Privatisation in the Krishna basin is recipe for conflict

Since 1981, Balasaheb Bagwan of Lonand village in Satara district of Maharashtra, advocate, and president of the Khandla Taluka Pani Panchayat has been fighting for the construction of a dam on the Nira river so that Khandala and other neighbouring talukas, all drought prone, can get water for irrigation. The dam, Nira Deoghar, has now been ready for several years, but Balasaheb’s mission is still not complete. The waters still don’t reach the fields, as the government has no money to build the canals. The state government has come up with a solution for this problem, but the solution has increased, rather than decreased the concern of the farmers.

The government has decided to invite private companies to complete the remaining 5 per cent work on the dam, build the canals, invest the required funds, and recover the same from, among others, user charges from farmers. The farmers are worried that this will jack up the water tariffs so high that they won’t be able to pay for it.

Indeed, it is not just the farmers of the area who have cause for concern. With the finances required from the private company being around Rs.1000 crores, the project will be the biggest in the country involving privatisation of water resources, and raises a host of serious issues for the state as well as the country.

The Nira Deoghar Project

The Nira Deoghar project consists of a 59 metres-high and 2320 metres-long dam on the river Nira, located about 90 kms south of Pune near the now displaced Deoghar village. The dam, almost 95 per cent complete since the past several years, has a total storage capacity of 337.3 million cubic meters. The project envisages two canals, a 208 km long right bank canal and a 21 km long left bank canal, along with 4 lift schemes. The project is expected to irrigate a total of 60,580 ha.

The Nira Deoghar Dam. Pic: Shripad Dharmadhikary.

But very little work has been done in building the canals and the waters do not reach the proposed command area. Farmers in the initial reach of the main canal say for one or two years, the water has been released for a short distance of some 10 kms or so. But the farmers there have to use pumps to lift it as branch and distributory canals are not in place. This quantity is very small. So most, in fact nearly all, of the water is released into the river and flows downstream to the Veer dam.

The project submerged 21 villages, displacing over 1000 families, in 2000. A large number of them are still waiting for their resettlement even 7 years after displacement.

The Nira river is a tributary of the Bhima, a part of the Krishna Basin. The project was given administrative clearance by the Government of Maharashtra in 1984 with an approved outlay of Rs.61.5 crores, including dam and canals for an area of 31,214 ha. However, the project was not taken up at that time. By 2000-01, the project cost had gone up to Rs.910 crores.

On 18 September 2007, the Maharashtra Krishna Valley Development Corporation (MKVDC) invited Expressions of Interest from private companies with a net worth more than Rs.810 crores and a turnover more than 400 crore rupees to complete the project on a Build Operate Transfer (BOT) basis.

The premise of privatisation

The reason proffered by the MKVDC for the privatisation of the project is the oft-repeated one – money. MKVDC says that it does not have money to complete the project, which the private companies would bring in. However this superficial logic hides important issues. First of all, it is important to understand how the Government of Maharashtra got into this situation.

The Krishna is an interstate river, and like most such rivers, has been at the centre of bitter disputes between the riparian states of Maharashtra, Karnataka and Andhra Pradesh. In 1976, the Krishna Water Disputes Tribunal Award (Bachhawat Award) allocated 560 TMC (thousand million cubic feet) of the river water to Maharashtra. The rider was that if the state could not establish water use to this extent by year 2000, then the unused water would be made available for re-allocation between the states.

Utilisation was interpreted by the state to mean ‘creating storage’ and ‘storage’ to mean essentially large dams. This of course is conventional wisdom in water resource planning in the country. By the 1996, Maharashtra had been able to create storage of only 385 TMC, and water resource planning for the Krishna basin in the state began to be dominated by the anxiety of losing its share of waters.

Funds were seen to be the main obstacle in creating these storages, and hence in 1996, the state passed the Maharashtra Krishna Valley Development Corporation Act 1996 and incorporated the MKVDC in the same year. The idea was that a corporation could access funds from the market and overcome budgetary constraints. The primary objective of MKVDC was to promote and operate projects to harness the waters of the Krishna Valley rivers to effectively utilise the allocation made by the Bacchawat Award. MKVDC’s mandate was to complete 27 major, 39 medium and 355 minor projects.

MKVDC did manage to raise substantial funds from the market for all its projects - Rs.6,172 crores from bonds, and Rs. 2,259 crores through other loans, water charges, etc. This total of Rs.8,431 crores should be seen in the light of the total expenditure incurred by it until date of Rs.16,834 crores.

However, MKVDC seems to have conveniently ignored the fact that money raised from the market needs to paid back, and that too with interest. So far, the corporation has had to spend about Rs.4,639 crores as interest – that is, over 75 per cent of the money raised from the bonds has gone to just pay the interest. Note that this does not include repayment of the principal. Such was the seriousness of the situation that in 2002, the MKVDC defaulted on its interest payments of Rs.74 crores.

Meanwhile, as the overriding aim was to store as much water as possible, the money was used almost exclusively to create storage – that is, build dams – and not bother about the canals at that stage. As a senior official who did not wish to be named says, “We focused on building the dams as we needed to establish our claim on the Krishna Waters. We thought that we would build the canals later. But when we finished building the dams, we realised that we had no money left to build the canals.”

Thus, investments to the tune of several thousand crore rupees were made that were not yielding any benefits – monetary or in terms of water to farmers - the Nira Deoghar dam being a prime example.

As of April 2007, 20 major, 33 medium, 149 minor and 20 Lift Irrigation Schemes are under construction and MKVDC needed Rs.13,700 crores to complete these remaining works, and more for paying back the market borrowings. It is out of this total sum that Rs.1000 crores are needed for completing Nira Deoghar project. At the same time, priority in budgetary allocations in Maharashtra is now being given to hitherto deprived regions like Vidharbha. Thus, the MKVDC has turned to privatisation.

Implications of privatisation

It appears that MKVDC has not learnt its lessons. Profit is the primary motive of a private company, and if it brings in money into the project, it will want to take back all of it, and more. According to the statement of the Minister for Krishna Valley Development, Ramraje Naik-Nimbalkar given to Saikat Dutta of Outlook, the requirement for completion of project is Rs.1000 crores.

The advertisement issued by the MKVDC says that:

The investment made by the prospective Developer/Consortium is supposed to be recovered from the project through various means, viz., levy of water charges for irrigation and domestic uses, Fisheries development, Tourism activities, etc. associated with the project. The prospective Developer/Consortium can also raise resources through avenues like contract farming through land owners in the command area, as per the Government provisions. There are also prospects of promoting Agro-based Industries, Export promotion, etc.

The first impact of this will be a steep increase in the irrigation tariffs. Even if we ignore operation and maintenance costs, company profits and repayment of loan, the investor still has to recover Rs.100 crores every year just as interest on his investment assuming a 10% cost of capital. If only half of this is to be recovered from irrigation charges, given that the command area is 60,000 ha, this comes to a minimum tariff of Rs.8300 per ha per season. Agitated farmers in Lonand say that such rates will virtually make farming unviable, and it may be better for the farmer to let his land lie fallow than buy waters at such rates. Former sarpanch Narayan Khirsagar said that the area is a drought prone, and agriculture is severely constrained due to lack of water.

A meeting of farmers of the porposed command area of Nira Deoghar project in Lonand. Pic: Shripad Dharmadhikary.

Under such circumstances, why is the government choosing this area for experimentation with privatisation? Even if it wanted to run a pilot project, it should have chosen an area that was in a better position to withstand the tariff increases. Farmers also express apprehension that the private company could force them to grow crops of its choice, and in general try to control the system according to its own interests. Considering that contract farming is one of the options open to the company for recovering its investment, these fears are not unfounded.

The farmers are also concerned about how the company would be accountable to them and that it could even harass them.

Inability to recover money from irrigation tariffs could mean that the company would try to make up by selling water to domestic and industrial users at higher rates. This could imply diversion of water away from irrigation, defeating the purpose of the project. Indeed, this approach is being actively encouraged by the World Bank through the reforms program pushed as conditionality to its Water Sector Improvement loan to the state. The Maharashtra Water Resource Regulatory Authority (MWRRA) constituted under the reforms programs has a specific mandate to develop a market of water entitlements, wherein water rights would be sold to the highest value user. (See article.)

The proposal to allow the company to use fishing rights and tourism development to recover investments implies virtually a full ownership of the dam, reservoir and parts of the river. The company is not likely to allow anyone else to access these as it would claim that such an access would violate its commercial rights. One has to only recollect what has happened in the Sheonath project in Chhatisgarh.

In 2001, Chhatisgarh-based Radius Water Limited was awarded an industrial water supply project by the Madhya Pradesh Audhyogik Kendra Vikas Nigam Limited (MPAKVN or MP Industrial Centre Development Corporation Ltd) on a long term contract on BOT basis. It was to build a dam across Sheonath river, and supply water to the Borai industrial estate near Durg. Since the dam has come up, the villagers who fished in the river, who used the river ghats for bathing, who took water from the river for growing vegetables and small crops and depended on the river for other needs have been prevented from accessing the 23 km long stretch of the river by the company. In event, a community natural resource has been transformed into private property.

Such issues are likely to arise more acutely at Nira Deoghar as it is a much bigger project. This is likely to create intense conflict situations. Already, farmers in the command area are talking about starting organised protests against the project. The possible impacts and potential conflicts are exacerbated by the fact that the government has taken up this privatisation without consulting or even informing the local people – people who are to bear the brunt of the consequences. Farmers say the only information that they had about the privatisation initiative was through newspaper reports.

Larger issues

This project raises some serious issues for Maharashtra as well as for the rest of the country as similar privatisation is being pushed in other parts of the country, giving the same reasons of lack of resources with governments.

The most important issue is whether the privatisation will really bring in new resources. Experience has shown that private firms put only limited resources of their own, and rest are often borrowed from public financial institutions. Can’t the MKVDC also use the same route? If the private company can recover its investment from user charges and other means like tourism development etc. then why can’t MKVDC?

MKVDC could not provide any satisfactory answer to this, but the thinking seems to be that it is possible for a private company to charge higher prices but a government agency can’t do so. This is because the government is supposed to have certain social obligations. This then is the crux of the issue – can such privatisation be possible even while maintaining social obligations? The answer, based on experiences all over the world seems to the in the negative.

One important argument advanced by the farmers of the area in opposing the privatisation is that the company is likely to serve only those who can pay (the high) tariffs, but the government has to think of all including small and marginal farmers.

One of the reasons that the MKVDC does not have funds to undertake its projects is also because it focuses mainly on large dam based projects that are high cost, long gestation period projects. In Maharashtra itself, many people have shown how decentralised watershed management and water harvesting works can effectively address water problems, bring in irrigation, drinking water and agricultural prosperity. If the government had followed this approach, which is significantly less costly than the large dams approach – and with much lesser social and environmental disruptions – it would never have faced a financial crunch. Such projects also allow more local control on resources and more equitable distribution of benefits. Instead, the Government is bent on high cost, centralised schemes like large dams.

Moreover, as Bharat Patankar, senior water activist in Maharashtra and a leading figure in the struggles for equitable distribution of water, points out, irrigation has been under bureaucratic control. Still, where people’s mass organisations are strong, they have been able to insist on an equitable distribution. “However, privatisation will shift the bureaucratic control to private control and will abolish any space for even fighting for equitable distribution."

A review of the current approach is urgently called for – for the financial crunch that it has created, for the social and environmental impacts it has had, and for the highly inequitable distribution of benefits that it is creating. However, the government is aggravating the problems with the move of privatisation.

What is significant is that even this privatisation appears to be an ad hoc attempt rather than a well thought out plan. MKVDC said that they have no plan or scheme of their own for this privatisation. They have not developed any framework of which concessions to offer to the private companies so that they can earn back their investments, what conditions to put so that social obligations are maintained, and how the private company’s working will be monitored and regulated. Instead, they are hoping that the companies will tell them how to do this! MKVDC says that instead of developing any framework, they want the companies that have responded to the advertisement to tell the Government their expectations. The government has not bothered to consult the local people, popular movements or civil society organisations. This means that the privatisation framework will be virtually dictated by the companies.

Given the disastrous experience of privatisation in the water sector all over the world, and that irrigation is a sensitive sector with the economics of agriculture already skewed against the farmer, this lack of preparation is inexplicable. Maharashtra has the rather dubious distinction of seeing several high profile experiments in privatisation of water supply being aborted due to public opposition. Among them are the privatisation of water supply projects for Sangli Miraj towns and Pune city, now abandoned, and the more recent World Bank funded pilot project to privatise water supply in Mumbai’s K-East Ward, which now seems to be on the verge of being quietly buried due to strong protests.

Against this background, to rush in for one more thoughtless experiment of privatisation is a sure recipe for conflicts and disaster.