We are not asset owners. We are not bankers. We are operators

Formerly known as Vivendi Environment, the France-based transnational firm Veolia Environment is active in water, waste solutions and energy services businesses. Founded in 1853, it is present in around fifty countries. Despite a drop in pofitability in the first quarter of 2016, the company expects an adjusted net profit of EUR 600 mn for the year. Veolia forayed into India at the turn of the last century. Manish Pant caught up with Patrick Rousseau, CEO & MD, Veolia India for the company´s take on the challenges in water management in a rapidly urbanising India.

What were the challenges in the Orange City Water (OCW) Nagpur project? How did you ensure 24X7 water supply?
Veolia came to India to develop its water business in 1999. Our competitor Suez was already present through engineering, procurement and construction management (EPC) of water treatment plants (WTP). But they were not active in terms of operations. Not much happened initially as Indian engineers were convinced that bringing 24X7 water would further stress demand on the commodity. Indian bureaucrats too thought that it was not viable to put a price on water. People were either used to free or very cheap water, with no service. Besides, there was a problem of perception about having private participation in the water sector.

In 2003, World Bank decided to sponsor a pilot project in Karnataka to demonstrate that in India, as anywhere else in the world, it was possible to introduce 24X7 water supply without additional constraints on demand. They introduced a tender for five demo zones in the state: two in Hubli-Dharwar, two in Belgaum and one in Gulbarga. Each zone comprised of 10 per cent of the population of the cities. The goal was to get private contractors and operators to re-validate the existing network and to demonstrate that 24X7 water supply was possible. We won the tender and successfully operated this project termed Karnataka Urban Water Sector Improvement Project (KUWASIP) for eight years, demonstrating it was possible to provide 24X7 supply.

We also proved that when you bring 24X7 water, you reduce the demand for raw water because when you have a fully pressurized network – which is an obligation if you want to deliver 24X7 potable water – managing leakages is possible. However, it is difficult to manage leakages if you have a discontinuous system as the network is often depressed. In the eventuality of a leakage, the water goes into the soil and you cannot avail of modern technology such as ultra-sound. Also, when you have discontinuous supply, consumers too don´t care as they don´t get good water on real-time basis. For instance, they couldn´t care less if a tap point is left open. So when we took over the goal to implement 24X7 water supply in Nagpur, we also demonstrated that it could easily save anywhere between 12 to 15 per cent of raw water as compared to a discontinuous system.

Nagpur civic authorities and engineers were aware of what we were doing in Karnataka. They told us that they would like to do the same. They went for a pilot project with 15,000 connections of the same type as in Karnataka. The first stage involved studying the existing network and proposing a rehabilitation programme mainly by replacing certain percentage of the network and house service connections. In India, house service connections constitute the real weak point in the network. Usually you drill a hole in the main pipe, force a house service connection into it, put a bit of rubber around it and leave it at that. Consequently, every time there is increased pressure, the connection leaks.

In 2007, based on the success of the demo zone, the municipal commissioner of Nagpur suggested that we do it for the whole city. And that´s the whole idea behind going for public, private participation (PPP) model for the city. The project was supported by politicians, for you need to have a strong political will, and support of the municipal commissioner, or should I say municipal commissioners, for as you know, transfers are frequent in India. I have known six municipal commissioners in Nagpur since then, and each one of them was keen to push the project. We also got a lot of support from the municipal engineers. We won the international tender and the project started in March 2012. It was for the first time in India that a city was intending to provide 24X7 water to its entire population. This included integrating even slum dwellers as consumers. In Nagpur, 40 per cent of the population lives in slums. However, there is no distinction in terms of service to slum dwellers and other consumers.

Is the 24X7 water supply from mains or storage tanks?
In Nagpur, the water comes from the Nag River. It is then pumped and filtered. We have five WTPs in Nagpur. The water goes from these water treatment plants to storage tanks or reservoirs. It is then supplied through the mains to house service connections. So only soft water is supplied. There is no ground water.

How were the challenges of ensuring seamless distribution and user charges achieved?
We had different categories of challenges. Before you can implement the programme for a city, you have to go in for a huge investment exercise. In Nagpur, it is a 25-year contract, with the first five years reserved for capex. In those five years we have the obligation to provide 24X7 water to the entire population through work, work and more work. This involves replacing bad parts of mains and house service connections. The water treatment plants in Nagpur were in good condition. The city planners were clever enough to ensure that the water available would be sufficient to implement the project. Construction of new WTPs or refurbishing of existing WTPs was undertaken.

The main difficulty was to be able to develop this capex programme in five years. Today we are laying an average of two km of big pipes as well as replacing nearly 300 house service connections daily. This has never happened anywhere in India. The challenge is to source the right contractors. Nagpur is not a big city. Mostly, they are unskilled. We have to take care of their training. We have progressively introduced modern techniques for repairing mains by using diverse waterproof materials. We have introduced the same technology that we use in Europe for house service connections.

The second challenge was more social in nature. People like to tell you that when the private sector enters the market, cost of water goes up. What they don´t tell you is when service quality is improved, the cost of water increases as every service has a cost. If you want to deliver 24X7 potable, pressurised water, it costs more than if you distribute it only for two hours or every alternate day. The difference between public and private management is not the issue. The issue is you need to put the means into the project to bring it at par with service levels elsewhere in the world. For instance, consumers get better service in Gabon or Niger than they do in India!

So how do you convince people that they need to pay for water? When you introduce good service, people pay for it because they don´t want to lose out on quality. The poor are more willing to pay. An improvement in service deeply impacts them. I´d like to cite the example of a woman who lives in a slum in Nagpur and was used to getting into frequent brawls while fetching water in large jerry cans once every week. However, once you reach potable water in a tap in front of a small shack, this person cherishes the service and is willing to pay. But how much? Well, that´s a political decision. It is for the municipal corporation to decide if they want to have a social tariff for slums and higher rate for commercial or industrial use. But, at least, everyone pays. In Nagpur, they have set up a tariff grid, with a social tariff for slums and higher tariffs for industries depending on the nature of property and water consumption.

Financially speaking, such projects cannot be funded fully by municipal corporations as it´s a huge cost to rehabilitate the network. In Nagpur, the city went for Jawaharlal Nehru Urban Renewal Mission (JNURM), which is now the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). The project is funded on the capex side up to 70 per cent under JNURM. The remaining is funded by the operator and is to be recovered over 25 years. Therefore, we are not owners of 30 per cent of the assets. Rather, it´s a loan.

What are the supply and management challenges in urban water systems in India?
Water utility is composed of mainly two parts: production and treatment, and, second, distribution. In India, production and distribution have been correctly managed in the sense that municipal corporations build new WTPs with any demographic increase. The problem is you have only one-third of one cubic metre (cum) flowing out of a WTP reaching the end-consumer. You lose 70 per cent of it between the water treatment plant and house service connection. That´s the biggest weakness of the Indian system in water utilities: proper management of the network is lacking. The networks put in place 60 to 70 years ago, have not been maintained well. There is no leakage detection system. That´s where we bring our expertise, because the heart of a water utility is not production in terms of cost or investment. It´s the pipes. You have hundreds of km of pipes in the city. It is through these that water reaches the consumer. If you can´t take care of the pipes, you will lose all your efficiency despite having the best WTPs in place. The main problem is network management. That´s where the private sector has a role to play because there is no professionalism in municipal corporations.

Is it more challenging due to the lack of a clear policy on how projects should be tackled?
The first question that I need to ask if I am a locally elected representative is, ´What do I need to do in order to improve water utility?´ I start with a situation where I am provisioning two-hour water supply daily to citizens. Do I want to increase that to four-six hours, knowing that if I decide to do so, I will never guarantee potable water. To deliver potable water, you need to have 24 continuous systems pressurised. If I decide to increase just a bit, I can do it piecemeal by going for small EPC contracts in order to improve supply in certain areas. If I decide to go for standard service, like you have in most countries, I cannot do it myself. I need the private sector.

In India, I need to work with foreign companies as you don´t have professional private water players capable of meeting this challenge due to historical reasons. The contour of a contract is another issue. We aren´t talking about privatisation as we are against it. Privatisation means the private sector invests in public assets like it used to in the UK under prime minister Margaret Thatcher. It was a total failure. We are not asset owners. We are not bankers. We are operators. Therefore, financing of the capex has to be significantly done by the public sector. The operator only comes on a performance-based contract. I am willing to be judged and penalised if I don´t perform technically, but I must not be held liable for either assets or change in government. The best contract for me today is the performance contract, where assets belong to the public, while the operator is on contract for a certain duration with key performance indicators (KPI) to meet. This is the case with the demo zones in Karnataka and Nagpur.

In 2012, the city of New Delhi contracted you to design, build and operate a green sewage treatment plant at Nilothi. Four years down the line, how has the project fared?
The problem in Nilothi is not linked to us. The Delhi Jal Board (DJB) is fighting the case in the National Green Tribunal (NGT). The NGT has told DJB that it is not authorised to engage anyone for the purpose of sanitation without prior approval as the tribunal is not satisfied with the impact of projects for improving water quality in the River Yamuna.

What are your recommendations for ensuring uninterrupted water supply in India?
Number one, political will and support and a clear vision about what municipal corporations want to achieve. Number two, thorough due diligence of the existing assets to be able to define a proper capex programme. Three, calling in the private sector to put in place a professional management of the network.

You mentioned about governments in India committing free water. What is your experience in France, where you have a society with a deep-rooted socialist ethos?
If I take the example of Delhi, I think the decision to distribute free water to citizens is good. It´s a political decision. I totally respect the fact that it will allow the underprivileged people to gain easier access to the service. Here again, fixing the tariff is a political act, as it is not the private sector that determines that. What I want is a remuneration that allows me to manage the entire spectrum of the utility. It is not for me to decide if the industry must pay `60 per cum and slum dwellers nothing for the first 20 cum. What is required is enough revenue to cover operational costs.

Moving on to France, I would say India today is in the same situation where we were 150 years ago. When Veolia was created in the name of Compagnie GTnTrale des Eaux in 1853, the public health situation was very bad in France due to bad water and sanitation. Emperor Napoleon III nominated the prefect of Seine, Georges-EugFne Haussmann, to put in place a rehabilitation of big cities in France. Haussmann realized that public utilities alone were not capable of meeting this challenge. So he decided to create two private companies: Veolia and Suez, with the intent of putting in place decent water and sanitation utilities across cities. That´s exactly the situation in India today.

– Manish Pant