Khandwa is a small town with a population of 215,000; it is located in the western region of Madhya Pradesh, bordering the state of Maharashtra in India. The Khandwa Municipal Corporation (KMC) has been preparing a new water supply augmentation project for the town since 2004. In 2007, this project, from the backwaters of the Indira Sagar reservoir on the River Narmada, was approved under Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT), a central government-supported programme. The project is a Public Private Partnership (PPP) between the municipality and a private company. In 2008, the contract was signed with Vishwa Infrastructure and Services Pvt Ltd (VISPL), a Hyderabad-based company, to construct, operate and maintain the water supply system for the next 25 years, including the construction period.(1)
- Privatisation-related problems and criticisms
Since the privatisation contract was signed there have been various problems. Local groups, including people’s representatives, have pointed to the lack of transparency or information sharing by the municipal body during project preparation, planning and tendering processes. The contract also favours the company, with various clauses making a private water supply mandatory for residents and leaving the private company free from any responsibility of service delivery.
Local campaigners have criticised the project on issues such as the transfer of the water supply system to the private company, increased water supply tariffs, the neglect of existing local water resources, and the non-participation of local people, among other problems. They have also criticised the needless proposal for a 24 hour, 7 days a week water supply, the removal of public stand posts, and the use of costly meters which people are to be forced to pay for. There is also a specific clause in the concession agreement that prohibits the state government, the municipal corporation and local residents from constructing a water supply system, such as a hand-pump or and borehole because these are parallel, competing facilities to the private water supply project. It is important to note that around 65 per cent of households do not have a regular piped water connection and depend on public stand posts, tanker supplies and other sources for water.
- Social mobilisation /campaign for de-privatisation:
Residents took up the case after some workshops were held and reports were disseminated on the impacts of the project. They formed informal groups to campaign against the project and, as a strategy to stop the project, they filed a petition in the Khandwa district consumer forum. The forum agreed with the residents and ruled that the water supply is the primary responsibility of the municipal corporation and it cannot transfer it to a private company and consider residents as consumers.(2)
A media campaign was carried out through newspapers and television channels, and residents held a door to door referendum and managed to get support from a large majority of the people. When the municipal corporation published the notification to privatise the water supply and invited objections against it, more than 10,000 households (around two thirds of the households with legal water supply connections) filed various objections against the project.
The large number of objections forced the state government to form an independent committee to investigate the project and the recommendations of the committee were that the changes in terms, conditions and specifications of the project have been done to benefit a specific private company. The report also says that there were serious irregularities committed by the Khandwa Municipal Corporation (KMC) in the selection of the private consultant for the project, including in the tendering process.
The report recommends that the concession agreement be cancelled and the water supply services of the town be handed over to a public water board. The clauses on water tariffs and their revision, on prohibiting parallel competing facilities (preventing the municipal corporation and the local residents from providing a water supply to help marginalised families), and on prohibiting water arrangement for religious and social functions are not acceptable. The report also rejects the proposal to transfer public water resources to the private concessionaire.
The report recommends that there should be only a municipal water supply and the number of public stand posts should be increased and so supports the right to water of the urban poor.(3)
The report has been submitted to the state government for further action but none has been taken as yet by the government.
Local informal groups – they support the campaign and oppose the implementation of the project. Several active members are responsible for public meetings, programmes, media campaigns, door to door outreach, referenda, awareness campaigns, etc.
People’s representatives – some of them support the campaign and oppose the project. They have been helpful in taking the case to various government committees against the project. Wherein investigations have revealed irregularities committed in project execution.
Local non-profit organisations – gathered documents, supported and generated information and analysis for campaign and larger awareness and capacity building programmes. These disseminated the analysis through reports, articles, case studies, workshops among the local people. They also helped build the momentum of the campaign with regular media interactions and publication of articles.
Khandwa Municipal Corporation – opposed initiatives of the people and supported the project and the rationale behind implementing it. It supported the private company executing the project and the private consultancy firm that prepared the project, despite the irregularities.
The project was approved at a cost of USD 17.79 million. Of this, USD 17.27 million (97 per cent) is to be spent directly on the project and the remaining USD 0.52 million (3 per cent) is to be spent on the preparation of the project proposal, consultancies and other contingency expenses.
Of the money to be spent on the project, USD 15.54 million will be provided by the KMC to Vishwa Infrastructure and Services Pvt Ltd in the form of a capital subsidy for the build-operate-transfer (BOT) project. The rest of the capital subsidy is a direct grant from the central and state governments to encourage the implementation of the project as a PPP.
Build–operate–transfer (BOT) under a PPP is a form of project execution, wherein a private entity receives a concession from the public sector to design, construct and operate a facility stated in the concession contract. With a PPP in India, the public sector provides the majority of the capital expenditure, guarantees, subsidies and administrative support to the private concessionaire. The private concessionaire recovers its investment, operating and maintenance expenses by running the project and recovering the revenue from the residents.
Since it began, the project cost has grown to USD 19.22 million. The lowest submitted bid for the project was USD 19.22 million as the capital cost and USD 1.27 million per annum as the Operation and Maintenance (O&M) cost at the base water tariff set by VISPL. According to the contract, the water tariff will increase by 10 per cent every third year but can also be increased by the company when there is a shortfall in revenue. The water tariff will be collected by VISPL from local residents.
Of the total USD 19.22 million, the KMC is providing USD 15.54 million as a capital subsidy as mentioned earlier; the remaining USD 3.68 million is to be invested by the private operator. This will be in the form of 25 per cent (USD 0.92 million) as equity and the remaining 75 per cent (USD 2.76 million) as debt, including loans from financial institutions, etc. VISPL has raised a loan for the project from the International Finance Corporation (IFC), a World Bank agency that promotes privatisation.(4)
The estimated internal rate of return (IRR) is 12 per cent. Internal rates of return are commonly used among investors to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project. An investment is considered acceptable if its internal rate of return is greater than an established minimum acceptable rate of return or cost of capital. The price offer submitted by VISPL says that the price of treated water, which will be charged from users, will be used to recover its investment and return, as will operation and maintenance expenses for operating the project.
Domestic water charges have tripled in the town under the cost recovery condition under the UIDSSMT programme and the ongoing privatisation project. When the private company starts supplying water, it is anticipated the water bill will be more than six times the original price. It means a household will have to pay around USD 75 per year instead of the USD 12 (approx.) paid before privatisation. The prices will continue to increase automatically under the new project by at least 10 per cent every third year and there are additional charges for installing a new connection. In this town, unemployment is high, 35 per cent of the population is poor and the average per-capita income is close to USD 380 per year according to an economic survey of the state in 2009 - 2010.
The implementation of the private water project in Khandwa is ongoing, even though it is delayed and the private company has not been able to finish the construction within the specified time period. The construction work on the distribution system is ongoing. However, there are no timelines specified for completion of the project and the resolution of the issues raised by the residents. The project was supposed to start supplying water in two demonstration zones of the town in March 2014 and there have been no updates on this. Meanwhile, local people continue to campaign against the project.
(1)For more details, see Gaurav Dwivedi, Rehmat, Manthan Adhyayan Kendra, Badwani (MP) (August 2011). Private Water Supply Augmentation Project in Khandwa: A Study of Impacts of the Project. Available at: www.manthan-india.org
(2) Orders of the Khandwa Consumer Forum on Privatisation of Water Services. Available:
(3) Report of the Independent Committee of Government of Madhya Pradesh. Available at:
(4) Available at:
Outlook, Not Worth The Parchment? by Lola Nayar, Available at: http://www.outlookindia.com/article/Not-Worth-The-Parchment/286120, June 2013