Privatisation has been a new-found mantra last couple of years for overcoming ills like inefficiencies and inabilities of government sector. Usually, this amounts to outsourcing functions that various administrative wings of government are not quite equipped to handle and let the departments monitor and facilitate. The water sector also is abuzz with privatisation, only to find that this mantra is perhaps getting overly and wrongly chanted!

A recent report from the Geneva based United Nations Research Institute for Social Development (UNRISD) brings forth case studies of four Maharashtra cities where water supply reforms were attempted. Vasudha Pangare, Oikos (India), Neelesh Kulkarni, Primove Consultants and Ganesh Pangare, World Water Institute are the authors of "An assessment of water sector reforms in the Indian context: The case of the state of Maharashtra". The report is part of an UNRISD project 'Commercialization, Privatization and Universal Access to Water'. The authors have also developed a historical perspective of the evolution of the water supply and sanitation sector in India, focusing on the urban context, taking up the case of Maharashtra.

The cities studied were Pune, Sangli, Nagpur and Thane. While the latter two yielded positive results in revenue collection which is the major ill of the water sector, a privatisation drive in the former two cities met with a knot because of exorbitant costs, non-transparency and citizens' outright rejection of the scheme. The authors reveal how the Nagpur Municipal Corporation (NMC) came out with innovative idea of unearthing illegal water connection using the same plumbers who fixed these in the first place and how Thane Municipal Corporation got water charges paid for five years in advance.

Water sector reforms have started getting synonymous with privatisation and foreign funding, primarily because of the resource crunch faced by public sector water utility firms or boards. But as observed by the authors, during the five decades after independence, the concept of the welfare state has been so predominant, that people, both in rural and urban areas, have been completely dependent on government agencies for providing most basic amenities. As the pressure of population rose, sectors such as health, education, water supply found they were unable to cope with providing adequate and efficient services, and slowly the concept of private sector participation came into focus.

The UNRISD report found that Nagpur experienced significant increase in revenue generation with water billed reaching 300 MLD in 2002-2003 from 163 MLD in 1998-99. Revenues saw a three-fold increase from Rs 148.3 million in 1998-99 to Rs 500 million in 2001-02. (10 million = 1 crore)
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The authors note that for the past 10 years, the World Bank through its Water and Sanitation Programme (WSP) for South Asia has been working with the Ministry of Urban Development, Government of India, to formulate a set of guidelines for promoting private sector participation in urban India. In parallel, private firms, local city corporations and financial institutions initiated dialogues and contracts across the country. They report that however, many contracts fell through during the discussion stage itself. About 25 large and small contracts were initiated and abandoned. Among these, only a few smaller contracts for operation and maintenance (O&M) like a 10 million litre per day water treatment plant in Chennai or the O&M of a plant in Ajmer are being managed by private firms on contract basis.

Nagpur - a success story

Reforms in Nagpur's water supply were long overdue; the quantity of water available was adequate, but huge losses in distribution due to 35000 illegal water connections and 18000 authorised but non metered connections caused acute water shortage. Motivated by the requirement to augment revenues, NMC in October 2001 declared a time-bound programme aimed at regularizing illegal water connections and also applying universal metering policy. For identifying unauthorized and unmetered connections, the licensed plumbers were involved in the programme since they were the ones who generally installed water connections and were probably instrumental in installing the illegal connections to begin with.

The incentive of Rs 50-100 for every illegal connection motivated about 200 plumbers. They were organized into teams and assigned to the seven water zones of the city. They undertook a door to door survey, convincing the illegal connection holders to regularize their connections, getting the connections sanctioned, depositing the requisite charges, fixing meters and reporting those who refused to regularize their connection to respective zonal office. The water connections of those who refused to avail the scheme were immediately disconnected. Like the plumbers, the NMC staff working on the team was also motivated by a fixed monthly target of revenue collection from respective zones.

The authors report that the scheme was a great success. With insignificant expenses of about Rs 0.2 million as incentives for plumbers and a minimum amount spent on publicity drive, the programme achieved regularization of about 25,000 (71%) connections within a short period of four months. There was significant and evident increase in revenue generation as the quantity of water billed, reached 300 MLD in 2002-2003 from 163 MLD in 1998-99, translating into over three-fold increase in revenue from Rs 148.3 million in 1998-99 to Rs 500 million in 2001-02.

The Nagpur Municipal Corporation (NMC) has also had some luck with private sector participation. The authors found that after receiving a very high quotation for one of its water supply and sanitation expansion schemes, the NMC decided to go in for a target oriented and focussed tendering process. This brought in a lot of new ideas along with substantial reduction in the costs and time span for project completion. Locally available consulting organizations (not named by the authors) suggested some innovative options such as use of pulsator technology for water treatment and also professionalising the whole process.

The leakage detection work was sourced out to a consulting firm and suggestions from them to avoid further leakages was seriously implemented, such as bringing the water through pipelines from the source itself, rather than through open channels. The Nagpur Municipal Corporation (NMC) now also has a contract with a private firm for conducting repairs. Limited but vital PSP initiatives are able to bring in a new culture of solving problems, and improving efficiency.

Thane - some success

The Reduced Water Rate Deposit Scheme or The Reward Scheme was launched by Thane Municipal Corporation in 2002, in order to raise capital for investment in their water works. The consumers were offered a five-year service by paying one-time charges for 55 months. The main incentive for participating in the Rewards Scheme was immunity from the projected 15% annual increase in water tariff and payment at the current rate for 55 months instead of 60 months. Additional facilities offered included transferability of the Rewards Certificate with transfer of property and an option for one or more families to participate in the scheme individually or jointly. The local politicians supported the venture and organized local citizens meetings in order to explain the scheme and encourage them to participate.

However, the authors point out that the main criticism of the Thane scheme has been that the number of households who participated in the scheme was less than 25%, consisting mainly of those households who regularly pay their water taxes anyway. (There are two ways people pay for water one as water charges and the other as tax based on property tax). In years to come the corporation will find it hard to maintain the recovery percentage as the regular payers who participated in the scheme will not be paying taxes for the next five years. Further, Thane has a large population coming from outside to live here for short periods of employment in rented accommodation. These temporary households were reluctant to participate in the scheme, as they did not find it relevant to their situation.

In their assessment of the Thane experience, the authors have not suggested what other measures Thane must consider to ramp up revenue collection. Like Nagpur, Thane could try to bring around illegal users into tax net as also improve the scheme suitably to get temporary residents or owners of their properties to pay up.


In 1996, engineers of the Pune Municipal Corporation (PMC) were doing a detailed study of current and projected water demand to draw up a plan to augment the existing water supply. But before they could complete, the PMC decided to separately commission an independent study for the same purpose engaging Kirloskar Consultants, Pune. The Kirloskar proposal was for a scheme that would meet projected demand until the year 2025 and was estimated to cost Rs 7.0 crore or 1.5 million US dollars. (The authors make no mention about the details of this scheme itself.)

The proposal was initially accepted and opened for international bidding. The Standing Committee of the PMC, and the High Powered Committee for Privatisation of Infrastructure of the Government of Maharashtra called for international partners that would implement the scheme on the lines of a build-own-operate system. But the authors say that details of this scheme were never discussed with the local elected representatives and no information was available in the public domain. Lack of transparency created misgivings and suspicion. Local political leaders and citizens questioned the necessity for the investment, particularly since the investor would own and operate the system, taking away decision-making from the local officials.

According to the authors, expertise already exists in the private sector in India for designing and implementing such schemes, but these experts were not involved in any way. In an effort to demonstrate that such a large investment from international financing firms would not be required to augment the present water supply scheme, local experts prepared an alternate plan which required far less investment, almost half of what the consultants had drawn up. The proposal faced resistance.

A weakness in the UNRISD report is that while the researchers do not sufficiently expose the details of the Kirloskar scheme, they still assert that local expertise and plans were better. If the details of the scheme itself was not available to the authors (since they did not report this in their work), the claim that local expertise and lower costs was available and overlooked appears sketchy and speculative.


In mid 2000, Sangli-Kupwada-Miraj Corporation (Sangli is about 150 kms from Pune) prepared a proposal for undertaking water sector reforms and system rehabilitation work in two stages. The first phase of the project proposed to reduce leakages, promote energy savings, improve O&M, improve customer service and undertake training of staff. The second phase was proposed to be implemented through a concession contract to be carried out by an organisation set up jointly for the purpose by the Corporation and the Infrastructure Leasing & Financial Services Limited (IL&FS).

The Sangli corporation applied to the state government for a grant under the Capital Grants Program for the first phase, to cover 75% of the cost of the management contract. The government was later expected to award another grant to cover 23.3% of the cost of rehabilitation of the system. The corporation then entered into an agreement with IL&FS and with its help met with private sector water operators to discuss the project requirements. However capital needed for the scheme was quite high and the corporation was unable to take the lead in launching the proposal. The authors point out that there were several reasons for the failure:

1) The lack of transparency created a feeling of suspicion in the minds of the people and politicians.
2) A high water tariff, 5 times more than the present tariff, was being proposed without any supporting rationale.
3) A new company with major share of IL&FS was to be formed taking away decision making from the Corporation and the public domain. This raised issues of accountability.
4) Public opinion was created against the scheme by journalists and activists who questioned the lack of transparency.
5) The new water supply scheme did not cover installation of stand-posts. Water was to be supplied only through pipelines and taps, the rationale being that water losses are higher from stand-posts. On the other hand, these stand-posts are the only source of water to the poorer communities and slum-dwellers who cannot afford individual tap connections. These stand-posts also provide water to the large number of local and seasonal migrant populations that come to the city in search of wage labour. Activists and NGOs argued that removal of stand-posts would reduce access to water for these communities. In effect, the scheme did not take into account the needs of the poor in the city.
6) Further there were no institutional mechanisms to hold consultations with different sections of the populations, neither were any platforms created for citizens to voice their concerns.


The authors acknowledge that private sector participation is generally criticised for the fear of commercial and more intensive exploitation of natural resources. The global trend indicates that privatisation has resulted in high and disparate water tariffs, often beyond the reach of the poor. The case studies in the UNRISD report show that urban local bodies (ULBs - municipal governments) can increase the efficiency of existing systems by contracting or leasing out certain functions like O&M, billing and collection, water treatment, conducting repairs and also upgrading of infrastructure. These options may be more viable and will certainly have greater political and local support from citizens as opposed to privatisation of entire distribution systems where decision making and control is taken away from the ULBs. Because they are elected bodies, ULBs are accountable to the citizens.

That apart, the experiences are also showing that an atmosphere of openness and transparency along with the demystification of privatisation is required if PSP is to be made acceptable to the consumers. For water supply reforms, what is needed is innovation coming from within municipal utilities and not high cost solutions imposed from outside (the country). There are alternatives to high cost technology driven international solutions to problems of Indian water sector.