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Privatisation of Delhi's water supply: There's a hole in the bucket

By Dr Sudhirendar Sharma

Four foreign companies have been shortlisted to manage water distribution in South Delhi. There are fears that water tariffs may rise 800% as a result. Is privatisation the only way forward?

"How is it that water which is so useful that life is impossible without it, has such a low price -- while diamonds, which are quite unnecessary, have such a high price?" -- Adam Smith

If plans to privatise the capital's water supply are any indication, Delhi 's citizens are no longer going to pay a "low price" for their water. Starting October-November 2005, South Delhi 's water supply will be privatised, followed by other parts of the city. Aimed at providing citizens with uninterrupted water supply 24X7, the pilot project will later be extended to cover other cities in India .

But has Delhi got enough water to sustain uninterrupted supply? The truth is there is a shortfall of around 150 million gallons in the city's daily supply; leakage losses are as high as 40%; non-revenue water constitutes close to 66% of all supplied water; the Delhi Jal Board (DJB) recovers only 40% of its operating costs through billing. No wonder the DJB's accumulated losses run into crores of rupees, and it is marred by inefficiency, corruption and unaccountability.

Delhi 's water distribution is grossly inequitable too. Two-thirds of the city's population gets only 5% of the 3,600 million litres that are officially supplied, whereas the rich and privileged in Lutyen's Delhi get a staggering 400-500 litres per capita every day. There are some 1,600 unauthorised colonies and 1,100 slums waiting to get tap water. Not only have the rich been the prime beneficiaries of subsidised water, they pay a pittance of Rs 1.6 for a cubic metre of water -- the lowest in the country.

Far from tackling the malaise in the system, Delhi is now shopping for water from the yet-to-be-commissioned Tehri dam in Uttaranchal, and the controversial Rs 188 crore, 635 MLD Sonia Vihar treatment plant has yet to become operational. Interestingly, the two existing water treatment plants are running below capacity for want of water. While the Bawana plant has been shut for over a year, the water treatment plant at Nangloi runs at half its capacity.

Clearly, Delhi 's water future is uncertain. What's more, the water crisis hasn't deterred the city from adding new settlements.

Given the fact that Delhi 's existing water sources have been milked to capacity, how the capital city will meet the growing demand for water remains a compelling question for both planners and politicians. Privatisation is being tossed around as a possible solution for the city's water woes.

Voluminous reports by World Bank-funded consultants Pricewaterhouse Coopers (PWC) and GKW Consult GmbH have stated that privatisation of water supply does indeed hold the key to Delhi 's water problems. But only if foreign companies are awarded the contract, as local players lack experience on the subject. The Delhi Water and Wastewater Reforms Bill 2004 was enacted to make room for foreign companies to make their final bids. They include Manila Water, Vivendi, Sour and Degremont.

But can these private companies provide uninterrupted water supply when there isn't enough water?

It has long been argued that tariff hikes curb wasteful consumption of water, thereby making water available for neglected populations. Reducing the quantum of non-revenue water, and the timely collection of water tariffs, are other associated measures being proposed. But can't the Delhi Jal Board adopt these measures indigenously?

The truth of the matter is, no elected government will run the risk of revising tariffs at the cost of losing its electoral base. Water is a politically volatile subject. Ever since water moved from the socio-cultural domain of community control to the techno-economic sphere of bureaucratic management, it has gradually become a chronically scarce commodity. Although part of the problem may be rooted in rising demand due to increasing populations, mismanagement remains the core issue.

It's not as though the losses have accumulated suddenly; overstaffed municipalities have long been inefficient. The DJB has 21.4 staff members per water connection, and the average operations and maintenance cost per person works out to Rs 355 per annum. With water cess recovery only 66%, and Delhi 's water tariff being the lowest of all Indian cities, the accumulation of losses over the years has brought the DJB to the brink of collapse.

Ideally, the water tariff should have been revised slowly over the years to reduce losses and build infrastructure to meet the city's growing demand. However, successive governments have evaded this politically volatile issue to the point that the annual subsidy of $ 1.1 billion on water is now a colossal national liability. So, instead of reducing staff, cutting operational costs and increasing efficiency, the easier option is to transfer the liability onto private companies.

Need it be said that private companies work for 'profit'? The four companies shortlisted in Delhi are no different from the rest. Clearly, the present tariff regime will not generate profit, so a water tariff hike becomes inevitable. Consumers will now have to pay through their noses for the accumulated lapses of successive Indian governments. No wonder a tariff hike of 800% seems to be on the cards, with subsidies and cross-subsidies being phased out within the next five years.

The story doesn't end here. To bring discipline into the system, the private company will charge Rs 44,00,000 per zone. As the DJB has 21 water zones in Delhi , the annual management contract works out to Rs 9.24 crore. Interestingly, the onus of providing treated water will remain with the DJB, over which the company will levy an annual operating fee based on the volumes handled.

This privatisation story shares a script similar to other countries in the world: we pocket the profits, the losses are your liability. From Cochabamba to Manila , from Accra to Buenos Aires , the same tale is being retold and is being met with failure every time.

Yet, no lessons seem to have been learnt. As has been the case in earlier privatisation attempts, the private company is never the loser; it is the communities that incur heavy losses as water tariffs and operating fees are hiked each year. What's more, even if the DJB fails to sustain supplies of raw water, the private company will continue to be paid its fee and operating charges. And the consumers will foot the bill.

Interestingly, the people's loss is the government's gain. By engaging public attention on the matter of a tariff hike, the DJB has conveniently diverted attention from the core issues of lack of political expediency, gross inefficiency and deep-rooted corruption plaguing water utility in the capital. Civil society too seems to have fallen into the same trap, demanding information on contracts and an open debate on the subject. Even if the demands are met, the issue will shift to finding "alternatives". And the DJB will be absolved of all responsibility.

Given the impact of privatisation on access to water, alternative approaches are essential for a comprehensive solution to the water crisis. To meet the challenge of privatisation there must be reform in the public sector. An efficient public sector, as in Malawi and Sao Paulo , enjoys a much better reputation than the private sector. But the deficiencies must be corrected through proper structural and financial reform.

Further, community-owned and managed systems need state patronage and support. Although there are such initiatives in several countries including India , their full potential is not being realised. And privatisation is narrowing the gap. Alternative solutions are generally less expensive and more sustainable than private -- and even public -- utilities. Public suppliers need to be offered capital at low interest rates, as are foreign investors. Only with a level playing field can the performance of the two sectors -- one beleaguered, the other pampered -- be assessed in a true light.

Governments across the world have not yet explored the middle path of revitalising their own water sectors; developing country governments have, in fact, succumbed to donor pressure regarding privatisation of their water utilities. Already some 30 cities in Maharashtra , Karnataka, Andhra Pradesh and Rajasthan are bidding their respective municipal water supplies to a handful of powerful multinational corporations specialising in water. The signs are ominous.

InfoChange News & Features, August 2005