Setting the benchmark in water works

Housed in a bungalow on the Santhome High Road, Chennai, the New Tirupur Area Development Company's (NTADC) office will pass off as some non-descript residence. It certainly does not look like a corporate office of a company implementing a Rs.1,150-crore project.

"This is the way we work," laughs Mr. M. Raman, managing director. Mr Raman earned the sobriquet of ‘Ford Raman’ for the passion he displayed in bringing the global auto major Ford Motor to Chennai. Probably once his latest project goes on stream, he will be known as Tirupur Water Raman!

At a time when six private water-supply initiatives found their ‘watery grave’ owing to unviability, the Tirupur water project is nearing financial closure and the project work is expected to start soon. "Perseverance ultimately pays," is all that Mr. Raman can say.

For the uninitiated, Tirupur, a small town near Coimbatore in the southern state of Tamil Nadu, is the country's largest cotton knitwear centre, accounting for 90 per cent of the country's exports in this sector. But the town suffers from some major handicaps. The domestic water supply is limited to a few hours and that too on alternate days, industries do not have access to piped water supply, waste water collection and treatment facilities are non-existent and road and communication network is sub-standard.

In order to alleviate the suffering, the authorities prepared a comprehensive plan to address the infrastructure-related problems. And the project was called the Tirupur Area Development Programme. But lack of budgetary support prompted the local authorities to invite private players and opt for a commercial format to implement the master plan.

This led to the formation of NTADC - a joint venture between Mahindra & Mahindra, Infrastructure Leasing and Financial Services, United Utilities, Bechtel, Government of India, Government of Tamil Nadu and the Tirupur Exporters Association - to take care of the water supply project on Build-Own-Operate-Transfer (BOOT) basis. NTADC is the concessionaire for 30 years.

"The scope of work includes, bulk water supply to Tirupur municipality, industries and wayside villages," says Mr Raman. Besides this, NTADC will also be responsible for improving the distribution network within the municipal area and provision of sewerage collection treatment and disposal and low-cost sanitation facility within Tirupur.

The company will draw 185 million litres per day (mld) of water from the river Cauvery to be supplied to industries in the Tirupur Local Planning Area (TLPA), Tirupur municipality (industrial and domestic) and wayside villages.

While the industries will be charged Rs.45 per kilo-litre (KL), the households in Tirupur and wayside village houses will pay Rs.5 and Rs.3.5 KL.

Patience and perseverance are the two qualities needed for implementing a project of this magnitude, opines Mr Raman. The reasons are many. But the main reason is the finance availability.

"Funds are scarce for water supply projects. And what ever is available, is at a high cost. Lenders perceive such projects as highly risky one," Mr Raman remarks. His project has a debt component of Rs. 674 crore and some of the loans have been contracted at 16 per cent rate.

Apart from the stiff interest rates, the two other components of the loan, viz. loan tenor and conditions, are more stringent. "Projects like ours need 30-year-debt whereas in India, funds are generally available for only 15 years," laments Mr Raman.

The loan is backed up by security in the form of assignment of project agreements and step in rights, charge on the assets, receivables and residual insurance proceeds. The lenders also insist on some percentage of reserve to be provided out of receivables (0.33 per cent in case of NTADC).

This security is also in the form of a revolving security deposit and an irrevocable letter of credit equivalent to one-month’s receivable, besides creation of a special account for receivables from the Tirupur municipality. In order to secure receivables from industrial units, a revolving security deposit equivalent to three months receivables has been insisted.

While long-term debt funds are difficult to get, there is lack of appetite for equity investors to put in their funds in a water project due to its long gestation period and other conditions, Mr Raman adds. Incidentally, NTADC has raised Rs.300 crore in equity capital as against a projected figure of Rs.400 crore. "We will go for a public issue at appropriate stage", says Mr Raman.

In conclusion, he says, "Commercialisation of the water sector is a recent phenomenon in India. We have passed successfully through various stages of project development. And this experience will set the benchmarks for commercial development of water sector in India."