Tirupur, a thriving garments industry city of 450,000 people, in Tamil Nadu was the first in India to implement a PPP water and sanitation project in 2005. A consortium of three private firms implemented the PPP project to ensure sustained supply of water. The project was designed on a Build-Own-Operate-Transfer (BOOT) basis for 30 years, after which it is to be transferred to the state Government. The project is to supply 185 MLD water to 450,000 people in Tirupur city and to another 450,000 people in the surrounding rural areas, as well as to 900 industrial units.
The Tamil Nadu Water Investment Company (TWIC), formed as a joint venture between the Tamil Nadu Government and Infrastructure Leasing and Financial Services (IL&FS), set up the New Tirupur Area Development Corporation Ltd (NTADCL) as a special purpose vehicle (SPV) to implement the project. The total project cost was Rs 1,0230 million (US$ 220 million). The Government’s contribution of Rs 550 million (of which 300 million came as equity and the rest as subordinate debt) was leveraged by almost 20 times. In addition, the state Government also provided contingent support as debt service reserve fund of Rs 500 million and water shortage period fund of Rs 750 million. The overall financial structure of the project was as follows: Total cost- US$ 220 million; equity and subordinate debt - US$ 87 million; debt - US$ 133 million. The project risks were apportioned to international level private agencies on the basis of core competencies.
The project charges a composite water and sewerage charge to recover the cost. However, to meet the social objectives, the project has a very strong element of cross subsidization of the household water tariff rate. While the base year charge was calculated at Rs 30.0/kl, rural and urban households were to be charged at Rs 3.5/kl and 5.0/kl, respectively against a rate of Rs 45.0/kl for the industries. Industries were able to cross- subsidize as the opportunity cost as well as the actual cost of water in comparable locations were much higher (from Rs 60 to 80/kl). The concession agreement lays down a transparent formula for tariff setting with the provision of standard annual revision based on various components of the operating cost linked to appropriate price indices.