TN WATER SUMMIT 2010

Water Secto
W or in Tamil
T l Nadu
Sta
atus, Challe
C engess and Agennda

21-22 September
S r, 2010
Ho
otel Le Royyal Meridiaan, Chennai
 
 
 
 
 
 

Contents

1.  INTRODUCTION .................................................................................................................................... 1 
 
 
2.  WATER RESOURCES IN TAMIL NADU ..................................................................................................... 2 
 
 
3.  POLICY RESPONSE AND INSTITUTIONAL FRAMEWORK .......................................................................... 7 
 
 
4.  SELECT PROJECT LEVEL INITIATIVES ..................................................................................................... 14 
 
 
5.  PUBLIC PRIVATE PARTNERSHIPS AND INNOVATIVE PROJECTS ............................................................. 18 
 
 
6.  SECTOR IMPERATIVES AND ACTION AGENDA ...................................................................................... 23 

Water Sector in Tamil Nadu – Status, Issues and Opportunities 
 
 
 
 

Executive Summary
1. The status of Water, as a renewable asset, is under threat in Tamil Nadu as
well as in most parts of India.

While demand for fresh water in India is expected to grow rapidly in view of the growth in
population, availability and access are likely to be strained due to escalated demand
from multiple sources having high economic growth, supply side constraints and reduced
availability of fresh water owing to pollution and inadequate investment in water resource
management. The impacts attributable to climate change including erratic precipitation
could seriously exacerbate the already challenging scenario with regards to stability in
availability of fresh water sources.

2. With a lower per capita water availability vis-à-vis the national average,
Tamil Nadu faces some serious challenges. Rapid industrialization and
urbanization without commensurate planning for water management is
leading to industrial pollution and over-exploitation of ground water
sources which are further amplifying the demand-supply deficit in water.

With 4% of India’s land area and 6% of population, Tamil Nadu has 3 % of water
resources of the country. Per capita water availability of the State is only 800 cubic
meters vis-a-vis national average of 2300 cubic meters. Annual rainfall is around 792
mm in a normal year, again significantly lower than the all-India (normal) rainfall of 1250
mm. The water availability potential of the State including surface and ground water is
assessed at 1643 TMC per annum, while the estimated annual demand was 1921 TMC
in 2001 and estimated to increase to 2039 TMC by the year 2050. Industrial pollution,
ground water depletion and dependence on water allocation from river basins by
neighboring states are the main factors straining the already precarious demand-supply
situation of water in Tamil Nadu.

3. Government of Tamil Nadu has pronounced a progressive policy, a

coherent institutional framework, and innovative project interventions to
tackle the challenges arising from water shortage head-on.

A slew of enactments over the past decade, including the Farmers’ Management of
Irrigation Systems Act (2000), Chennai Metropolitan Area Ground Water (Regulation)
Amendment Act, 2002, Tamil Nadu Ground Water Development and Management Act
(2003), Tamil Nadu Protection of Tanks and eviction of encroachment Act, 2007 have
contributed to an improved policy environment in Tamil Nadu. We see a good beginning
but this needs to be backed by meticulous enforcement.

The Institutional framework to manage water in Tamil Nadu is largely in place but needs
to be continually supported with appropriate capacity building and skill development
programs. The apex level Water Resources Control and Review Council is chaired by
the Chief Minister, while the Water Resources Organisation is charged with
implementation of the policy. The Institute of Water Studies is the nodal agency
responsible for water planning while the Irrigation Management Training Institute imparts
training to farmers and officials. Domestic water supply schemes are executed by the
Tamil Nadu Water Supply and Drainage Board (TWAD) for the entire state other than in
the Chennai Metropolitan Area, where Chennai Metro Water Supply and Sewerage

Water Sector in Tamil Nadu – Status, Issues and Opportunities  i   
 
 
 
 

Board (CMWSSB) is the implementing agency. Industrial water pollution is regulated by

the Tamil Nadu Pollution Control Board and management of water quality and
environmental aspects of rivers/water bodies is done by the Department of Environment.

A number of innovative and signature projects have been undertaken in Tamil Nadu; the
Tirupur water supply project was one of the first under the public-private-partnership
mode in the country, the Alandur Sewerage project provided a successful model for
implementing sewerage schemes with public participation, Chennai Metrowater has
shown foresight in undertaking large-scale desalination projects to meet the growing
water needs of the city, while the Hogenakkal and Ramanathapuram water supply
schemes demonstrate the state’s ability to conceive and implement large scale water
supply projects. Further, Tamil Nadu is one of the few states to focus on sewage
management in the small and medium towns with sewerage schemes either having been
completed or under implementation across 60 towns.

4. While initiatives to further improve coverage of safe water supply and

sanitation are underway, a greater thrust on quality of service delivery,
institutional strengthening and financial sustainability are critical for
financial and operational sustainability.

About 90% of the rural habitations (82554 out of 92689) are reported to have full
coverage of safe drinking water supply. In urban areas, all the nine Municipal
Corporations, 80% of municipalities and 55% of town panchayats get a per capita supply
of more than 70 LPCD. However, there is scope to improve ‘quality of access’. Urban
water supply systems should move towards 24x7 water supply, loss audits/reduction and
metered connections, while sewerage schemes should be backed by waste-water
recycling initiatives. Tamil Nadu has a distinction of implementing sewerage schemes
with public deposits/user charges through the ‘Alandur model’. This experience should
be leveraged to articulate a progressive state level water and sewerage tariff policy to
achieve 100% O&M Cost recovery as a minimum benchmark, while using telescopic
tariffs, transparent subsidies and ‘lifeline supply’ for the poor at affordable rates.

5. While Tamil Nadu has embarked on the journey towards securing water
access to its citizens, there is a need to escalate policy attention and
intensify the pace of implementation.

Management of water resources and provision of equitable water and sanitation services
is intrinsically linked to achieving economic prosperity and social well-being. CII outlines
a 6-point action agenda in this regard as follows:

i) Set and achieve aspirational targets. Illustratively, these could be:

o Ensure 100% safe drinking water supply and sanitation access to all
habitations by 2012.
o Achieve service level benchmarks in water supply (135 LPCD, 24x7 water
supply and metered connections) and sewerage (100% coverage and
treatment) in cities with population greater than 500,000 by 2015 and all
district headquarters by 2018.
o Achieve 30% waste-water re-use in cities with population greater than
500,000 by 2015.

Water Sector in Tamil Nadu – Status, Issues and Opportunities  ii   
 
 
 
 

o Achieve a) O&M cost recovery in urban areas by 2012 and in rural areas
by 2017 and b) Full cost recovery in cities with population greater than
500,000 by 2020.

ii) Improve water efficiency in agriculture and industry

o Incentivize adoption of water efficient practices such as drip irrigation and
thrust on water shed programs and protection/restoration of water bodies
o Progressively improve irrigation coverage and shift to consistent power
supply. Rationalize power tariffs to prevent ground water exploitation and
wastage.
o Incentivize waste-water re-use and zero discharge practices in industry

iii) Enforce industrial pollution control measures on priority

o Work with industry bodies to implement and enforce industrial pollution
control standards
o Focus on industrial clusters covered under the recent environment
assessment undertaken by CPCB namely, Coimbatore, Cuddalore, Erode,
Manali, Mettur, Tirupur and Vellore. Of these, Manali and Vellore were
classified as critically polluted areas.

iv) Tackle Institutional Strengthening and Capacity Building

challenges on priority
o Capture and disseminate information on a) Water resources and
availability b) water consumption and c) waste-water generation, treatment
and re-use;
o Improve operational excellence through skill development initiatives and
process improvements in financial management systems, e-governance
and consumer centricity.

v) Build institutional capacity on mission mode to implement water

projects in PPP mode to leapfrog on service levels
o Leverage PPPs to improve service delivery and bring in system efficiencies
besides seeking to bring in private capital into the sector

vi) Undertake 3 or 4 ‘signature’ projects that could potentially trigger

sector wide momentum. Illustratively these could be1:
o Coovum River Restoration and Waterfront development project
o 24x7 Water Supply for Chennai Metropolitan Area

                                                                 
1
 Some of these projects are already under discussion 

Water Sector in Tamil Nadu – Status, Issues and Opportunities  iii   
 
 
 
 

o Development and Implementation of 2 new district level water supply

schemes on the lines of Hogenakal Water Supply Scheme with
international aid assistance
o Restoration and creation of recreational facilities in 50 large water bodies
within 2-3 years
o A river basin wide agricultural water efficiency improvement program
o Clean up Manali and Vellore clusters (identified as industrial pollution
hotspots by CPCB) within the next 3 years

Water Sector in Tamil Nadu – Status, Issues and Opportunities  iv   
 
 
 
 

1. Introduction

1.1. Background
Water has emerged as one of the primary environmental concerns for the 21st century. The
growing concern is that very soon the demand for water will outpace supply capability,
largely because the decreasing availability, declining quality and growing demand for water
are creating significant challenges to industry, agriculture, residents, communities, flora and
fauna, and society at large.
For industry, water related risks and climate change will further reduce the availability of
reliable and high quality water impacting productivity, costs, revenues, public goodwill and
reputation. Despite these looming challenges, businesses and investors are largely unaware
of water related risks or how climate change will intensify and impact them.
Tamil Nadu is one of the few states with a positive socio-economic progression, contributing
to a substantial inclusive growth index in the country. It is one of the few states to initiate
water reclamation projects including sea water desalination. With an increased emphasis
laid on growth in tier II and tier III towns across the state, a concentrated plan of action to
improve the infrastructure and water reforms needs to be evolved.
The Tamil Nadu Water Summit 2010 is a platform for vision development with an emphasis
on promoting awareness and understanding of the underlying factors behind the water
scarcity scenario and to ideate the way forward to overcome the challenges in the years to
come. A delegation from the Public Utilities Board (PUB) Singapore is being invited to
participate and address in the summit.

1.2. Report structure and contents

• Section 2 Water Resources in Tamil Nadu provides an overview of the water

resources in Tamil Nadu and an overview of consumption across various segments.

• Section 3 Policy Response and Institutional framework outlines recent policy actions
and presents the prevailing institutional framework for water sector in Tamil Nadu

• Section 4 Infrastructure Baseline and opportunities presents an overview of the

prevailing infrastructure and service levels in water supply and waste water management
in the state.

• Section 5 Private Sector Participation – initiatives and opportunities outlines the

PPP initiatives taken in Tamil Nadu in the water sector. The section reviews recent
developments in water sector PPPs globally and outlines possible approaches for private
sector participation in Tamil Nadu.

• Section 6. Sector Imperatives and Action agenda summarises key priorities in the
water sector, critical transformation themes and a possible action agenda.

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2. Water Resources in Tamil Nadu

2.1. Introduction
India’s demand for water is growing at an alarmingly high rate today. India’s rapidly growing
population is likely to exert increasing strain on its limited water resources. A fast growing
economy and substantial water consumption by the agricultural sector (required for food
security and for sustaining a majority of its people) stretch India’s water resources. Even as
the demand for water grows, India faces other supply side constraints and concerns relating
to availability of fresh water primarily owing to pollution and inadequate investment in water
resource management. Climate change impacts including erratic precipitation and the
possibility of accelerated glacial melt could seriously exacerbate the already challenging
scenario in several parts of India. A snapshot of the current and future demand-supply
scenario and the composition of this demand are presented below. With increased
urbanization and industrialization there is likely to be a substantial increase in the per capita
demand for water along with a growing aspiration for significantly better access of water
supply.
India - Water Demand-Supply scenario

  Source: Ministry of Water Resources GoI 

2.2. Water Sources and availability

Rainfall
With 4% of India’s land area and 6% of population, Rainfall in Tamil Nadu ‐ last 5 years
Tamil Nadu has only 3% of water resources of the 1304
1165
1079 1023
country. Per capita water availability of the State is 1000 962 959 912 912 912
Rainfal in mm

860
800 cubic meters which is lower than the National
500
average of 2300 cubic meters. Annual normal rainfall
is around 792 mm, again significantly lower than the
0
National normal rainfall of 1250 mm. A large part of 2005 2006 2007 2008 2009
Normal Actual
the state is located in the rain shadow region of the
Western Ghats and hence receives limited rainfall Source: IMD Chennai. 

Water Sector in Tamil Nadu – Status Issues and Opportunities                       2      
 
 
 
 

from the south-west monsoon. The State gets relatively more rainfall during north-east
monsoon, especially, in the coastal regions. The normal rainfall is around 912 mm, which is
lower than the all-India normal rainfall of 1250 mm.
Surface Sources
The total surface water potential of the state is 36 km or 24,864 million.cu. m. There are 17
major river basins in the State with 61 reservoirs and about 41,948 tanks. Of the annual
water potential of 46,540 million cubic metres (MCM), surface flows account for about half.
Most of the surface water has already been tapped, primarily for irrigation which is the
largest user. About 24 lakh hectares are irrigated by surface water through major, medium
and minor schemes. The utilisation of surface water for irrigation is about 90%.
Ground water
Change in block wise Groundwater status
The utilisable ground water 160 1998 2003
recharge is 22,423 MCM. The 135 135 137
Number of Blocks

current level of utilisation 108

expressed as net ground water 97

draft of 13.558 MCM is about 60 % 80 70

of the available recharge, while
8875 MCM (40 percent) is the 35 37

balance available for use. 8 8

Safe blocks declined from 137 to 0

Over‐Exploited Critical Semi‐Critical Safe Saline
97 during 1998 to 2003 while
Over-exploitation has already
Source: www.tn.gov.in/spc. Presentation by Water resources organization 
occurred in more than a third of
the blocks while eight blocks (2 percent) have turned saline.

2.3. Demand-supply trend and sector wise consumption pattern

As per the State Framework Water Resource Plan of Tamil Nadu prepared by the Water
Resources Organisation, the annual water potential of the State including surface and
ground water is assessed as 46,540 MCM (1643 TMC), while the estimated demand is likely
to go up from 54,395 MCM (1921 TMC) in 2001 to 57,725 MCM (2039 TMC) in 2050.

Sl. Year Increase Share (% of Total)

Category
No. 2001 2010 2025 2050 (2001-50) 2001 2050
1 Domestic 78 86 99 122 56% 4% 6%
2 Irrigation 1,765 1,765 1,765 1,765 - 92% 87%
3 Industries 55 58 62 70 28% 3% 3%
4 Power 4 5 6 6 53% 0% 0%
5 Others 18 18 47 75 308% 1% 4%
Total 1,921 1,932 1,978 2,038 100% 100%
Source: www.tn.gov.in/spc. Presentation by Water resources organization 

Water Sector in Tamil Nadu – Status Issues and Opportunities                       3      
 
 
 
 

Agriculture
Agricultural consumption accounted for nearly 90% of the water consumption in the state in
the 2001 and even with growth in agricultural production, demand for water in the sector is
expected to remain constant after factoring in potential improvements in water efficiency in
this sector.
Nearly 54% (30 lakh hectares out of net sown area of 56 lakh hectares) in Tamil Nadu is
irrigated. Canals account for nearly 29% while tanks and wells account for another 21% and
50% of the net irrigated area respectively. Surface irrigation potential has largely been
exhausted and area under canal irrigation has remained almost stagnant since the 1960s at
8.5 lakh hectares. Efficiency of canal systems has declined due to seepage and silting.
Similarly, area under tank irrigation fell by a third from 9 lakh hectares in 1960s to about 6.3
lakh hectares in 1999-2000.
Wells have become the predominant source of irrigation accounting for nearly half of the
irrigated area with the total number of wells estimated to have more than trebled between
1970 and 2000. Free power supply to farmers in recent years has led to more than 90% of
the wells being energised. However, growing incidence of well failure is indicative of over-
extraction of ground water in a number of areas. As mentioned earlier, more than a third of
the blocks in the state are over-exploited and this is a serious cause for concern.

Given that 45 per cent of the net sown area is not irrigated, watershed management and in
situ  water harvesting are critical to ensure relative availability of water. There are an
estimated 19,330 micro-watersheds in the State where watershed development can be
taken up. Check dams, percolation ponds, contour bunding and other soil and water
conservation measures can be implemented. Recharge of ground water is particularly
important given the heavy dependence on wells. A number of programmes including the
Drought Prone Area Programme (DPAP), Integrated Watershed Development Programme
(IWDP) and the National Watershed Development Programme for Rainfed Areas
(NWDPRA) provide funding for watershed management.
Domestic use
Although population growth has slowed down, Tamil Nadu is urbanising rapidly.
Consequently, the domestic water requirements are projected to increase by more than 50
per cent from 2222 MCM in 2001 to 3460 MCM in 2050.
A habitation is smaller than a village and includes hamlets/clusters of households which
have a common water source. A fully covered habitation means that the entire population
has access to safe assured drinking water at the level of 40 litres per capita per day (LPCD).
The source should be within a distance of 1.6 kilometres of the habitation for plain areas and
within an elevation of 100 metres in the case of hilly areas. Partially covered habitations
provide potable water but at levels less than 40 LPCD. Non-covered habitations have no
potable supply accessible to the habitation. As per the policy notes of the Municipal
Administration and Water Supply Department Government of Tamil Nadu 2010-11, 90% of
the habitations (82554 out of 92689) are reported to have full coverage of safe drinking
water supply with the remaining having partial coverage.

Water Sector in Tamil Nadu – Status Issues and Opportunities                       4      
 
 
 
 

Industry
The State Framework Resource Plan estimates Industrial water demand to increase only by
28% from 1555 MCM in 2001 to 1985 MCM by 2050, as it is likely that users in this segment
would adopt zero discharge initiatives and waste-water recycling in the future.
Thermal power plants account for the highest proportion of water use (in the industrial
segment). Other industries include chemicals, distilleries, oil refinery, textile dyeing, steel,
fertilisers, pharmaceuticals, petrochemicals, paper and pulp, sugar, electroplating etc. Most
industries pay a user charge to the Government if they draw water from rivers and lakes.
Industries which receive municipal supply pay a water tariff to the concerned local body.
Since the availability of water is limited, many industries have on their own initiative adopted
conservation and recycling measures. Two industries in Chennai, CPCL and MFL purchase
and treat sewage from Metrowater to meet their water requirements. Recently, CPCL has
set up a desalination plant to meet its water needs. Given the long coastline, this could
become a viable alternative for industrial clusters along coastal areas in Tamil Nadu.

2.4. Key issues and challenges

Some of the critical issues and challenges faced in the water sector include the following:
a) Surface water pollution - Over 3000 industrial units in Tamil Nadu which have been
classified under the highly polluting or "red" category with an estimated effluent
generation of about 6 lakh litres per day. Direct discharge of effluents by several of these
units into rivers and water bodies is a cause for concern, particularly the effluents
emanating from the tanneries located in Vellore, Kancheepuram, Dindigul and Erode
districts and from the textile dyeing units in Tirupur, Erode, and Karur. Further the large
industrial complexes in Tami Nadu, namely those in Manali, Ennore, Ranipet, Cuddalore,
Mettur and Tuticorin have chemical, petro-chemical and other industries and become
environmental hotspots.
b) Groundwater pollution/ over exploitation - With greater utilisation of water for
industrial and domestic use and also due to the increased use of agricultural chemicals,
groundwater quality is deteriorating rapidly in the State. Diminished water quality also
means that the quantum of fresh water available for particular uses is reduced, or that
the water can be used only after treatment. Problems of water quality can be due to
natural causes like geological formations or due to sea water intrusion. It is estimated
that over a third of blocks in the state are classed over-exploited in terms of their
groundwater status
c) Catchment degradation and siltation in river basins – Intensive farming in river
basins and siltation in reservoirs are emerging as serious concern areas as they lead to
catchment degradation and reduction in storage capacity.
d) Eutrophication and aquatic weeds - Eutrophication is the ecological degradation of the
surface waters with plant nutrients. Eutrophication results from the excessive levels of

Water Sector in Tamil Nadu – Status Issues and Opportunities                       5      
 
 
 
 

nutrients like phosphorous and nitrogen compounds. Agriculture is a major factor in

eutrophication of surface water sources.
e) Inadequate focus on rural sanitation – The level of sanitation is poor in Tamil Nadu.
Less than 35% of households have access to toilets. The Department of Rural
Development has been implementing the 'Restructured Central Rural Sanitation
Programme' since 1999. The components include the construction of individual toilets,
sanitary complexes for women, school sanitation and rural sanitary marts. They have
also initiated the 'Total Sanitation Campaign' (TSC) in phases in many of the districts of
Tamil Nadu. TSC emphasises Information, Education and Communication, Human
Resource Development and Capacity Development activities to increase awareness.
f) Access versus quality of access in urban areas – While the level of access and
coverage of water supply and sanitation in urban areas is relatively better, the quality of
access indicates scope for improvement. Weak local capacity for managing O&M
coupled with weak adoption of modern maintenance practices lead to dilapidated
networks, inconsistent supply and inefficient water supply distribution

Water Sector in Tamil Nadu – Status Issues and Opportunities                       6      
 
 
 
 

3. Policy response and Institutional framework

3.1. Policy initiatives at National level

Under the Constitution of India, Water is a State subject, and the role of the central
government is limited to defining norms for the sector through the Central Public Health
Environment and Engineering Organization (CPHEEO), Ministry of Urban Development
(MoUD), Government of India, and providing guidelines and technical assistance to the
states. The Central Government also intervenes through some centrally funded special
programmes of the MoUD, such as mega-city schemes or programmes on sanitation. The
Planning Commission plays a role in evaluating the financial requirements for the Five Year
Plans and has an advisory role in policy-making for the Water sector.
The responsibility for the Urban Water Supply and Sanitation (UWSS) sector in India is
divided between the Central Government and State Governments. The Central Government
is responsible for the regulation and development of inter-state rivers and river basins to the
extent that such regulation is in public interest. The Central Government also establishes the
policy framework for the management of water resources and provides funds for WSS
projects through budgetary allocations. The Ministry of Urban Development (MoUD) is the
principal department of the Central Government that coordinates urban WSS sector
activities, with the Central Public Health and Environmental Engineering Organization
(CPHEEO) being its technical arm. The MoUD receives assistance from the Ministry of
Health and Family Welfare, Ministry of Water Resources (MoWR), Ministry of Environment
and Forests (MoEF), and the Planning Commission.
Apart from above described functions, all matters relating to the UWSS sector are within the
functional domain of State governments which lay down policies for the allocation of water
for different purposes, and establish institutional systems for their development and
management. Institutional arrangements in Tamil Nadu are detailed subsequently in this
section
National Water Policy 2002
The National Water Policy 2002 lays down general guidelines in preparing basin-wise
master plan, priorities for water use, inter-basin transfer, etc. The National Water Policy
articulated by the Government of India in 1987 was further updated and adopted by National
Water Resources Council in April 2002,
The National Water Policy recognises water as a prime natural resource, a basic human
need and a precious national asset. It has recommended that resource planning in the case
of water has to be done for a hydrological unit such as a drainage basin as a whole or for a
sub-basin. It has further emphasised that special multi-disciplinary units should be set up in
each state to prepare comprehensive plans taking into account the needs of not only
irrigation, but also various other water uses so that the available water can be put to
optimum use.
The National Water Policy accorded top priority to drinking water over competing water uses
and advocated private participation and access to external finance for development of urban

Water Sector in Tamil Nadu – Status Issues and Opportunities                       7      
 
 
 
 

water supply system. It also states - ”Private sector participation should be encouraged in
planning, development and management of water resources projects for diverse uses,
wherever feasible. Private sector participation may help in introducing innovating ideas,
financial resources and introduce corporate management and improving efficiency and
accountability to users. Depending upon the specific situations, various combinations of
private sector participation, in building, owning, operating, leasing and transferring of water
resources facilities, may be considered”.
Integrated Scheme on Ground Water Management and Regulation
This scheme was approved in August 2008 by the Cabinet Committee on Economic Affairs
(CCEA) to strengthen the ground water management system, develop area specific Rain
Water Harvesting (RWH) techniques and create a web-based ground water information
system, capacity building of scientists, planners and other stakeholders and strengthening of
co-ordination and synergy amongst all other stakeholders. The scheme will be implemented
with an outlay of Rs. 460 crore. The proposed activities under the scheme during 11th Five
Year Plan include Ground Water Management Studies over 7.5 lakh square km. area;
Exploration of new aquifer areas through drilling of 4000 wells; and Monitoring of ground
water levels and quality from country-wide network of 15,500 observation wells. It also
include carrying out of about 1500 water supply investigations for Defence, Urban and other
organizations, carrying out of 75 demonstrative artificial recharge and rain water harvesting
studies in different States; besides regulating Ground Water Development and Management
in critical areas and the preparation of reports/maps on the availability of ground water by
District/States. The union government also launched a Rs 60 billion scheme for rehabilitating
23,000 surface water bodies across India. Further, rainwater harvesting is now mandatory in
new buildings in Aizwal, Bangalore, Delhi, Goa, Lucknow and Mizoram. The Ground Water
Management and Regulation Scheme will be implemented through CGWB, CGWA and
other agencies identified by the Government from time to time.
Reform-linked JNNURM scheme
The Central Government launched Jawaharlal Nehru National Urban Renewal Mission
(JNNURM) is an initiative directed at effecting substantive improvement in urban
infrastructure and governance. JNNURM aims at the development of 65 identified cities (35
cities with a million-plus population, capital city in every state, and a small number of other
cities of historical, religious or tourist importance) with an objective of encouraging reforms
and fast track planned development of the concerned cities. The focus of the scheme is on
improving efficiency in urban infrastructure and service delivery mechanisms, community
participation, and enhancing accountability of Urban Local Bodies (ULBs)/ Parastatal
agencies towards citizens. The thrust of the JNNURM is to ensure improvement in urban
governance and service delivery so that ULBs become financially sound and sustainable for
undertaking new programmes. It is also envisaged that, with the charter of reforms that are
followed by the State governments and ULBs, a stage will be set for PPP projects.
Mandatory reforms at the level of ULBs and Parastatal Agencies include levy of “reasonable
user charges by ULBs and Parastatals with the objective that the full cost of O&M or
recurring cost is collected” but also specify “Provision of basic services to the urban poor

Water Sector in Tamil Nadu – Status Issues and Opportunities                       8      
 
 
 
 

including security of tenure at affordable prices, improved housing, water supply and
sanitation.”

Research & Development (R&D) Programme in Water Sector

In terms of Capacity Building, the Cabinet Committee on Economic Affairs (CCEA) has
approved a Rs. 295 crore scheme on research and development programme in the water
sector. The main objective of the scheme is to undertake and promote research activity for
addressing challenges in water sector by adopting modern techniques and technology and
upgrading the existing facilities. Besides, the scheme envisages to actively involve research
institutions of the State Government (such as engineering / irrigation research institutions,
water and land management institutes) and various academic institutions and other research
centres in water sector. The scheme will be beneficial in development of technology with a
view to improving the efficiency of the water resources systems, reducing risk / hazard in
water resources projects and adopting economic design of water resources projects. It will
also help in preparing manuals, guidelines and updation of BIS Codes in the light of research
findings.

3.2. Policy response and initiatives in Tamil Nadu

Tamil Nadu adopted a State Water Policy in 1994 along the lines of the National Water
Policy of 1987. Subsequently, the National Water Policy was revised in 2002. The Tamil
Nadu Government is in the process of revising the State Policy to include various current
concerns. Some of the major aspects of the policy including the following:
o Importance of water resources in the development of the State.
o Need for considering socio-economic aspects of water resource projects.
o Need for basin wide planning for equitable water use.
o Priorities for water use in the State.
o Management and development of ground water resources.
o Watershed management in rain-fed areas.
o Increase in demand for non-agricultural uses.
o Management of water quality and environmental aspects.
o Need for a hydrological database for planning and management.
o Stakeholder participation in management e.g. water user associations.
o Need for proper pricing of water in different sectors.
Some of the important legislation governing management of water and water pollution are
detailed below:
Participatory Irrigation Management
The Government of Tamil Nadu is advocating the participatory irrigation management
programme with the objective of ensuring equitable distribution and optimum utilization of
water for irrigation by the farmers involving them in the operation and maintenance of
irrigation systems and inculcating a sense of ownership of irrigation system in them.

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An Act namely the “The Tamil Nadu Farmers’ Management of Irrigation Systems Act, 2000”
was enacted. The rules for giving effect to the provisions of the Act have been framed in
2002 and the rules for elections have been framed in 2003. The Act has been brought into
force in 30 Districts of the State except the Nilgiris and Chennai, where there is no ayacut.
Initially, the Act was implemented only in the 20 Districts where the then Water Resources
Consolidation Project was implemented, with effect from 01.10.2002. Subsequently, the Act
has been extended to rest of the districts also, with effect from 7th May 2007. The Act
envisages for constitution of farmers’ organizations in the entire command area of all
irrigation systems under the management of Water Resources Department.
Ground water regulation
The Tamil Nadu legislature passed the Ground Water (Development and Management) Act
and the Act came into force after receiving the assent of the President in March 2003. The
Act is applicable to the whole State of Tamil Nadu except the Chennai Metropolitan Area
which is governed by a separate Act. A Tamil Nadu Ground Water Authority has been set up
to direct and regulate the development and management of the ground water resources of
the State. The Authority has the power to notify areas for regulation. Every use in the notified
area will have to obtain the permission of the Authority to extract ground water. Wells cannot
be sunk and transport of ground water by lorries, tankers, etc. cannot be done in a notified
area without obtaining a permit. Electricity cannot be provided for energising wells which
have been set up in contravention of the Act. All new wells sunk in the State even in non-
notified areas have to be registered. The Authority may lay down or adopt standards for
water quality depending on the kinds of water use.
The Tamil Nadu Ground Water Act is in consonance with the rules under the Environment
Protection Act, 1986 by which a Central Ground Water Authority was constituted. The
Central Ground Water Board functions in conjunction with the CGWA.
Industrial Effluent Pollution control
The Government of India and the Government of Tamil Nadu have enacted acts for water
pollution prevention and control. The Tamil Nadu Pollution Control Board is responsible for
enforcing the legislation and rules pertaining to Industrial water pollution.
Some of the important water pollution related legislation that is enforced by TNPCB including
o The Water (Prevention and Control of Pollution) Act, 1974 as amended in 1978 and
1988.
o The Tamil Nadu Water (Prevention and Control of Pollution) Rules, 1983.
o The Water (Prevention and Control of Pollution) Cess Act, 1977 as amended in 1991.
o The Water (Prevention and Control of Pollution) Cess Rules, 1978. as amended in 1992
o The Environment (Protection) Act, 1986.
o The Environment (Protection) Rules, 1986.
o The Environmental Impact Assessment Notifications, 2006 (Now notification inforce)
o The National Environment Appellate Authority Act, 1997
o The National Environment Appellate Authority (Appeal) Rules, 1997

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The system relies exclusively on the downstream control by fixing effluent standards for the
discharge of effluents into water bodies. Regulations were framed to monitor and control the
discharge of effluents into water bodies. Regulations were framed to monitor and control the
discharge of effluent from each industry and specifications were laid down for the quality of
effluents to be discharged on land or into water bodies after treatments. The State
Government has taken several measures to prevent and control pollution of waterways. The
Government has passed orders banning the operation of highly polluting industries within 1
km from the embankment of rivers and reservoirs. The Government has also passed orders
imposing total ban of setting up of any of highly polluting new industries within 5 km from the
rivers of Cauvery and its tributaries, namely Pennaiyar, Palar, Vaigai and Tambirabarani.
The Water (Prevention and Control of Pollution) Cess Act of 1977 empowers the State
Pollution Control Boards to levy a cess on industries based on their water consumption. If
they comply with the provisions of the Water Pollution Act of 1974 and the Environment
Protection Act 1986, the cess is correspondingly reduced. In Tamil Nadu, the cess is levied
by the Tamil Nadu Pollution Control Board on water consuming industries. The water cess
rates were revised in 2003 because they were considered to be too low to act as a
disincentive for industries to conserve the use of water and hence reduce the volume of
pollution. However, even the revised rates remain quite low compared to the cost of fresh
water.

3.3. Institutional Framework in Tamil Nadu

The apex institution in the State at the policy level is the Water Resources Control and
Review Council, chaired by the Chief Minister.
Water Resources Department
The primary agency charged with implementation of the policy is the Water Resources
Organisation. The Water Resources Department functions on river basin framework. The
state has been subdivided into four regions, each headed by a Chief Engineer, located in
Chennai, Trichy, Madurai and Coimbatore. These Chief Engineers are the Basin Managers
for the defined basin boundaries in their jurisdiction. Apart from this, three Chief Engineers
stationed in Chennai carry out specialized functions, designated as Plan Formulation;
Operation and Maintenance; Design, Research and Construction Support.
The Institute of Water Studies is the nodal agency responsible for water planning while the
Irrigation Management Training Institute imparts training to farmers and officials. Domestic
water supply (urban and rural) schemes are executed by the Tamil Nadu Water Supply and
Drainage Board (TWAD) for the entire State except Chennai Metropolitan Area where
Metrowater is the implementing agency. TWAD executes capital projects which are handed
over to the concerned local bodies for operation and maintenance. Industrial water pollution
is regulated by the Tamil Nadu Pollution Control Board. Management of water quality and
environmental aspects of rivers and water bodies is being monitored and coordinated by the
Department of Environment.
The Irrigation Management Training Institute was established in the year 1984 to impart
training to all those involved in irrigated agriculture. Training Programmes on Participatory
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Irrigation Management (PIM), Computer applications in Irrigation Management,

Geographical Information System (GIS), Remote sensing, AUTOCAD and human resources
development are conducted by the Institute. In addition, farmers are exposed to modern
irrigation techniques and action research programmes are encouraged.
Municipal Administration and Water Supply
The department of Municipal Administration and Water Supply administers urban local
bodies and also implements development programmes for the Urban Local Bodies (ULBs) in
the state. The department is also responsible for planning and implementing water supply
and underground sewerage schemes in both rural and urban areas in the state. There are
10 Municipal Corporations and 148 Municipalities under the administrative control of the
Commissioner of Municipal Administration. In addition there are 561 Town Panchayats
which come under the Directorate of Town Panchayats
Tamil Nadu Water and Drainage Board
Tamil Nadu Water Supply and Drainage Board (TWAD Board), a statutory body formed by
the Government of Tamil Nadu, vested with the twin task of providing water supply and
sewerage facilities to the entire state of Tamil Nadu except Chennai Metropolitan Area,
came into existence on 14th April 1971. The activities of TWAD Board are guided and
monitored by the Board of Directors and senior officials of the Government of Tamil Nadu.
Headed by a senior IAS Officer as its Managing Director, TWAD has four Regional Chief
Engineers placed at Vellore for Northern Region, Thanjavur for Eastern Region, Coimbatore
for Western Region and Madurai for Southern Region. TWAD executes capital projects
which are handed over to the concerned local bodies for operation and maintenance. In case
of combined water schemes, TWAD also handles maintenance of head works and trunk
transmission and pumping infrastructure used to supply water to multiple rural and urban
habitations
Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB)
The CMWSSB was constituted as a statutory body in August 1978 for exclusively attending
to the growing need of, and for planned development and appropriate regulation of water
supply and sewerage services in the Chennai Metropolitan Area with particular reference to
the protection of Public Health and for all matters connected thereto. The CMWSSB is
vested with the responsibility of planning, construction, operation and maintenance of water
supply and sewerage system in Chennai Metropolitan Area (CMA). Though its operation is
limited to Chennai Municipal Corporation Area in general, the Board is also extending its
services to the surrounding urban local bodies (with about 7.88 sq.km. in extension areas
and Manali New Town) and has already initiated measures to provide services for the entire
Metropolitan Area
Urban Local Bodies
Other than the Chennai Corporation and parts of Chennai Metropolitan Area, the water
supply function is handled by the Urban Local Bodies after the physical infrastructure is set
up and developed by the Tamil Nadu Water and Drainage Board.

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In recent years, many of the projects are financed by the Urban Local Bodies through a
combination of loans and grants from financing agencies like the Tamil Nadu Urban
Infrastructure Finance and Development Corporation Limited (TUFIDCO) and Tamil Nadu
Urban Infrastructure Financial Services Limited (TNUDF). The Urban Local Bodies are
responsible for levy and collection of user charges for water supply and sewerage systems
operated by them.

3.4. Summary
A slew of enactments over the past decade, including the Farmers’ Management of Irrigation
Systems Act (2000), Chennai Metropolitan Area Ground Water (Regulation) Amendment
Act, 2002, Tamil Nadu Ground Water Development and Management Act (2003), Tamil
Nadu Protection of Tanks and eviction of encroachment Act, 2007 have contributed to an
improved policy environment in Tamil Nadu. We see a good beginning, but this needs to be
backed by meticulous enforcement.
The Institutional framework to manage water in Tamil Nadu is largely in place but needs to
be continually supported with appropriate capacity building and skill development programs.
The apex level Water Resources Control and Review Council is chaired by the Chief
Minister, while the Water Resources Organisation is charged with implementation of the
policy. The Institute of Water Studies is the nodal agency responsible for water planning
while the Irrigation Management Training Institute imparts training to farmers and officials.
Domestic water supply schemes are executed by the Tamil Nadu Water Supply and
Drainage Board (TWAD) for the entire state other than in the Chennai Metropolitan Area,
where Chennai Metro Water Supply and Sewerage Board (CMWSSB) is the implementing
agency. Industrial water pollution is regulated by the Tamil Nadu Pollution Control Board and
management of water quality and environmental aspects of rivers/water bodies is done by
the Department of Environment.

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4. Select project level initiatives

4.1. Water Supply schemes

Over 48 water supply projects are under various stages of implementation with financial
assistance from various funding agencies as given below:
Financing assistance / Program Number of Project size
Projects (Rs. crore)
Tamil Nadu Urban Development Project 8 390
(TNUDP-III)
Jawaharlal Nehru National Urban Renewal 7 911
Mission (JNNURM)
Urban Infrastructure Development Scheme for 25 340
Small and Medium Towns (UIDSSMT)
Japanese International Cooperation Agency 1 143
KfW Germany 1 22

While implementation of many of these schemes continue to be supported by the Tamil

Nadu Water and Drainage Board and the Chennai Metropolitan Water Supply and Sewerage
Board, 10 Urban Local Bodies namely, Coimbatore Corporation, Bodinayakanur, Pollachi,
Devakottai, Karur, Gobichettipalayam, Coimbatore, Erode, Thanjavur and Salem have
initiated implementation of these schemes on their own; an indication of improving capacity
at the local level.
Other projects executed by TWAD
In addition, the Tamil Nadu Water Supply and Drainage Board and CMWSSB are
undertaking a study to implement water supply schemes in Town Panchayats to provide a
minimum of 70 LPCD in Town Panchayats.

4.2. Projects under execution by CMWSSB

o Desalination plant on BOT basis at Minjur – A 100 MLD Desalination plant is being
executed at Minjur through a BOT PPP arrangement by a Special Purpose Vehicle
formed by a consortium comprising Befesa Aqua and IVRCL Infrastructure Limited
o Second Desalination Plant at Nemmeli – In addition to the above, another 100 MLD
Desalination plant is being executed with assistance from Government of India
o Expansion of Sewage Treatment Capacity – In addition to expansion of Sewage
Treatment Plants at Perungudi and Nesapakkam to increase Sewage Treatment
Capacity from 486 MLD to 600 MLD, CMWSSB is also undertaking a feasibility study to
set up another 120 MLD Sewage Treatment Plant at Koyambedu.
o Water Supply and Sewerage schemes under JNNURM – CMWSSB is implementing
28 water supply schemes sanctioned under JNNURM at an outlay of Rs. 2032 crore

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o Water Supply and Sewerage schemes under TNUDP III – In addition CMWSSB is
also implementing water supply and sewerage schemes in Ambattur, Tiruvottiyur,
Pallavaram and Madhavaram.

4.3. Projects under execution by TWAD

o Rural Water Supply - TWAD Board gets financial assistance from the Government of
Tamil Nadu under the Minimum needs Program of the State Government and from the
National Rural Drinking Water Progam of the Central Government. As per the policy
notes of the Municipal Administration and Water Supply Department Government of
Tamil Nadu 2010-11, 90% of the habitations (82554 out of 92689) are reported to have
full coverage of safe drinking water supply with the remaining having partial coverage.
o Combined Water Supply schemes – Such schemes are developed and operated by
TWAD when a single source is being used to service requirements of multiple towns
/habitations. In 2009-10, thirty such schemes were taken up by TWAD Board
o Special Projects – I – Ramanathapuram Combined Water supply scheme –
Ramanathapuram District, situated in the South-East of Tamil Nadu, is drought prone
and among the backward districts in the state. It comprises four Municipalities, seven
Town Panchayats and 2332 rural habitations. The district used to suffer from scarcity of
potable water due to salinity and brackishness. The water supply was formulated to
cover five Municipalities, 11 Town Panchayats and 3163 rural habitations in 18
Panchayat unions of Ramnathapuram, Sivaganga and Pudukottai Districts benefiting
present population of over 15 lakh people. This scheme was funded with assistance from
Government of India’s Urban Infrastructure Development Schemes for Small and
Medium Towns (UIDSSMT) of Rs.282 crore and Rs.273 crore from National Agricultural
Bank for Rural Development (NABARD) and was completed ahead of the planned period
of three years.
o Special Projects – II – Hogenakal Combined Water supply scheme – The Scheme is
aimed at providing potable Water Supply to Dharmapuri and Krishnagiri Districts in Tamil
Nadu which comprises three Municipalities, 17 Town Panchayats and 6,755 rural
habitations in 18 Panchayat Unions apart from mitigating the fluorosis. At present Water
Supply is provided through various Combined Water Supply Schemes and Individual
Power Pump schemes using local sources to the people of these areas. The water
quality analysis reports exhibit concentration of fluoride in ground water in many parts of
these Districts ranging from 1.5 mg/l to 12.4 mg/l which is in excess to the permissible
limit of 1.5 mg/l as specified in Central Public Health and Environmental Engineering
Organization (CPHEEO) Manual. Due to the consumption of fluoride contaminated
water over a prolonged period, people in the above two Districts tend to suffer from
Skeletal Fluorosis, dental Fluorosis, non-skeletal manifestation or combination of the
above. The project is currently under execution and trial runs are expected to be started
by December 2012.

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4.4. Waste Water management

The Alandur Sewerage project (refer Box 4.1) provided a successful model for implementing
sewerage schemes with public participation in smaller and medium towns. Following
implementation of this project, the Government of Tamil Nadu announced its intent to
implement sewerage schemes in all district headquarters. Later this initiative has been
extended to cover more towns.
Box 4.1 Alandur Sewerage Project

The Alandur sewerage project initiated in 1996, is the first such project in India using a PPP
framework (BOT format) and presents a unique case in the area of public-private partnership in the
urban sanitation sector. Alandur municipality falls under the Kanchipuram district and has a population
of approximately 1.25 Lakh, with one-fourth of them living in slums. Alandur has developed mainly as
a residential suburb of Chennai. The proposed sewerage system was to be developed for the
targeted population of about 3 Lakh persons and has the following components: A sewerage network
consisting of the main sewer line, branch sewer line and manholes, construction of a sewage
pumping station, a sewage treatment plant; and Low cost sanitation.
The work of the project was carried out in two phases. The first phase (initial two and half year period)
involved development of 50 per cent of the branch sewers, main sewers, pump house including
installation of machinery, pumping main and one 12 MLD capacity sewage treatment plant with the
remaining part of the sewer system developed in Phase II. The construction of underground sewerage
system was done through an EPC Contract and the sewerage treatment plant was constructed on a
BOT basis. The operation and maintenance of the sewerage system including sewer lines, pump
houses, pumping plants, will be carried out by the municipality. However, the BOT contractor will
operate and maintain the sewage treatment plant during the lease period of 14 years and hand over
the STP to the municipality at the end of the lease period. The project was awarded to the IVRCL
Infrastructure & Projects Ltd. in joint venture with Balcke- Durr and Wabag technologies Ltd. based at
Hyderabad in February 2000 and the agreement was signed in March 2000.
The project was estimated to cost Rs 35 crore. The collection and pumping system were financed by
debt of Rs20 crore and grant of Rs3 crore. Tamil Nadu Urban Infrastructure Development Corporation
(TUFIDCO) financed nearly 50% of the project cost through loans and grants. GoTN provided bridge
financing in the sewer account during the life of the project, after providing for operations and
maintenance (O&M) expenses, debt servicing and contribution to the sinking fund. GoTN would pay
an amount of Rs 30 per month/ sewer connection in order to balance the revenue account budget of
sewerage. The project also mobilised one-time deposits in the form of connection charges from the
citizens of Alandur. Public awareness and support was sought through an extensive communication
campaign. More than 15,000 households have contributed Rs 5,000 per household representing one
third of the project cost.
A notable feature is the tariff structure, developed on full user charge recovery with cross
subsidies for the poor. The municipality collects sewer maintenance charges initially fixed at Rs 150
per month per connection from domestic users, Rs 450 per month per connection from commercial
users and Rs 750 per month from industrial users While the project has faced a number of
challenges, including delays in operator selection for O&M, miscommunication on separate upfront
payment and connection fee etc. (The municipality has also been forced to consider reduction in
monthly maintenance charges last year as against annual escalation envisaged initially), it
demonstrates the scope for implementing sanitation schemes through PPP.

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At present sewerage schemes for nearly 58 towns have been identified for implementation
under various schemes including the following:

• National River Conservation Program (NRCP) – 8 towns

• Tamil Nadu Urban Development Project (TNUDP-III) – 25 towns

• Jawaharlal Nehru National Urban Renewal Mission (JNNURM) – 7 towns

• Urban Infrastructure Development Scheme for Small and Medium Towns – 10 towns
• Japanese International Cooperation Agency (JICA) assistance – 3 towns

• KfW Germany assistance – 2 towns

In addition, Detailed Project Reports are under preparation to implement sewerage schemes
in other Urban Local Bodies in a phased manner.

4.5. Water conservation and rainw ater harvesting

Through an ordinance titled the Tamil Nadu Municipal Laws Ordinance, 2003, the
Government of Tamil Nadu made rainwater harvesting mandatory for all the buildings, both
public and private, in the state. The deadline to construct rainwater harvesting structures
was August 31, 2003.
The Municipal Administration and Water Supply Department through a Government Order
dated November 2002, assigned Municipal Administration and Water Supply Department as
the Nodal Department for RWH and proposed setting up of State level and District Level
Coordination Committees and propagated RWH in Government Buildings.
The Government Order made it mandatory for Chennai Metropolitan Development Authority,
all MCs, and Municipalities to sanction building plans only after implementation of RWH.
Water and sewer connection would not be given to new buildings without RWH plans.
Further, RWH has been made mandatory in three storied buildings irrespective of the size of
rooftop area

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5. Public Private Partnerships and innovative projects

5.1. PPPs and innovative projects – experience till date

Tamil Nadu has been a pioneer in executing some very challenging projects in the past
through innovative structures and leveraging private sector participation. Details of a few
such projects that have been executed as novel experiments are provided below:
Alandur Sew erage System
The Alandur sewerage project is the first such project
in India using a PPP framework (BOT format) to provide
underground sewerage to a town of 125,000 people
near Chennai. Public awareness and support was
sought through an extensive communication campaign.
Some 15,000 households out of 17,000 have contributed
Rs. 5,000 per household representing one third of the
project cost. A notable feature is the tariff structure,
developed on full user charge recovery with cross subsidies for the poor. The first
community participation project, has also suffered a number of set backs due to some lack of
forward planning, i.e. delays in selection of an operator for O&M of the sewerage scheme;
miscommunication on the distinction between upfront payment of capital cost through
community participation and a separate connection fee to each house to be levied
separately. These are lessons, which can be incorporated in repeat or scaling up projects.
Tirupur Water Supply
The Tirupur Water Supply Scheme, the first water sector related project developed
under the PPP framework in India. After a gestation period of almost 10 years,
Government of Tamil Nadu (GoTN) accelerated and completed legal, financial and
management agreements between July 2001 and March 2003. A total of Rs.45 crore equity
and subordinated debt financing from GoTN has leveraged additional equity financing of
Rs.217 crore and leveraged a debt of Rs.700 crore including financing from Tirupur
Exporters Association and foreign investors. The project supplies water to the fast-growing
garment export industry in Tirupur, domestic consumers in Tirupur Municipality and
surrounding villages, as well as a sewerage system for the Tirupur Municipality and onsite
sanitation facilities for slums. User charges are based on cost recovery with cross subsidies
between industrial and domestic consumers.
100 MLD Desalination Plant on BOT in Chennai
The project involves setting up of a 100 MLD sea water Desalination Plant on 60 acres land
leased by CMWSSB to CWDL at Kattupalli village in Minjur, 35 km north of Chennai. The
project is being executed by a Special Purpose Vehicle formed by a consortium comprising
Befesa Agua Spain and IVRCL Infrastructure Limited India, selected on the basis of lowest
levelized Tariff rate quoted for 1 KL for supplying desalinated water during the 25 years of
operations. The project will supply 100 MLD of potable quality water to the CMWSSB in bulk.

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In addition to this project, the CMWSSB is implementing another 100 MLD Desalination
project through an EPC route in Nemmeli, 50 km south of Chennai.
Pooled Bond program for financing water projects
The first pooled bond financing of water projects in the country was undertaken in Tamil
Nadu. One of the state level urban finance intermediaries, the Tamil Nadu Urban
Infrastructure Financial Services Limited (TNUIFSL) floated in the year 2002 by combining
13 ULBs in a size of INR 304 million at an interest rate of 9.20% with a tenure of 15 years
and equal annual repayment. The funds mobilized by issue of bonds were utilized to swap
the high cost borrowings taken earlier at an interest of 16% by the assisted ULBs. TNUIFSL
has received assistance from KfW Germany to scale up its pooled financing initiatives to
finance water supply and sanitation projects

5.2. Recent international perspective on PPPs

Box 5.1 captures some key insights and findings from a recent publication ‘Public Private
Partnerships for Urban Water Utilities – a review of experience in developing countries’ of
the World Bank and PPIAF. The document which provides insights into models used for
PPPs in developing countries re-affirms our view that public funding at least partly, is critical
to establish early-stage viability and success of the proposed PPP.
Box 5.1: Insights and findings from international experience.
Excerpts from a recent report on “Public Private Partnerships for Urban Water Utilities – a review of
experience in developing countries” by World Bank and PPIAF.
Spread of PPPs in urban water supply
Since 1990, governments in developing and emerging countries have signed more than 260 PPP
contracts in the sector and it is estimated that by 2007, PPP projects were supplying water to more
than 160 million people in these countries. Nonetheless, the market share of water PPP projects in
developing and emerging countries stood at only about 7 percent of the total urban population, up
from less than 1 percent in 1997 and about 4 percent in 2002.
PPP philosophy / models
A large proportion of the PPPs awarded during the 1990s, particularly in Latin America, focused on
attracting private funding and adopted the concession scheme. The early termination of many of
these concessions demonstrated the inherent vulnerability of this approach in the volatile economic
environment of developing countries.
Colombia was the first to depart from the standard concession approach, using the mixed-ownership
companies approach or providing public grants to private concessionaires to accelerate investment.
Many of these hybrid PPPs had positive results. Several countries experimented with long-term PPPs
that combined private operation with public investment, such as leases-affermages, mixed-ownership
companies, and management contracts.
More and more countries are adopting a PPP model in which investment is largely funded by public
money, with the private operator focusing on improving service and operational efficiency. In the
challenging environment of many developing countries, the main focus of water PPP should not be
about attracting direct private investment, but rather about using private operators to improve
service quality and efficiency.
In practice, funding for investment under these mixed-financing PPP projects comes from a
combination of direct cash flows from revenues, with a variable mix of government and private
sources that tend to make the traditional dichotomy between leases-affermages and
concessions increasingly obsolete. Several successful approaches have been developed:

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• Concessions that rely largely on revenue cash flow for investment, with cross-subsidies from
electricity sales (Gabon), tariff surcharges (Côte d’Ivoire), or both (Morocco).
• Affermages, as developed in Western Africa, bolstered by enhanced incentives for operational
efficiency, a program of subsidized connections to expand coverage for the poor, and a gradual
move to full cost recovery through tariffs (Senegal, Niger, and now Cameroon).
• Mixed-ownership companies, as used in Latin America (Colombia, La Havana in Cuba, and
Saltillo in Mexico) and several countries of Eastern Europe (the Czech Republic and Hungary).
• Concessions with public grants for investments to spearhead access expansion or
rehabilitation while minimizing the impact on tariffs. This is typified by the PPPs in Colombia
designed under that country’s Programade Modernización de Empresas (PME); a similar
approach has been adopted in Guayaquil in Ecuador and in a few concessions in Argentina
(Cordoba and Salta).
Analysis of overall performance under various models.
In many international cases, water PPP projects have improved service quality, especially by reducing
water rationing. A good illustration is provided by the case in Colombia, where private operators have
consistently succeeded in improving service continuity in many cities and towns, often starting from
highly deteriorated systems. Private operators also have a good track record of reducing water
rationing in Western Africa.. Several management contracts also achieved notable progress despite
their short duration.
This study found that many private operators succeeded in reducing water losses, notably in Western
Africa, Brazil, Colombia, Morocco, and Eastern Manila in the Philippines. In some cases, private
operators even reduced nonrevenue water (NRW) to less than 15 percent, a rate similar to that in
some of the best-performing utilities in developed countries.
Operational efficiency appears to be the area in which the positive contribution of private operators
has been the most consistent.
• The overall efficiency of concessionaires is hard to judge, because they are responsible for both
operations and investment. In the case of Manila, a detailed analysis by the regulator showed that
the concessionaire in the Eastern zone had significantly improved operational efficiency, while the
one in the Western zone had not. In the case of Argentina, it is not clear whether concessionaires
achieved much improvement in efficiency.
• In leases-affermages, the efficiency of private operators is easier to assess, because the
responsibility for operation and that for investment are separated between the private and public
partners. Detailed information available for such projects in Senegal and Cartagena (Colombia)
showed that clear gains in operational efficiency were achieved, which were passed to consumers
over time through tariff reductions in real terms.
• Management contracts entail only a limited transfer of responsibility to private operators, giving
them limited control over a utility’s labor force. Efficiency improvements under management
contracts—measured using the global efficiency index (the ratio of water billed and paid for to
water produced, a measure that combines water loss reduction and improved bill collection)—
were significant in most cases under review.
As seen from the above, a number of possible approaches to PPP transaction emerge.
a) Concessions or longer contract arrangements (longer than 20 years) where a
substantial investment responsibility, demand risk and tariff setting is passed on to the
private operator. Concessions have encountered difficulties with tariff setting and cost
recovery wherever the baseline tariff levels have been very low. Managing a Concession
requires a significant oversight and regulatory institutional structures. However, a well
structured concession passes on greater risk and investment obligation to the private
operator and tends to be suitable when the state requires a substantial portion of the

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investment to come from the private sector and when it is possible rationalise user
charges to meet this objective.
b) Management contract structures (6-15 years) focus primarily on managing
construction and rehabilitation and improving service levels with the operators getting
compensated on a fee based annuity structure without investment obligations and
demand risk, though the billing and collection responsibility is passed on. Tariff setting is
retained with the contracting authority. Such contracts have been relatively easier to
structure and execute vis-a-vis concessions.
c) Affermages or a hybrid form of contracting (15 years) is becoming increasingly
popular and has been used across Africa and a number of developing countries,
particularly in projects requiring a longer phased out rehabilitation component. Here the
operator does not make upfront investment in the initial capital program and this is
typically brought in by the Contracting authority. However, there is often an obligation for
investment by the operator typically with respect to pipe rehabilitation / replacement over
a period of time. Here again the operator is compensated by the Contracting authority
which retains the tariff setting and regulation. Typically the operator is compensated
through a volumetric approach (for eg., volume of water supplied x Operator tariff per KL
x Network efficiency x Collection efficiency). Thereby, the compensation is more tightly
linked to service levels and collection efficiency and the operator bears a part of the
demand risk.

5.3. Pre-requisites for successful PPPs

Tariff setting philosophy is a critical element in determining the range of PPP interventions
possible in the urban water supply systems. For instance, if the tariff philosophy is to recover
only the O&M costs in full, implementation of projects using PPP models involving
investment commitment (such as BOT) from the private operator would require investment
servicing financing to be met from resources of ULBs other than user charges (municipal
revenue surplus from other revenue streams such as property taxes and Grants and
devolution income from the Government).
PPP models including management contracts / service contracts (without an investment
commitment from private operators) are feasible, even within the realms of an O&M cost
recovery approach. However, there are three areas of interventions to improve the enabling
environment and meet the pre-conditions for PPP:
a) City level water sector strategy and Project Development focus – Articulating a city
wide investment plan and creating a shelf of projects for PPP interventions is really the
starting point for wider PPP intervention. We believe that the cities would require the
state government’s support in this regard in the form of technical assistance and project
development support.
b) Healthy Municipal Finances and clarity on Tariff direction – PPP is not a substitute
to good municipal financial management and governance. A PPP project becomes more
attractive and feasible if the municipal bodies send out strong signals of their
commitment to financial reform. Clarity on tax rates and pragmatic tariff reform including
timely and transparent revision of taxes and user charges is a critical pre-condition to

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widen the scope of PPP interventions in O&M cost recovery in the short term and to
attract investment in projects over the long term.
c) Clarity on Institutional and legal framework – Having a well-articulated PPP policy /
legislation at the state level provides a useful enabling condition for implementing PPP
projects in the water sector. Given that responsibility for water supply in Tamil Nadu cuts
across state and local levels, it is important to have a seamless coordination between the
state government and local body for effective implementation.
We summarise below a key set of imperatives for successful project development through
PPP;
o Independent evaluation of project feasibility with a clear analysis of the socio -
economic benefits and environmental /sustainability issues that are linked to the project
o Guidelines/criteria for project selection for implementation through an appropriate PPP
mode
o Reasonable assessment of ‘viability gap’ and mechanisms to fund the same
o Appropriate allocation of risks based on who is best equipped to manage the same
o Create competitive conditions wherever feasible and desirable
o Appropriate bidding mechanism to select the best party.
o Mechanisms for achieving efficiencies in both asset creation and quality of service
delivery
o Evaluate scope for user charge recovery through appropriate ‘willingness to pay’
analysis
o Clarity and comprehensiveness of contracts backed by legal framework and
regulatory oversight.

5.4. Potential areas for PPPs in water sector in Tamil Nadu

As seen above there are multiple modes in which PPP projects can be structured. A few
areas in which PPPs could potentially be used to implement projects include the following:
a) BOT structures for undertaking Tertiary Treatment of Secondary Treated Sewage from
Sewage Treatment Plants for supply of Industrial Grade Water.
b) Affermage Contracts for water supply distribution covering loss reduction, network
rehabilitation and provision of continuous piped water supply in select zones / areas in
large cities.
c) BOT structures for design, construction, operation and maintenance of large bulk water
and waste water treatment plants.
d) Rehabilitation, Operation and Maintenance contracts for old Treatment facilities for water
as well as waste-water that are in need of expansion or rehabilitation.

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6. Sector imperatives and action agenda

6.1. Water Sector imperatives for Tamil Nadu

The status of Water, as a renewable asset, is under threat in Tamil Nadu as well as in most
parts of India. With a lower per capita water availability vis-à-vis the national average, Tamil
Nadu faces some serious challenges in the area of water management. Rapid
industrialization and urbanization without commensurate planning for water management is
leading to industrial pollution and over-exploitation of ground water sources which are further
amplifying the demand-supply deficit in water. The Confederation of Indian Industry (CII)
recognises the need to act decisively in the face of the growing concerns on Tamil Nadu’s
water security, even as its economy marches ahead, creating more pressures. In this
context, the effort by CII in conducting the TN Water Summit 2010 is to provide a platform to
discuss the issues highlighted here and to escalate water management to the top of the
state government’s policy agenda
The Government of Tamil Nadu has pronounced a progressive policy, coherent institutional
strengthening measures, and some innovative project interventions to tackle these
challenges head on. A slew of enactments over the past decade, including the Farmers’
Management of Irrigation Systems Act (2000), Chennai Metropolitan Area Ground Water
(Regulation) Amendment Act, 2002, Tamil Nadu Ground Water Development and
Management Act (2003), Tamil Nadu Protection of Tanks and eviction of encroachment Act,
2007 have contributed to an improved policy environment in Tamil Nadu. We see a good
beginning but this needs to be backed by meticulous enforcement. Similarly, the Institutional
framework to manage water is largely in place but needs to be continually supported with
appropriate capacity building and skill development programs.
While initiatives to further improve coverage of safe water supply and sanitation are
underway, a greater thrust on quality of service delivery, institutional strengthening and
financial sustainability are critical for financial and operational sustainability. CII believes that
industry could contribute in large measure to a number of these initiatives and that there is
potentially to significantly scale up its contribution through a range of innovative Public
Private Partnerships across various parts of the Water Value Chain in Tamil Nadu.

6.2. Action agenda

Management of water resources and provision of equitable water and sanitation services is
intrinsically linked to achieving GoTN’s goals of economic prosperity and social well-being
for its citizens. CII outlines a 6-point action agenda in this regard as follows:
i. Set and achieve aspirational targets. Illustratively, these would be:
o Ensure 100% safe drinking water supply and sanitation access to all habitations by
2012.
o Achieve service level benchmarks in water supply (135 LPCD, 24x7 water supply
and metered connections) and sewerage (100% coverage and treatment) in cities
with population greater than 500,000 by 2015 and all district headquarters by 2018.

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o Achieve 30% waste-water re-use in cities with population greater than 500,000 by
2015.
o Achieve a) O&M cost recovery in urban areas by 2012 and rural areas by 2017 and
b) Full cost recovery in cities with population greater than 500,000 by 2020.
ii. Improve water efficiency in agriculture and industry
o Incentivize adoption of water efficient practices such as drip irrigation and thrust on
water shed programs and protection/restoration of water bodies
o Progressively improve irrigation coverage and shift to consistent power supply.
Rationalize power tariffs to prevent ground water exploitation and wastage.
o Incentivize waste-water re-use.and zero discharge practices in industry
iii. Enforce industrial pollution control measures on priority
o Work with industry bodies to implement and enforce industrial pollution control
standards
o Focus on industrial clusters covered under the recent environment assessment
undertaken by CPCB namely, Coimbatore, Cuddalore, Erode, Manali, Mettur,
Tirupur and Vellore. Of these, Manali and Vellore were classified as critically
polluted areas.
iv. Tackle Institutional Strengthening and Capacity Building challenges on priority
o Capture and disseminate information on a) Water resources and availability b)
water consumption and c) waste-water generation, treatment and re-use;
o Improve operational excellence through skill development initiatives and process
improvements in financial management systems, e-governance and consumer
centricity.
v. Implement Public Private Partnerships as a means to leapfrog on service levels
o Leverage PPPs to improve service delivery and bring in system efficiencies rather
than to bring in capital investment.
vi. Undertake 3 or 4 ‘signature’ projects that could potentially trigger sector wide
momentum. Illustratively these could be
o Coovum River Restoration and Waterfront development project
o 24x7 Water Supply for Chennai Metropolitan Area
o Development and Implementation of 2 new district level water supply schemes on
the lines of Hogenakal Water Supply Scheme with international aid assistance
o Restoration and creation of recreational facilities in 50 large water bodies within 2-3
years
o A river basin wide agricultural water efficiency improvement program
o Clean up Manali and Vellore clusters (identified as industrial pollution hotspots by
CPCB) within the next 3 years

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List of References
1. Policy Notes of Departments of Government of Tamil Nadu 2010-11
a. Public Works Department
b. Municipal Administration and Water Supply
c. Rural Development
d. Industries
e. Environment and Forests
f. Agriculture
2. www.envfor.nic.in/soer/state/SoE%20report%20of%20Tamilnadu.pdf. State of
Environment Report of Tamil Nadu.
3. http://www.environment.tn.nic.in/soe/. State of Environment Report of Tamil Nadu 2005.
4. www.chennaimetrowater.com
5. www.twadboard.gov.in

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Disclaimer
This publication has been prepared by ICRA Management Consulting Services Limited (IMaCS) for
the Confederation of Indian Industry (CII). All information contained in this document has been
obtained from sources believed by IMaCS to be accurate and reliable. While due care has been taken
in the preparation and compilation of this document to ensure that the contents are correct, neither CII
nor IMaCS guarantee the accuracy of data or information provided herein. Users are advised to
exercise their own due diligence and to seek independent professional advice in the use of any data
or information from this document. Neither CII nor IMaCS shall be liable for any financial loss or any
other damage that any user may claim from the use of the contents of this document.

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