estimation, structuring the finances, tendering etc. In order to ensure timely implementation of the project and adherence to quality specifications, Consulting Engineering Services Limited (CESL) was appointed as Project Management Consultants (PMS) for detailed supervision and quality control. Along with the consultants, the Chairman, Commissioner, and Engineer of Alandur municipality review the progress of the project on a weekly basis. Regular monthly reviews are being conducted by State level officials of the Secretary, Municipal Administration and Water Supply, Government of Tamil Nadu, comprising of the Commissioner of Muncipal Administration and the Chief Executive, TNUIFSL.

PROJECT COST

AND

FINANCE

The break-up of the final project cost according to major components is given in Table 8.5.2. 24 Land

in Alandur has a natural slope towards the south-eastern

side. 25 Date by which AM expects the project to be completed. Expected date of completion according to the agreement with the contractors is 31 March 2005. 26 including sewer lines, pump houses, pumping plants.

Table 8.5.2 Project Costs Major components Sewer Lines Pumping Station Pumping Main House Service Connections Base Cost Physical Contingency (5 per cent) Price Contingency (10 per cent) Capital Cost

Amount in Rs (lakhs) 1860.79 244.90 594.31 225.00 2925.00 146.25 304.12 3375.37

Source: Alandur Municipality (2001); TNUDP (2001); NIUA (2001).

In order to finance the project, AM in consultation with TNUIFSL raised funds from the following sources, given in Table 8.5.3. The AM decided vide its resolution nos. 229 and 234, dated 28 July and 21 August 1998 respectively, to collect one-time deposits in the form of connection charges from the citizens of Alandur as given in Table 8.5.3. The municipality’s target was to provide more than 22,000 connections, both for domestic and non-domestic users (see Table 8.5.4), by the end of year 2004–5. The connection charges were expected to generate over Rs 1300 lakhs, which would be deposited in a revolving fund for repayment of loans to the lenders. As the connection charges on sewerage was considered to be very high, especially for domestic consumers, the GOT in consultation with TNUIFSL had suggested that AM should collect the connection charges in two installments.27 In addition to the connection charges, the AM decided to levy sewer maintenance charges at the rate of Rs 150 per month per connection from the domestic users, Rs 450 per month per connection from commercial users and Rs 750 per month from industrial users. Monthly charges in each of the above-mentioned slabs would annually increase at the rate of 6 per cent, subject to a maximum of Rs 180, Rs 540 and Rs 900 respectively. To ensure transparency in the project financing mechanism, a separate bank account in the name of Alandur Municipality Underground Sewerage Scheme (UGS) was opened by the municipality in the Punjab National Bank. All receipts, including loans, and expenses related to the project were transacted only through the UGS account. In order to assess the commitment of the citizens of Alandur to the proposed sewerage scheme, the lending 27 The local branch of the Punjab National Bank also pitched in by offering loans, at 14.1 per cent interest, for the payment of connection charges. Because of the high rate of interest, however, it was reported that no one had availed this facility.

228 India Infrastructure Report 2002 institutions including TUFIDCO and TNUIFSL have stipulated that the municipality should: • Produce a proof of willingness to pay (WTP) by the consumers towards connection deposits and monthly maintenance charges before inviting tenders28 for the project. • AM should collect deposits from at least 10000 residents before the award of work to the selected contractor.29 Table 8.5.3 Sources of Project Finance Sources of Finance

Loan TUFIDCO TNUIFSL Grants TUFIDCO1 GOT2 Deposit Collection from Public Interest from Deposits Total

Amount in Rs (lakhs)

per cent of total

1620.00 420.00

46.82 12.13

100.00 320.00 800.00

2.89 9.24 23.12

200.00 3460.00

5.78 100.00

TUFIDCO: Tamil Nadu Urban Infrastructure Development Corporation GOT: Government of Tamil Nadu 1 As no funds were available either with the municipality or the TNUIFSL, TUFIDCO had provided a special grant to oversee and monitor the progress of the project. 2 GOT, in principle, has agreed to bridge the gap in the sewer account during the life of the project, after providing for operations and maintenance charges, debt servicing, and contribution to sinking fund. Source: As Table 8.5.2. Table 8.5.4 One-time Connection Deposits Category of users

Amount to be paid (in Rs)

Domestic Commercial Industrial

5000 per house connection 10,000 per connection 10,000 per connection

Source: Alandur Municipality (2000).

In the following section, the procedure followed by the municipality to mobilize financial support from the residents of Alandur will be presented. 28

Last date for submitting technical and financial proposals were 26 October 1999 and 16 December 1999 respectively. 29 Contract for ASP awarded on 3 February 2000.

PUBLIC PARTICIPATION The Alandur sewerage project is a unique case of public participation in financing of the project. Unlike water supply, where the advantages of a safe water delivery system is well known, in case of sewerage most people are usually unaware of the impact of unhealthy sanitary conditions. Hence, convincing the residents of Alandur to pay sewer connection and maintenance charges was no mean task. The fact that residents of neighbouring Chennai were not being charged for the use of sewers,30 made the task of mobilizing ‘public’ funds for the ASP even more daunting. The process used by the AM for informing and effecting public participation by the residents in the sewerage project is as follows: • All the holidays including Saturday and Sundays were used for discussion with the residents welfare associations. During discussions, the scheme and the associated advantages were explained in detail. • Residents were also informed/educated about the project through corner meetings and advertisements on public transport system such as auto, rickshaw, buses; cable network; local newspapers; distribution of pamphlets etc. In addition, all the staff, including sanitary workers, earnestly carried out a door-to-door campaign to explain the benefits of the underground sewerage scheme. • A willingness to pay (WTP) survey, shown in Box 8.5.1 was undertaken in 1997 in order to assess the affordability and willingness to pay by the residents of Alandur. Although, initially a sizeable population of the town was not ready to pay a high deposit on account of sewerage connection charges and monthly tariff, later through active canvassing and educating the people on the benefits of the project they accepted to pay the sewer charges as per the municipal tariff structure. • In order to facilitate the collection procedure, the municipality has opened collection centres at different locations keeping in view the convenience of the residents. Arrangements were made for collection of deposits even on the receipt of phone messages and at the designated bank. • Monthly meetings were convened by officials of AM with representatives of the residential welfare associations to (i) inform about the progress of the project and (ii) seek their opinion on issues concerning the successful implementation of the project. 30

Both Alandur and Chennai come within the jurisdiction of the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB). The CMWSSB is responsible for the provision and maintenance of water and sewerage services in Chennai Metropolitan Area. The only charge which the residents of Chennai Municipal Corporation pay on account of these services is water and sewerage tax.

Urban Infrastructure 229 Box 8.5.1 Willingness to Pay (WTP) The WTP survey covered more than 10 per cent of the population of the AM, spread over 42 wards. The survey shows: • Average household income is between Rs 1000 Rs 5000 per month. • There are about 24 thousand assessed properties in the town, of which nearly 70 per cent have municipal water connection. • For water charges, domestic and non-domestic consumers pay Rs 21–50 and Rs 51–100 per month respectively. • Most (around 97 per cent) of the residents wanted a sewer connection, and were prepared to pay a ‘reasonable’ charge for the service: connection charges up to Rs 2000, and maintenance charges of Rs 21–50 per month, as in the case of water supply. Source: Alandur Municipality (2000), NIUA (2001).

• The AM appointed a special committee consisting of the Chairman and Commissioner of the municipality and three representatives from registered local residents welfare associations to monitor the operations of the UGS account. The above-mentioned steps taken by the AM had two beneficial effects. First, the residents of Alandur eventually agreed to pay connection and maintenance31 charges, which were substantially higher than those shown in the WTP survey. Second, to meet the conditions of the lending institutions, more than 13,000 connection seekers (both domestic and non-domestic) had deposited the one-time connection fee to the municipality by the end of May 2000.

PROJECT STATUS

ON

MARCH 2001

According to the TNUDP and the officials of Alandur Municipality, the project is being implemented successfully. Sewerage lines have been laid in 187 streets, and house service connections have been provided in 58 of them. All civil works related to these service lines have been completed. Construction of the pump house and the STP (Sewerage Treatment Plant) was also progressing, as scheduled. The project is also financially sound. By March 2001, approximately Rs 916 lakhs have been received from TUFIDCO in the form of grants and loan and more than Rs 684 lakhs generated as connection charges from about 13,434 households. On the expenditure side, roughly Rs 755 lakhs has been spent on various activities of the project, including advances to contractors (NIUA 2001).

8.6 SWM AND SCOPE OF PEOPLES’ PARTICIPATION: A CASE STUDY OF KANPUR NAGAR NIGAM Binayak Rath Lack of safe drinking water and improper management of solid waste have posed a serious problem in urban areas of the country, and more particularly in the growing metropolitan and old industrial cities. Solid waste management remains ineffective in most cities, and given the displacement of responsibility, attributing blame to particular groups and individuals within the governmental machinery is difficult. Although the municipal bodies are elected bodies of the citizens, the involvement of the people in solid and liquid waste management is almost non-existent in the urban areas. There is little transparency in the system of administration. Attempts to involve private parties and/ or non-governmental organizations have only just begun in some of the urban areas. 31

The GOT agreed to meet the monthly sewer charges in excess of Rs 150 per house subject to a maximum of Rs 30 per connection.

SOLID WASTE

IN

INDIA

In India, the urban Municipal Solid Waste (MSW) is a heterogeneous mixture of paper, plastic, cloth, metal, glass, organic matter, etc., that are generated from households, industries, commercial establishments, and markets. The daily per capita solid waste generated in small, medium and large cities/towns in India is about 0.1, 0.3–0.4, and 0.5 kg per capita per day respectively, with the recyclable content varying from 13 per cent to 20 per cent (CPCB 1994–5). Based on the surveys carried out in the past on the quantum of waste generated and assuming an annual growth rate of 1.33 per cent in per capita waste generation, the urban MSW generated in 1997 was estimated at 48 million tons. A comparative picture of waste generation in India in 1947 and 1997, provided in Table 8.6.1, shows that the waste generation had increased eightfold though the per capita increase was by a mere 1.66 times!

230 India Infrastructure Report 2002 Table 8.6.1 Waste Generation in India 1947

1997

Urban population (in Millions) 56.9 Daily per capita waste generation (gms) 295.0 Total waste generated (Million Tons) 6.0 0.12 Area under land fill (hectare x 103 )

247 490.0 48.0 20.2

Source: Central Pollution Control Board (2000), ‘Management of Municipal Solid Waste’, New Delhi: Government of India.

Though the current per capita waste generation figure of 490 gm (ICDP 2001) is very low compared to that of 1950 gm in the US and similar figures for other developed countries, the actual quantum is very large owing to the high population levels in India. While the organic component of the waste had remained almost stable at 40 per cent over the last many years, the percentage share of recyclable wastes have increased from 9.5 per cent in 1971–3 to 17.2 per cent in 1995. This increases the need for scientific disposal of solid waste. Amongst recyclable materials, plastic wastes alone have risen 5.6-fold in the last two decades and are expected to rise further with the increasing per capita plastic consumption figures. Nearly 90 per cent of the municipal authorities were merely dumping their waste on land and only a small percentage had taken recourse to composting. Regarding the methods of management of MSW, it has been noted that poor and unscientific management of solid waste leads to many problems, which transcend traditional environmental boundaries and in turn contribute to air, water, and soil pollution. In most of the urban areas and cities, heaps of waste lie around to create health hazards, besides blocking drainage channels.

GOVERNMENT POLICIES The environmental awareness in the country induced inter alia by the various declarations of the United Nations (UN) has apparently taken a new turn in the 1990s. The government has introduced many new policy changes and constitutional amendments. With regard to management of MSW, both the Government of India (2000) and the Supreme Court (1999) have urged for the recognition of solid waste as an issue of utmost importance. The 74th Constitutional Amendment, that seeks to ‘grant’ in many ways fiscal and administrative autonomy to Urban Local Bodies (ULB), can potentially bring about much improvement in the management of solid wastes in urban areas. Further, attainment of sustainable development in solid waste management calls for formulating the policies based on the following approaches:

(i) The traditional approach of command and control; (ii) Market based instruments (MBI); (iv) Industry self-regulated solutions; and (v) Curbing of externalities. An initiative was taken by the MoEF in 1986 by enacting the Environmental Protection Act, 1986 that contained instructions of the Government of India. However, it stated nothing specific about solid waste management. In 1990, the MoEF set up the National Waste Management Council to advise the government of fiscal and regulatory measures required to promote waste utilization, render advice on all aspects of waste management, and recommend research and development schemes for developing new technologies for waste disposal. Though wastes from hospitals and nursing homes are required to be collected and treated separately, in most cities and towns such wastes continue to form a part of MSW. Hospital wastes include infectious items, for example, amputated body parts, body fluids, cultures of contagious viruses, and excreta from patients with highly contagious diseases. An estimate made in 1997 showed that there were about 14,250 hospitals and 34,900 dispensaries, with over 9,800,000 hospital beds in India. Assuming that each hospital bed generated four kg of waste a day, the total annual waste generated from hospitals amounts to 1.43 million tons (ICDP 2001). Of this, the biomedical or infectious waste can be estimated to be about 25 per cent. As regards these wastes, in 1997 the MoEF had notified draft rules. In 1998 the law ‘Bio Medical (Management and Handling) Rules’ was introduced. These rules regulate the disposal of biomedical wastes, including human anatomical wastes, blood, body fluids, medicines, glassware, and animal wastes. All persons handling such waste will be required to obtain permission from the appropriate authority. Segregation of biomedical wastes at source has been made mandatory for all institutions and organizations dealing with them. These rules make the generator of biomedical waste liable to segregate, pack, store, transport, treat, and dispose the biomedical wastes in an environmentally sound manner. The CPCB and the State Pollution Control Boards (SPCB) are monitoring the progress of handling the hospital wastes. In spite of these regulations, it has been observed by our field study from Lucknow and Kanpur that many hospitals and nursing homes have failed to adhere to the guidelines of the government. On 27 September 1999, the central government published a draft of Municipal Waste (Management and Handling) Rules 1999 to specify solid waste tasks as addition to the Environmental Protection Act 1986. The final version was issued on 25 September 2000. The rules describe certain parameters and compliance criteria for collection, segregation,

Urban Infrastructure 231 storage, transportation, processing, and disposal of MSW. The municipal authority is responsible for the implementation of the rules and for any infrastructure development for the parameters. The District Magistrate has the overall responsibility for enforcement of the rules. In order to further strengthen the waste handling process in the country and to provide statutory authority to the Municipal Bodies, recently the Government of India has announced the manual for Municipal Solid Waste (Management and Handling) Rules 2000. The manual provides proper guidance for the authorities in planning, designing, and organizing the solid waste management services. It has also identified various priority areas for immediate action which include: • Developing a national master plan for solid waste management in a scientific manner, with special emphasis on recovery of resources. This should invariably include the development of a standard mechanism for the segregation, collection, and safe transportation of the wastes to the facility for resource recycling in an integrated manner. • Organizational efficiency and financial discipline within municipal bodies. • Intensive public awareness campaigns with the involvement of non-governmental organizations etc. • Resource recovery from wastes. • Provision of adequate basic facilities for good waste management practices by an individual. • Private initiatives in the collection, transportation, and disposal of waste. • Strengthening the institutional and regulatory mechanisms of the state for effective management of MSW. To further strengthen the solid waste management for sustainability, the MNES (Ministry of Non-Conventional Energy Sources) has also offered some fiscal and financial incentives towards generation of electricity from MSW, which are as follows: 1. Fiscal Incentives • Accelerated 100 per cent depreciation on project equipment in the first year • Tax holiday for five years • Concession on custom duty on project equipment import • No excise duty on gas engines and municipal and waste conversion devices producing energy. 2. Financial Incentives • Promoters: Interest subsidy of 10 per cent on the loan amount for the entire loan repayment period, subject to a maximum capitalized amount of Rs 1 crore/MW; Investment subsidy of 50 per cent of direct equity stack in the project cost limited to Rs one crore/MW.

• Financial Support for demonstration projects: Support up to 50 per cent on a cost-sharing basis limited to Rs 3 crore/MW, including the cost of land as per revenue records for setting up innovative demonstration project(s) on emerging technologies utilizing different waste substrates. In addition to these legislations, orders, and guidelines of the government, after hearing a public interest litigation (PIL) case, the Supreme Court of India recognized the absence of a good legislative and regulatory framework. With the help of a Committee, it issued a report on Solid Waste Management in Class I Cities in India, March 1999, whereby the government bodies are advised to follow instructions and guidelines stated in the report. In the same report, recommendations are given on the technical, legal, and institutional aspects of solid waste management. A critical examination of these policies shows that there are many laudable propositions and suggestions to improve the environment of our urban areas, but unfortunately there are many problems at the execution level due to lack of motivation on the part of the authorities as well as owing to the indifferent attitudes of the citizens and politicians. Furthermore, due to lack of environmental awareness among the people, many provisions mentioned in policies are not implementable. With this general overview of solid waste management policies and problems of handling MSW, we have undertaken a case study of the present practice of solid waste management by the Kanpur Nagar Nigam (KNN), which is presented in the following sections.

MANAGEMENT

OF

SOLID WASTE

IN

KANPUR

Solid waste generation has been growing faster than the population growth and this is of much concern to the planners, health experts, and others. The management of solid waste in Kanpur is governed inter alia by the rules and Acts of the central government along with the following state legislative and regulative measures: (i) The U.P. Municipal Corporation Act, 1959 and (ii) The Uttar Pradesh Plastic and other Non-Biodegradable Garbage Ordinance, July 2000, which prohibits the littering of non-bio waste in public drains and the sewage systems. This ordinance also prohibits the use of recycled plastics for food packaging purposes. Plastic bags of 20 microns thickness or less are prohibited altogether.

Solid Waste Characteristics The various types of solid waste generated in Kanpur include municipal waste and hazardous wastes. Defecation creates a special problem for solid wastes in nearly all Indian cities and Kanpur is no exception. Besides hospitals/nursing homes,

232 India Infrastructure Report 2002 chemical industries also generate biohazards waste and sludge containing heavy metals, highly acidic and alkaline. Mingling of these wastes with domestic and municipal waste is a cause for serious health hazardous for urban dwellers of Kanpur. Among industries, the Panki Powerhouse generates maximum solid waste in the form of coal ash and fly ash, which is dumped in its own ash pond. To contain the pollution of fly ash, the Forest Department has undertaken plantations on the ash pond by developing special species of trees. Next to this powerhouse, a large number of tanneries and leather goods producing units generate much chemical and biohazards waste. The chemical and textile industrial units follow the leather industry in adding to the wastes. It is estimated that there are about 350 tanneries in Kanpur that produce a huge quantity of liquid and solid waste. Since more than two out of every three of these units use chromium as the basic ingredient for tanning, the liquid waste is highly contaminated with chromium and high salt content. After the Supreme Court intervention in a PIL, most of the big tanneries have set up their Primary Effluent Treatment Plant (PETP) and have recently installed a chromium recovery plant. However, for the small tanneries a common chromium recovery treatment facility was proposed, but the facility is yet to be operational. In violation of the guidelines of the MoEF and that of the Supreme Court, in most of the hospitals, nursing homes, and other healthcare facilities the infectious wastes are not segregated from non-infectious waste causing all waste to be contaminated. In many hospitals and nursing homes, the waste is sorted out by the institutional sweeper for recycling or reuse purposes (although contaminated). The rest of the waste is dumped by the institutional sweeper at the municipal waste collection points, where it gets mixed up with municipal waste! There are five slaughterhouses in operation that generates waste like urine, manure, blood, intestines, and carcasses. In order to abide by the Supreme Court guidelines on the disposal of slaughterhouse waste, a plan was drafted in 1996 to modernize the existing slaughterhouses and relocate the slaughterhouses from residential areas. The plan includes the development of facilities to slaughter 250 buffaloes, 100 pigs, and 300 goats on a daily basis in a scientific manner (as specified by the Supreme Court guidelines). Part of the waste would be converted into biological by-products to be used in the pharmaceutical industry. However, till now it has not become operational. At present, the dairy farms are situated in and around the city. It is estimated by the KNN that there are 900 dairy farms in Kanpur, which are throwing their waste materials on the streets. In fact, many dairy units operate on the area earmarked for roads and parks. With a view to control the wastes generated by them, since April 1999, the dairy farms

have been ordered to pay licence fee. The KNN has even tried to relocate the dairy farms outside the city boundaries. Even though the High Court of Allahabad has given a ruling that the KNN has to offer alternative locations for those units, till today no progress has been made to relocate the dairy farms. There are also 20,000 pigs in Kanpur who also spread waste on the streets.

The Current Situation The KNN usually proposes its budget for waste handling with the help of a projected quantity of solid waste generated within its boundary. But as regards the quantity of waste generated in Kanpur, different figures are available from different sources. While the TERI (Tata Energy Research Institute) study had estimated the MSW figure at 1200 tons per day, the recent data collected from KNN indicates that the MSW generated would come to 1300 tons per day. On the other hand, the ICDP study (2001) has estimated that the total waste generation in Kanpur is assumed to be not higher than 1100 tons per day (based on a population of 2.66 million and NEERI’s (National Environmental Engineering Research Institutes’) estimate of per capita waste generation in 1996 and annual growth rate of 2.7 per cent per year). The details are presented in Table 8.6.2. Table 8.6.2 Waste Generation and Collection in Kanpur Activity

Quantity (tons/day)

Waste Collected by KNN 680 Animal Scavenging 55 Human Scavenging (Recycling) 110 Others (Burning, Illegal 255 Dumping, etc.) Total Waste Generated 1100

Percentage

62 5 10 23 100

Source: ICDP (2001).

Table 8.6.2 indicates that animals consume 5 per cent of the waste, and 10 per cent of the waste is collected by the 5000 odd ragpickers to sell in the market for reuse. The rest 23 per cent is either burnt or illegally dumped or degraded naturally or remains non-collected, which can be treated as the gap between the wastes, generated and collected in Kanpur. The gap implies that the collection efficiency of solid waste is about 62 per cent in Kanpur, against the average of 83 per cent for the class I cities in India. Most of the uncollected wastes are littered on the roads/streets, damaging the environment and causing health hazards. Since the storage sites are not properly fenced, the scavenging animals spread the wastes further on the roads.

Urban Infrastructure 233

Inefficient Primary Waste Collection System While the responsibility for primary waste collection is with the Health Department of KNN, which is headed by the Mukhya Nagar Adhikari (MNA), the actual operation is managed by the Chief Health Officer. He is assisted by four zonal health officers. These health officers, being medical doctors by profession, usually lack proper training in solid waste management. Indeed, they are quite unaware of modern management techniques of solid waste handling. The doctors are also responsible for the maintenance of hygiene in the municipal area by checking food adulteration, vaccination, maintaining the birth and death registers, and other health related services. The problem is further aggravated due to shortage of support staff. It is reported that around 25 per cent of the posts are vacant in the Health Department.

Poor Storage Facilities Wastes collected through the primary devices need to be temporarily stored before being transported to the landfill sites by the City Cleansing Department. Three different types of waste collection facilities are used in Kanpur: rubbish depots, open depots, and containers. Although KNN has records of the containers provided for waste collection, there is no account of the rubbish depots and open depots. However, the ICDP survey has reported that there are 101 rubbish depots and 169 open depots. But many of them are not maintained properly and are in a dilapidated condition. At many places they congest roads and affect the movement of transport. The number of containers provided in residential areas are fewer than required. Households often dump waste on vacant plots, which then become open depots. While the KNN claims that they have provided 775 containers of different sizes, the ICDP study shows it as only 478. One can not therefore rule out corrupt practices in supply of containers.

Problems with Secondary Collection The City Cleansing Department under KNN looks after the secondary collection and disposal of solid waste in Kanpur. It was supposed to be headed by the Director, City Cleansing. But since the post is vacant, it is now headed by the Assistant Director. Though in all there are 595 posts in this department, at present there are only 343 staff. Different types of transportation systems are used, ranging from open trucks, container carrying vehicles, loaders, and landfill vehicles. Only around 50 per cent of the capacity of these vehicles are utilized. Besides this, there is one shift, and the opportunity to collect a lot more waste through multishifts, especially in the early morning and late nights, is forgone.

On an average, less than half (48 per cent) of the collection vehicles are effectively used on a day. Twenty per cent of the vehicles are unutilized, since they are due for repairs and maintenance. Rather surprisingly, only 67 qualified drivers are employed for a total fleet of 134 vehicles. Sometimes, other employees fulfill the role of drivers! Officially, waste is to be collected each day in the week all the year around, except on the day after Holi and Diwali. At Jajmou depot, some Saturdays are even taken off. Although working hours are officially not fixed, in practice, collection is expected to take place between 8 a.m. and 4 p.m. However, the average working time estimated was only 3 hours and 20 minutes, which implies that the vehicles as well as the drivers operate at less than 50 per cent capacity! On the other hand, a fixed quantity of fuel (diesel) is allocated to each vehicle every day. The allocation is not based on actual use. Rather, it is made on the basis of some standard calculations, which are often overestimated. It is reported that in order to inflate the fuel consumption, the authorities show more generation as well as disposal/ handling of more MSW. Monitoring of actual consumption of diesel is conspicuously absent, which leads to a substantial over-allocation of fuel. As estimated by the ICDP, the losses on diesel allocated amount to 43 per cent of the total diesel bill of KNN which runs as high as Rs 7.4 lakhs per month! Yet funds allocated for preventive maintenance is very low.

Siting Problems The KNN does not have a long-term plan of siting of waste disposal. Ad-hoc measures are adopted in identifying landfill sites. At present two official dumpsites are used, namely Panki and Krishnanagar. While the sludge is transported to the dumpsites for landfill, the hazardous wastes are transported to a site near Rooma. At the dumpsite, one bulldozer is used for spreading the waste and for levelling the site. However, unauthorized dumping of waste in the low-lying areas in the city, even in the vicinity of the residential areas, take place frequently. Such dumping blocks the drains, which leads to overflowing of the liquid waste to the roads and adjoining areas.

Lack of Equipment and Tools The number of handcarts (trolleys) are inadequate in relation to the number of sweepers. The existing ones are too small and are usually shared by more than one sweeper. The ICDP survey report showed a shortfall of 37 per cent in trolleys, 17 per cent in shovels, and 11 per cent in small spades. The lack of such equipment often encourages the sweepers to burn wastes in street corners. Similar problems exist in the secondary collection.

234 India Infrastructure Report 2002

Poor Organization and Governance There is little communication or coordination between the Health Department, the City Cleansing Department, and the Workshop of the KNN that looks after vehicle maintenance. The MNA, who has to coordinate these units, lacks expertise and is forced to depend upon staff not directly working under his control. He is therefore is unable to perform. Moreover, he is handicapped to perform efficiently due to frequent political interferences and also due to the poor financial position of the KNN. The elected representatives of the KNN pay least attention to solid waste management. Essentially, clear responsibility for the task is absent. There is also lack of coordination with the external agencies like the district administration, KDA, Jal Nigam, Public Waterworks Department, and other organizations. Moreover, according to the 70-year-old Public Health Manual, the number of sweepers should be 65 per 10,000 inhabitants. But at present the number of sweepers in Kanpur is 14 per 10,000 residents, with the basic technology and mode of working remaining unchanged. The total work force of the Health Department to handle primary waste is 4400, of which 4269 are sweepers and 113 are safai nayaks. Regarding the number of sweepers employed by KNN, different sources gave data ranging between 4181 to 4891 sweepers. There is no proper record keeping, as a result payments are often made to non-working persons, by adopting corrupt practices. The rest of the employees constitute zonal health officers (4), chief sanitary inspectors (5), and sanitary inspectors (18). Sweepers work for three to four hours, instead of eight. According to KNN norms, a sweeper should make on average 5 trips a day to a collection depot with a full load but our survey has revealed that hardly anybody adheres to this norm. Many sweepers are even moonshining and others ‘contract out’ their jobs to badla workers. Some locales in the outskirts of the city are not swept at all. This failure has forced local resident associations to arrange for private sweepers.

ABORTIVE ATTEMPTS

AT

CHANGE

The attempt to bring change in management of solid waste via privatization was initiated in the 1970s. In 1979, a compost plant was constructed at Panki site with a capacity of 200 tons of compost per day with participation of a private developer. But it was closed after six months, mainly because the composition of the waste provided by KNN was unsuitable for composting, as it was not segregated at source. Next, privatization was attempted in the transportation of solid waste from the depots to the dumpsites, which was contracted out to a private party during 1988–91. In the

said contract with the chosen firm, it was specified that the firm would use the KNN vehicle fleet and its personnel against a fixed fee. This arrangement also failed due to following reasons: • The firm had no control over the KNN personnel • It dumped the collected waste in unspecified areas to save on fuel and primary collection time • The fleet provided by KNN was in bad shape due to lack of proper maintenance • KNN could not afford the weekly payments to the contractors and payments were delayed • Payments were related to the collected waste quantity of Rs 55 per ton of waste. Due to the absence of a weigh bridge the collected waste could not be measured, and both parties never agreed on the (roughly) estimated weight of the collected waste. In view of these difficulties, the contract was not renewed later. Similarly, efforts at privatization of primary collection during 1986–94 were as ham-handed as the secondary collection efforts. In 1996, KNN signed an agreement with Enkem Engineers Pvt. Ltd on a build, own and operate (BOO) basis for the construction and operation of a solid waste treatment plant. Methane was to be a by-product. But due to lack of commitment by the authorities, the project did not see light of the day. Among the recent efforts, a ‘Pilot Scheme’ was launched by KNN on 20 September 2000 to clean Arya Nagar area on a private participatory basis. But this also failed due to opposition by the sweepers. The safai workers of KNN, supported by local politicians, opposed the move because they feared that their job prospects would be affected by the introduction of such schemes. Due to political alliances at the lower level workforce and lack of even a modicum of control over its employees, the ‘authorities’ have always failed to take punitive measure on the erring workers. Again in October 2000, KNN had a meeting with an Australian company to set up a Solid Waste Energy Recycling Facility (SWERF) for generating of electricity. No further progress has been made on the project. Furthermore, the most recent initiative of privatization of solid waste management emanates from the Ganga Action Plan (GAP) phase II with the collaboration of the ICDP of Netherlands. As a part of the programme of ‘Operation Clean the Ganges’ and with a view to improve the solid waste management in Kanpur through participation of NGOs as well as private organizations, the managers of the Ganga Institution and Community Development Project (GICDP) took some important initiatives. They invited Dr Christa De Bruin, a solid management expert of the Netherlands government, to advise them on this matter.

Urban Infrastructure 235 She, along with her colleagues, D.S. Jarden, Urban Infrastructure Specialist of ICDP, investigated into the problems of solid waste in Kanpur. They identified the problems and recognized the importance of NGOs to take initiatives to work with the local residents to improve the sanitation. It was felt that either a private firm or NGOs can play an important role in the collection and segregation of wastes and finally handing over the waste to the local authority. They can also help in bringing up the awareness and consciousness of the residents for better sanitation. Through various programmes the NGOs can help in: • Creating mass awareness and ensuring public participation in the segregation of recyclable materials and storage of waste at source • Ensuring public participation in community based primary collection system • Organizing ragpickers for collection of recyclable materials at community levels • Providing health suggestions and education to the ragpickers and provision of safety tools for them • Providing employment opportunity through doorto-door collection of wastes • Encouraging the residents to minimize waste generation through alternative means like in-house backyard composting • Creating awareness among the residents for the introduction of payment system for the services rendered to them. The ICDP team also collected information about the cities where privatization has succeeded and also regarding the organizations and NGOs who are active in handling solid waste with peoples’ participation. They finally identified an NGO in Jaipur, viz. Centre for Development Communication (CDC) that undertook solid waste management with public–private participation. The CDC with Vivek Agrawal as its Trustee Secretary had initially undertaken solid waste management in a decentralized manner in one ward of Jaipur, and owing to its success they moved into 18 wards of the city. They had introduced vermi-composting at a decentralized level along with vermiculture. In view of their success in Jaipur, subsequently, they extended the solid waste management services to a few other municipalities of Rajasthan. Vivek Agrawal of the CDC was invited to a workshop on ‘Scope of Privatization of Solid Waste Management’ at Kanpur, which was attended by the KNN officials as well as by the local leaders. As a member of Citizens Monitoring Group, the author also participated in the said workshop and argued for privatization with peoples’ participation as a solution to the present crisis in waste management. In spite of the agreement among officials to take up a pilot project with CDC collaboration, no final

decision could be arrived at for more than eight months owing to bureaucratic hurdles. Political leaders too obstructed this proposal for decentralization of waste management because they could not see any direct gain from the exercise. Thus, the privatization efforts moved at a snail’s pace, and finally in May 2001, a contract was signed between KNN and the CDC to take up primary waste collection on doorto-door basis in the Ratanlal Nagar area of Kanpur to segregate it at source and to process it for composting. The KNN was to provide land for segregation and composting. The existing KNN staff working in that area were to be withdrawn and be assigned duties in other areas. The KNN was to pay for these services of CDC in the initial phase and subsequently the expenses were to borne by the citizens of the locality on the basis of the rate agreed.

BRINGING

IN THE INFORMAL

SECTOR

Another possible alternative method of handling the MSW is through an informal system where the ragpickers can play a greater role. As in any other city in India, the informal system of garbage collection is complementary to the official effort in waste disposal. Though unrecognized and unorganized, a vast army of ‘waste-pickers’ engage themselves in searching the huge dumps for ‘recyclable wastes’, which are sold to local scrap dealers. Children and women who live in various slums of the city are dominant in this activity. It is estimated that in Kanpur the waste-pickers handle 60 tons of waste on a day. Efforts to strengthen this informal system and make it more effective can be crucial to effective waste management. It has several advantages of low cost and the resulting greater recycling. Any effort to involve and develop an informal system acknowledges a greater role for the waste-pickers, who are typically very poor and are of low castes. Their incomes could rise significantly, and awareness of the importance of separation at source and of recycling and care in disposal can also improve. With regard to the prospect of informal waste management system in Kanpur, we feel that the ‘informal waste management model’ is feasible only in the affluent residential part of the city, only with the support of an NGO or activists. But the adoption of such an environmental friendly and financially self-sustainable model will free the scarce resources of the KNN that can be used in the urban slums and other high population density areas, so that there will be an overall improvement in the solid waste management system. Thus, it is argued that participation of NGOs, the civil society/people, and the unorganized waste-pickers through an informal arrangement would lead to a better and cleaner environment for the citizens of Kanpur.

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