Study on cost of provision of Sewerage, wastewater treatment and drainage

July, 2004
STUDY ON
COST OF PROVISION OF
SEWERAGE, WASTEWATER TREATMENT AND DRAINAGE
Submitted to
XIIth Finance Commission

By:

INFRASTRUCTURE PROFESSIONALS ENTERPRISE (P) LTD
India
C - 2, Green Park Extension, New Delhi - 110016.
Phone: +91 (011) 26962636, 26568607/ 08/ 13
Fax: +91 (011) 26969478
Email:
Website:
Offices: Ludhiana, Agra, Ghaziabad, Lucknow, Dehradun & Kolkata
United Kingdom
3 Elgin Drive, Northwood, Middlesex, HA6 2 YR, UK
Email:

1

Study on cost of provision of Sewerage, wastewater treatment and drainage

ABBREVIATIONS

List Of Tables

E EXECUTIVE SUMMARY

1INTRODUCTION

1.1The Study

1.2Methodology

1.3Information Collection And Analysis

2CASE STUDIES

2.1New Barrackpore

2.2Burdwan

2.3Vijayawada

2.4Rajkot

2.5Jaipur

3COST ESTIMATIONS

3.1Per Capita Cost of the three Services in Sample Towns

3.2Per Capita O & M Costs in Sample Towns

4COST IMPLICATIONS

4.1Resource Gap of the Sample ULBs

4.2Framework for Financial Support to ULBs

4.3Other Relevant Issues

5RECOMMENDATIONS

6REFERENCES

7APPENDICES

APPENDIX 1: Data Sheet

APPENDIX 2: Consumer Price Index Number for Urban Non-Manual Employees

APPENDIX 3: Performance of Urban Local Bodies

APPENDIX 4: Distribution of Households by Type of Latrine within the House and Type of Drainage Connectivity for Waste Water Outlet

APPENDIX 5: Distribution of Households by Availability Latrine

APPENDIX 6: Access to Toilet Facilities

1

Study on cost of provision of Sewerage, wastewater treatment and drainage

ABBREVIATIONS

ADB / Asian Development Bank
BOLT / Build, Operate, Lease and Transfer
BOO / Build, Own and Operate
BOOT / Build, Own, Operate and Transfer
BOT / Build, Operate and Transfer
CPHEEO / Central Public Health and Environmental Engineering Organization
CPI-UNME / Consumer Price Index for Urban Non-Manual Employees
DSCR / Debt Service Coverage Ratio
EFC / Eleventh Finance Commission
HUDCO / Housing and Urban Development Corporation
I&LFS / Infrastructure & Leasing Financial Services
ICICI / Industrial and Credit Investment Corporation of India
IPE / Infrastructure Professionals Enterprise, Pvt. Ltd., New Delhi
JMC / Jaipur Municipal Corporation
LPCD / Litres Per Capita Per Day
MLPD / Million Litres Per Day
NIUA / National Institute of Urban Affairs
NSS / National Sample Survey
O&M / Operations and Maintenance
PCIC / Per Capita Investment Cost
PT / Property Tax
RMC / Rajkot Municipal Corporation
SAD / Special Assessment District
SFC / State Finance Corporation
STP / Sewerage Treatment Plant
TFC / Twelfth Finance Commission
TOR / Terms of Reference
UI / Urban Infrastructure
ULB / Urban Local Bodies
ZC / Zakaria Committee

List Of Tables

Table 3.1.1: Per Capita Cost of the Projects of sewerage and wastewater treatment in Sample Towns

Table 3.1.2 : Per Capita Cost for Provision of Drainage

Table 3.2.1: Per Capita O&M Costs For Provision Of Sewerage And Wastewater Treatment

Table 3.2.2: Per Capita O&M Costs For Provision Of drainage

Table 4.1.1: Investment Requirement for Providing Sewerage and Wastewater Treatment

Table 4.1.2: Investment Requirement for Providing Drainage

Table 4.1.3: Investment Requirement for Providing Sewerage, Wastewater Treatment and Drainage

Table 4.2.1: Permissible Exposure to Capital Market

Table 4.2.2: Resource Gap

Table 4.2.3: Components of Cost Recovery in Sewerage, Wastewater Treatment and Drainage in Sample ULBs

Table 4.2.4: Total O&M Expenses and Expected Revenue Realization by ULBs in 2004-05

1

Study on cost of provision of Sewerage, wastewater treatment and drainage

E EXECUTIVE SUMMARY

E1Background

  1. The Census of India (2001) indicates that only 73.7% of the urban population has access to latrine facilities of various types.[1] It also established that around 30% of total population is currently residing in urban India, a figure which is likely to go up to 50% by 2025. This is likely to put more pressure on existing services putting additional pressure on policy makers and service providers.
  2. The National Master Plan of India (1983) suggested standards for provision of sanitation services depending on population of urban and rural centers. The Master Plan envisaged 100% population coverage for Class I towns and 80% population coverage for Class II and beyond towns.
  3. Proper sanitation facilities are critical from the view point of policy objectives of ‘decent standards of living’. It is important to reiterate here that sewerage, wastewater treatment and drainage are components of sanitation. The capital-intensive nature of sewerage service provision has put many roadblocks in reaching the minimum coverage, primarily due to weak financial positions of most of the ULBs.
  4. After the promulgation of Constitution (74th Amendment) Act 1992, the Central Finance Commissions are required to make recommendations on the measures needed to augment the consolidated funds of the states to supplement the resources of the panchayats and the municipalities on the basis of the recommendations of state finance commissions (SFCs).Since, most of the reports do not cover the time period of award of TFC, it will have to make its own assessments of the resource gaps of ULBs, including for this sector.

E2Genesis of the study

More than one-fourth of the population is deprived of a basic necessity of life. This calls for intervention from all possible quarters including the Central Finance Commission. However, in view of competing demands for resources from other sectors, it would be advisable to have an insight into the nature of demand for these services so that a specific scheme for devolution of funds by the Twelfth Finance Commission (TFC) to ULBs for provision of sewerage, wastewater treatment and drainage could be considered. Also what should be the basis for the Commission to provide financial assistance to the ULBs? This is the genesis for the present study. The TFC entrusted this study to the Infrastructure Professionals Enterprise (IPE) for suggesting financial norms based on empirical data on cost of providing the three services.

E3Methodology

(i)Five towns were selected for the study in consultation with the officials of TFC. The towns were selected as per the ToR, on the basis of classifications of town size categories in the Census of India, with the assumption that the features and costs of the sample town would correspond to other towns more closely in the same size category.

(ii)Four methodological issues need to be mentioned here. First is that sewerage treatment and wastewater treatment are done in the same plant and storm water is either discharged into natural water bodies or finds its way into sewer system and treated as wastewater in the Sewerage Treatment Plants (STP). Therefore the calculations take this fact into account. Second, officials in the ULBs expressed their inability in giving exact lengths of the lines, as there are different widths of the lines depending on the requirements of the areas and density of the population. Besides, the lines are laid over the years. Therefore, at some places extrapolation has been used to arrive at approximate figures. Thirdly, the three services are integrated in a way and therefore the resource gap of the ULB has been worked out by adding the total gaps in the three services. Finally, multiplicity of the organizations involved in the provision of the three services made the data collection all the more difficult and study team apprehends that some data furnished by municipalities could be approximate and not exact. However, care has been taken to arrive at figures, which could be closest to reality.

(iii)The study does not recommend the percentage formula for devolution of funds as extrapolation on the basis of small sample size would not be appropriate. Besides, fiscal transfers from the respective state governments would depend on their financial strengths and moreover, ULBs might be having different level of debt liability across the country.

E4Findings

(i)Following are strong reasons for TFC to look into the matter of devolving funds to ULBs:

  1. More than a quarter of the country’s urban population is without access to sanitation facilities (Appendix 4)
  2. Unhygienic conditions will prevail having serious consequences like epidemics for the society without proper sanitation facilities.
  3. ULBs in 1997-98 spent almost 66.90% (Appendix 3) of their total expenditure on core services, which included water supply, street lighting sanitation and roads. The other expenses do not leave much amount for ULBs to take up infrastructural development. Apparently the ULBs are resource scarced and combine it with the levels of uncovered population, the problem becomes acute.
  4. Small municipalities like New Barrackpore are dependent on financial assistance from central government to a great extent.
  5. It is a constitutional obligation to provide a decent standard of living to the citizens.

(ii)The best way TFC can intervene is through covering the resource gaps at ULB level. These resource gaps have been worked out on the basis of per capita cost estimates for providing these services and the population not covered by the services. Implications for each are discussed below:

  1. Significant population has not been covered by Sewerage and Drainage- at least 30% of population in each town category does not have the access to the sewerage facilities. Similarly, drainage facilities are not accessible to about 25 - 50% of the population.
  2. Per capita cost of provisions of Sewerage, Waste Water Treatment and Drainage is higher in bigger towns It can be derived from this that a larger population can be covered if small size towns are covered before paying attention towards the bigger towns. Cost of providing drainage also shows upward trend implying that higher costs will need to be incurred in bigger towns.
  3. There is no association between the O&M costs and the size of the town - O&M costs for sewerage and drainage do not show any correlation with size of the population.The O&M costs for drainage is higher in smaller towns understandably because in bigger towns some part of wastewater finds its way into sewerage system, also amply demonstrated in case of Vijayawada. Per capita O&M expenses for the three services normally register 20% increase each year.
  4. Per capita revenue receipts do not increase in proportion to the town size population- though they seem to have a tendency of being greater in bigger size towns. Analysis of EFC data on revenue from own sources of Municipal Corporations in all the states taken together suggests a nominal decline in the CAGR between 1990-91 and 1997-98.
  5. Resource Generation capability is greater in bigger towns - The evidence suggests bigger the size of the municipality, greater the realization through user charges but they are still fraction of the operating expenditures for the services. But, bigger municipalities are making efforts now. For example, Rajkot has started levying Drainage Cess from this year. It has also proposed to raise funds through use of treated water for irrigation purposes.
  6. The potential of accessing capital market is yet to be exploited - if debt liability is any indication municipalities having population 10 lakhs or more accessed the capital market in a big way but all the five towns did it way below their capacities.
  7. There is huge resource gap even if private sector includingcapital markets is accessed in full measure - total investment required in each town follow the pattern of size of the towns, i.e. but resource gap does not show any trend. Moreover, even if the private sector includingcapital markets is tapped to the maximum possible extent, there remains a huge resource gap. Some municipalities have taken steps to augment their resources, like Rajkot is selling its treated water and expects to earn Rs. 25 lakhs from this.

E5Recommendations

i)The Commission may provide for covering the whole population for providing the three Services

This is the constitutional obligation to provide a decent standard of living to the citizens. The three services are basic necessities of life and obligatory function of ULBs. Therefore, the financial support for the ULBs needs to be worked out on the basis of assumption that during the Twelfth Finance Commission award period the three services would be in place for the entire projected urban population, i.e. up to year 2010. However, the Commission may decide on the level of standards for coverage in terms of population depending on the funds availability with the Commission.

Since the three services are integrated in a way the TFC should look at total investment requirement and not consider the services separately. This would be more appropriate and calculable also.

ii)The Commission may look at two options for devolving funds to ULBs.

As has been practiced in the past by various Finance Commissions, it may provide grants to ULBs under the provision of upgradation grants. It implies that investment requirements may be the criterion of devolution of funds instead of the resource gap of each municipality. The other option is that it includes the investment requirements for all ULBs while suggesting measures to augment the Consolidated Fund of the states to supplement the resources of the municipalities. Since, the study team believes that the issue needs to be addressed specifically, we suggest devolution under upgradation grants. A framework for fiscal devolution is given below.

  1. Total investment requirements for providing the three services may be worked out for all the ULBs. IPE has computed the per capita cost for these services in each of the sample towns. The Commission may multiply these costs depending on the town size to the population uncovered by the three services in each town. As the costs have been worked out by applying center specific CPIUNME, the per capita cost for all the towns would have to be worked out accordingly. The data about uncovered population can be taken from Census of India or National Institute of Urban Affairs or from any other source that the Commission deems fit. This recommendation follows from the previous such devolution where EFC provided funds for augmentation of traditional water sources on the basis of the extent of the un-irrigated geographical areas in the states.
  2. However, the Commission may determine the level of standards in terms of coverage of population in different town size categories of the standards, based on the overall investment requirements and the funds available with the Commission. If the Commission chooses the lower levels, it may look at two options.
  3. It may choose the states with pre-devolution revenue deficit for coverage, excluding the states with pre-devolution revenue surplus as has been done by previous commissions; or
  4. It may prefer higher coverage for smaller towns and lower coverage for bigger town size categories, as the bigger towns have greater capacities for raising resources from private sector including capital markets.
  5. The Commission should contribute only part of the investment requirement of each ULB, the remaining contribution should come from the state government and the ULBs themselves, so that ULBs make efforts to generate resources on their own.
  6. It would not be appropriate if resource gaps of sample cities are extrapolated to find resource gaps for all the towns. Therefore, the study team is not suggesting any ratio of resource gap for deciding on the grants, which may be worked out by the Commission itself, if it chooses to cover the resource gap.
  7. The ministry of Urban Development and Poverty Alleviation is implementing municipal reforms, which include linking of financial assistance to indicators of own resource generation efforts of ULBs. As the study team found strong reasons to support own resource generation efforts of ULBs, it suggests giving part of the determined quantum of grants to the Ministry. This demand was put by this Ministry before the Eleventh Finance Commission for providing civic services. The TFC can look favourably into the issue.

iii)Asset life may be a consideration while deciding on the quantum of devolution

While deciding on devolution of funds to municipal bodies, TFC may take into consideration the ageing of the assets of the three services. If the assets are attaining their expected life period during the time frame being covered by the TFC, the population being covered by such infrastructure should be considered as uncovered henceforth, i.e. they should be considered as part of the population which would require to be covered by new infrastructure and consequently the investment requirement of the municipality would include the funds required for this population as well.

iv)The TFC should emphasize levying user charges on all services

The TFC like EFC should emphasize levying user charges on all services and try to recover the cost through user charges to the maximum possible extent. They may be suggested to support and promote devices like Special Assessment District (SAD) and Valorisation charges. Under SAD the cost of upgrading the level of service is recovered from beneficiaries by imposing a charge on the assessed value of beneficiary properties and is collected along with PT. Similarly, ‘Valorisation Charges’ are allocated on the basis of assignment of prescribed benefits to properties in the demarcated series of equally wide parallel zones along the project.